GAMBY Medical & Business College

Department of Accounting Extension Program

Principle of Accounting II Exam II

Name -------------------------------------------Department ------------------------- ID --------------------

Part I Multiple Choice Questions Time Allowed 1:45
Choose the Best Answer & Write the Letter in the Space Provided. (1 points each)
1. An asset that cost $65,000 has accumulated depreciation of $23,000 is sold for $50,000. The journal
entry to record the sale of the asset would include:
a) a debit to Gain on Disposal of Asset of $8,000 c) a credit to Gain on Disposal of Asset of $8,000
b) a debit to Gain on Disposal of Asset of $15,000 d) a credit to Gain on Disposal of Asset of $15,000
2. Failure to record the year-end adjustment for depreciation expense will result in
a) an overstatement of income and an understatement of capital
b) an overstatement of income and an understatement of assets
c) an understatement of income and an overstatement of capital
d) an overstatement of income and an overstatement of assets
3. An asset having a four-year service life and a salvage value of $5,000 was acquired for $45,000 cash
on January 2 of Year One. The amortization expense for Year 2, ending December 31, will be _____
a) $5,000, under the straight-line method
b) $11,250, under the double declining-balance method
c) $11,250, under the straight-line method
d) $22,500, under the double declining-balance method?
4. An expenditure that produces economic benefits & do not fully expire before the end of the current
period is referred to as ____________.
a) revenue expenditure c) ordinary repair expense
b) operating expense d) capital expenditure
5. Depreciation is a process of:
a) cost allocation. c) cash accumulation.
b) valuation. d) appraisal.
6. Which of the following expenditures incurred in connection with acquiring machinery is a proper
charge to the asset account?
a) Freight c) Both A and B
b) Installation costs d) Neither A nor B
7. Which of the following is not a major characteristic of a plant asset?
a) Possesses physical substance c) Acquired for use
b) Acquired for resale d) Yields services over a number of years
8. The amount of depreciation, using the double-declining-balance method for the 2nd year of use for
equipment costing $9,000, with aresidual value of $600 and an estimated life of three years is ________.
a) $2,000 c) $3,000
b) $6,000 d) $400
9. What is the accumulated deprecation?
a) Depreciation expenses c) Sum of all depreciation expenses of a fixed asset
b) Cost of depletion of assets d) Future value of fixed asseta
10. Additions to plant assets are:
a) revenue expenditures. b) capital expenditures.
c) debited to the Purchases account. d) debited to the Maintenance &
Repairs Expense account.

Page 1 of 4
 GAMBY Medical & Business College
Department of Accounting Extension Program
Principle of Accounting II Exam II
PART TWO MATCHING
MATCH COLUMN A WITH THE CORRECT ANSWER WITH COLUMN B (0.50 points).
COLUMN A COLUMN B
E, k
11. Estimate of amount to be recovered at the end of a plant asset's useful life. A. Intangible assets

C 12. A process of allocating the cost of an intangible asset to expense over its estimated B. Obsolescence
useful life. C. Amortization
B 13. A condition which, because of new inventions & improvements, a plant asset can D. Book Value
no longer be used to produce goods or services with a competitive advantage. E. Salvage Value
F 14. A right granted that gives its owner the exclusive privilege to publish & sell
F. Copyright
musical, literary, or artistic work during the life of the creator.
D 15. The total cost of a plant asset less its accumulated depreciation. G. Land Improvements
H 16. The process of allocating the cost of natural resources to the periods when they
H. Depletion
are consumed.
I 17. An exclusive right granted to its owner to manufacture and sell an item, or to use
I. Patent
a process, for 17 years.
18. Assets that increase the benefits of land, have a limited useful life, and are subject
G J. Good will
to depreciation.
A 19. Rights, privileges, & competitive advantages that result from the ownership of
K. Scrape value
long-lived assets that do not possess physical substance.
J 20. The value of all favorable attributes that relate to a company that is not
L. Revenue Expenditure
attributable to any other specific asset.

Part III Work Out

21. A building with a cost of $1,050,000 has an estimated residual value of $420,000, has an estimated
useful life of 36 years, and is depreciated by the straight-line method.
a. What is the amount of the annual depreciation?
b. What is the book value at the end of the twentieth year of use?
c. If at the start of the twenty-first year it is estimated that the remaining life is 20 years and that
the residual value is $300,000, what is the depreciation expense for each of the remaining 20
years?
22. On July 1, 2010, GAMBY PLC sells office furniture for $16,000 cash. The office furniture originally
cost $60,000. As of January 1, 2010, it had accumulated depreciation of $41,000. Depreciation for
the first six months of 2010 is $8,000. Journalize;
a. The depreciation expense and updates the accumulated depreciation to July 1.
b. Journalize the sales entries.

1. GAMBY PLC purchased land, building and Equipment for $1,500,000 the expansion of its business. An appraiser valued the components of
the property if purchased separately as Land $400,000, Building $200,000 and Equipment $1,000,000. Determine the cost to be assigned
to each components. (3 points)
2. GAMBY purchased, in 2009, laboratory equipment for $18,000 also involved freight charges of $500, installation costs of
$2,500 and earned proceeds from the sale of scraps $1000. The estimated salvage value and useful life are $2,000 and 4 years,
respectively. Under the straight-line method, what will be the annual depreciation expense in each year? (3 points)

Page 2 of 4
 GAMBY Medical & Business College
Department of Accounting Extension Program
Principle of Accounting II Exam II
Name -------------------------------------------Department ------------------------- ID --------------------
Answers
PART I - MULTIPLE CHOICE QUESTIONS

1. _C_____ 3. __B____ 5. _A____ 7. __B_____ 9. __C_____

2. _D_____ 4. __D____ 6. __C_____ 8. __A_____ 10. __B_____

PART II - MATCHING
11. __E, K__ 13. B_____ 15. __D____ 17. ___I___ 19. __A____

12. __C____ 14. _F_____ 16. __H___ 18. __G___ 20. ___J___

PART III - Work Out

1. a) Annual Depreciation = (1,050,000 – 420,000)/36
= $ 17,500
b) Accumulated Depreciation = 20 x 17,500
= $ 350,000
Book Value = Cost – Accumulated Depreciation
= 1,050,000 – 350,000
= $ 700,000
c) Annual Depreciation = (700,000 – 300,000)/20
= $ 20,000
2. Sales = $ 16,000
Accumulated Depreciation January - July = 41,000 + 8,000
= $ 49,000
Book Value = 60,000 – 49,000
= $ 11,000
Since the sales is more than the book value (16,000 – 11,000 = 5,000) there is a gain of $5,000
The journal entry is
Cash 16,000
Accumulated Depreciation 49,000
Office Furniture 60,000
Gain on Sale of Office Furniture 5,000
Bonus
1. Lump sum Cost = 1,500,000
Appraisal rate of Land = 400,000/1,600,000
= 0.25
Cost of the Land = 0.25 x 1,500,000
= $ 375,500
Appraisal rate of Building = 200,000/1,600,000
= 0.125

Page 3 of 4
 GAMBY Medical & Business College
Department of Accounting Extension Program
Principle of Accounting II Exam II
Cost of the Building = 0.125 x 1,500,000
= $ 187,500
Appraisal rate of Equipment = 1,000,000/1,600,000
= 0.625
Cost of the Equipment = 0.625 x 1,500,000
= $ 937,500
3. Cost of Laboratory Equipment = Cos + Cost of Fright + Cost of Installation – Proceed from Sales
= $ 18,000 + $ 500 + $ 2,500 - $ 1,000
= $ 20,000
Depreciation Expense = ($ 20,000 - $ 2,000)/4
= $ 4,500

Page 4 of 4