Q: A company purchases land and a building for a lump sum of €2,700,000. The land is appraised at €1,000,000 and the building at €2,000,000. What amount should be allocated to the building using the relative-sales-value method?

$$\frac{2,000,000}{3,000,000} \times 2,700,000 = 1,800,000$$

Q: Using the units-of-production method, what is the depreciation expense for a truck that drove 30,000 miles in a year, given a depreciable cost of €40,000 and a total expected usage of 100,000 miles?

$$\frac{40,000}{100,000} \times 30,000 = 12,000$$

Q: What is the double-declining-balance (DDB) depreciation rate for an asset with a 5-year useful life?

$$\frac{1}{5} \times 2 = 40\%$$

Question 1

Which of the following costs should NOT be included in the initial cost of land when recording Property, Plant, and Equipment (PPE)?

Accepted Answer

Cost to pave the parking lot

Question 2

A company purchases land and a building for a lump sum of €2,700,000. The land is appraised at €1,000,000 and the building at €2,000,000. What amount should be allocated to the building using the relative-sales-value method?

Accepted Answer

$$\frac{2,000,000}{3,000,000} 	imes 2,700,000 = 1,800,000$$

Question 3

Which of the following is a capital expenditure and should be capitalized rather than expensed immediately?

Accepted Answer

Major engine overhaul that extends the truck's useful life

Question 4

Which depreciation method is most appropriate for an asset that generates more revenue in the early years of its useful life?

Accepted Answer

Double-declining-balance method

Question 5

A truck was purchased for €41,000 with an estimated residual value of €1,000 and a useful life of 5 years. What is the annual depreciation expense using the straight-line method?

Accepted Answer

$$\frac{41,000 - 1,000}{5} = 8,000$$

Question 6

Using the units-of-production method, what is the depreciation expense for a truck that drove 30,000 miles in a year, given a depreciable cost of €40,000 and a total expected usage of 100,000 miles?

Accepted Answer

$$\frac{40,000}{100,000} 	imes 30,000 = 12,000$$

Question 7

What is the double-declining-balance (DDB) depreciation rate for an asset with a 5-year useful life?

Accepted Answer

$$\frac{1}{5} 	imes 2 = 40\%$$

Question 8

A machine with a cost of $$60,000 and accumulated depreciation of 60$$,000 is disposed of for no proceeds. What is the correct journal entry?

Accepted Answer

Debit Accumulated Depreciation—Machinery $$60,000; Credit Machinery 60$$,000

Question 9

Which of the following statements about depreciation is TRUE?

Accepted Answer

Depreciation allocates the cost of an asset over its useful life.

Question 10

A company sells equipment for $$7,300. The equipment originally cost 10$$,000 and has accumulated depreciation of $3,750. What is the gain or loss on the sale?

Accepted Answer

$$7,300 - (10,000 - 3,750) = 1,050$$ gain

Question 11

Which of the following is NOT a related expense account for plant assets?

Accepted Answer

Amortization Expense

Question 12

If a company spends money to add a new wing to its office building, how should this expenditure be treated?

Accepted Answer

As a capital expenditure, added to the asset account

Question 13

Which depreciation method would result in the highest depreciation expense in the first year for an asset with a 5-year useful life?

Accepted Answer

Double-declining-balance method

Question 14

A company purchases equipment for $$50,000, expects to use it for 10 years, and estimates a residual value of 5$$,000. What is the book value at the end of year 3 using straight-line depreciation?

Accepted Answer

$$50,000 - ((50,000 - 5,000)/10) 	imes 3 = 50,000 - 13,500 = 36,500$$

Question 15

Which of the following is the correct formula for book value of a plant asset?

Accepted Answer

$$	ext{Book Value} = 	ext{Cost} - 	ext{Accumulated Depreciation}$$

Question 16

Which of the following best describes the units-of-production depreciation method?

Accepted Answer

Depreciation is based on actual usage or output of the asset.

Question 17

A company disposes of equipment with a cost of $$60,000 and accumulated depreciation of 50$$,000 for no proceeds. What is the journal entry to record the disposal?

Accepted Answer

Debit Accumulated Depreciation—Equipment $$50,000; Debit Loss on Disposal 10$$,000; Credit Equipment $60,000

Long-Lived Assets: Recognition, Depreciation, and Disposal

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