Chapter 7 Quiz

Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Salaries paid to repair the damaged hose that came with the equipment totaled $2,400. Materials used up in testing cost $3,000. Sales tax paid of $12,000. What is the total cost of the equipment? How much of this amount should be expensed immediately?

• Total Asset Cost = $469,400

  Amount to be expensed = $0

• Total Asset Cost = $467,000

  Amount to be expensed = $2,400

• Total Asset Cost = $455,000

  Amount to be expensed = $14,400

• Total Asset Cost = $2,400

  Amount to be expensed = $467,000

Taco Hut purchased equipment on May 1, 2015, for $15,000. Residual value at the end of an estimated 8 year service life is expected to be $3,000. Calculate depreciation expense using the straight-line method for 2015 and 2016, assuming a December 31 year-end.

• 2015 = $1,000

  2016 = $1,500

• 2015 = $1,500

  2016 = $1,500

• 2015 = $1,000

  2016 = $1,000

• 2015 = $1,875

  2016 = $1,875

Hubbyville purchases a delivery van for $23,500. Hubbyville estimates a four-year service life and a residual value of $2,500. During the four-year period, the company expects to drive the van 105,000 miles. Calculate annual depreciation for the four-year life of the van using each of the following methods. Round all amounts to the nearest dollar. Activity-based. Actual miles driven each year were 24,000 miles in Year 1; 26,000 miles in Year 2; 22,000 miles in Year 3; and 25,000 miles in Year 4. Note that actual total miles of 97,000 fall short of expectations by 8,000 miles.

• Year 1: $5,000

  Year 2: $4,400

  Year 3: $5,200

  Year 4: $4,800

• Year 1: $5,875

  Year 2: $5,875

  Year 3: $5,875

  Year 4: $5,875

• Year 1: $4,000

  Year 2: $4,800

  Year 3: $5,000

  Year 4: $4,400

• Year 1: $4,800 

   Year 2: $5,200

  Year 3: $4,400 

  Year 4: $5,000

Strawberry Fields purchased a tractor at a cost of $38,000 and sold it two years later for $25,000. Strawberry Fields recorded depreciation using the straight-line method, a five-year service life, and an $8,000 residual value. What was the gain or loss on the sale? Record the sale.

• Journal Entry:

  (Debit) Cash                25,000

  Accum. Dep. 12,000

  Loss                 1,000

  (Credit) Equipment      38,000

• Journal Entry:

  (Debit) Cash                25,000

  Accum. Dep. 12,000

  (Credit) Equipment      37,000

  Gain 1,000

• Journal Entry:

  (Debit) Cash                38,000

  (Credit) Equipment      38,000

• Journal Entry:

  (Debit) Cash                25,000

  Loss                 1,000

  (Credit) Equipment      26,000

• Assets $600,000; Expenses $0

• Assets $350,000; Expenses $250,000

• Assets $250,000; Expenses $350,000

• Assets $0; Expenses $600,000

• $12,000

• $16,000

• $4,000

• $8,000

• $108,333

• $122,500

• $81,667

• $106,667

• $5,900

• $5,750

• $5,700

• $6,300