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Accounting 2 Chapter 8

True/False
Indicate whether the statement is true or false.
 

 1. 

Wolford Stores, Inc., bought display shelves for $6,000.00. They have an estimated salvage value of $1,000.00 and an estimated useful life of 5 years. The yearly depreciation expense using the straight-line method is $1,000.00.
 

 2. 

No matter which depreciation method is used, the adjusting entry to record depreciation involves a debit to Accumulated Depreciation and a credit to Depreciation Expense.
 

 3. 

An asset's assessed value for property tax purposes may be different from the asset's book value.
 

 4. 

According to the Realization of Revenue concept, the cost of a plant asset should be allocated to an expense account over the useful life of the plant asset.
 

 5. 

After bringing depreciation up to date, Hosea Hardware discarded a display cabinet with an original cost of $500.00, total accumulated depreciation of $450.00, and an estimated salvage value of zero. The loss on the disposal is $50.00.
 

 6. 

Most businesses use the MACRS property class life to estimate the useful life of a plant asset.
 

 7. 

Alexander Distributors bought store equipment for $10,000.00. It has an estimated salvage value of $1,000.00 and an estimated useful life of 5 years. Using the straight-line method, the book value at the end of year two would be $5,400.00.
 

 8. 

Starlite Wonders, Inc. received $250.00 cash from the sale of a printer. The original cost of the printer was $900.00, its estimated salvage value was zero, and its total accumulated depreciation was $800.00. The loss of the sale totaled $150.00.
 

 9. 

If a plant asset is used longer than its estimated useful life, depreciation is not recorded once the book value equals the estimated salvage value.
 

 10. 

The actual value and book value of an asset are usually the same.
 

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

The value of an asset determined by tax authorities for the purpose of calculating taxes is called ____.
A.
assessed value
C.
property tax value
B.
eminent domain value
D.
taxable value
 

 2. 

Which of the following is NOT a way that a business disposes of a plant asset?
A.
trading
C.
discarding
B.
selling
D.
devaluing
 

 3. 

The method of depreciation calculated using the amount of production expected from a plant asset is ____.
A.
declining-balance
C.
straight-line
B.
production-unit
D.
sum-of-the-years-digits
 

 4. 

The total depreciation taken to date for a plant asset is found on the plant asset record as ____.
A.
annual depreciation expense
C.
ending book value
B.
accumulated depreciation
D.
total depreciation
 

 5. 

The method of depreciation calculated by multiplying the book value at the end of each fiscal period by a constant depreciation rate is ____.
A.
declining-balance
C.
straight-line
B.
production-unit
D.
sum-of-the-years-digits
 

 6. 

Which of the following is true about the Modified Accelerated Cost Recovery System?
A.
all plant assets are assumed to be placed in service the first day of the year
B.
all plant assets are assumed to be taken out of service on the last day of the year
C.
the depreciation rates are applied to the total cost of the plant assets without considering the salvage value
D.
the depreciation rates are similar to the straight-line rates
 

 7. 

The method of depreciation that charges an equal amount of depreciation expense for a plant asset in each year of its useful life is ____.
A.
declining-balance
C.
straight-line
B.
production-unit
D.
sum-of-the-years-digits
 

 8. 

The original cost of a plant asset minus accumulated depreciation is called the ____.
A.
book value of a plant asset
B.
depreciable value of a plant asset
C.
salvage value of a plant asset
D.
useful life of a plant asset
 

 9. 

Land and anything attached to it is called ____.
A.
depreciable property
C.
personal property
B.
land improvements
D.
real property
 

 10. 

Figgins, Inc. purchased a truck that it expects to drive 100,000 miles over its useful life. The cost of the truck was $32,000. Its estimated salvage value is $2,000, and its useful life is expected to be 5 years. The depreciation rate that would be used for the production-unit method would be ____.
A.
$0.30 per mile
C.
$6,000
B.
$0.32 per mile
D.
$6,400
 

 11. 

The decrease in the value of a plant asset because of the removal of a natural resource is ____.
A.
declining-balance
C.
production-unit
B.
depletion
D.
straight-line
 

 12. 

When an asset is traded, the original cost of the new asset recorded in the accounting records is ____.
A.
the cash paid minus the book value of the asset traded
B.
the cash paid minus the original cost of the asset traded
C.
the cash paid plus the book value of the asset traded
D.
the cash paid plus the original cost of the asset traded
 

 13. 

The method of depreciation calculated by using fractions based on the number of years of a plant asset's useful life is ____.
A.
declining-balance
C.
straight-line
B.
production-unit
D.
sum-of-the-years-digits
 

 14. 

The entry to discard equipment with book value after depreciation has been brought up to date includes a ____.
A.
debit to Accumulated Depreciation–Equipment and a credit to Equipment
B.
debits to Accumulated Depreciation–Equipment and Equipment and a credit to Gain on Plant Assets
C.
debits to Accumulated Depreciation–Equipment and Loss on Plant Assets and a credit to Equipment
D.
debit to Equipment and credits to Accumulated Depreciation–Equipment and Loss on Plant Assets
 

 15. 

The entry to record depreciation for part of a year is a ____.
A.
debit to Accumulated Depreciation–Equipment and a credit to Depreciation Expense–Equipment
B.
debit to Depreciation Expense–Equipment and a credit to Accumulated Depreciation–Equipment
C.
debit to Depreciation Expense–Equipment and a credit to Income Summary
D.
debit to Income Summary and a credit to Depreciation Expense–Equipment
 



 
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