NAME: _____________________________________________________

SECTION: _____________________________________________________

1. The
a.
b.
c.
d.

following is true of depreciation accounting.

It is not a matter of valuation.
It is part of the matching of revenues and expenses.
It retains funds by reducing income taxes and dividends.
All of these.

2. Which of the following principles best describes the conceptual rationale for the methods
of matching depreciation expense with revenues?
a.
Associating cause and effect
b.
Systematic and rational allocation
c.
Immediate recognition
d.
Partial recognition
3. Depreciation accounting
a.
provides funds.
b.
funds replacements.
c.
retains funds.
d.
all of these.
4. For
a.
b.
c.
d.

the composite method, the composite

rate is the total cost divided by the total annual depreciation.
rate is the total annual depreciation divided by the total depreciable cost.
life is the total cost divided by the total annual depreciation.
life is the total depreciable cost divided by the total annual depreciation.

5. Roberts Truck Rental uses the group depreciation method for its fleet of trucks. When it
retires one of its trucks and receives cash from a salvage company, the carrying value of
property, plant, and equipment will be decreased by the
a.
original cost of the truck.
b.
original cost of the truck less the cash proceeds.
c.
cash proceeds received.
d.
cash proceeds received and original cost of the truck.
6. Depletion expense
a.
is usually part of cost of goods sold.
b.
includes tangible equipment costs in the depletion base.
c.
excludes intangible development costs from the depletion base.
d.
excludes restoration costs from the depletion base.
7. The
a.
b.
c.
d.

most common method of recording depletion for accounting purposes is the

percentage depletion method.
decreasing charge method.
straight-line method.
units-of-production method.

8.
a.
b.
c.
d.

Plant assets may properly include

deposits on machinery not yet received.
idle equipment awaiting sale.
land held for possible use as a future plant site.
none of these.

9. Which of the following is not a major characteristic of a plant asset?

a.
Possesses physical substance
b.
Acquired for resale
c.
Acquired for use
d.
Yields services over a number of years
10. Fences and parking lots are reported on the balance sheet as
a.
current assets.

b.
c.
d.

land improvements.
land.
property and equipment.

11. Historical cost is the basis advocated for recording the acquisition of property, plant, and
equipment for all of the following reasons except
a.
at the date of acquisition, cost reflects fair market value.
b.
property, plant, and equipment items are always acquired at their original historical
cost.
c.
historical cost involves actual transactions and, as such, is the most reliable basis.
d.
gains and losses should not be anticipated but should be recognized when the asset
is sold.
12. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the
sale were
a.
less than current market value.
b.
greater than cost.
c.
greater than book value.
d.
less than book value.
13. Which of the following statements about involuntary conversions is false?
a.
An involuntary conversion may result from condemnation or fire.
b.
The gain or loss from an involuntary conversion may be reported as an extraordinary
item.
c.
The gain or loss from an involuntary conversion should not be recognized when the
enterprise reinvests in replacement assets.
d.
All of these.
14. On February 1, 2007, Morgan Corporation purchased a parcel of land as a factory site for
$200,000. An old building on the property was demolished, and construction began
on a new building which was completed on November 1, 2007. Costs incurred during
this period are listed below:
Demolition of old building
$
20,000
Architect's fees
35,000
Legal fees for title investigation and purchase contract
5,000
Construction costs
1,090,000
(Salvaged materials resulting from demolition were sold for $10,000.)
Morgan should record the cost of the land and new building, respectively, as
a. $225,000 and $1,115,000.
b. $210,000 and $1,130,000.
c. $210,000 and $1,125,000.
d. $215,000 and $1,125,000.
15. Mack Co. takes a full year's depreciation expense in the year of an asset's acquisition
and no depreciation expense in the year of disposition. Data relating to one of Mack's
depreciable assets at December 31, 2007 are as follows:
Acquisition year
Cost
Residual value
Accumulated depreciation
Estimated useful life

2005
$140,000
20,000
96,000
5 years

Using the same depreciation method as used in 2005, 2006, and 2007, how much
depreciation expense should Mack record in 2008 for this asset?
a. $16,000
b. $24,000
c. $28,000
d. $32,000