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# Practice exam questions: long term assets

1. Which of the following is included in the cost of constructing a building?
Insurance costs during construction
Cost of paving parking lot
Cost of repairing vandalism damage during construction
Cost of removing the demolished building existing on the land when it was purchased

2. A used machine with a purchase price of \$77,000, requiring an overhaul costing \$8,000, installation costs of \$5,000, and special acquisition fees of \$3,000, would have a cost basis of
\$93,000
\$90,000
\$82,000
\$85,000

3. The journal entry for recording an operating lease payment would
Be a memo entry only
Debit the fixed asset and credit Cash
Debit an expense and credit Cash
Debit a liability and credit Cash

4. A machine with a cost of \$80,000 has an estimated residual value of \$5,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?
\$5,000
\$25,000
\$15,000
\$26,667

5. A machine with a cost of \$75,000 has an estimated residual value of \$5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the second full year, using the double declining-balance method?
\$17,500
\$37,500
\$18,750
\$16,667

6. Equipment with a cost of \$160,000, an estimated residual value of \$40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is
\$11,636
\$16,000
\$11,000
\$8,000

7. The proper journal entry to purchase a computer on account to be utilized within the business would be: (PICTURE attached in the attached file)

8. Expected useful life is
Calculated when the asset is sold.
Estimated at the time that the asset is placed in service.
Determined each year that the depreciation calculation is made.
None of the answers are correct.

9. Which of the following is true?
If using the double-declining-balance the total amount of depreciation expense
during the life of the asset will be the highest.
If using the units-of-production method, it is possible to depreciate more than the
depreciable cost.
If using the straight line method, the amount of depreciation expense during the
first year is higher than that of the double-declining-balance.
Regardless of the depreciation method, the amount of total depreciation expense
during the life of the asset will be the same.

10. A fixed asset with a cost of \$52,000 and accumulated depreciation of \$47,500 is traded for a similar asset priced at \$60,000. Assuming a trade-in allowance of \$5,000, the cost basis of the new asset is
\$54,000
\$59,500
\$60,000
\$60,500

11. A fixed asset with a cost of \$41,000 and accumulated depreciation of \$36,500 is traded for a similar asset priced at \$60,000. Assuming a trade-in allowance of \$3,000, the recognized loss on the trade is
\$3,000
\$4,500
\$ 500
\$1,500

12. A fixed asset with a cost of \$30,000 and accumulated depreciation of \$28,500 is sold for \$3,500. What is the amount of the gain or loss on disposal of the fixed asset?
\$2,000 loss
\$1,500 loss
\$3,500 gain
\$2,000 gain

13. When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry
Debit Accumulated Depreciation; credit Machinery
Debit Machinery; credit Accumulated Depreciation
Debit Cash; credit Accumulated Depreciation
Debit Depreciation Expense; credit Accumulated Depreciation

14. When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps to this process?
Book value of the replaced component is written off to depreciation expense
The asset cost of the replaced component is credited
Any cost to remove the old component is charged to expense
The identifiable direct costs associated with the new component are capitalized

15. Expenditures for research and development are generally recorded as
Current operating expenses
Assets and amortized over their estimated useful life
Assets and amortized over 40 years
Current assets

16. Xtra Company purchased goodwill from Argus for \$144,000. Argus had developed the goodwill over 6 years. How much would Xtra amortize the goodwill for its first year?
\$8,640
\$24,000
Goodwill is not amortized.
Not enough information.

17. Which intangible assets are amortized over their useful life?
Goodwill
Patents
All of the above

#### Solution Preview

1. Which of the following is included in the cost of constructing a building?
**Insurance costs during construction
Cost of paving parking lot
Cost of repairing vandalism damage during construction
Cost of removing the demolished building existing on the land when it was
Purchased

Removing building is part of the cost of land. Parking lot is separate asset. Vandalism is a loss.

2. A used machine with a purchase price of \$77,000, requiring an overhaul costing \$8,000, installation costs of \$5,000, and special acquisition fees of \$3,000, would have a cost basis of
**\$93,000
\$90,000
\$82,000
\$85,000

All included.

3. The journal entry for recording an operating lease payment would
Be a memo entry only
Debit the fixed asset and credit Cash
**Debit an expense and credit Cash
Debit a liability and credit Cash

Rent expense and cash.

4. A machine with a cost of \$80,000 has an estimated residual value of \$5,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?
\$5,000
**\$25,000
\$15,000
\$26,667

\$80,000 - \$5,000 / 15,000 hours x 5,000 hours = \$25,000

5. A machine with a cost of \$75,000 has an estimated residual value of \$5,000 and an estimated life of 4 years or 18,000 hours. What is the amount of depreciation for ...

#### Solution Summary

Instructional tips to guide you through this practice set.

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