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| 1 | |
What is the relationship between leaseholds and leasehold improvements? |
| | A) | Both of them are tangible assets. |
| | B) | Both of them may be depreciated. |
| | C) | Leasehold improvements are amortized but leaseholds are depreciated. |
| | D) | Leasehold improvements are tangible in nature but leaseholds are intangible in nature. |
| | E) | None of the above statements accurately describe the relationship between leaseholds and leasehold improvements. |
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| 2 | |
A large newspaper publisher decides to buy a large printing press. This press is so large that it will occupy one-half of a city block when it is fully assembled. The company pays $1,000,000 for the press, $20,000 to have it trucked to its permanent location, and $30,000 to have it assembled and test run. All three of these amounts are debited to the Machinery account. As it applies to any fixed asset, this procedure is an application of which of the following principles? |
| | A) | Monetary unit principle. |
| | B) | Going-concern principle. |
| | C) | Business Entity principle. |
| | D) | Cost principle. |
| | E) | Full-disclosure principle. |
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| 3 | |
A company has purchased a parcel of land on which a small dilapidated building has been situated for years. The purpose of the purchase is to tear down the building to make the land suitable to build a new warehouse. Which of the following costs incurred is not part of the cost of the building? |
| | A) | The cost of obtaining a building permit. |
| | B) | The cost of installing temporary electric service on the site so the construction crews have access to electricity to operate their tools. |
| | C) | The cost of tearing down the old building. |
| | D) | The cost of materials for building the new building. |
| | E) | The cost of erecting temporary walkways around the site for use by the public. |
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| 4 | |
A company buys a parcel of land on which are erected two buildings. The first building is a 100,000 square-foot warehouse and the second building is a 25,000 square-foot garage and maintenance building. The respective fair market values for the land, the warehouse, and the garage are $125,000, $200,000, and $75,000. The company paid $210,000 for all three assets. What amounts should be allocated to the land and the garage? Round your answers to the nearest whole number. |
| | A) | $100,000 and $ 50,000. |
| | B) | $ 70,000 and $105,000. |
| | C) | $ 65,100 and $ 39,900. |
| | D) | $105,000 and $ 35,000. |
| | E) | None of the above. |
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| 5 | |
A company buys an automobile for use in the business. The car's manufacturer says that with proper maintenance the car should last 15 years before it has to be scrapped. A popular newsstand magazine has conducted a survey which says that most people who own this car trade it in on a new car after 6 years. If the company leased this car, the standard industry lease period is 4 years. The company has a policy of replacing its cars every 3 years. Which number represents the estimated useful life of the vehicle for depreciation purposes? |
| | A) | 15 years. |
| | B) | 6 years. |
| | C) | 3 years. |
| | D) | 4 years. |
| | E) | Some other number not listed above. |
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| 6 | |
What is the primary financial accounting purpose that underlies the recording of depreciation expense? |
| | A) | To record the decline in the asset's market value. |
| | B) | To record the asset's physical deterioration. |
| | C) | To assign a largely arbitrary amount of the asset's depreciable cost to depreciation expense just so the matching principle may be satisfied. |
| | D) | To assign an amount of the asset's cost to depreciation expense in the accounting periods benefiting from its use based on a logically defensible rationale so as to satisfy the matching principle. |
| | E) | None of the above. |
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| 7 | |
A machine has a purchase price of $100,000 with an estimated salvage value of $10,000 and an estimated useful life of 10 years. What is the machine's book value at the end of three full years if the straight-line method is used? |
| | A) | $73,000. |
| | B) | $90,000. |
| | C) | $84,000. |
| | D) | $67,000. |
| | E) | None of the above. |
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| 8 | |
An asset has an estimated useful life of 5 years. What are the straight-line rate of depreciation and the double-declining balance rate of depreciation for this asset? |
| | A) | 5% and 10%. |
| | B) | 10% and 20%. |
| | C) | 20% and 50%. |
| | D) | 20% and 40%. |
| | E) | None of the above. |
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| 9 | |
Which of the following should be charged to the Land account? |
| | A) | Fences and sidewalks. |
| | B) | The cost of purchasing and planting apple trees to be used as an income-producing orchard. |
| | C) | Cost of a sprinkler system. |
| | D) | Parking lot resurfacing. |
| | E) | Cost of assessments for public roadways, sewers, and sidewalks. |
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| 10 | |
Which depreciation method or methods take the salvage value of the asset into consideration when computing the annual amount of depreciation expense? |
| | A) | Straight-line. |
| | B) | Units of Production. |
| | C) | Declining Balance. |
| | D) | A and C. |
| | E) | A and B. |
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| 11 | |
An asset having an eight-year service life and a salvage value of $14,000 was acquired for $142,000 cash on April 5. Using straight-line depreciation, what will be the depreciation expense at the end of the first year and for the entire second year? The accounting period ends on December 31st. |
| | A) | $12,000 and $16,000. |
| | B) | $24,000 and $16,000. |
| | C) | $16,000 and $16,000. |
| | D) | $20,000 and $16,000. |
| | E) | None of the above |
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| 12 | |
If an asset is purchased on the 19th of a month, when should the firm begin depreciating that asset if they use the partial-year depreciation procedures available to them? |
| | A) | The firm should start depreciating the asset at the beginning of the year in which the asset was purchased. |
| | B) | The firm should start depreciating the asset at the beginning of the month in which the asset was purchased. |
| | C) | The firm should start depreciating the asset at the beginning of the month after purchase. |
| | D) | The firm should start depreciating the asset at the beginning of the year after the asset was purchased. |
| | E) | None of the above. |
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| 13 | |
A piece of equipment with a cost of $710,000 and accumulated depreciation of $641,000 was sold for $57,000. The journal entry to record the sale of this equipment would include all except which of the following? |
| | A) | Loss on Disposal of Equipment, debit, $12,000. |
| | B) | Gain on Disposal of Assets, credit, $12,000. |
| | C) | Equipment, credit, $710,000. |
| | D) | Cash, debit, $57,000. |
| | E) | Accumulated Depreciation, Equipment, debit, $641,000. |
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| 14 | |
The Ophir Mining Company acquired an iron ore deposit for $6,000,000. The company's geologist estimated the deposit to contain 7,500,000 tons of iron ore. At the end of the first year, 900,000 tons had been extracted. The end-of-year journal entry to record the depletion of the iron ore would require which of the following? |
| | A) | A credit to Iron Ore Deposit of $900,000. |
| | B) | A debit to Depletion Expense of $900,000. |
| | C) | A credit to Accumulated Depletion of $720,000. |
| | D) | A debit to Accumulated Depletion of $720,000. |
| | E) | None of the following. |
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| 15 | |
Concerning U.S. GAAP and IFRS, which one of the following statements is true? |
| | A) | IFRSs permit revaluation of plant assets to market value if market value is reliably determined. |
| | B) | IFRSs are similar to U.S. GAAP and use the historical cost of plant assets on the balance sheet. |
| | C) | IFRSs do not permit an annual review of useful life estimates. |
| | D) | IFRSs do not permit an annual review of salvage value estimates. |
| | E) | U.S. GAAP and IFRSs are similar in all estimates. |
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