Deck 8: Property, Plant and Equipment and Intangible Assets

Question 1

Once amounts attributed to a plant asset are reported on the balance sheet, the cost is then allocated to an expense on the income statement as that asset is used in operations.

Answer 1

True

Question 2

Land used as a site for operating facilities is classified in the intangible assets category on the balance sheet.

Answer 2

False

Question 3

The initial recorded cost of a plant asset should include both the cash and/or cash equivalent given up to acquire the asset and any costs of preparation for use.

Answer 3

True

Question 4

The interest cost incurred to finance the acquisition of a delivery truck is part of the truck's initial cost.

Question 5

The costs of leasehold improvements are depreciated over the life of the lease or the life of the improvements, whichever is shorter.

Question 6

Depreciation requires only two estimates-useful life and salvage value-both of which are specified by GAAP depending on the asset type.

Question 7

Impairment of long-term plant assets is determined by comparing the sum of expected future cash flows from the asset with the asset's net book value.

Question 8

Depreciation is the recognition of the change in market value of a plant asset over time.

Question 9

One purpose of using accelerated depreciation for tax purposes is it reduces income taxes payable in the early years of life of a plant asset.

Question 10

In accounting, the terms "depreciation" and "amortization" both have basically the same meaning--that is, a periodic charging to expense.

Question 11

A plant asset's useful life to an entity extends from its acquisition date to its expected disposal date.

Question 12

Periodic depreciation for accounting purposes is the decrease in a plant asset's market value from the beginning of the period to the end of the period.

Question 13

Over the life of a depreciable asset, its recorded cost decreases, the related accumulated depreciation increases, and its book value remains constant.

Question 14

The tax advantage of using accelerated depreciation results from the increased amount of total depreciation deductions that are available over the life of the related asset.

Question 15

The units-of-production depreciation method allocates depreciation in proportion to the asset's use in operations.

Question 16

Expenditures for ordinary maintenance and repairs of plant assets are capital expenditures.

Question 17

Betterments can improve the quality of services rendered by a plant asset without necessarily extending its useful life.

Question 18

The cost of repairing a new desk's leg--broken accidentally by an employee moving the desk into place--is expensed immediately.

Question 19

The sale of a plant asset at less than cost requires that a company recognize a loss in the income statement.

Question 20

Mendez Company purchases equipment for $7,700 for which it estimates a seven-year useful life and a $700 salvage value. If Mendez uses straight-line depreciation and sells the equipment for $3,500 after four years of use, Mendez will show a $300 gain on the sale.

Question 21

A loss is recorded when a plant asset is sold for more than its book value.

Question 22

No gain or loss is recorded when a plant asset is sold for an amount equal to its book value.

Question 23

If an uninsured asset is destroyed by fire before the end of its useful life, the firm suffers a loss measured by the asset's estimated salvage value.

Question 24

All research and development costs related to a firm's products and its production processes must be expensed when incurred.

Question 25

The amortization period for all intangible assets is 40 years.

Question 26

R&D expense is treated as an operating expense and is not capitalized.

Question 27

Franchises are considered to be an identifiable intangible asset and must be amortized.

Question 28

Return on assets is computed by dividing net sales by average total assets.

Question 29

Return on assets measures how effectively and efficiently a firm uses its assets in its operations.

Question 30

Asset turnover is computed as net sales divided by year-end total assets.

Question 31

Asset turnover measures how effectively a firm generates sales revenue from its investment in assets.

Question 32

Which of the following is not a balance sheet category for long-lived assets?

A) Property, Plant and Equipment
B) Revenue expenditures
C) Intangible assets
D) None of the above

Question 33

Which of the following is a term identifying the periodic expensing of a plant asset?

A) Amortization
B) Depletion
C) Betterment
D) Depreciation
E) None of the above

Question 34

Which of the following plant assets is not depreciated?

A) Leasehold improvements
B) Equipment
C) Land for site use
D) Furniture
E) All of these are depreciated

Question 35

Which of the following plant assets is not depreciated?

A) Equipment
B) Furniture
C) Land improvements
D) Delivery truck
E) All of these are depreciated

Question 36

Benson Company acquired a machine that involved the following expenditures and related factors:

A) $33,870
B) $42,230
C) $30,030
D) $32,730
E) None of the above

Question 37

McDonald Inc. acquired a machine that involved the following expenditures and related factors:

A) $17,088
B) $14,008
C) $16,008
D) $15,808
E) None of the above

Question 38

A land site for a new office building is purchased for $180,000. A barn on the site will be razed at a net cost of $17,000. The $17,000 razing expenditure is properly attributed to

A) Office Building
B) Land
C) Razing Expense
D) Land Improvements
E) None of the above

Question 39

On January 1, 2019, Williams Company purchased a copy machine. The machine costs $160,000, its estimated useful life is 8 years, and its expected salvage value is $10,000. What is the depreciation expense for 2020 using double-declining-balance method?

A) $40,000
B) $30,000
C) $26,250
D) $17,500

Question 40

Which of the following estimates are required when calculating depreciation expense?
1) Depreciation rate
2) Useful life
3) Expected maintenance costs
4) Salvage value

A) 1, 2, and 4
B) 1, 2, 3, and 4
C) 2 and 4
D) 2, 3, and 4

Question 41

Which statement is true concerning the straight-line method of depreciation?

A) Depreciation is recognized evenly over the estimated useful life of the asset
B) Purchase cost is expensed in the year of acquisition
C) Depreciation is equal to the proceeds received on sale less the amount paid to acquire the asset
D) Depreciation does not take salvage value into consideration

Question 42

Which of the following is not necessary in calculating the depreciation expense for the first year for a newly purchased factory forklift?

A) Estimated useful life
B) Market value of the forklift during its useful life
C) Estimated salvage value
D) Depreciation rate
E) Total cost of the forklift at acquisition

Question 43

At what point is an asset considered to be impaired?

A) When the net book value is greater than the sum of expected cash flows
B) When the net book value is less than the sum of expected cash flows
C) When the net book value is less than the market value
D) When the net book value is greater than the market value

Question 44

BTL Company purchased a tractor at a cost of $90,000. The tractor has an estimated salvage value of $10,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,200 hours in 2020.
What method of depreciation will produce the maximum depreciation expense in 2019?

A) Straight-line
B) Units-of-production
C) Double-declining-balance
D) All methods produce the same expense in 2019

Question 45

BTL Company purchased a tractor at a cost of $60,000. The tractor has an estimated salvage value of $10,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020.
What method of depreciation will produce the maximum depreciation expense in 2020?

A) Straight-line
B) Units-of-production
C) Double-declining-balance
D) All methods produce the same expense in 2020

Question 46

BTL Company purchased a tractor at a cost of $90,000. The tractor has an estimated salvage value of $10,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,200 hours in 2020.
What amount will BTL Company report as depreciation expense over the 8-year life of the equipment using straight-line depreciation?

A) $12,500
B) $20,000
C) $90,000
D) $80,000

Question 47

BTL Company purchased a tractor at a cost of $60,000 on January 1, 2019. The tractor has an estimated salvage value of $10,000 and an estimated life of 8 years. If BTL uses the straight-line method, what is the book value at January 1, 2023?

A) $35,000
B) $25,000
C) $41,250
D) Some other answer

Question 48

The purpose of depreciation accounting is to:

A) Reflect changes in the current value of a plant asset over its useful life
B) Accumulate funds to replace a plant asset at the end of its useful life
C) Allocate a plant asset's cost, less its salvage value, to expense over the asset's useful life
D) Have a plant asset's book value equal its initial cost by the end of its useful life
E) None of the above

Question 49

What is the term identifying the expected net recovery from the disposal of a plant asset at the end of its useful life?

A) Accumulated depreciation
B) Salvage value
C) Depreciation expense
D) Market value
E) None of the above

Question 50

On January 1, 2019, Mendez Inc. acquired a new machine for $93,375. Its estimated useful life is nine years with an expected salvage value of $3,375. Assuming straight-line depreciation, 2019 depreciation expense is

A) $7,875
B) $8,250
C) $9,500
D) $10,000
E) None of the above

Question 51

On April 1, 2019, Graham Inc. acquired a new machine for $80,000. Its estimated useful life is eight years with an expected salvage value of $8,000. Assuming straight-line depreciation, 2019 depreciation expense is:

A) $ 9,000
B) $ 6,750
C) $ 7,500
D) $10,000
E) None of the above

Question 52

On January 1, 2019, Clemente Company purchased a new truck for $14,700. Its estimated useful life is seven years or 200,000 miles. The truck's expected salvage value is $700. During 2019, the truck was driven 20,000 miles.
Assuming units-of-production depreciation, 2019 depreciation expense is:

A) $1,764
B) $2,100
C) $1,400
D) $2,000
E) None of the above

Question 53

On January 1, 2019, Williams Company purchased a bottle-capping machine for $80,000. During its useful life, the company expects that the machine will cap 1,500,000 bottles. The machine's expected salvage value is $5,000. During 2019, the machine capped 250,000 bottles and during 2020, the machine capped 300,000 bottles.
Assuming units-of-production depreciation, 2020 depreciation expense is:

A) $12,500
B) $13,333
C) $15,000
D) $16,000
E) None of the above

Question 54

Which of the following depreciation methods most closely relates periodic depreciation expense to the periodic use of the asset?

A) Straight line.
B) Units of production.
C) Double-declining balance
D) None of the above

Question 55

On January 1, Global, Inc. purchased a new machine for $80,000. Its estimated useful life is eight years with an expected salvage value of $6,000. Assuming double-declining balance depreciation, depreciation expense for the first year is:

A) $ 7,500
B) $ 6,750
C) $18,500
D) $20,000
E) None of the above

Question 56

On January 1, 2019, Beldon Inc. purchased a new machine for $60,000. Its estimated useful life is eight years with an expected salvage value of $6,000. Assuming double-declining balance depreciation, 2020 depreciation expense is:

A) $15,000
B) $10,125
C) $11,250
D) $13,500
E) None of the above

Question 57

On January 1, Wallace Inc. purchased a new machine for $96,000. Its estimated useful life is 10 years with an expected salvage value of $16,000. Assuming double-declining balance depreciation, depreciation expense for the first year is:

A) $10,000
B) $ 6,000
C) $19,200
D) $16,000
E) None of the above

Question 58

On January 1, 2019, Vandell, Inc. purchased a new machine for $96,000. Its estimated useful life is 16 years with an expected salvage value of $16,000. Assuming double-declining balance depreciation, 2020 depreciation expense is:

A) $10,500
B) $ 8,750
C) $ 6,000
D) $12,000
E) None of the above

Question 59

Equipment was purchased for $56,000 on March 1, 2019. Its estimated useful life is eight years with a $6,000 expected salvage value. Using double-declining balance depreciation, the 2020 depreciation expense is:

A) $11,083
B) $11,667
C) $ 8,750
D) $10,000
E) None of the above

Question 60

Equipment was purchased for $36,000 on October 1, 2019. Its estimated useful life is four years with a $2,100 expected salvage value. Using double-declining balance depreciation, the 2020 depreciation expense is:

A) $15,750
B) $ 4,500
C) $ 3,750
D) $ 7,500
E) None of the above

Question 61

At the end of the expected useful life of a depreciable asset with an estimated 15% salvage value, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?
Straight Units-of Double-Declining

Question 62

Which depreciation method does not consider salvage value in its first year calculation?

A) Straight line
B) Double-declining balance
C) Units of production
D) None of the above

Question 63

Which of the following depreciation methods would result in the most depreciation in the first year, assuming an eight year life and no salvage value?

A) Double-declining balance
B) Straight line
C) Not enough information available to determine answer
D) The depreciation would be the same under both methods

Question 64

The book value of a depreciable asset is:

A) The original cost of the asset
B) The original cost of the asset less its accumulated depreciation
C) The original cost of the asset less its salvage value
D) The accumulated depreciation on the asset
E) None of the above

Question 65

An accelerated depreciation method recognizes:

A) Equal amounts of depreciation for each year of an asset's useful life
B) Larger amounts of depreciation in the later periods than are recognized in the early periods of an asset's useful life
C) Larger amounts of depreciation in the early periods than are recognized in the later periods of an asset's useful life
D) More total depreciation expense over an asset's useful life than is recognized by the straight-line method
E) None of the above

Question 66

Lemon Company bought a machine on January 1, 2019. The machine cost $72,000 and had an expected salvage value of $12,000. The life of the machine was estimated to be 5 years. Using straight line depreciation, the book value of the machine at the beginning of the third year would be:

A) $60,000
B) $24,000
C) $36,000
D) $48,000

Question 67

Gardner Corporation purchased a truck at the beginning of 2019 for $90,000. The truck is estimated to have a salvage value of $3,000 and a useful life of 120,000 miles. It was driven 18,000 miles in 2019 and 32,000 miles in 2020.
What is the book value of the truck on December 31, 2020?

A) $55,800
B) $42,000
C) $53,750
D) $30,000

Question 68

On April 30, 2019, McKensie Products purchased machinery for $66,000. The useful life of this machinery is estimated at 5 years, with a $16,000 residual value. The company uses the double-declining-balance method.
Depreciation expense for the fiscal year ending on December 31, 2020 will be:

A) $15,840
B) $18,400
C) $21,067
D) $19,360

Question 69

On April 1, 2019, O'Malley Co. purchased machinery for $120,000. Salvage value was estimated to be $5,000. The machinery will be depreciated over ten years using the double-declining balance method.
If depreciation is computed on the basis of the nearest full month, determine the depreciation expense for the period January 1 thru December 31, 2020 on this machinery.

A) $20,800
B) $20,400
C) $20,550
D) $20,933

Question 70

Foyle Company purchased a new van for floral deliveries on January 1, 2019. The van cost $36,000 with an estimated life of 5 years and $4,000 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 2020?

A) $14,400
B) $ 8,640
C) $19,200
D) $23,040

Question 71

On January 1, 2018, Bold Company acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated salvage value is $20,000.
What is the amount of depreciation expense for 2020, if the company uses the double-declining-balance method of depreciation?

A) $25,920
B) $17,280
C) $14,400
D) $28,800

Question 72

Forrester Company purchased a machine on January 1, 2019 for $60,000, with a 5-year life, and a $6,000 residual life. If the company uses the double-declining balance method of depreciation, compute the book value of the machine on December 31, 2021.

A) $10,000
B) $12,960
C) $10,800
D) $24,000

Question 73

On April 1, 2019, CanAm Company purchased a copper mine at a cost of $14,000,000. The mine was estimated to contain 1,000,000 tons of ore and to have a residual value of $4,000,000 after mining operations are completed. During the year, 250,000 tons of ore were removed from the mine.
On December 31, 2019, the book value of the mine is:

A) $10,250,000
B) $11,500,000
C) $ 8,750,000
D) $ 7,000,000

Question 74

A revenue expenditure:

A) Increases the book value of a long-term asset
B) Decreases the book value of a long-term asset
C) Increases a revenue account
D) Increases an expense account
E) None of the above

Question 75

Which of the following is a capital expenditure?

A) Cost to add air conditioning to a company car
B) Cost to purchase three ashtrays for the company conference room
C) Cost to replace spark plug on company lawnmower
D) Cost to have store windows washed
E) None of the above

Question 76

Which of the following is a revenue expenditure?

A) Adding air conditioning to a company car
B) Adding a loading and unloading dock to the company's warehouse
C) Purchasing a microcomputer for the marketing department
D) Replacing the battery in a company truck
E) None of the above

Question 77

Which of the following is a capital expenditure?

A) Cleaning, waxing, and polishing a company car
B) Purchasing a wastebasket for company office
C) Adding a power winch to a company service truck
D) Replacing filters on the company furnace
E) None of the above

Question 78

How is the gain (loss) on a plant asset sale calculated?

A) Asset sale price - Asset purchase cost
B) Asset market value - Asset sale price
C) Asset sale price - Book value on balance sheet
D) Asset sale price - Total accumulated depreciation

Question 79

Reilly Company purchased a tractor at a cost of $90,000. The tractor has an estimated salvage value of $10,000 and an estimated life of 8 years, or 10,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,100 hours in 2020. On January 1, 2021, the company decided to sell the tractor for $35,000. Reilly uses the units-of-production method to account for the depreciation on the tractor.
Based on this information, the entry to record the sale of the tractor will show:

A) No gain or loss on the sale
B) A loss of $19,000
C) A loss of $25,000
D) A gain of $25,000

Question 80

On January 1, 2019, Voss Company purchased equipment for $86,000. Voss uses straight-line depreciation and estimates an eight-year useful life and a $6,000 salvage value. On December 31, 2023, Voss sells the equipment for $30,000. In recording this sale, Voss should reflect:

A) A $3,000 loss
B) A $12,000 loss
C) A $6,000 loss
D) No gain or loss
E) None of the above