1. All of the following costs would be included in the Land account when land is purchased EXCEPT ________.
A. costs to prepare the land for use such as removing a tree stump
B. the costs associated with paving a parking lot on the land
C. the fee paid to transfer title to the land
D. the realtor’s fee
2. Which statement below is true about the cost principle?
A. The cost principle says that all costs reasonable and necessary to place an asset into a working condition should be capitalized.
B. The cost principle says that only the cash paid to acquire a long-term asset should be capitalized.
C. The cost principle says that all costs associated with purchasing a long-term asset should be expensed in the period of the purchase.
D. The cost principle says that all costs associated, directly or indirectly, with buying and using a long-term asset should be permanently capitalized.
3. Cranberry Company purchased two pieces of equipment from a Canadian vendor for $400,000. If the assets had been purchased separately, the company would have paid $90,000 for the first piece of equipment and $360,000 for the second piece of equipment. What amount should be recorded for the first piece of equipment?
4. Capitalizing a cost means to record the cost into a(n) ________ account.
C. income statement
D. contributed capital
5. On November 1, 2011, Frigate Shipping Company bought equipment that cost $400,000, with an estimated useful life of 8 years and an estimated salvage value of $28,000. The company uses the straight-line method of depreciation and has a fiscal year ending on October 31. For the year ended October 31, 2012, Frigate Company will report depreciation expense of ________.
6. Which statement about depreciation is true?
A. Depreciation means loss in economic value.
B. Depreciation means to increase net income by transferring balances from shareholders’ equity.
C. Depreciation refers to an allocation of an asset’s cost to an expense account.
D. Depreciation means to capitalize a cost over several accounting periods.
7. The adjustment to record the use of long-term assets includes a(n) ________.
A. increase in total liabilities
B. decrease in total liabilities
C. decrease in total shareholders’ equity
D. increase in total shareholders’ equity
8. On January 1, 2011, Petrel Shipping Company bought equipment that cost $55,000 with an estimated useful life of 4 years and an estimated salvage value of $5,000. The company uses the straight-line method of depreciation. At what rate will the equipment depreciate in 2011?
9. RET Company uses the activity (units-of-production) method to depreciate long-term assets. The company owns a truck that cost $24,000. The truck is estimated to have a salvage value of $2,000 and a useful life of 200,000 miles. How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?
10. A business will have depletion expense only if it has ________.
A. property, plant, and equipment that are used in operating activities
B. natural resources like timber and oil
C. current assets that are consumed during the period
D. intangible assets like copyrights and trademarks
11. Which of the following assets should be amortized?
A. oil reserves
12. Which of the following should be recorded as an expense in the period when the activity takes place?
A. Rondeaux Company paid $50,000 for the exclusive right to manufacture a product.
B. ResolCo paid $100,000 to buy a new piece of equipment.
C. Nationwise, Inc. routinely replaces the wiper blades on its fleet of delivery trucks.
D. Revel, Inc. paid $10,000 to overhaul and improve a machine to make it last longer.