19. Depreciation: A. Measures the decline in market value of an asset. B. Measur

Question

19. Depreciation: A. Measures the decline in market value of an asset. B. Measures physical deterioration of an asset. C. Is the process of allocating the cost of a plant asset to expense. D. Is an outflow of cash from the use of a plant asset. 20. Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. 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, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of A. $10,000 B. $5,000 C. $5,500 D. $20,000 21. Which of the following is not classified as plant assets? A. Land. B. Land improvements. C. Patent. D. Machinery and equipment. A company purchased property for $100,000. The property included a building, a parking lot, and land. nd at $35,000, and the parking lot at $18,000. Land should be The building was appraised at $62,000; the la recorded in the accounting records with an allocated cost of A.$0. B. $30,4335 C. $35,000. D. $46,087 23. The depreciation method that produces larger depreciation expense during the early years of an asset's life and smaller expense in the later years is a(a): A. Accelerated depreciation method. B. Book value depreciation method. C. Straight-line depreciation method. D. Units-of-production depreciation method 24. Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record: A. A gain on sale of $2,000. B. A loss on sale of $2,000 C. A loss on sale of $5,000 D. A gain on sale of $5,000

Explanation / Answer

19. Depreciation is the process of allocating the cost of a plant asset to expense Correct answer is (c) 20. Depreciation = Value of assets - Salvage value/ Life (22000 - 2000)/4 = 5000 Year 1 5000 Year 2 5000 Correct answer is (b) Note: In straight line method Depreciation equal in all years 21 Patent is not a Plant assets Correct answer is (c) 22 Building 62000 Land 35000 Parking lot 18000 115000 Cost 10000 Discount 15000 Discount in % = 15000/115000*100 = 13.04% Land = 35000 - 13.04% = 30435 Correct answer is (b) 23 Accelerated depreciation is a depreciation method whereby an asset loses book value at a faster rate than the traditional straight-line method. Correct answer is (a) 24 Book value af asset = Cost - Acc Dep (87000 - 40000) = 47000 Sale Value = 42000 Loss on Sale = 5000 Correct answer is (c)

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