Deck 7: Reporting and Analyzing Liabilities and Stockholders Equity

Question 1

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.

Answer 1

False

Question 2

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 in prior periods.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

Ordinary repairs are costs incurred to increase the operating efficiency or expected useful life of the plant asset.

Question 9

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 10

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 11

Recording depreciation each period is an application of the matching principle.

Question 12

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

Question 13

When a change in estimate is made there is no correction of previously recorded depreciation expense.

Question 14

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

Question 15

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

Question 16

Improvements are costs incurred to maintain the operating efficiency and expected productive life of a plant asset.

Question 17

Land improvements are generally charged to the Land account.

Question 18

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

Question 19

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 20

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

Question 21

Intangible assets are rights privileges and competitive advantages that result from ownership of long-lived assets without physical substance.

Question 22

Goodwill is recorded only when there is an exchange transaction that involves the purchase of an entire business.

Question 23

A permanent decline in the market value of an asset is referred to as an impairment.

Question 24

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

Question 25

Companies only dispose of plant assets by either sale or exchange.

Question 26

A loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less than the asset's book value.

Question 27

The cost of ordinary repairs should be recognized when incurred as revenue expenditures.

Question 28

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

Question 29

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

Question 30

The return on assets indicates how efficiently a company uses its assets.

Question 31

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

Question 32

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

Question 33

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

Question 34

If an acquired franchise or license is for an indefinite time period then the cost of the asset should not be amortized.

Question 35

Franchises are classified as a plant asset.

Question 36

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 37

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

Question 38

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

Question 39

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

Question 40

The cost of an intangible asset must be amortized over a 20-year period.

Question 41

A characteristic of a plant 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)not currently used in the business but held for future use.

Question 42

Which of the following would not be included in the Equipment account?

A)Installation costs.
B)Freight costs.
C)Cost of trial runs.
D)Electricity used by the machine.

Question 43

The Land account would include all of the following costs except

A)drainage costs.
B)the cost of building a fence.
C)commissions paid to real estate agents.
D)the cost of tearing down a building.

Question 44

Shaffer Company acquires land for $77000 cash.Additional costs are as follows. $$\begin{array} { l r } \text { Removal of shed } & \$ 300 \\\text { Filling and grading } & 1,500 \\\text { Salvage value of lumber of shed } & 120 \\\text { Broker commission } & 1,130 \\\text { Paving of parking lot } & 10,000 \\\text { Closing costs } & 560\end{array}$$ Shaffer will record the acquisition cost of the land as

A)$77000.
B)$78690.
C)$80610.
D)$80370.

Question 45

Givens Retail purchased land for a new parking lot for $125000.The paving cost $175000 and the lights to illuminate the new parking area cost $60000.Which of the following statements is true with respect to these additions?

A)$300000 should be added to the Land account.
B)$235000 should be added to Land Improvements.
C)$360000 should be added to the Land account.
D)$360000 should be added to Land Improvements.

Question 46

Burke Company purchases land for $180000 cash.Burke assumes $5000 in property taxes due on the land.The title and attorney fees totaled $2000.Burke has the land graded for $4400.They paid $20000 for paving of a parking lot.What amount does Burke record as the cost for the land?

A)$186400.
B)$211400.
C)$191400.
D)$180000.

Question 47

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 48

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 49

A company purchased land for $350000 cash.Real estate brokers' commission was $25000 and $35000 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)$385000.
B)$350000.
C)$375000.
D)$410000.

Question 50

Companies usually show plant assets under "Property plant and equipment" in the balance sheet.

Question 51

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 52

A company purchased land for $94000 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.Proceeds from the salvage of the demolished building was $1200.Under the historical cost principle the cost of land would be recorded at

A)$104800.
B)$94000.
C)$99800.
D)$106000.

Question 53

Companies may disclose in the balance sheet or the notes to the financial statements the major classes of assets and accumulated depreciation.

Question 54

Which of the following is not properly classified as property plant and equipment?

A)Building used as a factory.
B)Land used in ordinary business operations.
C)A truck held for resale by an automobile dealership.
D)Land improvement such as parking lots and fences.

Question 55

The return on assets can be computed from the profit margin ratio and the asset turnover ratio.

Question 56

Aber Company buys land for $145000 on 12/31/21.As of 3/31/22 the land has appreciated in value to $151000.On 12/31/22 the land has an appraised value of $155400.By what amount should the Land account be increased in 2022?

A)$0.
B)$6000.
C)$4400.
D)$10400.

Question 57

Whyte Clinic purchases land for $420000 cash.The clinic assumes $4500 in property taxes due on the land.The title and attorney fees totaled $3000.The clinic had the land graded for $6600.What amount does Whyte Clinic record as the cost for the land?

A)$426600.
B)$420000.
C)$434100.
D)$427500.

Question 58

In the notes to the financial statements the depreciation and amortization methods used should be described.

Question 59

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

Question 60

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 61

Rodgers Company purchased equipment and these costs were incurred: $$\begin{array} { l r } \text { Cash price } & \$ 55,000 \\\text { Sales taxes } & 3,600 \\\text { Insurance during transit } & 640 \\\text { Installation and testing } & 860 \\\text { Total costs } & \$ 60,100\end{array}$$ Rodgers will record the acquisition cost of the equipment as

A)$55000.
B)$58600.
C)$59240.
D)$60100.

Question 62

The balance in Accumulated Depreciation represents the

A)cash fund to be used to replace plant assets.
B)amount to be deducted from the cost of the plant asset to arrive at its fair market value.
C)amount charged to expense in the current period.
D)amount charged to expense since the acquisition of the plant asset.

Question 63

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

A)additions.
B)ordinary repairs.
C)improvements.
D)capital expenditures.

Question 64

Arnold Company purchases a new delivery truck for $45000.The sales taxes are $2500.The logo of the company is painted on the side of the truck for $1200.The truck's annual license is $120.The truck undergoes safety testing for $220.What does Arnold record as the cost of the new truck?

A)$49040.
B)$48920.
C)$47500.
D)$46920.

Question 65

The term applied to the periodic expiration of a plant asset's cost is

A)amortization.
B)depletion.
C)depreciation.
D)cost expiration.

Question 66

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

A)Cost of paving a parking lot.
B)Cost of repairing vandalism damage incurred shortly after construction is complete.
C)Interest incurred during construction.
D)Cost of removing the demolished building existing on the land when it was purchased.

Question 67

National Molding 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 68

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)

A)equal and equitable manner.
B)accelerated and accurate manner.
C)systematic and rational manner.
D)conservative market-based manner.

Question 69

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 70

Wesley Hospital installs a new parking lot.The paving cost $60000 and the lights to illuminate the new parking area cost $24000.Which of the following statements is true with respect to these additions?

A)$60000 should be added to the Land account.
B)$24000 should be added to Land Improvements.
C)$84000 should be added to the Land account.
D)$84000 should be added to Land Improvements.

Question 71

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 72

Ramirez Company acquires land for $240000 cash.Additional costs are as follow. $\begin{array}{lr}\text { Removal of shed } & \$2,000 \\\text { Filling and grading } & 6,000 \\\text { Salvage value of lumber of shed } & 1,000 \\\text { Broker commission } & 4,520 \\\text { Paving of parking lot } & 40,000 \\\text { Closing costs } & 3,400\end{array}$ Ramirez will record the acquisition cost of the land as

A)$254640.
B)$257200.
C)$255920.
D)$240000.

Question 73

Runge Company purchased machinery on January 1 at a list price of $300000 with a 2% discount if payment is made within a 10-day discount period.Payment was made within the discount period.Runge paid $15000 sales tax on the machinery and paid installation charges of $5300.Prior to installation Runge paid $12000 to pour a concrete slab on which to place the machinery.What is the total cost of the new machinery?

A)$314300.
B)$326300.
C)$332300.
D)$309000.

Question 74

Carpino Company purchased equipment and these costs were incurred: $$\begin{array} { l r } \text { Cash price } & \$ 75,000 \\\text { Sales taxes } & 3,500 \\\text { Insurance during transit } & 750 \\\text { Installation and testing } & 1,500 \\\text { Total costs } & \$ 80,750\end{array}$$ What amount should be recorded as the cost of the equipment?

A)$75000.
B)$78500.
C)$79250.
D)$80750.

Question 75

Rains Company purchased equipment on January 1 at a list price of $125000 with a 2% discount if payment is made within a 10-day discount period.Payment was made within the discount period.Rains paid $6250 sales tax on the equipment and paid installation charges of $2200.Prior to installation Rains paid $5000 to pour a concrete slab on which to place the equipment.What is the total cost of the new equipment?

A)$131250.
B)$135950.
C)$138450.
D)$126250.

Question 76

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

A)Salvage value.
B)Estimated useful life.
C)Cash needed to replace the plant asset.
D)Cost.

Question 77

A company purchases a remote building site 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

Schrock Company purchases a new delivery van for $70000.The sales taxes are $5250.The logo of the company is painted on the side of the van for $1400.The van's annual license is $140.The van undergoes safety testing for $250.What does Schrock record as the cost of the new van?

A)$77040.
B)$76900.
C)$75250.
D)$76650.

Question 79

Kathy's Blooms purchased a delivery van with a $60000 list price.The company was given a $6000 cash discount by the dealer and paid $3000 sales tax.Annual insurance on the van is $1500.As a result of the purchase by how much will Kathy's Blooms increase its van account?

A)$60000.
B)$54000.
C)$58500.
D)$57000.

Question 80

Ryan Inc.purchased a delivery truck with a $48000 list price.The company was given a $4800 cash discount by the dealer and paid $2400 sales tax.Annual insurance on the truck is $1200.As a result of the purchase by how much will Ryan Inc.increase its truck account?

A)$48000.
B)$43200.
C)$46800.
D)$45600.