Q: A company changes the estimated useful life of a truck after two years of use. Which formula should be used to calculate revised annual depreciation?

$$\text{Revised depreciation} = \frac{\text{Book value} - \text{Revised residual value}}{\text{Revised useful life remaining}}$$

Q: What is the formula for the asset turnover ratio?

$$\text{Asset turnover ratio} = \frac{\text{Net sales}}{\text{Average total assets}}$$

Question 1

Which of the following costs should NOT be included in the capitalized cost of land when purchased for business use?

Accepted Answer

Fencing

Question 2

A company purchases land and a building in a lump-sum transaction for $$120,000. The land's appraised value is 30$$,000 and the building's is $90,000. What is the assigned cost of the land using the relative-market-value method?

Accepted Answer

$25,000

Question 3

Which of the following expenditures is classified as a capital expenditure?

Accepted Answer

Rebuilding the engine of a five-year-old truck

Question 4

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

Accepted Answer

$8,000

Question 5

Which depreciation method best matches expenses with revenues when asset usage varies significantly from year to year?

Accepted Answer

Units-of-production method

Question 6

A company extracts 3,000 barrels from an oil well that cost $700,000 and holds 70,000 barrels. What is the depletion expense for the year?

Accepted Answer

$30,000

Question 7

Which of the following statements about the double-declining-balance method is TRUE?

Accepted Answer

It applies twice the straight-line rate to the asset's book value.

Question 8

A company changes the estimated useful life of a truck after two years of use. Which formula should be used to calculate revised annual depreciation?

Accepted Answer

$$	ext{Revised depreciation} = \frac{	ext{Book value} - 	ext{Revised residual value}}{	ext{Revised useful life remaining}}$$

Question 9

When a plant asset is sold for more than its book value, how is the gain recorded?

Accepted Answer

As a credit to Gain on Sale of Asset

Question 10

Which of the following is NOT an intangible asset?

Accepted Answer

Land

Question 11

A patent is acquired for $200,000 and has a useful life of 5 years. What is the annual amortization expense?

Accepted Answer

$40,000

Question 12

Which statement about goodwill is correct?

Accepted Answer

Goodwill is not amortized and is only recorded when a company acquires another company for more than the fair value of net assets.

Question 13

What is the formula for the asset turnover ratio?

Accepted Answer

$$	ext{Asset turnover ratio} = \frac{	ext{Net sales}}{	ext{Average total assets}}$$

Question 14

Which of the following is TRUE regarding the reporting of property, plant, and equipment on the balance sheet?

Accepted Answer

They are reported at book value (cost minus accumulated depreciation).

Question 15

A company exchanges used equipment (historical cost $$10,000, accumulated depreciation 9$$,000) and $$2,000 cash for new equipment valued at 8$$,000. What is the gain or loss recognized?

Accepted Answer

Gain of $1,000

Question 16

Which of the following is a characteristic of the Modified Accelerated Cost Recovery System (MACRS) used for tax purposes?

Accepted Answer

Assets are divided into specific classes with IRS-specified lives.

Question 17

If a company purchases a truck on July 1, which convention is used to record partial-year depreciation?

Accepted Answer

Modified half-month convention

Question 18

Which account is credited when recording the annual amortization of a patent?

Accepted Answer

Patent

Question 19

A company discards equipment with a cost of $$10,000 and accumulated depreciation of 8$$,000. If annual depreciation is $1,000 and the asset is discarded on July 1, what is the loss on disposal?

Accepted Answer

$1,500

Question 20

Which of the following is TRUE about land improvements?

Accepted Answer

They are separate assets and are depreciated.

Plant Assets, Natural Resources, and Intangibles – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards