Chapter 09
Property, Plant and Equipment Intangibles

True / False Questions
 
1. Property, plant and equipment are assets held for sale. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
2. Non-current assets are any liabilities that are used in the operations of a business. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
3. Non-current assets can be divided into two groups including tangible and intangible assets. These assets are generally used in operations of a business and have useful lives extending over more than one accounting period. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)

4. Land purchased as a building site is a tangible asset called property, plant and equipment and is classified under the "Long-term Investments" section on the balance sheet. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
5. The cost of an asset includes all normal and reasonable expenditures necessary to get it in place and ready for its intended use. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
6. If a machine is damaged during unpacking, the repairs are added to its cost. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
7. To be charged to and reported as part of the cost of property, plant and equipment, an expenditure must be normal, reasonable, and necessary in preparing the asset for its intended use. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE

8. The purchase of real estate that includes land, building, and land improvements is called a lump-sum purchase. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-11 Lump-Sum Asset Purchase
 
9. Any expenditures for legal fees, surveying, and accrued property taxes should not be included in the cost of land. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
10. Revenue expenditures are additional costs of property, plant and equipment that provide material benefits extending beyond the current period. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
11. Revenue expenditures are expenditures to keep assets in normal operating condition. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE

12. Capital expenditures are also called balance sheet expenditures. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
13. SportsWorld spent $17,000 to remodel its store. This cost will be recognized with a debit to Store Building. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-03 Subsequent Expenditures
 
14. Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-05 Low-Cost Asset Purchases
 
15. The cost principle requires that an asset be recorded at the cash or cash equivalent amount given in exchange. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE

16. Subsequent expenditures are purchases made after the acquisition of equipment to operate, maintain, repair, and improve it. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-03 Subsequent Expenditures
 
17. Because land has unlimited life, it is not subject to depreciation. Therefore, items that increase the usefulness of the land such as parking lots are also not depreciated. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-07 Land Improvements
 
18. Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner over the asset's estimated useful life. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-12 Depreciation
 
19. Residual value is an estimate of an asset's value at the end of its useful life. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation

20. Inadequacy refers to the condition where the capacity of a property, plant and equipment item is too small to meet the company's productive demands. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation
 
21. Depreciation should always be recorded as soon as an asset is purchased. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-12 Depreciation
 
22. Depreciation measures the decline in market value of an asset. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
23. On the balance sheet, it is not necessary to report both the cost and the accumulated depreciation of an asset. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets

24. Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets
 
25. The full disclosure principle allows us to record an asset costing $50 as a revenue expenditure 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets
 
26. Regardless of the method of depreciation, total depreciation expense will be the same over an asset's useful life. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

27. Financial accounting and tax accounting require the same recordkeeping; therefore, there should be no difference in results between the two accounting systems. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
28. Companies are required to use the straight-line depreciation method for tax purposes because this method yields the lowest depreciation expense and results in the highest payment of tax. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
29. The Income Tax Act requires that companies use a declining-balance method for calculating the maximum capital cost allowance that may be claimed in any period 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

30. The most frequently used method of depreciation is the straight-line method. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
31. The cost of an asset plus its accumulated depreciation equals the asset's book value. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-13 Reporting Depreciation on Assets
 
32. The units of production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
33. An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's life and larger charges in later years. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

34. The double-declining balance method is applied by (1) calculating the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting residual value from cost, and (4) multiplying the rate times the cost. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
35. SportsWorld purchased store equipment for $65,000. The equipment has an estimated residual value of $6,000, with an estimated useful life of 10 years. The annual depreciation using the straight-line method will be $3,900 per year. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
36. A company is required to purchase all assets at the beginning of an accounting period so that a full year's worth of depreciation can be taken. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

37. Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on June 28. Using the nearest whole month method, the company would recognize $11,250 for depreciation expense at the end of the first year, December 31. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Comparing Depreciation Methods
 
38. A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year, if the fiscal year ends on December 31 using nearest whole month method. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Comparing Depreciation Methods
 
39. The half year rule is the partial-year depreciation method that calculates depreciation by determining if the asset was used for more than half of the month. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Comparing Depreciation Methods
 
40. Because depreciation is based on predictions of residual value and useful life, depreciation is an estimate. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-15 Depreciation Methods

41. Machinery after two years worth of depreciation has an opening book value of $6,400. At the beginning of the third year, the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400. The revised annual depreciation using the straight-line method is $1,500. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation
 
42. An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a residual value of $400. Using the straight-line method, the revised depreciation will be $500 per year. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation
 
43. When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation

44. Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation
 
45. An asset with a current book value of $5,000 has a current market value of $2,000. The company should recognize an impairment loss of $3,000. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates
 
46. If the book value of a property, plant and equipment item is less than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates
 
47. Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological, economic, or legal factors. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates

48. Impairment losses must be assessed by companies on an annual basis. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates
 
49. The gain or loss from disposal of property, plant and equipment is the difference between an asset's book value and the value received. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets
 
50. Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Disposals of PPE
 
51. The first step in accounting for the disposal of property, plant and equipment is calculating the gain or loss on disposal. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Disposals of PPE

52. Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000. The company should recognize a $1,000 loss on disposal of the equipment. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-21 Discarding PPE
 
53. At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation of the plant asset to the date of disposal. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Disposals of PPE
 
54. When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record the removal of the asset is called exchanging the equipment. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
55. When assigning values to an exchange of assets you should use the fair value of the asset given up. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE

56. When assigning values to an exchange of assets you should always use the fair value of the asset received. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
57. A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for a specified period of time. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-25 Accounting for Intangible Assets
 
58. Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-24 Intangible Assets
 
59. Amortization is the process of allocating the cost of intangibles over their estimated useful life. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-24 Intangible Assets

60. Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-27 Copyrights
 
61. Intangible assets provide rights, privileges, and competitive advantages to the owner, are used in operations, and have no physical substance. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-23 Exchanging PPE
 
62. 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 20 years. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-26 Patents
 
63. The cost of developing, maintaining, or enhancing the value of a trademark is capitalized, or added to the value of the asset when incurred. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-28 Mineral Resources

64. Goodwill is an intangible asset. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-23 Exchanging PPE
 
65. Goodwill is not depreciated or amortized but is instead decreased only if its value has been determined by management to be impaired. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Leaseholds
 
66. Goodwill is depreciated over its useful life as estimated by the business's management. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Leaseholds
 
67. Goodwill is written down to its fair value if the fair value is less than its carrying value. 
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Leaseholds

68. The impairment of goodwill appears directly on the statement of changes in equity and not on the income statement. 
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Leaseholds

Multiple Choice Questions
 
69. On January 1 of this year, SportsWorld purchased a new cash register for $5,400. This register has a useful life of 10 years and a residual value of $400. Using the double-declining-balance method, how much depreciation expense should SportsWorld recognize for next year? 
A. $500
B. $540
C. $1,000
D. $864
E. $1,080

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

70. SportsWorld purchased equipment costing $10,000. The equipment has a residual value of $1,000, and an estimated useful life of 5 years or 36,000 shoes. Actual units produced during the year were 7,000 units. Calculate annual depreciation using the straight line method. 
A. $1,800
B. $4,000
C. $1,450
D. $2,000
E. $1,750

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
71. On October 1 of this year, SportsWorld purchased a delivery van for $23,000 with a residual value of $3,000. The van has an estimated useful life of 5 years. Using straight-line depreciation and the half-year rule, how much depreciation expense should SportsWorld recognize on December 31 of this year? 
A. $1,000
B. $1,333
C. $1,465
D. $2,000
E. $4,600

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Comparing Depreciation Methods

72. SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a trade-in value of $2,000, and a five-year service life. At the end of the third year, the trade-in value was revised to $1,200 and the useful life increased to a total of 6 years. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life. 
A. $1,000
B. $1,467
C. $1,800
D. $1,600
E. $2,160

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation
 
73. JoyCo acquired equipment on April 1, 2022, at a cost of $90,000 and with an estimated useful life of 10 years. The machine has a residual value of $10,000. JoyCo uses the double-declining-balance method of depreciation. How much depreciation should be recorded by JoyCo for the year ended December 31, 2022? 
A. $8,000
B. $9,000
C. $10,000
D. $13,500
E. $12,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

74. SportsWorld bought a new display case for $12,000 and was given a trade-in of $2,000 on an old display case. The old case had an original cost of $7,000 and accumulated depreciation of $4,000 to the date of trade-in. SportsWorld should record the new display case at: 
A. $10,000
B. $10,500
C. $11,500
D. $11,700
E. $12,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
75. At the end of the year, SportsWorld completed an asset impairment test and noted that a piece of equipment, with a book value of 12,000, has a recoverable value of $2,000. Calculate the amount of impairment loss on the equipment. 
A. $2,000
B. $2,160
C. $14,800
D. $12,800
E. $10,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates
 
76. SportsWorld purchased property for a building site. The costs associated with the property were:

Purchase Price	$175,000	
Real Estate Commissions	$15,000	
Legal Fees	$800	
Expense of clearing land	$2,000	
Expense to remove old building	$1,000	

What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? 
A. $150,000 to Land; $18,800 to Building
B. $190,000 to Land; $3,800 to Building
C. $190,800 to Land; $3,000 to Building
D. $192,800 to Land; $1,000 to Building
E. $193,800 to Land; $0 to Building

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
77. SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a salvage value of $2,000, and a five-year service life. At the end of the first year, an impairment loss of $2,000 was recognized on the asset. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life. 
A. $1,500
B. $1,600
C. $2,500
D. $1,800
E. $2,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-17 Partial-Year Depreciation
Topic: 09-18 Revising Depreciation Rates

78. Sports Med sold an X-ray machine that originally cost $100,000 for $60,000. The accumulated depreciation on the machine to the date of sale was $40,000. On this sale, Sports Med should recognize: 
A. $0 gain or loss
B. $20,000 gain
C. $25,000 gain
D. $40,000 loss
E. $60,000 gain

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-21 Discarding PPE
 
79. Creek Construction purchased a machine for $26,000. It traded in an old machine and received a $4,200 trade-in allowance. The old machine cost $24,000 and had accumulated depreciation of $16,000 to the date of trade-in. At what value should be new asset be recorded? 
A. $21,800
B. $24,000
C. $26,000
D. $29,800
E. $30,200

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE

80. SportsWorld purchased a machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. SportsWorld estimates that the machine could produce 750,000 units of product over its useful life. In the first year, 95,000 units were produced. In the second year, production increased to 111,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year? 
A. $26,640
B. $22,800
C. $28,000
D. $36,000
E. $49,440

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
81. SportsWorld purchased property for $100,000. The property included a building, parking lot, and land. The building was appraised at $65,000; the land at $40,000; and the parking lot at $10,000. To the nearest dollar, the value of the land to be recorded in the books should be 
A. $56,522
B. $40,000
C. $34,783
D. $36,364
E. $48,696

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-11 Lump-Sum Asset Purchase

82. A machine that cost $40,000 and had accumulated depreciation of $30,000 was traded in on a new machine, which had an estimated 20-year life and a cash price of $50,000. If a $7,000 trade-in allowance was received on the old machine, the new machine should be valued at 
A. $10,000
B. $40,000
C. $47,000
D. $50,000
E. $53,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
83. When originally purchased, a vehicle had cost $23,000, with an estimated residual value of $1,500, and an estimated useful life of 8 years. After 4 years of straight-line depreciation, the estimated useful life was revised from 8 to 6 years, but with zero residual value. The depreciation expense in year 5 should be 
A. $5,543.75
B. $2.687.50
C. $6,125.00
D. $10,750.00
E. $2,856.25

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation

84. SportsWorld discarded a display case it had purchased for $8,000. $7,200 in accumulated depreciation had been recorded to the date of sale. SportsWorld should recognize a gain or loss on disposal of 
A. $0
B. $800 loss
C. $800 gain
D. $8,000 loss
E. $7,200 loss

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Disposals of PPE
 
85. On April 3, 2020, Rainbow Studios purchased a patent for $56,000. Its remaining legal life is 7 years and Rainbow Studios estimates that the patent will be useful for another 4 years. The correct adjusting entry to record amortization of the patent on December 31, 2020 is 
A. 
Amortization Expense, Patent	14,000	 	
Accumulated Amortization, Patent	 	14,000	

B. 
Amortization Expense, Patent	8,000	 	
Accumulated Amortization, Patent	 	8,000	

C. 
Amortization Expense, Patent	10,500	 	
Accumulated Amortization, Patent	 	10,500	

D. 
Amortization Expense, Patent	6,000	 	
Accumulated Amortization, Patent	 	6,000	

E. 
Patent	10,500	 	
Accumulated Amortization, Patent	 	10,500	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-26 Patents
 
86. A machine originally had an estimated service life of 5 years, and after 3 years, it was decided that the original estimate should have been for 10 years. The remaining cost to be depreciated should be allocated over the next 
A. 2 years
B. 5 years
C. 6 years
D. 7 years
E. 10 years

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation

87. A change in accounting estimate is 
A. Reflected only in current and future financial statements
B. Reflected in current and future financial statements and also requires modification of past statements
C. A change in a calculated amount used in the financial statements resulting from new information or subsequent developments and from better insight or improved judgment
D. Both reflected only in current and future financial statements and a change in a calculated amount used in the financial statements resulting from new information or subsequent developments and from better insight or improved judgment
E. None of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation
 
88. Creek Construction owned a bulldozer which was destroyed by fire. The bulldozer originally cost $38,000. The accumulated depreciation recorded to the date of loss was $20,000. The proceeds from the insurance company were $20,000. Creek Construction should recognize 
A. A loss of $2,000
B. An expense of $2,000
C. A loss of $38,000
D. A gain of $20,000
E. A gain of $2,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Disposals of PPE

89. A main accounting issue for property, plant and equipment is 
A. The cost of property, plant and equipment
B. Testing property, plant and equipment for impairment
C. Accounting for repairs and improvements to property, plant and equipment
D. Disposal of property, plant and equipment
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
90. If the book value (or carrying amount) of a PPE item is greater than the amount to be recovered through the asset's use or sale, the asset is said to be 
A. Exchanged
B. Declined
C. Accumulated
D. Improved
E. Impaired

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates
 
91. Inadequacy refers to 
A. The condition where the capacity of a property, plant and equipment asset is too small to meet the company's productive demands
B. An asset that is worn out
C. An asset that is no longer useful
D. The same as obsolescence
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation

92. Residual value is 
A. The same as an asset's service life
B. The cost of an asset minus its accumulated depreciation
C. An estimate of the asset's value at the end of its useful life
D. Another name for market value
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation
 
93. Once the estimated depreciation for an asset is calculated 
A. It cannot be changed due to the historical cost principle
B. It may be revised based on new information
C. Any changes are accumulated and recognized when the asset is sold
D. The estimate itself cannot be changed, however, new information should be disclosed in financial statement footnotes
E. It may be revised based on new information and any changes are accumulated and recognized when the asset is sold

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-04 Explain and calculate revised depreciation.
Topic: 09-17 Partial-Year Depreciation
 
94. Subsequent capital expenditures 
A. Are expenditures making a property, plant and equipment asset more efficient
B. Are often called improvements
C. Are added to the cost of the asset
D. Often extend an asset's useful life
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-03 Subsequent Expenditures

95. Natural resources 
A. Include trees, mineral deposits, and oil and gas fields
B. Are consumed when used
C. Are long-term assets
D. Can be amortized.
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-27 Copyrights
 
96. Property, plant and equipment include 
A. Land
B. Land improvements
C. Buildings
D. Machinery and equipment
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
97. Intangible assets 
A. Are rights, privileges, and competitive advantages to the owner, used in operations, having no physical substance
B. Include patents, leaseholds, and land improvements
C. Can be amortized
D. Are rights, privileges, and competitive advantages to the owner, used in operations, having no physical substance and can be amortized
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-23 Exchanging PPE

98. Additional subsequent expenditures that result in future economic benefits and can be reliably measured should be treated as a(n) 
A. Revenue expenditure
B. Asset expenditure
C. Capital expenditure
D. Contributed capital expenditure
E. Balance sheet expenditure

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-03 Subsequent Expenditures
 
99. Factor(s) that might limit an intangible asset's useful life include 
A. Legal
B. Regulatory
C. Contractual
D. Economic
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-24 Intangible Assets
 
100. The cost of land can include 
A. Purchase price
B. Back property taxes
C. Costs of removing existing buildings
D. Real estate commissions
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land

101. Each year goodwill is examined to see if its value has been impaired. If the value has been impaired goodwill will 
A. Increase
B. Not change
C. Decrease
D. Be amortized
E. Be depreciated

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Leaseholds
 
102. The formula for calculating straight-line depreciation is 
A. Depreciable cost divided by the useful life in years
B. Cost plus residual value divided by the useful life in years
C. Depreciable cost divided by useful life in units
D. Cost divided by useful life in years
E. Cost divided by useful life in units

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
103. Ordinary repairs 
A. Are expenditures to keep an asset in normal operating condition
B. Do not extend an asset's useful life
C. Do not materially increase the asset's life or productive capabilities
D. Maintain an asset
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE

104. The straight-line method and the double-declining-balance method of depreciation 
A. Produce the same total depreciation over an asset's useful life
B. Allocate an asset's cost in a systematic and rational manner
C. Do not produce the same book value each year
D. Are both acceptable for GAAP
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
105. The appropriate way to amortize goodwill is 
A. Straight-line over a maximum of 40 years
B. Straight-line over a maximum of 20 years
C. Double-declining-balance over a period not to exceed 20 years
D. Over the estimated useful life of the goodwill
E. Goodwill is not amortized or depreciated

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Leaseholds
 
106. Legal permissions for the extraction of oil and gas from the earth are known as 
A. Trademarks
B. Patents
C. Drilling rights
D. Copyrights
E. Leaseholds

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-27 Copyrights

107. An asset can be disposed of by 
A. Discarding
B. Selling
C. Exchanging
D. Donating it to charity
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets
 
108. Revenue expenditures 
A. Are additional costs related to property, plant and equipment that do not materially increase the asset's life
B. Are balance sheet expenditures
C. Extend the asset's useful life
D. Benefit future periods
E. Are debited to asset accounts

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
109. Depreciation is usually recorded 
A. From the beginning of the accounting year in which an asset is purchased
B. From the actual date of purchase
C. From the first of the month nearest the actual purchase date
D. From the end of the month nearest the actual purchase date
E. By any of the above methods

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Comparing Depreciation Methods

110. Land improvements are 
A. Assets that increase the usefulness of land, but that have a limited useful life
B. Assets that increase the usefulness of land, and like land are not depreciated
C. Included in the land account
D. Expensed in the period incurred
E. Never depreciated

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-07 Land Improvements
 
111. Which of the following statements is true with respect to intangible assets? 
A. Goodwill is an intangible asset that is amortized and tested for impairment.
B. Intangible assets are amortized over a period of 50 years.
C. Intangible assets should be evaluated each year to determine if there has been any impairment in their value.
D. Intangible assets are expensed to income in the year they are acquired.
E. An intangible asset is recorded at market value when the asset is acquired.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-23 Exchanging PPE

112. A patent 
A. Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 50 years
B. Is an exclusive right granted to its owner to manufacture and sell a machine or device, or to use a process, for 20 years
C. Is an exclusive right granted to its owner to manufacture and sell a machine or device, or to use a process, for 50 years
D. The amount by which the value of a company exceeds the fair market value of a company's net assets if purchased separately
E. Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 20 years

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-25 Accounting for Intangible Assets
 
113. A copyright 
A. Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 50 years
B. Is an exclusive right granted to its owner to manufacture and sell a machine or device, or to use a process, for 20 years
C. Is an exclusive right granted to its owner to manufacture and sell a machine or device, or to use a process, for 50 years
D. The amount by which the value of a company exceeds the fair market value of a company's net assets if purchased separately
E. Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 20 years

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-26 Patents

114. Capital cost allowance 
A. Is the income tax act equivalent of depreciation
B. Is acceptable for financial reporting
C. Is not required for tax reporting
D. Is not used in Canada
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
115. Depreciation 
A. Measures the decline in market value of an asset
B. Measures physical deterioration of an asset
C. Is the process of allocating to expense the cost of property, plant and equipment
D. Is a cause of obsolescence
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-12 Depreciation
 
116. SportsWorld paid $140,000 for a property. The property included land appraised at $67,500, land improvements appraised at $25,000, and a building appraised at $55,500. What should be the allocation of costs in the accounting records (round calculations to 3 decimals)? 
A. Land $62,000; land improvements, $23,000; building, $45,000
B. Land $62,000; land improvements, $23,800; building, $46,200
C. Land $63,840; land improvements, $23,660; building, $52,500
D. Land $79,500; land improvements, $32,600; building, $47,700
E. Land $87,500; land improvements; $35,000; building; $52,500

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-11 Lump-Sum Asset Purchase

117. Property, plant and equipment are 
A. Tangible assets used in the operation of a business having a useful life of more than one accounting period
B. Current assets
C. Long-term investments
D. Intangible assets used in the operations of a business having a useful life of more than one accounting period
E. Tangible assets used in the operation of business having a useful life of less than one accounting period

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
118. Treating low-cost asset purchases as expenses is allowed by which principle? 
A. Cost
B. Prudence
C. Materiality
D. Matching
E. Timeliness

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-05 Low-Cost Asset Purchases
 
119. The useful life of a property, plant and equipment asset is 
A. The length of time it is productively used in a company's operations
B. Another term for its residual value
C. Measured by its potential inadequacy
D. Is impossible to estimate
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation

120. Property, plant and equipment are 
A. Current assets
B. Used in business operations
C. Natural resources
D. Long-term investments
E. Never depreciated

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)
 
121. The original cost of an asset minus accumulated depreciation is called 
A. Historical cost
B. Book value
C. Present value
D. Current value
E. Replacement cost

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
122. Obsolescence 
A. Occurs when an asset is at the end of its useful life
B. Refers to a condition where a property, plant and equipment asset is no longer useful in producing goods and services
C. Refers to a condition where the capacity of a property, plant and equipment asset is too small to meet the company's productive demands
D. Is the same as inadequacy
E. None of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation

123. A leasehold 
A. Is a short-term rental agreement
B. Is not an intangible asset
C. Refers to the rights granted to the lessee by the lessor in a lease
D. Is initially recorded as rent expense
E. Is an investment

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-29 Trademarks and Trade Names
 
124. A method that allocates an equal portion of the total depreciation for a property, plant and equipment asset to each accounting period during its useful life is called 
A. Accelerated depreciation
B. Double-declining-balance depreciation
C. Straight-line depreciation
D. Units-of-production depreciation
E. Capital cost allowance

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
125. A method that allocates an equal portion of the total depreciation for a property, plant and equipment asset to each unit produced is called 
A. Accelerated depreciation
B. Double-declining-balance depreciation
C. Straight-line depreciation
D. Units-of-production depreciation
E. Capital cost allowance

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

126. A depreciation method in which a property, plant and equipment asset's depreciation expense for the period is determined by applying a constant depreciation rate each year to the asset's beginning book value is called 
A. Book value depreciation
B. Double-declining-balance depreciation
C. Straight-line depreciation
D. Units-of-production depreciation
E. Capital cost allowance

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
127. A depreciation method that produces larger depreciation charges during the early years of an asset's life and smaller charges in the later years is 
A. Accelerated depreciation
B. Book value depreciation
C. Straight-line depreciation
D. Units-of-production depreciation
E. Capital cost allowance

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

128. CamCo Ltd. leased floor space in a new office building. Rent will cost $10,000 per month for a ten-year lease, but some renovations are needed and will be paid by CamCo to customize the space. The renovations include installing walls to create a new office and boardroom (cost $8,000), new flooring (cost $5,800), painting (cost $1,500) and updated wiring to accommodate computer servers (cost $8,700). How should these costs be handled for accounting purposes by CamCo? 
A. Painting costs should be charged to rent expense and the other costs should be capitalized to leasehold improvements
B. They should all be capitalized as leasehold improvements
C. They should all be charged to rent expense
D. They should be capitalized as development costs
E. Painting costs should be capitalized to leasehold improvements and other costs should be charged to rent expense

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-09 Leasehold Improvements
 
129. Intangible assets do not include 
A. Patents
B. Copyrights
C. Trademarks
D. Goodwill
E. Leaseholds

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-23 Exchanging PPE

130. The relevant factor(s) in calculating depreciation is(are) 
A. Cost
B. Residual value
C. Useful life
D. Both cost and useful life
E. All of these

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation

Short Answer Questions
 
131. Discuss the four issues in accounting for property, plant and equipment. 
Property, plant and equipment are tangible assets used in the operations of a company and have a useful life of more than one accounting period. The four main accounting issues include (1) calculating their costs (2) allocating their costs to the periods they benefit (3) accounting for subsequent expenditures such as repairs and improvements, and (4) recording their disposal.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-01 Property, Plant, and Equipment (PPE)

132. Explain the difference between revenue and capital expenditures and how they are recorded in the accounting system. 
Revenue expenditures such as repairs expire in the current accounting period. They are debited to expense and are thus matched with current revenues. Capital expenditures such as subsequent capital expenditures benefit future periods. They are debited to asset accounts and are matched with future periods through depreciation expense. Immaterial long-term expenditures are treated as current period expenses (materiality principle).

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
133. Mandy Manufacturing purchased a machine on August 1, 2019, and it was installed and ready to run on January 1, 2020. The following costs were incurred in the purchase and installation of the machine.

Invoice Price	$1,400,000	
Freight costs	8,000	
Purchase discount	3,000	
Installation costs	68,000	
Electrical and power connections	33,000	
Repairs to correct damage incurred during uncrating	13,000	
Adjustments costs	46,000	
Spare parts for future use	26,000	
Provincial sales tax	84,000	
Fines incurred during the transport and uploading of the machine	100	
Cost of special foundation for the machine	7,000	

Calculate the depreciable cost of the machine. 
Invoice Price	1,400,000	
Freight costs	8,000	
Purchase discount	(2,500)	
Installation costs	68,000	
Electrical and power connections	33,000	
Adjustments costs	46,000	
Provincial sales tax	84,000	
Cost of special foundation for the machine	7,000	
 	 	
Total	$1,643,500	
NOTE ALL OTHER ITEMS WOULD BE EXPENSED	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-10 Machinery and Equipment
 
134. Primadonna Company paid $870,000 plus $10,000 in legal costs for a parcel of real estate. This included land appraised at $450,000; land improvements appraised at $170,000; and a building appraised at $380,000. The plan is to use the building as a manufacturing plant. Determine the amounts that should be debited to:

(a) Land	$ __________	
(b) Land Improvements	$ __________	
(c) Building	$ __________	

	 	Appraised Cost	Percent Total	Apportioned Cost	
(a)	Land	450,000	45%(450,000/1,000,000)	396,000	
(b)	Land Improvements	170,000	17%(170,000/1,000,000)	149,600	
(c)	Building	380,000	38%(380,000/1,000,000)	334,400	
 	Total	1,000,000	100%	880,000	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-11 Lump-Sum Asset Purchase
 
135. Prepare journal entries to record the following transactions of Salem Sales Co. during the current year:

Mar-01	Trucks	78,900	 	
 	Spare Parts Inventory	2,300	 	
 	Licence Expense	500	 	
 	Cash	 	81,700	
 	$70,000 + (70,000 × 7%) + 3,000=$78,900	 	 	
May-12	Garage	64,000	 	
 	Notes Payable	 	60,000	
 	Cash	 	4,000	
 	 	 	 	
Jun-05	Repairs and Maintenance Expense	750	 	
 	Cash	 	750	
 	 	 	 	
Aug-23	Office Equipment	15,595	 	
 	Accounts Payable	 	15,595	
 	$13,500 + 945 + 300 + 850 = $15,595	 	 	
 	 	 	 	
Sep-12	Accounts Payable	15,595	 	
 	Cash	 	15,595	
 	 	 	 	
Oct-05	Store Equipment	35,160	 	
 	Repairs and Maintenance Expense	1,750	 	
 	Supplies	3,700	 	
 	Cash	 	40,610	
 	$28,000 + 1,960 + 5,200 = $35,160	 	 	

Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-10 Machinery and Equipment

136. Shady Lanes installed automatic sprinkler systems. The electrical work for the installation was $24,000. The invoice price of the sprinkler equipment was $280,000. Additional costs were $5,000 for delivery and $800 for insurance during transportation. During installation a sprinkler line was punctured and was replaced for $200. What is the cost of the sprinkler equipment? 
$24,000 + 280,000 + 5,000 + 800 = $309,800

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-10 Machinery and Equipment
 
137. Timing Investments purchased land with a building for a total cost of $6,000,000 ($500,000 paid in cash and the balance on a long-term note). The appraised cost of the land and building were $3,500,000 and $1,900,000, respectively. Calculate the costs to be allocated to the land and the building and prepare the appropriate journal entry to record the acquisition. 
	Appraised Cost	Percent Total	Apportioned Cost	
Land	3,500,000	65%(3,500,000/5,400,000)	3,900,000	
Building	1,900,000	35%(1,900,000/5,400,000)	2,100,000	
Total	5,400,000	100%	6,000,000	
 	 	 	 	
Land	3,900,000	 	 	
Building	2,100,000	 	 	
Cash	 	500,000	 	
Notes Payable	 	5,500,000	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-11 Lump-Sum Asset Purchase

138. Honey Crisp Co needed a new building, and found a suitable piece of land which had an old building on it. Honey Crisp made an agreement to buy the land and the building for $860,000 cash. The old building was demolished to make way for the new building. The following is information regarding the demolishing of the old building and construction of the new one:

Cost of construction of new building, including $600,000 for a parking lot	5,260,000	
Demolition of old building	150,000	
Proceeds from salvage materials	20,000	

Prepare a single journal entry to record the above cost (assume paid cash). 
Land **	999,000	 	
Building *	4,660,000	 	
Land Improvements	600,000	 	
Cash	 	6,250,000	
* 5,260,000 – 600,000	 	 	
** 860,000 + 150,000 – 20,000	 	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
139. Prime Co paid $200,000 to purchase a piece of land on which to build a new building. Additional costs incurred were:

Real estate broker’s commissions	$10,800	
Legal fees of purchasing the real estate	1,400	
Landscaping expenses	6,000	
Expense to demolish old house located on land	1,500	
Proceeds from selling materials salvaged from old house	900	

What dollar amount of the above costs should be allocated to Land and what amount should be allocated to the new Building? 
$200,000 + $10,800 + $1,400 + $6,000 + $1,500 - $900 = $218,800 to Land; $-0- to the new Building account.

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-06 Land
 
140. ACS Company made the following expenditures in connection with the construction of its new cross fit facility:

Architect’s fees	9,000	
Cash paid for land and old building	140,000	
Removal of old building	20,000	
Survey to site the new building	(8,000)	
Legal fees for title search	1,000	
Excavation for construction of basement	2,500	
Machinery purchased	72,000	
Storage charges on machinery because building was not ready when machinery was delivered	600	
Freight on machinery purchased	2,000	
Hauling charges to deliver machinery from storage to new building	800	
Construction costs of new building	615,000	
Landscaping	7,050	
Installation of machinery	9,000	

Prepare a schedule showing the amounts to be recorded as Land, Building, and Machinery and Equipment and Expenses. 

	Land	Building	Machinery and Equipment	Expense	
Architect’s fees	 	9,000	 	 	
Cash paid for land and old building	140,000	 	 	 	
Removal of old building	20,000	 	 	 	
Survey to site the new building	(8,000)	 	 	 	
Legal fees for title search	1,000	 	 	 	
Excavation for construction of basement	 	2,500	 	 	
Machinery purchased	 	 	72,000	 	
Storage charges on machinery because building was not ready when machinery was delivered	 	 	 	600	
Freight on machinery purchased	 	 	2,000	 	
Hauling charges to deliver machinery from storage to new building	 	 	 	800	
Construction costs of new building	 	615,000	 	 	
Landscaping	7,050	 	 	 	
Installation of machinery	 	 	9,000	 	
 	160,050	626,500	83,000	1,400	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-08 Buildings

141. How is the cost principle applied to property, plant and equipment? 
Property, plant and equipment should be recorded at cost when acquired. Cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. The cost of a lump-sum purchase is allocated among its individual assets based on their relative market values.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-02 Cost of PPE
 
142. RoboCop Company paid $31,400 for a machine that was expected to last 5 years and have a residual value of $5,000. During the third year of the machine's life, $3,700 was paid for replacement parts that were expected to increase the machine's productivity by 20% each year. Prepare the general journal entry to record this transaction. 
Machinery	3,700	 	
Cash	 	3,700	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-10 Machinery and Equipment
 
143. RoboCop Company paid $31,400 for a machine that was expected to last 5 years and have a residual value of $5,000. During the fourth year of the machine's life, $5,400 was paid for repairs that were expected to increase the service life of the machine from 5 to 7 years. Prepare the general journal entry to record this transaction. 
Machinery	5,400	 	
Cash	 	5,400	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Topic: 09-10 Machinery and Equipment
 
144. Xeno Co. incurred the following transactions concerning its machinery:

Jan 1, 2021	Purchased a machine for $60,000 cash, and also paid $3,000 cash to have it installed. Estimated useful life is 10 years and residual value is $3,000. Straight line depreciation is used.	
Jan 1, 2022	The machine’s useful life was changed from 10 years to 9.	
Jan 8, 2023	Paid $3,800 to replace a motor in the machine. This was considered a major overhaul.	

Xeno Co uses the calendar year as its fiscal year. Prepare the journal entry to record depreciation expense for 2021, 2022 and 2023. Round all values to the nearest dollar. 
Dec 31,2021	Depreciation Expense, Machine	6,000	 	
 	Accumulated Depreciation, Machine	 	6,000	
 	($63,000 - 3,000)/10 years	 	 	
 	 	 	 	
Dec 31, 2022	Depreciation Expense, Machine	6,375	 	
 	Accumulated Depreciation, Machine	 	6,375	
 	(60,000 - 6,000 - 3,000)/8 years	 	 	
 	 	 	 	
Dec 31, 2023	Depreciation Expense, Machine	6,918	 	
 	Accumulated Depreciation, Machine	 	6,918	
 	($60,000 - 6,000 - 6,375 - 3,000 + 3,800)/7 years	 	 	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
145. On January 1, 2019, Friar Company purchased a machine for $180,000 that was expected to last 6 years and have a residual value of $16,000. On January 4, 2022, Friar Company paid $25,000 for improvements to the machine, which increased the total estimated useful life from 6 to 10 years and increased the residual value to $19,500. Friar uses straight-line depreciation. (1) What account should be debited in the journal entry to record the $25,000 improvements? (2) What amount of depreciation expense should be recorded for 2022? 
(1)	Machinery	 	
(2)	($180,000 - (3 Χ (180,000-16,000)/6) + $25,000 =	123,000.00	
 	($123,000 - 19,500)/7 =	14,785.71	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
146. Explain depreciation and the elements affecting its calculation. 
Depreciation is the process of allocating to expense the cost of property, plant and equipment over the accounting periods benefiting from the use of the assets. Three factors determine depreciation: cost, residual value, and useful life.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-14 Factors in Calculating Depreciation

147. Compare the three different depreciation methods: straight-line, units of production, and double-declining balance. 
The amount of depreciation expense per period is usually different for different methods. Yet total depreciation expense is the same for all methods. The straight-line method results in the same amount of depreciation for each accounting period. The units-of-production method results in depreciation expense that increases or decreases with the amount of asset usage. The double-declining-balance method is an accelerated method and yields more depreciation expense in the first years of ownership and less in later years than straight-line depreciation.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
148. Explain how each of the following depreciation methods is calculated: straight-line, units-of-production, and double-declining-balance. 
Straight-line depreciation is calculated by subtracting residual value from the cost of a property, plant and equipment item and dividing the result by the useful life in years. The resulting amount is the annual depreciation expense for the asset. Units-of-production depreciation is calculated by subtracting residual value from the cost of a property, plant and equipment item and dividing the result by the estimated number of units to be produced. The resulting amount is the depreciation expense per unit. That amount is multiplied by the number of units used during each accounting period in order to determine the total amount of depreciation expense for the period. The double-declining-balance method uses twice the straight-line percent times the beginning book value of the asset. The resulting amount is the annual depreciation expense.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

149. Chervinski Industries recently paid $560,000 to buy a building that has an estimated useful life of 40 years and a residual value of $116,000. Calculate the depreciation expense for the third year after acquisition using double-declining-balance depreciation. Assume a full year of depreciation in the first year. 
Annual rate is 2/40  100 = 5%

Year	Annual Depreciation
Calculation	Annual Depreciation
Expense	Remaining Book Value	
1	560,000 × 0.05	28,000	532,000	
2	532,000 × 0.05	26,600	505,400	
3	505,400 × 0.05	25,270	480,130	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
150. Dersch Co. purchased a machine on January 1, 2019, for $2,500,000. Using the table below, calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 50,000 hours with a residual value of $150,000). During the machine's life, it was used 15,000; 14,000; 10,000; 9,000; and 6,000 hours. 
	(a)	(b)	(c)	
Year	Straight Line	Units of Production	Declining Balance	
2019	$470,000	$705,000	$1,000,000	
2020	470,000	658,000	600,000	
2021	470,000	470,000	360,000	
2022	470,000	423,000	216,000	
2023	470,000	54,000	44,400	
Totals	$2,350,000	$2,310,000	$2,220,400	

(a) ($2,500,000 - 150,000)/5 years = 470,000

(b) Rate = ($2,500,000 - 150,000)/50,000 hours = $47/hour

Year	Annual Depreciation
Calculation	Annual Depreciation Expense	Remaining Book Value	
2019	15,000 hrs × $47/hr	705,000	1,795,000	
2020	14,000 hrs × $47/hr	658,000	1,137,000	
2021	10,000 hrs × $47/hr	470,000	667,000	
2022	9,000 hrs × $47/hr	423,000	244,000	
2023	6,000 hrs × $47/hr	MAX 94,000	150,000	

(c) Rate = 2/5  100 = 40%

Year	Annual Depreciation
Calculation	Annual
Depreciation Expense	Remaining
Book
Value	
2019	2,500,000 × 0.40	1,000,000	1,500,000	
2020	1,500,000 × 0.40	600,000	900,000	
2021	900,000 × 0.40	360,000	540,000	
2022	540,000 × 0.40	216,000	324,000	
2023	324,000 × 0.40	MIN = 174,000	150,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

151. Twilight Manufacturing's property, plant and equipment records reveal the following information:

Equipment	Cost	Residual Value	Purchase Date	Depreciation Method	Estimated
Useful Life	Units Produced
in 2014	
(1)	60,000	12,000	December 1, 2019	Straight Line	5 years	2,000	
(2)	70,000	8,000	October 18, 2020	Units of Production	50,000 units	5,000	
(3)	130,000	-	June 12, 2020	Double Declining Balance	10 years	6,000	
(4)	100,000	10,000	May 3, 2020	Straight Line	8 Years	8,000	

Calculate the depreciation expense for each equipment item for the year ended December 31, 2020, using the nearest whole month method. 
Equipment	 	 	
(1)	(60,000 – 12,000)/5 years =	9,600	
(2)	(70,000 – 8,000)/50,000 × 5,000 units =	6,200	
(3)	2/10 × 130,000 × 7/12 =	15,167	
(4)	(100,000 – 10,000)/8 years × 8/12 =	7,500	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

152. Voltarin Co purchased a machine for $625,000 on November 2, 2019. The company expects the machine to last for 10 years or 50,000 hours of operation, with an estimated residual value of $15,000. During 2019 the computer was operated for 3,000 hours, while in 2020 it was operated for 2,600 hours. Calculate the depreciation expense for the computer for 2019 and 2020 using the following depreciation methods:

(a) Straight-line
(b) Double-declining-balance
(c) Units-of-production 
(a) Straight line
($625,000 - 15,000)/10 years = $61,000

(b) Double Declining Rate is 2/10 = 20%

Year	Annual Depreciation
Calculation	Annual
Depreciation
Expense	Remaining
Book
Value	
2019	625,000 × 0.20	125,000	500,000	
2020	500,000 × 0.20	100,000	400,000	

(c) Units of production
($625,000 - 15,000)/50,000 hours = $12.20/hour

Year	Annual
Depreciation
Calculation	Annual
Depreciation
Expense	Remaining
Book
Value	
2019	3,000 hrs × $12.20/hr	36,600	588,400	
2020	2,600 hrs × $12.20/hr	31,720	556,680	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
153. On January 1, 2019 a machine costing $330,000 with a 4-year service life and an estimated $3,000 residual value was purchased. It was also estimated that the machine would produce 50,000 units during its life. The actual units produced during its first 2 years of operation were 9,000 and 10,000 respectively. Calculate the amount of depreciation expense for the 2019 and 2020 under each of the following assumptions:

(a) Straight-line.
(b) Double-declining-balance.
(c) Units-of-production. 
(a) ($330,000 - 3,000)/4 years = $81,750

(b) Double Declining Rate is 2/4 = 50%

Year	Annual
Depreciation
Calculation	Annual
Depreciation
Expense	Remaining
Book
Value	
2019	330,000 × 0.50	165,000	165,000	
2020	165,000 × 0.50	82,500	82,500	

(c) ($330,000 - 3,000)/50,000 units = $6.54/unit

Year	Annual
Depreciation
Calculation	Annual
Depreciation
Expense	Remaining
Book
Value	
2019	9,000 hrs × $6.54/unit	58,860	271,140	
2020	10,000 hrs × $6.54/unit	65,400	205,740	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
154. Fisherman Company purchased a light truck on October 1, 20220 at a cost of $72,000. The truck is expected to last six years and have a residual value of $5,200. Fisherman Company uses the calendar year as their fiscal year, and the nearest whole month method for depreciation.

(1) What is the depreciation expense for 2020, assuming the straight-line method is used?
(2) What is the depreciation expense for 2021, assuming the double-declining-balance method at twice the straight-line rate is used? 
(a) ($72,000 - 5,200)/6 years  3/12 = $2,783.33

(b) Double Declining Rate is 2/6 = 33.33%

Year	Annual Depreciation
Calculation	Annual
Depreciation
Expense	Remaining Book
Value	
2020	72,000 × 0.3333 × 3/12	5,999	66,001	
2021	66,001 × 0.3333	21,998	44,003	

(c) ($72,000 - 5,200)/50,000 units = $4.54/unit

Year	Annual Depreciation
Calculation	Annual
Depreciation
Expense	Remaining Book
Value	
2014	9,000 hrs × $4.54/unit	40,860	484,140	
2015	10,000 hrs × $4.54/unit	45,400	438,740	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
155. A new machine is expected to produce 60,000 units of product during its 5-year life. The machine cost $180,000 and is estimated to have a $20,000 residual value. If the machine produces 7,200 units of product during its first year, what is the depreciation for the year calculated by the units-of-production method (round rate to 2 decimals)? 
Rate is ($180,000 - 20,000)/60,000units = $2.67/unit $2.67/unit  7,200 units = $19,224 depreciation for the first year

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
156. A new machine is expected to produce 40,000 units of product during its 5-year life. The machine cost $180,000 and is estimated to have a $20,000 residual value. If depreciation on the machine is calculated by the double-declining-balance method, what is the depreciation for the first year? 
2/5  100 = 40% $180,000  40% = $72,000 depreciation for the first year

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

157. A new machine is expected to produce 40,000 units of product during its 5-year life. The machine cost $38,000 and is estimated to have a $6,000 residual value. What is the first year's depreciation on the machine calculated by the straight-line method? 
($38,000 - 6,000)/5 years = $6,400

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
158. On January 1, 2020, Swooper Corp acquired and placed in service a plane at a cost of $10,000,000. The plane's service life and residual value were estimated at 5 years and $1,500,000, respectively. Assume the company earns $3,200,000 each year before depreciation and taxes. Calculate depreciation for 2020-2024, assuming the following alternative depreciation methods are used.

(a) The straight-line method of depreciation.
(b) The units-of-production method of depreciation. 
(a) ($10,000,000 - 1,500,000)/5 years = 1,700,000

(b) Double Declining Rate is 2/5 = 40%

Year	Annual Depreciation
Calculation	Annual
Depreciation
Expense	Remaining
Book Value	
2020	10,000,000 × 0.40	4,000,000	6,000,000	
2021	6,000,000 × 0.40	2,400,000	3,600,000	
2022	3,600,000 × 0.40	1,440,000	2,160,000	
2023	2,160,000 × 0.40	Max = 660,000	1,500,000	
2024	0	MAX 0	1,500,000	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
159. On July 1, 2020, Suntera Corp. purchased and placed in service a machine with a cost of $460,000. Suntera estimated the service life to be 5 years or 30,000 units of output, with an estimated residual value of $6,000. During 2020, 2,600 units were produced.

(a) The straight-line method of depreciation
(b) The units-of-production method of depreciation 
(a) ($460,000 – 6,000)/5 years × 6/12 = 45,400	 	 	
Dec 31, 2020 Depreciation Expense, Machine	45,400	 	
Accumulated Depreciation, Machine	 	45,400	
 	 	 	
(b) ($460,000 – 6,000)/30,000 units = $15.13/unit	 	 	
2,600 units × $15.13/unit = 39,338	 	 	
 	 	 	
Dec 31, 2020 Depreciation Expense, Machine	39,338	 	
Accumulated Depreciation, Machine	 	39,338	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

160. On July 1, 2020, Delta Company purchased and placed in service a machine with a cost of $460,000. Delta estimated the service life to be 6 years or 60,000 units of output, with an estimated residual value of $80,000. During 2020, 15,000 units were produced. Prepare the necessary December 31, 2020, adjusting journal entry to record depreciation for 2020 assuming Delta uses the double-declining-balance method to the nearest whole month. Round all calculations to 4 decimals. 
Dec 31, 2020 Depreciation Expense, Machine	76,659	 	
Accumulated Depreciation, Machine	 	76,659	
($460,000) × 0.3333 × 6/12 = 76,659	 	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
161. On September 30, 2019, Sarina Industries acquired and placed in service a machine that cost $950,000. It was estimated that the machine has a service life of five years and a residual value of $77,566. Using the double-declining-balance method of depreciation, prepare a schedule showing the depreciation amounts for the years 2019 through 2024 (use the nearest whole month method and round answers to the nearest dollar). Sarina closes its books on December 31 of every year. 
Rate = 2/5  100 = 40%

Year	Annual Depreciation
Calculation	Annual
Depreciation
Expense	Remaining
Book Value	
2019	950,000 × 0.40 × 3/12	95,000	855,000	
2020	855,000 × 0.40	342,000	513,000	
2021	513,000 × 0.40	205,200	307,800	
2022	307,800 × 0.40	123,120	184,680	
2023	184,680 × 0.40	73,872	110,808	
2024	110,808 × 0.40 × 9/12	33,242	77,566	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
162. Ad Hock had the following property, plant and equipment purchases during 2019:

(1) On April 4, equipment costing $250,000 with a 5-year service life and an estimated $40,000 residual value was purchased.
(2) On October 4, a machine costing $330,000 with a 5-year service life and an estimated $50,000 residual value was purchased. Assuming Ad Hock has a December 31 year end, prepare the necessary adjusting journal entries at December 31, 2019 to record depreciation under the following depreciation methods (using the nearest whole month method):

(a) Straight-line
(b) Double-declining-balance 
(a) ($250,000 – 40,000)/5 years × 9/12 = 31,500	 	 	
Dec 31, 2020 Depreciation Expense, Equipment	31,500	 	
Accumulated Depreciation, Equipment	 	31,500	
 	 	 	
($330,000 – 50,000)/5 year × 3/12 = 14,000	 	 	
Dec 31, 2020 Depreciation Expense, Machine	14,000	 	
Accumulated Depreciation, Machine	 	14,000	
 	 	 	
(b) Rate is 2/5 × 100 = 40%	 	 	
250,000 × .40 × 9/12 = 75,000	 	 	
Dec 31, 2020 Depreciation Expense, Equipment	75,000	 	
Accumulated Depreciation, Equipment	 	75,000	
 	 	 	
Rate is 2/5 × 100 = 40%	 	 	
330,000 × .40 × 3/12 = 33,000	 	 	
Dec 31, 2020 Depreciation Expense, Machine	33,000	 	
Accumulated Depreciation, Machine	 	33,000	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
163. On January 1, 2019, Boone Company purchased a machine for $75,000 that had a 6-year life and a residual value of $6,000. After 3 years of use, on January 1, 2022, Boone Company paid $7,500 to improve the efficiency of the machine. The effect of the expenditure was to increase the productivity of the machine without increasing its remaining useful life or changing its residual value. Boone uses straight-line depreciation.

(1) What account should be debited in recording the $7,500 expenditure?
(2) What amount of depreciation expense should be reported for 2022? 
(1) Machinery
(2) ($75,000 - [(75,000 - 6,000)/6 × 3] + $7,500) = $48,000 (NBV at Jan 1/22)($48,000 - 6,000)/3 = $14,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

164. Explain (1) depreciation for partial years and (2) revision of depreciation when estimates change. 
(1) Partial years' depreciation is often required because assets are bought and sold throughout the year. Depreciation for assets owned for less than one year can be based on the number of months owned during the year (nearest whole month method) or the half-year convention may be used.(2). Depreciation is revised when changes in estimates such as residual value and useful life occur. For example, if the useful life of a property, plant and equipment item changes, the remaining cost to be depreciated is spread over the remaining revised useful life of the asset.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Hard
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-16 Comparing Depreciation Methods
 
165. A machine was purchased for $37,000 and depreciated for 5 years on a straight-line basis under the assumption it would have a 10-year life and a $1,000 residual value. At the beginning of the machine's sixth year, it was recognized that it had 3 years of remaining life left, instead of five, and that at the end of the 3 years its residual value would be $1,600. What should the annual depreciation be for the machine's remaining years? 
($37,000 - $1,000)/10 =	$3,600	
$3,600 × 5 =	$18,000	
$37,000 - $18,000 =	$19,000	
($19,000 - $1,600)/3 =	$5,800	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods

166. On January 1, 2020, Bailey Company purchased a machine for $106,000 that was expected to last five years and has a residual value of $6,000. At the beginning of 2023, Bailey decided that the machine's estimated useful life should be revised to a total of 6 years instead of 5. Also, the residual value was now estimated to be $5,500. Straight-line depreciation was used. Calculate the depreciation expense for 2023. 
($106,000 - $6,000)/5 = $20,000 (annual depreciation) $106,000 - (3  $20,000) = $46,000 (NBV at Jan 1/23) ($46,000 - $5,500)/3 = $13,500

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
167. Wildway Company purchased a heating system on January 2, 2008, for $425,000. The system had an estimated useful life of 15 years, with no residual value. On January 2, 2020, the company completed a complete renovation of the system at a cost of $43,000 cash, and now expects the system to last 5 years beyond the original estimate. The company uses the straight-line method of depreciation. 
(a)	 	 	 	
Jan 1, 2020	Heating System	43,000	 	
 	Cash	 	43,000	
(b)	 	 	 	
Dec 31, 2020	Depreciation Expense, Heating System	14,750	 	
 	Accumulated Depreciation, Heating System	 	14,750	
 	
Accumulated Depreciation 2008-2020 = 425,000/15 years × 12 years = 340,000	
At January 2, 2020, book value is 85,000 + 33,000 = 118,000	
New annual depreciation 118,000/8 years = 14,750	
(15 years - 12 years + 5 years) = 8 years remaining	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-15 Depreciation Methods
 
168. FNT Company purchased land and a building on January 1, 2023, at a cost of $950,000. The land was appraised at $150,000 and the building at $900,000. FNT renovated the building from January 1 to March 31, 2023, at a cost of $125,000. It also paid the local government an assessment of $55,000 to have a sidewalk and improved sewer system put into place. The new building opened on April 1, 2023, with a customer reception that cost JMT $7,000. FNT estimates the building will be used for 25 years and will use the straight-line method to depreciate the asset Required: Prepare all journal entries relating to the land, building, and related activities, for JMT's January 1 to December 31, 2023, fiscal year. Round the final answer to the nearest dollar. 
Jan 1, 2023 - purchase:

Land	135,714	 	
Building	814,286	 	
Cash	 	950,000	

Costs subsequent to purchase:

Land	55,000	 	
Building	125,000	 	
Promotion Expense	7,000	 	
Cash	 	187,000	

December 31, 2023 - depreciation:

Depreciation Expense	28,719	 	
Accumulated depreciation	 	28,179	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-08 Buildings
Topic: 09-15 Depreciation Methods
Topic: 09-16 Comparing Depreciation Methods
 
 On January 1, 2023, PetraCo ordered a new machine to help increase production for one of its most popular products. The machine had an invoice price of $30,000 and PetraCo was required to pay shipping ($1,200) and insurance during shipping ($300) by boat from British Columbia to Toronto. The machine arrived on January 5, 2019 and was installed at a cost of $800 and calibrated and tested for a cost of $200. On February 1, 2019 it was put into operation. PetraCo's fiscal year runs from January to December. Round all final answers to the nearest dollar.
 
169. Prepare a journal entry (or entries) to record all costs associated with the new machine 
Machine	32,500	 	
Cash	 	32,500	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-10 Machinery and Equipment
Topic: 09-15 Depreciation Methods
Topic: 09-16 Comparing Depreciation Methods
 
170. The machine was expected to last 10 years with a salvage value of $2,500. Prepare the journal entry to record depreciation for 2019 using the double-declining balance method of depreciation. 
Depreciation expense	5,958	 	
Accumulated depreciation	 	5,958	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-10 Machinery and Equipment
Topic: 09-15 Depreciation Methods
Topic: 09-16 Comparing Depreciation Methods
 
171. Petra Co. sold the machine on July 1, 2020 for $19,000. Prepare all journal entries required by HRO in 2020 relating to the machine and its disposal. 
Depreciation to July 1, 2020 date of sale

Depreciation expense	2,654	 	
Accumulated depreciation	 	2,654	

Sale on July 1, 2020:

Cash	 	19,000	 	
Accumulated depreciation	 	8,612	 	
Loss on disposal of machine	 	4,888	 	
 	Machine	 	32,500	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-01 Describe property, plant, and equipment (PPE) and calculate their cost.
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Learning Objective: 09-03 Explain and calculate depreciation for partial years.
Topic: 09-10 Machinery and Equipment
Topic: 09-15 Depreciation Methods
Topic: 09-16 Comparing Depreciation Methods
 
172. At December 31, 2020, Great Coast Coffee Company's adjusted trial balance shows an espresso machine with a book value of $22,000. As part of the year end procedures GCC completed the asset impairment test on the machine and noted that the recoverable value of the machine was $6,000. Record the impairment loss on the asset. 
Dec 31 Impairment Loss	16,000	 	
Machine (22,000 – 6,000)	 	16,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates

173. Gold Grain Construction (GGC) exchanged a three-year-old excavator for a new excavator that had a list price of $73,000, which was its fair value. The old excavator originally cost $85,000 and has accumulated depreciation of $45,000 to the date of exchange. In addition to the $45,000 trade-in given for the old excavator, GGC paid $8,000 cash to complete the deal.

Record the asset exchange. 
Equipment (new)	73,000	 	
Accumulated depreciation, equipment (old)	45,000	 	
Equipment (old)	 	85,000	
Cash	 	8,000	
Gain on asset exchange*	 	25,000	
* Gain = Fair Value of new excavator- assets given up	
Gain = 73,000 (list price) – 40,000 (book value of old excavator) - 8,000 (cash)	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
174. Headstrom Industries (HI) exchanged a three-year-old truck for a new truck that had a list price of $50,000, which was its fair value. The old truck originally cost $65,000 and has accumulated depreciation of $25,000 to the date of exchange. In addition to the $45,000 trade-in given for the old truck, HI paid $8,000 cash to complete the deal.

Record the asset exchange. 
Truck (new)	50,000	 	
Accumulated depreciation, Truck (old)	25,000	 	
Truck (old)	 	65,000	
Cash	 	8,000	
Gain on asset exchange*	 	2,000	
* Gain = Fair Value of truck- assets given up	
Gain = 50,000 (list price) – 40,000 (book value of old truck) - 8,000 (cash)	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
175. Discuss the accounting procedures involved for asset disposal through discarding, selling, or exchanging an asset. 
When an asset is disposed of through discarding or selling, the depreciation must first be brought up to date. Then the cost of the asset and its related accumulated depreciation are removed from the books, along with recording any cash involved in the transaction and any gain or loss from the disposal. When a new asset is purchased by trading in an old asset, assuming the transaction has commercial substance, depreciation to date is recorded, the cost of the old asset and its related accumulated depreciation are removed from the books, the new asset is recorded at its fair value, and any cash paid or received and any gain or loss on disposal is recognized.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets
 
176. Game Company's computer was destroyed by fire. The computer originally cost $6,000, and accumulated depreciation to the date of the fire was $1,900. The company received $2,000 from an insurance policy that covered the computer and will use that money to help pay for a new computer. Prepare the general journal entry to record the loss of the computer and the receipt of cash from the insurance company. 
Cash	2,000	 	
Accumulated Depreciation, Computer	1,900	 	
Loss from fire	2,100	 	
Computer	 	6,000	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-21 Discarding PPE
 
177. Vroom Company sold for $60,000 a machine that originally cost $100,000. The accumulated depreciation on this machine to date of sale was $47,000. What was Vroom Company's gain or loss on this sale? 
Machine Book Value $100,000 - 47,000 = $53,000 Cash Received = $60,000 Gain on Sale = $7,000

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-21 Discarding PPE
 
178. Aye Company's computer was destroyed by fire. The computer originally cost $5,000, and accumulated depreciation to the date of the fire was $900. The company received $2,000 from an insurance policy that covered the computer and will use that money to help pay for a new computer. Prepare the general journal entry to record the loss of the computer and the receipt of cash from the insurance company. 
Cash	2,000	 	
Accumulated Depreciation, Computer	900	 	
Loss from fire	2,100	 	
Computer	 	5,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-20 Disposals of PPE

179. The $60,000 original cost of a machine is recorded in an account called Old Machine. After $45,000 of depreciation was recorded, the machine was traded in on a new machine with a cash price of $85,000. A $10,500 trade-in allowance was received on the old machine and the balance was paid in cash. This transaction has commercial substance. Prepare the general journal entry to record the trade; the cost of the new machine should be debited to a New Machine account. 
New machine	85,000	 	
Accumulated Depreciation, Old machine	45,000	 	
Loss on Asset Exchange	4,500	 	
Old machine	 	60,000	
Cash	 	74,500	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
180. Robertson Company exchanged a used machine for a new machine. The old machine cost $80,000, and the new one had a cash price of $95,000. Robertson had recorded a total of $75,000 depreciation on the old machine and was allowed a $4,500 trade-in allowance. This transaction has commercial substance. What gain or loss should be recorded on the exchange? 
Cost	80,000	
Accumulated Depreciation	75,000	
Book Value	5,000	
Less trade in allowance	4,500	
Loss	500	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
181. Wilkins Company exchanged its old computer for a newer model. The Old Computer was purchased for $22,000, with related accumulated depreciation of $15,500 to the date of the exchange. The new computer had a cash price of $30,200, and Wilkins Company was given a $7,500 trade-in allowance. This transaction has commercial substance. Prepare the general journal entry to record the exchange, recording the new computer in an account called New Computer. 
New machine	30,200	 	
Accumulated Depreciation, Old computer	15,500	 	
Old computer	 	22,000	
Cash ($30,200 - $7,500)	 	22,700	
Gain on Asset Exchange	 	1,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE

182. On January 2, 2020, Mullins Company purchased a delivery truck for $45,000 cash. The truck had an estimated useful life of seven years and an estimated residual value of $3,000. Straight-line depreciation was used. Assuming the transactions have commercial substance, prepare the journal entries to record the disposition of the truck on September 1, 2019, under each of the following assumptions:

(a) The truck and $55,000 cash were exchanged for equipment that had a fair value of $70,000.
(b) The truck and $40,000 cash were exchanged for a new delivery truck that had a fair value of $70,000. 
(a) Sept 1	New Delivery Truck	70,000	 	
 	Accumulated Depreciation, Old Truck	28,000	 	
 	Loss on Exchange	2,000	 	
 	Old Delivery Truck	 	45,000	
 	Cash	 	55,000	
 	 	 	 	
(b) Sept 1	New Delivery Truck	70,000	 	
 	Accumulated Depreciation, Old Truck	28,000	 	
 	Gain on Exchange	 	13,000	
 	Old Delivery Truck	 	45,000	
 	Cash	 	40,000	
 	 	 	 	
Accumulated Depreciation: (45,000 - 3,000)/7 × 6 yrs 8 mths	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE

183. On April 1, 2020, Hogan Industries scrapped a machine that cost $10,000 and had accumulated depreciation through December 31, 2019, of $10,000. Prepare the journal entry to record the disposal of the machine. 
01-Apr	Accumulated Depreciation, Machine	10,000	 	
 	Machine	 	10,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets
 
184. On April 1, 2020, Lockhart Company discarded equipment that cost $80,000, had a useful life of 5 years, a residual value of $14,000, and, under straight-line depreciation, accumulated depreciation as of December 31, 2019 of $26,400.

(a) Prepare the journal entry to record depreciation up to the date of disposal of the equipment.
(b) Prepare the journal entry to record the disposal of the equipment. 
(a) ($80,000 – 14,000)/5 years × 3/12 = 3,300	 	 	
April 1, 2020 Depreciation Expense, Equipment	3,300	 	
Accumulated Depreciation, Equipment	 	3,300	
 	 	 	
(b)	 	 	
April 1, 2020 Accumulated Depreciation, Equipment	29,700	 	
Loss on Disposal of Equipment	50,300	 	
Equipment	 	80,000	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets
 
185. On April 1, 2020, Sagan Realty disposed of an automobile that had cost $50,000 on January 1, 2018. The automobile had a residual value of $8,000, and a useful life of 5 years. The accounting records showed accumulated depreciation for this asset of $16,800 at December 31, 2019. The asset was discarded after an accident, and $11,500 was received from an insurance claim. Prepare the journal entry to record the disposal of the automobile. 
April 1, 2020 Accumulated Depreciation, Automobile	 	18,900	 	
Cash	 	11,500	 	
Loss on Disposal of Automobile	 	19,600	 	
Automobile	 	 	50,000	
Depreciation Expense = (50,000 – 8,000)/5 = $8,400/year	
 	2020	8,400	 	
 	2021	8,400	 	
 	2022	2,100	(8,400 × 3/12)	
 	Total	18,900	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets

186. On April 1, 2020, Thunderbird Co sold a piece of equipment that had cost $35,000 on January 1, 2011. The equipment had a residual value of $5,000, a useful life 10 years, and double-declining-balance depreciation at twice the straight-line rate was used. On December 31, 2019, accumulated depreciation was $20,664. The asset was sold for $14,200. Prepare the journal entry to record depreciation up to the date of disposal of the equipment, and the journal entry to record the disposal of the equipment. 
Apr-01 Depreciation Expense	716.80	 	
Accumulated Depreciation, Equip.	 	716.80	
($35,000 - $20,664) × 0.2 × 3/12 = $716.80	 	 	
 	 	 	
1 Accumulated Depreciation, Equip	21,380.80	 	
Cash	14,200.00	 	
Equipment	 	35,000.00	
Gain on Sale of Equipment	 	580.80	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets
 
187. During 2021, Melanie's Emporium exchanged an old truck costing $18,000 with accumulated depreciation of $13,000 to the date of exchange for a new truck. The new truck had a cash price of $30,000 and Melanie received a $6,000 trade-in allowance on the old truck. This transaction has commercial substance. Prepare the journal entry to record the exchange. 
Truck (new)	30,000	 	
Accumulated Depreciation, Truck (old)	13,000	 	
Truck (old)	 	18,000	
Cash (30,000 - 6,000)	 	24,000	
Gain on Asset Exchange	 	1,000	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
188. During 2019, Storey Company acquired a new computer with a cash price of $12,800 by exchanging an old one on which Storey received a $1,500 trade-in. The old computer had cost $9,000 and its accumulated depreciation to the date of exchange was $5,500. This transaction has commercial substance. Prepare the journal entry to record the exchange. 
Computer (new)	12,800	 	
Accumulated Depreciation, Computer (old)	5,500	 	
Loss on Asset Exchange	2,000	 	
Computer (old)	 	9,000	
Cash (12,800 - 1,500)	 	11,300	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
189. Upside Down Company purchased new office equipment for $4,300, by trading in old equipment with a cost of $2,000 and accumulated depreciation to the date of trade of $1,900. Upside Down received a $50 trade-in allowance for the old equipment. This transaction has commercial substance. Prepare the journal entry to record the transaction. 
Office Equipment (new)	4,300	 	
Accumulated Depreciation, Office Equipment	1,900	 	
Loss on Asset Exchange	50	 	
Office Equipment (old)	 	2,000	
Cash	 	4,250	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
190. On April 1, Fog Company traded an old machine that originally cost $32,000 and had been depreciated $24,000 for a new machine that had a cash price of $40,000. Assuming that this transaction has commercial substance,(1) Prepare the journal entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance was paid in cash.(2) Prepare the journal entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance was paid in cash. 
(1)	 	 	
Apr-01 Machinery	40,000	 	
Accumulated Depreciation, Machinery	24,000	 	
Loss on Asset Exchange	3,000	 	
Machinery	 	32,000	
Cash ($40,000-$5,000)	 	35,000	
 	 	 	
(2)	 	 	
Apr-01 Machinery	40,000	 	
Accumulated Depreciation, Machinery	24,000	 	
Gain on Asset Exchange	 	4,500	
Machinery	 	32,000	
Cash ($40,000-$12,500)	 	27,500	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE

191. Natsuko Company traded an old forklift for a new forklift, receiving a $10,500 trade-in allowance and paying the remaining $37,200 in cash. The old forklift cost $39,000, and straight-line depreciation of $27,200 had been recorded to the date of trade under the assumption it would last 5 years and have a $5,000 residual value. At the date of trade, the fair value of the old forklift is $11,000, however the fair value of the new forklift is not known.(1) What was the book value of the old forklift?(2) At what amount should the new forklift be recorded? 
(1) $39,000 - $27,200 = $11,800 (2) $11,000 + 37,200 = 48,200(fair value of old asset plus cash paid)

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-22 Selling PPE
 
192. Hertzog Company purchased and installed a machine on February 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was sold for $22,000, prepare the general journal entry to record the disposal 
Jul-31 Cash	22,000	 	
Accumulated Depreciation, Machinery	50,400	 	
Gain on Disposal of Equipment	 	400	
Machinery	 	72,000	
$72,000/5 × 3.5 years = $50,400	 	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets

193. Hertzog Company purchased and installed a machine on February 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was sold for $15,000, prepare the general journal entry to record the disposal. 
Jul-31 Cash	15,000	 	
Loss on Disposal of Equipment	6,600	 	
Accumulated Depreciation, Machinery	50,400	 	
Machinery	 	72,000	
$72,000/5 × 3.5 years = $50,400	 	 	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets
 
194. Hertzog Company purchased and installed a machine on February 1, 2019, at a total cost of $72,000. Straight-line depreciation was calculated based on the assumption of a five-year life and no residual value. The machine was disposed of on July 31, 2022. Assuming the machine was totally destroyed in a fire and the insurance company settled the claim for $18,000 cash, prepare the general journal entry to record the disposal. 
Jul-31 Cash	18,000	 	
Loss From Fire	3,600	 	
Accumulated Depreciation, Machinery	50,400	 	
Machinery	 	72,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-06 Account for asset disposal through discarding, selling, or exchanging an asset.
Topic: 09-19 Impairment of PPE Assets

195. Danner Co. purchased a computer on January 1, 2019, for $1,600,000. The straight-line method of depreciation was used, based on an expected life of 6 years and a residual value of $130,000. Prepare the journal entries to record depreciation for the first 6 months of 2021 and the sale of the computer on July 1, 2021, for $1,000,000. 
Jul-01 Depreciation Expense*	122,500	 	
Accumulated Depreciation, Computer	 	122,500	
 	 	 	
1 Cash	1,000,000	 	
Accumulated depreciation, Computer **	612,500	 	
Computer Equipment	 	1,600,000	
Gain on Disposal of Equipment ***	 	12,500	
 	 	 	
*(($1,600,000-$130,000)/6) × 1/2	
**(($1,600,000-$130,000)/6) × 2.5 years = $612,500	

*** Original Cost	$1,600,000	
Accumulated depreciation	612,500	
Book Value	$987,500	
Sales Price	1,000,000	
Gain	$12,500	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Topic: 09-21 Discarding PPE

196. Discuss accounting for an impairment of property, plant and equipment. 
If the book value or carrying amount of a PPE item is greater than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired. To account for the impairment of an asset a company must record a debit to impairment loss and a credit to the impaired asset. When a loss is recorded, revised depreciation must be calculated and recorded in future periods because of the decrease in the carrying amount of the asset caused by the impairment loss.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates
 
197. Matador & Company was preparing the annual financial statements and, as part of its year-end procedures, prepared the following schedule based on adjusted values at March 31, 2020:

Asset	  Cost	Accumulated Depreciation	Recoverable
Amount	
Furniture	$25,000	$20,000	$15,000	
Computer	$2,000	$1,000	$-	
Land	$105,000	$-	$125,000	
Machine	$90,000	$25,000	$45,000	

Record the entry for any impairment loss assuming that Matador & Company recorded no impairment losses in previous years. 

Asset	  Cost	Accumulated Depreciation	  Book Value	Recoverable
Amount	Impairment
Loss	
Furniture	$25,000	$20,000	$5,000	$15,000	$-	
Computer	$2,000	$1,000	$1,000	$-	$1,000	
Land	$105,000	$-	$105,000	$125,000	$-	
Machine	$90,000	$25,000	$65,000	$45,000	$20,000	
 	
Impairment Loss 21,000	
Computer	1,000	
Machine	20,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-18 Revising Depreciation Rates
 
198. Matador & Company was preparing the annual financial statements and, as part of its year-end procedures, prepared the following schedule based on adjusted values at March 31, 2020:

Asset	  Cost	Accumulated Depreciation	Recoverable
Amount
 	Residual Value	Depreciation Method	Remaining Life	
Furniture	$25,000	$20,000	$10,000	$500	Straight Line	3 years	
Computer	$2,000	$1,000	$500	$-	Double Declining	5 years	
Land	$105,000	$-	$90,000	N/A	N/A	Unlimited	
Machine	$90,000	$25,000	$35,000	$5,000	Straight Line	3 years	

Record the entry for any impairment loss assuming that Matador & Company recorded no impairment losses in previous years. Record the entry for depreciation on each of the assets at March 31, 2020. Assume there was no change in residual or useful lives regardless of impairment losses. 
1. 
Asset	  Cost	Accumulated Depreciation	Recoverable
Amount
 	Book value	Impairment
Loss	
Furniture	$25,000	$20,000	$10,000	$5,000	$-	
Computer	$2,000	$1,000	$500	$1,000	$500	
Land	$105,000	$-	$90,000	$105,000	$15,000	
Machine	$90,000	$25,000	$35,000	$65,000	$30,000	
 	
Mar-31 Impairment Loss 45,500	
Computer	500	
Land	15,000	
Machine	30,000	

2. 
  Asset	    Cost	Accumulated Depreciation	Impairment
Loss	Adjusted Book Value after loss	Residual Value	Depreciation
Method	Remaining Life	
Furniture	$25,000	$20,000	$-	$5,000	$500	Straight Line	3 years	
Computer	$2,000	$1,000	$500	$500	$-	Double Declining	5 years	
Land	$105,000	$-	$15,000	$90,000	N/A	N/A	Unlimited	
Machine	$90,000	$25,000	$30,000	$35,000	$5,000	Straight Line	3 years	
 	
Asset Depreciation Expense	
Furniture ($5,000-$500)/3 years = $1,500	
Computer 2/5 × 500 = $200	
Land N/A	
Machine ($35,000-$5,000)/3 years = $10,000	
 	
Mar-31 Depreciation expense, Furniture	$1,500	
Depreciation expense, Computer	200	
Depreciation expense, Machine	10,000	
Accumulated Depreciation, Furniture	$1,500	
Accumulated Depreciation, Computer	200	
Accumulated Depreciation, Machine	10,000	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-02 Explain, record, and calculate depreciation using the methods of straight-line, units-of-production, and double-declining-balance.
Learning Objective: 09-05 Explain and record impairment losses.
Topic: 09-15 Depreciation Methods
Topic: 09-18 Revising Depreciation Rates

199. Discuss accounting for intangible assets. 
Intangible assets are recorded at acquisition cost and are debited to asset accounts. Allocation of the cost of an intangible asset to expense is done by using the straight-line method and is called amortization. Theoretically, a contra account should be used for the accumulated amortization (as with tangible property, plant and equipment and accumulated depreciation), but a credit directly to the asset account is also done in practice.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-24 Intangible Assets
 
200. On January 4, 2020, SportsWorld purchased a patent for $35,000 with a useful life of 10 years. Prepare the journal entry to amortize the patent for the calendar year 2020. 
Amortization Expense, Patent (35,000/10)	3,500	 	
Accumulated Amortization, Patent	 	3,500	

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-25 Accounting for Intangible Assets
 
201. Hawaii Kai purchased a leasehold property for $8,500,000. The leasehold expires in 15 years. Prepare the journal entry to record the first year's depreciation expense. 
Rent Expense	566,667	 	
Leasehold	 	566,667	

 

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-29 Trademarks and Trade Names
 
202. GenX Music purchased a music distributor's collection of songs for $1,423,000. The copyrights are expected to last another 34 years. Prepare the journal entry to record the amortization expense for the first year. 
Amortization Expense, Copyrights	41,853	 	
Accumulated Amortization, Copyrights	 	41,853	

$1,423,000/34 = 41,853 rounded

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Easy
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-26 Patents
 
203. Explain what could cause the impairment of goodwill. How often should goodwill be tested to see if it is impaired? 
Goodwill could be impaired by an ongoing past or potential cash flow losses or negative changes in variables supporting original calculations of goodwill. Testing for impairment should be done at least annually.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 09-07 Account for intangible assets and their amortization.
Topic: 09-30 Leaseholds

204. The following information is available for a piece of A Company's machinery:

Machine:	 	 	 	 	 	 	
Component	Date of Purchase	Depreciation Method	Cost	Est. Residual	Est. Life	Accum. Dep. at Dec. 31, 2021, Year-End	
Electronic Controller	April 1/22	Straight-line	$ 5,000	$ 0	5 years	$750	
Motor	April 1/22	Units of Production	100,000	10,000	50,000 hours	2,700	
 	 	 	 	 	 	 	
 	 	 	$105,000	 	 	$3,450	

On November 1, 2022, the electronic controller was replaced with a new one costing $8,000 purchased for cash. The new controller had an estimated residual value of $1,000 and an estimated useful life of 5 years. During 2022 the machinery was used for 3,200 hours from January 1 to October 31 and 650 hours from November 1 to December 31. Required: Record depreciation on machinery and the controller replacement for 2022. Round depreciation amounts to the nearest dollar. 
Step 1: Update depreciation on the machinery to October 31, 2022: Using original rates of depreciation: October 31, 2022:

Depreciation expense, Machinery	6593	 	
Accumulated Depreciation, Machinery	 	6593	

Step 2: Record the capital expenditure and remove the old controller being replaced: November 1, 2022:

Machinery (new controller)	 	8,000	 	
Accumulated depreciation, machinery (750 + 8333)	 	1,583	 	
Loss on Disposal of Machinery	 	3,417	 	
 	Machinery (old controller)	 	5,000	
 	Cash	 	8,000	

Step 3: record depreciation from November 1 - December 31, 2022December 31, 2022:

Depreciation expense, Machinery	1,403	 	
Accumulated Depreciation, Machinery	 	1,403	

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 09-08 Explain and calculate revised depreciation when there is a subsequent capital expenditure that creates partial-period depreciation.
Topic: 09-13 Reporting Depreciation on Assets