2102 Practice Exam 2 fall07 key
2102 Practice Exam 2
Spring 2007
Name: _________________________________
1. Sally Inc. has shelving that cost $70,000 a few years ago. The current book value (carrying value) is $15,000. They are thinking of selling the shelving in order to renovate the store. If they sell, they expect to receive $14,000 for the shelving. Which of these is TRUE about the shelving?
a. The accumulated depreciation at the point of sale will be $41,000.
b. The gain on sale of shelving will be $1,000.
c. The entry to record the sale will debit the accumulated depreciation account by $55,000.
d. The asset received is a $1,000 more than the asset removed.
Disposal: Compare book value ($15,000) to proceeds ($14,000) to see you have a loss on disposal (cash received was less than book value of assets given up). Entry to record:
Cash $14,000
Loss on disposal $ 1,000
Accum Deprec $55,000 Asset $70,000
2. Wendy rebuilt her equipment with an original cost of $14,000 (no salvage expected) at the end of the third year of a seven year estimated life. Sally uses the straight-line depreciation method. The rebuilding cost $1,600 and changes estimated salvage to $1,000 (no change in life). What is the depreciation in year 4?
a. $2,867
b. $1,371
c. $2,150
d. $2,400
First, get book value (carrying value) at time of renovation: 14,000 / 7=$2,000 per year x 3 years = carrying value of $14,000 – 6,000 = $8,000. Add cost of renovation to cost and that changes carrying value to $9,600. Revised depreciation: 9,600 – 1,000 / 4 years remaining = $2,150.
3. Valley Inc. purchased three home sites for $600,000. The estimated value of the sites was $180,000 for the lower lot, $210,000 for the upper lot and $260,000 for the corner lot. What is the cost of the upper lot?
a. $166,154
b. $193,846
c. $240,000
d. $210,000
$180,000 + $210,000 + $260,000 = $650,000 total value
210,000 / 650,000 x 600,000 = 193,846.
4. Grommit Inc. sold an asset originally costing
Spring 2007
Name: _________________________________
1. Sally Inc. has shelving that cost $70,000 a few years ago. The current book value (carrying value) is $15,000. They are thinking of selling the shelving in order to renovate the store. If they sell, they expect to receive $14,000 for the shelving. Which of these is TRUE about the shelving?
a. The accumulated depreciation at the point of sale will be $41,000.
b. The gain on sale of shelving will be $1,000.
c. The entry to record the sale will debit the accumulated depreciation account by $55,000.
d. The asset received is a $1,000 more than the asset removed.
Disposal: Compare book value ($15,000) to proceeds ($14,000) to see you have a loss on disposal (cash received was less than book value of assets given up). Entry to record:
Cash $14,000
Loss on disposal $ 1,000
Accum Deprec $55,000 Asset $70,000
2. Wendy rebuilt her equipment with an original cost of $14,000 (no salvage expected) at the end of the third year of a seven year estimated life. Sally uses the straight-line depreciation method. The rebuilding cost $1,600 and changes estimated salvage to $1,000 (no change in life). What is the depreciation in year 4?
a. $2,867
b. $1,371
c. $2,150
d. $2,400
First, get book value (carrying value) at time of renovation: 14,000 / 7=$2,000 per year x 3 years = carrying value of $14,000 – 6,000 = $8,000. Add cost of renovation to cost and that changes carrying value to $9,600. Revised depreciation: 9,600 – 1,000 / 4 years remaining = $2,150.
3. Valley Inc. purchased three home sites for $600,000. The estimated value of the sites was $180,000 for the lower lot, $210,000 for the upper lot and $260,000 for the corner lot. What is the cost of the upper lot?
a. $166,154
b. $193,846
c. $240,000
d. $210,000
$180,000 + $210,000 + $260,000 = $650,000 total value
210,000 / 650,000 x 600,000 = 193,846.
4. Grommit Inc. sold an asset originally costing