Deck 9: Long-Term Assets: Fixed and Intangible

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

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 8

An intangible asset is one that has a physical existence.

Question 9

As a company records depreciation expense for a period of time, cash is accumulated to replace fixed assets as they wear out.

Question 10

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

Question 11

Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets.

Question 12

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 13

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

Question 14

The normal balance of the accumulated depreciation account is a debit.

Question 15

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

Question 16

The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment.

Question 17

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

Question 18

Capital expenditures are costs that improve a fixed asset or extend its useful life.

Question 19

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

Question 20

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

Question 21

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 22

Residual value is not incorporated in the initial calculations for double-declining-balance depreciation.

Question 23

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

Question 24

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

Question 25

Capital expenditures are costs that are charged to stockholders' equity accounts.

Question 26

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 27

It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes.

Question 28

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

Question 29

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

Question 30

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

Question 31

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-output method during a period when the asset was used for 4,500 hours.

Question 32

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

Question 33

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

Question 34

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 double-declining-balance method.

Question 35

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

Question 36

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

Question 37

Minerals removed from the earth are classified as intangible assets.

Question 38

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

Question 39

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

Question 40

Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts cannot be changed.

Question 41

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 42

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

Question 43

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

Question 44

Losses on the discarding of fixed assets are reported in the income statement.

Question 45

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

Question 46

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

Question 47

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

Question 48

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 49

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 50

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

Question 51

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

Question 52

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

Question 53

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.

Question 54

When a plant asset is traded for another similar asset, losses on the asset traded are not recognized.

Question 55

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

Question 56

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

Question 57

Patents are exclusive rights to produce and sell goods with one or more unique features.

Question 58

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 59

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

Question 60

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 61

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 62

Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories

A)salvage and functional
B)physical and functional
C)residual and salvage
D)functional and residual

Question 63

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 64

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 65

The journal entry for recording payment for the short-term lease of a fixed asset would

A)be a memo entry only
B)debit the fixed asset and credit Cash
C)debit Rent Expense and credit Cash
D)debit a liability and credit Cash

Question 66

A fixed asset's estimated value at the time it is to be retired from service is called

A)book value
B)residual value
C)market value
D)carrying value

Question 67

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 of these

Question 68

Which of the following are criteria for determining whether to record an asset as a fixed asset?

A)must be an investment and long lived
B)must be long lived and used by the company in its normal operations
C)must be short lived and tangible
D)must be tangible and an investment

Question 69

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 70

Which of the following 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 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

The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is the

A)units-of-production method
B)double-declining-balance method
C)straight-line method
D)time-valuation method

Question 73

When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is

A)double-declining-balance method
B)straight-line method
C)units-of-output method
D)MACRS

Question 74

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

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

Question 75

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 76

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

A)insurance costs during construction
B)cost of paving the 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 77

All of the following are needed for the calculation of straight-line depreciation except

A)cost
B)residual value
C)estimated life
D)units produced

Question 78

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

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

Question 79

A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-output method. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

A)$5,000
B)$35,000
C)$21,000
D)$45,000

Question 80

A capital expenditure results in a debit to

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