1. Which of the following statements are true?
i. All assets have a limited useful life
ii. Net Book Value 5 Cost 2 Accumulated Depreciation
a. i only
b. ii only
c. Both i and ii
d. Neither i nor ii
2. A change in the estimate of the useful life of a fixed asset affects:
a. depreciation expense of the prior years.
b. the current total in the accumulated depreciation account.
c. depreciation expense in the period of the change and all future periods.
d. depreciation expense in past, current, and future periods.
3. An expenditure that extends the useful life of a fixed asset should be:
a. expensed in the period in which it was incurred.
b. capitalized and depreciated over the remaining useful life of the asset.
c. recorded in the repairs and maintenance account.
d. ignored.
4. An expenditure that maintains the useful life of a fixed asset should be:
a. expensed in the period in which it was incurred.
b. capitalized and depreciated over the remaining useful life of the asset.
c. added to the historical cost of the asset.
d. ignored.
5. A fixed asset has a historical cost of $20,000, a net book value of $12,000, and a salvage value of $2,500. What is the gain (loss) on the disposal of the fixed asset if it is sold for $15,000?
a. $5,000 loss
b. $3,000 gain
c. $12,500 gain
d. $15,000 gain
6. Which of the following statements is false?
a. The impairment of a fixed asset is an application of conservatism
b. When an asset is considered impaired, its book value must be reduced to its fair market value
c. Impairment of a fixed asset results in a gain on the income statement
d. An asset is considered impaired if its market value is materially below its net book value and the difference is considered permanent
7. The following account totals appear in the general ledger of the Boston Company:
Equipment ......... $12,000
Accumulated Depreciation.... $ 4,500
If the equipment is sold to an outside party for $5,500, what amount of gain (loss) will the Boston Company record on the disposal of the equipment?
a. $2,000 loss
b. $1,000 gain
c. $2,500 gain
d. $4,000 gain
8. Horizontal analysis of fixed assets:
a. calculates fixed assets as a percentage of total assets.
b. calculates depreciation expense as a percentage of revenues.
c. calculates the change in fixed assets as a percentage of the prior year's fixed assets balance.
d. both "a" and "b" are correct.