c 1.

1. Jazz Company acquired land and paid for it in full by issuing $600,000 of its 10 percent bonds payable and 40,000 shares of its
common stock, par $10. The stock was selling at $19 per share and the bonds were trading at 102. What amount should Jazz record as
the cost of the land?
a. $988,000 b. $1,000,000 c. $1,372,000 d. $1,387,200

c 2. Jazz Company purchased land with a current market value of $240,000. Its book value in the accounts of the seller was $130,500. In
exchange for the land, Jazz issued 20,000 shares of its common stock, par $10, with an estimated market value of $14 per share. Jazz
stock is not traded on an established stock exchange. What amount should Jazz record as the cost of the land?
a. $130,500 b.$200,000 c. $240,000 d.$280,000

b 3. The third year of a construction project began with a $30,000 balance in ..Construction in Progress. Included in that figure is $6,000 of
interest capitalized in the first two years. Construction expenditures during the third year were $80,000 which were incurred evenly
throughout the entire year. The company has had over $300,000 in interest-bearing debt outstanding the third year, at a weighted
average rate of 9 percent. How much interest for the third year is capitalized?
a. $3,600 b. $6,300 c. $9,360 d. $9,900

c 4. During the year just ended, Morton Company made the following expenditures relating to its plant building:
Continuing and frequent repairs............................................................................................ $160,000
Repainted the plant building.................................................................................................. 40,000
Major improvements to the electrical wiring system............................................................. 128,000
Partial replacement of roof tiles............................................................................................. 56,000

How much should be charged to repair and maintenance expense during the year just ended?
a. $160,000 b.$216,000 c.$256,000 d.$328,000

a 5. On September 10, Sandy Company incurred the following costs for one of its printing presses:
Purchase of stapling attachment........................................................................................... $90,000
Installation of attachment...................................................................................................... 20,000
Replacement parts for renovation of press........................................................................... 60,000
Labor and overhead in connection with renovation of press................................................ 28,000

Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in
significantly increased productivity. What amount of the costs should be capitalized?
a. $198,000 b.$110,000 c.$90,000 d.$88,000

b 6. Dewey Company purchased a machine that was installed and placed in service on January 2, 2001, at a total cost of $480,000.
Residual value was estimated at $80,000. The machine is being depreciated over ten years by the double-declining-balance method.
For the year 2002, Dewey should record depreciation expense of
a. $64,000. b.$76,800. c.$80,000. d.$96,000.

C 7. Malone Company traded in an old machine with a book value of $15,000 on a new similar machine. The new machine, which had a
cash price of $75,000, was purchased for $64,000 cash plus the old machine. Malone should record the cost of the new machine as

a.$64,000. b.$71,000. c.$75,000. d.$79,000.

d 8. Overberg Company purchased a machine on January 2, 2001, for $1,000,000. The machine has an estimated useful life of five years
and a salvage value of $100,000. Depreciation was computed by the 150% declining-balance method. The accumulated depreciation
balance at December 31, 2002, should be
a. $360,000. b.$459,000. c.$490,000. d.$510,000.

AC 9. Jordan Company exchanged a used autograph-signing machine with Rodman Company for a similar machine with less use. Jordan’s
old machine originally cost $50,000 and had accumulated depreciation of $40,000, as well as a market value of $40,000, at the time of
the exchange. Rodman’s old machine originally cost $60,000 and at the time of the exchange had a book value of $30,000 and a
market value of $32,000. Rodman gave Jordan $8,000 cash as part of the exchange. Jordan should record the cost of the new
machine at

a. $8,000. b.$10,000. c. $16,000. d.$32,000.

c 10. XYZ Corporation bought a machine on January 1, 2002. In purchasing the machine, the company paid $50,000 cash and signed an
interest-bearing note for $100,000. The estimated useful life of the machine is five years, after which time the salvage value is expected
to be $15,000. Given this information, how much depreciation expense would be recorded for the year ending December 31, 2003, if
the company uses the sum-of-the-years’-digits depreciation method?
a. $45,000 b.$40,000 c.$36,000 d.$34,000

c 120K 11.
On January 1, 2002, Carson Company purchased equipment at a cost of $420,000. The equipment was estimated to have a useful life
of five years and a salvage value of $60,000. Carson uses the sum-of-the-years’-digits method of depreciation. What should the
accumulated depreciation be at December 31, 2002?
a.$240,000 b.$288,000 c.$336,000 d.$360,000

d 12. On June 30, 2002, a fire in Oak Company’s plant caused the total loss of a production machine. The machine was being depreciated at
$20,000 annually and had a carrying amount of $160,000 at December 31, 2001. On the date of the fire, the fair value of the machine
was $220,000, and Pine received insurance proceeds of $200,000 in October 2002. In its income statement for the year ended
December 31, 2002, what amount should Oak recognize as a gain or loss on disposition?
a. $0 b.$20,000 loss c.$40,000 gain d.$50,000 gain

c 13. On December 2, 2001, Part Company, which operates a furniture rental business, traded in a used delivery truck with a carrying amount
of $5,400 for a new delivery truck having a list price of $16,000 and paid a cash difference of $7,500 to the dealer. The used truck had a
fair value of $6,000 on the date of the exchange. At what amount should the new truck be recorded on Part’s books?
a. $10,600 b.$12,900 c.$13,500 d.$16,000

bC 14. Melvin Motor Sales exchanged a car from its inventory for a computer to be used as a noncurrent operating asset. The following
information relates to this exchange that took place on July 31, 2002:
Carrying amount of the car.................................................................................................... $30,000
Listed selling price of the car................................................................................................. 45,000
Fair value of the computer.................................................................................................... 43,000
Cash difference paid by Melvin............................................................................................. 5,000

On July 31, 2002, how much profit should Melvin recognize on this exchange?
a. $0 b.$8,000 c.$10,000 d.$13,000
b 15. The Bucol Company purchased a tooling machine in 1992 for $120,000. The machine was being depreciated on the straight-line
method over an estimated useful life of 20 years, with no salvage value. At the beginning of 2002, when the machine had been in use
for ten years, the company paid $20,000 to overhaul the machine. As a result of this improvement, the company estimated that the
useful life of the machine would be extended an additional five years. What would be the depreciation expense recorded for the above
machine in 2002?
a. $4,000 b.$5,333 c.$6,000 d.$7,333

c 16. Tillman Company owns a machine that was bought on January 2, 1999, for $376,000. The machine was estimated to have a useful life
of five years and a salvage value of $24,000. Tillman uses the sum-of-the-years’-digits method of depreciation. At the beginning of
2002, Tillman determined that the useful life of the machine should have been four years and the salvage value $35,200. For the year
2002, Tillman should record depreciation expense on this machine of
a.$19,200. b.$44,400. c.$59,200. d.$70,400.

c 17. A truck that cost $8,000 was originally being depreciated over four years using the straight-line method with no salvage value. If after
one year, it was decided that the truck would last an additional four years (or a total of five years), the second year’s depreciation would
be
a. $2,000. b.$1,000. c.$1,500. d.$2,500.

c 18. Andrews Manufacturing Company purchased a new machine on July 1, 2001. It was expected to produce 200,000 units of product over
its estimated useful life of eight years. Total cost of the machine was $600,000, and salvage value was estimated to be $60,000. Actual
units produced by the machine in 2001 and 2002 are shown below.
2001.............................................................................................................. 16,000 units
2002.............................................................................................................. 30,000 units

Andrews reports on a calendar-year basis and uses the sum-of-the-years’-digits method of depreciation, computed to the nearest
month. The amount of depreciation expense for this machine in 2002 would be
a.$135,000. b.$125,000. c.$112,500. d.$105,000.

d 19. On July 1, Phoenix Corporation, a calendar-year company, received a condemnation award of $150,000 as compensation for the forced
sale of a plant located on company property that stood in the path of a new highway. On this date, the plant building had a depreciated
cost of $75,000 and the land cost was $25,000. On October 1, Phoenix purchased a parcel of land for a new plant site at a cost of
$62,500. Ignoring income taxes, Phoenix should report in its income statement for the year ended December 31 a gain of
a. $0.
b. $12,500.
c. $37,500.
d $50,000.

c 20. The John Company purchased a machine on November 1, 1993, for $148,000. At the time of acquisition, the machine was estimated to
have a useful life of ten years and an estimated salvage value of $4,000. John has recorded monthly depreciation using the straight-
line method. On July 1, 2002, the machine was sold for $13,000. What should be the loss recognized from the sale of the machine?
a. $4,000 b.$5,000 c.$10,200 d.$13,000

d 21. In January 2002, Butz Company exchanged an old machine, with a book value of $156,000 and a fair value of $140,000, and paid
$40,000 cash for a similar used machine having a list price of $200,000. At what amount should the machine acquired in the exchange
be recorded on Butz’s books?
a.$200,000 b.$196,000 c.$184,000 d.$180,000