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1 | |
Each of the following should be classified as plant and equipment in the balance sheet of Chin's Nursery except: |
| | A) | The office building. |
| | B) | Patents held on specific varieties of roses. |
| | C) | Land on which the nursery is located. |
| | D) | Plants held for resale to customers. |
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2 | |
An example of an error in distinguishing between revenue expenditures and capital expenditures is: |
| | A) | Failure to consider residual salvage value in estimating depreciation. |
| | B) | Inclusion in the Building account of payments for property taxes. |
| | C) | Inclusion in the Delivery Truck account of state sales taxes paid on the purchase of a truck. |
| | D) | Inclusion in Utilities Expense of the cost of electrical repairs made on the air-conditioning. |
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3 | |
Carter Co. and Greer Corp. purchased identical plant assets, and both companies estimated the useful life at 10 years with no salvage value. Carter uses straight-line depreciation in its financial statements, whereas Greer uses an accelerated method. |
| | A) | Over the life of the asset, Greer will recognize more depreciation expense than Carter. |
| | B) | In the tenth year of ownership, Carter will recognize more depreciation expense on this asset than Greer. |
| | C) | If the asset is sold after 4 years, Carter is more likely to report a gain than is Greer. |
| | D) | In its income tax return, only Greer may depreciate this asset by the MACRS method. |
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4 | |
The Modified Accelerated Cost Recovery System (MACRS) is used primarily to determine: |
| | A) | The minimum length of time to recover the after-tax cost of alternative investment opportunities. |
| | B) | The fastest way to recover the cost of converting from a manual to a computer-based accounting system. |
| | C) | Depreciation expense deductible for income tax purposes. |
| | D) | The estimated useful lives to be used in computing depreciation expense for financial reporting purposes. |
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5 | |
The journal entry to record the sale or disposition of a depreciable plant asset always includes: |
| | A) | Recognition of a gain. |
| | B) | A debit to the Accumulated Depreciation account for the related accumulated depreciation. |
| | C) | Recognition of a loss. |
| | D) | A debit to the asset account for the book value of the asset. |
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6 | |
For financial statement purposes, Adel Corporation was depreciating a truck by the straight-line method over five years. For income tax purposes, the truck was being depreciated by an accelerated method over a life of only three years. After two years, the truck was sold at a price above its book value for financial statement purposes. Adel Corporation should report this sale as: |
| | A) | A gain in its income statement and an even larger gain in its income tax return. |
| | B) | A gain in its income statement, but as a smaller gain in its income tax return. |
| | C) | A gain in its income statement, but as a loss in its income tax return. |
| | D) | A gain of the same dollar amount in both its income statement and its income tax return. |
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7 | |
Which item among the following is not an intangible asset? |
| | A) | A trademark. |
| | B) | An account receivable. |
| | C) | A patent. |
| | D) | Goodwill. |
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2002 McGraw-Hill Higher Education