2. (Points: 5) Factors contributing to a decline in the usefulness of a fixed as

Question

2.
(Points: 5)
Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories

1. residual and salvage
2. physical and functional
3. salvage and functional
4. functional and residual
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3.
(Points: 5)
All of the following below are needed for the calculation of straight-line depreciation except

1. residual value
2. estimated life
3. cost
4. units produced
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4.
(Points: 5)
All leases are classified as either

1. long-term leases or current leases
2. capital leases or long-term leases
3. operating leases or current leases
4. capital leases or operating leases
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5.
(Points: 5)
If a fixed asset, such as a computer, were purchased on January 1st for $3,750 with an estimated life of 3 years and a salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation is:
(Note: EOM indicates the last day of each month.)

1. EOM Accumulated Depreciation 1,200
Depreciation Expense 1,200
2. EOM Depreciation Expense 100
Accumulated Depreciation 100
3. EOM Accumulated Depreciation 100
Depreciation Expense 100
4. EOM Depreciation Expense 1,200
Accumulated Depreciation 1,200
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6.
(Points: 5)
The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called

1. depletion
2. amortization
3. depreciation
4. deferral
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7.
(Points: 5)
When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry

1. debit Machinery; credit Accumulated Depreciation
2. debit Accumulated Depreciation; credit Machinery
3. debit Depreciation Expense; credit Accumulated Depreciation
4. debit Cash; credit Accumulated Depreciation
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8.
(Points: 5)
A capital expenditure results in a debit to

1. a capital account
2. a liability account
3. an expense account
4. an asset account
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9.
(Points: 5)
When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is

1. units-of-production
2. MACRS
3. straight-line
4. declining-balance
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10.
(Points: 5)
Expenditures that add to the utility of fixed assets for more than one accounting period are

1. capital expenditures
2. committed expenditures
3. revenue expenditures
4. current expenditures
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11.
(Points: 5)
Which of the following is true?

1. If using the units-of-production method, it is possible to depreciate more than the depreciable cost.
2. If using the straight line method, the amount of depreciation expense during the first year is higher than that of the double-declining-balance.
3. If using the double-declining-balance the total amount of depreciation expense during the life of the asset will be the highest.
4. Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same.
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12.
(Points: 5)
Fixed assets are ordinarily presented in the balance sheet

1. at current market values
2. in a separate section along with intangible assets
3. at cost less accumulated depreciation
4. at replacement costs
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13.
(Points: 5)
Expected useful life is

1. calculated when the asset is sold.
2. estimated at the time that the asset is placed in service.
3. determined each year that the depreciation calculation is made.
4. none of the answers are correct.
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14.
(Points: 5)
In a lease contract, the party who legally owns the asset is the

1. lessor
2. operator
3. lessee
4. banker
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15.
(Points: 5)
On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $30,000. What is the amount of the gain or loss on this transaction?

1. Loss of $30,000
2. No gain or loss
3. Cannot be determined
4. Gain of $30,000
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16.
(Points: 5)
The formula for depreciable cost is

1. initial cost - residual value
2. depreciable cost = initial cost
3. initial cost + residual value
4. initial cost - accumulated depreciation
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17.
(Points: 3)
The double-declining-balance method is an accelerated depreciation method.

1. False
2. True
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18.
(Points: 3)
The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use.

1. True
2. False
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19.
(Points: 3)
When depreciation estimates are revised, all years of the asset’s life are affected.

1. True
2. False
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20.
(Points: 3)
When a major corporation develops its own trademark and over time it becomes very valuable, the trademark may not be shown on their balance sheet due lack of a material cost.

1. False
2. True
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21.
(Points: 3)
Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods.

1. False
2. True

Explanation / Answer

2. Option 1 is the correct answer. When we are calculating deprection for fixed assets residual and salvage is needed to calculate. 3. Option 4 .Units produced is not required thing for the calculation of depreciation of straigh-line method. Remaining things which are given is needed to calculate depreciation. 4. Option 4 is the correct answer. All leases are classified as either capital leases or operating leases. 5. Option 2 is the correct answer. Depreciation = Cost of the asset - Residual value/Estimated life period of the asset. Depreciation= $3,750-150/3=3,600/3=1,200 Annual depreciation =1,200 For monthly depreciation=1,200/12=100 Journal Entry for monthly expenses Depreciation Expenses   $100           Accumulated Depreciation      100 6. Option 1 . depletion is the correct answer. We determine the depletion base for natural resources. The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called depletion. 7. Option 1 is the correct answer. When a company discards machinery that is fully depreciated, then debit machinery ,and credit Accumulated Depreciation 8. Option 4 is the correct answer. A capital expenditure results in a debt to an asset account. 9. Option 3 straight line method is the correct answer. 10 Option 1 capital expenditure isthe corrrect answer. 11. Option 2 is correct. If using the straightline method, the amount of depreciation expense during the first year is higher than that of the double-declining balance. 12. Option 3 is correct. Fixed assets are ordinally presented in the balance sheet at cost less accumulated depreciation. 13. Option 2 is correct. Estimated useful life is estimated at the time that the asset is placed in service. 14. Option 1 is the correct answer. In a lease contract the party one who legally owns the asset is called the lessor. 15. Option 2 is the correct answer. Depreciation calculation: Cost of the equipment                            $215,000 LEss: Accumulated Depreciation               185,000                                                            _____________ Book value of the equipment                      30,000                                                           ______________ The company is willing to buy that equipment for $30,000. Hence there will be no loss or gain in this transaction. 16. Option 1 is the correct answer. The formula for depreciable cost = Initial cost - residual value 17. Option 2 is the correct answer. The double-declinig balance methods is oftenly called accelerated depreciation method. 18. Option 1 is the correct answer. The acquisition costs of property , plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use. 19. Option 1 is the correct answer. When depreciation estimates are revised, all years of the assets' life are affeceted. 20. Option 1` is the correct answer. Trade marks amount will be shown in the balance sheet of Intangible assets portion. 21. Option 1 is correct. Revising depreciation estimates does not affect the amounts of depreciation expenses recorded in past periods.

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