Chapter 10 Plant Assets

Plant assets are used in operations and have useful lives that extend over more than one accounting period.

• True

• False

If land is purchased as a building site, the cost of removing existing structures is not charged to the Land account.

• True

• False

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

• True

• False

Total asset cost plus depreciation expense equals book value.

• True

• False

The double-declining balance method is applied by (1) computing the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting salvage value from cost, and (4) multiplying the rate times the net value.

• True

• False

Depreciation:

• Is applied to land

• Measures the decline in market value of an asset

• Measures physical deterioration of an asset

• Is the process of allocating the cost of a plant asset to expense.

Salvage value is:

• A factor relevant to determining depreciation under MACRS.

• An estimate of the asset's value at the end of its benefit period.

• A factor relevant to determining depreciation that cannot be revised during an asset's useful life.

• Not a factor relevant to determining depletion.

Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000. The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's Book Value on December 31, Year 2 will be:

• $36,000

• $54,000

• $90,000

• $42,000

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the first year of its useful life using the double-declining-balance method?

• $2,320.

• $300

• $600

• $680

Marks Consulting purchased equipment costing $45,000 on January 1, Year 1. The equipment is estimated to have a salvage value of $5,000 and an estimated useful life of 8 years. Straight-line depreciation is used. If the equipment is sold by July 1, Year 5 for $20,000, the journal entry to record the sale will include a:

• Credit to cash for $20,000

• Credit to loss on sale for $10,000

• Debit to gain on sale for $2,500

• Debit to loss on sale for $10,000

• Debit to accumulated depreciation for $22,500