Q: Which formula correctly calculates annual straight-line depreciation expense?

$$\frac{\text{Cost} - \text{Residual value}}{\text{Useful life in years}}$$

Question 1

Which of the following costs should NOT be included in the initial cost of land acquired for a new warehouse site?

Accepted Answer

Cost to pave the parking lot for the warehouse

Question 2

FedEx purchases land and a building for a lump-sum price of $$2,800,000. The land's appraised market value is 300$$,000 and the building's is $2,700,000. What is the cost assigned to the land using the relative-sales-value method?

Accepted Answer

$280,000

Question 3

Which of the following is a capital expenditure for a delivery truck?

Accepted Answer

Addition of storage capacity to the truck

Question 4

A company purchases equipment for $$50,000, pays 2$$,000 for transportation, $$1,000 for installation, and receives a 3$$,000 discount. What is the total cost of the equipment recorded on the books?

Accepted Answer

$$50,000 - 3$$,000 + $$2,000 + 1$$,000 = $50,000

Question 5

Which of the following assets is NOT depreciated?

Accepted Answer

Land

Question 6

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

Accepted Answer

$8,000

Question 7

UPS purchases a warehouse for $$500,000 on April 1. The estimated residual value is 80$$,000 and useful life is 20 years. What is the depreciation expense for the first year (April to December)?

Accepted Answer

$15,750

Question 8

After 7 years of straight-line depreciation, Arcadia HS changes the useful life of equipment from 10 to 15 years and the residual value from $$10,000 to 5$$,000. The equipment cost $$510,000 and accumulated depreciation is 350$$,000. What is the new annual depreciation expense for the remaining life?

Accepted Answer

$19,375

Question 9

When disposing of a fully depreciated asset with zero residual value and no proceeds, what is the correct journal entry?

Accepted Answer

Debit Accumulated Depreciation, Credit Asset

Question 10

FedEx sells equipment for $$7,300 cash. The equipment cost 10$$,000, has been depreciated straight-line over 10 years, and has no residual value. After 3.75 years, what is the book value and gain/loss on sale?

Accepted Answer

Book value: $$6,250; Gain: 1$$,050

Question 11

Which of the following is TRUE regarding the accounting for intangible assets with finite lives?

Accepted Answer

They are amortized using the straight-line method

Question 12

Goodwill is recorded on the balance sheet only when:

Accepted Answer

An entire company is purchased for more than the market value of its net assets

Question 13

A company purchases land, building, and equipment for $$120,000. The market values are 40$$,000, $$95,000, and 15$$,000, respectively. What is the cost assigned to the building?

Accepted Answer

$76,000

Question 14

Which of the following statements about depreciation is CORRECT?

Accepted Answer

Depreciation allocates the cost of an asset to expense over its useful life

Question 15

Which of the following is NOT a cost included in the acquisition of equipment?

Accepted Answer

Routine maintenance after installation

Question 16

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

Accepted Answer

As a gain on sale of asset

Question 17

Which formula correctly calculates annual straight-line depreciation expense?

Accepted Answer

$$\frac{	ext{Cost} - 	ext{Residual value}}{	ext{Useful life in years}}$$

Question 18

Which of the following is TRUE about asset impairment?

Accepted Answer

Impairment occurs when expected future cash flows are less than the asset's book value

Question 19

A patent is acquired for $170,000 and is expected to have a useful life of 5 years. What is the annual amortization expense?

Accepted Answer

$34,000

Question 20

Which of the following is the correct journal entry to record the purchase of land for $$324,000, with 300$$,000 paid via note payable and $24,000 in cash?

Accepted Answer

Debit Land $$324,000; Credit Notes Payable 300$$,000; Credit Cash $24,000

Plant Assets, Natural Resources, & Intangibles: Measurement, Depreciation, and Disposal

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