Question Details

CHAPTER 10 PART 8  PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS

121. Larime Company purchased equipment for $40,000 on January 1, 2007, and will use the
double-declining-balance method of depreciation. It is estimated that the equipment will
have a 5-year life and a $2,000 salvage value at the end of its useful life. The amount of
depreciation expense recognized in the year 2009 will be
a. $5,760.
b. $9,120.
c. $9,600.
d. $5,472.
122. Interline Trucking purchased a tractor trailer for $98,000. Interline uses the units-of-activity
method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its
12-year useful life. Salvage value is estimated to be $14,000. If the truck is driven 90,000
miles in its first year, how much depreciation expense should Interline record?
a. $7,000
b. $8,820
c. $7,560
d. $8,167
123. An asset was purchased for $150,000. It had an estimated salvage value of $30,000 and
an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is
revised to $24,000 but the estimated useful life is unchanged. Assuming straight-line
depreciation, depreciation expense in year 6 would be
a. $18,000.
b. $13,200.
c. $9,000.
d. $12,600.
Plant Assets, Natural Resources, and Intangible Assets 10 - 19
124. Equipment costing $30,000 with a salvage value of $6,000 and an estimated life of 8
years has been depreciated using the straight-line method for 2 years. Assuming a
revised estimated total life of 5 years and no change in the salvage value, the depreciation
expense for year 3 would be
a. $3,600.
b. $8,000.
c. $6,000.
d. $4,800.
125. Joe's Quik Shop bought machinery for $25,000 on January 1, 2008. Joe estimated the
useful life to be 5 years with no salvage value, and the straight-line method of depreciation
will be used. On January 1, 2009, Joe decides that the business will use the machinery for
a total of 6 years. What is the revised depreciation expense for 2009?
a. $4,000
b. $2,000
c. $3,333
d $5,000
126. Each of the following is used in computing revised annual depreciation for a change in
estimate except
a. book value.
b. cost.
c. depreciable cost.
d. remaining useful life.
127. A change in the estimated useful life of equipment requires
a. a retroactive change in the amount of periodic depreciation recognized in previous
years.
b. that no change be made in the periodic depreciation so that depreciation amounts are
comparable over the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and in future
years.
d. that income for the current year be increased.
128. Hunt Company has decided to change the estimate of the useful life of an asset that has
been in service for 2 years. Which of the following statements describes the proper way to
revise a useful life estimate?
a. Revisions in useful life are permitted if approved by the IRS.
b. Retroactive changes must be made to correct previously recorded depreciation.
c. Only future years will be affected by the revision.
d. Both current and future years will be affected by the revision.
129. Jim's Copy Shop bought equipment for $90,000 on January 1, 2007. Jim estimated the
useful life to be 3 years with no salvage value, and the straight-line method of depreciation
will be used. On January 1, 2008, Jim decides that the business will use the equipment for
5 years. What is the revised depreciation expense for 2008?
a. $30,000
b. $12,000
c. $15,000
d. $22,500
10 - 20 Test Bank for Accounting Principles, Eighth Edition
130. Costs incurred to increase the operating efficiency or useful life of a plant asset are
referred to as
a. capital expenditures.
b. expense expenditures.
c. ordinary repairs.
d. revenue expenditures.
131. Expenditures that maintain the operating efficiency and expected productive life of a plant
asset are generally
a. expensed when incurred.
b. capitalized as a part of the cost of the asset.
c. debited to the Accumulated Depreciation account.
d. not recorded until they become material in amount.
132. Which of the following is not true of ordinary repairs?
a. They primarily benefit the current accounting period.
b. They can be referred to as revenue expenditures.
c. They maintain the expected productive life of the asset.
d. They increase the productive capacity of the asset.
133. The paneling of the body of an open pickup truck would be classified as a(n)
a. revenue expenditure.
b. addition.
c. improvement.
d. ordinary repair.
134. Additions and improvements
a. occur frequently during the ownership of a plant asset.
b. normally involve immaterial expenditures.
c. increase the book value of plant assets when incurred.
d. typically only benefit the current accounting period.
135. If a plant asset is retired before it is fully depreciated and no salvage value is received,
a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. either a gain or a loss can occur.
d. neither a gain nor a loss occurs.
136. A gain or loss on disposal of a plant asset is determined by comparing the
a. replacement cost of the asset with the asset's original cost.
b. book value of the asset with the asset's original cost.
c. original cost of the asset with the proceeds received from its sale.
d. book value of the asset with the proceeds received from its sale.
137. The book value of a plant asset is the difference between the
a. replacement cost of the asset and its historical cost.
b. cost of the asset and the amount of depreciation expense for the year.
c. cost of the asset and the accumulated depreciation to date.
d. proceeds received from the sale of the asset and its original cost.
Plant Assets, Natural Resources, and Intangible Assets 10 - 21
138. If a plant asset is sold before it is fully depreciated,
a. only a gain on disposal can occur.
b. only a loss on disposal can occur.
c. either a gain or a loss can occur.
d. neither a gain nor a loss can occur.
139. If a plant asset is retired before it is fully depreciated, and the salvage value received is
less than the asset's book value,
a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. there is no gain or loss on disposal.
d. additional depreciation expense must be recorded.
140 A company sells a plant asset which originally cost $180,000 for $60,000 on December 31,
2008. The Accumulated Depreciation account had a balance of $72,000 after the current
year's depreciation of $18,000 had been recorded. The company should recognize a
a. $120,000 loss on disposal.
b. $48,000 gain on disposal.
c. $48,000 loss on disposal.
d. $30,000 loss on disposal.