Deck 10: Plant Assets, Natural Resources, and Intangibles

Question 1

Roberts Construction Group paid $11,000 for a plant asset that had a market value of $20,500. At which of the following amounts should the plant asset be recorded?

A) $20,500
B) $5,500
C) $11,000
D) $22,000

Answer 1

C

Question 2

The process of allocating the cost of a plant asset over its useful life is known as cost reduction.

Answer 2

False

Question 3

For each of the following amounts paid by a purchaser, determine whether the amount is debited to Land, Land Improvements, or Building.

Answer 3

Question 4

Prepare the journal entry to record the acquisition of a plant asset for $5,000 cash.

Question 5

A business that has a vacant building that is not currently being used would classify the building as a plant asset.

Question 6

The cost principle requires a business to record the assets acquired, or services received, at their actual cost.

Question 7

Which of the following statements is incorrect?

A) The life cycle of a plant asset includes: acquisition, usage, and disposal.
B) Depreciation is recorded on all plant assets.
C) Plant assets not currently being used in business operations are classified as long-term investments.
D) Plant assets are long-lived tangible assets used in the operations of a business.

Question 8

Capitalizing a cost involves crediting the asset account.

Question 9

Which of the following is included in the cost of a plant asset?

A) amounts paid to make the asset ready for its intended use
B) regular repair and maintenance costs
C) replacement of damaged parts of the asset
D) wages of workers who work use the asset in normal operations

Question 10

Which of the following is a characteristic of a plant asset, such as a building?

A) It is used in the operations of a business.
B) It is available for sale to customers in the ordinary course of business.
C) It has a short useful life.
D) It will have a negligible value at the end of its useful life.

Question 11

Land and land improvements are one and the same and therefore must be recorded in single account.

Question 12

Danube Corp. purchased a used machine for $21,000. The machine required installation costs of $6,000 and insurance while in transit of $700. At which of the following amounts would the machine be recorded?

A) $21,000
B) $27,000
C) $21,700
D) $27,700

Question 13

Which of the following should be included in the cost of land?

A) cost to build sidewalks on the land
B) cost to clear the land of old buildings
C) cost of installing signage
D) cost of installing fences

Question 14

Plant assets are long-lived, tangible assets used in the operation of a business.

Question 15

Which of the following asset categories would include the cost of clearing land and removing unwanted buildings?

A) land
B) buildings
C) land improvements
D) machinery and equipment

Question 16

Arthur, Inc. plans to develop a shopping center. In the first quarter, the following amounts were spent: What amount should be recorded as the land improvement cost?

A) $7,200
B) $8,200
C) $15,060
D) $1,200

Question 17

Which of the following is included in the cost of land?

A) cost of fencing
B) cost of paving
C) brokerage commission
D) cost of outdoor lighting

Question 18

The cost of land does not include the cost of fencing and paving.

Question 19

The cost of a building depends on whether the company is constructing the building or is acquiring an existing one.

Question 20

Acer, Inc. plans to develop a shopping center. In the first quarter, the following amounts were spent: What amount should be recorded as the cost of the land in the corporation's books?

A) $25,300
B) $18,300
C) $20,060
D) $24,100

Question 21

An expenditure that increases the capacity or efficiency of a plant asset that extends the asset's life is known as a revenue expenditure.

Question 22

Bingo Corporation has acquired a property that included both land and a building for $520,000. The corporation hired an appraiser who has determined that the market value of the land is $320,000 and that of the building is $400,000. At what amount should the corporation record the cost of the building? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $224,000
B) $291,200
C) $260,000
D) $374,400

Question 23

Depreciation is the allocation of a plant asset's cost to expense over its useful life.

Question 24

The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values. This method is known as the relative-market-value method.

Question 25

Which of the following costs related to a business car would be capitalized?

A) the cost to install an engine with higher horsepower
B) the cost to change the oil
C) the cost to replace a broken windshield
D) the cost of new tires

Question 26

For each of the following expenditures, indicate whether the amount is debited to an asset account or to an expense account.

Question 27

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

A) Net income will be understated.
B) Expenses will be overstated.
C) Assets will be overstated.
D) Liabilities will be overstated.

Question 28

A lump-sum purchase or basket purchase involves paying a single price for several assets as a group.

Question 29

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

A) Net income will be overstated.
B) Revenues will be understated.
C) Assets will be understated.
D) Liabilities will be understated.

Question 30

Which of the following requires businesses to record depreciation?

A) revenue recognition principle
B) matching principle
C) cost principle
D) going concern principle

Question 31

Nobells Corp. has acquired land and paid $500 as brokerage to acquire the land. However, the company's accountant has recorded the $500 as a revenue expenditure. What is the effect of this error?

A) Net income is understated by $500.
B) Liabilities are overstated by $500.
C) Revenue is overstated by $500.
D) Assets are overstated by $500.

Question 32

Repair work that generates a capital expenditure because it extends a plant asset's useful life past the normal expected life is known as an extraordinary repair.

Question 33

Westland, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be treated as a revenue expenditure?

A) oil change and lubrication
B) major engine overhaul
C) modification for new use
D) addition to storage capacity

Question 34

An asset is considered to be obsolete when a newer asset can perform the job more efficiently.

Question 35

An asset is considered to be obsolete ________.

A) only when it wears out
B) only at the end of its useful life
C) when it is fully depreciated
D) when a newer asset can perform the job more efficiently than the old asset can

Question 36

Fred, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be capitalized and depreciated?

A) modification for new use
B) change of oil filters
C) replacement of tires
D) normal engine repair

Question 37

Safari Corporation has acquired a property that included both land and a building for $500,000. The corporation paid cash. The corporation hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000. Journalize the lump-sum purchase.

Question 38

Ordinary repairs to plant assets are referred to as revenue expenditures.

Question 39

Hastings Corporation has purchased a group of assets for $21,900. The assets and their relative market values are listed below. Which of the following amounts would be debited to the Land account? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $4,133
B) $12,045
C) $4,380
D) $5,475

Question 40

Hawkeye Corporation has acquired a property that included both land and a building for $560,000. The corporation hired an appraiser who has determined that the market value of the land is $370,000 and that of the building is $400,000. At what amount should the corporation record the cost of land? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $408,800
B) $177,600
C) $280,000
D) $268,800

Question 41

The cost of an asset is $1,200,000, and its residual value is $100,000. Estimated useful life of the asset is five years. Calculate depreciation for the second year using the double-declining-balance method of depreciation. (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)

A) $240,000
B) $220,000
C) $440,000
D) $288,000

Question 42

A company purchased a computer on July 1, 2017 for $50,000. Estimated useful life of the computer was five years, and it has no residual value. Which of the following methods should be used to best match its expense against the revenue it produces?

A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method

Question 43

When a business uses the straight-line method of depreciation, the amount of depreciation is reduced from year to year.

Question 44

Which of the following depreciation methods allocates a higher amount of depreciation in earlier years than in later years?

A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method

Question 45

On January 1, 2017, Zade Manufacturing Corporation purchased a machine for $40,900,000. Zade's management expects to use the machine for 27,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $47,000. The machine was used for 3,900 hours in 2017 and 5,400 hours in 2018. What is the depreciation expense for 2017 if the corporation uses the units-of-production method of depreciation? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $5,900,973
B) $13,633,333
C) $8,170,578
D) $5,907,759

Question 46

Which of the following depreciation methods allocates a varying amount of depreciation each year based on an asset's usage?

A) the straight-line method
B) the annuity method
C) the units-of-production method
D) the double-declining-balance method

Question 47

The use of MACRS is acceptable for financial reporting under GAAP.

Question 48

On January 1, 2016, Martini, Inc. acquired a machine for $1,030,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $87,000. What is the book value of the machine at the end of 2017 if the company uses the straight-line method of depreciation?

A) $618,000
B) $652,800
C) $565,800
D) $617,996

Question 49

The double-declining-balance method is an accelerated method of depreciation.

Question 50

On January 1, 2017, Anodel, Inc. acquired a machine for $1,080,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $56,000. Calculate the depreciation expense per year using the straight-line method.

A) $216,000
B) $204,800
C) $260,800
D) $270,000

Question 51

On January 1, 2017, Henry Manufacturing Corporation purchased a machine for $40,600,000. Henry's management expects to use the machine for 33,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $45,000. The machine was used for 3,600 hours in 2017 and 5,000 hours in 2018. Calculate the book value of the machine at the end of 2018 if the company uses the units-of-production method of depreciation. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $30,031,116
B) $40,600,000
C) $30,019,420
D) $36,175,816

Question 52

The cost of an asset is $1,160,000, and its residual value is $160,000. Estimated useful life of the asset is four years. Calculate depreciation for the first year using the double-declining-balance method of depreciation. (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)

A) $500,000
B) $580,000
C) $290,000
D) $250,000

Question 53

Estimated residual value is not depreciated because the company will receive this amount when the asset is sold.

Question 54

Estimated residual value can be zero if the company does not expect to receive anything when disposing of the asset.

Question 55

The units-of-production method allocates a varying amount of depreciation each year based on an asset's usage.

Question 56

Businesses are required to use Modified Accelerated Cost Recovery System (MACRS) for tax purposes.

Question 57

The expected cash value of an asset at the end of its useful life is known as ________.

A) book value
B) residual value
C) carrying value
D) market value

Question 58

The double-declining-balance method ignores the residual value until the depreciation expense takes the book value below the residual value.

Question 59

The useful life of a plant asset is the length of the service period expected from the asset.

Question 60

Residual value is also known as depreciable cost.

Question 61

If a business changes the estimated useful life, or estimated residual value, of a plant asset, depreciation expense must be recalculated.

Question 62

When a company makes an accounting change, Generally Accepted Accounting Principles require that the company make changes to financial statements of prior years.

Question 63

A truck costs $320,000 and is expected to be driven 116,000 miles during its five-year life. Residual value is expected to be zero. If the truck is driven 29,000 miles during the first year, how much depreciation should the business record under the units-of-production method? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $98,600
B) $26,680
C) $80,040
D) $51,040

Question 64

On January 1, 2016, a corporation acquired a truck for $100,000. Residual value was estimated to be $20,000. The truck can be driven for 50,000 miles over the next three years. Actual usage of the truck was recorded as 8,640 miles for the first year. Give the journal entry to record depreciation for the first year calculated as per the units-of-production method. (Do not round your intermediate calculations.)

Question 65

General, Inc. purchased a van on May 1, 2016, for $800,000. Estimated life of the van was five years, and its estimated residual value was $80,000. General uses the straight-line method of depreciation. Prepare the journal entry to record the depreciation expense for 2016 on the van.

Question 66

On January 1, 2017, Doyle Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in 2018. Calculate depreciation expense for 2018 if the company uses the units-of-production method of depreciation.

Question 67

On January 1, 2016, Amethyst Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The schedule of usage of the machine is below. Prepare the depreciation schedule using the units-of-production method of depreciation.

Question 68

Ivorycoast, Inc. purchased a van on January 1, 2017, for $890,000. Estimated life of the van was five years, and its estimated residual value was $98,000. Ivorycoast uses the straight-line method of depreciation. Calculate the book value of the van at the end of 2017.

A) $723,125
B) $834,375
C) $792,000
D) $731,600

Question 69

Houlihan, Inc. purchased a van on January 1, 2016, for $800,000. Estimated life of the van was five years, and its estimated residual value was $90,000. Houlihan uses the straight-line method of depreciation. Give the journal entry to record the depreciation expense for 2016 on the van.

Question 70

The cost of an asset is $10,000,000, and its residual value is $100,000. Estimated useful life of the asset is four years. Prepare the schedule of depreciation using the double-declining-balance method of accounting.

Question 71

If an asset is disposed of during the year, there is no need to calculate depreciation from the beginning of the year of disposal to the date of disposal.

Question 72

A business, which has a calendar year accounting period, purchased an asset on March 1, 2016. The business disposed of the asset on August 31, 2017. For the calendar year 2017, depreciation should be calculated from January 1 to August 31.

Question 73

Which of the following is true when the estimate of an asset's useful life is changed?

A) The new estimate is ignored until the last year of the asset's life.
B) The depreciation expense in the prior year is restated.
C) Prior years' financial statements must be restated.
D) The asset's remaining depreciable book value will be spread over the asset's remaining life.

Question 74

On June 30, 2016, Colora Printers purchased a printer for $59,000. It expects the printer to last for four years and have a residual value of $8,000. Compute the depreciation expense on the printer for the year ended December 31, 2016, using the straight-line method. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $12,750
B) $6,375
C) $14,750
D) $7,438

Question 75

Adams Bakery uses the modified half month convention to calculate depreciation expense in the year an asset is purchased or sold. Adams has a calendar year accounting period and uses the straight-line method to compute depreciation expense. On March 17, 2016, Adams acquired equipment at a cost of $130,000. The equipment has a residual value of $44,000 and an estimated useful life of 6 years. What amount of depreciation expense will be recorded for the year ending December 31, 2016? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $14,333
B) $11,944
C) $10,750
D) $7,167

Question 76

Five O'Clock, Inc. purchased a van on January 1, 2017, for $800,000. Estimated life of the van was five years, and its estimated residual value was $90,000. Five O'Clock uses the straight-line method of depreciation. Prepare the depreciation schedule.

Question 77

On January 1, 2017, Blizzard Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in 2018. What is the depreciation expense for 2017 and 2018 if the corporation uses the double-declining-balance method of depreciation?

Question 78

Blake, Inc. purchased a van on January 1, 2015, for $800,000. Estimated life of the van was five years, and its estimated residual value was $90,000. Blake uses the straight-line method of depreciation. Give the journal entry to record the purchase of van for cash.

Question 79

On January 1, 2017, a corporation acquired a truck for $600,000. The residual value was estimated to be $20,000. The truck can be driven for 50,000 miles over the next three years. The actual usage of the truck was 8,640 miles for the first year. Calculate the rate of depreciation to be applied and depreciation for the first year using the units-of-production method. (Do not round your intermediate calculations.)

Question 80

On January 1, 2017, Real Planes Manufacturing Corporation purchased a machine for $40,000,000. The corporation expects to use the machine for 24,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $40,000. The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in 2018. What is the book value of the machine at the end of year 2018 if the corporation uses double-declining-balance method of depreciation? (Round your intermediate calculations.)