Deck 8: Accounting for Long-Term Operational Assets

Question 1

Title search and document costs incurred to purchase a building are expensed in the period the building is acquired.

Answer 1

False
Explanation: Title search and document costs are included in the cost of the building and expensed over the building's useful life.

Question 2

The term used to recognize expense for property, plant, and equipment assets is depletion.

Answer 2

False
Explanation: Depreciation, not depletion, is used to recognize expense for property, plant, and equipment.

Question 3

Land differs from other property because it is not subject to depreciation.

Answer 3

True
Explanation: Land remains on the balance sheet at its historic cost and is not subject to any kind of expense.

Question 4

When depreciation is recorded on equipment, Depreciation Expense is debited and Equipment is credited.

Question 5

Intangible assets include patents, copyrights, and franchises.

Question 6

Tangible assets include land, equipment, and goodwill.

Question 7

The purchase of a new delivery truck for cash is an asset use transaction.

Question 8

A copyright is an intangible asset with an indefinite useful life.

Question 9

Recognizing depreciation expense on equipment or a building is an asset use transaction.

Question 10

When using the modified accelerated cost recovery system the highest amount of depreciation expense will be recognized in the year the asset is acquired.

Question 11

With an accelerated depreciation method, an asset can be depreciated below its salvage value.

Question 12

The use of estimates and revision of estimates are uncommon in financial reporting.

Question 13

When a building is purchased simultaneously with land, the purchase price must be allocated between the building and the land.

Question 14

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

Question 15

Gains and losses are reported as non-operating items on the income statement.

Question 16

Generally accepted accounting principles require that, when the estimated useful life of a long-term asset is changed, previously-issued financial statements should not be revised.

Question 17

Late in a plant asset's useful life, the amount of depreciation that would be recorded with the double-declining balance method is less than the amount that would be recognized with straight-line depreciation.

Question 18

A trademark is a tangible asset with an indefinite useful life.

Question 19

In choosing a depreciation method for financial reporting, a company should use the method that most closely approximates the amount of depreciation on the tax return.

Question 20

Accumulated Depreciation is a temporary account that is closed each year.

Question 21

Which of the following would not be classified as a tangible long-term asset?

A)Delivery truck
B)Franchise
C)Land
D)Oil and gas reserve

Question 22

The cost of natural resources includes the purchase price, as well as exploration costs and surveys.

Question 23

Goodwill is the value attributable to a business's ability to generate a high return.

Question 24

Which of the following intangible assets does not convey a specific legal right or privilege?

A)Copyrights
B)Franchises
C)Goodwill
D)Trademarks

Question 25

Which of the following terms is used to identify the process of expense recognition for property, plant and equipment?

A)Amortization
B)Depletion
C)Depreciation
D)Revision

Question 26

An impairment of an intangible asset reduces the asset, stockholders' equity, and net income.

Question 27

Which of the following would be classified as a long-term operational asset?

A)Notes receivable.
B)Treasury stock.
C)Inventory.
D)Goodwill.

Question 28

An expenditure that improves the quality of service provided by a plant asset is added to the historical cost of the asset.

Question 29

Anchor Company purchased a manufacturing machine with a list price of $80,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $1,200. Anchor paid $1,500 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $1,800 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:

A)$81,100.
B)$79,600.
C)$82,900.
D)$78,400.

Question 30

Depletion of a natural resource is usually calculated using the straight-line basis.

Question 31

Which of the following is not classified as property, plant and equipment?

A)Computers
B)Land
C)Vehicles
D)Office furniture

Question 32

What value will be recorded for the building?

A)87,500
B)400,000
C)475,000
D)550,000

Question 33

A substantial amount spent to improve the quality or extend the life of a long-term asset is called a revenue expenditure.

Question 34

When Company X purchases Company Y, X should record Y's assets at their fair market value at the time of the acquisition.

Question 35

Expenditures that extend the useful life of a plant asset are debited to the asset account.

Question 36

Chesapeake Company paid $475,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture - $95,000; Building - $370,000, Land - $66,000. Based on this information the amount of cost that would be allocated to the office furniture is closest to:

A)$95,000.
B)$85,500.
C)$158,333.
D)$52,500.

Question 37

What journal entry would be used to record the purchase of the above assets?

A)
B)
C)
D)

Question 38

Which of the following would be classified as a tangible asset?

A)Copyright.
B)Goodwill.
C)Land improvement.
D)Trademark.

Question 39

On January 6, 2013, the Mount Jackson Corporation purchased a tract of land for a factory site for $750,000. An existing building on the site was demolished and the new factory was completed on October 11, 2013. Additional cost data are shown below: Which of the following correctly states the capitalized cost of the (a) land and (b) the new building?

A)$750,000/$1,017,800
B)$757,700/$1,010,100
C)$824,300/$943,500
D)$818,800/$949,000

Question 40

Assume that Bybee uses the units of production method when depreciating its equipment. Bybee estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $17,000. Bybee produced 265,000 units with the equipment by the end of the first year of purchase. Which amount below is closest to the amount Bybee will record for depreciation expense for the equipment in the first year?

A)$96,725
B)$62,600
C)$78,440
D)$82,945

Question 41

On January 1, 2013 Dungan Company purchased a car that cost $35,000. The car had an expected useful life of 6 years and a $10,000 salvage value. Based on this information alone:

A)The amount of depreciation expense recognized in 2016 would be greater if Dungan depreciates the car under the straight-line method than if the double declining balance method is used.
B)The total amount of depreciation expense recognized over the six year useful life will be greater under the double declining balance method than the straight-line method.
C)At the end of 2015, the amount in accumulated depreciation account will be less if the double declining balance method is used than it would be if the straight-line method is used.
D)None of these statements is true.

Question 42

On January 1, 2013 Midwest Co. purchased a truck that cost $38,000. The truck had an expected useful life of 10 years and a $4,000 salvage value. The amount of depreciation expense recognized in 2014 assuming that Midwest uses the double declining-balance method is:

A)$5,440.
B)$6,080.
C)$3,800.
D)$7,600.

Question 43

A machine with a book value of $19,000 is sold for $16,000. Which of the following answers would accurately represent the effects of the sale on the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 44

Clarkson Company paid cash to purchase equipment on January 1, 2013. Select the answer that shows how the recognition of depreciation expense in 2014 would affect assets, liabilities, equity, net income, and cash flow (+ means increase, - decrease, and NA not affected).

A)Option A
B)Option B
C)Option C
D)Option D

Question 45

At the end of the current accounting period, Rodgers Co. recorded depreciation of $25,000 on its equipment. The effect of this entry on the company's balance sheet is to:

A)decrease assets and increase liabilities.
B)decrease owners' equity and increase liabilities.
C)decrease assets and increase owners' equity.
D)decrease owners' equity and decrease assets.

Question 46

Which method of depreciation is used by most U. S. companies for financial reporting purposes?

A)Straight line
B)Units of production
C)Double declining balance
D)MACRS

Question 47

On January 1, 2013, Fritz Company purchased a truck that cost $38,000. The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value. During 2014, Fritz drove the truck 18,500 miles. The amount of depreciation expense recognized in 2014 assuming that Fritz uses the units of production method is:

A)$5,550.
B)$7,030.
C)$3,750.
D)$4,750.

Question 48

Easton Company purchased equipment that cost $55,000 cash on January 1, 2012. The equipment had an expected useful life of six years and an estimated salvage value of $4,000. Assuming that Easton depreciates its assets under the straight-line method, the amount of depreciation expense appearing on the 2015 income statement and the amount of accumulated depreciation appearing on the December 31, 2015 balance sheet would be:

A)Option A
B)Option B
C)Option C
D)Option D

Question 49

Leland Co. paid $400,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $50,000, Building, $370,000, and Office Furniture, $80,000. Based on this information the cost that would be allocated to the land is:

A)$35,000.
B)$40,000.
C)$50,000.
D)$53,500.

Question 50

Assume that Wu Company earned $15,000 cash revenue and incurred $9,500 in cash expenses in 2015. Using straight-line depreciation and assuming that the office equipment was sold on 12/31/15 for $8,000, the amount of net income or (loss) appearing on the December 31, 2015 income statement would be:

A)($3,300).
B)$300.
C)$2,700.
D)$3,100.

Question 51

Ferris purchased equipment that cost $45,000. The equipment had a useful life of 5 years and a $5,000 salvage value. Ferris used the double-declining-balance method to depreciate its assets. Which of the following choices accurately reflects how the recognition of the first year's depreciation would affect the company's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 52

Which of the following statements is true with regard to depreciation expense?

A)A company should use the depreciation method that best matches expense recognition with the use of the asset.
B)A company using straight line will show a smaller book value for assets than if the same company uses double declining balance.
C)Choosing double declining balance over straight line will produce a greater total depreciation expense over the asset's life.
D)Different companies in the same industry always depreciate similar assets by the same methods.

Question 53

On March 1, Bunker Hill Company purchased a new stamping machine with a list price of $68,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $1,100; sales tax paid, $2,720; installation costs, $900; routine maintenance during the first month of operation, $1,000. The cost recorded for the machine was:

A)$68,420.
B)$64,600.
C)$69,320.
D)$70,320.

Question 54

On January 1, 2013, Innovative Manufacturing Company purchased equipment with a list price of $22,000 with a 5% cash discount. A total of $1,000 was paid for installation and testing. During the first year, Innovative paid $1,500 for insurance on the equipment and another $550 for routine maintenance and repairs. Innovative uses the units-of-production method of depreciation. Useful life is estimated at 100,000 units, and estimated salvage value is $2,000. During 2013, the equipment produced 13,000 units. What is closest to the amount of depreciation for the year?

A)$2,847
B)$2,587
C)$3,042
D)$2,782

Question 55

Which of the following is considered an accelerated depreciation method?

A)Double declining balance
B)Units of production
C)MACRS
D)Both A and C

Question 56

At the end of 2018, the book value of the office equipment using straight-line depreciation and double-declining balance depreciation, respectively, would be:

A)$6,000/$840.
B)$6,000/$6,000.
C)$0/$0.
D)None of these answers is correct.

Question 57

Using double-declining balance depreciation, determine the amount of depreciation expense and the amount of accumulated depreciation that would appear on the December 31, 2015 financial statements.

A)$0/$12,000.
B)$4,320/$11,520.
C)$480/$12,000.
D)$2,592/$14,112.

Question 58

Diaz Company purchased a truck that cost $36,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $5,000. If the truck is driven 26,000 miles in the current accounting period, what would be the amount of depreciation expense for the year? (Use the Unit of Production Method to solve.)

A)$8,060.
B)$9,360.
C)$6,200.
D)$14,400.

Question 59

On January 1, 2013, Fritz Company purchased a truck that cost $38,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. The book value of the truck at the end of 2013, assuming that Fritz uses the double declining balance method, is:

A)$20,500.
B)$28,500.
C)$30,500.
D)$22,500.

Question 60

On January 1, 2013, Frankfort Company made a basket purchase including land, a building and equipment for $760,000. The appraised values of the assets are $40,000 for the land, $680,000 for the building and $80,000 for equipment. Frankfort uses the double declining balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $10,000. The depreciation expense for 2013 for the equipment is:

A)$40,000.
B)$20,000.
C)$19,000.
D)$38,000.

Question 61

Which of the following would most likely not be expensed using the straight-line method?

A)A copyright.
B)A building.
C)A timber reserve.
D)A patent.

Question 62

George Company purchased oil rights on July 1, 2013 for $2,400,000. If 200,000 barrels of oil are expected to be extracted over the assets life, and 30,000 barrels are extracted and sold in 2013, the recognition of depletion expense on December 31, 2013 would cause:

A)a reduction in equity of $200,000.
B)a reduction in assets of $300,000.
C)a reduction in assets of $360,000.
D)an increase in equity of $400,000.

Question 63

The recognition of depletion expense

A)decreases assets and equity and decreases cash flow from investing expenses under the direct approach.
B)decreases cash flow from operating activities, and does not affect the amount of total assets.
C)increases assets, equity, and cash flow from operating activities.
D)decreases assets and equity, and does not affect cash flow.

Question 64

On January 1, 2012 Eastwood Company purchased an asset that had cost $48,000. The asset had a 8-year useful life and an estimated salvage value of $2,000. Eastwood depreciates its assets on the straight-line basis. On January 1, 2016 the company spent $12,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in 2016 would

A)increase total assets by $8,750.
B)reduce total equity by $8,750.
C)reduce total assets by $9,250.
D)increase total equity by $9,250.

Question 65

Which of the following statements is true concerning the modified accelerated cost recovery system (MACRS) for the recognition of depreciation expense?

A)7-year property will be depreciated more rapidly than 10-year property under the MACRS depreciation method.
B)Under MACRS more depreciation will be recorded in the second accounting period than in the first accounting period because of the half-year convention.
C)MACRS is used for the determination of depreciation expense that is reported on an income tax return.
D)All of these statements are true.

Question 66

If the original expected life remained the same (i.e., 5-years), but at the beginning of 2016, the salvage value was revised to $4,000, the annual depreciation expense for each of the remaining years would be:

A)$2,720.
B)$13,600.
C)$7,400.
D)$6,800.

Question 67

For 2013, The Oscar Company records depreciation expense of $12,000 on its income statement and $9,000 of MACRS depreciation on its tax return. Which of the following answers is correct regarding the difference between the two figures?

A)Net income is understated by $3,000 on the 2013 income statement.
B)The difference in depreciation expense is caused by differences between GAAP and the tax code.
C)Deferred taxes of $3,000 are subtracted from taxable income of 2013.
D)The amount of depreciation recorded on the income tax return must be incorrect.

Question 68

Marsh Company owned an asset that had cost $22,000. The company sold the asset on January 1, 2013 for $8,000. Accumulated depreciation on the day of sale amounted to $16,000. Based on this information, the sale would result in:

A)An $8,000 increase in total assets.
B)An $8,000 cash inflow in the investing activities section of the cash flow statement.
C)A $2,000 gain in the investing activities section of the statement of cash flows.
D)A $2,000 cash inflow in the financing activities section of the cash flow statement.

Question 69

On January 1, 2013, Owens Company spent $850 on a plant asset to improve its quality. The asset had been purchased on January 1, 2010 for $4,200 and had an estimated salvage value of $600 and a useful life of five years. Owens uses the straight-line depreciation method. Which of the following correctly shows the effects of the 2013 expenditure on the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 70

On April 1, 2013, Texas Energy Company purchased an oil producing well at a cash cost of $6,000,000. It is estimated that the oil well contains 600,000 barrels of oil, of which only 500,000 can be profitably extracted. By December 31, 2013, 25,000 barrels of oil were produced and sold. The amount of depletion expense for 2013 on this well would be:

A)$300,000.
B)$400,000.
C)$240,000.
D)$250,000.

Question 71

Monroe Minerals Company purchased a copper mine for $120,000,000. The mine was expected to produce 50,000 tons of copper over its useful life. During 2013, the company extracted 6,000 tons of copper. The copper was sold for $4,500 per ton. Assume that the company incurred $8,040,000 in operating expenses during 2013. Based on this information, how much net income would Monroe report in 2013?

A)$12,600,000.
B)$4,560,000.
C)$6,360,000.
D)$14,400,000.

Question 72

Goldfarb, Inc. uses MACRS for its income tax returns and straight line depreciation for its financial statements. The company purchased 5 year MACRS property on January 1, 2013 that cost $65,000 and has a $5,000 salvage value and an expected 8 year useful life. Given a depreciation percentage of 20% for the first year for 5 year property, the company would show which of the following on its financial records?

A)a deferred tax liability.
B)the same amount of depreciation expense for financial reporting as for income tax preparation.
C)depreciation expense of $13,000 on the income statement and $7,500 on the tax return.
D)less depreciation expense on the tax return than on the income statement.

Question 73

On January 1, 2013, Leland Company purchased an asset that cost $20,000. The asset had an expected useful life of five years and an estimated salvage value of $4,000. Leland uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $2,000. Based on this information, the amount of depreciation expense to be recognized at the end of 2016 is:

A)$4,200.
B)$3,200.
C)$8,400.
D)$5,200.

Question 74

On January 1, 2013 Ballard Company spent $6,000 on an asset to improve its quality. The asset had been purchased on January 1, 2012 for $26,000. The asset had a $2,000 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, 2016?

A)$12,000.
B)$10,400.
C)$5,200.
D)$12,400.

Question 75

On January 1, 2013 Brewer Company paid $14,000 cash to extend the useful life of a machine. Which of the following general journal entries would be required to recognize this expenditure?

A)
B)
C)
D)

Question 76

At the beginning of 2016, Furst revised the expected life to eight years. The annual amount of depreciation expense for each of the remaining years would be:

A)$3,520.
B)$2,200.
C)$3,120.
D)$1,950.

Question 77

On January 1, 2013, the City Taxi Company purchased a new taxi cab for $36,000. The cab has an expected salvage value of $2,000. The company estimates that the cab will be driven 200,000 miles over its life. It uses the units of production method to determine depreciation expense. The cab was driven 45,000 miles the first year and 48,000 the second year. What would be the depreciation expense reported on the 2014 income statement and the book value of the taxi at the end of 2014?

A)$8,640/$19,260.
B)$8,640/$17,260.
C)$8,160/$20,190.
D)$8,160/$18,190.

Question 78

Allen Company paid cash to prolong the life of one of its assets. Which of the following choices accurately reflects how this event would affect Allen's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 79

On September 10, 2013, Flagler Company sold a piece of equipment for $3,000. The equipment had an original cost of $17,000 and accumulated depreciation of $15,500 at the time of the sale. Which of the following correctly shows the effect of the sale on the 2013 financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question 80

Geode Company paid cash to purchase mineral rights on a large parcel of land. Which of the following choices accurately reflects how this event would affect Geode's financial statements?

A)Option A
B)Option B
C)Option C
D)Option D