ACG 2021 Exam 3 Practice with Complete Solutions

When an asset is purchased (or disposed of) at a time other than the beginning or the end of an accounting period, depreciation is recorded for part of a year so that the year of disposal is charged with its share of the asset's depreciation - ANSWER-true Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current and future financial statements. - ANSWER-true the purchase of a property that included land, building and related improvements is called a lump-sum or basket purchase. - ANSWER-true The cost of fees for insuring the title and any accrued property taxes are included in the cost of land - ANSWER-true A company purchased a plant asset for $60,000. The asset has an estimated salvage value of $4,000, and an estimated useful life of 7 years. The annual depreciation expense using the straight-line method is $4,000 per year. - ANSWER-false depreciation expense= (cost-salvage value)/estimated useful life depreciation expense=($60,000-$4,000)/7=$8,000 Capital expenditures, also called balance sheet expenditures, are additional costs of plant assets that provide benefits extending beyond the current period - ANSWER-true extraordinary repairs are expenditures extending the asset's useful life beyond its original estimate, and are capital expenditures because they benefit future periods - ANSWER-true The relevant factors in computing depreciation do not include: - cost - salvage value - useful life - depreciation method - market value - ANSWER-market value salvage value is: - ANSWER-an estimate of the asset's value at the end of its benefit period depreciation: - ANSWER-is the process of allocating the cost of a plant asset to expense