Plant Assets Quiz

Choose the best answer for each of the following questions and click on the Answer
arrow to check yourself.  Answers are provided.

1. Which of the following would not be included in the cost of a delivery

vehicle ?
a.  Sales taxes
b.  Cost of modifications to interior for product storage
c.  Cost of painting the store name on the vehicle
d.  One year insurance policy on the vehicle
d: Short term recurring costs (insurance, 1-year licensing) are not capitalized.

2. Which of the following is a land improvement?

a.  Land
b.  Parking lot
c.  Oil well discovered on the land
d.  A timber stand on the land
b: A parking lot w ould be an example of a land improvement.

3. The depreciable cost of an asset is calculated as follows:

a.  Cost of the asset minus accumulated depreciation
b.  Cost only
c.  Cost minus salvage value
d.  All costs necessary to acquire the asset
c: Cost minus salvage value

4. Which depreciation method is based on a percentage of book value?

a.  Straight line
b.  Units of activity
c.  Declining balance
d.  All depreciation methods are based on a percentage of book value
c: Declining balance method

5. Johnson Company purchases a $36,000 truck that is estimated to last nine

years, with no salvage value. If Johnson uses the straight line method of
depreciation, what will the accumulated depreciation amount to after two years
of use?
a.  $0
b.  $8,000
c.  $9,000
 d.  $36,000
b: Depreciation is $4,000 per year for tw o years.

6. Johnson purchases equipment for $12,000. The equipment has a 4-year life,
with $1,000 salvage value after four years. How much depreciation will
Johnson record if the double declining balance method is used?
a.  $3,000
b.  $4,000
c. $6,000
d.  $1,500

7. Johnson spent $100,000 on research and development this year and there is
evidence that the expenditures may lead to a patent. How should the $100,000
be reported on Johnson's financial statements for the year?
a.  Research and Development -- Patent, reported on the balance sheet
b.  Patent (on the balance sheet)
c.  Research and Development Expense (on the income statement)
d. Research and Development Costs (on the owner's equity statement)

8. Johnson sells a truck that cost $25,000, and currently has $10,000 of
accumulated depreciation. Johnson sells the truck for $18,000. Johnson will
record: 
a.  a loss on disposal of $7,000
b. a loss on disposal of $15,000
c. a loss on disposal of $10,000
d. a gain on disposal of $3,000

9. On which financial statement would you find Accumulated Depreciation --

Equipment? 
a.  on the income statement
b.  on the balance sheet
c.  on the owner's equity statement
d.  on the cash flow statement

10.Is it ok to change the depreciation charges on an asset?

a.  Yes, as long as you change all previous years' depreciation
b.  Yes, as long as it is for current and future years
 c.  No, once you've committed to the estimates, they cannot be changed
d.  No, because previous financial statements would have to be changed
11. 2. How is the carrying amount (book value) of property, plant and equipment calculated?
12. Carrying amount = Acquisition cost – Accumulated depreciation
13. Exercise 1
14. Company T had the following balances.
Property, plant and equipment = $720,000
Accumulated depreciation = $170,000
What is the amount of net property, plant and equipment?
15. Net property, plant and equipment
= Property, plant and equipment – Accumulated depreciation
= $720,000 – $170,000 = $550,000
16. Exercise 2
17. Company S had the following balances.
Cost of equipment = $300,000
Accumulated depreciation for equipment = $80,000
What is the amount of book value of equipment?
18. Book value of equipment
= Cost of the asset – Accumulated depreciation
= $300,000 – $80,000 = $220,000

Disposal of Property, Plant and Equipment

Gain or Loss on Disposal

1. If disposal price is higher than the carrying amount of the asset, gain on disposal is recognized.
2. If disposal price is lower than the carrying amount of the asset, loss on disposal is recognized.
3. Sale of property, plant and equipment:
Debit to cash and accumulated depreciation, credit to the PP&E asset.