Test Bank for Principles of Accounting: Tools for Business Decision Making, Fourth Edition
FE - 2
____ 3. Jenson Supply bought equipment at a cost of $24,000 on January 2, 2002. It originally
had an estimated life of ten years and a salvage value of $4,000. Jenson uses the
straight-line depreciation method. On December 31, 2006, Jenson decided the useful
life likely would end on December 31, 2007, with a salvage value of $2,000. The
depreciation expense recorded on December 31, 2006, should be
____ 4. In order to be relevant, accounting information must
a. be neutral.
b. be verifiable.
c. help predict future events.
d. be a faithful representation.
____ 5. Jordan Company sold old equipment for $20,000. The equipment had a cost of
$50,000 and accumulated depreciation of $25,000. The entry to record the sale of the
equipment would include a
a. loss on disposal of $20,000.
b. gain on disposal of $20,000.
c. loss on disposal of $5,000.
d. gain on disposal of $5,000.
____ 6. The cost of intangible assets should be
a. amortized over the assets' estimated useful life, or its legal life, whichever is
b. amortized over a period not exceeding 5 years.
c. amortized over the assets' estimated useful life.
d. charged to an expense account at acquisition.
____ 7. In a period of rising prices, the inventory method that results in the lowest income tax