Understanding Plant Assets and Depreciation
Which of the following best describes plant assets?
A. Assets consumed in one accounting period
B. Assets used in the production or sale of goods over multiple periods
C. Assets that are always depreciated
D. Assets that have no residual value
B. Assets used in the production or sale of goods over multiple periods
Which of the following is considered an example of a plant asset?
A. Accounts Payable
B. Desk and Chair
C. Sales Tax Payable
D. Rent Expense
B. Desk and Chair
Accelerated depreciation methods assume:
A. Value increases over time
B. Value remains constant
C. More value is lost in early years
D. More value is lost in later years
C. More value is lost in early years
Depreciation can never reduce an asset’s book value below:
A. Original cost
B. Current year depreciation
C. Disposal value
D. Fair market value
C. Disposal value
Accumulated Depreciation is classified as a:
A. Current Asset
B. Revenue
C. Contra Asset
D. Liability
C. Contra Asset
What is not considered a current asset?
A. Cash
B. Accounts Receivable
C. Delivery Truck
D. Office Supplies
C. Delivery Truck
Depreciation is considered:
A. A liability
B. A revenue
C. An asset
D. An expense
D. An expense
Which depreciation method is most likely to show the highest expense in the first year?
A. Straight-line
B. Units-of-production
C. Double-declining balance
D. Historical cost method
C. Double-declining balance
If an asset has a cost of $65,000, sales tax of $4,875, and installation of $1,550, what total is recorded in the equipment account?
A. $65,000
B. $70,425
C. $71,500
D. $69,875
C. $71,500
Depreciation expense accounts are closed to:
A. Owner’s Equity
B. Revenue accounts
C. Income Summary
D. Cash
A. Owner’s Equity
Land is not depreciated because:
A. It does not decrease in value
B. It is not used in production
C. It cannot be sold
D. It has no useful life
A. It does not decrease in value
Which of the following is not required to calculate depreciation?
A. Original cost
B. Accumulated revenue
C. Useful life
D. Estimated disposal value
B. Accumulated revenue
Which method does not require the disposal value in its calculation?
A. Straight-line
B. Units-of-production
C. Declining-balance
D. All methods require it
C. Declining-balance
If an asset costs $16,500 and has a disposal value of $1,500 with a 5-year life, what is the annual depreciation using straight-line?
A. $3,300
B. $3,000
C. $2,500
D. $1,500
B. $3,000
The depreciation expense is reported on the:
A. Balance Sheet
B. Statement of Cash Flows
The depreciation expense is reported on the:
A. Balance Sheet
B. Statement of Cash Flows
C. Income Statement
D. Retained Earnings Statement
D. Retained Earnings Statement
The depreciation expense is reported on the:
A. Balance Sheet
B. Statement of Cash Flows
C. Income Statement
D. Retained Earnings Statement
As plant assets are used, their cost is converted to:
A. Revenue
B. Inventory
C. Expense
D. Accounts Receivable
C. Expense
What does the term "book value" refer to?
A. Market value of the asset
B. The original cost of the asset
C. Asset's cost minus accumulated depreciation
D. Asset's resale price
C. Asset's cost minus accumulated depreciation
What depreciation method spreads an equal amount of expense each year?
A. Units-of-production
B. Double-declining balance
C. Straight-line
D. MACRS
C. Straight-line
What is the depreciation expense for 9 months if annual depreciation is $3,000?
A. $2,250
B. $3,750
C. $1,000
D. $2,000
A. $2,250
After adjusting entries are journalized and posted, the next step is to:
A. Prepare the balance sheet
B. Close the books
C. File tax reports
D. Analyze cash flow
B. Close the books
What accounting principle supports the conversion of asset cost to expense over time?
A. Revenue Principle
B. Matching Principle
C. Full Disclosure Principle
D. Conservatism Principle
B. Matching Principle
The IRS publishes guidelines on:
A. Plant asset financing
B. Disposal value and useful life
C. Revenue forecasting
D. Inventory methods
B. Disposal value and useful life
MACRS is primarily used for:
A. Financial reporting
B. International accounting
C. Tax reporting
D. Budgeting
C. Tax reporting
Under double-declining balance, what is the depreciation expense in year one for a $16,500 truck (5-year life)?
A. $3,000
B. $6,600
C. $1,500
D. $4,125
B. $6,600
What two accounts are affected when recording depreciation expense?
A. Depreciation Expense and Revenue
B. Depreciation Expense and Accumulated Depreciation
C. Plant Asset and Revenue
D. Accumulated Depreciation and Cash
B. Depreciation Expense and Accumulated Depreciation