Deck 8: Long-Term Assets

Question 1

If a company determines that due to damage, the recoverable cost of its asset is reduced, it increases accumulated depreciation.

Answer 1

False

Question 2

Which of the following would not be capitalized as part of a purchased asset's cost?

A) non-refundable taxes
B) installation cost
C) shipping costs
D) insurance costs

Answer 2

D

Question 3

Upon the disposal of an asset, if the carrying value is NOT equal to the proceeds, a gain or loss must be recognized.

Answer 3

True

Question 4

Which of the following is not a tangible capital asset?

A) buildings
B) land
C) copyrights
D) equipment

Question 5

Internally generated goodwill may be capitalized annually.

Question 6

The only long-term asset that cannot be separated from the business and sold is

A) land.
B) buildings.
C) goodwill.
D) trademarks.

Question 7

Barium Corp. purchased a piece of equipment on September 30 for $27,000. It cost $400 to ship the equipment to the company's facilities and another $1,000 to install the equipment. After the equipment was installed the company had to pay an additional $1,500 for increased insurance. The capitalized cost of the equipment was

A) $29,900.
B) $29,500.
C) $28,400.
D) $27,400.

Question 8

The cash inflows generated from a long-term asset will be received over several future periods.

Question 9

Capital assets include all of the following except for

A) goodwill.
B) franchise rights.
C) buildings.
D) inventory.

Question 10

The total accumulated depreciation on a long-term asset is also known as the asset's amortized cost.

Question 11

In a basket purchase, the total purchase price is divided equally among the assets acquired.

Question 12

Depreciation expense is a measure of an asset's increase in value due to wear and tear.

Question 13

All patents have useful and economic lives of 20 years.

Question 14

Which of the following would not be classified as property, plant, and equipment?

A) buildings in current use
B) land purchased for resale
C) machinery
D) tools used in production

Question 15

Under ASPE, property, plant, and equipment must be recognized using the revaluation model.

Question 16

Depreciation is a cost allocation method and has nothing to do with determining an asset's market value.

Question 17

An impairment loss should be recognized if the net recoverable amount of the asset exceeds the carrying value.

Question 18

In 2020 as part of a property purchase, Melrose Ltd. incurred and paid 2019 property taxes. These costs should be

A) recognized as an impairment loss.
B) recognized on the Statement of Income as an expense.
C) recognized as a capital cost.
D) not be taken into consideration, these costs are irrelevant.

Question 19

Residual value directly enters into the calculation of depreciation expense under all depreciation methods.

Question 20

Basic research costs that occur prior to any decision to develop a product or process are usually capitalized.

Question 21

The depreciable amount of an asset is defined as the

A) original cost less residual value.
B) original cost less depreciation.
C) original cost less accumulated depreciation.
D) original cost.

Question 22

When capitalizing the cost of a purchased asset, all of the following cost should be included in capitalization except for

A) the full purchase price plus any discounts.
B) set up costs.
C) legal costs.
D) shipping costs.

Question 23

Assets acquired in a basket purchase are to be allocated a portion of the total price based on their respective

A) fair market values.
B) book values.
C) present values.
D) assessed values.

Question 24

Which of the following statements is true with respect to capitalizing asset costs?

A) All additional costs related to acquiring an asset should be expensed.
B) Land cannot be depreciated so it should just be expensed when acquired.
C) When costs are capitalized, the company gets the tax deduction immediately.
D) Some small expenses related to the purchase of an asset can be expensed for simplicity.

Question 25

The unexpensed portion of a depreciable asset is called

A) accumulated depreciation.
B) net realizable value.
C) estimated residual value.
D) net present value.

Question 26

When deciding whether to expense or capitalize the costs incurred after acquiring a capital asset, which one of the following is not relevant to the decision?

A) Will these costs extend useful life?
B) Will these costs reduce asset operating costs?
C) Will these costs improve output?
D) Will these costs be incurred for more than one year?

Question 27

The depreciation method that most closely resembles what is allowable for tax purposes under CRA is

A) the straight-line method.
B) units-of-activity method.
C) the declining-balance method.
D) depletion method.

Question 28

The residual value is not directly used for the calculation of depreciation expense under which method?

A) units-of-activity method
B) straight-line method
C) interest capitalization method
D) declining-balance method

Question 29

A plot of land was purchased for $120,000 and had $10,000 of past due property taxes on it. Non-refundable taxes on the purchase were $1,400 and the title search cost $500. The capitalized cost of the land was

A) $120,000.
B) $121,900.
C) $130,000.
D) $131,900.

Question 30

The ultimate sales value of a long-term asset is referred to as its

A) residual value.
B) value in use.
C) net book value.
D) historical value.

Question 31

The most commonly used method of depreciation is

A) straight-line.
B) capital cost allowance.
C) declining-balance.
D) units-of-activity.

Question 32

Which of the following depreciation methods calculates annual depreciation expense based on an asset's cost minus its residual value?

A) deferred depreciation
B) straight-line
C) capital cost allowance
D) declining-balance

Question 33

To apply the units-of-activity method, all of the following information is needed except the

A) original cost.
B) estimated residual value.
C) estimated useful life.
D) estimated usage.

Question 34

AFM Holdings Co. purchased 15 acres of land with an office building and warehouse on it for $2,000,000. The assets were appraised at: land $1,000,000, building $600,000, and warehouse $900,000. The assets were carried on the seller's books at: land $800,000, building $500,000, and warehouse $700,000. At what cost should the purchasing company record each of the assets?

Question 35

If an asset generates revenues evenly over its useful life, which depreciation method should be used?

A) capital cost allowance
B) declining-balance
C) units-of-activity
D) straight-line

Question 36

A key reason that there are various acceptable depreciation methods is

A) different assets have different expected usage patterns.
B) some methods are too complicated to calculate.
C) to make it easier to calculate corporate income taxes.
D) to account for assets with indefinite lives.

Question 37

A machine was purchased for $125,500 during August; the cost included $750 in supplies that would be used with the new machine. The company had to pay $6,000 for to have the machine shipped. The capitalized cost of the equipment is

A) $125,500.
B) $126,250.
C) $131,500.
D) $132,250.

Question 38

A company is depreciating a $1,000,000 building using a straight-line rate of 5%. The building has an estimated residual value of $200,000. What would the amount of depreciation be in the first year using the straight-line method and the double-declining-balance method?

Question 39

According to accounting standards, the method of depreciation chosen should

A) measure the change in an asset's value.
B) be systematic and rational.
C) allocate the most of the asset's cost to the early periods benefiting from its use.
D) recognize the reduced usefulness of an asset.

Question 40

Assets that produce their greatest benefits to a firm early in their useful life should be depreciated using the

A) straight-line method.
B) declining-balance method.
C) compound interest method.
D) units-of-activity method.

Question 41

Factors that may contribute to, or may be assessed in relation to, the impairment of PPE include

A) environmental spills or damage.
B) elimination of a business unit due to corporate restructuring.
C) the changing economic benefits of an asset.
D) all of the above
E) none of the above

Question 42

The depreciation expense of an asset can change for all of the following reasons except

A) change in the estimated useful life.
B) change in the asset's expected residual value.
C) increases due to additions to the asset for major repairs and improvements.
D) increase in the asset due to regular repairs and maintenance.

Question 43

The correct entry to record the annual depreciation expense for a long-term asset is

A) Dr. Accumulated depreciation.
B) Dr. Depreciation expense, Cr. Accumulated depreciation.
C) Dr. Accumulated depreciation, Cr. Long-Term asset.
D) Dr. Depreciation expense, Cr. Long-Term asset.

Question 44

Upon the disposal of an asset, if the proceeds are greater than the carrying value of the asset, the company must

A) recognize a loss.
B) recognize a gain.
C) adjust the accumulated depreciation account so the carrying value equals the proceeds.
D) adjust the carrying value to market value.

Question 45

On July 1, 2020 a truck was sold for $10,000. The company originally paid $28,000 on June 30, 2013 and has recorded accumulated depreciation on it to date of $15,000. The entry to record the sale would include a

A) credit to accumulated depreciation for $15,000.
B) debit to trucks for $28,000.
C) credit to gain on sale of truck for $3,000.
D) debit to loss on sale of truck for $3,000.

Question 46

Global Enterprises purchased a machine on January 1, 2020 for $22,500. The machine had an estimated useful life of 10 years and an estimated residual value of $2,500. Assuming Global uses straight-line depreciation, what would be the book value of the machine on December 31, 2024?

A) $ 0
B) $10,000
C) $11,250
D) $12,500

Question 47

Losses on the cash sale of capital assets

A) are the excess of the cash proceeds over the carrying value of the asset.
B) are the excess of the cash proceeds over the market value of the asset.
C) are the excess of the carrying value of the asset over the cash proceeds.
D) are the excess of the carrying value of the asset over the market value.

Question 48

Changes in the estimates for residual value or useful life result in changes in the depreciation expense calculation. These changes are handled

A) retroactively.
B) as cumulative changes.
C) prospectively.
D) as prior period adjustments.

Question 49

Alexa Corporation has a calendar year end and owns equipment that was purchased for $225,000 on March 1, 2020. On December 31, 2021 after the year-end adjusting entries, the carrying amount of the asset is $155,000. Due to damage, management determines the recoverable value to be $125,000. Alexa would make the following entry related to this asset:

Question 50

An asset that cost $16,200 with a residual value of $1,200 and a useful life of 5 years was depreciated for two years using the straight-line method. In the third year, the useful life was determined to be 2 years longer than initially expected. Depreciation in the third year would be

A) $3,000.
B) $2,143.
C) $2,040.
D) $1,800.

Question 51

Which of the following amortization methods ignore residual value in the calculation of the annual depreciation expense?

A) double-declining-balance and capital cost allowance
B) straight-line and double-declining-balance
C) straight-line and capital cost allowance
D) present value and straight-line

Question 52

Bombay Inc. bought new computers on January 1 for $18,000 to improve the quality of their animation. The computers have a useful life of 8 years but Bombay Inc. thinks that continuing technological developments will likely mean they will replace the computers after 4 years, at which time they will be worth $2,000. If they use straight-line depreciation, the depreciation expense for the first year will be

A) $2,000.
B) $2,250.
C) $4,000.
D) $4,500.

Question 53

The Canada Revenue Agency allows corporations to deduct the following when calculating taxable income:

A) declining-balance depreciation.
B) straight-line depreciation.
C) capital cost allowance.
D) one-half of the cost of the asset in the year of acquisition.

Question 54

Proctor Papers purchased a machine on January 1, 2020 at a cost of $380,000 with an estimated residual value of $30,000 at the end of its estimated useful life of 8 years. On January 1, 2022 Proctor Paper estimates that the machine only has a remaining life of 5 years and a residual value of $20,000. Proctor Paper uses straight-line depreciation. Depreciation expense for 2022 would be

A) $48,500.
B) $54,500.
C) $57,000.
D) $72,000.

Question 55

A depreciable asset with a cost of $42,500 has a residual value of $2,500 and a useful life of 8 years. Total estimated units of output are 80,000 and in year 1; 5,200 units were produced. Under the straight-line method and the units-of-activity method the depreciation expense for the first year would be

Question 56

An asset being depreciated with the straight-line method has a residual value of $10,000 and accumulated depreciation of $30,000 in its second year. What was the original cost of the asset if its useful life was 5 years?

A) $160,000
B) $140,000
C) $ 85,000
D) $75,000

Question 57

An asset with an original cost of $75,000, a residual value of $7,500, and a useful life of 5 years is given away without any consideration at the end of year five. The entry to record this is

A) Dr. Accumulated depreciation, Dr. Loss on disposal, Cr. Long-Term asset.
B) Dr. Accumulated depreciation, Cr. Gain on disposal, Cr. Long-Term asset.
C) Dr. Long-Term asset, Cr. Accumulated depreciation.
D) Dr. Accumulated depreciation, Cr. Long-Term Asset.

Question 58

Cola Company purchased a bottling machine on October 1, 2018 for $250,000. The estimated useful life is 25 years and they are using straight-line depreciation. On October 1, 2019, they spent $46,000 on the machine to double its capacity and $5,000 on routine cleaning. The company's year end is September 30. What should the depreciation expense be at September 30, 2020?

A) $10,000
B) $30,000
C) $12,200
D) $11,9170

Question 59

If management wanted to show an increasing income over the life of an asset which method of depreciation should they choose?

A) capital cost allowance
B) declining-balance
C) units-of-activity
D) straight-line

Question 60

Oceanside Developments owns a piece of land it had purchased in 2019 for $400,000. When they started to develop the land in 2020, they discovered that there were environmental problems with the land. It is now estimated to be worth only $150,000. Which of the following is the correct way to account for this?

A) No accounting is necessary because the land is recorded at its historical cost, not its market value.
B) The land account should be written down to $150,000 and a loss recognized.
C) The land should be written off completely because now the company cannot use it for the purpose they intended to.
D) The land should be depreciated at a new rate to reflect the decline in its value.

Question 61

Harmax Limited spent $5,000 registering an internally developed patent and then another $20,000 defending and enforcing the patent in its first year. How should the patent be reflected in the financial statements?

A) the full $25,000 expensed in the year
B) $5,000 capitalized as Patent asset and the $20,000 expensed
C) $20,000 capitalized as Patent asset and the $5,000 expensed
D) the full $25,000 capitalized in the year

Question 62

Duval Industries purchases $110,000 of machinery on January 1, 2020. The machinery is expected to have a 5 year useful life and a residual value of $10,000. On January 1, 2023, management determines that the equipment will last for an additional 2 years and the new residual value is $6,000. Duval uses straight-line depreciation and has a calendar year end.
Instructions
Calculate the depreciation expense related to this piece of machinery and determine the carrying value of the machinery on December 31, 2023.

Question 63

Acker Limited sold a piece of equipment August 1, 2020 for proceeds of $22,000. The equipment had an original value of $60,000 and was purchased on January 1, 2017. It was estimated to have a residual value of $3,000 and 5-year useful life. Acker uses the straight-line method. Acker has a December 31 year end.
Instructions
Journalize all entries required to update depreciation and record the sale of the asset in 2020.

Question 64

Which of the following statements is true with respect to intangible assets with indefinite lives?

A) They should be amortized over a period of 40 years.
B) They should be expensed to income in the year they are acquired.
C) They should be evaluated each year to determine if there has been any impairment in their value.
D) They are never amortized or written down but remain on the company's balance sheet at their original cost forever.

Question 65

Beach Front Foods Inc. has decided to add a delivery service to its business. In 2020 the company purchased a car to use to deliver customer orders. The purchase price of the car was $42,000, which includes non-refundable taxes of $5,800. The car was painted with the store logo for $1,000 and an additional $750 was spent on the annual license fee. During the year they spent $3,000 on gas and $1,000 on maintenance costs. They expect to drive the car 200,000 kilometres and have a residual value of $5,000. In 2020, they drove 27,500 km.
Instructions
a) Calculate the cost of the asset to Beach Front. Provide brief support for all items included in the cost and the reason any costs are not included.
b) Record the depreciation expense for 2020 using the units-of-activity method.

Question 66

Which of the following methods of amortization is a company most likely to use for financial statement purposes if it purchases a patent?

A) capital cost allowance
B) double-declining-balance
C) units-of-activity
D) straight-line

Question 67

Long-term capital assets with a(n) ___ may not be depreciable.

A) finite life
B) indefinite life
C) residual value
D) undefined value

Question 68

Othello Corporation purchases Shakespeare Inc. for $3.5 M. Shakespeare has the following assets all recorded at cost: The fair value of the assets is $2,350,000 and Othello also assumes $600,000 of debt from Shakespeare.
Instructions
Determine if there is any goodwill related to Othello's purchase of Shakespeare and if so what is the value of the goodwill. Show your work. Where is goodwill captured on the financial statements?

Question 69

The Capital Cost Allowance (CCA)

A) ignores residual value.
B) has prescribed depreciation rates.
C) is very similar to accelerated depreciation rates.
D) all of the above
E) none of the above

Question 70

Companies can estimate when capital assets may need to be replaced in order to maintain operating capacity by using the following ratio(s):

A) fixed asset turnover.
B) average age %.
C) current.
D) inventory turnover.
E) all of the above

Question 71

Depreciation Expense

A) applies to all non-current assets.
B) cannot be used for calculating income taxes.
C) is acceptable for use under GAAP and the Income Tax Act.
D) is very similar to CCA.
E) all of the above

Question 72

Goodwill

A) is the net value of the purchase price less the book value of the asset.
B) has economic value and can be sold to generate revenues.
C) can be generated internally.
D) only arises when businesses are combined.
E) all of the above

Question 73

Lucky Lure Co. purchased a machine on October 1, 2018 for $125,000. It has a $15,000 residual value and a 10-year useful life. On July 1, 2020 the machine sold for $79,500. The company uses the double-declining-balance method of depreciation. The company fiscal year end is December 31.
Instructions
Prepare the journal entries for 2018 through 2020.

Question 74

On September 1, 2020, Muzeen Machine Co. purchased a piece of equipment which cost $68,900, has a $4,900 residual value, and an 8-year useful life. The company has a fiscal year end of August 31.
Instructions
Calculate the depreciation expense for year one under
a) Straight-line,
b) Double-declining-balance.

Question 75

Which of the following intangibles would be capitalized?

A) research
B) advertising
C) goodwill acquired in a purchase
D) internally developed patent

Question 76

Which of the following is an example of an intangible with an indefinite life?

A) a copyright on a song
B) a patent on a new technology
C) the development costs of a new drug
D) the goodwill value assigned to the excess purchase price when purchasing a company

Question 77

The carrying amount of goodwill is

A) not relevant, because goodwill is not amortized.
B) captures impairment losses.
C) calculated using CCA.
D) all of the above
E) none of the above

Question 78

Sanitec Architecture made the following cash expenditures during its first year in operations: Instructions
Record the above transactions and determine the cost of the land, land improvements, and building that will appear on Sanitec's year-end statement of financial position.

Question 79

Wilma's Wicker Furniture purchased a laser-guided mitre saw on September 1, 2018 at a cost of $20,000. Depreciation for 2018 and 2019 was based on an estimated 8-year useful life and $4,000 estimated residual value. In 2020, Wilma's revised its estimates and now believes the laser mitre saw will have a total service life of an additional three years but the residual value will be only $2,000. Wilma's uses the straight-line method to depreciate all assets. Wilma's Wicker Furniture has a December 31 year end.
Instructions
Calculate depreciation expense for 2018, 2019, and 2020.

Question 80

Drugs R Us spent $25,000 on research and development to create a new product. The product was successfully developed and launched into the market. How should the research and development costs be treated?

A) The full $25,000 should be capitalized.
B) The research portion of the $25,000 should be capitalized.
C) The research portion of the $25,000 should be expensed.
D) The full $25,000 should be expensed.