End-of-Chapter Quiz Questions
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| 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}
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| True or False. Depreciation is a process of allocating the cost of a plant asset over its useful life. | True
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| 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
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| True or False. The cost of a plant asset minus the accumulated depreciation equals the asset's book value. | True
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| True or False. Depreciation creates a fund to replace the asset at the end of its useful life. | False
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| 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)
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| 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]
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| 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]
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| 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]
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| 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]
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| True or False. The addition of a building wing is a capital expenditure. | True
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| True or False. A tune-up of a company vehicle is a capital expenditure. | False
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| True or False. A complete overhaul of an a/c system is a capital expenditure. | True
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| True or False. Replacement of an old motor with a new one in a piece of equipment is a capital expenditure. | True
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| True or False. The cost of installing a piece of equipment is a capital expenditure. | True
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| True or False. Land improvements is not subject to a decreasing book value through depreciation, depletion, or amortization. | False
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| True or False. Goodwill is not subject to a decreasing book value through depreciation, depletion, or amortization. | True
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| True or False. Intangibles are not subject to a decreasing book value through depreciation, depletion, or amortization. | False
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| True or False. Natural resources are not subject to a decreasing book value through depreciation, depletion, or amortization. | False
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| 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
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| 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]
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| True or False. A copyright is an intangible asset. | True
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| True or False. A patent is an intangible asset. | True
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| True or False. A trademark is an intangible asset. | True
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| True or False. Goodwill is an intangible asset. | True
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