ACCOUNTING

71. Depreciation:
A. Measures the decline in market value of an asset.
B. Measures physical deterioration of an asset.
C. Is the process of allocating to expense the cost of a plant asset.
D. Is an outflow of cash from the use of a plant asset.
E. Is applied to land.

 

72. The useful life of a plant asset is:
A. The length of time it is productively used in a company’s operations.
B. Never related to its physical life.
C. Its productive life, but not to exceed one year.
D. Determined by the FASB.
E. Determined by law.

 

73. Inadequacy refers to:
A. The insufficient capacity of a company’s plant assets to meet the company’s growing production demands.
B. An asset that is worn out.
C. An asset that is no longer useful in producing goods and services.
D. The condition where the salvage value is too small to replace the asset.
E. The condition where the asset’s salvage value is less than its cost.

 

74. Obsolescence:
A. Occurs when an asset is at the end of its useful life.
B. Refers to a plant asset that is no longer useful in producing goods and services.
C. Refers to the insufficient capacity of a company’s plant assets to meet the company’s productive demands.
D. Occurs when an asset’s salvage value is less than its replacement cost.
E. Does not affect plant assets.

75. Once the estimated depreciation expense for an asset is calculated:
A. It cannot be changed due to the historical cost principle.
B. It may be revised based on new information.
C. Any changes are accumulated and recognized when the asset is sold.
D. The estimate itself cannot be changed; however, new information should be disclosed in financial statement footnotes.
E. It cannot be changed due to the consistency principle.

 

76. A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining:
A. 2 years.
B. 5 years.
C. 7 years.   (10 year revised life – 3 years depreciated = 7 remaining)
D. 8 years.
E. 10 years.

77. A change in an accounting estimate is:
A. Reflected in past financial statements.
B. Reflected in future financial statements and also requires modification of past statements.
C. A change in a calculated amount that is included in current and future years’ financial statements as a result of new information or subsequent developments and from better insight or improved judgment.
D. Not allowed under current accounting rules.
E. Considered an error in the financial statements.

78. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $23,000 and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the asset’s total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:
A. $ 5,375.00.
B. $ 2,687.50.
C. $ 5,543.75.
D. $10,750.00.
E. $ 2,856.25.

79. A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 and its total useful life was increased from 5 years to 6 years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life:
A. $1,000.
B. $1,800.
C. $1,467.
D. $1,600.
E. $2,160.

80. Nelson Company purchased equipment on July 1 for $27,500 and decided to depreciate the equipment on the straight-line method over its useful life of five years. Assuming the equipment’s salvage value is $3,500, the amount of monthly depreciation expense Nelson should recognize is:
A. $2,400
B. $ 200
C. $4,800
D. $ 400
E. $ 450

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