Deck 10: Fixed Assets and Intangible Assets

Question 1

The cost of replacing an engine in a truck is an example of ordinary maintenance.

Answer 1

False

Question 2

Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments.

Answer 2

True

Question 3

An intangible asset is one that has a physical existence.

Answer 3

False

Question 4

When land is purchased to construct a new building, the cost of removing any structures on the land should be charged to the building account.

Question 5

The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.

Question 6

Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended.

Question 7

The cost of repairing damage to a machine during installation is debited to a fixed asset account.

Question 8

Long-lived assets that are intangible in nature, used in the operations of the business, and held for sale in the ordinary course of business are called fixed assets.

Question 9

Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment on the balance sheet.

Question 10

A capital lease is accounted for as if the asset has been purchased.

Question 11

Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment.

Question 12

An operating lease is accounted for as if the lessee has purchased the asset.

Question 13

The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use.

Question 14

Land acquired as a speculation is reported under Investments on the balance sheet.

Question 15

Long lived assets held for sale are classified as fixed assets.

Question 16

To a major resort, timeshare properties would be classified as property, plant and equipment.

Question 17

When cities give land or buildings to a company to locate in the community, no entry is made since there is no cost to the company.

Question 18

During construction of a building, the cost of interest on a construction loan should be charged to an expense account.

Question 19

A capitalized asset will appear on the balance sheet as a long term asset.

Question 20

The cost of computer equipment does include the consultant's fee to supervise installation of the equipment.

Question 21

When depreciation estimates are revised, all years of the asset's life are affected.

Question 22

All property, plant, and equipment assets are depreciated over time.

Question 23

For income tax purposes most companies use an accelerated deprecation method called double declining balance.

Question 24

As a company records depreciation expense for a period of time a corresponding cash inflow from investing activities is reported on the statement of cash flows.

Question 25

The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method.

Question 26

The depreciable cost of a building is the same as its acquisition cost.

Question 27

When minor errors occur in the estimates used in the determination of depreciation, the amounts recorded for depreciation expense in the past should be corrected.

Question 28

It is necessary for a company to use the same depreciation method for financial statements and for determining income taxes.

Question 29

An estimate of the amount which an asset can be sold at the end of its useful life is called residual value.

Question 30

The double-declining-balance method is an accelerated depreciation method.

Question 31

The double declining balance depreciation method calculates depreciation each year by taking twice the straight line rate times the book value of the asset at the beginning of each year.

Question 32

The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units-of-production method during a period when the asset was used for 4,500 hours.

Question 33

The units of production depreciation method provides a good match of expenses against revenue.

Question 34

Residual value is incorporated in the initial calculations for double-declining-balance depreciation.

Question 35

The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000, with an estimated residual value of $5,000 and a useful life of 4 years, is $25,000 by the declining-balance method at twice the straight-line rate.

Question 36

The book value of a fixed asset reported on the balance sheet represents its market value on that date.

Question 37

Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts can be changed.

Question 38

Assets may be grouped according to common traits and depreciated by using a single composite rate.

Question 39

It is necessary for a company to use the same depreciation method for all of its depreciable assets.

Question 40

The normal balance of the accumulated depreciation account is debit.

Question 41

Capital expenditures are costs that are charged to Stockholders' Equity accounts.

Question 42

Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been fully depreciated.

Question 43

The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization.

Question 44

Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods.

Question 45

Ordinary gains from the sale of fixed assets should be reported in the other income section of the income statement.

Question 46

Intangible assets differ from property, plant and equipment assets in that they lack physical substance.

Question 47

The entry to record the disposal of fixed assets will include a credit to accumulated depreciation.

Question 48

When selling a piece of equipment for cash, a loss will result when the proceeds of the sale are less than the book value of the asset.

Question 49

When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.

Question 50

When a plant asset is traded for another similar asset, losses on the asset traded are recognized.

Question 51

If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, and a trade-in allowance of $15,000 is granted by the seller, if the transaction is deemed to have commercial substance, the buyer would report a gain on disposal of fixed assets of $5,000.

Question 52

Minerals removed from the earth are classified as intangible assets.

Question 53

The cost of a patent with a remaining legal life of 10 years and an estimated useful life of 7 years is amortized over 10 years.

Question 54

The method used to calculate the depletion of a natural resource is the straight line method.

Question 55

Costs associated with normal research and development activities should be treated as intangible assets.

Question 56

When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.

Question 57

Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset.

Question 58

When old equipment is traded in for a new equipment, the difference between the list price and the trade in allowance is called boot.

Question 59

A gain can be realized when a fixed asset is discarded.

Question 60

Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same.

Question 61

In a lease contract, the party who legally owns the asset is the

A) lessee
B) lessor
C) operator
D) banker

Question 62

A building with an appraisal value of $154,000 is made available at an offer price of $172,000. The purchaser acquires the property for $40,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $75,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is

A) $154,000
B) $172,000
C) $160,000
D) $120,000

Question 63

When a major corporation develops its own trademark and over time it becomes very valuable, the trademark may be shown on their balance sheet due to lack of a material cost.

Question 64

A new machine with a purchase price of $109,000, with transportation costs of $12,000, installation costs of $5,000, and special acquisition fees of $6,000, would have a cost basis of

A) $114,000
B) $126,000
C) $121,000
D) $132,000

Question 65

Which of the following below is an example of a capital expenditure?

A) cleaning the carpet in the front room
B) tune-up for a company truck
C) replacing an engine in a company car
D) replacing all burned-out light bulbs in the factory

Question 66

A characteristic of a fixed asset is that it is

A) intangible
B) used in the operations of a business
C) held for sale in the ordinary course of the business
D) a short-term investment

Question 67

Land acquired so it can be resold in the future is listed in the balance sheet as a(n)

A) fixed asset
B) current asset
C) investment
D) intangible asset

Question 68

All leases are classified as either

A) capital leases or long-term leases
B) capital leases or operating leases
C) operating leases or current leases
D) long-term leases or current leases

Question 69

A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $3,000, would have a cost basis of

A) $93,000
B) $90,000
C) $82,000
D) $85,000

Question 70

Accumulated Depreciation

A) is used to show the amount of cost expiration of intangibles
B) is the same as Depreciation Expense
C) is a contra asset account
D) is used to show the amount of cost expiration of natural resources

Question 71

Which of the following is included in the cost of land?

A) cost of paving a parking lot
B) brokerage commission
C) outdoor parking lot lighting attached to the land
D) fences on the land

Question 72

Patents are exclusive rights to manufacture, use, or sell a particular product or process.

Question 73

Which of the following is included in the cost of constructing a building?

A) insurance costs during construction
B) cost of paving parking lot
C) cost of repairing vandalism damage during construction
D) cost of removing the demolished building existing on the land when it was purchased

Question 74

Expenditures that add to the utility of fixed assets for more than one accounting period are

A) committed expenditures
B) revenue expenditures
C) utility expenditures
D) capital expenditures

Question 75

A capital expenditure results in a debit to

A) an expense account
B) a capital account
C) a liability account
D) an asset account

Question 76

When a company establishes an outstanding reputation and has a competitive advantage because of it, the company should record goodwill on its financial statements.

Question 77

Which of the following should be included in the acquisition cost of a piece of equipment?

A) transportation costs
B) installation costs
C) testing costs prior to placing the equipment into production
D) all are correct

Question 78

An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange.

Question 79

The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value.

Question 80

When a seller allows a buyer an amount for old equipment that is traded in for new equipment of similar use, this amount is known as boot.