SMU Classification: Restricted

PRACTICE QUESTIONS – PP&E

____ 1. The balance in the Accumulated Depreciation account represents the

A. amount to be deducted from the cost of the plant asset to arrive at its fair market value.
B. amount charged to expense in the current period.
C. amount charged to expense since the acquisition of the plant asset.
D. cash fund to be used to replace plant assets.

____ 2. Pearson Company bought a machine on January 1, 2010. The machine cost $72,000 and had an expected salvage value
of $12,000. The life of the machine was estimated to be 5 years. Using straight line depreciation, the book value of the
machine at the beginning of the third year would be
A. $60,000.
B. $24,000.
C. $36,000.
D. $48,000.

____ 3. Foyle Company purchased a new van for floral deliveries on January 1, 2010. The van cost $32,000 with an estimated
life of 5 years and $8,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation
will be used. What is the balance of the Accumulated Depreciation account at the end of 2011?
A. $11,520.
B. $20,480.
C. $19,200.
D. $15,360.

____ 4. Equipment costing $20,000 with a salvage value of $4,000 and an estimated life of 8 years has been depreciated using
the straight-line method for 2 years. Assuming a revised estimated total life of 6 years, and no change in the salvage
value, the depreciation expense for Year 3 would be
A. $4,000.
B. $2,667.
C. $3,000.
D. $2,000.

____ 5. A company sells a plant asset that originally cost $180,000 for $60,000 on December 31, 2010. The accumulated
depreciation account had a balance of $90,000 after the current year's depreciation of $15,000 had been recorded. The
company should recognize a
A. $60,000 loss on disposal.
B. $30,000 loss on disposal.
C. $30,000 gain on disposal.
D. $60,000 gain on disposal.

____ 6. Which of the following assets is NOT depreciated, depleted or amortized?

A. Goodwill
B. Land Improvements
C. Patents
D. Mineral deposits
 SMU Classification: Restricted

____ 7. Fences and parking lots are reported on the balance sheet as
A. intangible assets.
B. land improvements.
C. property and equipment.
D. natural assets

____ 8. The sale of a depreciable asset resulting in a loss indicates that the cash received from the sale were
A. less than current market value of the asset.
B. greater than cost of the asset.
C. less than book value of the asset.
D. greater than book value of the asset.

____ 9. On April 1, 2010, Neill Co. purchased machinery for $120,000. Salvage value was estimated to be $5,000. The
machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on
the basis of the nearest full month, determine the depreciation expense for the period January 1 thru December 31, 2011
on this machinery. Commented [HSC1]: If you can’t get the answer, check
A. $20,800 whether you are computing depreciation expense for 2011
B. $20,400. (not 2010).
C. $20,550.
D. $20,933. Also, some of my students asked me what "Computed on the
basis of the nearest full month" means.

____ 10. Williamson Corporation purchased a depreciable asset for $300,000 on January 1, 2008. The estimated salvage value is Suppose that we buy the asset on Jan 2 and fiscal end is Dec
$30,000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. On January 1, 2011, 31. We still count 12 months even though we start from Jan
Williamson changed its estimates to a total useful life of 5 years with a salvage value of $50,000. What is 2011 2 (note that January is not exactly the full month if we start
depreciation expense? from Jan 2).
A. $30,000
B. $50,000 -Follow-up question: Does it mean that if it is Jan 20, we start
C. $90,000 counting from Feb 1st?
D. $80,000 Yes.

____ 11. On January 1, 2002, Mill Corporation purchased for $152,000, equipment having a useful life of ten years and an
estimated salvage value of $8,000. Mill has recorded depreciation of the equipment on the straight-line method. On
December 31, 2010, the equipment was sold for $28,000. As a result of this sale, Mill should recognize a gain of
A. $0.
B. $13,600.
C. $5,600.
D. $28,000.

____ 12. Gardner Corporation purchased a truck at the beginning of 2010 for $75,000. The truck is estimated to have a salvage
value of $3,000 and a useful life of 120,000 miles. It was driven 18,000 miles in 2010 and 32,000 miles in 2011. What is
the depreciation expense for 2011?
A. $20,000
B. $53,333
C. $19,200
D. $32,000
 SMU Classification: Restricted

____ 13. Which of the following most accurately reflects the concept of depreciation as used in accounting? Commented [HSC2]: Why is D incorrect?
A. The process of allocating the cost of tangible assets to expense in a systematic and rational manner D is almost right. However, I wouldn’t choose D as an answer
to those periods expected to benefit from the use of the asset. because even after we fully depreciate the asset, we can still
B. An accounting concept that allocates the portion of an asset used up during the year to the contra use the asset in most cases. We simply don’t record depreci-
asset account for the purpose of properly recording the fair market value of tangible assets. ation expense after the useful life.
C. The process of charging the decline in market value of an economic resource to income in the period
in which the benefit occurred.
D. A method of allocating asset cost to an expense account in a manner which closely matches the
physical deterioration of the tangible asset involved.

____ 14. Goodwill can be recorded as an asset when:

A. An offer is received to purchase the business at a price in excess of the value of the assets
B. A business has above normal profitability compared to other businesses in its industry
C. A business is purchased and payment is made in excess of the fair value of the identifiable net
assets
D. A business can determine that it has created customer goodwill and name recognition

____ 15. Finifter Company purchased a truck on January 1, 2010, for $36,000. At that time, the truck’s useful life was estimated
to be four years with no salvage value. On January 1, 2013, the truck’s useful life was extended by an additional two
years with a $900 salvage value. Using straight-line deprecation, what is the 2013 depreciation expense?
A. $4,050
B. $3,000
C. $4,500
D. $2,700

____ 16. On January 1,2012, Hoangmai Company purchased a new machine for $60,000. Its estimated useful life is eight years
with an expected salvage value of $6,000. Assuming double- declining balance depreciation, depreciation expense for
the financial year ending on December 31, 2013 is:
A. $15,000
B. $10,125
C. $11,250
D. $13,500

____ 17. Reilly Company purchased a tractor at a cost of $60,000 on January 1, 2012. The tractor has an estimated salvage value
of $10,000 and an estimated life of 10,000 hours of operation. The tractor was used 2,400 hours in 2012 and 2,100
hours in 2013. On January 1, 2014, the company decided to sell the tractor. Determine the book value of the tractor on
January 1, 2014.
A. $33,000
B. $37,500
C. $22,500
D. $27,000

____ 18. On October 31, 2011, Terps Company sold some used equipment for $28,000. The equipment had been purchased
several years ago for $60,000. The company properly recorded a $6,000 gain on the sale. The accumulated depreciation
on the equipment at the date of sale was:
A. $32,000
B. $34,000
C. $38,000
D. $26,000
 SMU Classification: Restricted

____ 19. On May 1, 2010, Lumpkin Products purchased machinery for $66,000. The useful life of this machinery is estimated at
5 years, with a $16,000 residual value. The company uses the double-declining-balance method. Depreciation
expense for the fiscal year ending on December 31, 2011 will be:
A. $20,240
B. $18,400
C. $21,067
D. $19,360

____ 20. On January 1, 2011, Georgia Instruments sold a depreciable asset for cash of $200,000, and recognized a gain of
$30,000. The asset had been purchased on January 1, 2006 with an estimated useful life of 10 years, and no salvage
value. What must have been the original cost of the asset? Commented [HSC3]: This question should mention that
A. $330,000 the company uses a straight-line method.
B. $400,000
C. $340,000
D. $460,000

____ 21. Which of the following statements reflect the similarities between amortization and depreciation?
A. They are both methods of adjusting the cost of an asset to its market value.
B. They are both applications of the matching concept.
C. Their calculations always involve allocations based on time.
D. They are methods of recognizing the cash used in maintaining an asset.

____ 22. Gradone Company acquired a dump truck that cost $65,000. The company estimated it could sell the truck for $11,000
at the end of its estimated life of 5 years. Assuming double declining balance depreciation, determine the selling price of
the truck if it is sold for a gain of $11,000 gain at the end of its second full year of use?
A. $32,400
B. $34,400
C. $30,600
D. $30,440

____ 23. Eckard Company reported the following information regarding its only equipment in its balance sheet:
Dec 31, 2012 Dec. 31,2011
Equipment $540,000 $540,000
Accumulated Depreciation $210,000 $180,000

Assume the company uses straight-line depreciation. As of December 31, 2012, how old is the equipment?
A. 12 years
B. 11 years
C. 7 years
D. 6 years

____ 24. Titanium Enterprises purchased the mining rights to a tract of land containing an estimated 16,000 tons of titanium for
$2,700,000. The company estimated it would be able to salvage the land after extracting the minerals for $300,000.
What is the book vale of the asset after year 2, if the company extracted and sold 1,500 tons of titanium in year 1, and
2,000 tons of titanium in year 2?
A. $2,925,000
B. $2,175,000
C. $525,000
D. $1,875,000
 SMU Classification: Restricted

____ 25. Nikhil Manufacturing Company constructed a factory for $500,000 on January 1, 2000. The factory was estimated to Commented [HSC4]: It’s 2012, not 2002. After using it for
have a useful life of 20 years, and a salvage value of $50,000. On January 1, 2012, the company installed a new roof for 12 years, the company changed the assumption.
$21,500, which was capitalized, and changed the total estimated useful life of the factory from 20 to 25 years. Assume
the company uses the straight-line depreciation method, and that the estimated salvage value remains unchanged at My working:
$50,000. What is the company’s depreciation expense for the year ending on December 31, 2012? Accumulated depreciation before installation:
A. $13,846 (500,000-50,000)*12/20=270,000
B. $15,500 Book value before installation: 230,000 (=500,000-270,000)
C. $16,000 Book Value after installation = 230,000 + 21,500 = 251,500
D. $11,654 Depreciation Expense for 2012 = (251,500-50,000) x 1/13
= $15,500
Deleted: ¶
____ 26. The following costs related to the purchase of production equipment were incurred by Wesam Company. Which of the
following items is capitalized?
A. Interest costs incurred to finance the equipment over its five-year useful life
B. Transportation charges to deliver the equipment to Wesam Company
C. Depreciation costs during the first year of the life of the equipment
D. Maintenance expenditures during the first year of equipment use
 SMU Classification: Restricted

ANSWER SECTION

1. ANS: C
2. ANS: D
3. ANS: B
4. ANS: C
5. ANS: B
6. ANS: A
7. ANS: B
8. ANS: C
9. ANS: B
10. ANS: D
11. ANS: C
12. ANS: C
13. ANS: A
14. ANS: C
15. ANS: D
16. ANS: C
17. ANS: B
18. ANS: C
19. ANS: D
20. ANS: C
21. ANS: B
22. ANS: B
23. ANS: C
24. ANS: B
25. ANS: B
26. ANS: B