Question

1. On January 1, the Rhode Island Redbirds organization purchased new
workout equipment for its athletes. The equipment had a cost of $15,600,
transportation costs of $450, and set up costs of $290. The Redbirds spent
$350 training their trainers and athletes on its proper use. The useful life of
the equipment is five years and has no residual value. How much

depreciation expense should the Redbirds take in the first year, if straight-
line is being used?

a. $3,120
b. $3,268

c. $3,338
d. $3,210

2. See the information in number 1 above. Assume the Redbirds decide to use
the double-declining balance depreciation method instead. What would
Year 1 depreciation expense be?
a. $6,420
b. $6,676
c. $6,240
d. $6,536

3. Kite Corporation wishes to trade equipment it owns for a vehicle owned by
the Runner Corporation. Kite’s equipment has a book value of $4,000 and a
fair value of $4,500. Runner’s vehicle has a book value and fair value of
$5,100. Kite agrees to pay Runner $600 in cash in addition to giving up the
equipment. What would be Kite’s gain or loss on this exchange?
a. $500
b. $100
c. $1,100
d. $600

4. At the beginning of the year, the Kelvin Company owned equipment that
appeared on its balance sheet as such:
Equipment $7,000,000
Accumulated Depreciation ($2,000,000)
The equipment was purchased two years ago and assigned a useful life of
six years and a salvage value of $1,000,000. During the first month of the
year, Kelvin made modifications to the equipment that increased its
remaining useful life from four years to five years. Its salvage value
remained unchanged. The cost of these modifications was $50,000. What would be the balance in the accumulated depreciation account of this
equipment on 12/31 of that year?

a. $2,760,000
b. $3,000,000
c. $810,000
d. $2,000,000

5. On January 3, 20X1, Jewels Inc. purchases a South American mine found to
be rich in amethyst for $560,000. Once all the amethyst has been removed,
the land is estimated to be worth only $100,000. Experts predict that the
mine contains 4,000 pounds of amethyst. Jewels plans on completing the
extraction process in four years. No amethyst was extracted during 20X1.
What would accumulated depletion be on 12/31/X1?
a. $115,000
b. $115
c. $140
d. $0

6. Maxwell Corporation wishes to sell a building it has owned for five years. It
was purchased for $430,000. Maxwell performed additional modifications
to the building, which totaled $45,000. On the proposed date of sale, the
accumulated depreciation on the building totaled $75,000. The proposed
sales price of the building is $380,000. Maxwell is trying to determine the
income statement effect of this transaction. What would be Maxwell’s gain
or loss on this sale?
a. $20,000 loss
b. $25,000 gain
c. $50,000 loss
d. $95,000 loss

Answer 1

ANS -1- Correct ans is B (3268)

EXPLAINATION - cost of eqipmment + transportation cost + setup cost = total cost

$ 15600 + 450 +290 =16340

depericiation expence = total cost of the asset / no. of years ( useful life )

16340/ 5 = 3268

note - amount spend on training of athelets will not include in the cost of euipment .

ANS 2-

DOUBLE DECLINING BALANCE FORMULA --- (Cost - accumulated depreciation ) x 2/ useful life = depreciation expense

16340 x 2/5 = 6536

correct ans is D

ANS 3- Kite 's purchased of $ 5100 from runner corporation and kite corporation is paying ($4000+ 600) $ 4600

hence its gain of $500 for kite corporation .

correct ans is A

ANS 4-

Correct ans is B - $ 3000,000

ANS 5-

FORMULA OF ACCUMULATED DEPLITION - total cost - salvage valve / total estimated units available = deplition cost

560000-100000/4000 = $115

corrrect ans is B

ANS -6 No depreciation is charged on land and building so maxwall's loss is $ 95,000