KA2e_SelfStudy_Ch09

KA2e_SelfStudy_Ch09 -...

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File: ch09, Chapter 9: Reporting and Analyzing Long-Lived Assets Multiple Choice 1. Corrieten Company purchased equipment and incurred these costs: Cash price $24,000 Sales taxes 1,200 Insurance during transit 200 Installation and testing 400 Total costs $25,800 What amount should be recorded as the cost of the equipment? a) $24,000. b) $25,200. c) $25,400. d) $25,800. Ans: d Response A: This answer includes only the cash price of the equipment. All of the costs noted above should be included as part of the cost of the equipment because they are all costs that are necessary to acquire the equipment, safely transport it and prepare it for use. Response B: This answer includes only the cash price and the sales taxes. All of the costs noted above should be included as part of the cost of the equipment because they are all costs that are necessary to acquire the equipment, safely transport it and prepare it for use. Response C: This answer includes only the cash price, sales taxes and insurance during transit. All of the costs noted above should be included as part of the cost of the equipment because they are all costs that are necessary to acquire the equipment, safely transport it and prepare it for use. Response D: Correct! 2. Harrington Corporation recently leased a number of trucks from Andre Corporation. In inspecting the books of Harrington Corporation, you notice that the trucks have not been recorded as assets on its balance sheet. From this you can conclude that Harrington is accounting for this transaction as a(n): a) operating lease. b) capital lease. c) purchase. d) None of the above. Ans: a Response A: Correct! Response B: If the leased assets were accounted for as a capital lease, they would be reported on the balance sheet. Response C: If the assets were purchased, they would be reported on the balance sheet.
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Response D: Since a is the correct answer, this answer cannot be correct. 3. Depreciation is a process of: a) valuation. b) cost allocation. c) cash accumulation. d) appraisal. Ans: b Response A: Depreciation is not a process of valuing an asset. Rather, it is a process of allocating the cost of a long-term asset over its useful service life. Response B: Correct! Response C: Depreciation is not a process of cash accumulation. Rather, it is a process of allocating the cost of a long-term asset over its useful service life. Response D: Depreciation is not a process of appraisal. Rather, it is a process of allocating the cost of a long-term asset over the its useful service life. 4. Cuso Company purchased equipment on January 1, 2006, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used? a)
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This note was uploaded on 04/22/2009 for the course BCOR 2000 taught by Professor Brush during the Spring '07 term at Colorado.

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KA2e_SelfStudy_Ch09 -...

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