FAR THEORY - PPE Flashcards by Nicole Ann Dela Cruz

A characteristic of a fixed asset is that it is

a. a long-term investment
b. intangible
c. held for sale in the ordinary course of the business
d. used in the operations of a business

d. used in the operations of a business

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Which of the following should be included in the acquisition cost of a piece of equipment?

a. transportation costs
b. testing costs before placing the equipment into production
c. installation costs
d. all are correct

d. all are correct

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Which of the following is included in the cost of land?

a. outdoor parking lot lighting attached to the land
b. fences on the land
c. brokerage commission
d. cost of paving a parking lot

c. brokerage commission

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Accumulated Depreciation

a. is used to show the amount of cost expiration of natural resources
b. is a contra asset account
c. is used to show the amount of cost expiration of intangibles
d. is the same as Depreciation Expense

b. is a contra asset account

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Expenditures that add to the utility of fixed assets for more than one accounting period are

a. current expenditures
b. capital expenditures
c. revenue expenditures
d. committed expenditures

b. capital expenditures

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A capital expenditure results in a debit to

a. a liability account
b. an asset account
c. an expense account
d. a capital account

b. an asset account

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Which of the below is an example of capital expenditure?

a. replacing an engine in a company car
b. tune-up for a company truck
c. cleaning the carpet in the front
room
d. replacing all burned-out light bulbs in the factory

a. replacing an engine in a company car

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In a lease contract, the party who legally owns the asset is the

a. lessor
b. banker
c. operator
d. lessee

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The journal entry for recording an operating lease payment would

a. debit an expense and credit Cash
b. debit the fixed asset and credit Cash
c. be a memo entry only
d. debit a liability and credit Cash

a. debit an expense and credit Cash

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What two criteria must be met when determining whether to record an asset as a fixed asset?

a. Must be long-lived and must productively use the asset.

b. It must be an investment and must be long-lived.

c. It must be a tangible asset and must be an investment.

d. It must be long-lived and must be a tangible asset.

a. Must be long-lived and must productively use the asset.

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Factors contributing to a decline in
the usefulness of a fixed asset may be divided into the following
two categories

a. residual and salvage
b. functional and residual
c. physical and functional
d. salvage and functional

c. physical and functional

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A fixed asset’s estimated value at the time it is to be retired from service is called

a. residual value
b. book value
c. carrying value
d. market value

a. residual value

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All of the below are needed for the calculation of depreciation except

a. estimated life
b. residual value
c. cost
d. book value

d. book value

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The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is

a. declining-balance
b. straight-line
c. time-valuation
d. units-of-production

a. declining-balance

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When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is

a. MACRS
c. straight-line
b. declining-balance
d. units-of-production

d. units-of-production

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The most widely used depreciation method is

a. sum-of-the-years-digits
b. declining-balance
c. straight-line
d. units-of-production

c. straight-line

The depreciation method that does not use residual value in calculating the first year’s depreciation expense is

a. units-of-production
b. straight-line
c. none of the answers are correct
d. double-declining-balance

d. double-declining-balance

If a fixed asset, such as a computer, were purchased on January 1st for P1,950 with an estimated life of 3 years and salvage or residual value of P150, the journal entry for monthly expense under straight-line
depreciation is: (Note: EOM indicates the last day of each month.)

a. EOM Depreciation Expense (50.00); Accumulated Depreciation (50.00)

b. EOM Accumulated Depreciation (50.00); Depreciation Expense (50.00)

c. EOM Depreciation Expense (600.00); Accumulated Depreciation (600.00)

d. EOM Accumulated Depreciation (600.00); Depreciation Expense (600.00)

a. EOM Depreciation Expense (50.00); Accumulated Depreciation (50.00)

The proper journal entry to purchase a computer on account to be utilized within the business would be:

a. Jan 2 Office Supplies (1,250.00);
Accounts Receivable (1,250.00)

b. Jan 2 Office Equipment (1,250.00); Accounts Payable (1,250.00)

c. Jan 2 Office Equipment (1,250.00); Accounts Receivable
(1,250.00)

d. Jan 2 Office Supplies (1,250.00);
Accounts Payable (1,250.00)

b. Jan 2 Office Equipment (1,250.00); Accounts Payable (1,250.00)

Residual value is also known as all of the following except

a. trade-in value
b. scrap value
c. net book value
d. salvage value

c. net book value

The formula for depreciable cost is

a. depreciable cost = initial cost
b. initial cost - accumulated depreciation
c. initial cost - residual value
d. initial cost + residual value

c. initial cost - residual value

Expected useful life is

a. determined each year that the depreciation calculation is made.

b. none of the answers are correct.

c. calculated when the asset is sold.

d. estimated at the time that the asset is placed in service.

The calculation for annual depreciation using the straight-line depreciation method is

a. depreciable cost / estimated useful life
b. initial cost / estimated useful life
c. initial cost x estimated useful life
d. depreciable cost x estimated useful life

a. depreciable cost / estimated useful life

The calculation for annual depreciation using the units-of-production method is

a. (initial cost/estimated output) * the actual yearly output

b. depreciable cost / yearly output

c. (depreciable cost / yearly output) * estimated output

d. (depreciable cost / estimated output) * the actual yearly output

Which of the following is true? a. Using the double-declining balance, the total depreciation expense during the asset's life will be the highest. b. Using the straight-line method, the depreciation expense during the first year is higher than that of the double-declining balance. c. Using the units-of-production method, it is possible to depreciate more than the depreciable cost. d. Regardless of the depreciation method, the amount of total depreciation expense during the asset's life will be the same.

d. Regardless of the depreciation method, the amount of total depreciation expense during the asset's life will be the same.

The Brock Company acquired new machinery with a price of P15,200 by trading in similar old machinery and paying P12,700. The old machinery originally cost P9,000 and had accumulated depreciation of P5,000. In recording this transaction, Brock Company should record a. the new machinery at P16,700 b. the new machinery at P12,700 c. a loss of P1,500 d. a gain of P1,500

c. a loss of P1,500

When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry a. debit Accumulated Depreciation; credit Machinery b. debit Cash; credit Accumulated Depreciation c. debit Machinery; credit Accumulated Depreciation d. debit Depreciation Expense; credit Accumulated Depreciation

c. debit Machinery; credit Accumulated Depreciation

When a company sells machinery at a price equal to its book value, this transaction would be recorded with an entry that would include the following: a. debit Cash and Machinery; credit Accumulated Depreciation b. debit Cash and Accumulated Depreciation; credit Machinery c. debit Machinery; credit Cash and Accumulated Depreciation d. debit Cash and Depreciation Expense; credit Accumulated Depreciation

b. debit Cash and Accumulated Depreciation; credit Machinery

When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with the following entry: a. debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and Cash b. debit Cash and Machinery; credit Accumulated Depreciation c. debit Cash and Machinery; credit Accumulated Depreciation and Machinery d. debit Machinery and Accumulated Depreciation; credit Machinery and Cash

a. debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and Cash

On December 31, Reach It Batting Cages Company decided to discard one of its batting cages. The initial cost of the equipment was P225,000 with accumulated depreciation of P195,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal. a. Gain on Disposal of Asset P30,000 b. Accumulated Depreciation Dr. P225,000 c. Equipment Cr. P225,000 d. Loss on Disposal of Asset P195,000

c. Equipment Cr. P225,000

On December 31, Reach It Batting Cages Company decided to sell one of its batting cages. The initial cost of the equipment was P225,000 with accumulated depreciation of P195,000. Depreciation has been taken up to the end of the year. The company found a company willing to buy the equipment for P30,000. What is the amount of the gain or loss on this transaction? a. No gain or loss b. Gain of P30,000 c. It cannot be determined d. Loss of P30,000

a. No gain or loss

On December 31, Reach It Batting Cages Company decided to sell one of its batting cages. The initial cost of the equipment was P225,000 with accumulated depreciation of P195,000. Depreciation has been taken up to the end of the year. The company found a company willing to buy the equipment for P10,000. What is the amount of the gain or loss on this transaction? a. Loss of P20,000 b. No gain or loss c. Gain of P10,000 d. It cannot be determined

a. Loss of P20,000

On December 31, Reach It Batting Cages Company decided to sell one of its batting cages. The initial cost of the equipment was P225,000 with accumulated depreciation of P195,000. Depreciation has been taken up to the end of the year. The company found a company willing to buy the equipment for P70,000. What is the amount of the gain or loss on this transaction? a. Gain of P40,000 b. Gain of P70,000 c. No gain or loss d. It cannot be determined

a. Gain of P40,000

On December 31, Reach It Batting Cages Company decided to trade in one of its batting cages for another cost of P500,000. The batting cage seller is willing to allow a trade-in amount of P40,000. The initial cost of the old equipment was P225,000 with accumulated depreciation of P195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction? a. The gain will not be recognized and will be subtracted from the price of the new equipment. c. The gain will not be recognized and will be added to the price of the old equipment. b. The gain will not be recognized and will be added to the price of the new equipment d. The gain will not be recognized and will be subtracted from the price of the old equipment

a. The gain will not be recognized and will be subtracted from the price of the new equipment.

On December 31, Reach It Batting Cages Company decided to trade in one of its batting cages for another one that cost P500,000. The batting cage seller is willing to allow a trade-in amount of P12,000. The initial cost of the old equipment was P225,000 with accumulated depreciation of P195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction? a. Loss of P12,000 b. Loss of P18,000 c. Gain of P12,000 d. No loss or gain will be recorded.

b. Loss of P18,000

When a company replaces a property, plant, and equipment component, which statement below does not account for one of the steps in this process? a. the identifiable direct costs associated with the new component are capitalized b. book value of the replaced component is written off to depreciation expense c. any cost to remove the old component is charged to the expense d. the asset cost of the replaced component is credited

d. the asset cost of the replaced component is credited