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Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record:


A) A gain on sale of $2,000.
B) A loss on sale of $45,000.
C) A loss on sale of $5,000.
D) A loss on sale of $2,000.
E) A gain on sale of $5,000.

F) B) and E)
G) A) and C)

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Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

A) True
B) False

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The term, obsolescence, as it relates to the useful life of an asset, refers to:


A) The end of an asset's useful life.
B) Intangible assets that have been fully amortized.
C) The insufficient capacity of a company's plant assets to meet the company's productive demands.
D) A plant asset that is no longer useful in producing goods and services with a competitive advantage.
E) An asset's salvage value becoming less than its replacement cost.

F) D) and E)
G) All of the above

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Land improvements are:


A) Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation.
B) Expensed in the period incurred.
C) Included in the cost of the land account.
D) Assets that increase the usefulness of land, and like land, are not depreciated.
E) Also called basket purchases.

F) A) and B)
G) C) and D)

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Owning a patent:


A) Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.
B) Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
C) Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.
D) Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.
E) Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately.

F) D) and E)
G) B) and D)

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A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 17 years.

A) True
B) False

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Revenue expenditures:


A) Are debited to asset accounts when incurred.
B) Extend the asset's useful life.
C) Are additional costs of plant assets that do not materially increase the asset's life or its productive capabilities.
D) Are known as balance sheet expenditures because they relate to plant assets.
E) Substantially benefit future periods.

F) A) and B)
G) A) and C)

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Plant assets are reported on a balance sheet at their undepreciated costs (book value), not at fair (market)values.

A) True
B) False

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Holding a copyright:


A) Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.
B) Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 20 years.
C) Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
D) Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately.
E) Gives its owner an exclusive right to manufacture and sell a patented item or to use a process for 20 years.

F) All of the above
G) C) and D)

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The Modified Accelerated Cost Recovery System (MACRS)is part of the U.S. federal income tax laws and may be used for financial reporting.

A) True
B) False

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Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. What journal entry would be needed to record the machines' second year depreciation under the units-of-production method?


A) Debit Depletion Expense $16,900; credit Accumulated Depletion $16,900.
B) Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900.
C) Debit Depletion Expense $16,000; credit Accumulated Depletion $16,000.
D) Debit Amortization Expense $16,900; credit Accumulated Amortization $16,900.
E) Debit Depreciation Expense $16,000; credit Accumulated Depreciation $16,000.

F) None of the above
G) C) and D)

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A total asset turnover ratio of 3.5 indicates that:


A) For every $1 in assets, the firm earned $3.50 in net income.
B) For every $1 in assets, the firm produced $3.50 in net sales during the period.
C) For every $1 in assets, the firm paid $3.50 in expenses during the period.
D) For every $1 in assets, the firm earned gross profit of $3.50 during the period.
E) For every $1 in sales, the firm acquired $3.50 in assets during the period.

F) A) and D)
G) C) and D)

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If a machine is damaged during unpacking, the repairs are added to its cost.

A) True
B) False

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Depletion is:


A) Also called amortization.
B) An increase in the value of a natural resource when incurred.
C) Calculated using the double-declining balance method.
D) The process of allocating the cost of natural resources to the period when it is consumed.
E) The process of allocating the cost of intangibles to periods when they are used.

F) All of the above
G) C) and D)

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Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

A) True
B) False

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Total asset cost plus depreciation expense equals book value.

A) True
B) False

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Ordinary repairs meet all of the following criteria except:


A) Are necessary if an asset is to perform to expectations over its useful life.
B) Include cleaning, lubricating, and normal adjusting.
C) Extend the useful life of an asset beyond its original estimate.
D) Are treated as expenses.
E) Are expenditures to keep an asset in normal operating condition.

F) B) and E)
G) B) and D)

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Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the double-declining-balance method.


A) $17,400.
B) $20,880.
C) $16,000.
D) $18,379.
E) $16,900.

F) A) and B)
G) A) and C)

Correct Answer

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Duncan reported net sales of $2,523 million and average total assets of $1,476 million. Its total asset turnover equals 1.71.

A) True
B) False

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Gaston owns equipment that cost $90,500 with accumulated depreciation of $61,000. Gaston asks $30,000 for the equipment but sells the equipment for $26,000. Which of the following would not be part of the journal entry to record the disposal of the equipment?


A) Credit Gain on Disposal of Equipment $3,500.
B) Debit Accumulated Depreciation $61,000.
C) Debit Loss on Disposal of Equipment $3,500.
D) Credit Equipment $90,500.
E) Debit Cash $26,000.

F) All of the above
G) A) and D)

Correct Answer

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