Deck 6: Property, Plant, and Equipment, and Intangible Assets

Question 1

Rhoundakona Corporation bought property, plant, and equipment on January 1, 2017, at a cost of $35,000. Estimated residual value is $5,000 and the estimated useful life is 8 years. The company
Uses straight-line depreciation. On January 1, 2020, Rhoundakona's management sells the asset for
$25,000. The gain or loss on disposal is:

A) $1,250 gain
B) $10,000 loss
C) $1,250 loss
D) $25,000 gain

Answer 1

A

Question 2

In which of the following depreciation methods is annual depreciation calculated as the difference between the asset's historical cost and its residual value, divided by the asset's useful life in years?

A) units-of-production
B) double-diminishing-balance
C) depletion
D) straight-line

Answer 2

D

Question 3

Bavarian Purity Corporation purchased equipment for $32,000. Bavarian Purity also paid $400 forfreight and insurance while the equipment was in transit. Sales tax amounted to $240. Insurance, taxes, and maintenance the first year of use cost $1,000. How much should Bavarian Purity
Corporation capitalize as the cost of the equipment?

A) $32,000
B) $32,640
C) $32,400
D) $31,640

Answer 3

B

Question 4

Where would the gain or loss on the sale of capital assets be reported on the statement of cash flows?

A) financing
B) operating
C) gains or losses are not reported
D) investing

Question 5

Treating a capital expenditure as an immediate expense:

A) overstates expenses and understates net income
B) understates expenses and overstates owners' equity
C) overstates assets and overstates owner's equity
D) understates expenses and understates assets

Question 6

Depreciation computed under double-diminishing-balance will decrease each year because:

A) the book value used in the computation each year increases
B) the rate used in the computation each year increases
C) the book value used in the computation each year decreases
D) the rate used in the computation each year decreases

Question 7

Which accounting principle directs the depreciation process?

A) going concern
B) historical cost
C) expense recognition
D) revenue recognition

Question 8

Equipment costing $35,000 with a carrying amount of $12,000 is sold for $11,500. The journal entrywill involve:

A) credit to Equipment for $12,000
B) debit to Accumulated Depreciation for $23,000
C) debit to Accumulated Depreciation for $12,000
D) credit to Accumulated Depreciation for $23,000

Question 9

Which of the following depreciation methods best applies to those assets that generate greater revenue earlier in their useful lives?

A) double-diminishing-balance method
B) units-of-production method
C) depletion method
D) straight-line method

Question 10

Kegging & Canning Inc. acquired equipment on June 30, 2018, for $175,000. The residual value is$35,000 and the estimated life is 5 years or 40,000 hours. Compute the balance in Accumulated Depreciation as of December 31, 2020, if Kegging & Canning Inc. uses the double-declining-balance method of depreciation.

A) $105,840
B) $117,600
C) $124,600
D) $99,680

Question 11

When property, plant, and equipment is sold:

A) no gain or loss should be recognized if depreciation was taken on the asset
B) a loss should be recognized but not a gain if depreciation was taken on the asset
C) depreciation should be recorded through the date of sale
D) the carrying amount of the asset should be credited to the asset account

Question 12

The double-diminishing-balance

A) more depreciation in early years of an asset's use as compared to other depreciation methods
B) is not an acceptable depreciation method according to GAAP
C) the same amount of depreciation in early years of an asset's use as compared to other depreciation methods
D) less depreciation in early years of an asset's use as compared to other depreciation methods

Question 13

Amortization of an intangible asset is similar to which amortization method?

A) double-diminishing-balance
B) units-of-production
C) straight-line
D) CCA amortization

Question 14

A loss is recorded on the sale of property, plant, and equipment when:

A) the asset's carrying amount is greater than the amount of cash received from the sale
B) a loss on the sale of property, plant, and equipment is not allowed according to GAAP
C) the asset is sold for a price greater than the asset's carrying amount
D) the asset's carrying amount is less than the balance in Accumulated Depreciation

Question 15

Expenditures of a periodic, routine nature incurred to maintain the asset in its existing condition are referred to as:

A) capital expenditures
B) immediate expenses
C) betterments
D) equity expenditures

Question 16

Bock Corporation sold equipment costing $30,000 with $28,000 of accumulated depreciation for $5,000 cash. Bock's journal entry to record this sale will involve a:

A) debit to Gain on Sale of Equipment for $3,000
B) debit to Accumulated Depreciation for $28,000
C) credit to Equipment for $2,000
D) debit to Depreciation Expense for $28,000

Question 17

When an organization has determined that a piece of equipment is impaired the journal entry to record an impairment of $1,000 would require:

A) a credit to impairment loss
B) a debit to accumulated depreciation
C) a credit to accumulated depreciation
D) a cr edit to the equipment account

Question 18

Rooster Ltd. sells a printing press for $10,000 in order to purchase a newer model. The cost of the old printing press was $45,000, and accumulated depreciation up to date is $33,000. The journal entry to record the sale of the old printing press will require a:

A) credit to Loss on Sale of Equipment for $6,000
B) debit to Accumulated Depreciation for $33,000
C) debit to Equipment for $45,000
D) credit to Cash for $10,000

Question 19

The cost of land would include all of the following except:

A) costs of removing any unwanted building on the land
B) paving and fencing
C) costs to grade and clear the land
D) survey and legal fees incurred

Question 20

A revision of an estimate which extends the asset's useful life:

A) is ignored until the last year of the asset's life
B) decreases depreciation expense and increases owners' equity
C) requires restatement of prior years' financial statements
D) increases depreciation expense and decreases owners' equity

Question 21

Which of the following is not an intangible asset?

A) patent
B) copyright
C) goodwill
D) accounts receivable

Question 22

Hot Wort Ltd. purchased equipment on April 1, 2020, for $140,000. The residual value is $20,000 and the estimated life is 6 years or 55,000 hours. Compute depreciation expense for the year ending December 31, 2020 if Hot Wort Ltd. uses the straight-line method of depreciation.

A) $19,983
B) $20,000
C) $14,988
D) $15,000

Question 23

Which of the following depreciation methods best fits those assets that tend to wear out before they become obsolete?

A) double-diminishing-balance method
B) straight-line method
C) units-of-production method
D) depletion method

Question 24

The removal of an old building to make land suitable for its intended use is charged to:

A) land
B) land improvements expense
C) land improvements
D) renovation and restoration expense

Question 25

To measure depreciation for a tangible long-lived asset, all of the following must be known except:

A) estimated residual value
B) historical cost
C) estimated useful life
D) current market value

Question 26

Sowthoveer Company sold some office furniture for $4,500 cash. The furniture cost $24,000 and had accumulated depreciation through the date of sale totaling $21,700. The journal entry to record the sale of the furniture will include a:

A) credit to Accumulated Depreciation for $21,700
B) credit to Gain on Sale of Furniture for $2,200
C) credit to Office Furniture for $2,300
D) debit to Gain on Sale of Furniture for $2,200

Question 27

At the end of an asset's useful life, the balance in Accumulated Depreciation will:

A) be a lesser amount under double-diminishing-balance depreciation than under units-of-production depreciation
B) be greater under units-of-production depreciation than under straight-line depreciation
C) be a greater amount under straight-line depreciation than under double-diminishing-balance depreciation
D) be the same amount under all the depreciation methods

Question 28

The cost of a patent should be amortized over:

A) the lesser of 20 years or its economic useful life
B) the greater of 20 years or its economic useful life
C) the greater of 40 years or its economic useful life
D) the lesser of 40 years or its economic useful life

Question 29

Which of the following expenses is most closely associated with tangible long-lived assets?

A) depreciation
B) accumulation
C) depletion
D) interest

Question 30

Goodwill is equal to the excess of the cost of an acquired company over the sum of the:

A) market value of its net assets
B) carrying amount of its assets
C) carrying amount of its net assets
D) market value of its assets

Question 31

Equipment with a carrying amount of $8,000 is sold for $1,000 cash. The statement of cash flows will report a:

A) $7,000 cash outflow in the financing activities section
B) $7,000 cash outflow in the operating activities section
C) $1,000 cash inflow in the investing activities section
D) $1,000 cash inflow in the operating activities section

Question 32

Grasshopper Room Company acquired land and buildings for $1,500,000. The land is appraised at $475,000 and the buildings are appraised at $775,000. The debit to the Buildings account will be:

A) $1,025,000
B) $930,000
C) $775,000
D) $570,000

Question 33

Which of the following statements is true?

A) Accumulated depreciation is that portion of property, plant, and equipment's cost that has already been recorded as an expense.
B) Accumulated depreciation represents a growing amount of cash to be used to replace the existing asset.
C) Depreciation is a process of objective valuation.
D) Depreciation means that a business sets aside cash to replace assets as they become fully amortized.

Question 34

Land, buildings, and equipment are acquired for a lump sum of $950,000. The fair values of the three assets are respectively, $200,000, $500,000, and $300,000. What is the cost assigned to the building?

A) $190,000
B) $475,000
C) $555,556
D) $500,000

Question 35

Land is purchased for $60,000. Back taxes paid by the purchaser were $2,400, clearing and grading costs were $3,000, fencing costs were $2,500, and lighting costs were $500. What is the cost of the land?

A) $68,400
B) $60,000
C) $65,400
D) $66,400

Question 36

Which of the following intangible assets is subject to impairment?

A) only definite life intangibles
B) only goodwill
C) all intangibles
D) only indefinite life intangibles

Question 37

Which of the following would not be included in the Land account?

A) paving costs for a driveway
B) back property taxes paid
C) survey fees connected with the purchase of the land
D) brokerage commissions connected with the purchase of the land

Question 38

Blockware Corporation has selected to use the revaluation model for its assets. Recently it had its building appraised. The appraiser placed a $5,000,000 value on the building. Back in 2017 this building was purchased for $4,000,000. This increase in value over cost requires a:

A) debit to revaluation surplus
B) debit to accumulated depreciation
C) credit to revaluation surplus
D) credit to the building account

Question 39

Which of the following would not be included in the Machinery account?

A) cost of a maintenance insurance plan after the machinery is up and running
B) cost of transporting the machinery to its setup location
C) cost of installing the machinery
D) cost of insurance while the machinery is in transit

Question 40

For most property, plant, and equipment, depreciation is caused by which of the following:

A) the process of valuation
B) obsolescence
C) changes in fair value
D) setting aside cash to replace assets as they wear out

Question 41

One of several terms can be used to identify the expected cash value of a tangible long-lived asset at the end of its useful life. Which term below is not used in this sense?

A) scrap value
B) salvage value
C) current carrying amount
D) residual value

Question 42

A fully amortized asset is an asset:

A) whose carrying amount value has reached zero, and therefore has no market value
B) that has reached the end of its estimated useful life
C) that has reached the end of its actual useful life
D) whose amortizable cost has reached its salvage value, and therefore is of no further use to the company

Question 43

A major expenditure made to equipment that extends its useful life beyond the original estimate is journalized by:

A) crediting Depreciation Expense
B) debiting Repair Expense
C) debiting Equipment
D) debiting Depreciation Expense

Question 44

Calculate Company Y's return on assets based on the following information for the current year: (Round your final answer to two decimal places.)

$\begin{array} { | l | r | } \hline \text { Net income } & \$ 800,000 \\\hline \text { Assets at the beginning of the year } & \$ 100,000 \\\hline \text { Assets at the end of the year } & \$ 120,000 \\\hline \text { Net sales } & \$ 900,000 \\\hline\end{array}$

A) 8.18
B) 7.27
C) 7.50
D) 9.00

Question 45

The Mash Tun Corp. purchased equipment on September 1, 2019 for $200,000. The residual value is $20,000 and the estimated life is 5 years or 60,000 hours. Compute depreciation expense for the year ending December 31, 2020, if the Mash Tun Corp. uses the double-declining-balance method of depreciation.

A) $69,333
B) $48,000
C) $62,400
D) $43,200

Question 46

All amounts paid to acquire a long lived-asset and to get it ready for its intended use are referred to as:

A) immediate expenses
B) the cost of an asset
C) net book value
D) salvage value

Question 47

The cost of land would include all of the following except:

A) purchase price
B) clearing the land
C) back property taxes
D) sidewalks and curbs

Question 48

Return on assets measures:

A) how much every sales dollar generates in profit
B) measures how many sales dollars are generated for each dollar of assets invested
C) profitability of a company's core business operations
D) how much the entity earned for each dollar of assets invested by both shareholders and creditors

Question 49

The cost of paving a parking lot should be charged to:

A) land improvements
B) immediate expense
C) repairs and maintenance expense
D) land

Question 50

All of the following are intangible assets except:

A) trademarks
B) goodwill
C) natural gas
D) copyrights

Question 51

Equipment is acquired by issuing a note payable for $50,000 and a making a down payment of $20,000. The statement of cash flows will report a:

A) $70,000 outflow in the investing activities section
B) $50,000 inflow in the financing activities section
C) $20,000 outflow in the investing activities section
D) $20,000 outflow in the operating activities section

Question 52

The process of allocating property, plant, and equipment's cost to expense over the period the asset is used is called:

A) depreciation
B) repairs expense
C) interest
D) accumulation

Question 53

Research costs incurred by a company should be:

A) capitalized and amortized over a period greater than 25 years
B) expensed on the current year's income statement
C) capitalized and amortized over 20 years or less
D) either capitalized and amortized or expensed immediately at the option of the accountant

Question 54

Which expense below would not be considered part of the cost of a tangible long-lived asset?

A) the price paid for the property, plant, and equipment when purchased from the manufacturer
B) commissions paid to the salesperson that sold the property, plant, and equipment
C) taxes paid on the purchase price of property, plant, and equipment
D) repaving a driveway to the building where the property, plant, and equipment is housed

Question 55

Stout Corp. sold some fully amortized equipment for $2,600 cash. The equipment had been purchased for $26,500 and Stout Corp. had estimated the useful life at 8 years and residual value at $3,500. The journal entry to record the sale of the equipment will include a:

A) credit to Equipment for $3,500
B) credit to Accumulated Depreciation for $23,000
C) credit to Equipment for $2,700
D) debit to Loss on Sale of Equipment for $900

Question 56

To measure depreciation, all of the following must be known except:

A) the estimated residual value of the asset
B) the current market value of the asset
C) the cost of the asset
D) the asset's useful life in terms of years, hours, or units

Question 57

Expenditures that increase the efficiency of an asset or extend its useful life are referred to as:

A) capital expenditures
B) ordinary repairs
C) immediate expenses
D) equity expenditures

Question 58

The cost of a trademark should be amortized over its useful life. The maximum time period for trademark amortization is:

A) 40 years
B) 30 years
C) 20 years
D) The maximum amortization period is whatever the useful life of the trademark is itself.

Question 59

The journal entry to sell property, plant, and equipment for cash will always include a:

A) debit to property, plant, and equipment and a credit to Cash
B) debit to Accumulated Depreciation and a credit to Cash
C) debit to Accumulated Depreciation and a debit to property, plant, and equipment
D) debit to Cash and a debit to Accumulated Depreciation

Question 60

Rhoundakona Corporation bought property, plant, and equipment on January 1, 2017, at a cost of $35,000. Estimated residual value is $5,000 and the estimated useful life is 8 years. The company
Uses straight-line depreciation. On January 1, 2020, Rhoundakona's management sells the asset for
$25,000. The balance in Accumulated Depreciation on January 1, 2020, is:

A) $3,750
B) $13,125
C) $11,250
D) $4,375

Question 61

Lauter Tun Corporation acquired equipment on January 1, 2017, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2020, Lauter Tun Corporation revised the total useful life of the equipment to 8 years and the estimated salvage value to be $10,000. Compute depreciation expense for the year ending December 31, 2020, if Lauter Tun Corporation uses straight-line depreciation.

A) $38,500
B) $25,938
C) $43,500
D) $41,500

Question 62

The Loft Corporation purchased land and a building for $700,000. An appraisal indicates that the land's value is $400,000 and the building's value is $350,000. The amount that The Loft Corporation should debit to the Building account is:

A) $350,000
B) $326,667
C) $375,000
D) $373,333

Question 63

Repairs made to equipment as part of a yearly maintenance project would be recorded in the journal by:

A) debiting Equipment
B) debiting Depreciation Expense
C) debiting Repair Expense
D) debiting Accumulated Depreciation

Question 64

Depreciable cost is defined as:

A) cost minus accumulated depreciation
B) asset's cost minus estimated residual value
C) book value
D) salvage value

Question 65

Big Rock Times Corporation (BRT) acquired equipment on January 1, 2017, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2020, BRT Corporation revised the total useful life of the equipment to 6 years and the estimated salvage value to be $10,000. Compute the carrying amount of the equipment as of December 31, 2020, if BRT Corporation uses straight-line depreciation.

A) $148,333
B) $155,000
C) $151,667
D) $190,000

Question 66

Which of the following is not a long-lived asset?

A) supplies
B) buildings
C) land
D) furniture

Question 67

Of the tangible long-lived assets, buildings are unique because they are not amortized.

Question 68

Depreciation is reported under which activity on the statement of cash flows?

A) financing
B) investing
C) not reported on the statement of cash flows because it does not affect cash
D) operating

Question 69

Improvements to land are considered part of the cost of land since they are tied directly to the use of the land itself.

Question 70

Intangibles are considered long-lived assets even though they do not have a physical form.

Question 71

The Warthog Company purchased land, buildings, and equipment for $2,400,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The equipment account will be debited for:

A) $525,000
B) $500,000
C) $410,156
D) $480,000

Question 72

Amortization is not recorded on intangible assets.

Question 73

which of the following is not an intangible asset?

A) Trademark
B) Copyright
C) Patent
D) Leasehold improvement

Question 74

Goodwill is an intangible asset that has special features. Which statement below is true regarding the special nature of goodwill?

A) Goodwill is amortized over a period not to exceed 40 years.
B) Goodwill is recorded in the books of a company as the company creates it.
C) Goodwill is recorded only when it is purchased in the acquisition of another company.
D) Goodwill is amortized over a period not to exceed 20 years.

Question 75

On January 2, 2019, McNally's Extra Corporation acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2020, if McNally's Extra Corporation uses the double-diminishing-balance method of depreciation?

A) $43,200
B) $23,200
C) $36,000
D) $76,800

Question 76

Yeast Corporation purchased Bitter Ltd. on August 31, 2020. Yeast Corporation recorded goodwill in the purchase of Bitter. Yeast has determined that the Bitter goodwill will have an indefinite life. How will Yeast account for the Bitter goodwill in future accounting periods?

A) Yeast will amortize the Bitter goodwill over a 50-year life.
B) Yeast is not allowed to change the value of the Bitter Goodwill account regardless of any future increase or decrease in the value of Bitter Goodwill.
C) If the value of the Bitter goodwill increases in subsequent years, Yeast will increase the value in the Bitter Goodwill account.
D) If the value of the Bitter goodwill decreases in subsequent years, Yeast will decrease the value in the Bitter Goodwill account.

Question 77

On January 2, 2019 McNally's Extra Corporation acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the amount of depreciation expense for 2020, if McNally's Extra Corporation uses the asset 4,000 hours and uses the units-of-production method of depreciation?

A) $25,000
B) $20,000
C) $24,000
D) $30,000

Question 78

On January 2, 2019 McNally's Extra Corporation acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. If McNally's Extra Corporation uses the straight-line method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2020, during which period the asset was used 4,500 hours?

A) $27,000
B) $24,000
C) $22,500
D) $20,000

Question 79

Copyrights are granted for the life of the author plus:

A) 10 years
B) 100 years
C) 50 years
D) 40 years

Question 80

All intangibles must be written down when their recognizable amount is less than their carrying amount.