Deck 6: Acquisition and Use of Long-Term Assets

Question 1

Which of the following expenditures should NOT be capitalized?

A)the costs of testing a new machine to get it ready for use
B)purchasing factory equipment with an estimated useful life of 7 years
C)purchasing a used truck with an estimated 40,000 miles of service life remaining
D)the costs of changing the oil in the company's fleet of delivery trucks

Answer 1

D

Question 2

Cost is ________.

A)only the amount of cash paid to buy an asset
B)the amount of an asset consumed during a period
C)the cash plus cash equivalent amount paid to buy an asset
D)the decreases in shareholders' equity when an asset is purchased

Answer 2

C

Question 3

Which statement below is true about the cost principle?

A)The cost principle says that all costs associated,directly or indirectly,with buying and using a long-term asset should be permanently capitalized.
B)The cost principle says that all costs reasonable and necessary to place an asset into a working condition should be capitalized.
C)The cost principle says that all costs associated with purchasing a long-term asset should be expensed in the period of the purchase.
D)The cost principle says that only the cash paid to acquire a long-term asset should be capitalized.

Answer 3

B

Question 4

Cranberry Company purchased two pieces of equipment from a Canadian vendor for $400,000.If the assets had been purchased separately,the company would have paid $90,000 for the first piece of equipment and $360,000 for the second piece of equipment.What amount should be recorded for the second piece of equipment?

A)$80,000
B)$90,000
C)$360,000
D)$320,000

Question 5

Generally accepted accounting principles (GAAP)require that long-term assets be expensed over their useful lives using the straight-line method.

Question 6

All of the following costs would be included in the Land account when land is purchased EXCEPT ________.

A)the costs associated with paving a parking lot on the land
B)the realtor's fee
C)costs to prepare the land for use such as removing a tree stump
D)the fee paid to transfer title to the land

Question 7

Long-term assets,like factories and equipment,are purchased for resale to customers in the normal course of operations.

Question 8

Perfuncto,Inc.built a machine.The costs for the new machine were:
What should Perfuncto,Inc.record as the cost of the machine?

Question 9

All of the following account titles are found in the computerized accounting system of GTV Company.Identify the account that would be a long-term asset.

A)cash
B)accounts receivable
C)building
D)inventory

Question 10

All of the following costs would be included in the Equipment account when equipment is purchased EXCEPT ________.

A)the initial invoice amount
B)costs to have the equipment delivered
C)costs incurred to install the equipment
D)costs to maintain the operating condition of the equipment

Question 11

Cranberry Company purchased two pieces of equipment from a Canadian vendor for $400,000.If the assets had been purchased separately,the company would have paid $90,000 for the first piece of equipment and $360,000 for the second piece of equipment.What amount should be recorded for the first piece of equipment?

A)$80,000
B)$90,000
C)$360,000
D)$320,000

Question 12

When a company uses cash to purchase a machine,recording the purchase will ________.

A)decrease shareholders' equity
B)increase expenses
C)exchange one asset for another
D)increase assets,depreciation expense,and liabilities

Question 13

Tango Company purchased land and a building for $350,000.If the assets had been purchased separately,the company would have paid $170,000 for the land and $210,000 for the building.What amount should be recorded for the land?

A)$156,579
B)$169,405
C)$170,000
D)$187,321

Question 14

Depreciation is ________.

A)the loss in market value of an asset
B)the allocation of a long-term asset's cost to an expense account over the asset's life
C)an increase in an asset's value over time or usage
D)the revenue earned by a long-term asset over its useful life

Question 15

Basquets,Inc.purchased land and two factories at a total cost of $800,000.To the right of the appraised values below,show the amount Basquets should record as the cost of each asset:

Question 16

Purchasing a machine with a cost of $60,000 that is expected to last five years will result in an expense of $10,000 in the year of purchase.

Question 17

Long-term assets refer to assets that will last and provide benefits for more than one year.

Question 18

Tango Company purchased land and a building for $350,000.If the assets had been purchased separately,the company would have paid $170,000 for the land and $210,000 for the building.What amount should be recorded for the building?

A)$210,000
B)$199,000
C)$193,421
D)$188,901

Question 19

Generally accepted accounting principles (GAAP)require that long-term assets be expensed over their estimated useful lives

Question 20

Which of the following is typically a long-term asset?

A)an intangible asset such as a patent or copyright
B)cash
C)common stock
D)depreciation expense

Question 21

Residual (salvage)value means the ________.

A)value an asset has for generating revenue
B)costs capitalized into an asset account
C)cost of an asset plus its accumulated depreciation at the end of its useful life
D)estimated value an asset will have at the end of its useful life

Question 22

Identify each of the assets listed below with the appropriate classification:
A = Long-term asset
B = Not a long-term asset

Question 23

XYZ Company owns an asset with historical cost of $75,000,estimated useful life of 10 years,and salvage value of $5,000.As of December 31,2011,the asset has accumulated depreciation of $49,000 after adjustment.The company still owes $20,000 in liabilities from the purchase of the asset years ago.What is the asset's book value on December 31,2011?

A)$70,000
B)$26,000
C)$21,000
D)$6,000

Question 24

Capitalizing a cost means to record the cost into a(n)________ account.

A)contributed capital
B)asset
C)expenditure
D)income statement

Question 25

Which statement best describes the proper accounting treatment for long-term assets classified as property,plant,and equipment?

A)Record them as assets and then depreciate them over an estimated useful life.
B)Record them as expenses when purchased using the cost principle.
C)Record them as assets and adjust them to market value each accounting period using the straight-line method.
D)Record them as revenues and expenses using the matching principle.

Question 26

On January 1,2012,Albatross Shipping Company bought equipment that cost $65,000 and had an estimated useful life of 5 years and an estimated salvage value of $5,000.The company uses the double-declining balance method of depreciation.At what rate will the equipment depreciate in 2012?

A)20%
B)15%
C)10%
D)40%

Question 27

Explain the cost principle.

Question 28

On January 1,2011,Petrel Shipping Company bought equipment that cost $55,000 with an estimated useful life of 4 years and an estimated salvage value of $5,000.The company uses the straight-line method of depreciation.At what rate will the equipment depreciate in 2011?

A)20%
B)15%
C)10%
D)25%

Question 29

On November 1,2011,Frigate Shipping Company bought equipment that cost $400,000,with an estimated useful life of 8 years and an estimated salvage value of $28,000.The company uses the straight-line method of depreciation and has a fiscal year ending on October 31.For the year ended October 31,2012,Frigate Company will report depreciation expense of ________.

A)$50,000
B)$33,333
C)$46,500
D)$31,000

Question 30

All of the following payments were made by UIB Co.for machinery the company bought and used during the year.Which of these expenditures should NOT be capitalized?

A)a payment made to install the machinery at the factory
B)the cost of electricity to operate the machine for the first year of use
C)the cost of insurance while the machine was in transit from the seller's warehouse
D)the costs of testing the machine in preparation for use

Question 31

Depreciation is the ________.

A)allocation of a natural resource's cost to an expense account as the resource is consumed
B)allocation of an intangible asset's cost to an expense account over the asset's estimated useful life
C)allocation of property,plant and equipment cost to an expense account over the assets' estimated useful lives
D)capitalization of a long-term asset's cost

Question 32

Depletion is the ________.

A)allocation of a natural resource's cost to an expense account as the resource is consumed
B)allocation of an intangible asset's cost to an expense account over the asset's estimated useful life
C)allocation of property,plant and equipment cost to an expense account over the assets' estimated useful lives
D)capitalization of a long-term asset's cost

Question 33

On November 1,2011,Frigate Shipping Company bought equipment that cost $400,000,with an estimated useful life of 8 years and an estimated salvage value of $28,000.The company uses the straight-line method of depreciation and has a fiscal year ending on October 31.At October 31,2013,Frigate Company will report accumulated depreciation of ________.

A)$100,000
B)$66,666
C)$93,000
D)$46,500

Question 34

On January 8,2011,Safari LLP bought three buildings at a total cost of $60,000,000 by making a cash down payment of $10,000,000 and signing a 3-year note with 5% interest for the remainder.One of the buildings is in Havana,one is in Cancun,and the third is in Miami.The fair market value of the buildings,if they had been purchased separately,would have been $15,000,000,$36,000,000,and $24,000,000 respectively.
Required:
Use the relative fair market value method to determine how much of the $60,000,000 purchase price should be used for each of the three separate buildings.Write your answers on the lines provided and show your work in the space provided below each line.
$______________________ should be used for the cost of the building in Havana.
$______________________ should be used for the cost of the building in Cancun.
$______________________ should be used for the cost of the building in Miami.

Question 35

Which of the following assets will NOT be depreciated?

A)inventory
B)buildings
C)equipment
D)computer

Question 36

Which statement about depreciation is true?

A)Depreciation means loss in economic value.
B)Depreciation means to capitalize a cost over several accounting periods.
C)Depreciation refers to an allocation of an asset's cost to an expense account.
D)Depreciation means to increase net income by transferring balances from shareholders' equity.

Question 37

The adjustment to record the use of long-term assets includes a(n)________.

A)increase in total shareholders' equity
B)decrease in total shareholders' equity
C)decrease in total liabilities
D)increase in total liabilities

Question 38

Which statement about accelerated depreciation methods is true?

A)They provide higher amounts of depreciation expense in the early years of an asset's life and smaller amounts in the later years.
B)They provide equal amounts of depreciation expense each year.
C)They provide an unpredictable amount of expense each year because they are based upon the actual amount of an asset used up.
D)They report more total depreciation expense over the life of an asset.

Question 39

RET Company uses the activity (units-of-production)method to depreciate long-term assets.The company owns a truck that cost $24,000.The truck is estimated to have a salvage value of $2,000 and a useful life of 200,000 miles.How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?

A)$6,500
B)$6,000
C)$5,500
D)$5,000

Question 40

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

A)It is a method that will provide higher amounts of depreciation expense in the early years of an asset's life and smaller amounts in the later years.
B)It is a method that results in unequal amounts of depreciation expense each year.
C)It is a method that is based upon the actual amounts of an asset used up each year,such as the number of miles a truck is driven.
D)It is a method that results in equal amounts of depreciation expense each year.

Question 41

Which depreciation method is most like the method that is used to calculate depletion of natural resources?

A)straight-line
B)double-declining balance
C)activity
D)No depreciation method is similar to depletion.

Question 42

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2012,using the straight-line method?

A)$300,000
B)$40,000
C)$80,000
D)$160,000

Question 43

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the double-declining balance method to depreciate its assets.The book value of the computer at December 31,2011 is ________.

A)$160,000
B)$400,000
C)$240,000
D)$320,000

Question 44

Identify the three acceptable depreciation methods discussed in the textbook.

A)straight-line,capitalization of expense,and activity methods
B)straight-line,operating,and accumulated methods
C)activity,carrying value,and straight-line methods
D)double-declining balance,straight-line,and activity methods

Question 45

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the straight-line method to depreciate its assets.At December 31,2013,Ace will have accumulated depreciation of ________.

A)$240,000
B)$40,000
C)$80,000
D)$320,000

Question 46

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2013,using the straight-line method?

A)$200,000
B)$40,000
C)$80,000
D)$160,000

Question 47

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the straight-line method to depreciate its assets.The book value of the computer at December 31,2013 is:

A)$400,000
B)$320,000
C)$240,000
D)$160,000

Question 48

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the straight-line method to depreciate its assets.The book value of the computer at December 31,2012 is ________.

A)$400,000
B)$320,000
C)$240,000
D)$160,000

Question 49

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the double-declining balance method to depreciate its assets.The book value of the computer at December 31,2012 is ________.

A)$96,000
B)$144,000
C)$80,000
D)$256,000

Question 50

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2011,using the straight-line method?

A)$400,000
B)$40,000
C)$80,000
D)$160,000

Question 51

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2012,using the double-declining balance method?

A)$160,000
B)$96,000
C)$100,000
D)$40,000

Question 52

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the double-declining balance method to depreciate its assets.The book value of the computer at December 31,2013 is ________.

A)$0
B)$313,600
C)$86,400
D)$57,600

Question 53

Which of the following assets can NOT be depleted?

A)timber
B)coal
C)diamonds
D)copyright

Question 54

TER Company uses the activity (units-of-production)method to depreciate long-term assets.The company owns a truck that cost $48,000.The truck is estimated to have a salvage value of $4,000 and a useful life of 200,000 miles.How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles?

A)$13,000
B)$12,000
C)$11,000
D)$10,000

Question 55

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2013,using the double-declining balance method?

A)$57,600
B)$40,000
C)$80,000
D)$160,000

Question 56

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the straight-line method to depreciate its assets.At December 31,2011,Ace will have accumulated depreciation of ________.

A)$400,000
B)$40,000
C)$80,000
D)$160,000

Question 57

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the straight-line method to depreciate its assets.The book value of the computer at December 31,2011 is ________.

A)$320,000
B)$400,000
C)$480,000
D)$80,000

Question 58

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2011,using the double-declining balance method?

A)$200,000
B)$40,000
C)$80,000
D)$160,000

Question 59

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.Ace Electronics uses the straight-line method to depreciate its assets.At December 31,2012,Ace will have accumulated depreciation of ________.

A)$320,000
B)$40,000
C)$80,000
D)$160,000

Question 60

On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.What should Ace Electronics report on its Statement of Cash Flows for the year ended December 31,2011?

A)$(400,000)cash paid for investing activities
B)$(400,000)cash paid for financing activities
C)$(80,000)cash paid for depreciation
D)$(400,000)cash paid for operating activities

Question 61

Capitalizing a cost means to record the cost as an asset.

Question 62

The TOTAL amount of depreciation recorded over the life of a long-term asset depends on the method used to depreciate that asset.

Question 63

On January 1,2012,Orbit,Inc.purchased land and a building for a total of $90,000 by paying $20,000 cash and issuing a note for the rest.The market value of the building was appraised at $80,000 and the land at $20,000.Write in both the correct dollar amounts and the account titles involved.Use a plus for increases and parentheses ()for decreases.
Part A: Show the effect of the purchase on the accounting equation.
Part B: Show the effect of the first year's depreciation,assuming the straight-line method and an estimated useful life of 20 years with a $32,000 salvage value.
Part C: Show the effect of the first year's depreciation,assuming double-declining depreciation and an estimated useful life of 20 years with a $32,000 salvage value.
Part D: Show the amounts that would appear on the annual financial statements at the end of the THIRD YEAR for each method.

Question 64

To "capitalize" means to record a cost as an asset.

Question 65

Peterson Company purchased land,building,and equipment for a total cash price of $900,000.An independent appraiser told management that if the assets had been acquired separately,the company would have paid $300,000,$700,000,and $200,000,respectively,for each of the assets purchased.Write your answers on the lines provided and show your work in the space provided below each question.
1.Use the relative fair market value method to determine how much of the $900,000 purchase price should be used for each of the three separate assets.
$______________ should be used for the cost of the land.
$______________ should be used for the cost of the building.
$______________ should be used for the cost of the equipment.
2.Determine how much depreciation expense the company will have each full year using the straight-line method and the following assumptions:
∙ The building has a 30-year useful life and a zero salvage value.
∙ The equipment has an 8-year useful life and a $50,000 salvage value.
$______________ annual depreciation expense for the building
$______________ annual depreciation expense for the equipment

Question 66

In an accounting context,cost and expense mean the same thing.

Question 67

Cost means the cash or cash equivalent amount sacrificed to acquire an asset.

Question 68

SML International owns an oil field that contains an estimated 10,000,000 barrels of oil.The oil field was acquired at a cost of $35,000,000 and has no salvage value.In 2011,1,000,000 barrels were produced and in 2012,1,750,000 barrels were produced.How much depletion expense should be recorded in 2011 and 2012?

Question 69

On January 1,2011,Borba,Inc.purchased a $100,000 machine with an estimated useful life of 10 years or 1,000,000 units and a $10,000 salvage value.The machine actually produced 120,000 units in 2011 and 110,000 units in 2012.
Part A: Calculate depreciation expense and accumulated depreciation using the following three methods:
Part B: In the first year of the machine's life,which method would show the LOWER amount for each of the following financial statement line items? Put an X in the appropriate box.

Question 70

Timber,Inc.purchased land for $500,000.It is expected to produce a total of 200,000 cords of wood over 5 years,after which it will be sold for $100,000.In 2011,39,000 cords of wood were cut.In 2012,41,000 cords of wood were cut.
1.What is depletion expense per cord of wood? $__________________
2.How much depletion should be recorded in 2011? $_______________________
3.How much depletion should be recorded in 2012? $_______________________

Question 71

All depreciation methods provide the same amount of depreciation expense each year.

Question 72

Part A: Put an X in the appropriate box to show if these amounts related to the purchase of a new computer system are expenses or capital expenditures.
Part B: What other information is needed to calculate double-declining depreciation expense for the year 2012?

Question 73

Which assets are depleted?

A)intangible assets
B)natural resources
C)property,plant and equipment,except for land
D)long-term investments in marketable stocks and bonds

Question 74

An accelerated depreciation method refers to any method of depreciating a long-term,asset that will result in greater amounts being expensed in the early years of an asset's life and comparatively smaller amounts being expensed in the latter years of the asset's life.

Question 75

The amount recorded as the cost of a long-term asset includes all costs reasonable and necessary for putting the asset in a working condition.

Question 76

Which assets are amortized?

A)intangible assets
B)natural resources
C)property,plant and equipment,except for land
D)long-term investments in marketable stocks and bonds

Question 77

Which assets are depreciated?

A)intangible assets
B)natural resources
C)property,plant and equipment,except for land
D)long-term investments in marketable stocks and bonds

Question 78

Which of the following is NOT an intangible asset?

A)human resources
B)copyrights
C)patents
D)franchises

Question 79

method.

Question 80

method.