Financial accounting

CHAPTER 6:
1.Merchandise inventory is
a. reported under the classification of Property, Plant, and Equipment on the statement of financial
position.
b. often reported as a miscellaneous expense on the income statement.
c. reported as a current asset on the statement of financial position.
d. generally valued at the price for which the goods can be sold.

1.1. Manufacturers usually classify inventory into all the following general categories except
a. work in process
b. finished goods
c. merchandise inventory
d. raw materials
1.2. The factor which determines whether or not goods should be included in a physical count of inventory
is
a. physical possession.
b. legal title.
c. management's judgment.
d. whether or not the purchase price has been paid.
1.3. Under a consignment arrangement, the
a. consignor has ownership until goods are sold to a customer.
b. consignor has ownership until goods are shipped to the consignee.
c. consignee has ownership when the goods are in the consignee's possession.
d. consigned goods are included in the inventory of the consignee.
1.4. Which of the following should be included in the physical inventory of a company?
a. Goods held on consignment from another company
b. Goods in transit to another company shipped FOB shipping point
c. Goods in transit from another company shipped FOB shipping point
d. Both goods in transit to and from another company shipped FOB shipping point

1.5. Of the following companies, which one would not likely employ the specific identification method for
inventory costing?
a. Music store specializing in organ sales
b. Farm implement dealership
c. Antique shop
d. Hardware store
1.6. Sam's Used Cars uses the specific identification method of costing inventory. During March, Sam
purchased three cars for $6,000, $7,500, and $9,750, respectively. During March, two cars are sold for
$9,000 each. Sam determines that at March 31, the $9,750 car is still on hand. What is Sam’s gross profit
for March?
a. $5,250.
b. $4,500.
c. $750.
d. $8,250.
1.7. Which of the following statements is correct with respect to inventories?
a. The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
b. It is generally good business management to sell the most recently acquired goods first.
c. Under FIFO, the ending inventory is based on the latest units purchased.
d. FIFO seldom coincides with the actual physical flow of inventory.
1.8. The following information was available from the inventory records of Rare Company for July:
Units

Unit Cost

Total Cost

30,000

£ 2.25

£67,500

July 6

20,000

2.55

51,000

July 26

27,000

2.60

70,200

Balance at July 1
Purchases:

Sales:
July 7

(25,000)

July 31

(40,000)

Balance at July 31

12,000

What is Rare’s cost of goods available for sale?
a. £38,500.
b. £142,400.
c. £188,700.


d. cannot be determined.
1.9. In a period of rising prices which inventory method generally provides the greatest amount of net
income?
a. Average-cost.
b. FIFO.
c. LISH.
d. Cannot be determined.

2. In a period of rising prices, the inventory method which tends to report the lowest inventory is
a. FIFO.
b. LISH.
c. Specific identification.
d. Average-cost.
2.1. In a period of falling prices, which inventory method would result in the lowest tax burden?
a. Average-cost.
b. FIFO.
c. No difference.
d. Cannot be determined.
2.2. Franco Company uses the FIFO inventory method. Its 2014, the company reported net income of
€820,000. Had average-cost been used, the company would have reported net income of €760,000.

Assuming a 40% tax rate, what is the impact of the inventory cost flow assumption on Franco’s taxes for
2014?
a. Franco would pay €24,000 more in taxes for 2014 as a result of using FIFO inventory method rather than
average-cost.
b. Franco would pay €36,000 less in taxes for 2014 as a result of using FIFO inventory method rather than
average-cost.
c. The inventory method does not impact the amount of income tax paid.
d. Not determinable without income before taxes.
2.3. At December 31, 2014, Murchi Company reported total assets of Rs22,320,000, including inventory
of Rs5,580,000 and net income of Rs7,365,600 for 2014. The reported inventory was overstated by
Rs1,020,000. Which of the following is true with regard to Murchi’s 2014 financial statements (ignore
income taxes)?
a. Total assets are understated and total equity is overstated by Rs1,020,000.
b. Cost of goods sold is understated and total equity is overstated by Rs1,020,000.
c. Cost of goods sold and total equity are both understated by Rs1,020,000.
d. Total assets and Net income are both overstated by Rs1,020,000.
2.4. Net realizable value refers to
a. the net amount the company expects to realize from the sale.
b. the selling price.
c. the cost to replace the item.
d. the gross profit realized from the sale.
2.5. Isaac Company developed the following information about its inventories in applying the lower-ofcost-or-market (LCM) basis in valuing inventories:


Cost
Market
Product $110,000 $120,000
A
80,000
76,000

B
C

160,000

162,000

If Isaac applies the LCNRV basis, the value of the inventory reported on the statement of financial position
would be
a. $350,000.
b. $342,000.
c. $346,000.
d. $362,000.

3. Westcoe Company's goods in transit at December 31 include:
Sale made
purchase made:
1. FOB destination
3. FOB destination
2. FOB shipping point
4. FOB shipping point
Which items should be included in Westcoe's inventory on December 31?
a. (2) and (3)
b. (1) and (4)
c. (1) and (3)
d. (2) and (4)
4. As a result of a thorough physical inventory, Hastings Company determined that it had inventory worth
$570,000 at December 31, 2014. This count did not take into consideration the following facts: Carlin
Consignment store currently has goods worth $104,000 on its sales floor that belong to Hastings but are
being sold on consignment by Carlin. The selling price of these goods is $150,000. Hastings purchased

$40,000 of goods that were shipped on December 27 FOB destination, that will be received by Hastings on
January 3. Determine the correct amount of inventory that Hastings should report.
a. $610,000.
b. $714,000.
c. $674,000.
d. $720,000.
5. Sheng has the following inventory information.
July 1

Beginning Inventory

60 units at $19

7

Purchases

210 units at $20

22

Purchases

30 units at $22

HK $ 1,140
4,200
660
HK $6,000

A physical count of merchandise inventory on July 31 reveals that there are 90 units on hand. Using the
FIFO inventory method, the amount allocated to cost of goods sold for July is


a. HK $1,740.
b. HK $1,860.
c. HK $4,140.
d. HK $4,260.
5. The following information was available from the inventory records of Rare Company for July:
Units

Unit Cost

Total Cost

30,000

£ 2.25

£67,500

July 6

20,000

2.55

51,000

July 26

27,000

2.60

70,200

Balance at July 1
Purchases:

Sales:
July 7

(25,000)

July 31

(40,000)

Balance at July 31

12,000

What should be the inventory reported on Rare’s July 31 statement of financial position using the FIFO
inventory method?
a. £27,000
b. £29,400
c. £31,200
d. £31,500
6. The following information was available from the inventory records of Rare Company for July:

Units

Unit Cost

Total Cost

30,000

£ 2.25

£67,500

July 6

20,000

2.55

51,000

July 26

27,000

2.60

70,200

Balance at July 1
Purchases:

Sales:
July 7

(25,000)


July 31
Balance at July 31

(40,000)
12,000

What should be the inventory reported on Rare’s July 31 statement of financial position using the averagecost inventory method (round per unit amounts to two decimal places)?
a. £27,000
b. £29,400
c. £29,610
d. £31,500
CHAPTER 9:
7. Wright sells softball equipment. On November 14, they shipped $2,000 worth of softball uniforms to
Paola Middle School, terms 2/10, n/30. On November 21, they received an order from Paola Middle School
for $1,500 worth of custom printed bats to be produced in December. On November 30, Paola Middle
School returned $250 of defective merchandise. Wright has received no payments from either school as of
month end. What amount will be recognized as net accounts receivable on the statement of financial
position as of November 30?
a. $3,500
b. $3,250
c. $2,000
d. $1,750
7.1. The term "receivables" refers to

a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
7.2. Notes or accounts receivables that result from sales transactions are often called
a. sales receivables.
b. non-trade receivables.
c. trade receivables.
d. merchandise receivables.
7.3. Which of the following receivables would not be classified as an "other receivable"?
a. Advance to an employee
b. Refundable income tax
c. Notes receivable
d. Interest receivable
7.4. Wright sells softball equipment. On November 14, they shipped $2,000 worth of softball uniforms to
Paola Middle School, terms 2/10, n/30. On November 21, they received an order from Paola Middle School
for $1,500 worth of custom printed bats to be produced in December. On November 30, Paola Middle
School returned $250 of defective merchandise. Wright has received no payments from either school as of
month end. What amount will be recognized as net accounts receivable on the statement of financial
position as of November 30?


a. $3,500
b. $3,250
c. $2,000
d. $1,750
7.5. Under the allowance method, writing off an uncollectible account
a. affects only statement of financial position accounts.
b. affects both statement of financial position and income statement accounts.
c. affects only income statement accounts.

d. is not acceptable practice
7.6. A debit balance in the Allowance for Doubtful Accounts
a. is the normal balance for that account.
b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
c. indicates that actual bad debt write-offs have been less than what was estimated.
d. cannot occur if the percentage of receivables method of estimating bad debts is used.
7.7. Which of the following transactions affects only the statement of financial position accounts?
a. Recovery of a bad debt using the allowance method.
b. Recording bad debt expense using the allowance method.
c. Writing off a bad debt using the direct write-off method.
d. Recording bad debt expense using the percentage of receivables basis
7.8. If an account is collected after having been previously written off,
a. the allowance account should be debited.
b. only the control account needs to be credited.
c. both income statement and statement of financial position accounts will be affected.
d. there will be both a debit and a credit to accounts receivable.
7.9. The sale of receivables by a business
a. indicates that the business is in financial difficulty.
b. is generally the major revenue item on its income statement.
c. is an indication that the business is owned by a factor.
d. can be a quick way to generate cash for operating needs.

8. An aging of a company's accounts receivable indicates that $7,500 are estimated to be uncollectible. If
Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the
period will require a
a. debit to Bad Debt Expense for $7,500.
b. debit to Allowance for Doubtful Accounts for $6,400.
c. debit to Bad Debt Expense for $6,400.
d. credit to Allowance for Doubtful Accounts for $7,500
8.1. Interest expense on an interest-bearing note is

a. always equal to zero.
b. accrued over the life of the note.


c. only recorded at the time the note is issued.
d. only recorded at maturity when the note is paid
8.2. Rodgers Company lends Lanier Company $80,000 on April 1, accepting a four-month, 9% interest
note. Rodgers Company prepares financial statements on April 30. What adjusting entry should be made
before the financial statements can be prepared?
a. Note Receivable ............................................................ 80,000
Cash ..................................................................... 80,000
b. Interest Receivable ....................................................... 600
Interest Revenue .................................................. 600
c. Cash ............................................................................. 600
Interest Revenue .................................................. 600
d. Interest Receivable ....................................................... 2,400
Interest Revenue .................................................. 2,400
9. An aging of a company's accounts receivable indicates that $21,000 are estimated to be uncollectible. If
Allowance for Doubtful Accounts has a $6,000 debit balance, the adjustment to record bad debts for the
period will require a
a. debit to Bad Debt Expense for $21,000.
b. debit to Bad Debt Expense for $27,000.
c. debit to Bad Debt Expense for $15,000.
d. credit to Allowance for Doubtful Accounts for $6,000.
10. Hahn Company uses the percentage of receivables method for recording bad debt expense. Year-end
accounts receivable are $1,500,000, and the allowance account has a $2,000 debit balance Management
estimates that 1% accounts receivable will be uncollectible. What adjusting entry will Hahn Company make
to record the bad debt expense?
a. Bad Debt Expense ........................................................ 13,000
Allowance for Doubtful Accounts .......................... 13,000

b. Bad Debt Expense ........................................................ 17,000
Allowance for Doubtful Accounts .......................... 17,000
c. Bad Debt Expense ........................................................ 17,000
Accounts Receivable ............................................ 17,000
d. Bad Debt Expense ........................................................ 15,000
Accounts Receivable ............................................ 15,000
11. During 2020, Hitchcock Inc. had sales on account of $528,000, cash sales of $216,000, and collections
on account of $336,000. In addition, they collected $5,850 which had been written off as uncollectible in
2019. As a result of these transactions, the change in the accounts receivable balance indicates a
a. $402,150 increase.
b. $192,000 increase.
c. $186,150 increase.
d. $408,000 increase.
12. Oliver Furniture factors $800,000 of receivables to Kwik Factors, Inc. Kwik Factors assesses a 2%
service charge on the amount of receivables sold. Oliver Furniture factors its receivables regularly with
Kwik Factors. What journal entry does Oliver make when factoring these receivables?
a. Cash.............................................................................. 784,000
Loss on Sale of Receivables.......................................... 16,000


Accounts Receivable............................................. 800,000
b. Cash.............................................................................. 784,000
Accounts Receivable............................................. 784,000
c. Cash.............................................................................. 800,000
Accounts Receivable............................................. 784,000
Gain on Sale of Receivables................................. 16,000
d. Cash.............................................................................. 784,000
Service Charge Expense............................................... 16,000
Accounts Receivable............................................. 800,000
13. A 60-day note receivable dated June 17 has a maturity date of

a. August 17.
b. August 16.
c. August 15.
d. August 14.

14. Assuming a 360-day year, the maturity value of a ¥1,500,000, 10%, 60-day note receivable dated July
3 is
a. ¥1,500,000.
b. ¥1,650,000.
c. ¥1,515,000.
d. ¥1,525,000.
15. Parks Company receives a $25,000, 3-month, 8% promissory note from Todd Company in settlement
of an open accounts receivable. What entry will Parks Company make upon receiving the note?
a. Notes Receivable........................................................... 25,500
Accounts Receivable—Todd Company................. 25,500
b. Notes Receivable........................................................... 25,500
Accounts Receivable—Todd Company................. 25,000
Interest Revenue................................................... 500
c. Notes Receivable........................................................... 25,000
Interest Receivable........................................................ 500
Accounts Receivable—Todd Company................. 25,000
Interest Revenue................................................... 500
d. Notes Receivable........................................................... 25,000
Accounts Receivable—Todd Company................. 25,000
16. On January 15, 2020, Raymond Company received a two-month, 9%, $10,000 note from William Pentel
for the settlement of his open account. The entry by Raymond Company on March 15, 2020, if Pentel
dishonors the note and collection is expected is:
a. Accounts Receivable—W. Pentel................................... 10,000
Notes Receivable.................................................. 10,000
b. Accounts Receivable—W. Pentel................................... 10,150

Notes Receivable.................................................. 10,000
Interest Revenue................................................... 150
c. Accounts Receivable—W. Pentel................................... 9,850
Interest Lost................................................................... 150
Notes Receivable.................................................. 10,000
d. Bad Debts Expense....................................................... 10,150
Notes Receivable.................................................. 10,150


CHAPTER 10:
17. On February 1, 2012, Nelson Corporation purchased a parcel of land as a factory site for $250,000. An
old building on the property was demolished, and construction began on a new building which was
completed on November 1, 2012. Costs incurred during this period are listed below:
Demolition of old building
$20,000
Architect's fees
35,000
Legal fees for title investigation and purchase contract
5,000
Construction costs
1,290,000
(Salvaged materials resulting from demolition were sold for $10,000.)
Nelson should record the cost of the land and new building, respectively, as
a. $275,000 and $1,315,000.
b. $260,000 and $1,330,000.
c. $260,000 and $1,325,000.
d. $265,000 and $1,325,000.
18. Pine Company acquires land for $86,000 cash. Additional costs are as follows:
Removal of shed

$ 300

Filling and grading

1,500

Salvage value of lumber of shed

120

Broker commission

1,130

Paving of parking lot

10,000

Closing costs

560

Pine will record the acquisition cost of the land as
a. $86,000.
b. $87,690.
c. $89,610.
d. $89,370.
19. Shawnee Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the
new parking area cost $15,000. Which of the following statements is true with respect to these additions?
a. $30,000 should be debited to the Land account.

b. $15,000 should be debited to Land Improvements.
c. $45,000 should be debited to the Land account.
d. $45,000 should be debited to Land Improvements.
20. Carley Company purchases a new delivery truck for $45,000. The sales taxes are $3,000. The logo of
the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes
safety testing for $220. What does Carley record as the cost of the new truck?


a. $49,540
b. $49,420
c. $48,000
d. $47,420
21. Stories Company purchased equipment and these costs were incurred:
Cash price
Sales taxes
Insurance during transit
Installation and testing
Total costs

$22,500
1,800
320
430
$25,050

Stories will record the acquisition cost of the equipment as
a. $22,500.
b. $24,300.
c. $24,620.
d. $25,050.

21.1. Upton Company purchased equipment on January 1 at a list price of $50,000, with credit terms 2/10,
n/30. Payment was made within the discount period and Upton was given a $1,000 cash discount. Upton
paid $2,500 sales tax on the equipment, and paid installation charges of $880. Prior to installation, Upton
paid $2,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new
equipment?
a. $52,380
b. $54,380
c. $55,380
d. $50,500
21.2. Depreciation is a process of
a. asset devaluation.
b. cost accumulation.
c. cost allocation.
d. asset valuation
21.3. In computing depreciation, salvage value is
a. the fair market value of a plant asset on the date of acquisition.


b. subtracted from accumulated depreciation to determine the plant asset's depreciable cost.
c. an estimate of a plant asset's value at the end of its useful life.
d. ignored in all the depreciation methods.
21.4. Equipment was purchased for $75,000. Freight charges amounted to $3,500 and there
was a cost of $10,000 for building a foundation and installing the equipment. It is
estimated that the equipment will have a $15,000 salvage value at the end of its 5-year
useful life. Depreciation expense each year using the straight-line method will be
a. $17,700.
b. $14,700.
c. $12,300.
d. $12,000.
21.5. Units-of-activity is an appropriate depreciation method to use when

a. it is impossible to determine the productivity of the asset.
b. the asset's use will be constant over its useful life.
c. the productivity of the asset varies significantly from one period to another.
d. the company is a manufacturing company.
21.6. The declining-balance method of depreciation produces
a. a decreasing depreciation expense each period.
b. an increasing depreciation expense each period.
c. a declining percentage rate each period.
d. a constant amount of depreciation expense each period.
21.7. The calculation of depreciation using the declining balance method,
a. ignores salvage value in determining the amount to which a constant rate is applied.
b. multiplies a constant percentage times the previous year's depreciation expense.
c. yields an increasing depreciation expense each period.
d. multiplies a declining percentage times a constant book value.
21.8. Management should select the depreciation method that
a. is easiest to apply.


b. best measures the plant asset's fair value over its useful life.
c. best measures the plant asset's contribution to revenue over its useful life.
d. has been used most often in the past by the company.
21.9. A change in the estimated useful life of equipment requires
a. a retroactive change in the amount of periodic depreciation recognized in previous years.
b. that no change be made in the periodic depreciation so that depreciation amounts are comparable over
the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and in future years.
d. that income for the current year be increased
22. A factory machine was purchased for $75,000 on January 1, 2008. It was estimated that it would have
a $15,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be
run 40,000 hours in the 5 years. The company ran the machine for 4,000 actual hours in 2008. If the

company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2008
would be
a. $7,500.
b. $12,000.
c. $15,000.
d. $6,000. (75000-15000):40000x4000
22.1. Wales plc applied revaluation accounting to equipment that is recorded on its books at $800,000, with
$100,000 of accumulated depreciation after depreciation for the year recorded. It has determined that the
asset is now worth $775,000. The entry to record the revaluation would include a:
a. credit to Equipment of $25,000
b. debit to Equipment of $75,000
c. credit to Accumulated Depreciation of $100,000
d. debit to Revaluation Surplus of $75,000
22.2. Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as
a. capital expenditures.
b. expense expenditures.
c. ordinary repairs.
d. revenue expenditures


22.3. Expenditures that maintain the operating efficiency and expected productive life of a plant asset are
generally
a. expensed when incurred.
b. capitalized as a part of the cost of the asset.
c. debited to the Accumulated Depreciation account.
d. not recorded until they become material in amount
22.4. If a plant asset is retired before it is fully depreciated and no salvage value is received,
a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. either a gain or a loss can occur.

d. neither a gain nor a loss occurs.
22.5. Lucky recorded a loss of $6,000 when it sold a machine that originally cost $56,000 for $10,000.
Accumulated depreciation on the machine must have been
a. $52,000.
b. $16,000.
c. $50,000.
d. $40,000.
22.6. On a statement of financial position, natural resources may be described more specifically as all of
the following except
a. land improvements.
b. mineral deposits.
c. oil reserves.
d. timberlands.
22.7. A coal company invests $16 million in a mine estimated to have 20 million tons of coal and no salvage
value. It is expected that the mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal
are extracted and sold. What is the depletion expense for the first year?
a. $800,000
b. $320,000
c. $80,000
d. Cannot be determined from the information provided.


22.8. Intangible assets are the rights and privileges that result from ownership of long-lived assets that
a. must be generated internally.
b. are depletable natural resources.
c. have been exchanged at a gain.
d. do not have physical substance
22.9. A patent should
a. be amortized over a period of 20 years.
b. not be amortized if it has an indefinite life.

c. be amortized over its useful life or 20 years, whichever is longer.
d. be amortized over its useful life or 20 years, whichever is shorter
23. A company purchased factory equipment for $250,000. It is estimated that the equipment will have a
$25,000 salvage value at the end of its estimated 5-year useful life. If the company uses the doubledeclining-balance method of depreciation, the amount of annual depreciation recorded for the second year
after purchase would be
a. $100,000.
b. $60,000.
c. $90,000.
d. $43,200.
23.1. The entry to record patent amortization usually includes a credit to
a. Amortization Expense.
b. Accumulated Amortization.
c. Accumulated Depreciation.
d. Patents.
23.2. Goodwill can be recorded
a. when customers keep returning because they are satisfied with the company’s products.
b. when the company acquires a good location for its business.
c. when the company has exceptional management.
d. only when there is an exchange transaction involving the purchase of an entire business.


23.3. On July 1, 2008, Marsh Company purchased the copyright to Parsons Computer tutorials for
$162,000. It is estimated that the copyright will have a useful life of 5 years with an estimated salvage value
of $12,000. The amount of Amortization Expense recognized for the year 2008 would be
a. $32,400.
b. $15,000.
c. $30,000.
d. $16,200
23.4. Copyrights are granted by the federal government
a. for the life of the creator or 70 years, whichever is longer.

b. for the life of the creator plus 70 years.
c. for the life of the creator or 70 years, whichever is shorter.
d. and therefore cannot be amortized.
23.5. All of the following intangible assets are amortized except
a. copyrights.
b. limited-life franchises.
c. patents.
d. trademarks
23.6. Which of the following costs incurred internally to create an intangible asset is generally expensed?
a. Research phase costs
b. Filing costs
c. Legal costs
d. All of the above
23.7. Which of the following costs would be capitalized?
a. Acquisition cost of equipment to be used on current and future research projects
b. Engineering costs incurred to advance the project to the full production stage
c. Cost incurred to file for patent
d. Cost of testing prototype before economic feasibility has been demo


24. On October 1, 2008, Dole Company places a new asset into service. The cost of the asset is $60,000
with an estimated 5-year life and $15,000 salvage value at the end of its useful life. What is the depreciation
expense for 2008 if Dole Company uses the straight-line method of depreciation?
a. $2,250
b. $12,000
c. $3,000
d. $6,000
25. On October 1, 2008, Dole Company places a new asset into service. The cost of the asset is $60,000
with an estimated 5-year life and $15,000 salvage value at the end of its useful life. What is the book value
of the plant asset on the December 31, 2008, statement of financial position assuming that Dole Company

uses the double-declining-balance method of depreciation?
a. $39,000
b. $45,000
c. $54,000 60000-(60000x40%x3/12)
d. $57,000
26. Jim's Copy Shop bought equipment for $90,000 on January 1, 2007. Jim estimated the
useful life to be 3 years with no salvage value, and the straight-line method of depreciation
will be used. On January 1, 2008, Jim decides that the business will use the equipment for
5 years. What is the revised depreciation expense for 2008?
a. $30,000
b. $12,000
c. $15,000
d. $22,500
27. Able Towing plc purchased a tow truck for $60,000 on January 1, 2015. It was originally depreciated
on a straight-line basis over 10 years with an assumed residual value of $12,000. On December 31, 2017,
before adjusting entries had been made, the company decided to change the remaining estimated life to 4
years (including 2017) and the residual value to $2,000. What was the depreciation expense for 2017?
a. 6,000
b. 4,800
c. 15,000
d. 12,100
28. A truck costing $110,000 was destroyed when its engine caught fire. At the date of the


fire, the accumulated depreciation on the truck was $50,000. An insurance check for
$125,000 was received based on the replacement cost of the truck. The entry to record
the insurance proceeds and the disposition of the truck will include a
a. Gain on Disposal of $15,000.
b. credit to the Truck account of $60,000.
c. credit to the Accumulated Depreciation account for $50,000.

d. Gain on Disposal of $65,000.
29. On July 1, 2008, Meed Kennels sold equipment for $66,000. The equipment originally
cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000.
The accumulated depreciation account had a balance of $105,000 on January 1, 2008,
using the straight-line method. The gain or loss on disposal is
a. $9,000 gain.
b. $6,000 loss.
c. $9,000 loss.
d. $6,000 gain.