Book 2 - Chapter 6

Multiple Choice
1.	d	All the names are used. In this book, we use “plant and equipment” most often.
2.	b	Note: Some textbooks do not use separate Depreciation Expense accounts. That is, all the depreciation expense is recorded in only one expense account called “Depreciation Expense.”
3.	a
4.	d	No such account! There is Depreciation Expense and there is Accumulated Depreciation. Be precise here.
5.	c	Total assets are decreased because the credit balance in Accumulated Depreciation increases. Net income is decreased because Depreciation Expense increases total expenses.
6.	d	Total assets would be overstated because accumulated depreciation would be too small. Net income would be overstated because total expenses would be understated—not enough depreciation expense.
7.	c
8.	a	(17,500 − 3,500 ) + 100,000 = 114,000
9.	b	The credit balance of the Accumulated Depreciation account offsets the debit balance in the asset account. This is called a contra-asset account.
10.	c	The most difficult situation in which to apply the matching principle is when some item must be allocated between two or more accounting periods and the item does not have an exactly predictable usage. This forces accountants to estimate the usage. The only item here that requires an estimate of usage (useful life) is item (c). Item (d) is the easiest because the transaction only affects one period.
11.	b
12.	c	($27,000/5) × 9/12 (the asset was owned for nine months in the fiscal year) = $4,050. Note: What the asset normally sells for is irrelevant. Only actual cost is used for depreciation.

Reinforcement Problems

LG 6-1. Accumulated depreciation is a contra asset account and has a normal credit balance. It appears
with the asset accounts on the balance sheet. Depreciation expense is an expense account and has a normal
debit balance. It appears with the expenses on the income statement.

LG 6-2. By using the Accumulated Depreciation account, credit entries in the asset account are
only for reductions or disposals of the asset. Secondly, the use of an Accumulated Depreciation
account allows us to quickly and easily see the total accumulated depreciation that has been
recorded for each plant and equipment asset (or group).


LG 6-3.	Depreciation Expense—Office Equipment	1,500
	Accumulated Depreciation—Office Equipment		1,500

Learning Goal 6

SOLUTIONS

Learning Goal 6: Depreciate Plant and Equipment Assets

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