Chapter 09
Property, Plant, and Equipment and Intangibles

True / False Questions
 
1. Property, plant and equipment are assets held for sale. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
2. Non-current assets are any liabilities that are used in the operations of a business. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
3. Non-current assets can be divided into two groups including tangible and intangible assets. These assets are generally used in operations of a business and have useful lives extending over more than one accounting period. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
4. Land purchased as a building site is a tangible asset called property, plant and equipment and is classified under the "Long-term Investments" section on the balance sheet. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
5. The cost of an asset includes all normal and reasonable expenditures necessary to get it in place and ready for its intended use. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
6. If a machine is damaged during unpacking, the repairs are added to its cost. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
7. To be charged to and reported as part of the cost of property, plant and equipment, an expenditure must be normal, reasonable, and necessary in preparing the asset for its intended use. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
8. The purchase of real estate that includes land, building, and land improvements is called a lump-sum purchase. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-11 Lump-Sum Asset Purchase
 
9. Any expenditures for legal fees, surveying, and accrued property taxes should not be included in the cost of land. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
10. Revenue expenditures are additional costs of property, plant and equipment that provide material benefits extending beyond the current period. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
11. Revenue expenditures are expenditures to keep assets in normal operating condition. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
12. Capital expenditures are also called balance sheet expenditures. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
13. SportsWorld spent $17,000 to remodel its store. This cost will be recognized with a debit to Store Building. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-03 Subsequent Expenditures
 
14. Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-05 Low-Cost Asset Purchases
 
15. The cost principle requires that an asset be recorded at the cash or cash equivalent amount given in exchange. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
16. Subsequent expenditures are purchases made after the acquisition of equipment to operate, maintain, repair, and improve it. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-03 Subsequent Expenditures
 
17. Because land has unlimited life, it is not subject to depreciation. Therefore, items that increase the usefulness of the land such as parking lots are also not depreciated. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-07 Land Improvements
 
18. Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner over the asset's estimated useful life. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-12 Depreciation
 
19. Residual value is an estimate of an asset's value at the end of its useful life. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation
 
20. Inadequacy refers to the condition where the capacity of a property, plant and equipment item is too small to meet the company's productive demands. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation
 
21. Depreciation should always be recorded as soon as an asset is purchased. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-12 Depreciation
 
22. Depreciation measures the decline in market value of an asset. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
23. On the balance sheet, it is not necessary to report both the cost and the accumulated depreciation of an asset. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets
 
24. Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets
 
25. The full disclosure principle allows us to record an asset costing $50 as a revenue expenditure 
FALSE
Materiality principle

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets
 
26. Regardless of the method of depreciation, total depreciation expense will be the same over an asset's useful life. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
27. Financial accounting and tax accounting require the same recordkeeping; therefore, there should be no difference in results between the two accounting systems. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
28. Companies are required to use the straight line depreciation method for tax purposes because this method yields the lowest depreciation expense and results in the highest payment of tax. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
29. The Income Tax Act requires that companies use a declining-balance method for calculating the maximum capital cost allowance that may be claimed in any period 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
30. The most frequently used method of depreciation is the straight-line method. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
31. The cost of an asset plus its accumulated depreciation equals the asset's book value. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets
 
32. The units of production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
33. An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's life and larger charges in later years. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
34. The double-declining balance method is applied by (1) calculating the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting residual value from cost, and (4) multiplying the rate times the cost. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
35. SportsWorld purchased store equipment for $65,000. The equipment has an estimated residual value of $6,000, with an estimated useful life of 10 years. The annual depreciation using the straight-line method will be $3,900 per year. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
36. A company is required to purchase all assets at the beginning of an accounting period so that a full year's worth of depreciation can be taken. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
37. Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on June 28. Using the nearest whole month method, the company would recognize $11,250 for depreciation expense at the end of the first year, December 31. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Partial-Year Depreciation
 
38. A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year, if the fiscal year ends on December 31 using nearest whole month method. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Partial-Year Depreciation
 
39. The half year rule is the partial-year depreciation method that calculates depreciation by determining if the asset was used for more than half of the month. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Partial-Year Depreciation
 
40. Because depreciation is based on predictions of residual value and useful life, depreciation is an estimate. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-15 Depreciation Methods
 
41. Machinery after two years worth of depreciation has an opening book value of $6,400. At the beginning of the third year, the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400. The revised annual depreciation using the straight-line method is $1,500. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
42. An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a residual value of $400. Using the straight-line method, the revised depreciation will be $500 per year. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
43. When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
44. Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
45. An asset with a current book value of $5,000 has a current market value of $2,000. The company should recognize an impairment loss of $3,000. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Impairment of PPE Assets
 
46. If the book value of a property, plant and equipment item is less than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Impairment of PPE Assets
 
47. Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological, economic, or legal factors. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Impairment of PPE Assets
 
48. Impairment losses must be assessed by companies on an annual basis. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Impairment of PPE Assets
 
49. The gain or loss from disposal of property, plant and equipment is the difference between an asset's book value and the value received. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Disposals of PPE
 
50. Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Discarding PPE
 
51. The first step in accounting for the disposal of property, plant and equipment is calculating the gain or loss on disposal. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Discarding PPE
 
52. Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000. The company should recognize a $1,000 loss on disposal of the equipment. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-21 Selling PPE
 
53. At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation of the plant asset to the date of disposal. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Discarding PPE
 
54. When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record the removal of the asset is called exchanging the equipment. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Exchanging PPE
 
55. When assigning values to an exchange of assets you should use the fair value of the asset given up. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Exchanging PPE
 
56. When assigning values to an exchange of assets you should always use the fair value of the asset received. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Exchanging PPE
 
57. A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for a specified period of time. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-25 Patents
 
58. Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-24 Accounting for Intangible Assets
 
59. Amortization is the process of allocating the cost of intangibles over their estimated useful life. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-24 Accounting for Intangible Assets
 
60. Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-27 Mineral Resources
 
61. Intangible assets provide rights, privileges, and competitive advantages to the owner, are used in operations, and have no physical substance. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-23 Intangible Assets
 
62. A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 20 years. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-26 Copyrights
 
63. The cost of developing, maintaining, or enhancing the value of a trademark is capitalized, or added to the value of the asset when incurred. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-28 Trademarks and Trade Names
 
64. Goodwill is an intangible asset. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-23 Intangible Assets
 
65. Goodwill is not depreciated or amortized but is instead decreased only if its value has been determined by management to be impaired . 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Goodwill
 
66. Goodwill is depreciated over its useful life as estimated by the business's management. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Moderate
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Goodwill
 
67. Goodwill is written down to its fair value if the fair value is less than its carrying value. 
TRUE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Goodwill
 
68. The impairment of goodwill appears directly on the statement of changes in equity and not on the income statement. 
FALSE

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Goodwill

Multiple Choice Questions
 
69. On January 1 of this year, SportsWorld purchased a new cash register for $5,400. This register has a useful life of 10 years and a residual value of $400. Using the double-declining-balance method, how much depreciation expense should SportsWorld recognize for next year? 
A. $500.
B. $540.
C. $1,000.
D. $864.
E. $1,080.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
70. SportsWorld purchased equipment costing $10,000. The equipment has a residual value of $1,000, and an estimated useful life of 5 years or 36,000 shoes. Actual units produced during the year were 7,000 units. Calculate annual depreciation using the straight line method. 
A. $1,800.
B. $4,000.
C. $1,450.
D. $2,000.
E. $1,750.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
71. On October 1 of this year, SportsWorld purchased a delivery van for $23,000 with a residual value of $3,000. The van has an estimated useful life of 5 years. Using straight-line depreciation and the half-year rule, how much depreciation expense should SportsWorld recognize on December 31 of this year? 
A. $1,000.
B. $1,333.
C. $1,465.
D. $2,000.
E. $4,600.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Partial-Year Depreciation
 
72. SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a trade-in value of $2,000, and a five-year service life. At the end of the third year, the trade-in value was revised to $1,200 and the useful life increased to a total of 6 years. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life. 
A. $1,000.
B. $1,467.
C. $1,800.
D. $1,600.
E. $2,160.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
73. JoyCo acquired equipment on April 1, 2017, at a cost of $90,000 and with an estimated useful life of 10 years. The machine has a residual value of $10,000. JoyCo uses the double-declining-balance method of depreciation. How much depreciation should be recorded by JoyCo for the year ended December 31, 2017? 
A. $8,000
B. $9,000
C. $10,000
D. $13,500
E. $12,000

Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
74. SportsWorld bought a new display case for $12,000 and was given a trade-in of $2,000 on an old display case. The old case had an original cost of $7,000 and accumulated depreciation of $4,000 to the date of trade-in. SportsWorld should record the new display case at: 
A. $10,000.
B. $10,500.
C. $11,500.
D. $11,700.
E. $12,000.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Exchanging PPE
 
75. At the end of the year, SportsWorld completed an asset impairment test and noted that a piece of equipment, with a book value of 12,000, has a recoverable value of $2,000. Calculate the amount of impairment loss on the equipment. 
A. $2,000.
B. $2,160.
C. $14,800.
D. $12,800.
E. $10,000.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Impairment of PPE Assets
 
76. SportsWorld purchased property for a building site. The costs associated with the property were:

Purchase Price	$175,000	
Real Estate Commissions	$15,000	
Legal Fees	$800	
Expense of clearing land	$2,000	
Expense to remove old building	$1,000	

What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? 
A. $150,000 to Land; $18,800 to Building.
B. $190,000 to Land; $3,800 to Building.
C. $190,800 to Land; $3,000 to Building.
D. $192,800 to Land; $1,000 to Building.
E. $193,800 to Land; $0 to Building.

Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
77. SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a salvage value of $2,000, and a five-year service life. At the end of the first year, an impairment loss of $2,000 was recognized on the asset. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life. 
A. $1,500.
B. $1,600.
C. $2,500.
D. $1,800.
E. $2,000.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-17 Revising Depreciation Rates
Topic: 09-18 Impairment of PPE Assets
 
78. Sports Med sold an X-ray machine that originally cost $100,000 for $60,000. The accumulated depreciation on the machine to the date of sale was $40,000. On this sale, Sports Med should recognize: 
A. $0 gain or loss.
B. $20,000 gain.
C. $25,000 gain.
D. $40,000 loss.
E. $60,000 gain.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-21 Selling PPE
 
79. Creek Construction purchased a machine for $26,000. It traded in an old machine and received a $4,200 trade-in allowance. The old machine cost $24,000 and had accumulated depreciation of $16,000 to the date of trade-in. At what value should be new asset be recorded? 
A. $21,800.
B. $24,000.
C. $26,000.
D. $29,800.
E. $30,200.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Exchanging PPE
 
80. SportsWorld purchased a machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. SportsWorld estimates that the machine could produce 750,000 units of product over its useful life. In the first year, 95,000 units were produced. In the second year, production increased to 111,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year? 
A. $26,640.
B. $22,800.
C. $28,000
D. $36,000.
E. $49,440.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
81. SportsWorld purchased property for $100,000. The property included a building, parking lot, and land. The building was appraised at $65,000; the land at $40,000; and the parking lot at $10,000. To the nearest dollar, the value of the land to be recorded in the books should be: 
A. $56,522.
B. $40,000.
C. $34,783.
D. $36,364.
E. $48,696.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-11 Lump-Sum Asset Purchase
 
82. A machine that cost $40,000 and had accumulated depreciation of $30,000 was traded in on a new machine, which had an estimated 20-year life and a cash price of $50,000. If a $7,000 trade-in allowance was received on the old machine, the new machine should be valued at: 
A. $10,000.
B. $40,000.
C. $47,000.
D. $50,000.
E. $53,000.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Exchanging PPE
 
83. When originally purchased, a vehicle had cost $23,000, with an estimated residual value of $1,500, and an estimated useful life of 8 years. After 4 years of straight-line depreciation, the estimated useful life was revised from 8 to 6 years, but with zero residual value. The depreciation expense in year 5 should be: 
A. $5,543.75.
B. $2.687.50.
C. $6,125.00.
D. $10,750.00.
E. $2,856.25.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
84. SportsWorld discarded a display case it had purchased for $8,000. $7,200 in accumulated depreciation had been recorded to the date of sale. SportsWorld should recognize a gain or loss on disposal of: 
A. $0.
B. $800 loss.
C. $800 gain.
D. $8,000 loss.
E. $7,200 loss.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Discarding PPE
 
85. On April 3, 2015, Rainbow Studios purchased a patent for $56,000. Its remaining legal life is 7 years and Rainbow Studios estimates that the patent will be useful for another 4 years. The correct adjusting entry to record amortization of the patent on December 31, 2015 is: 
A. 
B. 
C. 
D. 

Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-25 Patents
 
86. A machine originally had an estimated service life of 5 years, and after 3 years, it was decided that the original estimate should have been for 10 years. The remaining cost to be depreciated should be allocated over the next: 
A. 2 years.
B. 5 years.
C. 6 years.
D. 7 years.
E. 10 years.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Moderate
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
87. A change in accounting estimate is: 
A. Reflected only in current and future financial statements.
B. Reflected in current and future financial statements and also requires modification of past statements.
C. A change in a calculated amount used in the financial statements resulting from new information or subsequent developments and from better insight or improved judgment.
D. Both reflected only in current and future financial statements and a change in a calculated amount used in the financial statements resulting from new information or subsequent developments and from better insight or improved judgment.
E. None of these answers is correct.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Revising Depreciation Rates
 
88. Creek Construction owned a bulldozer which was destroyed by fire. The bulldozer originally cost $38,000. The accumulated depreciation recorded to the date of loss was $20,000. The proceeds from the insurance company were $20,000. Creek Construction should recognize: 
A. A loss of $2,000.
B. An expense of $2,000.
C. A loss of $38,000.
D. A gain of $20,000.
E. A gain of $2,000.

Accessibility: Keyboard Navigation
Bloom’s: Application
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Discarding PPE
 
89. A main accounting issue for property, plant and equipment is: 
A. The cost of property, plant and equipment.
B. Testing property, plant and equipment for impairment.
C. Accounting for repairs and improvements to property, plant and equipment.
D. Disposal of property, plant and equipment.
E. All of these answers are correct.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
90. If the book value (or carrying amount) of a PPE item is greater than the amount to be recovered through the asset's use or sale, the asset is said to be: 
A. Exchanged.
B. Declined.
C. Accumulated.
D. Improved.
E. Impaired.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Impairment of PPE Assets
 
91. Inadequacy refers to: 
A. The condition where the capacity of a property, plant and equipment asset is too small to meet the company's productive demands.
B. An asset that is worn out.
C. An asset that is no longer useful.
D. The same as obsolescence.
E. All of these answers are correct.

Accessibility: Keyboard Navigation
Bloom’s: Knowledge
Difficulty: Difficult
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation
 
92. Residual value is: 
A. The same as an asset's service life.
B. The cost of an asset minus its accumulated depreciation.
C. An estimate of the asset's value at the end of its useful life.
D. Another name for market value.
E. All of these answers are correct.