Deck 10: Plant Assets, Natural Resources, and Intangible Assets

Question 1

The Accumulated Depreciation account represents a cash fund available to replace plant assets.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Land improvements are generally charged to the Land account.

Answer 3

False

Question 4

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Question 5

Recording depreciation on plant assets affects the balance sheet and the income statement.

Question 6

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

Question 7

Recording depreciation each period is an application of the matching principle.

Question 8

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

Question 9

When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

Question 10

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.

Question 11

The depreciable cost of a plant asset is its original cost minus obsolescence.

Question 12

Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.

Question 13

The book value of a plant asset is always equal to its fair market value.

Question 14

In calculating depreciation, both plant asset cost and useful life are based on estimates.

Question 15

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

Question 16

All plant assets (fixed assets) must be depreciated for accounting purposes.

Question 17

Under the double-declining-balance method, the depreciation rate used each year remains constant.

Question 18

To determine a new depreciation amount after a change in estimate of a plant asset's useful life, the asset's remaining depreciable cost is divided by its remaining useful life.

Question 19

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Question 20

Using the units-of-activity method of depreciating factory 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 21

Capital expenditures are expenditures that increase the company's investment in productive facilities.

Question 22

Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.

Question 23

When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired.

Question 24

If an acquired franchise or license has an indefinite life, the cost of the asset is not amortized.

Question 25

Conceptually, the cost allocation procedures for natural resources parallels that of plant assets.

Question 26

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

Question 27

Natural resources are long-lived productive assets that are extracted in operations and are replaceable only by an act of nature.

Question 28

A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale is less than the asset's book value.

Question 29

The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.

Question 30

The cost of natural resources is not allocated to expense because the natural resources are replaceable only by an act of nature.

Question 31

If a plant asset is sold at a gain, the gain on disposal should reduce the cost of goods sold section of the income statement.

Question 32

Ordinary repairs should be recognized when incurred as revenue expenditures.

Question 33

The fair market value of a plant asset is always the same as its book value.

Question 34

The Accumulated Depletion account is deducted from the cost of the natural resource in the balance sheet.

Question 35

If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.

Question 36

Natural resources include standing timber and underground deposits of oil, gas, and minerals.

Question 37

A loss on disposal of a plant asset as a result of a sale or a retirement is calculated in the same way.

Question 38

A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.

Question 39

Depletion cost per unit is computed by dividing the total cost of a natural resource by the estimated number of units in the resource.

Question 40

Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.

Question 41

Research and development costs should be charged to expense when incurred.

Question 42

A loss on the exchange of plant assets occurs when the fair market value of the old asset is less than its book value.

Question 43

The cost of a purchased building includes all of the following except

A) closing costs.
B) real estate broker's commission.
C) remodeling costs.
D) All of these are included.

Question 44

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

Question 45

When an asset is purchased during the year, it is not necessary to record depreciation expense in the first year under the declining-balance depreciation method.

Question 46

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

Question 47

Research and development costs which result in a successful product which is patentable are charged to the Patent account.

Question 48

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at

A) $97,000.
B) $90,000.
C) $95,000.
D) $102,000.

Question 49

The balances of the major classes of plant assets and accumulated depreciation by major classes should be disclosed in the balance sheet or notes.

Question 50

When constructing a building, a company is permitted to include the acquisition cost and certain interest costs incurred in financing the project.

Question 51

Which one of the following items is not considered a part of the cost of a truck purchased for business use?

A) Sales tax
B) Truck license
C) Freight charges
D) Cost of lettering on side of truck

Question 52

Goodwill is not recognized in accounting unless it is acquired from another business enterprise.

Question 53

Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance.

Question 54

Depletion expense is reported in the income statement as an operating expense.

Question 55

Which of the following assets does not decline in service potential over the course of its useful life?

A) Equipment
B) Furnishings
C) Land
D) Fixtures

Question 56

Recognition of depreciation permits the accumulation of cash for the replacement of the asset.

Question 57

Research and development costs can be classified as a property, plant, and equipment item or as an intangible asset.

Question 58

An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange.

Question 59

When plant assets are exchanged, the cost of the new asset is the book value of the old asset plus any cash paid.

Question 60

The cost of a patent must be amortized over a 20-year period.

Question 61

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 62

The balance in the Accumulated Depreciation account represents the

A) cash fund to be used to replace plant assets.
B) amount to be deducted from the cost of the plant asset to arrive at its fair market value.
C) amount charged to expense in the current period.
D) amount charged to expense since the acquisition of the plant asset.

Question 63

Carey Company buys land for $50,000 on 12/31/09. As of 3/31/10, the land has appreciated in value to $50,700. On 12/31/10, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2010?

A) $0
B) $700
C) $1,100
D) $1,800

Question 64

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

A) Excavation fees are capitalized but building permit fees are not.
B) Architect fees are capitalized but building permit fees are not.
C) Interest is capitalized during the construction as part of the cost of the building.
D) The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Question 65

The book value of an asset is equal to the

A) asset's market value less its historical cost.
B) blue book value relied on by secondary markets.
C) replacement cost of the asset.
D) asset's cost less accumulated depreciation.

Question 66

Interest may be included in the acquisition cost of a plant asset

A) during the construction period of a self-constructed asset.
B) if the asset is purchased on credit.
C) if the asset acquisition is financed by a long-term note payable.
D) if it is a part of a lump-sum purchase.

Question 67

A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?

A) The cost of the building will not include the repainting and recarpeting 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 is part of the computer costs, not the building cost.

Question 68

Hull Company acquires land for $86,000 cash. Additional costs are as follows: Hull will record the acquisition cost of the land as

A) $86,000.
B) $87,690.
C) $89,610.
D) $89,370.

Question 69

Presto Company purchased equipment and these costs were incurred: Presto will record the acquisition cost of the equipment as

A) $22,500.
B) $24,300.
C) $24,620.
D) $25,050.

Question 70

Depreciation is the process of allocating the cost of a plant asset over its service life in

A) an equal and equitable manner.
B) an accelerated and accurate manner.
C) a systematic and rational manner.
D) a conservative market-based manner.

Question 71

Wesley Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions?

A) $30,000 should be debited to the Land account.
B) $15,000 should be debited to Land Improvements.
C) $45,000 should be debited to the Land account.
D) $45,000 should be debited to Land Improvements.

Question 72

The four subdivisions for plant assets are

A) land, land improvements, buildings, and equipment.
B) intangibles, land, buildings, and equipment.
C) furnishings and fixtures, land, buildings, and equipment.
D) property, plant, equipment, and land.

Question 73

The cost of land does not include

A) real estate brokers' commission.
B) annual property taxes.
C) accrued property taxes assumed by the purchaser.
D) title fees.

Question 74

Yocum Company purchased equipment on January 1 at a list price of $50,000, with credit terms 2/10, n/30. Payment was made within the discount period and Yocum was given a $1,000 cash discount. Yocum paid $2,500 sales tax on the equipment, and paid installation charges of $880. Prior to installation, Yocum paid $2,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?

A) $52,380
B) $54,380
C) $55,380
D) $50,500

Question 75

Accountants do not attempt to measure the change in a plant asset's market value during ownership because

A) the assets are not held for resale.
B) plant assets cannot be sold.
C) losses would have to be recognized.
D) it is management's responsibility to determine fair values.

Question 76

Engler Company purchases a new delivery truck for $45,000. The sales taxes are $3,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Engler record as the cost of the new truck?

A) $49,540
B) $49,420
C) $48,000
D) $47,420

Question 77

All of the following factors in computing depreciation are estimates except

A) cost.
B) residual value.
C) salvage value.
D) useful life.

Question 78

Gagner Clinic purchases land for $130,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?

A) $132,200
B) $130,000
C) $134,700
D) $132,500

Question 79

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

A) Salvage value
B) Estimated useful life
C) Cash needed to replace the plant asset
D) Cost

Question 80

Angie's Blooms purchased a delivery van for $20,000. The company was given a $2,000 cash discount by the dealer, and paid $1,000 sales tax. Annual insurance on the van is $500. As a result of the purchase, by how much will Angie's Blooms increase its van account?

A) $20,000
B) $18,000
C) $19,500
D) $19,000