Accounting Volume 1 Canadian 9th Edition Charles T. Horngren Test Bank

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Accounting Volume 1 Canadian 9th Edition Charles T. Horngren Test Bank

Description

Accounting, Vol. 1, 9e Cdn. Ed. (Horngren et al.)
Chapter 10 Property, Plant, and Equipment; Goodwill; and Intangibles

Objective 10-1

1) Goods and services tax (GST) paid on the purchase of an asset is recoverable only if the asset acquired is used in the business as property, plant, and equipment.
Answer: FALSE
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

2) Provincial sales taxes (PST) paid on the purchase of property, plant, and equipment is included in the cost of the asset.
Answer: TRUE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

3) The cost of a property, plant, and equipment asset includes the purchase price, provincial sales taxes, purchase commissions, and all other amounts paid to acquire the asset and to ready it for its intended use.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

4) The only requirement an asset must meet in order for it to be recorded as property, plant, and equipment is that it have a useful life beyond one year.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

5) Paving, fencing, and exterior lighting should be debited to the land account.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

6) The cost of land includes fencing, paving, sprinkler systems, and lighting.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment
7) The cost of land improvements includes fencing, paving, sprinkler systems, and lighting.
Answer: TRUE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

8) The cost of removing an old building from acquired land would be a part of the land account.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

9) Transportation charges and insurance while in transit are part of the cost of equipment and therefore debited to the equipment account.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

10) If a company constructs its own assets, the cost of the building may include the cost of interest on money borrowed to finance the construction.
Answer: TRUE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

11) In a lump-sum purchase of assets, the total cost of the assets is divided among the assets according to their relative market values.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

12) Expenditures that increase the assets capacity or efficiency and/ or extend its useful life are called betterments.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment
13) The cost of improvements to leased assets appears on the businesss balance sheet as leasehold improvements.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

14) Betterments must be expensed as capitalizing the transaction would affect the subsequent calculations of amortization.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

15) Land improvements are not subject to amortization.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

16) Leasehold improvements are not subject to amortization.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

17) The renewal option period is excluded from the amortization period for leasehold improvements.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

18) Construction in progress is a current liability if the construction period is less than one year.
Answer: FALSE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment
19) The relative-fair-value method is the most conservative method of amortizing buildings and equipment.
Answer: FALSE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

20) All of the following are property, plant and equipment except:
A) land.
B) prepaid taxes.
C) a building.
D) equipment.
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

21) Which of the following assets is never amortized?
A) land
B) land improvements
C) patents
D) goodwill
Answer: A
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

22) All amounts paid to acquire an asset and to get it ready for its intended use are referred to as:
A) equity expenditures.
B) salvage expenditures.
C) the cost of an asset.
D) revenue expenditures.
Answer: C
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

23) The cost of land would include all of the following except:
A) delinquent property taxes paid by the purchaser.
B) net purchase price.
C) grading of the land.
D) paving.
Answer: D
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment
24) The cost of fencing should be charged to:
A) repairs expense.
B) land improvements.
C) land.
D) improvements expense.
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

25) The cost of a building would include all of the following except:
A) architectural fees.
B) clearing and grading the land prior to construction of the building.
C) cost of repairs made to an old building to get it ready for occupancy.
D) costs of construction.
Answer: B
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

26) Which of the following would not be included in the building account?
A) cost of repairing roof that was damaged prior to the purchase of the building
B) cost of demolishing an old building to make room for construction
C) architect fees
D) building permits
Answer: B
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

27) Five hundred hectares of land are purchased for $120,000. Additional costs include $5,000 real estate commission, $10,000 for removal of an old building, $6,000 for paving, and $800 delinquent property taxes. What is the cost of the land?
A) $141,800
B) $141,000
C) $135,000
D) $135,800
Answer: D
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment
28) Jackson Construction Company Ltd. paid $42,000 for equipment with a fair market value of $46,000. Jackson Construction Company Ltd. will record equipment at:
A) $42,000.
B) $46,000.
C) either $42,000 or $46,000.
D) $44,000 (average).
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

29) Cycle Company Ltd. made a lump-sum purchase of land, buildings, and equipment for $630,000. The appraised market values for the items are respectively, $210,000, $322,000, and $168,000. Cycle Company Ltd. should debit the equipment account for:
A) $289,800.
B) $189,000.
C) $151,200.
D) $168,000.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

30) Jet Tool Company Ltd. paid $184,000 for equipment and a building with fair market values of $100,000 and $150,000, respectively. Jet Tool Company Ltd. should debit the equipment account for:
A) $73,600.
B) $184,000.
C) $110,400.
D) $100,000.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

31) All of the following are characteristics of property, plant and equipment except:
A) tangible.
B) long-lived.
C) held for investment.
D) used in the business.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment
32) The cost of paving a parking lot should be charged to:
A) a natural resource.
B) land improvements.
C) land.
D) repairs and maintenance expense.
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

33) A lump-sum purchase of assets requires an allocation of the purchase price among the assets acquired. This allocation method is called the:
A) book-value method.
B) relative-fair-value method.
C) accumulated method.
D) betterment approach.
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

34) Lumac Corporation purchased land and a building for $1,500,000. An appraisal indicates that the lands value is $650,000 and the buildings value is $975,000. The amount that would be debited to the building account is:
A) $1,056,250.
B) $900,000.
C) $975,000.
D) $995,000.
Answer: B
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

35) Utsman Enterprises Ltd. purchased land, buildings, and equipment for $2,400,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The equipment account will be debited for:
A) $500,000.
B) $525,000.
C) $410,156.
D) $480,000.
Answer: D
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment
36) Grubbs Company Ltd. acquired land and buildings for $1,350,000. The land is appraised at $475,000 and the buildings are appraised at $775,000. The debit to the buildings account will be:
A) $712,500.
B) $675,000.
C) $837,000.
D) $775,000.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

37) Talbert Company Ltd. purchased land, buildings, and equipment for $3,000,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The land account will be debited for:
A) $1,382,353.
B) $1,017,647.
C) $600,000.
D) $865,000.
Answer: B
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

38) Which of the following is included in the cost of a plant asset?
A) amounts paid to ready the asset for its intended use
B) regular maintenance cost
C) normal repair cost
D) wages of workers who use the asset
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

39) A company purchased a used machine for $80,000. The machine required installation costs of $8,000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?
A) $80,500
B) $88,500
C) $88,000
D) $80,000
Answer: B
Explanation: B) Calculations: $80,000 + $8,000 + $500 = $88,500
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

40) Acme Investments plans to develop a shopping center. In the first quarter, they spent the following amounts:

Purchase land $90,000
Surveys and legal fees 1,200
Land clearing 5,000
Install fences around the property 4,600
Install lighting and signage 2,600

What amount should be recorded as the land cost?
A) $90,000
B) $91,200
C) $103,400
D) $96,200
Answer: D
Explanation: D) Calculations: $90,000 + $1,200 + $5,000 = $96,200
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

41) A companys accountant capitalizes a payment that should be recorded as an expense. Which of the following is true?
A) Revenue is overstated.
B) Expenses are overstated.
C) Assets are overstated.
D) Liabilities are overstated.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Comprehension
Objective: 10-1 Measure the cost of property, plant, and equipment

42) A companys accountant capitalizes a payment that should be recorded as an expense. Which of the following is true?
A) Net income is overstated.
B) Revenues are understated
C) Assets are understated.
D) Liabilities are overstated.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Comprehension
Objective: 10-1 Measure the cost of property, plant, and equipment

Match the following.

A) property, plant, and equipment assets

43) Long-lived tangible assets used in the operation of the business
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-1 Measure the cost of property, plant, and equipment

Answers: 43) A

44) Jane Browning purchased a tract of land and contracted with a builder to build an office building on the property. She also engaged other contractors for lighting, fencing, paving, etc.

Based on the following transactions, determine the total costs allocated to the land, building, and land improvements accounts.

a) Purchased land for $125,000.
b) Paid a contractor $150,000 to design and build the office building.
c) Paid a demolition company $20,000 to remove an old structure on the property.
d) Paid $15,000 in delinquent taxes on the property.
e) Paid $20,000 for fencing.
f) Paid $10,000 for paving.
g) Paid an electrical contractor $15,000 for outdoor lighting.

Cost of land ________________
Cost of building ________________
Cost of land improvements ________________
Answer:
Land = $125,000 + $20,000 + $15,000 = $160,000

Building = $150,000

Land improvements = $20,000 + $10,000 + $15,000 = $45,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

45) Little Construction Ltd. bought land, a building, and equipment for a lump-sum of $600,000. Following are the appraised fair market values of the newly acquired assets:

Land $200,000
Building 300,000
Equipment 150,000

Determine the cost of each asset. Round to the nearest dollar if necessary.

Land ________________
Building ________________
Equipment ________________
Answer:
$200,000 + $300,000 + $150,000 = $650,000

Land ($200,000/$650,000) $600,000 = $184,615

Building ($300,000/$650,000) $600,000 = $276,923

Equipment = ($150,000/$650,000) $600,000 = $138,462
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

46) Record journal entries for the following transactions involving property, plant and equipment for Blankenship Company Ltd.:

a) Purchased equipment costing $100,000.
b) Paid freight to have equipment delivered, $500.
c) Paid $1,000 to have equipment installed.
d) Paid $50,000 to have a similar piece of equipment overhauled.
e) Paid $100 for periodic maintenance to the new equipment.
Answer:
General Journal
Date Accounts Debit Credit
a) Equipment 100,000
Cash 100,000
b) Equipment 500
Cash 500
c) Equipment 1,000
Cash 1,000
d) Equipment 50,000
Cash 50,000
e) Repairs Expense 100
Cash 100

Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment
Table 10-7

On January 1, 2013, Brazeau Transport purchased a $165,000 truck for hauling cattle across the border. Brazeau plans on driving the truck for four years or 450,000 kilometres. Expected residual value for the truck is $35,000. On June 30, 2016, after having driven the truck 44,000 kilometres, the truck had an accident on the highway and was totalled. The insurance proceeds for the truck was $42,000 cash.

47) Refer to Table 10-7. What is the amortizable cost of the truck?
Answer: $130,000
($165,000 $35,000)
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

48) Large Construction Ltd. bought land, a building, and equipment for a lump-sum of $1,800,000. Following are the appraised fair market values of the newly acquired assets:

Land $600,000
Building 900,000
Equipment 400,000

Determine the cost of each asset. Round to the nearest dollar if necessary.

Land ________________
Building ________________
Equipment ________________

Answer:
$600,000 + $900,000 + $400,000 = $1,900,000

Land ($600,000/$1,900,000) $1,800,000 = $568,421

Building ($900,000/$1,900,000) $1,800,000 = $852,632

Equipment = ($400,000/$1,900,000) $1,800,000 = $378,947
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

49) Durham Bike Shop Ltd.s year end is December 31. Some of the companys transactions are as follows:

March 1 Paid $190,000 cash to purchase the following assets:

Market Est. Useful Est. Residual
Asset Value Life Value
Land $88,000
Building 132,000 25 years $14,000

Durham Bike Shop Ltd. plans to use the straight-line amortization
method for the building.

April 15 Purchased a used pickup truck for $10,500 cash. The truck sells for
$15,900 when new. The truck is expected to be used for eight years and
driven 120,000 km. The estimated salvage value is $3,900. It will be
amortized using the units-of-production method.

April 16 Installed heavy-duty racks costing $1,400 that will enable the truck to
carry several bicycles.

June 30 Paid Johns garage for an oil change ($35) and the replacement of a
muffler ($425).

Dec. 31 Recorded amortization on the assets. The truck was driven
9,000 kilometres since it was purchased.

Record the above transactions of Durham Bike Shop Ltd. Round all amounts to the nearest dollar. Explanations are not required.

Answer:
Journal
Date Accounts Debit Credit
Mar. 1 Land* 76,000
Buildings* 114,000
Cash 190,000

Apr. 15 Truck 10,500
Cash 10,500

Apr. 16 Truck 1,400
Cash 1,400

Jun.30 Repairs Expense 460
Cash 460

Dec. 31 Amortization Expense-Building** 3,333
Amortization Expense-Truck*** 600
Accum. Amortization-Building 3,333
Accum. Amortization-Truck 600

Asset Market Value Percentage Allocated Cost
Land* $88,000 40% $76,000
Building* 132,000 60% 114,000
Total $220,000 100% $190,000

** (114,000 14,000)/25 10/12 = $3,333
*** (10,500 + 1,400 3,900)/120,000 9000 = $600
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

Table 10-9 Sandu Trucking

On July 1, 2013, Sandu Trucking bought a truck for $42,000 cash. It has estimated residual value of $6,000, and an estimated life of 4 years, or 300,000 kilometres. The truck drove 80,000 kilometres in 2013, 90,000 kilometres in 2014, 100,000 kilometres in 2015, and 50,000 kilometres in 2016. Sandu Trucking has a December 31st year end.

50) Refer to Table 10-9 and the following information:

Prepare the journal entry to record the amortization expense in 2014 with the following assumptions:
1. straight-line amortization
2. January 2, 2014 a new canopy was installed onto the truck at a cost of $2,500
3. the useful life was changed from four years to six years
4. the estimated residual value was changed to $4,000

Prepare the following journal entries:

1. Prepare the journal entry to record the expenditure on the canopy for cash
2. Prepare the journal entry to record the amortization expense for 2014.
3. Close the amortization expense account on December 31, 2014.
Answer:
General Journal
Date Accounts Debit Credit
2014
Jan. 2 Truck 2,500
Cash 2,500

Dec. 31 Amortization Expense Truck 6,552
Accumulated Amortization, Truck 6,552

Dec. 31 Income Summary 6,552
Amortization Expense Truck 6,552

Explanation: Book value January 1, 2014 = $42,000 (6 x $750) = $37,500
Revised amortizable cost = $37,500 + $2,500 $4,000 = $36,000
Revised amortization rate = $36,000/66 remaining months = $546/month
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-1 Measure the cost of property, plant, and equipment

Objective 10-2

1) Amortization is a process of asset valuation.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization
2) With respect to amortization, a business should match an assets expense against the revenue the asset produces.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

3) Book value is determined by subtracting the residual value from the cost of an asset.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

4) Double-declining-balance amortization computes annual amortization by multiplying the assets book value by two times the straight-line rate.
Answer: TRUE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

5) Using the double-declining method of amortization means that the book value should not be reduced below the residual value.
Answer: TRUE
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

6) Double-declining-balance amortization computes annual amortization by multiplying the assets book value less residual value by two times the straight-line rate.
Answer: FALSE
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

7) A machine acquired on April 1 would be amortized a total of eight months for the year ended December 31.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization
8) Amortization is a process of allocating the cost of an asset over its useful life.
Answer: TRUE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

9) Cost minus salvage value is called amortizable cost.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

10) An amortizable assets carrying value is the assets cost less accumulated amortization.
Answer: TRUE
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

11) A fully amortized asset always has a book value of zero.
Answer: FALSE
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

12) For an asset that generates revenue fairly evenly over time, which is the most appropriate method of amortization?
A) units-of-production method
B) double declining balance method
C) straight-line method
D) declining-balance method
Answer: C
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Comprehension
Objective: 10-2 Calculate and account for amortization

13) Which of the following expenditures would be debited to an expense account?
A) cost to overhaul the company cars engine
B) cost to replace the engine of the company car
C) cost to paint the car after a fender bender
D) cost to overhaul the engine and the transmission of the company car
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Comprehension
Objective: 10-2 Calculate and account for amortization
14) Which of the following is false?
A) amortization is a process of valuation
B) amortization expense is the amortized amount for the current period only
C) accumulated amortization is that portion of the property, plant, and equipment assets cost that has already been recorded as an expense
D) book value is cost less accumulated amortization
Answer: A
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

15) Which of the following is not a recognized amortization method?
A) straight-line method
B) lower-of-cost-or-market method
C) units-of-production method
D) double-declining-balance method
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

16) Incorrectly treating a repair expenditure as a betterment:
A) understates expenses and understates owners equity.
B) understates expenses and understates assets.
C) overstates expenses and understates net income.
D) overstates assets and overstates owners equity.
Answer: D
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Comprehension
Objective: 10-2 Calculate and account for amortization

17) The process of allocating a property, plant, and equipment assets cost to expense over the period the asset is used is called:
A) cash-basis accounting.
B) amortization.
C) accruing.
D) direct write-off.
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization
18) If amortization expense for an asset is the same every year, which method is being used?
A) straight-line
B) units-of-production
C) double-declining-balance
D) either units-of-production or double-declining-balance
Answer: A
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

19) Which amortization method generally results in the greatest amortization expense in the first full year of an assets life?
A) straight-line
B) units-of-production
C) double-declining-balance
D) either straight-line or double-declining-balance
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Comprehension
Objective: 10-2 Calculate and account for amortization

20) Amortizable cost equals cost minus:
A) residual value.
B) book value.
C) accumulated amortization.
D) current years amortization expense.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

Table 10-1

On January 1, 2013, Bark Manufacturing Company Ltd. purchased a machine for $27,500, and expects to use the machine a total of 32,000 hours over the next four years. Bark set the residual value on the machine at $3,500. Bark used the machine 6,000 hours in 2013 and 7,200 hours in 2014.

21) Referring to Table 10-1, what is the amortization expense for 2013 if Bark uses double-declining-balance amortization?
A) $12,000
B) $13,750
C) $6,875
D) $6,000
Answer: B
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization
22) Referring to Table 10-1, what is the amortization expense in 2014 if Bark uses straight-line amortization?
A) $6,875
B) $13,750
C) $12,000
D) $6,000
Answer: D
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

23) Referring to Table 10-1, what is the amortization expense in 2014 if Bark uses double-declining-balance amortization?
A) $6,875
B) $6,000
C) $13,750
D) $12,000
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

24) Referring to Table 10-1, what is the amortization expense in 2014 if Bark uses units-of-production amortization?
A) $5,400
B) $4,500
C) $6,192
D) $5,156
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

25) Which of the following statements is true?
A) Accumulated amortization is that portion of a property, plant, and equipment assets cost that has already been recorded as an expense.
B) Amortization is a process of valuation.
C) Amortization represents the cash a business has set aside to replace assets as they become fully amortized.
D) Accumulated amortization is classified as a liability account on the balance sheet.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization
26) To measure amortization for a property, plant, and equipment asset, all of the following must be known except:
A) estimated useful life.
B) historical cost.
C) current market value.
D) estimated residual value.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

27) The entry to record amortization on a building is:
A)
Amortization Expense
Accumulated Amortization-Building

B)
Amortization Expense
Building

C)
Building Expense
Accumulated Building Expense

D)
Building Expense
Building

Answer: A
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

28) Book value is defined as:
A) cost minus residual value.
B) cost minus accumulated amortization.
C) current market value minus residual value.
D) current market value minus accumulated amortization.
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization
29) Multiplying the assets book value by a constant percentage is the computation of amortization under:
A) the double-declining-balance method.
B) the units-of-production method.
C) the straight-line method.
D) either double-declining-balance method or straight-line method.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

30) The amortization method that initially ignores residual value in the initial calculation is:
A) double-declining-balance.
B) straight-line.
C) both double-declining-balance and straight-line.
D) units-of-production.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

Table 10-2

On January 1, 2013, Homes Realty Ltd. purchased a $45,000 vehicle to chauffeur clients to prospective homes. Homes plans on driving the vehicle for five years or 100,000 kilometres. Expected residual value is $10,000.

31) Referring to Table 10-2, the amortizable cost of the vehicle is:
A) $9,000.
B) $45,000.
C) $35,000.
D) $55,000.
Answer: C
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

32) Referring to Table 10-2, the 2013 amortization expense using the straight-line method is:
A) $11,250.
B) $8,750.
C) $2,500.
D) $7,000.
Answer: D
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

33) Refer to Table 10-2. Homes Realty Ltd. drove the vehicle 25,000 kilometres in 2013. The amortization expense for 2010 using the units-of-production method is:
A) $6,480.
B) $8,750.
C) $6,200.
D) $2,880.
Answer: B
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

34) Refer to Table 10-2. The amortization expense for 2014 using the double-declining-balance method is:
A) $6,480.
B) $8,750.
C) $10,800.
D) $2,880.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

35) Refer to Table 10-2. The book value of the vehicle at the end of 2013, after recording amortization for the year using the straight-line method, is:
A) $38,000.
B) $28,000.
C) $36,000.
D) $26,000.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

36) Refer to Table 10-2. The book value of the vehicle at the end of 2015, after recording amortization for the year using the double-declining-balance method, is:
A) $18,000.
B) $10,000.
C) $27,000.
D) $10,800.
Answer: B
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

37) Refer to Table 10-2. The balance in the accumulated amortization account at the end of 2014, after recording amortization using the double-declining-balance method, is:
A) $10,800.
B) $27,000.
C) $16,200.
D) $28,800.
Answer: D
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

Table 10-3

Gotcha Company Ltd. acquired equipment on April 1, 2013, for $300,000. The residual value of the equipment is $30,000 and the estimated life is six years or 120,000 hours.

38) Referring to Table 10-3, what will the amortization expense be for the year ended December 31, 2013, if Gotcha Company Ltd. uses double-declining-balance amortization?
A) $100,000
B) $67,500
C) $75,000
D) $90,000
Answer: C
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

39) Referring to Table 10-3, compute amortization expense for the year ended December 31, 2013, if Gotcha Company Ltd. uses straight-line amortization.
A) $45,000
B) $37,500
C) $11,250
D) $33,750
Answer: D
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

40) Lot Company Ltd. acquired equipment on June 30, 2013, for $300,000. The residual value is $20,000 and the estimated life is five years or 60,000 hours. Compute the balance in accumulated amortization as of December 31, 2014, if Lot Company Ltd. uses the double-declining-balance method of amortization.
A) $108,000
B) $144,000
C) $156,000
D) $192,000
Answer: C
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

Table 10-5

On January 1, 2013, Button Manufacturing Company purchased a machine for $39,980, and expects to use the machine a total of 32,000 hours over the next four years. Button set the residual value on the machine at $3,500. Button used the machine 6,000 hours in 2013 and 7,200 hours in 2014.

41) Referring to Table 10-5, what is the amortization expense for 2013 if Button uses double-declining balance amortization?
A) $19,990
B) $9,995
C) $18,240
D) $9,120
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

42) Referring to Table 10-5, what is the amortization expense in 2014 if Button uses straight-line amortization?
A) $6,875
B) $13,750
C) $12,000
D) $9,120
Answer: D
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

43) Referring to Table 10-5, what is the amortization expense in 2014 if Button uses double-declining balance amortization?
A) $6,875
B) $6,000
C) $9,995
D) $12,000
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

44) Referring to Table 10-5, what is the amortization expense in 2014 if Button uses units-of-production amortization?
A) $8,208
B) $4,500
C) $6,192
D) $5,156
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

Table 10-6

On January 1, 2013, Grant Transport purchased a $120,000 truck for hauling cattle across the border. Grant plans on driving the truck for eight years or 400,000 kilometres. Expected residual value for the truck is $30,000.

45) Referring to Table 10-6, the amortizable cost of the truck is:
A) $120,000.
B) $90,000.
C) $400,000.
D) $150,000.
Answer: B
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

46) Refer to Table 10-6. The 2015 amortization expense using the double-declining-balance method is:
A) $30,000.
B) $22,500.
C) $16,875.
D) $12,656.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

47) Refer to Table 10-6. The 2017 amortization expense using the double-declining-balance method is:
A) $7,969.
B) $9,492.
C) $16,875.
D) $12,656.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

48) Referring to Table 10-6, the 2015 amortization expense using the straight-line method is:
A) $11,250.
B) $16,875.
C) $28,125.
D) $15,000.
Answer: A
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

49) Refer to Table 10-6. Grant Transport drove the truck 125,000 kilometres in 2015. The amortization expense for 2015 using the units-of-production method is:
A) $11,250.
B) $22,500.
C) $28,125.
D) $30,000.
Answer: C
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

50) Refer to Table 10-6. The book value of the truck at the end of 2014, after recording amortization for the year using the straight-line method, is:
A) $108,750.
B) $105,000.
C) $91,875.
D) $97,500.
Answer: D
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

51) Refer to Table 10-6. The book value of the vehicle at the end of 2016, after recording amortization for the year using the straight-line method, is:
A) $60,000.
B) $75,000.
C) $86,250.
D) $63,750.
Answer: B
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

52) Refer to Table 10-6. The balance in the accumulated amortization account at the end of 2014, after recording amortization using the double-declining-balance method, is:
A) $33,750.
B) $69,375.
C) $30,000.
D) $52,500.
Answer: D
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

53) A machine was purchased on May 18, 2014 for $7,500. The estimated life is six years and estimated residual value is $300. Assuming straight-line amortization and that the company records no amortization for the month on assets purchased after the 15th of the month, the amortization expense for the year ended December 31, 2014, is:
A) $800.
B) $700.
C) $833.
D) $1,200.
Answer: B
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization
Table 10-8 Zane Manufacturing

On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.

54) Refer to Table 10-8. What is the amortization expense for 2013 if the company uses double-declining-balance method?
A) $6,667
B) $6,000
C) $13,333
D) $12,000
Answer: C
Explanation: C) Calculations: $40,000 1/6 2 = $13,333
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

55) Refer to Table 10-8. What is the amortization expense for 2014 if the company uses the double-declining-balance method?
A) $13,333
B) $8,889
C) $6,000
D) $10,000
Answer: B
Explanation: B) Calculations: ($40,000 $13,333) 1/6 2 = $8,889
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

56) Refer to Table 10-8. What is the book value of the machine at the end of 2014 if the company uses the double-declining-balance amortization?
A) $20,000
B) $17,778
C) $13,333
D) $28,000
Answer: B
Explanation: B) Calculations: $40,000 $13,333 $8,889 = $17,778
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization
57) Refer to Table 10-8. What is the amortization expense for 2013 if the company uses the straight-line method?
A) $6,667
B) $13,333
C) $12,000
D) $6,000
Answer: D
Explanation: D) Calculations: ($40,000 $4,000) 1/6 = $6,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

58) Refer to Table 10-8. What is the amortization expense for 2014 if the company uses the straight-line amortization?
A) $6,000
B) $9,000
C) $13,333
D) $10,000
Answer: A
Explanation: A) Calculations: ($40,000 $4,000) 1/6 = $6,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

59) Refer to Table 10-8. What is the book value of the machine at the end of 2014 if the company uses straight-line amortization?
A) $10,000
B) $28,000
C) $17,778
D) $20,000
Answer: B
Explanation: B) Calculations: $40,000 $6,000 $6,000 = $28,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

60) Refer to Table 10-8. What is the amortization expense for 2013 if the company uses units-of-production method?
A) $6,000
B) $13,333
C) $6,667
D) $12,000
Answer: D
Explanation: D) Calculations: [($40,000 $4,000)/24,000] 8,000 = $12,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization
61) Refer to Table 10-8. What is the amortization expense for 2014 if the company uses the units-of-production amortization?
A) $6,000
B) $18,000
C) $10,000
D) $9,000
Answer: B
Explanation: B) Calculations: [($40,000 $4,000)/24,000] 12,000 = $18,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

62) Refer to Table 10-8. What is the book value of the machine at the end of 2014 if the company uses units-of-production amortization?
A) $20,000
B) $10,000
C) $17,778
D) $28,000
Answer: B
Explanation: B) Calculations: $40,000 $12,000 $18,000 = $10,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization
Match the following.

A) straight-line method
B) estimated useful life
C) carrying value
D) residual value
E) units-of-production method
F) repair
G) amortizable cost
H) accumulated amortization
I) double-declining-balance method
J) betterment

63) Expenditure that increases the capacity or efficiency of an asset or extends its useful life
Diff: 1
Learning Outcome:
Skill: Knowledge
A-10 Measure and account for property, plant, and equipment
Objective: 10-2 Calculate and account for amortization

64) The cumulative sum of all amortization expense from the date of acquiring a property, plant, and equipment asset
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

65) Expenditure that merely maintains an asset in its existing condition or restores the asset to good working order
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

66) An amortization method that writes off a relatively larger amount of the assets cost nearer the start of its useful life than does the straight-line method
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

67) Length of the service that a business expects to get from an asset
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

68) The cost of a property, plant, and equipment asset minus its estimated residual value
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

69) Expected cash value of an asset at the end of its useful life
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

70) Amortization method in which an equal amount of amortization is assigned to each year of an assets use
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

71) Amortization method by which a fixed amount of amortization is assigned to each measure of the assets output
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

72) Book value
Diff: 1
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Knowledge
Objective: 10-2 Calculate and account for amortization

Answers: 63) J 64) H 65) F 66) I 67) B 68) G 69) D 70) A 71) E 72) C

73) Beta Construction Ltd. acquired the following property, plant and equipment on January 1, 2013: Residual
Asset Cost Value Useful Life
Office equipment $ 75,000 $ 5,000 5 years
Building 200,000 20,000 25 years
Delivery equipment 250,000 25,000 10 years

Beta Construction Ltd. amortizes the office equipment using the straight-line method, the building using the double-declining-balance method, and the delivery equipment using the units-of-production method. The delivery equipment is estimated to be useful for 100,000 kilometres and during 2013 was driven 33,000 kilometres.

Calculate amortization for 2013 for each of the above assets.

Office equipment ________________
Building ________________
Delivery equipment ________________

Answer:
Office equipment = ($75,000 $5,000)/5 = $14,000

Building = ($200,000 1/25 2) = $16,000

Delivery equipment = ($250,000 $25,000)/100,000 km 33,000 km =$2.25 33,000 km. = $74,250

Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

74) Mars Company Ltd. acquired equipment on January 1, 2013, for $300,000. The equipment has an estimated useful life of five years and an estimated residual value of $30,000. Calculate amortization expense for 2013 and 2014 under each of the following methods. The equipment is estimated to produce 150,000 units. During 2013 and 2014, the equipment produced 25,000 and 40,000 units, respectively. Round to the nearest dollar where necessary.

2013 2014
Straight-line ____________ ____________
Double-declining-balance ____________ ____________
Units-of-production ____________ ____________
Answer: 2013 2014
Straight-line $ 54,000 $54,000
Double-declining-balance $120,000 $72,000
Units-of-production $ 45,000 $72,000

Straight-line
($300,000 $30,000)/5 = $54,000 per year
Double-declining-balance
2013
$300,000 1/5 2 = $120,000
2014
$180,000 1/5 2 = $72,000
Units-of-production
($300,000 $30,000)/150,000 units = $1.80 per unit
2013
$1.80 25,000 units = $45,000
2014
$1.80 40,000 units = $72,000
Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

75) For each of the independent situations below, determine the age of the asset in question.

a) The balance in the buildings account is $550,000, while the balance sheet shows the book value of buildings at $233,200. The notes to the financial statements indicate that straight-line amortization is used for all property, plant and equipment and that residual values are estimated at 10% of cost. The estimated useful life of the buildings is 25 years.
b) The book value of delivery equipment is $51,600, while the balance in accumulated amortization is $68,400. The company uses the straight-line method of amortization for delivery equipment and estimates life at five years. Residual values are 5% of cost.
c) The balance in the accumulated amortization account for furniture is $21,875. The furniture has been amortized a total of 43.75% of its original cost. The companys notes to the financial statements indicate that double-declining-balance amortization is used for all furniture. The company estimates useful life at eight years and residual value at 15% of cost.
Answer:
a) $550,000 $55,000 = $495,000 amortizable cost
$495,000/25 years = $19,800 annual amortization
$550,000 $233,200 = $316,800 accumulated amortization
$316,800/$19,800 = 16 years

b) $51,600 + $68,400 = $120,000 cost
$120,000 0.95 = $114,000 amortizable cost
$114,000/5 years = $22,800 annual amortization
$68,400/$22,800 = 3 years

c) $21,875/0.4375 = $50,000 cost
$50,000 0.25 = $12,500
$50,000 $12,500 = $37,500
$37,500 0.25 = $9,375
$12,500 + $9,375 = $21,875 current balance in accumulated amortization
Furniture = 2 years
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Analysis
Objective: 10-2 Calculate and account for amortization

76) Sam & Sons Ltd. purchased machinery on September 30, 2013, at a total cost of $46,500. Sam estimated the useful life of the machinery to be eight years or 50,000 hours, with an estimated residual value of $3,500. The machinery was used for 5,000 hours in 2013 and 12,000 hours in 2014.

Calculate amortization expense for 2013 and 2014 under each of the methods below. Round to the nearest dollar where necessary.

2013 2014
Straight-line ____________ ____________
Double-declining-balance ____________ ____________
Units-of-production ____________ ____________
Answer:
2013 2014
Straight-line $1,344 $ 5,375
Double-declining-balance $2,906 $10,899
Units-of-production $4,300 $10,320

Straight-line
2013
($46,500 $3,500)/8 = $5,375 annual amortization
$5,375 3/12 = $1,344
2014
$5,375

Double-declining-balance
2013
$46,500 1/8 2 3/12 = $2,906
2014
$43,594 1/8 2 = $10,899

Units-of-production
2013
($46,500 $3,500)/50,000 hours = $0.86 per hour
$0.86 5,000 hours = $4,300
2014
$0.86 12,000 = $10,320
Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

Table 10-7

On January 1, 2013, Brazeau Transport purchased a $165,000 truck for hauling cattle across the border. Brazeau plans on driving the truck for four years or 450,000 kilometres. Expected residual value for the truck is $35,000. On June 30, 2016, after having driven the truck 44,000 kilometres, the truck had an accident on the highway and was totalled. The insurance proceeds for the truck was $42,000 cash.

77) Refer to Table 10-7. Calculate and record the amortization expense for the truck for the year 2015 using the straight line method.
Answer:
(165,000 35,000) / 4 = $32,500

General Journal
Date Accounts Debit Credit
2015
Dec. 31 Amortization Expense 32,500
Accumulated Amortization Truck 32,500

Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

78) Refer to Table 10-7. Calculate and record the amortization expense for the truck for the year 2013 using the double-declining-balance method.
Answer:
165,000 2/ 4 = $82,500

General Journal
Date Accounts Debit Credit
2013
Dec. 31 Amortization Expense 82,500
Accumulated Amortization Truck 82,500

Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

79) Refer to Table 10-7. Calculate and record the amortization expense for the truck for the year 2014 and 2015 using the double-declining-balance method.
Answer:
2013: 165,000 2/ 4 = $82,500
2014: (165,000 82,500 ) 2 / 4 = $41,250
2015: 41,250 residual value of 35,000 = $6,250

General Journal
Date Accounts Debit Credit
2014
Dec. 31 Amortization Expense 41,250
Accumulated Amortization Truck 41,250
2015
Dec. 31 Amortization Expense 6,250
Accumulated Amortization Truck 6,250

Diff: 3
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

80) Refer to Table 10-7. Calculate and record the amortization expense for the truck for the year 2015 assuming the unit-of-production method is used and that the truck was driven for 115,000 kilometers during 2015.
Answer:
(165,000 35,000) / 450,000 115,000 = $33,222

General Journal
Date Accounts Debit Credit
2015
Dec. 31 Amortization Expense 33,222
Accumulated Amortization Truck 33,222

Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization

81) Refer to Table 10-7. Calculate and record the amortization expense for the truck for the year 2016 using the straight-line method.
Answer:
(165,000 35,000) / 4 = 32,500; 32,500 6 / 12 = $16,250

General Journal
Date Accounts Debit Credit
2016
June 30 Amortization Expense 16,250
Accumulated Amortization Truck 16,250

Diff: 2
Learning Outcome: A-10 Measure and account for property, plant, and equipment
Skill: Application
Objective: 10-2 Calculate and account for amortization
82) Refer to Table 10-7. Calculate and record the amortization expense for the truck for the year 20

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