Deck 10: Plant Assets, Natural Resources, and Intangible Assets

Question 1

Under the double-declining-balance method the depreciation rate used each year remains constant.

Answer 1

True

Question 2

When purchasing land the costs for clearing draining filling and grading should be charged to a Land Improvements account.

Answer 2

False

Question 3

Recording depreciation on plant assets affects the balance sheet and the income statement.

Answer 3

True

Question 4

Additions and improvements to a plant asset that increase the asset's operating efficiency productive capacity or expected useful life are generally expensed in the period incurred.

Question 5

Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Question 6

When purchasing delivery equipment sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

Question 7

In calculating depreciation both plant asset cost and useful life are based on estimates.

Question 8

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Question 9

Once cost is established for a plant asset it becomes the basis of accounting for the asset unless the asset appreciates in value in which case market value becomes the basis for accountability.

Question 10

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Question 11

All plant assets (fixed assets) must be depreciated for accounting purposes.

Question 12

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

Question 13

Ordinary repairs should be recognized when incurred as revenue expenditures.

Question 14

A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.

Question 15

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods but not to prior periods.

Question 16

To determine a new depreciation amount after a change in estimate of a plant asset's useful life the asset's remaining depreciable cost is divided by its remaining useful life.

Question 17

The book value of a plant asset is always equal to its fair market value.

Question 18

Capital expenditures are expenditures that increase the company's investment in productive facilities.

Question 19

Land improvements are generally charged to the Land account.

Question 20

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

Question 21

The Accumulated Depreciation account represents a cash fund available to replace plant assets.

Question 22

If a plant asset is sold at a gain the gain on disposal should reduce the cost of goods sold section of the income statement.

Question 23

The cost of natural resources is not allocated to expense because the natural resources are replaceable only by an act of nature.

Question 24

The fair value of a plant asset is always the same as its book value.

Question 25

A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale are less than the asset's book value.

Question 26

Depletion cost per unit is computed by dividing the total cost of a natural resource by the estimated number of units in the resource.

Question 27

The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.

Question 28

Natural resources include standing timber and underground deposits of oil gas and minerals.

Question 29

Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.

Question 30

Recording depreciation each period is an application of the expense recognition principle.

Question 31

Once an asset is fully depreciated no additional depreciation can be taken even though the asset is still being used by the business.

Question 32

The depreciable cost of a plant asset is its original cost minus obsolescence.

Question 33

A loss on disposal of a plant asset as a result of a sale or a retirement is calculated in the same way.

Question 34

When an entire business is purchased goodwill is the excess of cost over the book value of the net assets acquired.

Question 35

A plant asset must be fully depreciated before it can be removed from the books.

Question 36

If the proceeds from the sale of a plant asset exceed its book value a gain on disposal occurs.

Question 37

The Accumulated Depletion account is deducted from the cost of the natural resource in the balance sheet.

Question 38

Conceptually the cost allocation procedures for natural resources parallels that of plant assets.

Question 39

Natural resources are long-lived productive assets that are extracted in operations and are replaceable only by an act of nature.

Question 40

If an acquired franchise or license has an indefinite life the cost of the asset is not amortized.

Question 41

Research and development costs should be charged to expense when incurred.

Question 42

Recognition of depreciation permits the accumulation of cash for the replacement of the asset.

Question 43

When constructing a building a company is permitted to include the acquisition cost and certain interest costs incurred in financing the project.

Question 44

Depletion expense is reported in the income statement as an operating expense.

Question 45

The cost of a patent should be amortized over its legal life or useful life whichever is shorter.

Question 46

A loss on the exchange of plant assets occurs when the fair market value of the old asset is less than its book value.

Question 47

An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange.

Question 48

Research and development costs which result in a successful product which is patentable are charged to the Patent account.

Question 49

Goodwill is not recognized in accounting unless it is acquired from another business enterprise.

Question 50

Which one of the following items is not considered a part of the cost of a truck purchased for business use?

A) Sales tax
B) Truck license
C) Freight charges
D) Cost of lettering on side of truck

Question 51

The asset turnover is calculated as total sales divided by ending total assets.

Question 52

Research and development costs can be classified as a property plant and equipment item or as an intangible asset.

Question 53

Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance.

Question 54

Which of the following assets does not decline in service potential over the course of its useful life?

A) Equipment
B) Furnishings
C) Land
D) Fixtures

Question 55

When an asset is purchased during the year it is not necessary to record depreciation expense in the first year under the declining-balance depreciation method.

Question 56

The cost of a purchased building includes all of the following except

A) closing costs.
B) real estate broker's commission.
C) remodeling costs.
D) All of these are included.

Question 57

A company purchased land for $90000 cash. Real estate brokers' commission was $5000 and $7000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle the cost of land would be recorded at

A) $107000.
B) $90000.
C) $70000.
D) $102000.

Question 58

The balances of the major classes of plant assets and accumulated depreciation by major classes should be disclosed in the balance sheet or notes.

Question 59

The cost of a patent must be amortized over a 20-year period.

Question 60

When plant assets are exchanged the cost of the new asset is the book value of the old asset plus any cash paid.

Question 61

Land improvements should be depreciated over the useful life of the

A) land.
B) buildings on the land.
C) land or land improvements whichever is longer.
D) land improvements.

Question 62

Hull Company acquires land for $86000 cash. Additional costs are as follows: $\begin{array} { l r } \text { Removal of shed } & \$ 300 \\\text { Filling and grading } & 1,500 \\\text { Salvage value of lumber of shed } & 120 \\\text { Broker commission } & 1,130 \\\text { Paving of parking lot } & 10,000 \\\text { Closing costs } & 560\end{array}$
Hull will record the acquisition cost of the land as

A) $96000.
B) $87690.
C) $89610.
D) $89370.

Question 63

Wesley Hospital installs a new parking lot. The paving cost $40000 and the lights to illuminate the new parking area cost $25000. Which of the following statements is true with respect to these additions?

A) $40000 should be debited to the Land account.
B) $25000 should be debited to Land Improvements.
C) $65000 should be debited to the Land account.
D) $65000 should be debited to Land Improvements.

Question 64

Adding paneling to the body of an open pickup truck would be classified as a(n)

A) revenue expenditure.
B) addition.
C) improvement.
D) ordinary repair.

Question 65

Carey Company buys land for $50000 on 12/31/16. As of 3/31/17 the land has appreciated in value to $50700. On 12/31/17 the land has an appraised value of $51800. By what amount should the Land account be increased in 2017?

A) $0
B) $700
C) $1100
D) $1800

Question 66

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees excavation fees and building permit fees. Which of the following statements is true?

A) Excavation fees are capitalized but building permit fees are not.
B) Architect fees are capitalized but building permit fees are not.
C) Interest is capitalized during the construction as part of the cost of the building.
D) The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Question 67

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

A) expensed when incurred.
B) capitalized as a part of the cost of the asset.
C) debited to the Accumulated Depreciation account.
D) not recorded until they become material in amount.

Question 68

The four subdivisions for plant assets are

A) land land improvements buildings and equipment.
B) intangibles land buildings and equipment.
C) furnishings and fixtures land buildings and equipment.
D) property plant equipment and land.

Question 69

Angie's Blooms purchased a delivery van with a list price of $40000. The company was given a $4000 cash discount by the dealer and paid $2000 sales tax. Annual insurance on the van is $1000. As a result of the purchase by how much will Angie's Blooms increase its van account?

A) $40000
B) $36000
C) $39000
D) $38000

Question 70

The cost of land does not include

A) real estate brokers' commission.
B) annual property taxes.
C) accrued property taxes assumed by the purchaser.
D) title fees.

Question 71

Engler Company purchases a new delivery truck for $55000. The sales taxes are $4000. The logo of the company is painted on the side of the truck for $1600. The truck license is $160. The truck undergoes safety testing for $290. What does Engler record as the cost of the new truck?

A) $61050
B) $60890
C) $59000
D) $60600

Question 72

Yocum Company purchased equipment on January 1 at a list price of $120000 with credit terms 2/10 n/30. Payment was made within the discount period and Yocum was given a $2400 cash discount. Yocum paid $6000 sales tax on the equipment and paid installation charges of $1760. Prior to installation Yocum paid $4000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?

A) $125360
B) $129360
C) $131760
D) $123600

Question 73

Interest may be included in the acquisition cost of a plant asset

A) during the construction period of a self-constructed asset.
B) if the asset is purchased on credit.
C) if the asset acquisition is financed by a long-term note payable.
D) if it is a part of a lump-sum purchase.

Question 74

Which of the following is not true of ordinary repairs?

A) They primarily benefit the current accounting period.
B) They can be referred to as revenue expenditures.
C) They maintain the expected productive life of the asset.
D) They increase the productive capacity of the asset.

Question 75

All of the following factors in computing depreciation are estimates except

A) cost.
B) residual value.
C) salvage value.
D) useful life.

Question 76

Additions and improvements

A) occur frequently during the ownership of a plant asset.
B) normally involve immaterial expenditures.
C) increase the book value of plant assets when incurred.
D) typically only benefit the current accounting period.

Question 77

A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?

A) The cost of the building will not include the repainting and recarpeting costs.
B) The cost of the building will include the cost of replacing the roof.
C) The cost of the building is the purchase price of the building while the additional expenditures are all capitalized as Building Improvements.
D) The wiring is part of the computer costs not the building cost.

Question 78

Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as

A) capital expenditures.
B) expense expenditures.
C) ordinary repairs.
D) revenue expenditures.

Question 79

Presto Company purchased equipment and these costs were incurred: $$\begin{array} { l r } \text { Cash price } & \$ 65,000 \\\text { Sales taxes } & 3,600 \\\text { Insurance during transit } & 640 \\\text { Installation and testing } & \underline{ 860} \\\text { Total costs } & \underline{ \underline{\$ 70,100}}\end{array}$$ Presto will record the acquisition cost of the equipment as

A) $65000.
B) $68600.
C) $69240.
D) $70100.

Question 80

Gagner Clinic purchases land for $175000 cash. The clinic assumes $1500 in property taxes due on the land. The title and attorney fees totaled $1000. The clinic has the land graded for $2200. What amount does Gagner Clinic record as the cost for the land?

A) $157200
B) $175000
C) $179700
D) $157500