Deck 6: Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets

Question 1

The net book value of a depreciable asset is:

A) the fair value of the asset.
B) the amount for which the asset should be insured.
C) the difference between the asset's cost and accumulated depreciation.
D)the difference between the asset's cost and depreciation expense.

Answer 1

C

Question 2

The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for buildings?

A) 150% declining-balance.
B) Double-declining-balance.
C) Straight line.
D)Buildings are not depreciable assets.

Answer 2

C

Question 3

Which of the following accounting concepts/principles is most significant in the development of a capitalization policy?

A) Matching of revenue and expense.
B) Materiality.
C) Original Cost.
D)Consistency.

Answer 3

B

Question 4

The entry to record depreciation expense:

A) increases a contra asset and decreases net income.
B) decreases a contra asset and decreases net income.
C) decreases working capital and decreases net income.
D)decreases an asset and increases a contra asset.

Question 5

When an accelerated depreciation method is used to calculate depreciation expense:

A) the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
B) the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used.
C) depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used.
D)the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used.

Question 6

If an organization has an obligation to pay $25,000 to a supplier two years from now, the present value of the obligation:

A) is less than $25,000.
B) is $25,000.
C) is more than $25,000.
D)could be calculated using an annuity factor from the present value tables.

Question 7

When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land:

A) any of the purchase cost allocated to the old building is reported as a loss.
B) the cost assigned to the land excludes the cost of the old building.
C) the total cost of the land and old building are capitalized as land cost.
D)any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building.

Question 8

Expenditures capitalized as long-lived assets generally include those expenditures that:

A) are made for normal repairs to maintain the usefulness of the asset over a number of years.
B) are for items that have a physical life of more than a year, regardless of their cost.
C) are material in amount and that have an economic benefit to the entity only in the current year.
D)are material in amount and that have an economic benefit to the entity that extends beyond the current year.

Question 9

Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2017. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the double-declining balance method.What is the accumulated depreciation for this asset on December 31, 2018?

A) $8,800
B) $10,560
C) $17,600
D)$28,160

Question 10

Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2017. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the double-declining balance method.What is the firm's gain or loss if the machinery is sold for $22,000 on December 31, 2018?

A) Gain of $8,000
B) Gain of $6,160
C) Loss of $1,200
D)Loss of $8,000

Question 11

Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2017. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the double-declining balance method.What is the firm's depreciation expense for the year ended December 31, 2017?

A) $4,000
B) $8,800
C) $12,000
D)$17,600

Question 12

Which of the following could be a correct journal entry to record the disposition of equipment?

A)

B)

C)

D)

Question 13

Depreciation, in accounting, is a process that results in:

A) depreciable assets being reported in the balance sheet at their fair value.
B) accumulating cash for the replacement of the asset.
C) an accurate measurement of the economic usefulness of an asset.
D)spreading the cost of an asset over its useful life to the entity.

Question 14

Which of the following statements best describes the process of accounting for depreciation?

A) A process that attempts to recognize loss in economic value over a period of time.
B) A process for setting aside cash so funds will be available to replace the asset.
C) A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
D)A process for recognizing all of the cost associated with using an asset in a revenue generating activity.

Question 15

The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for land?

A) 150% declining-balance.
B) Double-declining-balance.
C) Straight line.
D)Land is not a depreciable asset.

Question 16

It is not unusual for a company to use different depreciation methods for book and tax purposes. When this happens, the firm usually:

A) uses an accelerated depreciation method for book purposes.
B) uses an accelerated depreciation method for tax purposes.
C) is trying to maximize its taxable income.
D)is trying to minimize its book income.

Question 17

The present value of $6,000 to be received in 7 years at 10% is:

A) $1,232.44
B) $3,079.20
C) $6,000.00
D)$11,691.34

Question 18

If there is a loss on the disposal of a depreciable asset:

A) no cash was received in the disposal transaction.
B) the net book value of the asset was negative.
C) in retrospect, the life over which the asset was depreciated was too short.
D)in retrospect, the depreciation expense recognized over the asset's life was too low.

Question 19

When a machine having a net book value of $15,000 is sold for $12,000:

A) current assets decrease, equipment (net) increases, and net income increases.
B) current assets increase, equipment (net) decreases, and net income increases.
C) current assets increase, equipment (net) decreases, and net income decreases.
D)current assets increase, equipment (net) increases, and net income decreases.

Question 20

The present value concept is widely applied in business because:

A) inflation erodes the purchasing power of money.
B) money has value over time.
C) accounting for operating leases requires its use.
D)most obligations are settled within a year.

Question 21

Lone Star Sales & Service acquired a new machine that cost $84,000 in early 2016. The machine is expected to have a five-year useful life and is estimated to have a salvage value of $14,000 at the end of its life. (Round your final answers to the nearest dollar.)
(a.) Using the straight-line depreciation method, calculate the depreciation expense to be recognized in the second year of the machine's life and calculate the accumulated depreciation after the third year of the machine's life.(b.) Using the double-declining-balance depreciation method, calculate the depreciation expense for the third year of the machine's life and the net book value of the machine at this point in time.

Question 22

Joe's Garage, Inc., purchased a used vehicle lift, brake tester, and wheel aligning equipment for a lump-sum price of $16,000 from a bankrupt competitor. Appraised values were as follows: vehicle lift, $20,000; brake tester, $4,000; and wheel aligner, $6,000.Required:
What cost should be recorded for the wheel aligner?

Question 23

Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to:

A) depreciation.
B) amortization.
C) depletion.
D)consolidation.

Question 24

Goodwill results from the purchase of one firm by another for a price that is greater than the fair value of the net assets acquired. On January 1, 2017, Blue Grass Co. purchased Red Grass Co. for $2,400,000 when the net assets were valued at $2,000,000. Goodwill will be tested annually for impairment. Assume that after the first year there was an impairment of $30,000.Required:
(a.) Compute the value of goodwill to be recorded on the books of Blue Grass Company upon the purchase of the business.(b.) What is impairment and how is the first year's impairment recorded in the books?

Question 25

Psyche Company wants to acquire Trim Company. Trim's ROI has been above average for its industry; net income has averaged $140,000 a year more than the industry average. These "excess" earnings are expected to continue at this amount for 5 years. Assuming a discount rate of 8%, how much goodwill will arise from Psyches' purchase of Trim?

A) $81,672
B) $176,314
C) $558,978
D)$700,000

Question 26

Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI:

A) is less than the fair value of the net assets of the acquired company.
B) is more than the fair value of the net assets of the acquired company.
C) is more than the fair value of the net assets of the acquiring company.
D)is less than the fair value of the net assets of the acquiring company.

Question 27

A particular common stock has an annual cash dividend of $4 per share and is predicted to have a market value of $60 per share 5 years from now. Assuming a discount rate of 10%, a fair market price for the stock today is:

A) $40.00
B) $52.41
C) $75.16
D)$112.42

Question 28

The present value of an obligation of $8,000 payable in 7 years at 8% is:

A) $3,520
B) $4,668
C) $6,412
D)$7,360

Question 29

The intangible asset goodwill:

A) represents the management team's assessment of its value to the company.
B) may arise when one company purchases another company.
C) arises because the fair value of a company's assets is greater than cost.
D)all of the above are correct.

Question 30

Which of the following is not a term that describes part of the accounting for noncurrent assets?

A) Accumulation.
B) Depletion.
C) Amortization.
D)Depreciation.

Question 31

Leasehold is an example of which of the following types of assets?

A) Current asset.
B) Property, plant and equipment.
C) Goodwill.
D)Intangible asset.

Question 32

Many companies use accelerated depreciation for tax purposes because:

A) it is easier to calculate than straight-line depreciation.
B) it reflects the amount of cash used in depreciation.
C) it results in lower taxable income than straight-line depreciation.
D)it is used for determining net income reported to stockholders.

Question 33

Which of the following statements concerning the accounting for leases is not true?

A) The economic impact of a capital lease isn't really any different from buying the asset outright and signing a note payable that will be paid off, with interest, over the life of the asset.
B) At the inception of a capital lease, the lessee's total assets and total stockholders' equity are both increased for the present value of the lease payments to be made over the life of the lease.
C) Assets rented under an operating lease are not reflected on the lessee's balance sheet, and the rent expense involved is reported in the income statement as an operating expense.
D)A capital lease results in the lessee assuming virtually all the benefits and risks of ownership of the leased asset.

Question 34

Accounting for natural resources:

A) involves using the accumulated depreciation account.
B) involves estimating the quantity of the natural resource to be recovered.
C) involves an exception to the matching concept.
D)involves a double-declining balance depletion calculation.

Question 35

Which of the following statements concerning repair and maintenance expenditures is true?

A) Routine repair costs and preventive maintenance expenditures are capitalized as assets in the period in which they are incurred.
B) For income tax purposes, most taxpayers would prefer to capitalize an expenditure and depreciate the asset over time rather than expensing the expenditure and deducting the entire amount in the year it is incurred.
C) Maintenance expenditures that extend the useful life and ∕or increase the salvage value of an asset should be capitalized and depreciated over the asset's remaining useful life.
D)All repair and maintenance expenditures are accounted for as expenses in the year in which they are incurred.

Question 36

The present value of $6,000 to be received every year for 9 years, at 10%, is:

A) $14,147.60
B) $24,546.00
C) $34,554.00
D)$54,000.00

Question 37

Lessee, Inc., acquired the use of a machine by agreeing to pay the manufacturer of the machine $20,000 per year for 5 years. At the time the lease was signed, the interest rate for a 5-year loan was 8%.Required:
(a.) Use the appropriate factor from Table 6-5 to calculate the amount that Lessee, Inc. could have paid at the beginning of the lease to buy the machine outright.(b.) What causes the difference between the amount you calculated in part (a.) and the total of $100,000 ($20,000 per year for 5 years) that Lessee, Inc. will pay under the terms of the lease?
(c.) What is the appropriate amount of cost to be reported in Lessee, Inc's balance sheet (at the time the lease was signed) with respect to this asset?

Question 38

When a depreciable asset is sold:

A) a gain arises if the sales proceeds exceed the net book value.
B) a loss arises if the sales proceeds exceed the net book value.
C) any cash received results in a gain.
D)depreciation expense is adjusted so there is no gain or loss.

Question 39

The principal challenge to calculating depletion is estimating:

A) the cost of the asset.
B) the salvage value of the exploration equipment.
C) the demand for the product.
D)the quantity of material to be recovered.