Q: A company purchases equipment with a list price of $$50,000. The company receives a 5% discount for early payment, pays 1$$,500 for freight, $$2,000 for installation, and 500 $$for repairs due to damage during installation. What is the historical cost of the equipment to be capitalized?

$$50,000 - (0.05 \times 50,000) + 1,500 + 2,000 = 50$$,250

Q: A company uses the double-declining balance method to depreciate equipment with a historical cost of $$40,000, a useful life of 8 years, and a salvage value of 4$$,000. What is the depreciation expense for the first year?

$$40,000 \times \frac{2}{8} = 10$$,000

Q: A company purchases land, building, and equipment for $$450,000. The appraised values are: Land 100$$,000, Building $$350,000, Equipment 50$$,000. What amount should be allocated to the equipment?

$$450,000 \times \frac{50,000}{500,000} = 45$$,000

Q: Which of the following is the correct formula for calculating the book value of a fixed asset?

$$\text{Book Value} = \text{Historical Cost} - \text{Accumulated Depreciation}$$

Question 1

Which of the following costs should NOT be included in the historical cost of land when preparing it for use as a company office site?

Accepted Answer

Cost of installing fencing around the property

Question 2

A company purchases equipment with a list price of $$50,000. The company receives a 5% discount for early payment, pays 1$$,500 for freight, $$2,000 for installation, and 500 $$for repairs due to damage during installation. What is the historical cost of the equipment to be capitalized?

Accepted Answer

$$50,000 - (0.05 	imes 50,000) + 1,500 + 2,000 = 50$$,250

Question 3

Which of the following expenditures related to a delivery truck should be capitalized rather than expensed immediately?

Accepted Answer

Major engine overhaul that extends the truck's useful life

Question 4

A company purchases land and a building for a lump-sum price of $$600,000. The appraised values are 150$$,000 for the land and $450,000 for the building. What amount should be allocated to the building?

Accepted Answer

Question 5

A machine was purchased for $$120,000 with an estimated salvage value of 20$$,000 and a useful life of 5 years. Using the straight-line method, what is the annual depreciation expense?

Accepted Answer

$$120,000 - 20$$,000 = $$100,000; 100$$,000 / 5 = $20,000

Question 6

A company uses the double-declining balance method to depreciate equipment with a historical cost of $$40,000, a useful life of 8 years, and a salvage value of 4$$,000. What is the depreciation expense for the first year?

Accepted Answer

$$40,000 	imes \frac{2}{8} = 10$$,000

Question 7

A company purchased machinery for $$200,000 with an estimated salvage value of 15$$,000 and expects to use it for 50,000 hours. If the machine is used for 2,000 hours in the first year, what is the depreciation expense for that year using the units-of-production method?

Accepted Answer

Depreciable base: $$200,000 - 15$$,000 = $$185,000; Depreciation rate per hour: 185$$,000 / 50,000 = $$3.70; Expense: 3.70$$ 	imes 2,000 = $7,400

Question 8

On June 30, a company sells equipment with a historical cost of $$50,000 and accumulated depreciation of 35$$,000 for $18,000. What is the gain or loss on the sale?

Accepted Answer

Gain of $3,000

Question 9

Which of the following statements about the accounting for natural resources is CORRECT?

Accepted Answer

Depletion transfers the cost of the natural resource to inventory as it is physically consumed.

Question 10

A company acquires a patent for $50,000 with a legal life of 20 years and a useful life of 10 years. What is the annual amortization expense using the straight-line method?

Accepted Answer

$$50,000 / 10 = 5$$,000

Question 11

Which of the following intangible assets is NOT amortized but instead tested annually for impairment?

Accepted Answer

Goodwill

Question 12

A company purchases land, building, and equipment for $$450,000. The appraised values are: Land 100$$,000, Building $$350,000, Equipment 50$$,000. What amount should be allocated to the equipment?

Accepted Answer

$$450,000 	imes \frac{50,000}{500,000} = 45$$,000

Question 13

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

Accepted Answer

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

Question 14

Which of the following statements about research and development (R&D) costs is TRUE under U.S. GAAP?

Accepted Answer

R&D costs are expensed as incurred.

Question 15

A company acquires another business for $$500,000. The fair value of the acquired company's net identifiable assets is 420$$,000. What amount of goodwill should be recorded?

Accepted Answer

$80,000

Question 16

Which of the following best describes the purpose of depreciation?

Accepted Answer

To allocate the historical cost of a long-term asset over its useful life

Question 17

A company purchased a truck for $$85,000 with a salvage value of 5$$,000 and a useful life of 5 years. Using the double-declining balance method, what is the depreciation rate?

Accepted Answer

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

Question 18

Which of the following is NOT a characteristic of a capital expenditure?

Accepted Answer

It is expensed immediately in the period incurred

Question 19

A company extracts 100,000 tons of iron ore from a mine with a total cost of $$2,500,000 and an estimated residual value of 400$$,000. The mine is expected to yield 1,000,000 tons. What is the depletion expense for the year?

Accepted Answer

($$2,500,000 - 400$$,000) / 1,000,000 = $$2.10 per ton; 2.10$$ 	imes 100,000 = $210,000

Plant Assets, Natural Resources, and Intangibles: Accounting for Long-Term Assets

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