ACCOUNTING

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

81. Thomas Enterprises purchased a depreciable asset on October 1, 2008 at a cost of $100,000.
The asset is expected to have a salvage value of $15,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset’s book value on December 31, 2010 will be:
A. $27,540
B. $21,600
C. $32,400
D. $18,360
E. $90,000

82. Based on the information provided in question #81, Thomas Enterprises should recognize what amount of depreciation expense in 2012?
A. $4,440
B. $6,610
C. $1,524
D. $5,520
E. $2,000

83. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, 2008. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset’s salvage value is $2,000, what will be the amount of accumulated depreciation on this asset on December 31, 2011?
A. $5,000.00
B. $4,166.67
C. $16,666.68
D. $20,000.00
E. $19,166.67

 

84. Based on the information provided in question # 83, Lomax Enterprises should recognize depreciation expense in 2011 in the amount of:
A. $19,166.67
B. $5,000.00
C. $5,500.00
D. $20,000.00
E. $4,166.67

85. The following information is available on a depreciable asset owned by First Bank & Trust:

The asset’s book value is $70,000 on October 1, 2010. On that date, management determines that the asset’s salvage value should be $5,000 rather than the original estimate of $10,000. Based on this information, the amount of depreciation expense the company should recognize during the last three months of 2010 would be:
A. $2,187.50
B. $1,718.75
C. $2,031.25
D. $2,321.43
E. $1,964.29

86. Many companies use an accelerated depreciation method because:
A. It is required by the tax code.
B. It is required by financial reporting rules.
C. It yields larger depreciation expense in the early years of an asset’s life.
D. It yields a higher income in the early years of the asset’s useful life.
E. The results are identical to straight-line depreciation.

 


87. The modified accelerated cost recovery system (MACRS):
A. Is included in the U.S. federal income tax rules for depreciating assets.
B. Is an out-dated system that is no longer used by companies.
C. Is required for financial reporting.
D. Is identical to units of production depreciation.
E. All of these.

88. The straight-line depreciation method and the double-declining-balance depreciation method:
A. Produce the same total depreciation over an asset’s useful life.
B. Produce the same depreciation expense each year.
C. Produce the same book value each year.
D. Are acceptable for tax purposes only.
E. Are the only acceptable methods of depreciation for financial reporting.

 

89. Total asset turnover is used to evaluate:
A. The efficiency of management’s use of assets to generate sales.
B. The necessity for asset replacement.
C. The number of times operating assets were sold during the year.
D. The cash flows used to acquire assets.
E. The relation between asset cost and book value.

 

90. A total asset turnover ratio of 3.5 indicates that:
A. For every $1 in sales, the firm acquired $3.50 in assets during the period.
B. For every $1 in assets, the firm produced $3.50 in net sales during the period.
C. For every $1 in assets, the firm earned gross profit of $3.50 during the period.
D. For every $1 in assets, the firm earned $3.50 in net income.
E. For every $1 in assets, the firm paid $3.50 in expenses during the period.

91. Total asset turnover is calculated by dividing:
A. Gross profit by average total assets.
B. Average total assets by gross profit.
C. Net sales by average total assets.
D. Average total assets by net sales.
E. Net assets by total assets.

 

92. A company had average total assets of $897,000. Its gross sales were $1,090,000 and its net sales were $1,000,000. The company’s total asset turnover equals:
A. 0.82.
B. 0.90.
C. 1.09.
D. 1.11.

E. 1.26.

93. Dell had net sales of $35,404 million. Its average total assets for the period were $14,502 million. Dell’s total asset turnover equals:
A. 0.40.
B. 0.35.
C. 1.45.
D. 2.44.
E. 3.50.

94. Land improvements are:
A. Assets that increase the usefulness of land, and like land, are not depreciated.
B. Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation.
C. Included in the cost of the land account.
D. Expensed in the period incurred.
E. Also called basket purchases.

 

95. Plant assets include:
A. Land.
B. Land improvements.
C. Buildings.
D. Machinery and equipment.
E. All of these.

96. The cost of land can include:
A. Purchase price.
B. Assessments by local governments.
C. Costs of removing existing structures.
D. Fees for insuring the title.
E. All of these.

97. A company paid $150,000, plus a 6% commission and $4,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property’s costs in the company’s accounting records?
A. Land $75,000; Land Improvements, $30,000; Building, $45,000.
B. Land $75,000; Land Improvements, $30,800; Building, $46,200.
C. Land $81,500; Land Improvements, $32,600; Building, $48,900.
D. Land $79,500; Land Improvements, $32,600; Building, $47,700.
E. Land $87,500; Land Improvements; $35,000; Building; $52,500.

 

 

98. A company purchased property for a building site. The costs associated with the property were:

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. $175,800 to Land; $18,800 to Building.
B. $190,000 to Land; $3,800 to Building.
C. $190,800 to Land; $1,000 to Building.
D. $192,800 to Land; $0 to Building.
E. $193,800 to Land; $0 to Building.

99. A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $62,000; the land at $45,000, and the parking lot at $18,000. Land should be recorded in the accounting records with an allocated cost of:
A. $ 0.
B. $ 36,000.
C. $ 42,000.
D. $ 45,000.
E. $100,000.

100. The formula for computing annual straight-line depreciation is:
A. Depreciable cost divided by useful life in units.
B. Cost plus salvage value divided by the useful life in years.
C. Cost less salvage value divided by the useful life in years.
D. Cost multiplied by useful life in years.
E. Cost divided by useful life in units.

 

101. The total cost of an asset less its accumulated depreciation is called:
A. Historical cost.
B. Book value.
C. Present value.
D. Current (market) value.
E. Replacement cost.

102. A method that charges the same amount of expense to each period of the asset’s useful life is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.

 

103. A method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.

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