20 mcq accounting

Bing's Export Co. Bing’s Export Co. purchased a new delivery truck at the beginning of 2015. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2015. The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016. The number of expected miles over five years is 100,000.

Refer to information for Bing's Export Co.

Bing's is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2015?

a. Straight-line depreciation creates both the larger expense and the larger tax savings.

b. Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

c. Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings.

d. Double-declining-balance depreciation creates both the larger expense and the larger tax savings.

Blanton Company bought equipment on January 1, 2010 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 at the beginning of 2014 that the useful life should be shortened by 3 years and the residual value changed to zero. What is the accumulated depreciation at the end of 2013?

a. $8,000

b. $40,000

c. $42,667

d. $32,000

Assets classified as property, plant, and equipment are reported at

a. the estimated depreciable cost at the balance sheet date.

b. each asset's original cost less depreciation since acquisition.

c. each asset's estimated salvage value at the balance sheet date.

d. each asset's estimated market value at the balance sheet date.

Crimson Corp. constructed equipment to manufacture a new line of home products during 2015. The average balance of accumulated expenditures on the equipment during September through December 2015 was $500,000. Construction started on September 1, 2015 and was still in progress at the end of 2015. If Crimson borrowed $500,000 for one year on September 1, 2015, to finance the construction, and the interest rate on the construction loan was 6%, how much interest can Crimson capitalize as part of the equipment cost for 2015?

a. $-0-

b. $30,000

c. $10,000

d. $20,000

On December 1, 2014, Xeon Company bought land and an accompanying warehouse from Yen Company for $800,000. The fair market values of the land and the building at the time of purchase were $700,000 and $300,000, respectively. How much of the purchase price should Xeon Company allocate to the land and how much should be allocated to the building?

a. $700,000 and $300,000, respectively

b. $500,000 and $300,000, respectively

c. $560,000 and $240,000, respectively

d. $457,143 and $342,857, respectively

Bing’s Export Co. purchased a new delivery truck at the beginning of 2015. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2015. The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016. The number of expected miles over five years is 100,000.

Refer to information for Bing's Export Co.

By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck?

a. Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

b. The salvage value of $7,000

c. Cost plus total depreciation

d. Cost less total depreciation

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called:

a. Accumulated Depreciation.

b. Accumulated Amortization.

c. Amortization Expense.

d. Depreciation Expense

Newco Publishing Company purchased equipment at the beginning of 2014 for $200,000. The company decided to depreciate the equipment over an 8-year period using the straight-line method. The company estimated the equipment's residual value at $20,000. The journal entry to record depreciation expense for 2014 will:

a. increase Accumulated Depreciation and decrease Equipment for $25,000.

b. increase Depreciation Expense and decrease Equipment for $22,500.

c. increase Depreciation Expense and increase Accumulated Depreciation for $25,000.

d. increase Depreciation Expense and increase Accumulated Depreciation for $22,500.

On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.

What was the book value of the ship for Paulson Transport at the end of the useful life?

a. $50,000

b. $214,400

c. $-0-

d. Need more information to determine this answer

Shidan Apartments purchased an apartment building to rent to university students on November 18, 2015. The following costs were incurred during 2015, before the tenants moved in:

Purchase price of the building	$220,000
Purchase price of the land	100,000
Transfer taxes	10,000
Interest incurred on the mortgage loan to purchase	4,000
Attorney and real estate agent's fees	15,000
Repave the parking lot	6,000

How much will Shidan Apartments record as an asset?

a. $320,000

b. $345,000

c. $355,000

d. $351,000

Harkin Company purchased a building on a tract of land and allocated the entire cost of the purchase to building. Normally it depreciates buildings over 20 years using the straight-line method with zero residual value and does not depreciate land. Because of its accounting treatment of the purchase, Harkin's income before taxes for the next 20 years will be:

a. understated.

b. unaffected.

c. overstated.

d. in conformance with GAAP.

Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for:

a. financial reporting purposes and a different method for tax purposes.

b. tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

c. tax purposes because it results in a larger net income in the early years of a plant asset's life.

d. financial reporting purposes because depreciation is not allowed for tax purposes.

Plant assets are depreciated because:

a. the replacement cost of plant assets may fluctuate over time.

b. the accrual basis of accounting requires matching of costs to revenues.

c. useful lives cannot be reasonably estimated.

d. some plant assets last longer than others.

Which statement is true concerning operating assets?

a. A company's operating assets are important to its short-term liquidity.

b. All operating assets are reported on the balance sheet.

c. Operating assets have no physical properties.

d. Operating assets are used over two or more periods to generate revenues.

A company should choose a depreciation method that:

a. saves the most taxes.

b. shows the highest amount of net income.

c. minimizes net income.

d. best allocates the original cost of the asset to the periods benefited by the use of the asset

Norwood, Inc. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.

Refer to the information for Norwood, Inc,

Based on this information, what method of depreciation will produce the maximum depreciation expense in 2016?

a. All methods produce the same expense in 2016.

b. Units-of-production

c. Straight-line

d. Double-declining-balance

Norwood, Inc. Norwood, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.

Refer to the information about Norwood, Inc.

If Norwood uses the units-of-production method, what is the depreciation rate per hour for the equipment?

a. $6.00

b. $4.00

c. $5.00

d. $7.50

Wind Chime and Fire Hut Companies purchased identical equipment having an estimated useful life of ten years. Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?

a. Wind Chime's net income will be greater than Fire Hut's net income in year nine.

b. Fire Hut's book value will be less than Wind Chime's book value at the end of year two.

c. Wind Chime's depreciation expense will be greater in the second year than Fire Hut's depreciation expense.

d. Fire Hut's book value will be greater than Wind Chime's book value at the end of year one. Land is not depreciated because it: a. will provide future benefits for a company for an unlimited period of time. b. appreciates in value. c. has a useful life that is limited to the period of time a company is in business. d. does not have an established depreciable life.

Depreciation is:

a. the difference between the original cost and salvage value of an asset.

b. an effort to achieve proper matching of the cost of operating assets.

c. an accumulation of funds to replace the related plant asset.

d. the cash allocated each period to maintain a plant asset.