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Accounting Ch. 7 Quiz

Burncroft, Inc., purchased a tract of land, a small office building, and some equipment for $1,550,000. The appraised value of the land was $1,100,000, the building $600,000, and the equipment $300,000. What is the cost of the land?
$852,500
Which statement is false?
Depreciation creates a fund to replace the asset at the end of its useful life
On October 1, 2014, Planned communication purchased a new piece of equipment that costs $60,000. The estimated useful life is ten years and estimated residual value is $10,000.
$1,250
Assume Freedom Communication purchased a new piece of equipment on January 1, 2014 that cost $35,000. The estimated useful life is ten years and estimated residual value is $2,000. If freedom uses the straight line method of depreciation, what is the assets book value at the end of 2015?
$28,400
Assume Freedom Communications purchased a new piece of equipment on January 1, 2014 that cost $65,000. The estimate useful life is five years and estimated residual value is $2,000.
Use the double declining balance method.
$15,600
On October 1, 2014, Anywhere Communications purchased a new piece of equipment that cost $55,000. The estimated useful life is ten years and estimated residual value is $2,000. Assume that anywhere uses the straight line method of depreciation and sells the equipment for $42,800 on October 1, 2018. The result of the sale of the equipment is a gain (loss) of
$9,000
A company bought a new machine for $22,000 on January 1. The machine is expected to last ten years and to have a residual value of $5,000. If the company uses the double declining balance method, accumulated depreciation at the end of year 2 will be
$7,920
Which of the following is not a capital expenditure?
A tune up of a company vehicle
Which of the following assets is not subject to a decreasing book value through depreciation, deflation, or amortization.
Goodwill
Why would a business select an accelerated method of depreciation for tax purposes?
Accelerated depreciation generated higher depreciation expense immediately, and therefore lowers tax payments in the early years of the asset’s life.
A company purchased an oil well for $220,000. It estimates that the well contains 20,000 barrels, has an eight year life, and no salvage value. If the company extracts and sells 8,000 barrels of oil in the first year, how much in cost of sales should be recorded?
$88,000
Which item among the following is not an intangible asset?
all of the above are intangible assets
An important measure of probability is
return on assets (ROA)
In 2014, total asset turnover for JBC company has increased. This means that the
company has become more effective and more efficient
A capital expenditure
adds to an asset
Which of the following items should be accounted for as a capital expenditure
Taxes paid in conjunction with the purchase of office equipment
Suppose you buy land for $3,000,000 and spend $1,000,000 to develop the property.
15 Hilltop lots…. $480,000
15 valley lots……$270,000
How much did the hilltop lot cost you?
$170,667
At the beginning of last year, Oxford Corporation purchased a piece of heavy equipment for $96,000. The equipment has a life of five years or 100,000 hours. The estimated residual value is $6,000. Bremen used the equipment for 18,000 hours last year and 25,000 hours this year. Depreciation expense for year 2 using double declining balance (DDB) and units of production (UOP) would be as follows:
DDB: $23,040
UOP: $22,500
Tulsa Corporation accquired a machine for $34,000 and has recorded depreciation for 2 years using the straight line method over a 5 year life and $7,000 residual value. At the start of the third year of use, Tulsa revised the estimated useful life to a total of 10 years. Estimated residual value declined to $0. How much depreciation should Tulsa record in each of the assets last 8 years, following the revision?
$2,900
Kline Company failed to record depreciation of equipment. How does this omission affect Kline’s financial statements?
Net income is overstated and assets are overstated
Suzy Beauty Inc., uses the double declining balance method for depreciation on its computers. Which item is not needed to compute depreciation for the first year?
Estimated residual value
Which of the following costs are reported on a company income statement and balance sheet?
Income statement: Cost of goods sold
Balance Sheet: Accumulated depreciation
Maxwell Company purchased a machine for $11,600 on January 1, 2014. The machine has been depreciated using the straight line method over a 4 year life and $800 residual value. Maxwell sold the machine on January 1, 2016, for $8,000. What is the straight line depreciation for the year ended December 31, 2014, and what is the book value on December 31, 2015?
December 31, 2014 depreciation is $2,700
December 31, 2015 book value is 6,200
Data World Inc., reported sales revenue of $500,000, net income of $36,000, and average total assets of $400,000. Data Worlds return on asset is
9%
Net book value…$1,200,000
Estimated future cash flows… 990,000
Fair (market) value…. 867,000
$333,000
Suppose Quick travel pays $68 million to buy Lone Circle Overnight. The fair value of Lone Circles asset is $78 million, and the fair value of its liabilities is $21 million. How much goodwill did Quick Travel purchase in its acquisition of Lone Circle Overnight?
$11 million
A company purchased mineral assets costing $860,000 with estimated residual value of $74,100, and holding approximately 290,000 tons of one. During the first year,50,000 tons are extracted and sold. What is the amount of depletion for the first year
$135,500
Peters Company purchased a machine for $12,200 on january 1, 2014. The machine has been depreciated using the straight line method over a 4 year life and 1,400 residual value. Peters sold the machine on January 1, 2016 for $7,600. The book value as of December 31, 2015 is $6,800. What gain or loss should Peters record on the sale?
Gain $800

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