KAT 301 EXAM 1 UPDATED QUESTIONS AND CORRECT
ANSWERS
Question:
1. A characteristic of a plant asset is that it is
A) intangible
B) used in the operation of a business
C) held for sale in the ordinary course of the business
D) not currently used in the business but held for fu-
ture use
Answer:
B) used in the operation of
a business
Question:
2. Which of the following assets does NOT decline in ser-vice potential over the course of its useful
life?
A) Equipment
B) Furnishing
C) Land
D) Fixture
Answer:
C) Land
Question:
3. Stories Company purchased equipment and these costs were incurred:
Cash price $22,500 Sales taxes 1,800 Insurance during transit 320 Installation and testing 430 Total
costs. $25,050 Stories will record the acquisition cost of the equip-ment as
A) $22,500 B) $24,300 C) $24,620 D) $25,050
Answer:
D) $25,050
Question:
4. All leases are classified as either
A) capital leases or long-term leases.
B) capital leases or operating leases.
C) operating leases or current leases.
D) long-term leases or current leases.
Answer:
B) capital leases or operat-
ing leases.
Question:
5. The cost of a long-term asset is expensed
A) when it is paid for.
B) as the asset benefits the company.
C) in the period in which it is acquired.
, D) in the period in which it is disposed of.
Answer:
B) as the asset benefits the
company
Question:
6. The book value of an asset is equal to the
A) asset's market value less its historical cost.
B) blue book value relied on by secondary markets.
C) replacement cost of the asset.
D) asset's cost less accumulated depreciation.
Answer:
D) asset's cost less accu-
mulated depreciation.
Question:
7. Recording depreciation each period is necessary in ac-cordance with the
A) going concern principle.
B) cost principle.
C) matching principle.
D) asset valuation principle.
Answer:
C) matching principle
Question:
8. The depreciation method that applies a constant per-centage to depreciable cost in calculating
depreciation is
A) straight-line.
B) units-of-activity.
C) sum-of-year's-digits.
D) none of these.
Answer:
A) straight-line.
Question:
9. Use the following to answer questions 9-11:
Brinkman Corporation bought equipment on January 1, 2007. The equipment cost $90,000 and had
an ex-pected salvage value of $15,000. The life of the equip-ment was estimated to be 6 years.
The depreciable cost of the equipment is
A) $90,000 B) $75,000 C) $50,000 D) $12,500
Answer:
B) $75,000
Question:
10. Use the following to answer questions 9-11:
Brinkman Corporation bought equipment on January 1, 2007. The equipment cost $90,000 and had
an ex-pected salvage value of $15,000. The life of the equip-ment was estimated to be 6 years.
The depreciation expense using the straight-line method of depreciation is
ANSWERS
Question:
1. A characteristic of a plant asset is that it is
A) intangible
B) used in the operation of a business
C) held for sale in the ordinary course of the business
D) not currently used in the business but held for fu-
ture use
Answer:
B) used in the operation of
a business
Question:
2. Which of the following assets does NOT decline in ser-vice potential over the course of its useful
life?
A) Equipment
B) Furnishing
C) Land
D) Fixture
Answer:
C) Land
Question:
3. Stories Company purchased equipment and these costs were incurred:
Cash price $22,500 Sales taxes 1,800 Insurance during transit 320 Installation and testing 430 Total
costs. $25,050 Stories will record the acquisition cost of the equip-ment as
A) $22,500 B) $24,300 C) $24,620 D) $25,050
Answer:
D) $25,050
Question:
4. All leases are classified as either
A) capital leases or long-term leases.
B) capital leases or operating leases.
C) operating leases or current leases.
D) long-term leases or current leases.
Answer:
B) capital leases or operat-
ing leases.
Question:
5. The cost of a long-term asset is expensed
A) when it is paid for.
B) as the asset benefits the company.
C) in the period in which it is acquired.
, D) in the period in which it is disposed of.
Answer:
B) as the asset benefits the
company
Question:
6. The book value of an asset is equal to the
A) asset's market value less its historical cost.
B) blue book value relied on by secondary markets.
C) replacement cost of the asset.
D) asset's cost less accumulated depreciation.
Answer:
D) asset's cost less accu-
mulated depreciation.
Question:
7. Recording depreciation each period is necessary in ac-cordance with the
A) going concern principle.
B) cost principle.
C) matching principle.
D) asset valuation principle.
Answer:
C) matching principle
Question:
8. The depreciation method that applies a constant per-centage to depreciable cost in calculating
depreciation is
A) straight-line.
B) units-of-activity.
C) sum-of-year's-digits.
D) none of these.
Answer:
A) straight-line.
Question:
9. Use the following to answer questions 9-11:
Brinkman Corporation bought equipment on January 1, 2007. The equipment cost $90,000 and had
an ex-pected salvage value of $15,000. The life of the equip-ment was estimated to be 6 years.
The depreciable cost of the equipment is
A) $90,000 B) $75,000 C) $50,000 D) $12,500
Answer:
B) $75,000
Question:
10. Use the following to answer questions 9-11:
Brinkman Corporation bought equipment on January 1, 2007. The equipment cost $90,000 and had
an ex-pected salvage value of $15,000. The life of the equip-ment was estimated to be 6 years.
The depreciation expense using the straight-line method of depreciation is
