Deck 9: Reporting and Analyzing Long-Lived Assets

Question 1

All property, plant, and equipment must be depreciated for accounting purposes.

Answer 1

False

Question 2

The carrying amount of property, plant, and equipment is always equal to its fair value.

Answer 2

False

Question 3

Explain and calculate depreciation.

Answer 3

Depreciation is the process of allocating the cost of a long-lived asset over the asset's useful (service) life in a systematic way.There are three commonly used depreciation methods: straight-line, diminishing-balance, and units-of-production.

Question 4

Leasehold improvements are depreciated over the remaining life of the lease or the useful life of the improvements, whichever is longer.

Question 5

Account for the derecognition of property, plant, and equipment.

Question 6

Illustrate how long-lived assets are reported in the financial statements.

Question 7

Under a finance lease, both the leased asset and the related lease obligation are shown on the statement of financial position.

Question 8

Land improvements are generally debited to the Land account.

Question 9

Describe the methods for evaluating the use of assets.

Question 10

When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.

Question 11

The depreciable amount of property, plant, and equipment is its original cost minus the depreciation for the current year.

Question 12

If land is purchased with a building on it that is to be demolished, proceeds from any salvaged materials are reported in the Other Revenues and Expenses section of the income statement.

Question 13

In calculating depreciation, cost, useful life, and residual value are all based on estimates.

Question 14

Under an operating lease, both the leased asset and the related lease obligation are shown on the statement of financial position.

Question 15

When purchasing a delivery truck, the cost of painting the company logo on the side should be debited to the Vehicles account.

Question 16

Asset retirement costs are added to the cost of a depreciable asset.

Question 17

Determine the cost of property, plant, and equipment.

Question 18

Recording depreciation on equipment affects both the statement of financial position and the income statement.

Question 19

The Accumulated Depreciation account represents a cash fund available to replace property, plant, and equipment.

Question 20

Identify the basic accounting issues for intangible assets and goodwill.

Question 21

When a company has a piece of property, plant, or equipment which has different components that depreciate at different rates, the total cost should be allocated to each component and each component should be depreciated separately.

Question 22

An item of property, plant, and equipment is considered to be impaired if its carrying amount exceeds its recoverable amount.

Question 23

Using the units-of-production method of depreciation for equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Question 24

The cost of a patent should be amortized over its legal life or useful life, whichever is shorter.

Question 25

Using the diminishing-balance method results in higher expense in the early years, and therefore lower profit.

Question 26

The carrying amount of an asset is the original cost less anticipated residual value.

Question 27

A loss on disposal results if the cash proceeds received from the asset sale are less than the asset's carrying amount.

Question 28

Canada Revenue Agency requires a company to use the same depreciation method on its income tax return that is used in preparing financial statements.

Question 29

Intangible assets involve rights, privileges, and/or competitive advantages that result from ownership of identifiable assets that do not possess physical substance.

Question 30

Carrying amount is used in determining the amount that the diminishing-balance rate is applied to.

Question 31

When a change in estimate is made, there is no correction of previously recorded depreciation expense.

Question 32

Normally, businesses only dispose of property, plant, and equipment by either sale or exchange.

Question 33

A tangible asset must be fully depreciated before it can be removed from the books.

Question 34

If an acquired franchise or licence is for an indefinite time period, then the cost of the asset should not be amortized.

Question 35

When an asset is retired, a gain or loss must be recorded.

Question 36

If the proceeds from the sale of equipment exceed its carrying amount, a gain on disposal is reported.

Question 37

When an impairment loss is recorded for a depreciable asset, the offsetting credit is recorded in accumulated depreciation.

Question 38

Under IFRS, companies must account for their property, plant, and equipment using the revaluation model, where depreciable assets are re-valued upward to their fair values.

Question 39

The cost of a finite intangible asset is not amortized, but the asset is tested periodically for impairment.

Question 40

A change in the estimated residual value of property, plant, and equipment requires a restatement of prior years' depreciation.

Question 41

The asset turnover ratio is calculated as net sales divided by ending total assets.

Question 42

The cost of land does not include
(a)closing costs.
(b)annual property taxes.
(c)removal costs of an old building.
(d)title fees.

Question 43

An intangible asset must be identifiable.

Question 44

Which of the following should not be classified as property, plant and equipment?
(a)building used as a factory
(b)land used in ordinary business operations
(c)a truck held for resale by an automobile dealership
(d)land improvements, such as parking lots and fences

Question 45

A characteristic of property, plant, and equipment is that it is
(a)intangible.
(b)used in the operations of a business.
(c)held for sale in the ordinary course of the business.
(d)not currently used in the business but held for future use.

Question 46

If a building is sold at a gain, the gain on disposal should be reported in the non-operating section of the income statement.

Question 47

Depreciation expense and impairment losses are presented in the operating section of the income statement.

Question 48

If a trademark is developed internally, it cannot be recognized as an intangible asset on the statement of financial position.

Question 49

When an entire business is purchased, goodwill is the excess of the purchase price over the carrying amount of the net identifiable assets acquired.

Question 50

A company purchased land for $120,000 cash; $7,000 was spent to demolish an old building on the land before construction of a new building could start; and $1,500 was received for material salvaged from the old building.The cost of the land would be recorded at
(a)$120,000.
(b)$125,500.
(c)$127,000.
(d)$128,500.

Question 51

All research costs should be capitalized when incurred.

Question 52

Which of the following would not be included in the Equipment account?
(a)installation costs
(b)freight costs
(c)cost of trial runs
(d)electricity used by the machine

Question 53

Profit margin can be determined by multiplying the asset turnover by the return on assets.

Question 54

The Land account would include all of the following costs except
(a)drainage costs.
(b)the cost of building a parking lot.
(c)title fees.
(d)the cost of tearing down a building.

Question 55

The asset turnover indicates how efficiently a company uses its assets.

Question 56

Which one of the following items is not considered to be a part of the cost of a truck purchased for business use?
(a)insurance during transit
(b)motor vehicle licence
(c)freight charges incurred when acquiring the truck
(d)cost of lettering on the side of the truck

Question 57

The cash flows from the purchase and sale of long-lived assets are reported in the operating activities section of the cash flow statement.

Question 58

Which of the following assets does not decline in service potential over the course of its useful life?
(a)office equipment
(b)furnishings
(c)land
(d)computers

Question 59

Impairment losses on goodwill are never reversed.

Question 60

Pippen Clinic Ltd.purchases land for $287,500 cash.The title and legal fees totalled $1,200.The clinic has the land graded for $30,000.What amount does Pippen Clinic record as the cost for the land?
(a)$287,500
(b)$288,700
(c)$317,500
(d)$318,700

Question 61

Aye Corp.purchases a remote-site building for computer operations.The building will be suitable for operations after some necessary expenditures.The wiring must be replaced to handle the computer specifications.The roof is leaking and must be replaced.All rooms must be repainted and re-carpeted and there will also be some updating of the plumbing needed.Which of the following statements is true?
(a)The cost of the building will include the repainting and re-carpeting costs.
(b)The cost of the building will include the cost of replacing the roof.
(c)The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.
(d)The wiring replacement will be part of the computer costs, not the building cost.

Question 62

The expected costs to retire an asset are called
(a)off-balance sheet financing.
(b)expected retirement costs.
(c)disposal costs.
(d)asset retirement costs.

Question 63

Land improvements should be depreciated over the useful life of the
(a)land.
(b)buildings on the land.
(c)land or land improvements, whichever is longer.
(d)land improvements.

Question 64

Mercy General Hospital installs a new parking lot.The paving cost $25,000 and the lights to illuminate the new parking lot cost $13,000.Which of the following statements is true with respect to these expenditures?
(a)$25,000 should be debited to Land.
(b)$13,000 should be debited to Lighting Expense.
(c)$38,000 should be debited to Land.
(d)$38,000 should be debited to Land Improvements.

Question 65

Which of the following is not true for an operating expenditure?
(a)It is recorded with a debit to a statement of financial position account.
(b)It benefits the current period only.
(c)It is incurred to maintain an asset in its normal operating condition.
(d)It often recurs.

Question 66

Cordelia Corp.acquires land for $120,000 cash.Additional costs are as follows: Cordelia will record the cost of the land as
(a)$120,000.
(b)$124,120.
(c)$124,880.
(d)$140,880.

Question 67

Which statement is correct regarding the use of the cost model and the revaluation model?
(a)The cost model is not allowed under IFRS.
(b)The revaluation model is the only model allowed under IFRS.
(c)The cost model is the only model allowed under ASPE.
(d)Either the cost model or the revaluation model can be under ASPE.

Question 68

The cost of a depreciable long-lived asset is expensed
(a)when it is paid for.
(b)as the asset benefits the company.
(c)in the period in which it is acquired.
(d)in the period in which it is disposed of.

Question 69

The difference between a depreciable asset's cost and its residual value is called
(a)the annual depreciation.
(b)accumulated depreciation.
(c)the depreciable amount.
(d)the revaluation amount.

Question 70

Which of the following is not a consideration when calculating depreciation?
(a)the method of payment for the asset
(b)the cost of the asset
(c)the useful life of the asset
(d)the residual value of the asset

Question 71

Depreciation is a process of
(a)determining the asset's fair value.
(b)asset valuation.
(c)cost allocation.
(d)determining the asset's residual value.

Question 72

When estimating the useful life of an asset, accountants do not consider
(a)the cost to replace the asset at the end of its useful life.
(b)vulnerability to obsolescence.
(c)expected repairs and maintenance.
(d)the intended use of the asset.

Question 73

The carrying amount of an asset is equal to the
(a)asset's fair value less its original cost.
(b)"blue-book" amount relied on by secondary markets.
(c)replacement cost of the asset.
(d)asset's cost less accumulated depreciation.

Question 74

Assuming there are no impairment losses, the balance in the Accumulated Depreciation account represents the
(a)cash fund to be used to replace assets.
(b)amount to be deducted from the cost of the asset to arrive at its fair value.
(c)amount charged to depreciation expense in the current period.
(d)amount charged to depreciation expense since the acquisition of the asset.

Question 75

Interest incurred on the construction of a building can be included in the cost of the building
(a)during the construction period of a building.
(b)for as long as the interest is payable.
(c)if the building is financed by a mortgage.
(d)under no circumstances.

Question 76

Which of the following is included in the cost of constructing a building?
(a)cost of paving a parking lot
(b)cost of grading the land on which the building is to be constructed
(c)interest incurred during construction
(d)cost of removing the demolished building that existed on the land when it was purchased

Question 77

Which of the following is not an advantage of an operating lease?
(a)reduced risk of obsolescence
(b)100 percent financing
(c)income tax advantages
(d)accelerated depreciation

Question 78

Which of the following is not an acceptable method of depreciation?
(a)straight-line
(b)increasing-balance
(c)diminishing-balance
(d)units-of-production

Question 79

Dallas Corporation purchases a new delivery truck for $35,000.The company logo is painted on the side of the truck for $1,800.The motor vehicle licence is $160.Annual insurance is $1,700.At what amount does Dallas record the cost of the new truck?
(a)$35,000
(b)$35,160
(c)$36,800
(d)$36,860

Question 80

In calculating depreciation, residual value is
(a)the fair value of the asset on the date of acquisition.
(b)subtracted from accumulated depreciation to determine the asset's depreciable cost.
(c)an estimate of the asset's value at the end of its useful life.
(d)ignored in all the depreciation methods.