accounting for managerial decisions
Topic 5 Homework Questions – Solution
1. Resources that are used in operations for more than one year with no physical
substance are called:
a. current assets
b. intangible assets
c. non-current assets
d. property, plant and equipment
2. Able Company purchased land and incurred the following costs:
Purchase price $1 000 000
Excavation costs 100 000
Removing old building 25 000
Broker fees 20 000
Cost of a parking lot 50 000
What is the cost of the land?
a. $1 100 000
b. $1 195 000
c. $1 145 000
d. $1 125 000
3. Which of the following costs related to the purchase of production equipment
incurred by ABC Company during 2013 would be considered an expense (revenue
expenditure)?
a. Installation costs for equipment
b. Purchase price of the equipment less the cash discount
c. Repair and maintenance costs during the equipment 's first year of service
d. Transportation charges to deliver the equipment to ABC Company
4. Clear Window Cleaners purchased new cleaning equipment at the beginning of
2013. The equipment has a cost of $37 000, an estimated life of five years, and an
estimated residual value of $7 000. A full year 's depreciation expense is to be
recorded in 2013. The equipment was used 20 000 hours during 2013 and 24 000
hours during 2014. The number of expected hours over five years is 100 000.
Clear Window is comparing the straight-line and reducing-balance depreciation methods. Of
these two methods, which method creates the larger expense and larger tax savings in 2013?
a. Straight-line depreciation creates the larger expense, while reducing-balance
depreciation creates the larger tax savings
b. Straight-line depreciation creates both the larger expense and the larger tax savings
c. Reducing-balance depreciation creates both the larger expense and the larger tax savings
d. Reducing-balance depreciation creates the larger
1. Resources that are used in operations for more than one year with no physical
substance are called:
a. current assets
b. intangible assets
c. non-current assets
d. property, plant and equipment
2. Able Company purchased land and incurred the following costs:
Purchase price $1 000 000
Excavation costs 100 000
Removing old building 25 000
Broker fees 20 000
Cost of a parking lot 50 000
What is the cost of the land?
a. $1 100 000
b. $1 195 000
c. $1 145 000
d. $1 125 000
3. Which of the following costs related to the purchase of production equipment
incurred by ABC Company during 2013 would be considered an expense (revenue
expenditure)?
a. Installation costs for equipment
b. Purchase price of the equipment less the cash discount
c. Repair and maintenance costs during the equipment 's first year of service
d. Transportation charges to deliver the equipment to ABC Company
4. Clear Window Cleaners purchased new cleaning equipment at the beginning of
2013. The equipment has a cost of $37 000, an estimated life of five years, and an
estimated residual value of $7 000. A full year 's depreciation expense is to be
recorded in 2013. The equipment was used 20 000 hours during 2013 and 24 000
hours during 2014. The number of expected hours over five years is 100 000.
Clear Window is comparing the straight-line and reducing-balance depreciation methods. Of
these two methods, which method creates the larger expense and larger tax savings in 2013?
a. Straight-line depreciation creates the larger expense, while reducing-balance
depreciation creates the larger tax savings
b. Straight-line depreciation creates both the larger expense and the larger tax savings
c. Reducing-balance depreciation creates both the larger expense and the larger tax savings
d. Reducing-balance depreciation creates the larger