Recording and Evaluating Capital Resource Process Activities: Investing

Chapter 16 - Recording and Evaluating Capital Resource Process Activities: Investing

Chapter 16

Recording and Evaluating Capital Resource Process Activities: Investing

Name ______

Team ______

Test/Retest #16B

1.ABC Company purchased land and a building for a total cost of $5 million. An appraisal of the property indicates an estimated value of the land at $4.5 million while the building is appraised at $1.5 million. Based on this information, the debit to land to record this purchase should be:

a.$1,500,000

b.$3,750,000

c.$4,500,000

d.$5,000,000

Use the following information to answer questions 2 – 5. On January 2, XYZ Company purchased equipment with a total cost of $110,000 and paid $20,000 to install it. The equipment has an estimated useful life of 8 years or 360,000 hours with a $10,000 salvage value.

2.If the company uses the straight-line depreciation method, what is the debit to Depreciation Expense for the first year?

a.$6,250

b.$7,500

c.$12,500

d.$15,000

3.If the company uses the units-of-production methods and uses the equipment for 40,000 hours during the first year, what is the credit to Accumulated Depreciation?

a.$12,222

b.$13,333

c.$14,444

d.$120,000

4.If the company uses the double-declining-balance method, what is the debit to Depreciation Expense for the first year?

a.$7,500

b.$27,500

c.$30,000

d.$32,500

5.If the company had purchased the equipment on April 16, adopted the mid-year convention, and used the units-of-production method but still used the equipment for 40,000 hours, what would the depreciation expense be?

a.$6,667

b.$7,222

c.$13,333

d.$14,444

Use the following information to answer questions 6 – 8. Example Company has a machine with an original cost of $76,000 and accumulated depreciation of $40,000.

6.If Example Company sells the machine for $45,000 cash, what is the amount of the recognized gain or loss?

a.$9,000 gain

b.$9,000 loss

c.$31,000 loss

d.$0, a gain cannot be recognized in a cash transaction

7.If Example Company trades the machine for $10,000 of inventory and a $20,000 delivery vehicle, what is the amount of the recognized gain or loss?

a.$6,000 gain

b.$6,000 loss

c.$36,000 loss

d.$0, a loss cannot be recognized

8.If Example Company trades the machine for a newer machine with a list price of $110,000 and the dealer gives Example Company a trade-in allowance of $50,000, what is the amount of the recognized gain or loss?

a.$24,000 gain

b.$24,000 loss

c.$14,000 gain

d.$0, a gain cannot be recognized

9.R&D Company spent $240,000 to secure a patent for its new product. The legal life of the patent is 20 years, but R&D estimates its useful life at 8 years. What is the amortization expense for the first year?

a.$12,000

b.$24,000

c.$30,000

d.Cannot be determined without knowing the method of amortization

10.WYO, Inc. has a coal mine with a cost of $4,000,000. It is expected to yield 2,000,000 tons of coal over its lifetime. What is the depletion rate?

a.$0.50 per ton

b.$2.00 per ton

c.It depends on how many tons are mined per period.

16B-1