1、IAsgn7LESSON 7 AssignmentQuestion 1 (15 marks)Multiple choice (1 marks each)Note:For multiple-choice questions, select the best answer. Answer each question by giving the number of your choice. For example, if (2) is the best answer for part (a), write (a)(2) as your answer. If you provide more than
2、 one answer for a question, that question will not be marked. Incorrect answers will be marked as zero. No marks will be awarded for any explanations you may offer.a. Which of the following is associated with fixed assets?1) Current assets2) Used in operations3) Land held for future expansion4) Inve
3、stments1) Incorrect. Current assets are assets but a category distinct from fixed assets.2) Correct. Fixed assets are used in operations for the purpose of generating revenues.3) Incorrect. Land held for future expansion is an asset but it is shown under the heading of Investments, not Fixed assets.
4、4) Incorrect. Investments are assets but a category separate from Fixed assets.b. Which of the following best describes depreciation?1) Measures the decline in value of an asset2) Measures physical deterioration of an asset3) Is the process of allocating to expense the cost of a plant and equipment
5、assets 4) Represents the total decline in value of an asset1) Incorrect. Refer to (3).2) Incorrect. Refer to (3).3) Correct. Depreciation is the process of allocating to expense the cost of a plant and equipment asset. 4 Incorrect. Refer to (3).c. Which of the following groups of costs should be inc
6、luded as part of the cost of land?1) Purchase price, assessments by local governments, costs of removing existing buildings2) Purchase price, interest on bank loan paid over its five-year term, costs of removing existing buildings3) Purchase price, insurance during construction of building on the la
7、nd, assessments by local governments4) Purchase price, interest on bank loan paid over its five-year term, assessments by local governments1) Correct. The following costs should be included as part of the cost of land: purchase price, assessments by local governments, costs of removing existing buil
8、dings2) Incorrect. Interest on bank loan paid over its five-year term is a financing cost and not included as part of the cost of land.3) Incorrect. Insurance during construction of building on the land is a cost of the building and not a cost of the land. 4) Incorrect. Interest on bank loan over it
9、s five-year term is a financing cost and not included as part of the cost of land.d. What is the double-declining-balance method?1) The maximum amount allowed for capital expenditures2) The method of depreciation used for tax purposes based on the straight-line method3) An accelerated depreciation m
10、ethod4) The method of depreciation used for tax purposes based on the actual usage of a capital asset1) Incorrect. Refer to (3).2) Incorrect. Refer to (3).3) Correct. The double-declining-balance method is an accelerated depreciation method.4) Incorrect. Refer to (3).e. Abbas Perfumery purchased pro
11、perty for 200,000. The property included a building, parking lot and the land. On the date of purchase, the building was valued at 130,000; the land at 80,000 and the parking lot at 20,000. At what value should the land be recorded at in the accounting records?1) 69,5652) 72,7283) 80,0004) 113,0441)
12、 Correct. Allocation Appraised Values CalculationsBuilding 113,044 130,000 130,000/230,000 200,000 = 113,044Parking lot 17,391 20,000 20,000/230,000 200,000 = 17,391Land 69,565 80,000 80,000/230,000 200,000 = 69,565Totals 200,000 230,0002) Incorrect. Refer to (1). 3) Incorrect. Refer to (1).4) Incor
13、rect. Refer to (1).f. Creek Construction purchased a machine that had a fair value of 26,000. It traded in an old machine for a 9,000 trade-in allowance and paid the balance in cash. The old machine cost 24,000 and had accumulated depreciation of 16,000. What is the book value of the new asset?1) 21
14、,8002) 26,0003) 25,0004) 29,8001) Incorrect. Refer to (3).2) Incorrect. Refer to (3).3) Correct. The book value of the new asset has to be 26,000. The transaction must have had commercial substance since the cash exchanged was 17,000. Therefore, the journal entry to record the exchange follows:Machi
15、ne (new) 26,000Accumulated depreciation, machine (old) 16,000 Machine (old) 24,000 Cash 17,000 Gain on trade-in of old machine 1,0004) Incorrect. Refer to (3).g. Which depreciation method produces larger depreciation charges during the early years of an assets life and smaller charges in the later y
16、ears?1) Book value depreciation2) Straight-line depreciation3) Units-of-production depreciation4) Double-declining balance 1) Incorrect. Book value depreciation is not a depreciation method.2) Incorrect. Straight-line depreciation produces equal amounts of depreciation charges during the life of the
17、 asset.3) Incorrect. Units-of-production depreciation produces depreciation that varies based on the assets useage.4) Correct. Double-declining balance produces larger depreciation charges during the early years of an assets life and smaller charges in the later years. h. Creek Construction exchange
18、d a posthole digger for a new machine. The old machine cost 14,000 and the new one had a fair value of 19,000. The old machine had accumulated depreciation of 12,000. Creek Construction received a 500 tradein allowance for the old machine and paid the balance in cash. What amount of gain or loss sho
19、uld be entered into the accounting records, assuming that the transaction has commercial substance?1) 02) 500 gain3) 1,500 loss4) 1,500 gain1) Incorrect. Refer to (3).2) Incorrect. Refer to (3).3) Correct. A loss of 1,500 should be entered into the accounting records based on the entry recorded at t
20、he time of the exchange which follows (assuming that the fair value of the old machine is not known):Machine (new) 19,000Accumulated depreciation, machine (old) 12,000Loss on exchange 1,500 Cash 18,500 Machine (old) 14,0004) Incorrect. Refer to (3).i. Inuvik Mining Inc. purchased a mineral deposit f
21、or 900,000. It expects the property to produce 1,200,000 tones of ore and to have no residual value. In 20X6, Inuvik sold 85,000 tones of the 93,000 tones mined. How much depletion expense should be reported on the income statement for 20X6?1) 63,750 2) 69,750 3) 113,333 4) 124,000 1) Correct. 900,0
22、00/1,200,000 = 0.75 depletion expense per tonne of mineral deposit; 0.75 85,000* tonnes sold = 63,750 depletion expense reported on the income statement for 20X6.*Note: 93,000 tonnes of mineral deposit were mined but only 85,000 tonnes were sold therefore depletion on the income statement is based o
23、n the 85,000 tonnes sold. The remaining 8,000 tonnes (93,000 85,000) are shown on the balance sheet as inventory; the related depletion of 6,000 (8,000 tonnes 0.75/tonne) being included in inventory.2) Incorrect. Refer to (1). 3) Incorrect. Refer to (1).4) Incorrect. Refer to (1).j. On April 3, 20X7
24、, Rainbow Studios purchased a patent for 56,000. The patents remaining legal life is 7 years and Rainbow Studios estimates that the patent will be useful for another 4 years. What is the correct adjusting entry to record amortization of the patent on December 31, 20X7?1) Amortization Expense Patent
25、6,000 Accumulated Amortization Patent 6,0002) Amortization Expense Patent 8,000 Accumulated Amortization Patent 8,0003) Amortization Expense Patent 10,500 Accumulated Amortization Patent 10,5004) Amortization Expense Patent 14,000 Accumulated Amortization Patent 14,0001) Incorrect. Refer to (3).2) I
26、ncorrect. Refer to (3).3) Correct. 56,000/4 years* = 14,000/year 9/12* = 10,500 amortization expense for 20X7. The correct adjusting entry to record amortization of the patent on December 31, 20X7 is therefore: Amortization Expense Patent 10,500 Accumulated amortization Patent 10,500*Intangible asse
27、ts are amortized over their useful life, which in this case is 4 years. The legal life is irrelevant.*Because the patent was acquired on April 3, 20X7, a partial year of amortization is recorded in 20X7.4) Incorrect. Refer to (3). Question 2 (15 marks)Mark allocation: Balance of accumulated deprecia
28、tion, December 31, 20X6: 3 marks each (total 9 marks); Depreciation expense for 20X7: 1 mark each (total 3 marks); Balance of accumulated depreciation, December 31, 20X7: 1 mark each (total 3 marks)At December 31, 20X6 Neopolitan Servicings balance sheet showed capital asset information as detailed
29、in the schedule below. Neopolitan calculates depreciation to the nearest whole month.Cost InformationDepreciationDescriptionDate of PurchaseDepreciationMethodCostSalvageLifeBalance of Accum. Dep.Dec. 31, 20X6Dep. Expense for 20X7Balance of Accum. Dep.Dec. 31, 20X7Office equipmentMarch 27/X3Straight-
30、line52,00014,00010 yr.MachineryJune 4/X3Double-declining balance275,00046,0006 yr.TruckNov. 13/X6Units-of-production113,00026,000250,000 km.RequiredComplete the schedule.Cost InformationDepreciationDescriptionDate of PurchaseDepreciationMethodCostSalvageLifeBalance of Accum. Dep.Dec. 31, 20X6Dep. Ex
31、pense for 20X7Balance of Accum. Dep.Dec. 31, 20X7Office equipmentMarch 27/X3Straight-line52,00014,00010 yr.14,25013,800218,0503MachineryJune 4/X3Double-declining balance275,00046,0006 yr.209,362419,6385229,0006TruckNov. 13/X6Units-of-production113,00026,000250,000 km.4,872723,664828,53691. (52,000 14,000)/10 = 3,800/year 3 9/12 = 14,2502. (52,000 14,000)/10 = 3,800/year3. 14,250 + 3,
