7.4 Learning Objective 7-4
1) To account for the disposal of a plant asset, the cost of the asset and its related accumulated depreciation are removed from the books.
2) A Loss on Sale of Equipment will result when the book value of the equipment exceeds the cash received from the sale of the equipment.
3) The Loss on Disposal of Equipment account is reported as Other Losses and Expenses on the income statement.
4) Gains on the sale of equipment increase net income while losses on the sale of equipment decrease net income.
5) A company purchased a machine for $100,000 many years earlier. The accumulated depreciation on the machine is $100,000. Which of the following statements is TRUE regarding the disposal of the machine for no cash proceeds?
A) The cost of the asset, but not its accumulated depreciation, must be removed from the books.
B) A gain or loss on the disposal can occur.
C) The journal entry to record the disposal will decrease net assets.
D) There will be no gain or loss on the disposal.
6) A company purchased a machine for $200,000 many years earlier. The accumulated depreciation on the machine is $150,000. The machine is scrapped. Which journal entry is prepared to record the disposal?
A) debit Loss on Disposal of Machine for $50,000, debit Accumulated Depreciation $50,000 and credit Machine for $100,000
B) debit Accumulated Depreciation for $150,000 and credit Machine for $150,000
C) debit Accumulated Depreciation for $200,000, credit Machine for $150,000 and credit Gain on Disposal of Machine for $50,000
D) debit Loss on Disposal of Machine for $50,000, debit Accumulated Depreciation for $150,000 and credit Machine for $200,000
7) When plant assets are exchanged, the gain or loss on the exchange equals:
A) the difference between the fair value and the book value of the asset received.
B) the difference between the fair value and the book value of the asset given up.
C) the fair value of the asset received plus the cash paid.
D) the fair value of the asset given up plus the cash paid.
8) U.S. Generally Accepted Accounting Principles require the reporting of plant assets at ________ on the balance sheet. International Financial Reporting Standards allow the reporting of plant assets at ________ on the balance sheet.
A) current replacement cost; fair market value
B) fair market value; fair market value
C) historical cost; fair market value
D) historical cost; net realizable value
9) Franco Company sold office furniture for $2,500 cash. The furniture cost $40,000 and had accumulated depreciation through the date of sale totaling $35,000. The company will recognize:
A) a gain of $2,500.
B) a loss of $2,500.
C) a gain of $5,000.
D) a loss of $5,000.
10) Smiley Corporation sold equipment costing $70,000 with $65,000 of accumulated depreciation for $10,000 cash. Which of the following journal entries should be prepared?
A) debit Cash for $10,000 and credit Gain on Sale of Equipment for $10,000
B) debit Cash for $5,000, debit Accumulated Depreciation for $65,000 and credit Equipment for $70,000
C) debit Cash for $10,000, credit Equipment for $5,000 and credit Gain on Sale of Equipment for $5,000
D) debit Cash for $10,000, debit Accumulated Depreciation for $65,000, credit Equipment for $70,000 and credit Gain on Sale of Equipment for $5,000