Accounting Depreciation and Expense Questions

We normally report a long-term asset at the

• Cost of the asset only.

• Cost of the asset plus all costs necessary to get the asset ready for use.

• Appraised value.

• Cost of the asset, but subsequently adjust it up or down to appraised value.

At what amount should Sandwich Express report the bread machine? (LO7–1)

• $20,000.

• $21,600.

• $24,200.

• $25,200.

Research and development costs (LO7–2)

• Are reported as research and development assets.

• Are capitalized and then amortized.

• Should be included in the cost of the patent they relate to.

• Should be expensed.

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar’s assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar’s assets and liabilities is not known. How much goodwill is associated with the purchase? (LO7–2)

• $800,000.

• $600,000.

• $500,000.

• $700,000.

Which of the following expenditures should be considered an expense? (LO7–3)

• Repairs and maintenance that maintain current benefits.

• Adding a major new component to an existing asset.

• Replacing a major component of an existing asset.

• Successful legal defense of an intangible asset.

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset’s life?

• Short service life, high residual value, and straight-line depreciation.

• Long service life, high residual value, and straight-line depreciation.

• Short service life, high residual value, and double-declining-balance depreciation.

• Long service life, high residual value, and double-declining-balance depreciation.

The balance in the Accumulated Depreciation account represents

• The amount charged to expense in the current period.

• A contra expense account.

• A cash fund to be used to replace plant assets.

• The amount charged to depreciation expense since the acquisition of the plant asset.

The book value of an asset is equal to the

• Replacement cost.

• Asset’s cost less accumulated depreciation.

• Asset’s fair value less its historical cost.

• Historical cost plus accumulated depreciation.

Equipment was purchased for $50,000. At that time, the equipment was expected to be used 8 years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated service life to a total of 6 years (4 years remaining) and the residual value to $8,000. What is depreciation expense in the third year? (LO7–4)

• $5,000

• $6,250

• $4,000

• $8,000

Equipment was purchased for $50,000. The equipment is expected to be used 15,000 hours over its service life and then have a residual value of $10,000. In the first 2 years of operation, the equipment was used 2,700 hours and 3,300 hours, respectively. What is the equipment’s accumulated depreciation at the end of the second year using the activity-based method?

• $16,000.

• $7,200.

• $8,700.

• $20,000.