Learning Objective 6-2
6.2-1) Which statement best describes the proper accounting treatment for long-term assets classified as property, plant, and equipment?
A) Record them as assets and then depreciate them over an estimated useful life.
B) Record them as expenses when purchased using the cost principle.
C) Record them as assets and adjust them to market value each accounting period using the straight-line method.
D) Record them as revenues and expenses using the matching principle.
6.2-2) Capitalizing a cost means to record the cost into a(n) ________ account.
A) contributed capital
B) asset
C) expenditure
D) income statement
6.2-3) Which of the following assets will
NOT
be depreciated?
A) inventory
B) buildings
C) equipment
D) computer
6.2-4) All of the following payments were made by UIB Co. for machinery the company bought and used during the year. Which of these expenditures should
NOT
be capitalized?
A) a payment made to install the machinery at the factory
B) the cost of electricity to operate the machine for the first year of use
C) the cost of insurance while the machine was in transit from the seller’s warehouse
D) the costs of testing the machine in preparation for use
6.2-5) On November 1, 2011, Frigate Shipping Company bought equipment that cost $400,000, with an estimated useful life of 8 years and an estimated salvage value of $28,000. The company uses the straight-line method of depreciation and has a fiscal year ending on October 31. For the year ended October 31, 2012, Frigate Company will report depreciation expense of ________.
A) $50,000
B) $33,333
C) $46,500
D) $31,000
6.2-6) On November 1, 2011, Frigate Shipping Company bought equipment that cost $400,000, with an estimated useful life of 8 years and an estimated salvage value of $28,000. The company uses the straight-line method of depreciation and has a fiscal year ending on October 31. At October 31,
2013, Frigate Company will report accumulated depreciation of ________.
A) $100,000
B) $66,666
C) $93,000
D) $46,500
6.2-7) Which statement about depreciation is
true?
A) Depreciation means loss in economic value.
B) Depreciation means to capitalize a cost over several accounting periods.
C) Depreciation refers to an allocation of an asset’s cost to an expense account.
D) Depreciation means to increase net income by transferring balances from shareholders’ equity.
6.2-8) Residual (salvage) value means the ________.
A) value an asset has for generating revenue
B) costs capitalized into an asset account
C) cost of an asset plus its accumulated depreciation at the end of its useful life
D) estimated value an asset will have at the end of its useful life
6.2-9) Depletion is the ________.
A) allocation of a natural resource’s cost to an expense account as the resource is consumed
B) allocation of an intangible asset’s cost to an expense account over the asset’s estimated useful life
C) allocation of property, plant and equipment cost to an expense account over the assets’ estimated useful lives
D) capitalization of a long-term asset’s cost
6.2-10) Depreciation is the ________.
A) allocation of a natural resource’s cost to an expense account as the resource is consumed
B) allocation of an intangible asset’s cost to an expense account over the asset’s estimated useful life
C) allocation of property, plant and equipment cost to an expense account over the assets' estimated useful lives
D) capitalization of a long-term asset’s cost