Deck 6: Long-Term Assets: Property, Plant Equipment and Intangibles

Question 1

Which of the following is not a depreciable asset?

A) Building
B) Equipment
C) Land Improvements
D) Land
E) Both c and d are nondepreciable.

Answer 1

Land

Question 2

Property, plant and equipment assets

A) have useful lives that are less than their economic lives.
B) are long-term in nature and are generally subject to depreciation.
C) possess physical substance and legal lives that range up to 40 years.
D) are normally recorded at depreciable cost minus Accumulated Depreciation.
E) all of the above are true.

Answer 2

are long-term in nature and are generally subject to depreciation.

Question 3

The cost of a PP&E asset is the

A) sum of all costs incurred to obtain the asset.
B) sum of all reasonable and necessary costs incurred to obtain the asset and prepare it for use.
C) list price of the asset minus any prompt payment discount offered to the buyer.
D) list price of the asset minus salvage value plus freight and installation charges.
E) purchase price of the asset minus freight charges paid by the buyer.

Answer 3

sum of all reasonable and necessary costs incurred to obtain the asset and prepare it for use.

Question 4

Terra University purchased the Hill Apartments and the land on which the apartments are located. The University plans to demolish the apartments and build a new student recreational center on the site. The cost to demolish the Hill Apartments should be

A) depreciated over the life of the Student Recreational Center.
B) written off as a loss in the year the apartments are demolished.
C) expensed in the period of demolition.
D) capitalized as part of the cost of land.
E) none of the above.

Question 5

On September 1, 2010, Pablo Co. purchased a parcel of land for $150,000. Pablo paid $5,000 in legal costs to research the title for the land. The following additional costs were incurred during 2010 as Pablo began building construction on the
Pablo should record which of the following amounts as the cost for the land and the cost for the building:

Question 6

Dalmer Co. purchased a hydraulic machine with a retail price of $60,000; the vendor grants Dalmer a 5% discount. Freight charges to deliver the machine are $1,500, and installation costs are $750. During installation, an employee at Dalmer accidentally damaged one of the steel rods on the hydraulic machine, resulting in a repair cost of $500. What is Dalmer's total cost of the hydraulic machine?

A) $59,250
B) $60,000
C) $61,500
D) $62,250
E) none of the above

Question 7

On June 1, 2010, Kall Print Co. replaced one of its printing presses. The following information is available on that date:
During 2010, Kall Print incurred $500 repair costs. What amount should Kall Print capitalize as the cost of the new printing press?

A) $375,000
B) $383,500
C) $385,000
D) $385,500
E) none of the above

Question 8

Use the following information to answer questions
On February 1, 2010, Consolidated Department Stores purchased the assets of Jackson Department Store for $750,000. Following are the book and fair market values of those assets at the time of acquisition:


-Consolidated should recognize the cost of the building as

A) $175,000
B) $187,500
C) $237,500
D) $281,250
E) $300,000

Question 9

Use the following information to answer questions
On February 1, 2010, Consolidated Department Stores purchased the assets of Jackson Department Store for $750,000. Following are the book and fair market values of those assets at the time of acquisition:


-Consolidated should recognize the cost of the land as

A) $350,000
B) $328,125
C) $225,000
D) $187,500
E) $100,000

Question 10

Use the following information to answer questions
On February 1, 2010, Consolidated Department Stores purchased the assets of Jackson Department Store for $750,000. Following are the book and fair market values of those assets at the time of acquisition:


-Consolidated should recognize the cost of the equipment as

A) $ 75,000
B) $ 87,500
C) $ 93,750
D) $100,000
E) none of the above

Question 11

Use the following information to answer questions
On February 1, 2010, Consolidated Department Stores purchased the assets of Jackson Department Store for $750,000. Following are the book and fair market values of those assets at the time of acquisition:


-Consolidated should recognize the cost of the cash registers as

A) $93,750
B) $50,000
C) $46,875
D) $ 0
E) none of the above

Question 12

From the standpoint of accounting, depreciation is a

Question 13

An asset's estimated value at the end of its useful life is its

A) book value.
B) carrying value.
C) fair market value.
D) net realizable value.
E) salvage value.

Question 14

At acquisition, salvage value reflects the

A) estimated value of an asset at the end of its useful life.
B) estimated book value of an asset at the end of its useful life.
C) total accumulated depreciation of an asset at the end of its useful life.
D) estimated gain on disposal of an asset at the end of its useful life.
E) none of the above.

Question 15

The depreciable cost of an asset is

A) original cost minus accumulated depreciation.
B) original cost plus accumulated depreciation.
C) list price plus salvage value.
D) list price minus salvage value.
E) none of the above

Question 16

A depreciation method that allocates an equal amount of depreciation expense to each year of an asset's estimated useful life is the

A) amortization method.
B) double-declining balance method.
C) straight-line method.
D) allowance estimation method.
E) units-of-production method.

Question 17

A depreciation method under which annual depreciation expense is computed by multiplying twice the straight-line rate times an asset's book value at the beginning of the year is the

A) amortization method.
B) double-declining balance method.
C) straight-line method.
D) allowance estimation method.
E) units-of-production method.

Question 18

A depreciation method in which depreciation expense for any given period is a function of the level of asset usage during that period is the

A) amortization method.
B) double-declining balance method.
C) straight-line method.
D) allowance estimation method.
E) units-of-production method.

Question 19

On January 1, 2010, Red Airways bought a plane costing $1,000,000. The plane has an estimated salvage value of $100,000 and an estimated useful life of 10 years. Red Airways uses the straight-line method of depreciation. The plane was estimated to have a fair market value of $950,000 at the end of 2010. How much depreciation expense should Red Airlines record on this plane on December 31, 2010?

A) $ 50,000
B) $ 90,000
C) $100,000
D) $900,000
E) none of the above

Question 20

On April 1, 2010, Pierre Company (a calendar-year firm) purchased a new machine for $12,000. The machine had a useful life of 5 years and a salvage value of $2,000. Pierre uses straight-line depreciation. Depreciation for 2010 is

A) $1,500.
B) $1,800.
C) $2,000.
D) $2,400.
E) none of the above

Question 21

On June 1, 2010, Pacific Landscaping bought a lawnmower for $29,000. The lawnmower has an estimated life of four years and a $5,000 salvage value. Pacific Landscaping uses the straight-line method of depreciation. Total depreciation expense for the year ended December 31, 2010, is

A) $3,000.
B) $3,500.
C) $4,329.
D) $6,000.
E) none of the above

Question 22

Parade Corp. is a calendar year company. On June 30, 2010, Parade purchased a printing press for $280,000. Installation costs were $20,000. The printing press has an estimated 10 year life, at which time it will have a $10,000 salvage value. Using the straight line depreciation method, Parade's 2010 depreciation expense for this press is

A) $13,500.
B) $14,500.
C) $15,000.
D) $17,500.
E) none of the above

Question 23

Sean Power Lines purchased a truck on January 1, 2010. The truck cost $75,000 and has an estimated useful life of 5 years or 100,000 miles. The truck's estimated salvage value is $5,000. The truck was driven for 30,000 miles during 2010. Using the units-of-production method, Sean Power Lines' depreciation expense for 2010 is

A) $14,000.
B) $15,000.
C) $21,000.
D) $22,500.
E) $30,000.

Question 24

On July 1, 2010, Studemont purchased a delivery truck for $50,000. The truck has a $10,000 salvage value and a 160,000-mile estimated useful life. Studemont uses the units-of-production depreciation method. Studemont drove the truck 20,000 and 50,000 miles during 2010 and 2011, respectively. What is the balance in Studemont's Accumulated Depreciation account relative to this delivery truck at December 31, 2011?

A) $ 5,000
B) $12,500
C) $15,000
D) $17,500
E) $21,875

Question 25

On January 2, 2010, Carter Manufacturing Co. purchased a machine for $270,000. The estimated useful life of the machine is 10 years or 250,000 MHs. The machine has an estimated $20,000 salvage value. Actual usage for the first year was 31,250 MHs. Which of the following will result in the highest depreciation for the first year?

A) Double-declining balance method
B) Straight line method
C) Units of production method
D) Fair market value method
E) Each of the above will give approximately the same depreciation for the first year.

Question 26

Use the following information to answer questions
On November 1, 2010, Shining purchased a new display case for $7,500. Shining paid an extra $600 for delivery costs, $200 for a platform needed underneath the case, and $900 for installation costs. The display case has a $500 estimated salvage value and a 10-year estimated useful life.

-What was the total cost of the machine to Shining?

A) $7,500
B) $8,100
C) $8,300
D) $8,700
E) $9,200

Question 27

Use the following information to answer questions
On November 1, 2010, Shining purchased a new display case for $7,500. Shining paid an extra $600 for delivery costs, $200 for a platform needed underneath the case, and $900 for installation costs. The display case has a $500 estimated salvage value and a 10-year estimated useful life.

-How much depreciation expense on the new display case should Shining recognize in 2010?

A) $138.33
B) $145.00
C) $153.33
D) $725.00
E) $870.00

Question 28

Use the following information to answer questions
On January 1, 2010, Run & Go Pizza purchased a delivery truck for $50,000. The truck has a $5,000 salvage value and a four-year (or 56,250 miles) useful life. During 2010, the company put 15,750 miles on the delivery truck.

-If Run & Go uses the straight-line method, how much depreciation expense should Run & Go recognize in 2010?

A) $ 3,150
B) $ 3,500
C) $11,250
D) $12,500
E) none of the above

Question 29

Use the following information to answer questions
On January 1, 2010, Run & Go Pizza purchased a delivery truck for $50,000. The truck has a $5,000 salvage value and a four-year (or 56,250 miles) useful life. During 2010, the company put 15,750 miles on the delivery truck.

-If Run & Go uses the double-declining balance method, how much depreciation expense should Run & Go recognize in 2010?

A) $ 6,300
B) $ 7,000
C) $22,500
D) $25,000
E) none of the above

Question 30

Use the following information to answer questions
On January 1, 2010, Run & Go Pizza purchased a delivery truck for $50,000. The truck has a $5,000 salvage value and a four-year (or 56,250 miles) useful life. During 2010, the company put 15,750 miles on the delivery truck.

-If Run & Go uses the units-of-production method, how much depreciation expense should Run & Go recognize in 2010?

A) $ 8,000
B) $ 9,000
C) $11,250
D) $12,500
E) $12,600

Question 31

Use the following information to answer questions
On September 1, 2010, Faster than R&G purchased a delivery truck for $42,000. The truck has a $3,000 salvage value and a five-year (or 60,000 miles) useful life. During 2010, the company put 8,700 miles on the delivery truck; the company put 16,100 miles on the truck in 2011. (Round all answers to the nearest dollar.)

-If Faster than R&G uses the straight line method, how much depreciation expense should Faster than R&G recognize in 2010?

A) $1,950
B) $2,100
C) $2,600
D) $7,800
E) $8,400

Question 32

Use the following information to answer questions
On September 1, 2010, Faster than R&G purchased a delivery truck for $42,000. The truck has a $3,000 salvage value and a five-year (or 60,000 miles) useful life. During 2010, the company put 8,700 miles on the delivery truck; the company put 16,100 miles on the truck in 2011. (Round all answers to the nearest dollar.)

-If Faster than R&G uses the straight line method, how much depreciation expense should Faster than R&G recognize in 2011?

A) $10.465
B) $ 8,400
C) $ 7,800
D) $ 5,600
E) $ 5,200

Question 33

Use the following information to answer questions
On September 1, 2010, Faster than R&G purchased a delivery truck for $42,000. The truck has a $3,000 salvage value and a five-year (or 60,000 miles) useful life. During 2010, the company put 8,700 miles on the delivery truck; the company put 16,100 miles on the truck in 2011. (Round all answers to the nearest dollar.)

-If Faster than R&G uses the double-declining balance method, how much depreciation expense should Faster than R&G recognize in 2010?

A) $ 5,200
B) $ 5,600
C) $ 6,500
D) $ 7,000
E) $15,600

Question 34

Use the following information to answer questions
On September 1, 2010, Faster than R&G purchased a delivery truck for $42,000. The truck has a $3,000 salvage value and a five-year (or 60,000 miles) useful life. During 2010, the company put 8,700 miles on the delivery truck; the company put 16,100 miles on the truck in 2011. (Round all answers to the nearest dollar.)

-If Faster than R&G uses the double-declining balance method, how much depreciation expense should Faster than R&G recognize in 2011?

A) $ 8,907
B) $ 9,707
C) $13,360
D) $14,560
E) none of the above

Question 35

Use the following information to answer questions
On September 1, 2010, Faster than R&G purchased a delivery truck for $42,000. The truck has a $3,000 salvage value and a five-year (or 60,000 miles) useful life. During 2010, the company put 8,700 miles on the delivery truck; the company put 16,100 miles on the truck in 2011. (Round all answers to the nearest dollar.)

-If Faster than R&G uses the units-of-production method, how much depreciation expense should Faster than R&G recognize in 2010?

A) $ 820
B) $1,885
C) $5,070
D) $5,655
E) $6,090

Question 36

Use the following information to answer questions
On September 1, 2010, Faster than R&G purchased a delivery truck for $42,000. The truck has a $3,000 salvage value and a five-year (or 60,000 miles) useful life. During 2010, the company put 8,700 miles on the delivery truck; the company put 16,100 miles on the truck in 2011. (Round all answers to the nearest dollar.)

-If Faster than R&G uses the units-of-production method, how much depreciation expense should Faster than R&G recognize in 2011?

A) $ 5,070
B) $ 5,460
C) $10,465
D) $11,270
E) $16,120

Question 37

Use the following information to answer questions
Cantona Manufacturing Co. purchased a machine on July 1, 2010, for $45,000. The machine has an estimated five year life with a salvage value of $5,000.

-Assuming Cantona uses straight-line depreciation, Accumulated Depreciation at the end of 2011 is

A) $ 4,000.
B) $ 4,500.
C) $ 8,000.
D) $12,000.
E) $13,500.

Question 38

Use the following information to answer questions
Cantona Manufacturing Co. purchased a machine on July 1, 2010, for $45,000. The machine has an estimated five year life with a salvage value of $5,000.

-Assuming Cantona uses double-declining balance method, Accumulated Depreciation at the end of 2011 is

A) $ 8,000
B) $ 9,000
C) $20,800
D) $22,800
E) $23,400

Question 39

Blair Inc. bought a $1,000,000 machine on January 1, 2004. Blair estimated that the machine would have a salvage value of $100,000 at the end of its 20 year useful life. Blair uses the straight-line method of depreciation. Blair sold the machine to New York Inc. on October 31, 2010 for $700,000 cash. How much depreciation expense should Blair recognize in 2010, and what gain or loss should Blair recognize from the sale of the plane to New York Inc.?

Question 40

Loli Ice Cream Services purchased an ice-cream machine on January 1, 2005, for $44,000. At the time of purchase, the machine was estimated to have a useful life of 10 years and a salvage value of $2,000. The company records depreciation on a straight-line basis. On April 1, 2010, the machine was sold for $20,000. What gain or loss should be recognized from the sale of the machine?

A) $ 50 gain
B) $ 150 gain
C) $1,950 loss
D) $2,150 gain
E) none of the above

Question 41

Which of the following is not a natural resource?

A) Petroleum
B) Natural gas
C) Timber
D) Land improvement
E) All of the above are natural resource.

Question 42

Allocating the cost of natural resources to the periods these assets provide economic benefit to an entity is called

A) amortization.
B) depletion.
C) depreciation.
D) deterioration.
E) degradation.

Question 43

The Deep Hole Company recently paid $2,400,000 for a mine capable of producing 6,000 tons of ore. In the first year, Deep Hole extracted 600 tons of ore from the mine and immediately sold it at $500 per ton.

A) Deep Hole's sales revenue account balance increased by $240,000 immediately after its ore sales.
B) Deep Hole's cost of goods sold account balance increased by $300,000 immediately after its ore sales.
C) Deep Hole earned $300,000 gross profit related to its ore sales.
D) Deep Hole's accumulated depletion account balance at the end of Year 1 was $240,000.
E) The book value of Deep Hole's mine at the end of Year 1 is $2,100,000.

Question 44

Use the following information to answer questions
On June 30, 2010, Jumbo Corp. purchased a mine for $2,700,000 with an estimated 1,500,000 tons of extractable ore. The mine has an estimated value of $300,000 after the ore has been extracted. During the first year, 150,000 tons of ore were extracted and 100,000 tons were sold.

-What amount of ore cost is included in Cost of Goods Sold for 2010?

A) $150,000
B) $160,000
C) $180,000
D) $270,000
E) $400,000

Question 45

Use the following information to answer questions
On June 30, 2010, Jumbo Corp. purchased a mine for $2,700,000 with an estimated 1,500,000 tons of extractable ore. The mine has an estimated value of $300,000 after the ore has been extracted. During the first year, 150,000 tons of ore were extracted and 100,000 tons were sold.

-What amount of ore cost is included in Inventory at the end of 2010?

A) $270,000
B) $240,000
C) $90,000
D) $ 80,000
E) $ 0

Question 46

Assets that do not have a physical form or substance are called

A) contra-assets.
B) current assets.
C) plant, property and equipment.
D) intangible assets.
E) miscellaneous assets.

Question 47

Intangible assets

A) are randomly amortized depending on the quantity of revenues available to the company holding those assets.
B) should be amortized over the shorter of their legal or useful life or 40 years.
C) are typically amortized using contra-asset accounts.
D) are expensed payment has been made for them.
E) both b and c.

Question 48

All intangibles assets are

Question 49

Which of the following intangible assets have legally established useful lives?

Question 50

On January 1, 2010, Hernandez Enterprises signed a 5-year lease on office space with Carlton Inc. During the first six months of 2010, Hernandez spent $351,000 on improvements to property leased from Carlton Inc. After the improvements were completed, Hernandez began using the office space on July 1, 2010. The improvements have a remaining useful life of 10 years and a salvage value of $50,000. At the end of 2010, Hernandez will make an adjusting entry relative these leasehold improvements for which of the following amounts?

A) $30,150
B) $35,100
C) $39,000
D) $70,200
E) $78,000

Question 51

On January 1, 2010, Green Pharmaceuticals received a patent for a new arthritis medication. Research and development costs of $1,000,000 had been incurred by Green during 2007-2009 in developing this patent. The patent has a legal life of 20 years and has an estimated useful life of 5 years. What adjusting journal entry should Green prepare on December 31, 2010 relative to this patent?

A)
B)
C)
D)
E) No adjusting entry is necessary at December 31, 2010.

Question 52

On January 1, 2010, Green Pharmaceuticals purchased a patent for a new arthritis medication from Winwood Research Labs for $1,000,000. The patent has a remaining legal life of 10 years and an estimated useful life of 5 years. What adjusting journal entry should Green prepare on December 31, 2010 relative to this patent?

A)
B)
C)
D)
E) No adjusting entry is necessary at December 31, 2010.

Question 53

Goodwill

A) is recorded when a business has a satisfied base of customers.
B) is defined as the excess of market value of a business's assets over the book value of that business's liabilities.
C) should be tested annually for impairment.
D) should be amortized over a period not to exceed 40 years.
E) write-offs are shown on the income statement as contra-revenue amounts.

Question 54

T Corp. purchased K Corp. for $1,450,000. At the time of the purchase, K Corp. had the following assets and liabilities: At the time of the purchase, T Corp. would record

A) $ 50,000 of negative goodwill.
B) $379,000 of goodwill.
C) $584,500 of goodwill
D) $790,000 of goodwill.
E) none of the above.

Question 55

A key advantage of using historical costs rather than fair market values for assets is

A) relevance.
B) materiality.
C) matching.
D) rationality.
E) objectivity.

Question 56

Recording asset impairments is based on the concept of

A) historical cost.
B) understandability.
C) materiality.
D) conservatism.
E) deferrals.

Question 57

Northeast Natural Gas recently put a $125,000 new roof on its building. The roof has a 25-year useful life; the building has a remaining 30-year useful life. How should Northeast recognize its purchase of the new roof?

A) Capitalize the roof and depreciate it over 25 years.
B) Expense the roof since its life is less than the building's life.
C) Capitalize the roof and depreciate it over 30 years.
D) Expense the roof because it is a replacement of something that was already on the building.
E) Capitalize the roof and begin depreciating it after it provides five years of service.

Question 58

Use the following information to answer questions
The following information is from Sargent's 2009 and 2010 financial statements.

-What is the average useful life of Sargent's assets in 2010?

A) 5.77 years
B) 7.14 years
C) 18.75 years
D) 25.00 years
E) 27.27 years

Question 59

Use the following information to answer questions
The following information is from Sargent's 2009 and 2010 financial statements.

-What is the average asset age of Sargent's assets in 2010?

A) 3.50 years
B) 5.77 years
C) 7.14 years
D) 7.69 years
E) 13.46 years

Question 60

Use the following information to answer questions
The following information is from Sargent's 2009 and 2010 financial statements.

-The statement of cash flows indicated that Sargent made $700,000 of capital investments during 2010. The rate of capital expenditures for 2010 is

A) 0.7:1.
B) 5.0:1.
C) 5.4:1.
D) 17.5:1.
E) 25.5:1.

Question 61

Land improvements are not depreciated because they are a part of land.

Question 62

A cost for repairing a newly purchased asset is not capitalized, but it considered part of depreciation expense for the first year.

Question 63

When assets are acquired as a "package," the cost of each asset is based on its proportion of fair market value to the total fair market value of the "package."

Question 64

Three factors must be considered when computing depreciation expense: asset list price, useful life, and residual value.

Question 65

The terms "depreciable cost" and "book value" are interchangeable.

Question 66

Useful life reflects the expected time that the asset will provide economic benefits to the business.

Question 67

There are no partial year computations for depreciable assets under the units-of-production method.

Question 68

Depreciable cost is used to calculate annual depreciation expense using the double-declining-balance method.

Question 69

If a depreciable asset is disposed of at any point other than year-end, an adjusting entry must be made to recognize depreciation expense on that asset before the disposal is recorded.

Question 70

If no depreciation expense is taken in the year of an asset's disposal, any gain recorded on the asset's disposal will be overstated.

Question 71

Depletion is used to describe the allocation of the cost of intangible assets to the periods of economic benefit to an entity.

Question 72

Firms in the extractive industries apply the units-of-production concept to record depletion expense on natural resource properties.

Question 73

Intangible assets do not pose the same accounting issues as long-term depreciable assets.

Question 74

Intangible assets are amortized over their legal lives.

Question 75

A patent grants the holder an exclusive right to manufacture a specific product or to use a specific process for 40 years.

Question 76

Most patents will be useful for their entire legal lives.

Question 77

The legal lives of copyrights extend beyond the life of their creators.

Question 78

The cost of leasehold improvements should be amortized over their useful life or the term of the lease, whichever is longer.

Question 79

Most businesses in the United States recognize increases in goodwill asset values.

Question 80

Impairment of an asset exists when its carrying value exceeds its fair market value.