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Lecture 2

COMMERCE 1AA3 Lecture Notes - Lecture 2: Stout, 6 Years

Course Code
Aadil Merali Juma

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1) A revision of an estimate which extends the asset’s useful life:
Answer: decreases depreciation expense and increases owner’s equity
2) On January 2, 2016, McNally’s extra corporation acquired equipment for $120,000. The estimated
life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the
balance in Accumulated depreciation on December 31, 2017, if McNally’s Extra Corporation uses the
double-declining balance method of depreciation?
Answer: $76,800
3) Which of the following would not be included in the Machinery account?
Answer: cost of a maintenance insurance plan after the machinery is up and running
4) Treating a capital expenditure as an immediate expense
Answer: overstates expenses and understates net income
5) Stout Corp sold some fully amortized equipment for $2,600 cash. The equipment had been
purchased for $26,500 and stout corp had estimated the useful life at 8 years and residual value at
3,500. The journal entry to record the sale of the equipment will include a:
Answer: debit to loss on sale of equipment for $900
6) At the end of an asset’s useful life, the balance in accumulated depreciation will:
Answer: be the same amount under all depreciation methods
7) Blockware corporation has selected to use the revaluation method for its assets. Recently it had its
building appraised. The appraiser places a $5.0 M value on the building. Back in 2012 this building was
purchased for $4.0 M. This increases in value over cost requires a:
Answer: Dr. to revaluation surplus
8) A major expenditure made to equipment that extends its useful life beyond the original estimate is
journalized by:
Answer: debiting equipment
9) Which of the following statements is true?
Answer: accumulated depreciation is that portion of property, plant, and equipment’s cost that has
already been recorded as an expense.
10) Depreciation computed under the double declining balance will decrease each year because:
Answer: the book value used in the computation used in the computation each year decreases.
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