Deck 9: Long-Term Assets I: Property, Plant, and Equipment

Question 1

A machine with a four-year estimated useful life and an estimated 15 percent salvage value was acquired on January 1,2012.On December 31,2014,the accumulated depreciation using the sum-of-year's digits method would be

A)Original cost less salvage value)multiplied by 9/10
B)Original cost multiplied by 9/10
C)Original cost multiplied by 9/10 less total salvage value
D)Original cost less salvage value)multiplied by 1/10

Answer 1

A

Question 2

Lyle,Inc.,purchased certain plant assets under a deferred payment contract on December 31,2014.The agreement was to pay $20,000 at the time of purchase and $20,000 at the end of each of the next five years.The plant assets should be valued at

A)The present value of a $20,000 ordinary annuity for five years
B)$120,000
C)$120,000 less imputed interest
D)$120,000 plus imputed interest

Answer 2

C

Question 3

When a closely held corporation issues preferred stock for land,the land should be recorded at the

A)Total par value of the stock issued
B)Total book value of the stock issued
C)Appraised value of the land
D)Total liquidating value of the stock issued

Answer 3

C

Question 4

Explain the concept of commercial substance originally outlined in SFAS No.158.

Question 5

For income statement purposes,depreciation is a variable expense if the depreciation method used for book purposes is

A)Units of production
B)Straight line
C)Sum-of-the-year's-digits
D)Declining balance

Question 6

Discuss the guidelines for accounting for property,plant and equipment outlined in IAS No.16.

Question 7

A method that excludes salvage value from the base for the depreciation calculation is

A)Straight line
B)Sum-of-the-year's digits
C)Double-declining balance
D)Productive output

Question 8

Property,plant,and equipment are conventionally presented n the balance sheet at

A)Replacement cost less accumulated depreciation
B)Historical cost less salvage value
C)Original cost adjusted for general price level changes
D)Acquisition cost less depreciated portion thereof

Question 9

When a company purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant,the cost incurred to tear down the building should be

A)Expensed as incurred
B)Added to the cost of the plant
C)Added to the cost of the land
D)Amortized over the estimated time period between the tearing down of the building and the completion of the plant

Question 10

Describe how cost is assigned to individual assets when they are acquired in a lump-sum group purchase.

Question 11

Discuss the issue of allocating interest to self construction projects.That is,when should interest be allocated and how much interest should be allocated?

Question 12

How does IAS no.23 define borrowing costs?

Question 13

As generally used in accounting,depreciation

A)Is a process of asset valuation for balance sheet purposes
B)Applies only to long-lived intangible assets
C)Is used to indicate a decline in market value of a long-lived asset
D)Is an accounting process that allocates long-lived asset cost to accounting periods

Question 14

Discuss the distinction between capital and revenue expenditures for long-term assets.

Question 15

A principal objection to the straight-line method of depreciation is that it

A)Provides for the declining productivity of an aging asset
B)Ignores variations in the rate of asset use
C)Tends to result in a constant rate of return on a diminishing investment base
D)Gives smaller periodic write-offs than decreasing charge methods

Question 16

A company using the group depreciation method for its delivery trucks retired one of its delivery trucks due to damage before the average service life of the group was reached.An insurance recovery was received.The net book value of these group asset accounts would be decreased by the

A)Original cost of the truck
B)Original cost of the truck less the insurance recovery received
C)Original cost of the truck less depreciation on the truck to the date of retirement
D)Insurance recovery received

Question 17

The theoretical justification for reporting depreciation expense is

A)Depreciation expense represents a decrease in the value of the asset that has occurred during the accounting period.
B)Depreciation expense represents the impairment of the asset that has occurred during the accounting period.
C)Depreciation expense represents the unrealized loss that has been incurred by using the asset during the accounting period.
D)Depreciation expense represents the allocation of the historical cost of the asset that has been applied to the accounting period.

Question 18

How did SFAS No.116,now FASB ASC 605-10-15-3,change the accounting for donated assets?

Question 19

Discuss accounting for the impairment of assets as outlined in IAS No.36.