Chapter 9 - Capital Assets

q1: At the date of acquisition, depreciable base, also called amortizable amount, equals

a. asset cost minus estimated residual value

b. asset cost plus salvage value

c. asset cost minus accumulated depreciation

d. asset cost minus depreciation expense

e. None of the other alternatives are correct

q2: On May 1, 2015, Casico Toy Inc. purchased a new piece of equipment that cost $52,000. The estimated useful life is five years and the estimated residual value is $ 4,000. During the five years of useful life the equipment is expected to produce 20,000 units.

Assume that the equipment was purchased on May 1st, 2015. In 2015 the equipment produced 3,500 units. If the company uses the units of output method of depreciation, what is the depreciation expense for the year ended December 31st, 2015?

a. $ 7,200

b. $ 8,400

c. None of the other alternatives are correct

d. $ 6,400

e. $ 9,500

q3: ABC Inc. agrees with Home Renovations Inc. to pay $30,000 in five years for a lawnmower. Interest rates are 8% compounded semi-annually. How much should ABC Inc. debit to capital assets upon making this purchase? Please round to the nearest whole number.

a. $24,657

b. $20,267

c. $13,896

d. $36,501

e. $30,000

q4: Helen's Corporation purchased factory equipment on July 1, 2015 for $48,000. It is estimated that the equipment will have a $6,000 residual value at the end of its 10-year useful life. The market value of the equipment is $55,000. Using the straight-line method of depreciation, after recording depreciation, the amount of accumulated depreciation at December 31, 2016 is:

a. $6,300

b. $4,200

c. $11,000

d. $9,800

e. $2,100

q5: Bongo had constructed a small building for $364,000 on January 1, 1998. When the building was built it was expected to be used for 8 years and then be sold for $44,000. At the beginning of January, 2000, a $116,000 addition was made to the building so it would be useful until December 31, 2009 at which time it is expected to be sold for $20,000. The depreciation expense for 2000 will be:

a. $40,000

b. None of the above

c. $43,600

d. $38,000

e. $32,000:

q6: Wingert Co., purchased a new truck for $62,000. The truck is expected to have a salvage value of $12,000 four years later after using it for 100,000 kilometers. During the first and second years of operation, Wingert Co. put 25,000 and 10,000 kilometers respectively, on the truck. For the second year, depreciation expense would be:

a. $12,500

b. $7,400

c. $5,000

d. None of the above

e. $18,500

q7: If the accountant for Forgetful Corporation forgets to record depreciation in 2010 then:

a. the error will have a two year counterbalancing effect and retained earnings will be correctly stated at the end of 2011.

b. none of the above

c. both assets and expenses will be overstated in 2010

d. there is no error in the 2010 financials since the understatement of depreciation expense corresponds to the overstatement of accumulated depreciation

e. this will be caught and corrected before actual preparation of the financial statements since the trial balance will be out of balance

q8: A building cost $25,000 and has a $5,000 residual value and an expected useful life of ten years. What is the depreciation expense in Year 1 using the Double-Declining-Balance Method at the straight-line rate?

a. $2,000

b. $5,000

c. None of the other alternatives are correct

d. $2,500

e. $4,000

q9: On May 1, 2015, Casico Toy Inc. purchased a new piece of equipment that cost $52,000. The estimated useful life is five years and the estimated residual value is $ 4,000. During the five years of useful life the equipment is expected to produce 20,000 units.

If Casico Toy Inc. uses the straight line method of depreciation and sells the equipment for $ 15,500 on May 1st, 2018. What will be the realized gain (loss)?

a. None of the other alternatives are correct

b. $ 25,200

c. $ (3,700)

d. $9,700

e. $ 3,700

q10: Impairment occurs when:

a. the carrying value of the assets exceed the fair value of the net assets

b. None of the other alternatives are correct

c. the carrying value of the net assets exceed the fair value of the net assets

d. the fair value of the net assets is exceeds the carrying value of the net assets

e. the fair value of the net assets and the carrying value of the net assets are equal