Question 1

Under the cost principle,a company capitalizes:

Accepted Answer

A) all ordinary repair expenditures incurred in the use of an asset. 
B) any interest incurred in borrowing money to help pay for asset acquisitions. 
C) all reasonable and necessary costs of acquiring an asset and preparing it for use. 
D) the total market value of individual assets acquired in a 'basket purchase'.

Question 2

When the amount of annual depreciation is revised because of a change in the estimated useful life of an asset,prior years' financial statements should be restated.

Accepted Answer

A) True 
 B)False

Question 3

A company purchased land for its natural resources at a cost of $1,500,000.It expects to mine 2,000,000 tons of ore from this land.The residual value of the land is estimated to be $250,000.What is the amount of depletion per ton of ore?

Accepted Answer

A) $0.75 
B) $0.875 
C) $1.14 
D) $0.625

Question 4

Intangible assets are usually amortized using the straight-line method,with no residual value.

Accepted Answer

A) True 
 B)False

Question 5

The book value of a long-lived asset declines over time,assuming no additions,replacements,or extraordinary repairs.

Accepted Answer

A) True 
 B)False

Question 6

B.Darin Company purchased a truck and trailer for $54,000.The appraised values of the truck and trailer are $38,000 and $19,000,respectively.What is the amount of the cost that should be assigned to the trailer?

Accepted Answer

A) $19,000. 
B) $18,000. 
C) $16,000. 
D) $22,000.

Question 7

Use the information above to answer the following question.Assume the company decides to sell the computer system on July 1,2015 for $1,000,000.Which of the following is not true concerning the journal entry(ies)required on July 1?

Accepted Answer

A) The depreciation expense must be recorded for 6 months,January 1 to July 1. 
B) The Computer System asset account must be credited for $1,600,000 to record the sale. 
C) The amount of the debit to accumulated depreciation at the date of sale is $612,500. 
D) The loss on the sale is $12,500.

Question 8

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system.Your company should record:

Accepted Answer

A) $3 million in equipment,and $200,000 in expenses. 
B) $3.2 million in expenses. 
C) $2.8 million in equipment and the rest in expenses. 
D) $3.2 million in equipment.

Question 9

Under what circumstances should a company record an asset impairment loss?

Accepted Answer

A) When residual value is greater than the repairs and maintenance expenses needed to keep up the asset. 
B) When net book value is less than the residual value of the asset. 
C) When accumulated depreciation equals the purchase cost of the asset. 
D) When net book value is greater than expected future cash flows for the asset.

Question 10

When a company sells equipment for cash on a date other than the last day of the accounting period,it must:

Accepted Answer

A) record depreciation expense for the entire accounting period during which the equipment is sold. 
B) record the disposal by reducing equipment and increasing revenue;a gain or loss is reported if the decrease and increase are not equal. 
C) first record depreciation expense for the period up to the date of sale,and then record the disposal by decreasing both equipment and accumulated depreciation while increasing cash;a gain or loss is reported if total assets increase or decrease. 
D) record accumulated depreciation for the entire current accounting period.

Question 11

A machine had an estimated useful life of 5 years,but after 3 years,it was decided that the original estimate of useful life should have been 10 years.At that point,the remaining cost to be depreciated should be allocated over the remaining:

Accepted Answer

A) 2 years. 
B) 5 years. 
C) 7 years. 
D) 10 years.

Question 12

The fixed asset turnover ratio measures the:

Accepted Answer

A) useful life of long-lived assets. 
B) the average difference between book value and disposal value of fixed assets. 
C) useful life of intangible assets. 
D) efficiency with which the investment in fixed assets produces revenue.

Question 13

The MegaHit Film Studio owns a production lot and related equipment.How would MegaHit Company classify these assets on its balance sheet?

Accepted Answer

A) Tangible asset 
B) Natural resource 
C) Intangible asset 
D) Goodwill

Question 14

ShadyZ Corporation uses the unit-of-production method to estimate depreciation.A new asset is purchased for $18,000 that will produce an estimated 100,000 units over its useful life.Estimated residual value is $2,000.What is the depreciation rate per unit?

Accepted Answer

A) $1.60 
B) $1.80 
C) $0.16 
D) $0.18

Question 15

Depreciation is an allocation method,not a valuation method.

Accepted Answer

A) True 
 B)False

Question 16

Your company has net sales revenue of $36 million during the year.At the beginning of the year,fixed assets are $8 million.At the end of the year,fixed assets are $10 million.What is the fixed asset turnover ratio?

Accepted Answer

A) 4.5 
B) 4.0 
C) 2.0 
D) 3.6

Question 17

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities.Commercial use of the equipment began on May 1,2014.The estimated residual value of the equipment is $5,000.The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years.The company has an October 31,2014 year-end and had used the equipment a total of 11,200 hours prior to the year-end.Using the units- of- production method,what amount of depreciation expense (to the nearest thousand)would the company report for this equipment in the income statement prepared for the year-ended October 31,2014?

Accepted Answer

A) $102,000 
B) $198,000 
C) $204,000 
D) $206,000

Question 18

The fixed asset turnover is the

Accepted Answer

A) number of sales dollars generated by each dollar of total assets. 
B) rate at which inventories are being rotated. 
C) number of dollars in notes payable generated by each dollar in fixed assets. 
D) number of sales dollars generated by each dollar of fixed assets.

Question 19

If a fully depreciated asset with no residual value is retired without receiving any cash on retirement:

Accepted Answer

A) a gain on disposal will be recorded. 
B) depreciation must be recorded as though the asset were still on the books. 
C) a loss on disposal will be recorded. 
D) no gain or loss on disposal will be recorded.

Question 20

The book value of a depreciable asset can never be less than its

Accepted Answer

A) historical cost. 
B) market value. 
C) capitalized cost. 
D) residual value.

Exam 9: Long-Lived Tangible and Intangible Assets

Under the cost principle,a company capitalizes:

When the amount of annual depreciation is revised because of a change in the estimated useful life of an asset,prior years' financial statements should be restated.

A company purchased land for its natural resources at a cost of $1,500,000.It expects to mine 2,000,000 tons of ore from this land.The residual value of the land is estimated to be $250,000.What is the amount of depletion per ton of ore?

Intangible assets are usually amortized using the straight-line method,with no residual value.

The book value of a long-lived asset declines over time,assuming no additions,replacements,or extraordinary repairs.

B.Darin Company purchased a truck and trailer for $54,000.The appraised values of the truck and trailer are $38,000 and $19,000,respectively.What is the amount of the cost that should be assigned to the trailer?

Use the information above to answer the following question.Assume the company decides to sell the computer system on July 1,2015 for $1,000,000.Which of the following is not true concerning the journal entry(ies) required on July 1?

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system.Your company should record:

Under what circumstances should a company record an asset impairment loss?

When a company sells equipment for cash on a date other than the last day of the accounting period,it must:

A machine had an estimated useful life of 5 years,but after 3 years,it was decided that the original estimate of useful life should have been 10 years.At that point,the remaining cost to be depreciated should be allocated over the remaining:

The fixed asset turnover ratio measures the:

The MegaHit Film Studio owns a production lot and related equipment.How would MegaHit Company classify these assets on its balance sheet?

ShadyZ Corporation uses the unit-of-production method to estimate depreciation.A new asset is purchased for $18,000 that will produce an estimated 100,000 units over its useful life.Estimated residual value is $2,000.What is the depreciation rate per unit?

Depreciation is an allocation method,not a valuation method.

Your company has net sales revenue of $36 million during the year.At the beginning of the year,fixed assets are $8 million.At the end of the year,fixed assets are $10 million.What is the fixed asset turnover ratio?

The fixed asset turnover is the

If a fully depreciated asset with no residual value is retired without receiving any cash on retirement:

The book value of a depreciable asset can never be less than its