Deck 9: Plant and Intangible Assets

Question 1

Depreciation is a process of asset valuation.

Answer 1

False

Question 2

Just as there are depreciation methods to calculate the decline in value of assets, there are appreciation methods to record the increase in value of assets.

Answer 2

False

Question 3

If an accelerated depreciation method is used for an asset with a useful life of five years, more depreciation expense would be recorded in the third year than in the fifth year.

Answer 3

True

Question 4

In accounting, depreciation refers to a decline in the asset's current market value, not the allocation of the cost of an asset to expense.

Question 5

The book value of an asset is equal to its cost plus accumulated depreciation.

Question 6

The half-year convention allows us to take six months depreciation during the first year of an asset's life even if the asset was purchased on January 25th.

Question 7

Charging an expenditure directly to an expense account is based on the assumption that the benefits of that expenditure have been used up in the current period.

Question 8

Incidental costs incurred in the purchase of land that are charged to Land Improvements will affect net income at some future time.

Question 9

Sales tax on equipment is not part of the acquisition cost and should not be capitalized.

Question 10

The term plant assets refers to long-lived assets acquired for use in business operations, rather than for resale to customers.

Question 11

The journal entry to record depreciation expense consists of a credit to Accumulated Depreciation and a debit to the asset being depreciated.

Question 12

The rule of consistency does not require a company to use the same method of depreciation from year to year for all assets.

Question 13

The erroneous recording of a revenue expenditure as a capital expenditure will cause an overstatement of total revenue for the period.

Question 14

Any reasonable and necessary expenditures to place a newly acquired plant asset in service should be debited to a separate asset account.

Question 15

To capitalize an expenditure means charging it to an asset account.

Question 16

Revenue expenditures are a part of selling and administrative expenses.

Question 17

Book value represents the cost of an asset that is yet to be allocated to expense.

Question 18

Land improvements are not subject to depreciation.

Question 19

The formula for the double-declining balance method of depreciation is: Remaining book value times the straight line rate is equal to depreciation expense.

Question 20

It is an acceptable accounting practice to treat an expenditure that is not material in dollar amount as an expense of the current period even though the expenditure may benefit several periods.

Question 21

A capital expenditure is charged to owners' capital.

Question 22

All of the following may be considered intangible assets except:

A) Accounts receivables.
B) Copyrights.
C) Franchises.
D) Goodwill.

Question 23

The cost of a new windshield wiper on a delivery vehicle would be classified as:

A) A capital expenditure.
B) A revenue expenditure.
C) Part of the cost of goods sold.
D) An unusual and infrequent expense.

Question 24

Goodwill is only recorded when the value of a company increases and not when it decreases in value.

Question 25

If an asset is determined to be impaired, it should be:

A) Depreciated only using the straight-line method.
B) Written up to its historical cost.
C) Reclassified as a liability.
D) Written down to its fair market value.

Question 26

A revenue expenditure is an operating expense.

Question 27

When straight-line depreciation is in use, the depreciation rate of an asset is equal to:

A) 1 divided by the life of the asset.
B) 1 divided by the cost of the asset.
C) The cost of the asset divided by the life of the asset.
D) The cost of the asset less its salvage value divided by the life of the asset.

Question 28

Most companies benefit by using accelerated depreciation methods for income tax purposes.

Question 29

U. S. GAAP requires that a company should capitalize goodwill and adjust its value if subject to impairment.

Question 30

Annual depreciation expense is increased when salvage values are small.

Question 31

The systematic write-off of intangible assets to expense is called depletion.

Question 32

All of the following assets are amortized except:

A) Patents.
B) Franchises.
C) Copyrights.
D) Natural resources.

Question 33

Under the half-year convention, six months' depreciation is recorded on an asset in the year of acquisition and in the year of retirement regardless of the month in which the asset is actually purchased or retired.

Question 34

The balance sheet always reflects a company's current values.

Question 35

The tax basis of a depreciable asset generally is higher than the book value of that asset for financial reporting purposes.

Question 36

Research and development costs should be capitalized to match the period of benefit.

Question 37

Once the estimated life is determined for a depreciable asset it can never be changed.

Question 38

After March, 2004 international standards required that goodwill:

A) Be capitalized and amortized over 20 years or less.
B) Be capitalized and amortized over 40 years or less.
C) Be capitalized and reviewed annually and its value should be adjusted if impaired.
D) Be expensed immediately.

Question 39

When a depreciable asset is sold at a price equal to its book value, a journal entry would include:

A) A credit to the asset account for its book value.
B) A debit to accumulated depreciation.
C) A credit to accumulated depreciation.
D) A credit to cash.

Question 40

Straight-line is the most widely used depreciation method in financial statements, and MACRS is the most widely used method in federal income tax returns.

Question 41

A gain is recognized on the disposal of plant assets when:

A) The sales price is greater than the residual value but less than the book value.
B) The sales price is less than both the book value and the residual value.
C) The sales price is greater than the book value and greater than the residual value.
D) The sales price is greater than the book value and less than the residual value.

Question 42

Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the cost of the land?

A) $256,000.
B) $281,000.
C) $284,600.
D) $282,200.

Question 43

Coca-Cola's famous name printed in distinctive typeface is an example of:

A) A trademark.
B) A patent.
C) A copyright.
D) Goodwill.

Question 44

Which of the following would not be considered part of the cost of equipment recently purchased?

A) Sales tax.
B) Transportation charges.
C) Installation and setup charges.
D) All three are capitalized costs.

Question 45

Which of the following is a capital expenditure?

A) Sales tax paid in conjunction with the purchase of office equipment.
B) Monthly rent of a delivery truck.
C) Research and development costs.
D) Small expenditures to acquire long-lived assets, such as $13 to purchase a wastebasket.

Question 46

When comparing the units-of-output method of depreciation with straight-line depreciation:

A) The depreciation expense in the first year will always be greater under units-of-output method.
B) The depreciation expense in the first year will always be less under the units-of-output method.
C) The depreciation expense in the first year will always be the same.
D) The depreciation expense in the first year may be greater than, equal to, or less under the units-of-output method.

Question 47

The book value of an asset in the plant and equipment category is:

A) The undepreciated cost of the asset.
B) The current replacement cost of the asset.
C) The original cost of the asset.
D) The accumulated depreciation on the asset to date.

Question 48

An asset which costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600. What amount of gain or loss will be recognized when the asset is sold?

A) A gain of $1,200.
B) A loss of $1,200.
C) A loss of $7,200.
D) A gain of $7,200.

Question 49

Machinery is purchased on May 15, 2009 for $50,000 with a $5,000 salvage value and a five year life. The half year convention is followed. What method of depreciation will give the highest amount of depreciation expense in year 2?

A) Straight line
B) Double declining balance
C) 150% declining balance
D) Amount cannot be determined

Question 50

Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer should not be debited to the Equipment account?

A) Insurance coverage purchased by Armstrong to cover the computer during shipment from the manufacturer.
B) Wages paid to system programmers hired to prepare the new computer for use.
C) Replacement of several circuit boards damaged during installation.
D) Installation of new electrical power supplies required for the computer.

Question 51

The legal life of most patents is:

A) 5 years.
B) 20 years.
C) 40 years.
D) 50 years.

Question 52

Tomassi Company paid $450,000 to acquire a piece of real estate consisting of land and an office building with a parking lot. In this situation:

A) The purchase price should be apportioned among the Land, Land Improvement, and Building accounts.
B) The entire purchase price should be debited to the Plant and Equipment account.
C) Land, Land Improvement, and Building accounts should each be debited for the respective appraisal value of each item.
D) Allocation of the entire $450,000 to Land results in an understatement of net income in the current and future accounting periods.

Question 53

The fair market value of Lewis Company's net identifiable assets is $5,000,000. Martin Corporation purchases Lewis' entire business for $5,800,000. Which of the following statements is not correct?

A) Martin Corporation paid $800,000 for goodwill generated by Lewis Company.
B) Martin feels that Lewis Company has the ability to generate earnings in excess of a normal return on net identifiable assets.
C) Martin will record amortization expense over a period not to exceed 40 years.
D) Martin Corporation will record $800,000 to goodwill, an intangible asset, which will be reported in its balance sheet.

Question 54

Which of the following is not a capital expenditure?

A) Advertising expenditures to introduce a new product line.
B) Sales tax paid in conjunction with the purchase of new machinery.
C) Installation of elevators to replace escalators.
D) An amount paid to acquire a patent with a remaining life of only three years.

Question 55

If the 150% declining balance method is being used and an asset has a useful life of 20 years what is the depreciation rate?

A) 7.5%.
B) 10%.
C) 15%.
D) Some other amount.

Question 56

The entry to record amortization on a copyright would include:

A) A debit to amortization expense
B) A debit to accumulated amortization
C) A debit to copyright
D) A credit to amortization expense

Question 57

Which depreciation method is most commonly used among publicly owned corporations?

A) Straight-line.
B) Double-declining balance.
C) Units-of-output.
D) All of the various depreciation methods are used equally.

Question 58

The term accumulated depreciation, as used in accounting, is best defined as:

A) The portion of a plant asset recognized as expense since the asset was acquired.
B) Funds (or cash) set aside to replace the asset being depreciated.
C) Earnings retained in the business that will be used to purchase another asset when the present asset is depreciated.
D) An expense of doing business.

Question 59

The application of the matching principle to depreciation of plant and equipment can best be described as:

A) The matching of the book value of an asset with its market value.
B) Offsetting the revenue of an accounting period with the estimated decline in value of plant and equipment during the accounting period.
C) Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.
D) The matching of the depreciation expense reported in the income statement for an accounting period with the accumulated depreciation reported in the balance sheet.

Question 60

Which of the following should not be treated as a revenue expenditure?

A) Delivery costs on newly purchased equipment.
B) Annual fire insurance premiums on plant and equipment.
C) Repair to an elevator of a five year old building.
D) The purchase of a pencil sharpener for $10 used in an office.

Question 61

Intangible assets are assets used in business operations but which:

A) Lack physical substance.
B) Cannot be sold.
C) Have been depreciated below their estimated salvage values.
D) Cannot be specifically identified.

Question 62

For the financial statements of publicly traded companies, MACRS:

A) Is recommended.
B) Is required.
C) Is optional.
D) Is not considered to be in conformity with GAAP.

Question 63

Revenue expenditures are recorded as:

A) An expense.
B) An asset.
C) A liability.
D) Income.

Question 64

Which of the following statements about MACRS is not correct?

A) MACRS is the only accelerated depreciation method that may be used on newly acquired assets for federal income tax purposes.
B) The method permits "depreciating" the asset to a tax basis of $0 over a specified recovery period.
C) If a company uses MACRS in its income tax returns, it also must use MACRS in its financial statements.
D) Most businesses would benefit from using MACRS rather than straight-line depreciation in their income tax returns.

Question 65

Responsibility for selection of the depreciation methods used in financial reporting rests with:

A) Company management.
B) The FASB.
C) The IRS.
D) The CPA firm that audits the company's financial statements.

Question 66

Which of the following assets is not subject to depreciation and whose usefulness does not decline over time?

A) Patents.
B) Copyrights.
C) Land.
D) Coal mine.

Question 67

For depreciable property other than real estate, MACRS is based upon:

A) Either the 150% or 200% declining-balance method.
B) The straight-line method.
C) A 10-year recovery period.
D) The depreciation method and recovery period used by the company in its financial statements.

Question 68

Capital expenditures are recorded as:

A) An expense.
B) An asset.
C) A liability.
D) Income.

Question 69

When a company uses straight-line depreciation and the half-year convention, assets with a five-year life:

A) Will have the same depreciation expense in the first and last years.
B) Will be depreciated over six accounting years.
C) Book value will equal its salvage value at the end of its economic life.
D) All of the above statements are correct.

Question 70

Which of the following would not be amortized?

A) Oil well.
B) Copyright.
C) Franchise fee.
D) Patent.

Question 71

The book value of plant assets (other than land):

A) Increases with the passage of time.
B) Decreases with the passage of time.
C) Remains the same with the passage of time.
D) May increase or decrease depending upon the economy.

Question 72

For financial reporting purposes, the gain or loss on the sale of a plant asset is determined by comparing the asset's:

A) Cost with its book value.
B) Sales price with its book value.
C) Tax basis with its book value.
D) Sales price with its tax basis.

Question 73

An accelerated depreciation method:

A) Results in reporting higher earnings every year.
B) Depreciates an asset over a shorter life than does the straight-line method.
C) Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years.
D) Is required for assets that become technologically obsolete before they physically wear out.

Question 74

The term net identifiable assets means:

A) All assets minus all liabilities.
B) All assets except goodwill, minus all liabilities.
C) All assets except intangibles, minus all liabilities.
D) All fixed assets less liabilities.

Question 75

The gain or loss on the disposal of a depreciable asset reported in financial statements often differs from that reported for income tax purposes. The principal reason for the difference is:

A) The cost of the asset is different for financial reporting and income tax purposes.
B) The sales price of the asset is different for financial reporting and income tax purposes.
C) Different depreciation methods have been used in financial statements and in income tax returns.
D) The company has made an error because the same amount of gain or loss should appear in the income tax return as in the financial statements.

Question 76

Accelerated depreciation methods are used primarily in:

A) Income tax returns.
B) The financial statements of small businesses.
C) The financial statements of publicly owned corporations.
D) Companies with computer-based accounting systems.

Question 77

With respect to depreciation policies, the principle of consistency means:

A) A company should use the same depreciation methods in its financial statements that it uses in its income tax returns.
B) A company should use the same depreciation methods as other companies in the same industry.
C) A company should use the same depreciation method from year to year for a given plant asset.
D) A company should use the same depreciation method in computing depreciation expense on all its assets.

Question 78

The gain on the disposal of equipment is recognized when:

A) The book value of the equipment is greater than the value received.
B) The book value of the equipment is less than the value received.
C) A salvage value exists.
D) A gain should not be recognized on the disposal of an asset.

Question 79

In the fixed-percentage-of-declining-balance depreciation method, the book value of the asset is multiplied by:

A) An increasing depreciation rate.
B) A constant depreciation rate.
C) A decreasing depreciation rate.
D) A rate that changes each year but is determined from a table.

Question 80

Which of the following situations is impossible?

A) Book value is greater than residual value.
B) Book value is equal to the residual value.
C) Book value is less than residual value.
D) Book value is less than the original cost.