Deck 9: Plant Assets, Natural Resources and Intangible Assets

Question 1

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

Answer 1

False

Question 2

Ordinary repairs should be recognized when incurred as revenue expenditures.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Engler Company purchases a new delivery truck for $55,000.The sales taxes are $4,000.The logo of the company is painted on the side of the truck for $1,600.The truck license is $160.The truck undergoes safety testing for $290.What does Engler record as the cost of the new truck?

A)$61,050
B)$60,890
C)$59,000
D)$60,600

Question 6

Equipment was purchased for $300,000.Freight charges amounted to $14,000 and there was a cost of $40,000 to build a foundation and install the equipment.It is estimated that the equipment will have a $60,000 salvage value at the end of its 5-year useful life.Depreciation expense each year using the straight-line method will be

A)$70,800.
B)$58,800.
C)$49,200.
D)$48,000.

Question 7

Mott Company uses the units-of-activity method in computing depreciation.A new plant asset is purchased for $48,000 that will produce an estimated 100,000 units over its useful
Life.The estimated salvage value at the end of its useful life is $4,000.What is the depreciation cost per unit?

A)$4.40
B)$4.80
C)$.44
D)$.48

Question 8

On January 1, a machine with a useful life of five years and a residual value of $30,000 was purchased for $90,000.What is the depreciation expense for year two under the double-declining-balance method of depreciation?

A)$21,600
B)$36,000
C)$28,800
D)$17,280

Question 9

Enos Company has decided to change the estimate of the useful life of an asset that has been in service for two years.Which of the following statements describes the proper way to revise a useful life estimate?

A)Revisions in useful life are permitted if approved by the IRS.
B)Retroactive changes must be made to correct previously recorded depreciation.
C)Only future years will be affected by the revision.
D)Both current and future years will be affected by the revision.

Question 10

If a plant asset is retired before it is fully depreciated and no salvage or scrap value is received,

A)a gain on disposal will be recorded.
B)phantom depreciation must be taken as though the asset were still on the books.
C)a loss on disposal will be recorded.
D)no gain or loss on disposal will be recorded.

Question 11

The method most commonly used to compute depletion is the

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

Question 12

Which of the following is not an intangible asset arising from a government grant?

A)Goodwill
B)Patent
C)Trademark
D)Trade name

Question 13

Natural resources are generally shown on the balance sheet under

A)Intangibles.
B)Investments.
C)Property, Plant, and Equipment.
D)Stockholders' Equity.

Question 14

Improvements are

A)revenue expenditures.
B)debited to an appropriate asset account when they increase useful life.
C)debited to accumulated depreciation when they do not increase useful life.
D)debited to an appropriate expense account when they do not increase useful life.

Question 15

Iverson Company purchased a delivery truck for $45,000 on January 1, 2021.The truck was assigned an estimated useful life of 100,000 miles and has a residual value of $10,000.The truck was driven 18,000 miles in 2021 and 22,000 miles in 2022.Compute depreciation expense using the units-of-activity method for the years 2021 and 2022.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

All of the following factors in computing depreciation are estimates except

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

Question 21

A truck was purchased for $180,000 and it was estimated to have a $36,000 salvage value at the end of its useful life.Monthly depreciation expense of $3,000 was recorded using the straight-line method.The annual depreciation rate is

A)20%.
B)2%.
C)8%.
D)25%.

Question 22

Units-of-activity is an appropriate depreciation method to use when

A)it is impossible to determine the productivity of the asset.
B)the asset's use will be constant over its useful life.
C)the productivity of the asset varies significantly from one period to another.
D)the company is a manufacturing company.

Question 23

A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of five years or 15,000 hours.It is to be depreciated using the units-of-activity method of depreciation.What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

A)$150,000
B)$90,000
C)$130,000
D)$160,000

Question 24

Don's Copy Shop bought equipment for $450,000 on January 1, 2020.Don estimated the useful life to be three years with no salvage value, and the straight-line method of depreciation will be used.On January 1, 2021, Don decides that the business will use the equipment for a total of five years.What is the revised depreciation expense for 2021?

A)$150,000
B)$ 60,000
C)$ 75,000
D)$112,500

Question 25

The book value of an asset will equal its fair market value at the date of sale if

A)a gain on disposal is recorded.
B)no gain or loss on disposal is recorded.
C)the plant asset is fully depreciated.
D)a loss on disposal is recorded.

Question 26

In computing depletion, salvage value is

A)always immaterial.
B)ignored.
C)impossible to estimate.
D)included in the calculation.

Question 27

The amortization period for a patent cannot exceed

A)50 years.
B)40 years.
C)20 years.
D)10 years.

Question 28

Which of the following statements concerning financial statement presentation is not a true statement?

A)Intangibles are reported separately under Intangible Assets.
B)The balances of major classes of assets may be disclosed in the footnotes.
C)The balances of the accumulated depreciation of major classes of assets may be disclosed in the footnotes.
D)The balances of all individual assets, as they appear in the subsidiary plant ledger, should be disclosed in the footnotes.

Question 29

A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the

A)salvage value of the asset sold.
B)market value of the asset sold.
C)book value of the asset sold.
D)accumulated depreciation on the asset sold.

Question 30

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

A)$65,000.
B)$68,600.
C)$69,240.
D)$70,100.

Question 36

A company purchased factory equipment on April 1, 2021, for $160,000.It is estimated that the equipment will have a $20,000 salvage value at the end of its 10-year useful life.Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2021, is

A)$16,000.
B)$14,000.
C)$10,500.
D)$12,000.

Question 37

The calculation of depreciation using the declining-balance method,

A)ignores salvage value in determining the amount to which a constant rate is applied.
B)multiplies a constant percentage times the previous year's depreciation expense.
C)yields an increasing depreciation expense each period.
D)multiplies a declining percentage times a constant book value.

Question 38

Equipment with a cost of $400,000 has an estimated salvage value of $25,000 and an estimated life of four years or 15,000 hours.It is to be depreciated using the units-of-activity method.What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?

A)$100,000
B)$113,800
C)$82,500
D)$93,750

Question 39

Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as

A)capital expenditures.
B)expense expenditures.
C)ordinary repairs.
D)revenue expenditures.

Question 40

A truck costing $110,000 was destroyed when its engine caught fire.At the date of the fire, the accumulated depreciation on the truck was $50,000.An insurance check for $125,000 was received based on the replacement cost of the truck.The entry to record the insurance proceeds and the disposition of the truck will include a credit to

A)Gain on Disposal of $15,000.
B)Truck of $60,000.
C)Accumulated Depreciation of $50,000.
D)Gain on Disposal of $65,000.

Question 41

If a mining company extracts 1,500,000 tons in a period but only sells 1,200,000 tons,

A)total depletion on the mine is based on the 1,200,000 tons.
B)depletion expense is recognized on the 1,500,000 tons extracted.
C)depletion expense is recognized on the 1,200,000 tons extracted and sold.
D)a separate Accumulated Depletion account is set up to record depletion on the 300,000 tons extracted but not sold.

Question 42

Cost allocation for an intangible asset is referred to as

A)amortization.
B)depletion.
C)accretion.
D)capitalization.

Question 43

Intangible assets

A)should be reported under the heading Property, Plant, and Equipment.
B)are not reported on the balance sheet because they lack physical substance.
C)should be reported as Current Assets on the balance sheet.
D)should be reported as a separate classification on the balance sheet.

Question 44

The entry to record depletion expense

A)decreases stockholders' equity and assets.
B)decreases net income and increases liabilities.
C)decreases assets and liabilities.
D)decreases assets and increases liabilities.

Question 45

On January 1, 2019, Santo Company purchased a computer system for $30,500.The system had an estimated useful life of five years and no salvage value.At January 1, 2021, the company revised the remaining useful life to two years.What amount of depreciation will be recorded for 2021 and 2022?

Question 46

Recording depreciation each period is an application of the expense recognition principle.

Question 47

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

Question 48

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

Question 49

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 answers are correct.

Question 50

Angie's Blooms purchased a delivery van for $40,000.The company was given a $4,000 cash discount by the dealer and paid $2,000 in sales tax.Annual insurance on the van is $1,000.As a result of the purchase, by how much will Angie's Blooms increase its van account?

A)$40,000
B)$36,000
C)$39,000
D)$38,000

Question 51

A company purchased office equipment for $40,000 and estimated a salvage value of $8,000 at the end of its 5-year useful life.The constant percentage to be applied against book value each year if the double-declining-balance method is used is

A)20%.
B)25%.
C)40%.
D)5%.

Question 52

Farr Company purchased a new van for floral deliveries on January 1, 2021.The van cost $56,000 with an estimated life of five years and $14,000 salvage value at the end of its useful life.The double-declining-balance method of depreciation will be used.What is the depreciation expense for 2021?

A)$11,200
B)$8,400
C)$16,800
D)$22,400

Question 53

Eckman Company purchased equipment for $120,000 on January 1, 2020, and will use the double-declining-balance method of depreciation.It is estimated that the equipment will have a 5-year life and a $6,000 salvage value at the end of its useful life.The amount of depreciation expense recognized in the year 2022 will be

A)$17,280.
B)$27,360.
C)$28,800.
D)$16,416.

Question 54

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

A)expensed when incurred.
B)capitalized as a part of the cost of the asset.
C)debited to the Accumulated Depreciation account.
D)not recorded until they become material in amount.

Question 55

On July 1, 2021, Hale Kennels sells equipment for $220,000.The equipment originally cost $600,000, had an estimated 5-year life and an expected salvage value of $100,000.The Accumulated Depreciation account had a balance of $350,000 on January 1, 2021, using the straight-line method.The gain or loss on disposal is

A)$30,000 gain.
B)$20,000 loss.
C)$30,000 loss.
D)$20,000 gain.

Question 56

A coal company invests $15 million in a mine estimated to have 20 million tons of coal and no salvage value.It is expected that the mine will 1.year, 1,000,000 tons of coal are extracted and sold.What is the depletion expense for the
First year?

A)$750,000
B)$300,000
C)$75,000
D)Cannot be determined from the information provided.

Question 57

A patent

A)has a legal life of 40 years.
B)is nonrenewable.
C)can be renewed indefinitely.
D)is rarely subject to litigation because it is an exclusive right.

Question 58

A company has the following assets: The total amount reported under Property, Plant, and Equipment would be

A)$19,360,000.
B)$14,400,000.
C)$18,400,000.
D)$15,360,000.

Question 59

All of the following are intangible assets except

A)copyrights.
B)goodwill.
C)patents.
D)research and development costs.

Question 60

Carey Enterprises sold equipment on January 1, 2021 for $10,000.The equipment had cost $48,000.The balance in Accumulated Depreciation at January 1 is $40,000.What entry would Carey make to record the sale of the equipment?

Question 61

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

Question 62

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

Question 63

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

Question 64

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 historical cost principle, the cost of land would be recorded at

A)$107,000.
B)$90,000.
C)$70,000.
D)$102,000.

Question 65

Yocum Company purchased equipment on January 1 at a list price of $120,000, with credit terms 2/10, n/30.Payment was made within the discount period and Yocum was given a $2,400 cash discount.Yocum paid $6,000 in sales tax on the equipment and installation charges of $1,760.Prior to installation, Yocum paid $4,000 to pour a concrete slab on which to place the equipment.What is the total cost of the new equipment?

A)$125,360
B)$129,360
C)$131,760
D)$123,600

Question 66

The declining-balance method of depreciation produces

A)a decreasing depreciation expense each period.
B)an increasing depreciation expense each period.
C)a declining percentage rate each period.
D)a constant amount of depreciation expense each period.

Question 67

Farr Company purchased a new van for floral deliveries on January 1, 2021.The van cost $56,000 and has an estimated life of five years and $14,000 salvage value at the end of its useful life.The double-declining-balance method of depreciation will be used.What is the balance of the Accumulated Depreciation account at the end of 2022?

A)$8,960
B)$26,880
C)$35,840
D)$13,440

Question 68

Grimwood Trucking purchased a tractor-trailer for $171,500.Grimwood uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life.Salvage value is estimated to be $24,500.If the truck is driven 90,000 miles in its first year, how much depreciation expense should Grimwood record?

A)$12,250
B)$15,435
C)$13,230
D)$14,292

Question 69

Which of the following is not true of ordinary repairs?

A)They primarily benefit the current accounting period.
B)They can be referred to as revenue expenditures.
C)They maintain the expected productive life of the asset.
D)They increase the productive capacity of the asset.

Question 70

A loss on the disposal of a plant asset is reported in the financial statements

A)in the Other Revenues and Gains section of the income statement.
B)in the Other Expenses and Losses section of the income statement.
C)as a direct increase to the capital account on the balance sheet.
D)as a direct decrease to the capital account on the balance sheet.

Question 71

Accumulated Depletion

A)is used by all companies with natural resources.
B)has a normal debit balance.
C)is a contra-asset account.
D)is never shown on the balance sheet.

Question 72

If a company incurs legal costs in successfully defending its patent, these costs are recorded by debiting

A)Legal Expense.
B)an Intangible Loss account.
C)the Patent account.
D)a revenue expenditure account.

Question 73

A company decides to exchange its old machine and $231,000 cash for a new machine. The old machine has a book value of $189,000 and a fair value of $210,000 on the date of the exchange.The cost of the new machine would be recorded at

A)$420,000.
B)$441,000.
C)$399,000.
D)cannot be determined.

Question 74

A purchased patent has a legal life of 20 years.It should be

A)expensed in the year of acquisition.
B)amortized over 20 years regardless of its useful life.
C)amortized over its useful life if less than 20 years.
D)not amortized.

Question 75

On January 1, 2021, Petersen Enterprises purchased natural resources for $1,800,000.The company expects the resources to produce 12,000,000 units of product.(1) What is the depletion cost per unit? (2) If the company mined and sold 20,000 units in January, what is depletion expense for the month?

Question 76

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

Question 77

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

Question 78

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

Question 79

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 80

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.