ACG 2021 Exam 2 Study Questions and
Correct Answers
A company purchased equipment and incurred these costs:
Cash price, $26,000
Sales taxes, $1,200
Insurance during transit, $400
Annual maintenance costs, $500
What amount should be recorded as the cost of the equipment? ✅($26,000 + $1,200 +
$400 = $27,600)
=$27,600
***The $500 annual maintenance costs are expensed as operating expenses as
incurred.
A company acquires land for $160,000 cash. Additional costs are as follows:
Removal of shed, $500
Filling and grading, $2,000
Salvage value of lumber of shed, $120
Broker commission, $6,000
Paving of parking lot, $15,500
Closing costs, $1,000
The company should record the acquisition cost of the land as ✅Purchase price,
160,000
Add: Removal of shed less salvages (i.e., 500 - 120), 380
Add: Filling and grading, 2,000
Add: Broker's commission, 6,000
Add: Closing costs, 1,000
Acquisition costs of land, 169,380
=$169,380
Which one of the following items is not a consideration when recording periodic
depreciation expense on plant assets? ✅To compute depreciation, one must know the
asset's cost, salvage value, estimated useful life, and which depreciation method is
being used.
= Price of replacing the plant asset.
, A company purchased equipment that has an invoice price of $18,000. It also paid
freight charges of $500 and installation costs of $2,500. The estimated salvage value
and useful life are $2,000 and four years, respectively. Under the straight-line method,
how much is annual depreciation expense? ✅Depreciation expense = ($21,000 -
$2,000)/4 = $4,750 per year.
=$4,750
A company uses straight-line depreciation. It purchased a truck for $40,000. The truck's
salvage value is $10,000. The truck's annual depreciation expense is $6,000. What is
the truck's useful life? ✅($30,000/$6,000 per year = 5 years).
=5 years
A company purchased a truck for $27,000. The company paid $1,200 to paint the
company's logo on the truck. The estimated salvage value and useful life are $1,200
and 5 years, respectively. How much is the accumulated depreciation under the
straight-line method after three years? ✅$27,000 + $1,200 = $28,200.
$28,200 - $1,200/5 years = $5,400
$5,400 x 3 = $16,200.
=$16,200
On August 1, a company purchased equipment for $16,000. The equipment's estimated
salvage value is $1,000. The machine will be depreciated using straight-line
depreciation and a five year life. If the company prepares annual financial statements on
December 31, the appropriate adjusting journal entry to make on December 31 of the
first year would be a ✅$1,250 debit to Depreciation Expense and a $1,250 credit to
Accumulated Depreciation.
Which statement is true about additions to plant assets? ✅They are capitalized.
A company purchased equipment for $50,000 on January 1 of its first year. The
equipment's original estimated useful life is 8 years and its estimated salvage value is
$10,000. The company uses the straight-line method of depreciation. On December 31
of its second year, before year-end adjusting entries have been recorded, the company
decides to shorten the estimated useful life by 3 years giving it a total life of 5 years.
The company did not change the salvage value and continues to use the straight-line
method. How much depreciation expense should be recorded for the second year?
✅Original depreciation per year = [($50,000 - $10,000)/8] x 1 = $5,000Revised
depreciation per year = [($50,000 - 5,000) - $10,000]/(5-1) = $8,750
