Multiple Choice Questions

1.When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land: 
 

A. any of the purchase cost allocated to the old building is reported as a loss.

B. the cost assigned to the land excludes the cost of the old building.

C. the total cost of the land and old building are capitalized as land cost.

D. any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building.

2.Expenditures capitalized as long-lived assets generally include those expenditures that: 
 

A. are made for normal repairs to maintain the usefulness of the asset over a number of years.

B. are for items that have a physical life of more than a year, regardless of their cost.

C. are material in amount and that have an economic benefit to the entity only in the current year.

D. are material in amount and that have an economic benefit to the entity that extends beyond the current year.

3.Which of the following accounting concepts/principles is most significant in the development of a capitalization policy? 
 

A. Matching of revenue and expense.

B. Materiality.

C. Original Cost.

D. Consistency.

4.Which of the following statements best describes the process of accounting for depreciation? 
 

A. A process that attempts to recognize loss in economic value over a period of time.

B. A process for setting aside cash so funds will be available to replace the asset.

C. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.

D. A process for recognizing all of the cost associated with using an asset in a revenue generating activity.

5.The entry to record depreciation expense: 
 

A. increases a contra asset and decreases net income.

B. decreases a contra asset and decreases net income.

C. decreases working capital and decreases net income.

D. decreases an asset and increases a contra asset.

6.The net book value of a depreciable asset is: 
 

A. the fair value of the asset.

B. the amount for which the asset should be insured.

C. the difference between the asset's cost and accumulated depreciation.

D. the difference between the asset's cost and depreciation expense.

7.It is not unusual for a company to use different depreciation methods for book and tax purposes. When this happens, the firm usually: 
 

A. uses an accelerated depreciation method for book purposes.

B. uses an accelerated depreciation method for tax purposes.

C. is trying to maximize its taxable income.

D. is trying to minimize its book income.

8.The present value concept is widely applied in business because: 
 

A. inflation erodes the purchasing power of money.

B. money has value over time.

C. accounting for operating leases requires its use.

D. most obligations are settled within a year.

9.When an accelerated depreciation method is used to calculate depreciation expense: 
 

A. the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.

B. the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used.

C. depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used.

D. the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used.

10.Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method.

What is the firm's depreciation expense for the year ended December 31, 2014? 
 

A. $2,000

B. $4,400

C. $6,000

D. $8,800

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