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# Accounting Chapter 7

### End-of-Chapter Quiz Questions

Bartman, Inc., purchased a tract of land, a small office building, and some equipment for \$1,900,000. The appraised value of the land was \$1,380,000, the building \$575,000, and the equipment \$345,000. What was the cost of the land? \$1,140,000 {[\$1,380/(\$1,380 + \$575 + \$345)] x \$1,900 = \$1,140}
True or False. Depreciation is a process of allocating the cost of a plant asset over its useful life. True
True or False. Depreciation is based on the matching principle because it matches the cost of the asset with the revenue generated over the asset's useful life. True
True or False. The cost of a plant asset minus the accumulated depreciation equals the asset's book value. True
True or False. Depreciation creates a fund to replace the asset at the end of its useful life. False
On July 1, 2010, Horizon Com. purchased a new piece of equipment that cost \$45,000. The estimated useful life is 10 yrs and estimated residual value is \$5,000. What is the depreciation expense for 2010 if Horizon uses the straight-line method? \$2,000 (\$45,000 - \$5,000)/10 x 6/12 = \$2,000)
Assume Horizon purchased the equipment on Jan. 1, 2010. If Horizon uses the straight-line method for depreciation, what is the asset's book value at the end of 2011? \$37,000 [(\$45,000 - \$5,000)/10 x 2 = \$8,000; \$45,000 = \$8,000 = \$37,000]
Assume Horizon purchased the equipment on Jan. 1, 2010. If Horizon uses the double-declining-balance method, what is depreciation for 2011? \$7,200 [\$45,000 x .2 = \$9,000; (\$45,000 - \$9,000) x .2 = \$7,200]
Return to Horizon's original purchase date. Assume that Horizon uses the straight-line method of depreciation and sells the equip. for \$36,500 on July 1, 2014. The result of the sale of the equip. is a gain(loss) of? \$7,500 [(\$45,000 - \$5,000)/5 x 4 = \$16,000; \$45,000 - \$16,000 = \$29,000; \$36,500 - \$29,000 = gain of \$7,500]
A company bought a new machine for \$24,000 on Jan. 1. The machine is expected to last 5 yrs and have a residual value of \$4,000. If the company uses the double-declining-balance method, accumulated depreciation at the end of year 2 will be: \$15,360 [\$24,000 x 2/5 = \$9,600; (\$24,000 - \$9,600) x 2/5 = \$5,760; \$9,600 + \$5,760 = \$15,360]
True or False. The addition of a building wing is a capital expenditure. True
True or False. A tune-up of a company vehicle is a capital expenditure. False
True or False. A complete overhaul of an a/c system is a capital expenditure. True
True or False. Replacement of an old motor with a new one in a piece of equipment is a capital expenditure. True
True or False. The cost of installing a piece of equipment is a capital expenditure. True
True or False. Land improvements is not subject to a decreasing book value through depreciation, depletion, or amortization. False
True or False. Goodwill is not subject to a decreasing book value through depreciation, depletion, or amortization. True
True or False. Intangibles are not subject to a decreasing book value through depreciation, depletion, or amortization. False
True or False. Natural resources are not subject to a decreasing book value through depreciation, depletion, or amortization. False
Why would a business select an accelerated method of depreciation for tax purposes? Accelerated depreciation generates higher depreciation expense immediately, and therefore lowers tax payments in the early years of the asset's life
A company purchased an oil well for \$270,000. It estimates that the well contains 90,000 bbls, has an 8 year life, and no salvage value. If the company extracts and sells 10,000 bbls of oil in the 1st year, how much depletion expense should be recorded? \$30,000 [\$270,000 x (3,000/90,000) = \$30,000]
True or False. A copyright is an intangible asset. True
True or False. A patent is an intangible asset. True
True or False. A trademark is an intangible asset. True
True or False. Goodwill is an intangible asset. True
Created by: 1482116593

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