Question

1.   Presto Company purchased equipment and these costs were incurred:
Cash price $65,000
Sales taxes 3,600
Insurance during transit 640
Installation and testing  860
Total costs $70,100
Presto will record the acquisition cost of the equipment as
a. $65,000.
b. $68,600.
c. $69,240.
d. $70,100.

2. A company purchased factory equipment on April 1, 2015 for $160,000. It is estimated that the equipment will have a $20,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2015 is
a. $16,000.
b. $14,000.
c. $10,500.
d. $12,000.

3. A company purchased factory equipment for $700,000. It is estimated that the equipment will have a $70,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be
a. $280,000.
b. $168,000.
c. $252,000.
d. $120,960.

4. Grimwood Trucking purchased a tractor trailer for $171,500. Interline uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $24,500. If the truck is driven 90,000 miles in its first year, how much depreciation expense should Grimwood record?
a. $12,250
b. $15,435
c. $13,230
d. $14,292

5. On July 1, 2015, Hale Kennels sells equipment for $220,000. The equipment originally cost $600,000, had an estimated 5-year life and an expected salvage value of $100,000. The accumulated depreciation account had a balance of $350,000 on January 1, 2015, using the straight-line method. The gain or loss on disposal is
a. $30,000 gain.
b. $20,000 loss.
c. $30,000 loss.
d. $20,000 gain.

Answer 1

1) Acquisition Cost includes purchase cost, Sales tax, insurance during transit and installation

So answer is d) $70100

2) Depreciation expense 2015 = (160000-20000)/10*9/12 = 10500

So answer is c) $10500

3) Double decline rate = 100/5*2 = 40%

Depreciation expense for second year = 700000*60%*40% = 168000

So answer is b) $168000

4) Depreciation expense = (171500-24500)/1000000*90000 = 13230

So answer is c) $13230

5) Depreciation expense for 2015 = (600000-100000/5)*6/12 = 50000

Accumulated depreciation = 350000+50000 = 400000

Book value on the date of sale = 600000-400000 = 200000

Gain on sale = 220000-200000 = 20000

So answer is d) $20000 Gain