Multiple Choice Questions
1. Anniston Company purchased equipment and incurred the following costs:
Purchase price ........... $52,000
Cost of trial runs .......... 750
Installation costs .......... 250
Sales tax ............. 2,600
What is the cost of the equipment?
a. $52,000
b. $54,600
c. $54,850
d. $55,600
2. The cost principle requires that companies record fixed assets at
a. Fair value
b. Book value
c. Historical cost
d. Market value
3. When depreciation expense is recorded each period, what account is debited?
a. Depreciation Expense
b. Cash
c. Accumulated Depreciation
d. The fixed asset account involved
4. Refer to the information for Cox Inc. above. What would be the balance in the accumulated depreciation account at December 31, 2012, if the straight-line method were used?
a. $216,000
b. $236,000
c. $240,000
d. $250,000
Cox Inc. acquired a machine for $600,000 on January 1, 2011. The machine has a salvage value of $10,000 and a five-year useful life. Cox expects the machine to run for 15,000 machine hours.
The machine was actually used for 4,800 hours in 2011 and 3,150 hours in 2012.
5. Refer to the information for Cox Inc. above. What amount would Cox record as depreciation expense for 2011 if the units-of-production method were used (Note: Round your answer to the nearest dollar)?
a. $123,900
b. $188,800
c. $192,000
d. $195,200
Cox Inc. acquired a machine for $600,000 on January 1, 2011. The machine has a salvage value of $10,000 and a five-year useful life. Cox expects the machine to run for 15,000 machine hours.
The machine was actually used for 4,800 hours in 2011 and 3,150 hours in 2012.
6. Which of the following statements is true regarding depreciation methods?
a. The use of a declining balance method of depreciation will produce lower depreciation charges in the early years of an asset’s life compared to the straight-line depreciation method.
b. Over the life of an asset, a declining balance depreciation method will recognize more depreciation expense relative to the straight-line method.
c. The use of a declining-balance method instead of the straight-line method will produce higher book values for an asset in the early years of the asset’s life.
d. The use of a higher estimated life and a higher residual value will lower the annual amount of depreciation expense recognized on the income statement.
7. Normal repair and maintenance of an asset is an example of what?
a. Revenue expenditure
b. Capital expenditure
c. An expenditure that will be depreciated
d. An expenditure that should be avoided