ACCT 2101 Exam 4 Review

Anniston Company purchased equipment and incurred the following costs:

Purchase Price: $68,500

Cost of Trial Runs: $400

Installation Costs: $325

Sales Tax: $3,425

What is the cost of the equipment?

• $68,500

• $71,925

• $72,250

• $72,650

Answer explanation

Cost = purchase price + any cost necessary to prepare asset for intended use

$68,500 + $400 + $325 + $3,425 = $72,650

The cost principle requires that companies record fixed assets at:

• Fair Value

• Book Value

• Historical Cost

• Market Value

When depreciation is recorded each period, what account is debited?

• Depreciation Expense

• Cash

• Accumulated Depreciation

• The Fixed Asset account involved

Answer explanation

Depreciation Expense is debited

Accumulated Depreciation is credited

Winter Company purchased equipment for $51,000 on January 1, 2019. The equipment is expected to have a residual value of $6,000 at the end of its 5-year useful life.

Compute the depreciation expense for 2019, 2020, and 2021 using the Straight Line Depreciation Method.

• $7,500

• $9,000

• $9,500

• $8,000

Answer explanation

Straight Line Depreciation = (Cost - Residual Value) / Useful Life

($51,000 - $6,000) / 5 yrs = $9,000 for 2019 - 2021

Depreciation Expense is same every year using the Straight Line Method.

Winter Company purchased equipment for $51,000 on January 1, 2019. The machine is expected to have a salvage value of $6,000 at the end of its 5-year useful life.

Compute the depreciation expense for 2019, 2020, and 2021 using the Double Declining Balance Method.

• $20,300 - 2019

  $11,240 - 2020

  $8,334 - 2021

• $21,000 - 2019

  $10,420 - 2020

  $4,337 - 2021

• $22,140 - 2019

  $9,024 - 2020

  $6,356 - 2021

• $20,400 - 2019

  $12,240 - 2020

  $7,344 - 2021

Answer explanation

Double Declining Depreciation

1/useful life x 2= Declining Balance Rate

Declining Balance Rate x Book Value = Depreciation Expense

1/5 = 0.20 x 2 = 0.40

0.4 x 51,000 = 20,400 - 2019 depreciation exp

51,000 - 20,400 = 30,600 - 2019 Book Value

0.4 x 30,600 = 12,240 - 2020 depreciation exp

30,600 - 12,240 = 18,360 - 2020 Book Value

0.4 x 18,360 = 7,344 - 2021 depreciation exp

Winter Company purchased equipment for $51,000 on January 1, 2019. The machine is expected to have a salvage value of $6,000 at the end of its 5-year useful life. The machine is expected to be used for 5,000 machine hours.

The actual machine hours are:

2019 - 1,200

2020 - 800

2021 - 1,150

Compute the depreciation expense for 2019, 2020, and 2021 using the Units of Production Method.

• $11,700 - 2019

  $8,100 - 2020

  $11,250 - 2021

• $10,800 - 2019

  $7,200 - 2020

  $10,350 - 2021

• $9,600 - 2019

  $6,300 - 2020

  $9,150 - 2021

• $10,700 - 2019

  $7,300 - 2020

  $10,350 - 2021

Answer explanation

Units of Production Method:

Depreciation Cost per Unit x Actual Usage of Asset

Depreciation Cost per Unit = (Cost - Salvage Value) / Expected Usage of Asset

($51,000 - $6,000)/ 5,000 = $9.00

9 x 1,200 = $10,800 - 2019 depreciation exp

9 x 800 = $7,200 - 2020 depreciation exp

9 x 1,150 = $10,350 - 2021 depreciation exp

Which of the following is not an intangible asset?

• Patent

• Trademark

• Research and Development

• Goodwill

Answer explanation

Research and Development is not an Asset.

Jerabek Inc. decided to sell one of its fixed assets that had a cost of $55,000 and accumulated depreciation of $35,000 on July 1, 2019. On that date, Jerabek sold the fixed asset for $15,000. What was the resulting gain or loss from the sale of the asset?

• $5,000 loss

• $5,000 gain

• $15,000 loss

• $15,000 gain

Answer explanation

Proceeds from Sale: $15,000

Less: Book Value

Cost: $55,000

Acc Depr: ($35,000) $20,000

Loss on Disposal: $5,000

Fixed Asset Turnover is...

• Net Income / Beginning Fixed Assets

• Net Revenue / Ending Fixed Assets

• Net Sales / Average Fixed Assets

• Net Sales / Age of Fixed Assets

Average Age of Fixed Assets is...

• Accumulated Depletion / Depletion Expense

• Accumulated Depreciation / Depreciation Expense

• Accumulated Amortization / Amortization Expense

• Accumulated Expense / Expenses