Deck 9: Plant and Intangible Assets

Question 1

Land improvements are not subject to depreciation.

Answer 1

False

Question 2

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.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Natural resources such as oil or minerals are categorized as intangible assets.

Question 5

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

Question 6

A revenue expenditure is recorded in an expense account.

Question 7

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

Question 8

A capital expenditure is charged to owners' capital.

Question 9

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

Question 10

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

Question 11

If a piece of equipment is dropped and damaged during installation,the cost of repairing the damage should be added to the cost of the equipment.

Question 12

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 13

Assets are shown in the balance sheet at their book value.

Question 14

Physical deterioration refers to the process of an asset becoming outdated as a result of the availability of improved, more efficient assets.

Question 15

Maintenance and fuel costs are types of revenue expenditures.

Question 16

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

Question 17

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

Question 18

Book value represents the cost of an asset that has already been allocated to expense.

Question 19

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

Question 20

A revenue expenditure is deducted from revenues in determining the net income for the period.

Question 21

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 22

In the early years of an asset's life,straight-line depreciation will cause a company to report higher profits than would be reported with an accelerated depreciation method.

Question 23

The rule of consistency is violated when a company uses one method of depreciation for financial statements and another method of depreciation for tax purposes.

Question 24

Material gains and losses from the disposal of plant and equipment are shown on the income statement as part of income from operations.

Question 25

Annual depreciation expense is increased when salvage values are small.

Question 26

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

Question 27

Estimating the useful life and residual value of an asset is the responsibility of the firm of independent accountants that audit the company.

Question 28

Ding Company traded in one of its automobiles for a newer model.This transaction may result in a gain or a loss being recorded on Ding's financial statements.

Question 29

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

Question 30

Sum-of-the-years' digits is a popular depreciation method for small businesses due to its simplicity.

Question 31

Under international accounting standards,companies may revalue their plant and equipment rather than using historical cost throughout the assets' lives.

Question 32

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

Question 33

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

Question 34

Sum-of-the-years' digits is a decelerated method of depreciation which produces less depreciation expense in the early years of the asset's life and more expense in the later years.

Question 35

Any rational,systematic method of depreciation is acceptable,as long as costs are allocated to expense in a reasonable manner.

Question 36

In the early years of an asset's life,an accelerated depreciation method results in a more conservative balance sheet amount for the asset and a more conservative net income amount.

Question 37

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

Question 38

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

Question 39

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 40

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.

Question 41

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)Monthly fuel costs for a truck owned by the company.
D)Small expenditures to acquire long-lived assets,such as $13 to purchase a wastebasket.

Question 42

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

Question 43

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 Land account only.
C)Land,Land Improvement,and Building accounts should each be credited 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 44

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 45

Land is purchased for $456,000.Additional costs include a $30,300 fee to a broker,a survey fee of $3,400,$2,750 to construct a fence,and a legal fee of $12,500.What is the cost of the land?

A)$456,000.
B)$486,300.
C)$502,200.
D)$504,950.

Question 46

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

A)Sales tax.
B)Transportation charges.
C)Installation and setup charges.
D)The cost to repair damage incurred after dropping the equipment.

Question 47

Accumulated depletion is a contra-equity account and is recorded in the stockholders' equity section of the balance sheet.

Question 48

Harvard Company purchased equipment having an invoice price of $11,500.The terms of sale were 2/10,n/30,and Harvard paid within the discount period.In addition,Harvard paid a $160 delivery charge,$185 installation charge,and $931 sales tax.The amount recorded as the cost of this equipment is:

A)$11,845.
B)$12,776.
C)$11,615.
D)$12,546.

Question 49

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)$271,300.
C)$283,950.
D)$282,200.

Question 50

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 51

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 52

An oil reserve is depreciated because of physical deterioration or obsolescence.

Question 53

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 54

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 market 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 55

A coal mine is regarded as an underground inventory of coal and is recorded as a current asset,Underground Coal Inventory,in the balance sheet.

Question 56

Land and a warehouse were acquired for $890,000.What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse?

A)$400,000 for land; $490,000 for warehouse.
B)$323,960 for land; $566,040 for warehouse.
C)$400,000 for land; $700,000 for warehouse.
D)$190,000 for land; $700,000 for warehouse.

Question 57

Yale Company purchased equipment having an invoice price of $21,500.The terms of sale were 2/10,n/30,and Yale paid within the discount period.In addition,Yale paid a $320 delivery charge,$350 installation charge,and $1,183 sales tax.The amount recorded as the cost of this equipment is:

A)$21,070.
B)$21,500.
C)$21,740.
D)$22,923.

Question 58

Amortization expense increases net income and reduces cash flows from investing activities.

Question 59

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 60

The write-down of an impaired asset is treated as a cash outflow from investing activities.

Question 61

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 62

The adjusting entries to record depreciation or amortization expense or to write down assets that have become impaired:

A)Reduce both net income and cash balances.
B)Reduce net income,but have no direct effect on cash balances.
C)Decrease cash balances,but have no direct effect upon net income.
D)Affect neither net income nor cash balances.

Question 63

Machinery acquired new on January 1 at a cost of $80,000 was estimated to have a useful life of 10 years and a residual salvage value of $20,000.Straight-line depreciation was used.On January 1,following six full years of use of the machinery,management decided that the estimate of useful life had been too long and that the machinery would have to be retired after three years,that is,at the end of the ninth year of service.Under this revised estimate,the depreciation expense for the seventh year of use would be:

A)$8,000.
B)$10,000.
C)$13,000.
D)$24,000.

Question 64

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 65

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)Will have a book value that exceeds its salvage value at the end of its economic life.
D)All of these statements are correct.

Question 66

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)150%.

Question 67

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 68

Machinery is purchased on May 15,2015 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.Straight-line Year 2 ($50,000 - $5,000)/5 = $9,000;

Question 69

On April 8,2015,Jupitor Corp.acquired equipment at a cost of $480,000.The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value.Depreciation for fractional years is computed by rounding the ownership period to the nearest month.Depreciation expense recognized in 2015 will be:

A)$53,333.
B)$66,667.
C)$60,000.
D)$80,000.

Question 70

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.

Question 71

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 72

Revenue expenditures are recorded as:

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

Question 73

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 74

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 75

On March 2,2014,Glen Industries purchased a fleet of automobiles at a cost of $550,000.The cars are to be depreciated by the straight-line method over five years with no salvage value.Glen uses the half-year convention to compute depreciation for fractional periods.The book value of the fleet of automobiles at December 31,2015,will be:

A)$165,000.
B)$330,000.
C)$495,000.
D)$385,000.

Question 76

The book value of equipment:

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 77

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 78

Capital expenditures are recorded as:

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

Question 79

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 80

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 under both the methods.
D)The depreciation expense in the first year may be greater than,equal to,or less under the units-of-output method.