INTERMEDIATE FINANCIAL ACCOUNTING II

Part I. Multiple-choice type questions (1 point each)

Select the correct answer from the given alternatives and write the letter of the answer on the space provided to you.
_____1 PPE have three important features that distinguish them from other types of assets. What are they?
A. They have long lives, used in operations, and have physical substance
B. They are used in operations and have a useful life of more than one accounting period
C. They have long lives, used in operations and are expensive
D. They are tangible, have physical substance, and have a market value
E. They are used in operations, have long lives and have no physical substance
_____2 A business acquired land and two buildings for a single, lump-sum purchase price of $600,000. The
land was assessed at $220,000 and the buildings at $100,000 and $80,000, respectively, for a total
assessed value of $400,000. The land would be recorded at which cost?
A. $600,000
B. $330,000
C. $300,000
D. $220,000
E. None of the above
_____3 Which depreciation method does not use the salvage value in computing depreciation expense for the
first year?
A. Straight-line
B. Units of Production
C. Declining Balance
D. A and C
E. None of the above
_____4 An asset having a four-year service life and a salvage value of $15,000 was acquired for $135,000
cash on June 28. What will be the depreciation expense at the end of the first year, December 31?
A. $30,000, using the straight-line method
B. $67,500, using the declining-balance method
C. $21,000, using the straight-line method
D. $33,750, using the declining-balance method
E. None of the above
_____5 An asset having a four-year service life and a salvage value of $15,000 was acquired for $135,000
cash on January 2 of Year One. What will be the depreciation expense for Year 2, ending December
31?
A. $33,750, under the declining-balance method
B. $15,000, under the straight-line method
C. $33,750, under the straight-line method
D. $67,500, under the declining-balance method
E. None of the above
_____6 An asset having a four-year service life and a salvage value of $15,000 was acquired for $135,000
cash on April 5. Using straight-line depreciation, what will be the depreciation expense at the end of
the first year, December 31?
A. $30,000
B. $67,500
C. $15,000
D. $33,750
E. None of the above
_____7 Which of the following is expenditure whose economic benefits fully expire by the end of the period
in which the expenditure is made?
A. Revenue expenditure
1
 B. Balance sheet expenditure
C. Long-term expenditure
D. Capital expenditure
E. Expenditure for a new building
_____8 The cost of equipment was $45,600. The accumulated depreciation is $45,600. The equipment was
taken to a local disposal site and discarded. Which of the following is correct?
A. There was a gain on disposal of $1,500.
B. There was no gain or loss on disposal.
C. There was a loss on disposal of $1,500.
D. There was a gain on disposal of $1,500.
E. There was a loss on disposal of $44,100.
_____9 The cost of equipment was $22,800. The carrying value of the equipment is $750. The equipment is
sold for $900. Which of the following is correct?
A. There was a loss on disposal of $22,050.
B. There was a loss on disposal of $150.
C. There was a gain on disposal of $150.
D. There was a gain on disposal of $900.
E. None of the above.
_____10 A unit of equipment with a cost of $710,000 and accumulated depreciation of $641,000 was sold for
$57,000. The journal entry to record the sale of this equipment would include all except which of the
following?
A. Loss on Disposal of Equipment, debit, $12,000
B. Gain on Disposal of Assets, credit, $12,000
C. Equipment, credit, $710,000
D. Cash, debit, $57,000
E. Accumulated Depreciation, Equipment, debit, $641,000
_____11 The Ophir Mining Company acquired an iron ore deposit for $6,000,000. The company's geologist
estimated the deposit to contain 7,500,000 tons of iron ore. At the end of the first year, 900,000 tons
had been extracted. The end-of-year journal entry to record the depletion of the iron ore would require
which of the following?
A. A credit to Iron Ore Deposit of $900,000
B. A debit to Depletion Expense of $900,000
C. A credit to Accumulated Depletion of $720,000
D. A debit to Accumulated Depletion of $720,000
E. None of the following
_____12 The Ophir Mining Company acquired an iron ore deposit for $6,000,000. The company's geologist
estimated the deposit to contain 7,500,000 tons of iron ore. Extracting equipment with a 6-year service
life and costing $850,000 was installed in the mine. At the end of the first year, 900,000 tons had been
extracted. The end-of-year journal entry to record the depreciation of the extracting equipment would
require which of the following?
A. A credit to Accumulated Depreciation of $102,000
B. A debit to Accumulated Depletion of $102,000
C. A credit to Depreciation Expense of $102,000
D. A debit to Depletion Expense of $720,000
E. None of the above
_____13 A business paid Birr120, 000 for two machines valued at current fair value of Birr90, 000 and Birr60,
000, respectively. The business will record these machines at:
A. Birr90,000 and Birr60,000
B. Birr72,000 and Birr48,000
C. Birr60,000 each
2
 D. Birr70,000 and Birr50,000
_____14 Which of the following definitions fits depreciation?
A. Allocation of the asset's fair value to expense over its useful life
B. Allocation of the asset's cost to expense over its useful life
C. Decrease in the asset's market value over its useful life
D. Increase in the fund set aside to replace the asset when it is worn out
_____15 Which depreciation method's amounts are not computed on the basis of time?
A. Straight-line
B. Double-declining balance
C. Units of production
D. Sum- of-the years digits
_____16 Which depreciation method gives the largest amount of expense in the early years of using the asset
and therefore is mostly best for income tax purpose?
A. Straight line
B. Accelerated
C. Units of production
D. All are equal
_____17 A company paid Birr450,000 for a building and depreciated it by the straight line method over a 40-
year life with estimated residual value of Birr50,000. After 10 years, it became evident that the
building's remaining useful life would be 40 years. Depreciation for the eleventh year is:
A. Birr7, 500
B. Birr10, 000
C. Birr8, 750
D. Birr12, 500
_____18 Which of the following items is revenue expenditure?
A. Property tax paid on the land one year after it is acquired
B. Survey fee paid during the acquisition of the land
C. Legal fee paid to acquire the land
D. Building permit paid to construct a warehouse on the land
_____19 Which of the following is not considered as part of cost of a new machine?
A. Freight cost
B. Insurance cost for machine while in shipment
C. Maintenance cost to adjust the machine
D. Cost of installing the machine
_____20 Land and building are purchased for Birr 150,000. Assuming the land is appraised at Birr 45,000 and
the building at Birr 135,000, the cost of the land is:
A. Birr 150,000
B. Birr 135,000
C. Birr 45,000
D. Birr 37,500
_____21 One of the following statements is wrong about disposal of plant asset by selling
A. No gain should be recognized on disposal of plant Asset by selling
B. When selling price of the disposed asset is less than its carrying value, loss is recognized.
C. Gain is recognized when the selling price of the asset exceeds its carrying value.
D. All of the above
_____22 Amortization is computed in the same manner of which depreciation method?
A. Straight line
B. Double declining balance
C. Units of production
D. Sum of years digits
3
_____23 Which of the following payments is Not included in the cost of land?
A. Removal of old building
B. Back property taxes paid
C. Legal fees
D. Cost of fencing and lighting with limited economic life
_____24 Which depreciation method does not use the salvage value in computing depreciation expense for the
first year?
F. Straight-line
G. Units of Production
H. Declining Balance
I. A and C
J. None of the above
_____25 An asset having a four-year service life and a salvage value of $15,000 was acquired for $135,000
cash on June 28. What will be the depreciation expense at the end of the first year, December 31?
F. $30,000, using the straight-line method
G. $67,500, using the declining-balance method
H. $21,000, using the straight-line method
I. $33,750, using the declining-balance method
J. None of the above
_____26 An asset having a four-year service life and a salvage value of $15,000 was acquired for $135,000
cash on January 2 of Year One. What will be the depreciation expense for Year 2, ending December
31?
F. $33,750, under the declining-balance method
G. $15,000, under the straight-line method
H. $33,750, under the straight-line method
I. $67,500, under the declining-balance method
J. None of the above
_____27 An asset having a four-year service life and a salvage value of $15,000 was acquired for $135,000
cash on April 5. Using straight-line depreciation, what will be the depreciation expense at the end of
the first year, December 31?
F. $30,000
G. $67,500
H. $15,000
I. $33,750
J. None of the above
_____28 The cost of equipment was $45,600. The accumulated depreciation is $45,600. The equipment was
taken to a local disposal site and discarded. Which of the following is correct?
F. There was a gain on disposal of $1,500.
G. There was no gain or loss on disposal.
H. There was a loss on disposal of $1,500.
I. There was a gain on disposal of $1,500.
J. There was a loss on disposal of $44,100.
_____29 The cost of equipment was $22,800. The carrying value of the equipment is $750. The equipment is
sold for $900. Which of the following is correct?
F. There was a loss on disposal of $22,050.
G. There was a loss on disposal of $150.
4
 H. There was a gain on disposal of $150.
I. There was a gain on disposal of $900.
J. None of the above.
_____30 A unit of equipment with a cost of $710,000 and accumulated depreciation of $641,000 was sold for
$57,000. The journal entry to record the sale of this equipment would include all except which of the
following?
F. Loss on Disposal of Equipment, debit, $12,000
G. Gain on Disposal of Assets, credit, $12,000
H. Equipment, credit, $710,000
I. Cash, debit, $57,000
J. Accumulated Depreciation, Equipment, debit, $641,000
_____31 The Ophir Mining Company acquired an iron ore deposit for $6,000,000. The company's geologist
estimated the deposit to contain 7,500,000 tons of iron ore. At the end of the first year, 900,000 tons
had been extracted. The end-of-year journal entry to record the depletion of the iron ore would require
which of the following?
F. A credit to Iron Ore Deposit of $900,000
G. A debit to Depletion Expense of $900,000
H. A credit to Accumulated Depletion of $720,000
I. A debit to Accumulated Depletion of $720,000
J. None of the following
_____32 The Ophir Mining Company acquired an iron ore deposit for $6,000,000. The company's geologist
estimated the deposit to contain 7,500,000 tons of iron ore. Extracting equipment with a 6-year service
life and costing $850,000 was installed in the mine. At the end of the first year, 900,000 tons had been
extracted. The end-of-year journal entry to record the depreciation of the extracting equipment would
require which of the following?
F. A credit to Accumulated Depreciation of $102,000
G. A debit to Accumulated Depletion of $102,000
H. A credit to Depreciation Expense of $102,000
I. A debit to Depletion Expense of $720,000
J. None of the above
_____33 Which of the following definitions fits depreciation?
E. Allocation of the asset's fair value to expense over its useful life
F. Allocation of the asset's cost to expense over its useful life
G. Decrease in the asset's market value over its useful life
H. Increase in the fund set aside to replace the asset when it is worn out
_____34 Which depreciation method's amounts are not computed on the basis of time?
E. Straight-line
F. Double-declining balance
G. Units of production
H. Sum- of-the years digits
_____35 Which depreciation method gives the largest amount of expense in the early years of using the asset
and therefore is mostly best for income tax purpose?
E. Straight line
F. Accelerated
G. Units of production

5
 H. All are equal
_____36 A company paid Birr450,000 for a building and depreciated it by the straight line method over a 40-
year life with estimated residual value of Birr50,000. After 10 years, it became evident that the
building's remaining useful life would be 40 years. Depreciation for the eleventh year is:
E. Birr7, 500
F. Birr10, 000
G. Birr8, 750
H. Birr12, 500
_____37 One of the following statements is wrong about disposal of plant asset by selling
E. No gain should be recognized on disposal of plant Asset by selling
F. When selling price of the disposed asset is less than its carrying value, loss is recognized.
G. Gain is recognized when the selling price of the asset exceeds its carrying value.
H. All of the above
_____38 Amortization is computed in the same manner of which depreciation method?
E. Straight line
F. Double declining balance
G. Units of production
H. Sum of years digits
_____39 ABC Company sells to XY including the 10% sales tax rate Birr 10,000. What is the amount of sales
tax payable recognized or recorded by ABC?
A. Br. 1,000
B. Br. 900
C. Br. 909
D. Br.9,000
E. None of the above
_____40 A typical provision is:
A. Onerous contracts
B. Income tax payable
C. Pension payable
D. Account payable
E. None of the above
_____41 Which of the following is not part of current liabilities?
A. Unearned revenue
B. Dividend payable
C. Warranty revenue
D. Environmental liability
_____42 A service type warranty is usually recorded during sells as:
A. Debiting warranty expense and crediting warranty liability
B. Debiting earned service revenue and crediting unearned service revenue
C. Debiting cash and crediting unearned warranty liability
D. Debiting cash and crediting service warranty revenue
E. None of the above
_____43 Which of the following methods of amortization is normally used for intangible assets?
A. Sum-of-the-years'-digits
B. Straight-line
6
 C. Units of production
D. Double-declining-balance
_____44 Which of the following is not an intangible asset?
A. Trade name
B. Research and development costs
C. Franchise
D. Copyrights
_____45 The intangible asset goodwill may be
A. Capitalized only when purchased.
B. Capitalized either when purchased or created internally.
C. Capitalized only when created internally.
D. Written off directly to retained earnings.
_____46 R- Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2006. It has a useful
life of 10 years. What will be the amount of amortization expense that should be recorded on the
intangible asset on December 31, 2008?
A. $ -0-.
B. $36,000
C. $48,000
D. $18,000
E. None of the above