Deck 9: Property, Plant and Equipment Intangibles

Question 1

Non-current assets are any liabilities that are used in the operations of a business.

Answer 1

False

Question 2

Because land has unlimited life, it is not subject to depreciation. Therefore, items that increase the usefulness of the land such as parking lots are also not depreciated.

Answer 2

False

Question 3

Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner over the asset's estimated useful life.

Answer 3

True

Question 4

Subsequent expenditures are purchases made after the acquisition of equipment to operate, maintain, repair, and improve it.

Question 5

Property, plant and equipment are assets held for sale.

Question 6

Revenue expenditures are additional costs of property, plant and equipment that provide material benefits extending beyond the current period.

Question 7

Non-current assets can be divided into two groups including tangible and intangible assets. These assets are generally used in operations of a business and have useful lives extending over more than one accounting period.

Question 8

To be charged to and reported as part of the cost of property, plant and equipment, an expenditure must be normal, reasonable, and necessary in preparing the asset for its intended use.

Question 9

The cost principle requires that an asset be recorded at the cash or cash equivalent amount given in exchange.

Question 10

Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements.

Question 11

The purchase of real estate that includes land, building, and land improvements is called a lump-sum purchase.

Question 12

Revenue expenditures are expenditures to keep assets in normal operating condition.

Question 13

Residual value is an estimate of an asset's value at the end of its useful life.

Question 14

Inadequacy refers to the condition where the capacity of a property, plant and equipment item is too small to meet the company's productive demands.

Question 15

SportsWorld spent $17,000 to remodel its store. This cost will be recognized with a debit to Store Building.

Question 16

The cost of an asset includes all normal and reasonable expenditures necessary to get it in place and ready for its intended use.

Question 17

Capital expenditures are also called balance sheet expenditures.

Question 18

Land purchased as a building site is a tangible asset called property, plant and equipment and is classified under the "Long-term Investments" section on the balance sheet.

Question 19

If a machine is damaged during unpacking, the repairs are added to its cost.

Question 20

Any expenditures for legal fees, surveying, and accrued property taxes should not be included in the cost of land.

Question 21

SportsWorld purchased store equipment for $65,000. The equipment has an estimated residual value of $6,000, with an estimated useful life of 10 years. The annual depreciation using the straight-line method will be $3,900 per year.

Question 22

The most frequently used method of depreciation is the straight-line method.

Question 23

The half year rule is the partial-year depreciation method that calculates depreciation by determining if the asset was used for more than half of the month.

Question 24

A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year, if the fiscal year ends on December 31 using nearest whole month method.

Question 25

The Income Tax Act requires that companies use a declining-balance method for calculating the maximum capital cost allowance that may be claimed in any period

Question 26

Depreciation measures the decline in market value of an asset.

Question 27

The cost of an asset plus its accumulated depreciation equals the asset's book value.

Question 28

Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced.

Question 29

Companies are required to use the straight-line depreciation method for tax purposes because this method yields the lowest depreciation expense and results in the highest payment of tax.

Question 30

Financial accounting and tax accounting require the same recordkeeping; therefore, there should be no difference in results between the two accounting systems.

Question 31

The double-declining balance method is applied by (1) calculating the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting residual value from cost, and (4) multiplying the rate times the cost.

Question 32

The full disclosure principle allows us to record an asset costing $50 as a revenue expenditure

Question 33

The units of production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Question 34

On the balance sheet, it is not necessary to report both the cost and the accumulated depreciation of an asset.

Question 35

Because depreciation is based on predictions of residual value and useful life, depreciation is an estimate.

Question 36

Depreciation should always be recorded as soon as an asset is purchased.

Question 37

A company is required to purchase all assets at the beginning of an accounting period so that a full year's worth of depreciation can be taken.

Question 38

Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on June 28. Using the nearest whole month method, the company would recognize $11,250 for depreciation expense at the end of the first year, December 31.

Question 39

Regardless of the method of depreciation, total depreciation expense will be the same over an asset's useful life.

Question 40

An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's life and larger charges in later years.

Question 41

The gain or loss from disposal of property, plant and equipment is the difference between an asset's book value and the value received.

Question 42

An asset with a current book value of $5,000 has a current market value of $2,000. The company should recognize an impairment loss of $3,000.

Question 43

Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets.

Question 44

At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation of the plant asset to the date of disposal.

Question 45

When assigning values to an exchange of assets you should always use the fair value of the asset received.

Question 46

Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or because of subsequent revenue expenditures.

Question 47

Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or economic life.

Question 48

Machinery after two years worth of depreciation has an opening book value of $6,400. At the beginning of the third year, the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400. The revised annual depreciation using the straight-line method is $1,500.

Question 49

A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device, or to use a process, for a specified period of time.

Question 50

If the book value of a property, plant and equipment item is less than the amount to be recovered through the asset's use or sale, the difference is an impairment loss and the asset is described as impaired.

Question 51

When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record the removal of the asset is called exchanging the equipment.

Question 52

The first step in accounting for the disposal of property, plant and equipment is calculating the gain or loss on disposal.

Question 53

Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset.

Question 54

An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a residual value of $400. Using the straight-line method, the revised depreciation will be $500 per year.

Question 55

Impairment losses must be assessed by companies on an annual basis.

Question 56

When assigning values to an exchange of assets you should use the fair value of the asset given up.

Question 57

Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological, economic, or legal factors.

Question 58

Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000. The company should recognize a $1,000 loss on disposal of the equipment.

Question 59

When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for current and future periods must be calculated and adjusted.

Question 60

Amortization is the process of allocating the cost of intangibles over their estimated useful life.

Question 61

JoyCo acquired equipment on April 1, 2022, at a cost of $90,000 and with an estimated useful life of 10 years. The machine has a residual value of $10,000. JoyCo uses the double-declining-balance method of depreciation. How much depreciation should be recorded by JoyCo for the year ended December 31, 2022?

A) $8,000
B) $9,000
C) $10,000
D) $13,500
E) $12,000

Question 62

On January 1 of this year, SportsWorld purchased a new cash register for $5,400. This register has a useful life of 10 years and a residual value of $400. Using the double-declining-balance method, how much depreciation expense should SportsWorld recognize for next year?

A) $500
B) $540
C) $1,000
D) $864
E) $1,080

Question 63

Goodwill is written down to its fair value if the fair value is less than its carrying value.

Question 64

Intangible assets provide rights, privileges, and competitive advantages to the owner, are used in operations, and have no physical substance.

Question 65

At the end of the year, SportsWorld completed an asset impairment test and noted that a piece of equipment, with a book value of 12,000, has a recoverable value of $2,000. Calculate the amount of impairment loss on the equipment.

A) $2,000
B) $2,160
C) $14,800
D) $12,800
E) $10,000

Question 66

Sports Med sold an X-ray machine that originally cost $100,000 for $60,000. The accumulated depreciation on the machine to the date of sale was $40,000. On this sale, Sports Med should recognize:

A) $0 gain or loss
B) $20,000 gain
C) $25,000 gain
D) $40,000 loss
E) $60,000 gain

Question 67

SportsWorld purchased property for a building site. The costs associated with the property were: $$\begin{array} { | l | r | } \hline \text { Purchase Price } & \$ 175,000 \\\hline \text { Real Estate Commissions } & \$ 15,000 \\\hline \text { Legal Fees } & \$ 800 \\\hline \text { Expense of clearimg land } & \$ 2,000 \\\hline \text { Expense to remove old building } & \$ 1,000 \\\hline\end{array}$$ What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

A) $150,000 to Land; $18,800 to Building
B) $190,000 to Land; $3,800 to Building
C) $190,800 to Land; $3,000 to Building
D) $192,800 to Land; $1,000 to Building
E) $193,800 to Land; $0 to Building

Question 68

The impairment of goodwill appears directly on the statement of changes in equity and not on the income statement.

Question 69

Goodwill is depreciated over its useful life as estimated by the business's management.

Question 70

SportsWorld purchased equipment costing $10,000. The equipment has a residual value of $1,000, and an estimated useful life of 5 years or 36,000 shoes. Actual units produced during the year were 7,000 units. Calculate annual depreciation using the straight line method.

A) $1,800
B) $4,000
C) $1,450
D) $2,000
E) $1,750

Question 71

Goodwill is an intangible asset.

Question 72

Creek Construction purchased a machine for $26,000. It traded in an old machine and received a $4,200 trade-in allowance. The old machine cost $24,000 and had accumulated depreciation of $16,000 to the date of trade-in. At what value should be new asset be recorded?

A) $21,800
B) $24,000
C) $26,000
D) $29,800
E) $30,200

Question 73

Goodwill is not depreciated or amortized but is instead decreased only if its value has been determined by management to be impaired.

Question 74

SportsWorld bought a new display case for $12,000 and was given a trade-in of $2,000 on an old display case. The old case had an original cost of $7,000 and accumulated depreciation of $4,000 to the date of trade-in. SportsWorld should record the new display case at:

A) $10,000
B) $10,500
C) $11,500
D) $11,700
E) $12,000

Question 75

On October 1 of this year, SportsWorld purchased a delivery van for $23,000 with a residual value of $3,000. The van has an estimated useful life of 5 years. Using straight-line depreciation and the half-year rule, how much depreciation expense should SportsWorld recognize on December 31 of this year?

A) $1,000
B) $1,333
C) $1,465
D) $2,000
E) $4,600

Question 76

SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a salvage value of $2,000, and a five-year service life. At the end of the first year, an impairment loss of $2,000 was recognized on the asset. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life.

A) $1,500
B) $1,600
C) $2,500
D) $1,800
E) $2,000

Question 77

A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 20 years.

Question 78

SportsWorld purchased a machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. SportsWorld estimates that the machine could produce 750,000 units of product over its useful life. In the first year, 95,000 units were produced. In the second year, production increased to 111,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year?

A) $26,640
B) $22,800
C) $28,000
D) $36,000
E) $49,440

Question 79

The cost of developing, maintaining, or enhancing the value of a trademark is capitalized, or added to the value of the asset when incurred.

Question 80

SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a trade-in value of $2,000, and a five-year service life. At the end of the third year, the trade-in value was revised to $1,200 and the useful life increased to a total of 6 years. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life.

A) $1,000
B) $1,467
C) $1,800
D) $1,600
E) $2,160