Deck 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles

Question 1

Treating a cost which should be an expense as a capital expenditure will make a company's net profit higher.

Answer 1

True

Question 2

A company's accountant expenses a payment that should be capitalised. Which of the following is TRUE?

A)Liabilities are overstated.
B)Assets are overstated.
C)Profit is understated.
D)Revenue is overstated.

Answer 2

C

Question 3

The cost of demolishing a building on a parcel of land to build a new building is added to the cost of the land.

Answer 3

True

Question 4

Which of the following asset categories would include the cost of clearing land and removing unwanted buildings?

A)Buildings
B)Land improvements
C)Land
D)Machinery and equipment

Question 5

Which of the following is included in the cost of an item of property, plant and equipment?

A)Amounts paid to ready the asset for its intended use
B)Normal repair cost
C)Regular maintenance cost
D)Wages of workers who use the asset

Question 6

Normal expenditures for repairs and maintenance should be capitalised.

Question 7

Roberts Construction Company paid $40 000 for equipment with a market value of $45 000. At which of the following amounts should the equipment be recorded?

A)$5 000
B)$42 500
C)$40 000
D)$45 000

Question 8

Which of the following is NOT a characteristic of an item of property, plant and equipment?

A)The asset has physical form.
B)The asset is available for sale to customers in the ordinary course of business.
C)The asset has future usefulness and value.
D)The asset is used in the production of income for the business.

Question 9

Which of the following costs related to a company car would NOT be expensed?

A)The cost to change car's oil
B)The cost to replace a broken windshield
C)The cost of new tyres
D)The cost to install an engine with higher horsepower

Question 10

Expenditures which extend the life of an asset or increase its productive capacity should be expensed.

Question 11

Which of the following would be expensed, rather than capitalised?

A)Addition to storage capacity
B)Major engine overhaul
C)Oil change and lubrication
D)Modification for new use

Question 12

Which of the following would be capitalised and depreciated, rather than expensed?

A)Replacement of tyres
B)Paint job
C)Modification for new use
D)Normal repair of engine

Question 13

The cost of land includes the cost of removing unwanted buildings.

Question 14

Treating a capital expenditure as an expense causes an understatement of net profit.

Question 15

The cost of excavating a basement for a new building is added to the price of the land.

Question 16

A company's accountant capitalises a payment that should be recorded as an expense. Which of the following is TRUE?

A)Liabilities are overstated.
B)Profit is overstated.
C)Revenues are understated
D)Assets are understated.

Question 17

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

A)The cost of outdoor lighting
B)The cost of clearing the land
C)The cost of fencing
D)The cost of paving

Question 18

A company's accountant capitalises a payment that should be recorded as an expense. Which of the following is TRUE?

A)Expenses are overstated.
B)Assets are overstated.
C)Revenue is overstated.
D)Liabilities are overstated.

Question 19

The cost of fencing around a building is included in the cost of the building.

Question 20

Which of the following asset categories would include fencing?

A)Machinery and equipment
B)Land improvements
C)Land
D)Buildings

Question 21

Acme purchased a property that included both land and a building for $200 000. Acme hired an appraiser who determined that the market value of the land was $140 000 and the market value of the building was $50 000. At what amount should Acme record the building cost?

A)$52 632
B)$200 000
C)$140 000
D)$147 368

Question 22

Acme purchased a property that included both land and a building for $200 000. Acme hired an appraiser who determined that the market value of the land was $140 000 and the market value of the building was $50 000. At what amount should Acme record the land cost?

A)$200 000
B)$140 000
C)$52 632
D)$147 368

Question 23

Estimated residual value is the expected cash value of an asset at the end of its useful life.

Question 24

Which of the following depreciation methods writes off more depreciation near the start of an asset's life than in later years?

A)Reducing- balance
B)First- In, First- Out
C)Units- of- production
D)Straight- line

Question 25

If an asset is fully depreciated, but it can continue to be used, the asset account and accumulated depreciation balance remain on the books, and no further depreciation is recorded.

Question 26

Which of the following is the expected cash value of an asset at the end of its useful life?

A)Market value
B)Carrying value
C)Book value
D)Residual value

Question 27

The straight- line method of depreciation assigns a fixed amount of depreciation to each unit of output produced by an asset.

Question 28

Which of the following should be included in the cost of land?

A)Cost to clear the land of old buildings
B)Cost to build sidewalks on the land
C)Cost of installing fences
D)Cost of installing signage

Question 29

Which of the following depreciation methods does NOT use a residual value in the depreciation formula?

A)Units- of- production
B)Reducing- balance
C)First- In, First- Out
D)Straight- line

Question 30

An item of property, plant and equipment is fully depreciated when the carrying amount is:

A)greater than the market value.
B)equal to the residual value.
C)equal to the market value.
D)greater than the residual value.

Question 31

Accelerated depreciation differs from straight- line depreciation in that depreciation expense is greater in the first year and less in the later years.

Question 32

Which of the following accounting principles requires depreciation?

A)The entity concept
B)The matching principle
C)The reliability principle
D)The profit recognition principle

Question 33

Which of the following depreciation methods allocates an equal amount of depreciation to each year?

A)Sum- of- years digits method
B)Units- of- production
C)Straight- line
D)Reducing- balance

Question 34

Which of the following depreciation methods allocates a fixed amount of depreciation to kilometres driven, hours used, or some other measure of the asset's utilisation?

A)Units- of- production
B)Sum- of- digits
C)Straight- line
D)Reducing- balance

Question 35

Once an asset is fully depreciated, it may not be used any more, but must be sold or disposed of.

Question 36

When an asset is fully depreciated, no further depreciation expense is recorded.

Question 37

When an asset is fully depreciated, the residual value must be written off.

Question 38

A company purchased a used machine for $80 000. The machine required installation costs of $8 000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?

A)$88 500
B)$80 000
C)$88 000
D)$80 500

Question 39

Which of the following items should be depreciated?

A)Tangible property, plant and equipment, other than land
B)Natural resources
C)Land
D)Intangible property

Question 40

Which of the following items should NOT be depreciated, depleted, or amortised?

A)Tangible property, plant and equipment, other than land
B)Natural resources
C)Land
D)Intangible property

Question 41

On 1 January 2013, a company buys a truck for $42 000 cash. It has estimated residual value of $2 000, and an estimated life of 4 years, or 200 000 kilometres. Assume the company uses units- of- production depreciation. The truck drove 40 000 kilometres in 2013, 60 000 kilometres in
2014, 80 000 kilometres in 2015, and 20 000 kilometres in 2016. What is the depreciation rate?

A)$0.21/per kilometre
B)$4.00/per kilometre
C)$0.20/per kilometre
D)$0.25/per kilometre

Question 42

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the depreciation expense for 2013 if the company uses straight- line depreciation?

A)$12 000
B)$13 333
C)$6 000
D)$6 667

Question 43

An asset has a life of 3 years. It costs $90 000 and has an expected residual value of $15 000. Using straight- line depreciation, what is the depreciation expense each of the three years?

A)$45 000
B)$25 000
C)$30 000
D)$35 000

Question 44

A company purchased a computer on 1 July 2014. The computer has an estimated useful life of 5 years and will have no residual value. It was purchased for $10 000. It is estimated that the computer can be used for 5 000 hours. The computer was used for 450 hours during 2014. If the goal is to record higher depreciation expense in the earlier years, which method should be used?

A)First- In, First- Out
B)Reducing- balance
C)Units- of- production
D)Straight- line

Question 45

A factory has a machine costing $76 000. It has a 5- year life and an estimated capacity of 160 000 parts. The residual value of the machine is zero. Assume 35 000 parts are machined in the first year of operation. Using the units- of- production method, what is the depreciation expense in Year 1?

A)$16 625
B)$15 200
C)$14 187
D)$12 160

Question 46

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the depreciation expense for 2014 if the company uses straight- line depreciation?

A)$9 000
B)$13 333
C)$6 000
D)$10 000

Question 47

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the carrying amount of the machine at the end of 2014 if the company uses units- of- production depreciation?

A)$17 778
B)$28 000
C)$10 000
D)$20 000

Question 48

An asset costs $80 000 and has a residual value of $7 000. It has a four- year life. Using reducing- balance depreciation, Year 1 depreciation would be:

A)$36 490.
B)$36 500.
C)$20 000.
D)$18 250.

Question 49

The depreciation method in which residual value is ignored until the end of the life of the asset is:

A)reducing- balance.
B)straight- line.
C)First- In, First- Out.
D)units- of- output.

Question 50

An asset costs $80 000 and has a residual value of $7 000. It has a four- year life. Using reducing- balance depreciation, Year 2 depreciation would be:

A)$15 437.50.
B)$15 000.00.
C)$18 250.00.
D)$19 845.84

Question 51

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the depreciation expense for 2013 if the company uses units- of- production depreciation?

A)$12 000
B)$6 000
C)$6 667
D)$13 333

Question 52

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the depreciation expense for 2013 if the company uses reducing- balance depreciation?

A)$6 667
B)$12 000
C)$12 748
D)$6 000

Question 53

Which of the following is TRUE when the estimate of an asset's useful life is increased?

A)Annual depreciation expense is decreased for the remaining years of the asset's life.
B)Prior years' financial statements must be restated.
C)The new estimate is ignored until the last year of the asset's life.
D)Annual depreciation expense is increased for the remaining years of the asset's life.

Question 54

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the carrying amount of the machine at the end of 2014 if the company uses straight- line depreciation?

A)$10 000
B)$28 000
C)$20 000
D)$17 778

Question 55

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the depreciation expense for 2014 if the company uses units- of- production depreciation?

A)$18 000
B)$10 000
C)$9 000
D)$6 000

Question 56

Avery Sales purchased telecom equipment for $5 000 on 1 July 2013. It has estimated residual value of $200, and an estimated life of 8 years. If Avery uses straight- line depreciation, how much expense will be recorded in 2013?

A)$600
B)$625
C)$300
D)$312

Question 57

Lexis Company purchased equipment on 1 January 2012 for $35 500. The estimated useful life of the equipment was 7 years and the estimated residual value was $4 000. After using the straight- line method of depreciation for 3 years, the estimated useful life was revised to 9 years on 1 January 2015. How much is depreciation expense for 2015?

A)$2 000
B)$3.667
C)$3 000
D)$2 444

Question 58

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the carrying amount of the machine at the end of 2014 if the company uses reducing- balance depreciation?

A)$18 567
B)$28 000
C)$13 333
D)$20 000

Question 59

An asset has a life of 3 years. It costs $90 000 and has an expected residual value of $15 000. Using reducing- balance depreciation, what is the depreciation for Year 1?

A)$15 000
B)$50 335
C)$29 700
D)$40 471

Question 60

On 1 January 2013, Zane Manufacturing Company purchased a machine for $40 000. The company expects to use the machine a total of 24 000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4 000. The company used the machine 8 000 hours in 2013 and 12 000 in 2014. What is the depreciation expense for 2014 if the company uses reducing- balance depreciation?

A)$8 685
B)$6 000
C)$10 000
D)$13 333

Question 61

Asset impairments occur when the asset's value has a significant decline, outside of normal depreciation.

Question 62

Charterhouse Services purchased a van on 1 January 2013, for $56 000. It has an estimated life of 5 years, and an estimated residual value of $6 000. Charterhouse uses straight- line depreciation. At the end of 2014, Charterhouse revised the estimated life of the asset from 5 years to 6 years. How much was the depreciation expense in the year 2015?

A)$9 000
B)$7 500
C)$12 000
D)$6 000

Question 63

A company purchased equipment for $100 000 in 2014. The machine will be used for 10 000 hours and will have a residual value of $20 000. The equipment was used for 2 400 hours in 2014. How much depreciation will be recorded in 2014 if the company elects the units- of- production method?

A)$10 000
B)$19 200
C)$20 000
D)$24 000

Question 64

Equipment is sold for $1 000. The original cost was $9 000, residual value was estimated at $200, and useful life was estimated at 12 years. At time of sale, accumulated depreciation was $8 500. The sale resulted in a loss of $500.

Question 65

A loss occurs on the exchange of an item of property, plant and equipment if the market value of the new asset received is greater than the total amount given up in the exchange.

Question 66

Avery Sales purchased telecom equipment for $5 000 on 1 November 2013. It has estimated residual value of $200, and an estimated life of 8 years. If Avery uses straight- line depreciation, how much expense will be recorded in 2013?

A)$225
B)$312
C)$120
D)$100

Question 67

When an item of property, plant and equipment is sold, the first step is to bring the depreciation up to date.

Question 68

Pallmall Company has a truck that was purchased in prior years for $60 000. At the end of 2014, there is $30 000 of accumulated depreciation. The value of the truck has been impaired, and its remaining value is now estimated at $18 000. When Pallmall adjusts for the loss of value, how much will the loss on impairment be?

A)$42 000
B)$6 000
C)$18 000
D)$12 000

Question 69

If the sales price of an item of property, plant and equipment is lower than the carrying amount, there will be a loss on sale.

Question 70

An asset impairment will be reflected by an increase in the carrying amount of an asset, as shown on the balance sheet.

Question 71

A loss on the sale of an item of property, plant and equipment is recorded when the sales price exceeds the carrying amount.

Question 72

If assets are scrapped before being fully depreciated, there is a loss equal to the carrying amount of the asset.

Question 73

If an asset's physical condition deteriorates more rapidly than would be reflected by normal depreciation, that is referred to as:

A)reording error.
B)asset disposal.
C)asset impairment.
D)accelerated depreciation.

Question 74

Charterhouse Services purchased a van on 1 January 2013, for $56 000. It has an estimated life of 5 years, and an estimated residual value of $6 000. Dawson uses straight- line depreciation. At the end of 2015, Charterhouse revised the estimated life of the asset from 5 years to 8 years. How much was the depreciation expense in the year 2016?

A)$4 000
B)$5 000
C)$6 000
D)$5 600

Question 75

When an item of property, plant and equipment is sold, if the carrying amount is higher than the sales price, there will be a loss on sale.

Question 76

Equipment is sold for $1 000. The original cost was $9 000, residual value was estimated at $200, and useful life was estimated at 12 years. At time of sale, accumulated depreciation was $8 500. The sale resulted in a gain of $500.

Question 77

Charterhouse Services purchased a van on 1 January 2013, for $56 000. It has an estimated life of 5 years, and an estimated residual value of $6 000. Charterhouse uses straight- line depreciation. At the end of 2014, what was the carrying amount of the asset?

A)$30 000
B)$12 000
C)$39 000
D)$36 000

Question 78

A loss on disposal of an asset is recorded when cash received is less than carrying amount.

Question 79

A gain on disposal of an asset is recorded when cash received is less than carrying amount.

Question 80

When an item of property, plant and equipment is sold, if the carrying amount is lower than the sales price, there will be a loss on sale.