(Test Bank) Fundamental Accounting Principles Canadian Edition (Volume 2)

Larson, 17

Business

Test Bank

17th Edition

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Test Bank for Fundamental Accounting Principles Canadian Edition (Volume 2), The downloadable file consists of 664 pages, and the total size of the file is 4.98 MB. Purchase now only for highly discounted price.

Author(s): Larson

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Study Note Preview

Version 1 1 CHAPTER 9: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) A machine originally had an estimated useful life of 5 years, but after 2 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) 3 years. B) 5 years. C) 10 years. D) 8 years. E) 7 years. 2) When originally purchased, a vehicle costing $25,020 had an estimated useful life of 8 years and an estimated salvage value of $2,700. 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) $5,580.00. B) $2,958.00. C) $11,160.00. D) $5,748.00. E) $2,790.00. 3) A company used straight-line depreciation for an item of equipment that cost $18,250, had a salvage value of $4,600 and a six-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,825 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life: A) $4,600. B) $1,365. C) $7,008. D) $3,200. E) $4,140. Version 1 2 4) Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $104,000. The asset is expected to have a salvage value of $15,100 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, Year 2 will be: A) $19,224 B) $93,600 C) $22,464 D) $28,836 E) $56,160 5) Peavey Enterprises purchased a depreciable asset for $30,500 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 $3,700, what will be the amount of accumulated depreciation on this asset on December 31, Year 3? A) $6,700 B) $5,583 C) $26,800 D) $22,333 E) $18,425 6) Peavey Enterprises purchased a depreciable asset for $30,000 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 $3,600, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of: A) $6,600.00 B) $25,300.00 C) $5,500.00 D) $26,400.00 E) $7,500.00 7) The following information is available on a depreciable asset: Version 1 3 Purchase date January 1, Year 1 Purchase price $84,000 Salvage value $10,000 Useful life 10 years Depreciation method straight-line The asset's book value is $69,200 on January 1, Year 3. 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 Year 3 would be: A) $7,400.00 B) $6,920.00 C) $8,025.00 D) $8,650.00 E) $6,420.00 8) Merchant Company purchased land for a building site. The costs associated with the property were: Purchase price $ 179,000 Real estate commissions 15,400 Legal fees 1,200 Expenses of clearing the land 2,400 What is the total recorded cost of the land? A) $179,000 B) $195,600 C) $194,400 D) $182,200 E) $198,000 Version 1 4 9) A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $54,500; the land at $51,000, and the parking lot at $19,500. Land should be recorded in the accounting records with an allocated cost of: A) $0. B) $51,000. C) $40,800. D) $46,800. E) $100,000. 10) A company purchased a delivery van for $27,700 with a salvage value of $3,100 on October 1, Year 1. It has an estimated useful life of 6 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1? A) $1,539. B) $4,100. C) $85. D) $4,617. E) $1,025. 11) Marlow Company purchased a point of sale system on January 1 for $6,500. This system has a useful life of 5 years and a salvage value of $950. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method? A) $2,600. B) $2,220. C) $1,110. D) $1,496. E) $1,560. 12) A company purchased a weaving machine for $315,850. The machine has a useful life of 8 years and a salvage value of $17,500. It is estimated that the machine could produce 765,000 bolts of woven fabric over its useful life. In the first year, 112,500 bolts were produced. In the second year, production increased to 116,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year? Version 1 5 A) $43,875. B) $46,449. C) $48,100. D) $89,310. E) $45,435. 13) An asset's book value is $18,500 on December 31, Year 5. Assuming the asset is sold on December 31, Year 5 for $14,500, the company should record: A) A loss on sale of $4,000. B) A gain on sale of $4,000. C) Neither a gain nor a loss is recognized on this transaction. D) A gain on sale of $13,250. E) A loss on sale of $13,250. 14) An asset's book value is $21,600 on January 1, Year 6. The asset is being depreciated $300 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $15,700, the company should record: A) Neither a gain or loss is recognized on this type of transaction. B) A gain on sale of $500. C) A loss on sale of $250. D) A gain on sale of $250. E) A loss on sale of $500. 15) A company sold equipment that originally cost $360,000 for $288,000 cash. The accumulated depreciation on the equipment was $72,000. The company should recognize a: A) $36,000 gain. B) $72,000 loss. C) $0 gain or loss. D) $288,000 gain. E) $36,000 loss. Version 1 6 16) A company discarded a computer system originally purchased for $9,000. The accumulated depreciation was $6,200. The company should recognize a (an): A) $0 gain or loss. B) $2,800 loss. C) $2,800 gain. D) $9,000 gain. E) $6,200 loss. 17) A company sold a tractor that originally cost $141,000 for $36,000 cash. The accumulated depreciation on the tractor was $74,400. The company should recognize: A) A loss of $30,600. B) A gain of $30,600. C) A loss of $36,000. D) A gain of $66,600. E) A gain of $36,000. 18) A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is: A) $8.000. B) $0.875. C) $6.000. D) $0.750. E) $0.625. 19) A company's old machine that cost $46,000 and had accumulated depreciation of $35,400 was traded in on a new machine having an estimated 20-year life with an invoice price of $56,600. The company also paid $48,400 cash, along with its old machine to acquire the new machine. If this transaction has commercial substance, the new machine should be recorded at: Version 1 7 A) $10,600. B) $54,200. C) $56,600. D) $59,000. E) $46,000. 20) Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of $230,000 and accumulated depreciation of $92,000. The new sailboat had an invoice price of $240,000. Hunter received a trade in allowance of $146,000 on the old sailboat, which meant the company paid $94,000 in addition to the old sailboat to acquire the new sailboat. If this transaction has commercial substance, what amount of gain or loss should be recorded on this exchange? A) $146,000 gain B) $0 gain or loss C) $8,000 gain D) $8,000 loss E) $138,000 loss 21) Cliff Company traded in an old truck for a new one. The old truck had a cost of $86,000 and accumulated depreciation of $68,800. The new truck had an invoice price of $136,000. Huffington was given a $13,760 trade-in allowance on the old truck, which meant they paid $122,240 in addition to the old truck to acquire the new truck. If this transaction has commercial substance, what is the recorded value of the new truck? A) $17,200 B) $86,000 C) $122,240 D) $136,000 E) $139,440 22) A company bought a new $60,000 heating system. The company paid $57,000 cash and was given a trade-in of $3,000 on an old heating system. The old system had an original cost of $54,000 and accumulated depreciation of $49,000. If the transaction has commercial substance, the company should record the new heating system at: Version 1 8 A) $3,000. B) $5,000. C) $57,000. D) $60,000. E) $62,000. 23) A company purchased equipment valued at $122,000. It traded in old equipment for a $72,000 trade-in allowance and the company paid $50,000 cash with the trade-in. The old equipment cost $100,000 and had accumulated depreciation of $30,000. This transaction has commercial substance. What is the recorded value of the new equipment? A) $70,000. B) $72,000. C) $50,000. D) $120,000. E) $122,000. 24) Granite Company purchased a machine costing $121,770. Granite paid freight charges of $2,300. The machine requires special mounting and wiring connections costing $10,300. When installing the machine, $1,800 in damages occurred. Compute the cost recorded for this machine. A) $139,000. B) $133,870. C) $121,770. D) $134,370. E) $134,570. 25) Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $156,000. The machine's useful life is estimated to be 5 years, or 180,000 units of product, with a $4,000 salvage value. During its second year, the machine produces 28,800 units of product. Determine the machines' second year depreciation under the straight-line method. Version 1 9 A) $24,320. B) $30,400. C) $31,200. D) $24,960. E) $32,000. 26) Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $141,000. The machine's useful life is estimated to be 20 years, or 400,000 units of product, with a $9,000 salvage value. During its second year, the machine produces 16,000 units of product. Determine the machines' second year depreciation under the units-of-production method. (Do not round intermediate calculations.) A) $5,280. B) $6,600. C) $7,050. D) $5,640. E) $7,500. 27) Phoenix Agency leases office space. On January 3, Phoenix incurs $75,000 to improve the leased office space. These improvements are expected to yield benefits for 8 years. Phoenix has 6 years remaining on its lease. Compute the amount of amortization expense that should be recorded the first year related to the improvements. A) $16,375. B) $19,500. C) $9,375. D) $7,000. E) $12,500. 28) Crestfield leases office space. On January 3, the company incurs $30,000 to improve the leased office space. These improvements are expected to yield benefits for 4 years. Crestfield has 2 years remaining on its lease. What journal entry would be needed to record the expense for the first year related to the improvements? Version 1 10 A) Debit Amortization Expense—Leasehold Improvements $7,500; credit Accumulated Amortization—Leasehold Improvements $7,500. B) Debit Depletion Expense $15,000; credit Accumulated Depletion $15,000. C) Debit Depreciation Expense $7,500; credit Accumulated Depreciation $7,500. D) Debit Depletion Expense $30,000; credit Accumulated Depletion $30,000. E) Debit Amortization Expense—Leasehold Improvements $15,000; credit Accumulated Amortization—Leasehold Improvements $15,000. 29) Nike owns equipment that cost $104,300 with accumulated depreciation of $71,200. Nike asks $37,700 for the equipment but sells the equipment for $34,800. Compute the amount of gain or loss on the sale. A) $4,600 loss. B) $4,600 gain. C) $2,900 gain. D) $1,700 loss. E) $1,700 gain. 30) Gaston owns equipment that cost $15,500 with accumulated depreciation of $4,650. Gaston sells the equipment for $9,800. Which of the following would not be part of the journal entry to record the disposal of the equipment? A) Debit Accumulated Depreciation $4,650. B) Credit Equipment $15,500. C) Debit Loss on Disposal of Equipment $1,050. D) Credit Gain on Disposal of Equipment $1,050. E) Debit Cash $9,800. 31) Riverboat Adventures pays $340,000 plus $6,000 in closing costs to purchase real estate. The real estate consists of land appraised at $36,000, a building appraised at $151,200, and land improvements appraised at $172,800. Compute the cost that should be allocated to the building. Version 1 11 A) $145,320. B) $142,800. C) $151,200. D) $217,896. E) $78,624. 32) Mohr Company purchases a machine at the beginning of the year at a cost of $40,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 8 years with a $9,000 salvage value. Depreciation expense in year 2 is: A) $5,000. B) $3,875. C) $10,000. D) $31,000. E) $0. 33) Mohr Company purchases a machine at the beginning of the year at a cost of $27,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 8 years with a $5,000 salvage value. The book value of the machine at the end of year 2 is: A) $2,750. B) $5,500. C) $16,500. D) $21,500. E) $22,000. 34) Mohr Company purchases a machine at the beginning of the year at a cost of $36,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 8 years with a $5,000 salvage value. Depreciation expense in year 2 is: Version 1 12 A) $4,500. B) $7,750. C) $9,000. D) $6,750. E) $27,000. 35) Mohr Company purchases a machine at the beginning of the year at a cost of $47,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 5 years with a $7,000 salvage value. The machine’s book value at the end of year 2 is: A) $24,000. B) $13,600. C) $18,800. D) $16,920. E) $28,200. 36) Mohr Company purchases a machine at the beginning of the year at a cost of $36,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 80,000 units. The machine is estimated to have a $4,000 salvage value. The company produces 10,000 units in year 1 and 7,000 units in year 2. Depreciation expense in year 2 is: A) $4,000. B) $6,400. C) $14,400. D) $2,800. E) $21,600. 37) Martin Company purchases a machine at the beginning of the year at a cost of $76,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 4 years with a $9,000 salvage value. Depreciation expense in year 4 is: Version 1 13 A) $19,000. B) $16,750. C) $67,000. D) $76,000. E) $0. 38) Martin Company purchases a machine at the beginning of the year at a cost of $74,000. The machine is depreciated using the straight-line method. The machine’s useful life is estimated to be 4 years with a $7,000 salvage value. The book value of the machine at the end of year 4 is: A) $16,750. B) $67,000. C) $37,000. D) $7,000. E) $0. 39) Martin Company purchases a machine at the beginning of the year at a cost of $135,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 4 years with a $11,250 salvage value. Depreciation expense in year 4 is: A) $30,938. B) $8,438. C) $67,500. D) $5,625. E) $11,250. 40) Martin Company purchases a machine at the beginning of the year at a cost of $120,000. The machine is depreciated using the double-declining-balance method. The machine’s useful life is estimated to be 4 years with a $10,000 salvage value. The machine’s book value at the end of year 3 is: Version 1 14 A) $60,000. B) $90,000. C) $105,000. D) $15,000. E) $13,750. Version 1 15 Answer Key Test name: Chap 01_17ce_Test Bank_Algorithmic 1) D 10 year revised life − 2 years depreciated = 8 years remaining 2) A Accumulated Depreciation through the end of year 4: (Cost of Asset − Salvage Value)/Estimated Useful Life × Years Elapsed ($25,020 − $2,700)/8 × 4 = $11,160 Depreciation in Year 5 = (Cost of Asset − Accumulated Depreciation − Salvage Value)/Remaining Estimated Useful Life ($25,020 − $11,160 − $2,700)/2 = $5,580 3) D Accumulated Depreciation through the end of year 3: (Cost of Asset − Salvage Value)/Estimated Useful Life × Years Elapsed ($18,250 − $4,600)/6 × 3 = $6,825 Depreciation, years 4 through 6 = (Cost of Asset - Accumulated Depreciation - Salvage Value)/Remaining Estimated Useful Life ($18,250 − $6,825 − $1,825)/3 = $3,200 4) E Period BOY BV DB Rate Depreciation Expense EOY BV Year 1 104,000 40% $41,600 × 3/12 = $10,400 $93,600 Year 2 93,600 40% 37,440 56,160