Deck 8: Long-Lived Assets

Question 1

Expenditures are purchases of goods or services,whether for cash or on credit.

Answer 1

True

Question 2

All of the following are tangible assets except

A)tow motor used to relocate inventory.
B)office portion of a building.
C)patent on manufacturing equipment used to make company products.
D)land that will potentially be used by a company in the future.
E)drill press used to manufacture company products.

Answer 2

C

Question 3

Repairs made to equipment as part of yearly maintenance would be recorded in the journal by

A)debiting equipment.
B)debiting repairs expense.
C)debiting depreciation expense.
D)debiting accumulated depreciation.
E)crediting accumulated depreciation.

Answer 3

B

Question 4

Expenditures for long-lived assets are expensed when they

A)add new assets.
B)increase capacity.
C)improve efficiency.
D)provide benefits lasting one year or less.
E)lengthen an asset's useful life.

Question 5

The decision whether to expense or capitalize expenditures for plant assets depends on many factors.Which of the following is NOT a factor for a company choosing to expense or capitalize an expenditure?

A)The decision of whether to expense or capitalize an expenditure is based on management's judgment.
B)The decision of whether to expense or capitalize an expenditure is influenced by cost-benefit and materiality tests.
C)The decision of whether to expense or capitalize an expenditure is not based on management's judgment since U.S.GAAP provides clear rules on specific types of assets.
D)The decision of whether to expense or capitalize an expenditure has the potential to cause ethical issues for companies.
E)The decision of whether to expense or capitalize an expenditure is influenced by the principle of conservatism causing accountants to expense an expenditure as opposed to capitalize it when faced with contradictory evidence.

Question 6

Nonmonetary assets are

A)permitted to be exchanged in lieu of cash when a company's stock exceeds 20% of its fair value.
B)permitted to be exchanged in lieu of cash when a company's stock exceeds 50% of its fair value.
C)assets with a price in terms of units of currency that could change over time.
D)assets with a price that are fixed in terms of units of currency.
E)assets that are sold to an independent third party.

Question 7

Equipment is acquired for $100,000.Freight costs are $1,800,sales tax amounted to $1,000.Maintenance during the first year of use cost $6,000.What is the cost of the equipment?

A)$102,800
B)$100,000
C)$108,800
D)$101,000
E)$101,800

Question 8

The removal of an old building to make land suitable for its intended use is charged to

A)repairs expense.
B)land.
C)buildings.
D)land improvements.
E)None of the above

Question 9

All of the following are included in the acquisition cost of equipment except

A)maintenance costs one year after purchase.
B)installation costs.
C)transportation costs.
D)sales tax.
E)cost to unbox and repair prior to use.

Question 10

An operating expense is the cost that is added to an asset account.

Question 11

Kolonial Township acquired a building and the 3 acres of land on which it is located.The total purchase price was $2,500,000.For valuation purposes,the company contacted three local commercial real estate agents,who gave the following valuation estimates: If Kolonial Township used the valuation made by M.Mulhan and assuming it paid cash for the land and building,what journal entry would Kolonial Township make to record the purchase?

Question 12

For each of the following items,identify whether they are a capital expenditure or an expense:
a.Built a new elevator in the office building.
b.Acquired a trademark.
c.Incurred research and development expense to develop a patent.
d.Modified a machine,thus extending its useful life and capabilities.
e.Paid wages for the janitorial workers.
f.Paid for a new roof on the building.
g.Paid for a month's utilities in the office building.
h.Replaced the furnace in the office building.
i.Replaced the carpeting in the office building.

Question 13

Goetz Construction Company constructed a shed for Paramount Industries.Instead of giving cash,Paramount Industries,gave Goetz Construction Company a used delivery truck originally costing Paramount Industries,$52,000.The book value for the delivery truck on the financial statements of Paramount Industries showed the delivery truck with a value of $40,000.A new delivery truck is currently selling for $44,000,and an independent appraiser said the fair value of the used delivery truck is $48,000.What value should Paramount Industries assign to the shed on its financial statements?

A)$39,000
B)$52,000
C)$40,000
D)$44,000
E)$48,000

Question 14

If a company acquires a new machine,the cost of rewiring the building to accommodate the machine,and the cost to reinforce the floor to support the weight of the machine,are all considered a part of the total cost of the machine.

Question 15

All of the following are included in the acquisition cost of land except

A)costs of clearing land to construct a building.
B)transfer taxes.
C)attorney's fees to prepare closing documents.
D)cost of land survey.
E)architect fee for new building.

Question 16

Kolonial Township acquired a building and the 3 acres of land on which it is located.The total purchase price was $2,500,000.For valuation purposes,the company contacted three local commercial real estate agents,who gave the following valuation estimates: If Kolonial Township used the valuation made by T.Grasso,and assuming it paid cash for the land and building,what journal entry would Kolonial Township make to record the purchase?

Question 17

Kolonial Township acquired a building and the 3 acres of land on which it is located.The total purchase price was $2,500,000.For valuation purposes,the company contacted three local commercial real estate agents,who gave the following valuation estimates: If Kolonial Township used the valuation made by H.Ivan,and assuming it paid cash for the land and building,what journal entry would Kolonial Township make to record the purchase?

Question 18

Treating a capital expenditure as repairs and maintenance expense

A)understates expenses and overstates owners' equity.
B)understates expenses and understates assets.
C)overstates expenses and understates net income.
D)overstates assets and overstates owners' equity.
E)overstates assets and overstates revenue.

Question 19

Building owned by a real estate company;

Question 20

Long-lived assets include accounts receivable and inventory.

Question 21

To determine depreciation expense for a plant asset,all of the following must be known except:

A)estimated useful life.
B)current market value.
C)estimated residual value.
D)historical cost.
E)All of the above must be known to determine depreciation expense for a plant asset.

Question 22

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.What is the balance in the accumulated depreciation account on December 31,20X4,if Compatibility Services uses double-declining-balance depreciation?

A)$40,000
B)$35,000
C)$18,750
D)$37,500
E)$32,000

Question 23

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses straight-line depreciation,what is the depreciation expense in 20X4?

A)$6,686
B)$ 9,500
C)$ 10,000
D)$ 8,000
E)$12,500

Question 24

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses double-declining-balance depreciation,what is the net book value of the machine on December 31,20X5?

A)$ -0-
B)$ 30,000
C)$ 33,750
D)$40,000
E)$46,250

Question 25

The double-declining-balance method of depreciation

A)causes less depreciation in the early years of an asset's use as compared to other depreciation methods.
B)causes the same amount of depreciation in the early years of an asset's use as compared to other depreciation methods.
C)causes more depreciation in the early years of an asset's use as compared to other depreciation methods.
D)is not an acceptable depreciation method according to generally accepted accounting principles.
E)None of the above

Question 26

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses double-declining-balance depreciation,what is the depreciation expense in 20X5?

A)$ 5,184
B)$ 5,760
C)$11,250
D)$14,400
E)$16,000

Question 27

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses units-of-production depreciation,and the company produces 40,000 units in 20X3; 60,000 units in 20X4; 50,000 units in 20X5; and 30,000 units in 20X6; what is the net book value of the machine at December 31,20X6?

A)$40,000
B)$48,000
C)$42,000
D)$45,800
E)$49,600

Question 28

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.Compatibility Services uses units-of-production depreciation,and the company produces 40,000 units in 20X3,what will be the depreciation expense for 20X3?

A)$5,760
B)$6,400
C)$15,200
D)$8,000
E)$7,600

Question 29

Ganley Rental Cars recently acquired several new cars for their fleet.The cars have an estimated life of 4 years and should be driven 80,000 miles.What is the most appropriate method of depreciation to properly match revenues and expenses?

A)Double-declining balance
B)Straight line
C)Units-of-production
D)Revenue recognition
E)Expense deferral

Question 30

Book value is defined as

A)cost less salvage value.
B)current market value less accumulated depreciation.
C)cost less accumulated depreciation.
D)cost plus accumulated depreciation.
E)cost plus salvage value.

Question 31

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses straight-line depreciation,what is the balance in the accumulated depreciation account on January 1,20X5?

A)$19,000
B)$20,000
C)$28,500
D)$21,600
E)$30,000

Question 32

Delta Company acquired land and a building on March 1,20X3,paying a total of $1,400,000.Separately,the land had an estimated fair market value of $750,000 and the building had an estimated fair market value of $1,125,000.In order to use the property,land improvements of $20,000 were incurred.Additionally,the building needed to be rewired,at a cost of $65,000.Also,certain walls had to be knocked down,while others were constructed.The cost to remove and replace walls was $80,000.The company took occupancy of the building on August 1,20X3.
For all of items noted above,determine how much will be incorporated into the land account,the building account,or expensed as of Delta Company's year end of December 31,20X3.

Question 33

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses double-declining-balance depreciation,what is the depreciation expense in 20X3?

A)$14,400
B)$20,000
C)$17,600
D)$25,000
E)$27,776

Question 34

Key Company purchased land for $350,000 with intentions to construct an office building on the site.At the time of the closing,Key Company paid closing costs of $5,000,title fees of $800,and attorney's fees of $3,200.When Key Company purchased the land,removal of an old building was completed in preparation for the new building at a cost of $8,000.However,Key Company was able to sell a portion of the building materials retrieved from the old,demolished building to a local contractor for $2,000.After $21,000 was paid to grade the property,a building was constructed at a total cost of $600,000.
Required:
Based on the previous information,identify the total acquisition costs for the land and the building.

Question 35

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses double-declining-balance depreciation,what is the depreciation expense in 20X4?

A)$ 19,000
B)$ 10,000
C)$15,000
D)$9,500
E)$16,000

Question 36

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.If Compatibility Services uses units-of-production depreciation and the company produces 40,000 units in 20X3; 60,000 units in 20X4; and 50,000 units in 20X5; what is the depreciation expense in 20X5?

A)$ 28,500
B)$12,000
C)$10,000
D)$9,500
E)$11,400

Question 37

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.What is the balance in the accumulated depreciation account on December 31,20X5,if Compatibility Services uses double-declining-balance depreciation?

A)$11,250
B)$15,000
C)$20,000
D)$46,250
E)$15,312

Question 38

Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.What is the depreciable value of the machine acquired by Compatibility Services?

A)$4,000
B)$76,000
C)$80,000
D)$8,000
E)Cannot be determined without additional data

Question 39

Compatibility Services acquired a $100,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $10,000.Assume Compatibility Services was considering the use of double-declining-balance depreciation.What is the depreciation expense in 20X3 and 20X4?

Question 40

The cost of equipment shall include all costs of acquisition and preparation for use.

Question 41

Regardless of the depreciation method used,accumulated depreciation will be the same when the asset is fully depreciated.

Question 42

Depreciation is not intended to track the decreasing current market value of a tangible asset.

Question 43

In order to calculate depreciation,the current market value of the equipment,the salvage value,and the estimated useful life must be known.

Question 44

Book value is determined by adding salvage value to the cost of the asset.

Question 45

Machiel Manufacturing acquired a $60,000 machine on January 1,2009.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.Machiel Manufacturing uses units-of-production depreciation,and the company produces 80,000 units in 2009; 130,000 units in 2010; 160,000 units in 2011 and 70,000 units in 2012; what is the net book value of the machine at December 31,2012?

A)$ 8,000
B)$13,000
C)$12,800
D)$16,000
E)$37,000

Question 46

Machiel Manufacturing acquired a $60,000 machine on January 1,2009.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.If Machiel Manufacturing uses double-declining-balance depreciation,what is the depreciation expense in 2010?

A)$ 8,640
B)$ 9,600
C)$12,500
D)$15,000
E)$25,000

Question 47

Machiel Manufacturing acquired a $60,000 machine on January 1,20X9.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.If Machiel Manufacturing used straight-line depreciation,what will be the depreciation expense in 20X9?

A)$ 7,200
B)$ 8,000
C)$ 8,800
D)$12,500
E)$13,888

Question 48

Machiel Manufacturing acquired a $60,000 machine on January 1,2009.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.If Machiel Manufacturing uses straight-line depreciation,what is the balance in the accumulated depreciation account on January 1,2011?

A)$14,400
B)$16,000
C)$17,600
D)$21,600
E)$25,000

Question 49

Machiel Manufacturing acquired a $60,000 machine on January 1,2009.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.If Machiel Manufacturing uses straight-line depreciation,what is the depreciation expense in 2011?

A)$ 3,686
B)$ 7,200
C)$ 8,000
D)$ 8,800
E)$12,500

Question 50

Which of the following statements is TRUE?

A)The depreciable value of a tangible asset is the total acquisition cost of the asset.
B)The residual value of a tangible asset is the estimated amount to be received for an asset upon its disposal at the end of its useful life.
C)The useful life of a tangible asset is the time period over which the company believes it will own the asset.
D)The estimation of useful lives is almost always based upon when the tangible asset will physically wear out.
E)Depreciation attempts to measure the deteriorating market value of an asset.

Question 51

Component depreciation is

A)required by IFRS
B)required by GAAP
C)permissible if a small portion of an asset has separate,depreciable components
D)utilized heavily by publicly traded corporations in the U.S.
E)utilized heavily by privately held corporations in the U.S.

Question 52

The accumulated depreciation account represents a growing amount of cash to be used to replace the asset.

Question 53

Machiel Manufacturing acquired a $60,000 machine on January 1,2009.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.Machiel Manufacturing uses units-of-production depreciation and the company produces 80,000 units in 2009; 130,000 units in 2010; and 160,000 units in 2011.What is the depreciation expense in 2011?

A)$ 8,000
B)$13,000
C)$12,800
D)$16,000
E)$37,000

Question 54

Depreciation expense computed under double-declining-balance will decrease each year because the

A)book value used in the computation each year increases.
B)book value used in the computation each year decreases.
C)rate used in the computation each year increases.
D)rate used in the computation each year decreases.
E)All the above are correct.

Question 55

Machiel Manufacturing acquired a $60,000 machine on January 1,20X9.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.If Machiel Manufacturing uses units-of-production depreciation,and the company produces 80,000 units in 20X9,what will be the depreciation expense for 20X9?

A)$5,760
B)$6,400
C)$7,200
D)$8,000
E)$8,800

Question 56

Residual value is computed as cost less depreciation expense.

Question 57

The depreciable value is the difference between the total acquisition cost and the predicted residual value.

Question 58

Machiel Manufacturing acquired a $60,000 machine on January 1,20X9.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.If Machiel Manufacturing uses double-declining-balance depreciation,what is the depreciation expense in 20X9?

A)$12,500
B)$16,000
C)$17,500
D)$25,000
E)$30,000

Question 59

Machiel Manufacturing acquired a $60,000 machine on January 1,20X9.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.What is the depreciable value of the machine acquired by Machiel Manufacturing?

A)$10,000
B)$50,000
C)$60,000
D)$15,000
E)Cannot be determined without additional data

Question 60

Machiel Manufacturing acquired a $60,000 machine on January 1,2009.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.What is the balance in the accumulated depreciation account on December 31,2010,if Machiel Manufacturing uses double-declining-balance depreciation?

A)$25,000
B)$30,000
C)$40,000
D)$45,000
E)$50,000

Question 61

Hartman Manufacturing acquired a vehicle on January 1,20X2,for $78,000.The machine is estimated to have a 6-year life,with a residual value of $6,000.Hartman Manufacturing is not certain whether to use the straight-line or double-declining-balance method of depreciation.
Prepare the following depreciation schedule:
12/31/2X02
12/31/20X3
12/31/20X4
12/31/20X5
12/31/20X6
12/31/20X7

Question 62

Most companies use accelerated depreciation for financial reporting purposes and straight-line depreciation for income tax purposes.

Question 63

Book value of the lawn mowers using the straight-line depreciation method and the book value using the units-of-production method of depreciation as of December 31,2010.

Question 64

Double-declining-balance depreciation may be referred to as accelerated depreciation.

Question 65

Useful lives for depreciable assets for tax purposes are frequently shorter than the useful lives used for financial reporting purposes.Because of this,taxable net income would be

A)lower and lower income taxes payable in the early years of an asset's life than the straight-line method.
B)lower and higher income taxes payable in the early years of an asset's life than the straight-line method.
C)higher and lower income taxes payable in the early years of an asset's life than the straight-line method.
D)higher and higher income taxes payable in the early years of an asset's life than the straight-line method.
E)undeterminable from the information given.

Question 66

The MACRS allows depreciable assets to have

A)longer lives than economic lives resulting in higher income taxes in the early years of an asset's life than the straight-line method.
B)longer lives than economic lives resulting in lower income taxes in the early years of an asset's life than the straight-line method.
C)shorter lives than economic lives resulting in higher income taxes in the early years of an asset's life than the straight-line method.
D)shorter lives than economic lives resulting in lower income taxes in the early years of an asset's life than the straight-line method.
E)useful lives equivalent to economic lives.

Question 67

Accounting for changes in residual value must be prospective and retrospective.

Question 68

Dugger Excavating bought a machine for $24,000 on January 1,20X3,with a useful life of 5 years and a salvage value of $4,000.At the beginning of 20X4,Dugger finds the residual value will be zero. Assuming Dugger employs double-declining-balance depreciation,what will be the depreciation expense in 20X4?

A)$5,250
B)$8,000
C)$4,160
D)$9,600
E)$5,760

Question 69

Units-of-production depreciation is the most popular form of accelerated depreciation.

Question 70

The MACRS of depreciation is used for income tax purposes and financial reporting purposes.

Question 71

Double-declining-balance depreciation computes annual depreciation by multiplying the asset's book value at the beginning of the year by two times the straight-line rate.

Question 72

Dugger Excavating bought a machine for $24,000 on January 1,20X3,with a useful life of 5 years and a salvage value of $4,000.At the beginning of 20X4,Dugger finds the residual value will be zero. Assume Dugger employs straight-line depreciation.Additionally assume that at the beginning of 20X4 Dugger finds a $200 attachment that extends the life of the equipment 2 years beyond the original estimate.What will be the depreciation expense in 20X4?

A)$4,800
B)$4,667
C)$3,367
D)$4,000
E)$4,200

Question 73

Land is always depreciated using double-declining-balance depreciation.

Question 74

Which of the following statements is TRUE?

A)For most assets,MACRS approximates straight-line depreciation.
B)MACRS depreciates assets over a longer useful life than would be expected from the asset.
C)MACRS allows for greater depreciation expense in the later years of an asset's life,thus reducing the taxes a company will have to pay during those years.
D)The purpose of MACRS is to increase a company's income tax liability in the early years of a fixed asset's life.
E)None of the above

Question 75

Both straight-line depreciation and units-of-production depreciation will generate the same depreciation expense during every year of an asset's life.

Question 76

For each of the independent situations below,determine the age of the asset in question.All assets were acquired at the beginning of the years.
a.The balance in the buildings account is $400,000; while the balance sheet shows the book value of the buildings at $217,600.The notes to the financial statements indicate that straight-line depreciation is used for all plant assets and that residual values are estimated at 5% of cost.The estimated life of the buildings is 25 years.
b.The book value of delivery equipment is $51,520.The cost of the delivery equipment was $80,500.The company uses the straight-line method of depreciation for delivery equipment and estimates life at 5 years or 50,000 units.So far,27,000 units have been produced.Residual value is 10% of cost.

Question 77

Accounting for changes in useful life is prospective in nature.

Question 78

Depreciation is recomputed starting in the period that a change in estimate is known.

Question 79

Dugger Excavating bought a machine for $24,000 on January 1,20X3,with a useful life of 5 years and a salvage value of $4,000.At the beginning of 20X4,Dugger finds the residual value will be zero. Assuming Dugger employs straight-line depreciation,what will be the depreciation expense in 20X4?

A)$4,000
B)$5,000
C)$6,000
D)$4,750
E)$8,500

Question 80

Explain the concept of depreciation.Include in your discussion one common misconception regarding what depreciation represents.