Chapter 9 FA

Erin Danielle Electronics purchased equipment and incurred the following costs.

Cash price €24,000

Sales taxes 1,200

Insurance during transit 200

Installation and testing 400

Total costs €25,800

What amount should be recorded as the cost of the equipment?

• a. €24,000.

• b. €25,200.

• c. €25,400.

• d. €25,800.

Additions to plant assets are:

• a. revenue expenditures.

• b. debited to the Maintenance and Repairs Expense account.

• c. debited to the Purchases account.

• d. capital expenditures.

Depreciation is a process of:

• a. valuation.

• b. cost allocation.

• c. cash accumulation.

• d. appraisal.

Micah Bartlett Ltd. purchased equipment on January  1, 2019, at a total invoice cost of £400,000. The equipment has an estimated residual value of £10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation at December 31, 2020, if the straight-line method of depreciation is used, is:

• a. £80,000.

• b. £160,000.

• c. £78,000.

• d. £156,000.

Ann Torbert purchased a truck for €11,000 on January 1, 2019. The truck will have an estimated residual value of €1,000 at the end of 5 years. Using the units-of-activity method, the balance in accumulated depreciation at December 31, 2020, can be computed by the following formula:

• a. (€11,000 ÷ Total estimated activity) × Units of activity for 2020.

• b. (€10,000 ÷ Total estimated activity) × Units of activity for 2020.

• c. (€11,000 ÷ Total estimated activity) × Units of activity for 2019 and 2020.

• d. (€10,000 ÷ Total estimated activity) × Units of activity for 2019 and 2020.

Chang Industries purchased a piece of equipment on January 1, 2020. The equipment cost HK$600,000 and has an estimated life of 8 years and a residual value of HK$80,000. What was the depreciation expense for the asset for 2021 under the doubledeclining-balance method?

• a. HK$65,000.

• b. HK$112,500.

• c. HK$150,000.

• d. HK$65,620.

When there is a change in estimated depreciation:

• a. previous depreciation should be corrected.

• b. current and future years’ depreciation should be revised.

• c. only future years’ depreciation should be revised.

• d. None of the above.

Able Towing purchased a tow truck for £60,000 on January 1, 2018. It was originally depreciated on a straight-line basis over 10 years with an assumed residual value of £12,000. On December 31, 2020, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2020) and the residual value to £2,000. What was the depreciation expense for 2020?

• a. £6,000.

• b. £4,800.

• c. £15,000.

• d. £12,100.

Wales Remodeling applies revaluation accounting to equipment that is recorded on its books at €800,000, with €100,000 of accumulated depreciation after depreciation for the year recorded. It has determined that the asset is now worth €775,000. The entry to record the revaluation would include a:

• a. credit to Equipment of €25,000.

• b. debit to Equipment of €75,000.

• c. credit to Accumulated Depreciation of €100,000.

• d. debit to Revaluation Surplus of €75,000.

Bennie Razors has decided to sell one of its old manufacturing machines on June 30, 2020. The machine was purchased for €80,000 on January 1, 2016, and was depreciated on a straight-line basis for 10 years assuming no residual value. If the machine was sold for €26,000, what was the amount of the gain or loss recorded at the time of the sale?

• a. €18,000.

• b. €54,000.

• c. €22,000.

• d. €46,000.