Question

Use the following information for questions 21 through 24.

On January 2, 2018, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2019. Expenditures for the construction were as follows: January 2, 2018 £200,000 September 1, 2018 600,000 December 31, 2018 600,000 March 31, 2019 600,000 September 30, 2019 400,000 Indian River Groves borrowed £1,100,000 on a construction loan at 12% interest on January 2, 2018. This loan was outstanding during the construction period. The company also had £4,000,000 in 9% bonds outstanding in 2018 and 2019.

21. What were the weighted-average accumulated expenditures for 2018? a. £533,333 b. £500,000 c. £400,000 d. £1,000,000
22. The interest capitalized for 2018 was: a. £180,000 b. £48,000 c. £192,000 d. £60,000

23. What were the weighted-average accumulated expenditures for 2019 by the end of the construction period? a. £390,000 b. £1,635,000 c. £1,986,000 d. £1,386,000

24. The interest capitalized for 2019 was: a. £124,740 b. £118,305 c. £ 25,740 d. £ 99,000

25. Which of the following is true of depreciation accounting? a. It is not a matter of valuation. b. It is part of the matching of revenues and expenses. c. It retains funds by reducing income taxes and dividends. d. All of these answer choices are correct.

26. Which of the following most accurately reflects the concept of depreciation as used in accounting? a. The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred. b. The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. c. A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved. d. An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets.

27. Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be computed? a. What depreciable base is to be used for the asset? b. What is the asset's useful life? c. What method of cost apportionment is best for this asset? d. What product or service is the asset related to?

28. Use of the double-declining balance method a. results in a decreasing charge to depreciation expense. b. means residual value is not deducted in computing the depreciation base. c. means the book value should not be reduced below residual value. d. All of these answer choices are correct.

29. A change in estimate should a. result in restatement of prior period statements. b. be handled in current and future periods. c. be handled in future periods only. d. be handled retroactively.

30. A plant asset has a cost of £24,000 and a residual value of £6,000. The asset has a three-year life. If depreciation in the third year amounted to £3,000, which depreciation method was used? a. Straight-line b. Declining-balance c. Sum-of-the-years'-digits d. Cannot tell from information given

31. Lloyd Company purchased a depreciable asset for £1,360,000. The estimated salvage value is £360,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? a. £125,000 b. £170,000 c. £187,000 d. £255,000

Answer 1

Date	Amt of expenditure	No. of months	Weighted avg exp
Jan 2 2018	200000	12/12	200000
Sep 1 2018	600000	4/12	200000
31-Dec	600000	0	0
	1400000	Total	400000
ans 21 Option C 400000
ans 22
Interest capitalized
400000*12%	48000
Option B f48000
ans 23
Date	Amt of expenditure	No. of months	Weighted avg exp
Jan 1 2019	1448000	9/12	1086000
Mar 31 2019	600000	6/12	300000
Sep 30 2019	400000	0	0
	2448000	Total	1386000
Option D 1386000
ans 27 d. What product or service is the asset related to
ans 28 d. All of these answer choices are correct.
ans 29 b. be handled in current and future periods.
ans 3c. Sum-of-the-years'-digits
ans 31		Dep exp
First year 1360000*25%		340000
Second year (1360000-340000)*.25		255000
DDb rate=1/8*200%		0.25
Option D 255000
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