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Kimmel, Weygandt, Kieso:

Financial Accounting: Tools for Business Decision Making, 5th Edition


Chapter 9

1. Land improvements are not a depreciable asset.


True
A.
False
B.
Improvements to land are frequently items consumed or degraded through use and time.
Because of this, they should be depreciated to allocate part of the cost to periods that
benefited from the land improvements (Land Improvements).

2. Closing costs incurred to purchase a piece of land are included in the cost of the land.
True
A.
False
B.
Closing costs paid in the purchase of a piece of land are considered part of the cost of the
land (Land).

3. Book value is the same as market value.


A.
B.

True
False

Market value represents the value under normal sale conditions. Book value is equal to
acquisition cost less accumulated depreciation (Depreciation).

4. Revenue expenditures are expensed as incurred.


True
A.
False
B.
Revenue expenditures are expensed immediately while capital expenditures are incorporated
into the value of the asset (Expenditures During Useful Life).

5. Research and development costs are an example of an intangible asset.


True
A.
False
B.
Due to the uncertainty of research and development efforts, the related costs are usually
expensed as incurred. Intangible assets are rights, privileges, and competitive advantages
that result from ownership of long-lived assets that do not possess physical substance
(Research and Development Costs).

6. The contra account to Property, Plant and Equipment is Accumulated Amortization.


True
A.
False
B.
The contra account in the Property, Plant and Equipment section of the Balance Sheet is
Accumulated Depreciation (Financial Statement Presentation of Long-Lived Assets).

7. When the book value of a piece of equipment is less than the proceeds from the sale of that
equipment the result is Loss on disposal of plant asset.
True
A.
False
B.
When book value is less than the proceeds from sale the result is Gain on disposal of plant
assets (Gain On Sale).

8.

Which of the following is not a depreciable asset?


Land improvements.
A.
Equipment.
B.
Buildings.
C.
Land.
D.

9. Which of the following costs would not be included in the cost of equipment?
Annual insurance.
A.
Installation.
B.
Testing.
C.

D.

Freight.

10. When using the straight-line depreciation method, which of the following is not a factor
affecting the computation of depreciation?
Useful life.
A.
Salvage value.
B.
Book value.
C.
Cost.
D.

11. Which depreciation method calculates annual depreciation expense based on book value at
the beginning of each year?
Straight-line.
A.
MACRS.
B.
Units-of-activity.
C.
Declining balance.
D.

12.

When an asset is retired the gain or loss is:


recognized as a gain or loss on sale of assets.
A.
zero.
B.
sale
amount
minus
book
value.
C.
D. subtracted from the Accumulated Depreciation account.

13. Coronado Company purchased land for $80,000. The company also paid $12,000 in
accrued taxes on the property, incurred $5,000 to remove an old building, and received
$2,000 from the salvage of the old building. The land will be recorded at:
$80,000.
A.
$95,000.
B.
$92,000.
C.
$83,000.
D.

14. Otay Company purchased land for $70,000 on 12/31/09. As of 5/30/10, the land's value
had increased to $71,500. On 12/31/10, the land was appraised for $74,000. The Land
account should be increased by:
$4,000.
A.
$1,150.
B.
$2,500.
C.

D.

$0.

15. A purchase of equipment for $18,000 also involved freight charges of $500 and installation
costs of $2,500. The estimated salvage value and useful life are $2,000 and 4 years,
respectively. Under the straight-line method, annual depreciation expense will be:
$4,750.
A.
$4,500.
B.
$4,125.
C.
$4,625.
D.

16. Monthly depreciation expense of $600 is recorded on a truck that was purchased for
$27,000 and has a $3,000 estimated salvage value. The annual depreciation rate is:
25%.
A.
27%.
B.
30%.
C.
33%.
D.

17. On September 1, 2010, Dulzura Company purchased an asset for $9,000, with a $1,500
estimated salvage value, and a 4-year useful life. The 2010 depreciation expense using the
straight-line method would be:
$625.
A.
$750.
B.
$1,875.
C.
$2,250.
D.

18. An asset purchased on January 1 for $48,000 has an estimated salvage value of $3,000.
The current year's depreciation expense is $5,000 and the balance of the Accumulated
Depreciation account, after adjustment, is $20,000. If the company uses the straight-line
method, what is the asset's remaining useful life?
9 years.
A.
4 years.
B.
8 years.
C.
5 years.
D.

19. On January 1, 2008, Jamacha Company purchased some equipment for $15,000. The
estimated salvage value and useful life are $3,000 and 4 years, respectively. On January 1,

2010, the company determines that the asset's remaining useful life is 3 years. What is the
revised depreciation expense for 2010 if the company uses the straight-line method?
$2,500.
A.
$2,000.
B.
$4,000.
C.
$2,250.
D.

20. On April 1, 2010 La Presa Company sells some equipment for $18,000. The original cost
was $50,000, the estimated salvage value was $8,000, and the expected useful life was 6
years. On December 31, 2009 the Accumulated Depreciation account had a balance of
$29,400. The gain or loss on the sale was:
$2,600 loss.
A.
$300 gain.
B.
$850 loss.
C.
$5,400 gain.
D.

21. On March 1, 2010, Moreno Company purchased a patent from another company for
$90,000. The estimated useful life of the patent is 10 years, and its remaining legal life is
15 years. Amortization expense for 2010 is:
$9,000.
A.
$7,500.
B.
$6,000.
C.
$5,000.
D.

22. A company has the following asset account balances:

The total amount reported on the balance sheet under Property, Plant, & Equipment would
be:
$14,000,000.
A.
$13,000,000.
B.
$12,800,000.
C.
$13,550,000.
D.

23. Given the following account balances at year end, what are total intangible assets on the
balance sheet of Anisha Enterprises?

A.
B.
C.
D.

$11,500,000.
$7,500,000.
$5,500,000.
$9,500,000.

24. Ohle Industries Inc. average total assets for the year was $4,000,000, its net income was
$800,000, and its net sales were $10,000,000. What was its return on assets ratio?
40%.
A.
8%.
B.
20%.
C.
25%
D.

25. If you bought a new truck for $40,000 for your auto parts delivery service, and you
estimated that the truck would last you 200,000 miles with a salvage value of $4,000, what
would be your depreciation expense for the first year in which you used the truck for
12,500 miles?
$2,500.
A.
$2,250.
B.
$2,000.
C.
$1,250.
D.