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1) Sunshine Company purchased the building on a tract of land and allocated the complete cost of the purchase to building. Usually it depreciates buildings over 20 years using straight-line method with zero residual value and doesn’t depreciate land. As of its accounting treatment of the purchase, Sunshine's income before taxes for the next 20 years will be:

A. unaffected
B. overstated
C. understated
D. in conformance with GAAP

2) Which of the following accounts will not be reported in Property, Plant, and Equipment section of the balance sheet?

A. Depreciation Expense, Buildings
B. Land
C. Buildings
D. Accumulated Depreciation, Buildings

3) On January 3, 2001, Florence Company sold machine for $15,000 which it had used for many years. Machine cost $43,000, and had accumulated depreciation of $18,000 at a time of sale. Compute gain or loss that will be reported on income statement for the sale of the machine?

A. gain of $10,000
B. loss of $3,000
C. loss of $10,000
D. gain of $3,000

4) Johnny Corp. purchased land and the building for combined cost of $900,000. Johnny should:

A. record $900,000 acquisition cost in an account called Buildings and Land.
B. record the $900,000 acquisition cost as an expense if separate acquisition costs can't be estimated.
C. allocate the $900,000 acquisition cost to separate Buildings and Land accounts based on fair market values
D. depreciate $900,000 acquisition cost, less any residual value, over an expected useful life of a building

5) Sam purchased equipment at abeginning of 2001 for $7,000. Sam decided to depreciate equipment over a 4-year period using the straight-line method. Sam estimated its salvage value at $1,000. Which of the statements is right regarding Sam 's financial statements at December 31, 2001?

A. Depreciation expense for 2001 is $1,400
B. The total accumulated depreciation is $2,500
C. The book value of the equipment is $5,500
D. The book value of the equipment is $6,000.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M99901

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