Lecture 8 Extra Questions Answers

Question 1
Presto Company purchased equipment and these costs were incurred:
Cash price $27,500
Sales taxes 1,800
Insurance during transit 320
Installation and testing 430
Total costs $30,050
Presto will record the acquisition cost of the equipment as
a. $27,500.
b. $29,300.
c. $29,620.
d. $30,050.
Ans: D
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Question 2
Which one of the following items is not a consideration when recording periodic depreciation
expense on plant assets?
a. Residual value
b. Estimated useful life
c. Cash needed to replace the plant asset
d. Cost
Ans: C
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Question 3
A truck was purchased for ¥300,000 and it was estimated to have a ¥60,000 residual value at
the end of its useful life. Monthly depreciation expense of ¥5,000 was recorded using the
straight-line method. The annual depreciation rate is
a. 20%.
b. 2%.
c. 8%.
d. 25%.
Ans: D 300,000-60,000=240,000. 60,000 (5,000x12) X100/240,000 =25%

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Question 4
On July 1, 2020, Hale Kennels sells equipment for $80,000. The equipment originally cost
$300,000, had an estimated 5-year life and an expected residual value of $50,000. The
accumulated depreciation account had a balance of $225,000 on January 1, 2020, using the
straight-line method. The gain or loss on disposal is
a. $45,000 gain.
b. $30,000 loss.
c. $45,000 loss.
d. $30,000 gain.
Ans: D
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Question 5
Orr Corporation sold equipment for $20,000. The equipment had an original cost of $60,000
and accumulated depreciation of $30,000. As a result of the sale,
a. net income will increase $20,000.
b. net income will increase $10,000.
c. net income will decrease $10,000.
d. net income will decrease $20,000.
Ans: C
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Question 6
If an asset costing 10,000 has a salvage value of 2,000, what is the depreciation expense for
year 5 using the declining balance method at a rate of 20%?
a. 819 10000X20=2000 8000
b. 3,277 8000X20%=1600 6400

c. 2,000
d. 1,745
Ans: b (b) is book value. Correct answer is (a) Depreciation expense for year 5
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Question 7

2
If an asset costing 16,000 is depreciated using the declining balance method at the rate of
40%, what is the net book value of the asset at the end of year 2?
a. 9,600 16000X40%=6400 9600
b. 3,840 9600X40%=3840 5760
c. 5,760
d. 4,860
Ans: C
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Question 8
What is another name for the declining balance method?
a. Activity method
b. Reducing balance method
c. Residual value method
d. Unit method
Ans: b
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Question 9
Payne Company purchased equipment in 2013 for $90,000 and estimated a $6,000 residual
value at the end of the equipment’s 10-year useful life. At December 31, 2019, there was
$58,800 in the Accumulated Depreciation account for this equipment using the straight-line
method of depreciation. On March 31, 2020, the equipment was sold for $26,000.
Prepare the appropriate journal entries to remove the equipment from the books of Payne
Company on March 31, 2020.
Answer
(a) Depreciation Expense.................................................................... 2,100
Accumulated Depreciation—Equipment............................... 2,100
(To record depreciation expense for the first 3 months of
2020. $8,400 × 1/4 = $2,100)
Cash.............................................................................................. 26,000
Loss on Disposal (Difference)....................................................... 3,100
Accumulated Depreciation—Equipment ($58,800 + $2,100)........ 60,900
Equipment............................................................................. 90,000
(To record sale of equipment at a loss)

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Question 10

3
Donahue Company sold office equipment that had a book value of $7,000 for $8,000. The
office equipment originally cost $20,000 and it is estimated that it would cost $25,000 to
replace the office equipment.
Prepare the appropriate journal entry to record the disposition of the office equipment.
Answer
Cash 8,000
Accumulated Depreciation—Equipment 13,000
Equipment 20,000
Gain on Disposal of Plant Assets (Difference) 1,000
(To record disposal of office equipment at a gain)
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Question 11
Tidwell Company sold Machine A in 2020, the details of which are given below:

Machine A
Cost $118,000
Purchase date 7/1/16 July 1, 2016
Useful life 8 years
Residual value $6,000
Depreciation method Straight-line
Date sold 7/1/20 July 1, 2020
Sales price $55,000
Instructions
Journalize all entries required to update depreciation and record the sales of Machine A in
2020. The company has recorded depreciation on the machine through December 31, 2019.

Answer
July 1 Depreciation Expense................................................................. 7,000
Accumulated Depreciation—Machine A............................ 7,000
($118,000 – $6,000)×1/8×6/12 = $7,000
Cash........................................................................................... 55,000
Accumulated Depreciation—Machine A*.................................... 56,000
Loss on Disposal ($62,000 – $55,000) (Difference)................... 7,000
Machine A.......................................................................... 118,000
*2016 ($118,000 – $6,000) × 1/8 × 6/12 = $7,000
2017 ($118,000 – $6,000) × 1/8 = $14,000
2018 $14,000
2019 $14,000
2020 ($118,000 – $6,000) × 1/8 × 6/12 = $7,000
Total accumulated depreciation at date of disposal = $56,000

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