Deck 11: Long Term Assets

Question 1

Inventory is classified as a long-term asset.

Answer 1

False

Question 2

Land held for speculative purposes should be classified as a long-term investment.

Answer 2

True

Question 3

Depreciation refers to the periodic allocation of the cost of a tangible long-lived asset over its estimated useful life.

Answer 3

True

Question 4

Leasehold improvements are not subject to any form of cost allocation.

Question 5

Book value refers to the market value of a long-term asset.

Question 6

A tractor held by a farm equipment company for sale to farmers is classified as a long-term asset.

Question 7

Intangible assets are subject to a process called depreciation.

Question 8

The basic accounting problems associated with accounting for long-term assets are similar to those of short-term assets.

Question 9

Leasehold improvements become the property of the lessor at the end of the lease.

Question 10

Mineral deposits are subject to a process called amortization.

Question 11

In the calculation of free cash flow, dividends and sales of plant assets are both deducted.

Question 12

A building not currently used because economic conditions have limited a company's expansion is classified properly as property, plant, and equipment.

Question 13

A positive net present value of a long-term asset under consideration for purchase indicates that the asset should probably be purchased.

Question 14

A reduction in carrying value as a result of impairment is recorded as a loss.

Question 15

Free cash flow is a good measure of a company's ability to finance long-term assets.

Question 16

Asset impairment occurs when the fair value of a long-term asset exceeds its carrying value.

Question 17

If the net present value of a long-term asset under consideration for purchase is negative, then the asset should not be purchased.

Question 18

The replacement of tires on a truck is considered an ordinary repair.

Question 19

A betterment does not add to the physical layout of an asset.

Question 20

Fair value is the amount for which an asset could be bought or sold in a current transaction.

Question 21

Ordinary repairs usually result in a debit to the appropriate Accumulated Depreciation account.

Question 22

A revenue expenditure results in the recognition of an asset.

Question 23

The cost of land would include the cost of a building purchased with the land and torn down because it was not needed.

Question 24

A capital expenditure will result in an immediate increase in long-term assets.

Question 25

A debit to Accumulated Depreciation will increase the carrying value of an asset.

Question 26

The cost of repairing a machine damaged during installation should be charged as an operating expense.

Question 27

A revenue expenditure results in the immediate recognition of an expense.

Question 28

Rebuilding the engine of a company vehicle is an example of an ordinary repair.

Question 29

A capital expenditure is an expenditure that benefits only the current accounting period.

Question 30

The cost of a sewage system should be included in the Land Improvements account.

Question 31

Small expenditures for what ordinarily are considered revenue expenditures frequently are treated as capital expenditures.

Question 32

The cost of assets acquired for a lump sum should be allocated equally among the acquired assets.

Question 33

The cost of land should include accrued property taxes paid by the purchaser.

Question 34

Driveways and parking lots are properly included in the Land account because they are not subject to depreciation.

Question 35

Depreciation should not be recorded for a depreciable asset that is increasing in value.

Question 36

Extraordinary repairs are recorded with a debit to Accumulated Depreciation.

Question 37

One reason for an asset's limited useful life is obsolescence.

Question 38

Additions and betterments are examples of capital expenditures.

Question 39

In accounting, depreciation means the decline in value of an asset.

Question 40

The cost of equipment would include the cost of test runs to see that the equipment is operating properly.

Question 41

One argument in favor of accelerated depreciation is that the assets benefit is greater in the earlier years.

Question 42

When depreciation rates are revised, all years of the asset's life are affected by the new computation.

Question 43

When disposing of equipment, the Equipment account is credited for the existing carrying value.

Question 44

Normally, depreciation calculations are based on the exact number of days the asset is held during the period.

Question 45

When disposing of equipment, Accumulated Depreciation is debited for the existing carrying value.

Question 46

Typically, depreciation calculations are rounded to the nearest whole month.

Question 47

For tax purposes, small businesses may expense the first $250,000 of equipment expenditures, rather than having to allocate their costs over a number of years.

Question 48

Accelerated methods of depreciation result in lower net income in the last years of an asset's life compared to the straight-line method.

Question 49

One argument in favor of accelerated depreciation is that repair expense is likely to be greater in later years.

Question 50

Depreciation for tax purposes is identical to depreciation for financial reporting purposes.

Question 51

Gain on Sale of Machinery is recorded as a debit.

Question 52

Depreciation is a process of allocation, not of valuation.

Question 53

When an asset lasts longer than its estimated useful life, depreciation no longer should be recorded.

Question 54

Computation of a partial year's depreciation is often required for the proper determination of net income.

Question 55

Residual value is not relevant when calculating double-declining-balance depreciation.

Question 56

Under tax depreciation, estimated useful life and residual value must be strictly adhered to.

Question 57

Group depreciation is an appropriate method for a large company calculating depreciation on office equipment.

Question 58

The production method is an accelerated method of depreciation.

Question 59

Federal tax law allows the rapid write-off of plant assets.

Question 60

Prior to the disposal of an asset, depreciation should be updated and recorded.

Question 61

Intangible assets are also called wasting assets.

Question 62

Drilling equipment with a five-year useful life is used solely in conjunction with an oil well that has an eight-year life. The equipment should be depreciated over eight years.

Question 63

Estimated useful life and legal life are synonymous terms when dealing with intangible assets.

Question 64

Research and development costs normally are capitalized and amortized over the estimated sales life of the product developed.

Question 65

Licenses are properly classified as intangible assets.

Question 66

In calculating the depletion of a natural resource, its useful life in years is irrelevant.

Question 67

When the trade-in allowance exceeds the carrying value of an asset exchanged, a loss has occurred.

Question 68

Goodwill equals the excess paid for a business over the book value of the net assets purchased.

Question 69

The entire cost of developing computer software should be capitalized and amortized over the software's useful life.

Question 70

Natural resources are classified as intangible assets on the balance sheet.

Question 71

According to generally accepted accounting principles, most expenditures for intangible assets acquired from others should be treated as revenue expenditures when incurred.

Question 72

Under the successful efforts method, the costs of both successful and unsuccessful exploration for oil and gas are recorded as assets.

Question 73

The exclusive right to use an identifying symbol is called a patent.

Question 74

The exclusive right to sell a computer program is called a copyright.

Question 75

An on-site building with a twelve-year life will be abandoned after the associated timber tract with a nine-year life is depleted. The building should be depreciated over nine years.

Question 76

An intangible asset with a determinable useful life should be amortized over that useful life.

Question 77

Plant asset exchanges can be categorized as the exchange of similar assets and the exchange of dissimilar assets.

Question 78

A $750 gain on the sale of an asset means that $750 in cash was received.

Question 79

A copyright should be amortized over the life of the author, plus 70 years.

Question 80

A patent has a legal life of 20 years.