Deck 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Question 1

When the amount of annual depreciation is revised because of a change in the estimated useful life of an asset,prior years' financial statements should be restated.

Answer 1

False

Question 2

Some analysts compare companies by focusing on earnings before interest,taxes,depreciation,and amortization (EBITDA),rather than net income.

Answer 2

True

Question 3

Trademarks and goodwill are intangible assets that are not amortized.

Answer 3

True

Question 4

When an asset is sold and its book value exceeds its selling price,net income will increase.

Question 5

Long-lived assets found on a company's balance sheet may include some assets that have no physical substance.

Question 6

When assets are purchased as a group,the total cost must be divided up and allocated to each asset in proportion to the market value of the assets as a whole.

Question 7

Impairment occurs when the estimated future cash flows from a long-lived asset are less than its book value.

Question 8

Depreciation is an allocation method,not a valuation method.

Question 9

Assuming nothing else changes,a decrease in average net fixed assets will cause the fixed asset turnover ratio to increase.

Question 10

Intangible assets with limited lives are usually amortized using the straight-line method with no residual value.

Question 11

Accumulated Depreciation is classified as an expense.

Question 12

If a company produces the same number of units per period over an asset's useful life,each period's depreciation expense using the straight-line method will be the same as that recorded using the units-of-production method.

Question 13

The useful life of an asset is always measured in units of time,such as years or months.

Question 14

A declining fixed asset turnover ratio can be caused by acquiring additional assets in the current period in anticipation of increased revenue in the future.

Question 15

Tax accounting and financial accounting use the same depreciation calculations and there are no differences in the results between the two accounting systems.

Question 16

There are no significant differences between GAAP and IFRS with regards to the accounting for tangible and intangible assets.

Question 17

Assuming no additions,replacements,or extraordinary repairs,the book value of a long-lived asset declines over time.

Question 18

Companies within the same industry do not always use the same depreciation method,but will use the same expected useful life for the same piece of equipment.

Question 19

The calculation for depletion of natural resources is similar to the calculation for depreciation when the units-of-production method is used.

Question 20

Extraordinary repairs,replacements,and additions are added to the appropriate asset accounts rather than being recorded as expenses.

Question 21

Which of the following terms does not mean the same as the others?

A) Tangible assets
B) Fixed assets
C) Property, plant, and equipment
D) Long-lived assets

Question 22

Which of the following items would not be considered a long-lived asset?

A) Buildings
B) Land improvements
C) Inventory
D) Land

Question 23

Which of the following is a long-lived asset?

A) Land on which a new store is located
B) Land purchased for resale next month
C) Cash
D) Retained earnings

Question 24

Which of the following is not a characteristic of tangible long-lived assets?

A) Productive
B) Used over one or more years
C) Not intended for resale
D) Amortized over their useful lives

Question 25

ABC Co.purchased a parcel of land for $300,000.It paid attorney fees of $2,000 to verify title to the land.In addition,it paid a broker's fee of $5,000 to help find a suitable parcel of land.This parcel of land should be recorded in the accounting records for:

A) $300,000.
B) $302,000.
C) $305,000.
D) $307,000.

Question 26

If a company capitalizes costs that should be expensed,how is its income statement for the current period impacted?

A) Net income is understated.
B) Revenues are understated.
C) Expenses are understated.
D) Assets are understated.

Question 27

Intangible assets are:

A) long-lived assets with no physical substance.
B) unnecessary for most major companies.
C) all current assets.
D) any assets acquired without using cash.

Question 28

The Tasman Company purchased land for $150,000.The cost to demolish the existing building and prepare the land for a new building was $20,000.The real estate commission paid to buy the land was $9,000.What amount should be recorded in Tasman's accounting records for the cost of the land?

A) $179,000
B) $150,000
C) $159,000
D) $170,000

Question 29

Under the cost principle,a company capitalizes:

A) all ordinary repair expenditures incurred in the use of an asset.
B) any interest incurred in borrowing money to help pay for asset acquisitions.
C) all reasonable and necessary costs of acquiring an asset and preparing it for use.
D) the total market value of individual assets acquired in a 'basket purchase.'

Question 30

A category of long-lived assets that are depleted over time is:

A) delivery equipment.
B) natural resources.
C) machinery.
D) cash.

Question 31

Fixed assets are ______ and are found on the ______:

A) long-lived tangible assets, balance sheet
B) long-lived intangible assets, balance sheet
C) current tangible assets, balance sheet
D) current intangible assets, income statement

Question 32

B.Darin Company purchased a truck and trailer for $54,000.The appraised values of the truck and trailer are $38,000 and $19,000,respectively.What is the amount of the cost that should be assigned to the trailer?

A) $19,000
B) $18,000
C) $16,000
D) $22,000

Question 33

The MegaHit Film Studio owns a production lot and related equipment.How would MegaHit Company categorize these assets?

A) Tangible assets
B) Natural resources
C) Intangible assets
D) Goodwill

Question 34

Your company buys a computer system for $3 million and pays the vendor $200,000 to install the computer system.Your company should record:

A) $3 million as equipment and $200,000 as expenses.
B) $3.2 million as expenses.
C) $2.8 million as equipment and the rest as expenses.
D) $3.2 million as equipment.

Question 35

A real estate management company buys land that contains an abandoned apartment building for $4.5 million.It pays a construction company $500,000 to demolish the apartment building.Which of the following is correct?

A) The company would record $5 million as the cost of the land.
B) The company would record $4.5 million as the cost of the land.
C) The company would record $4 million as the cost of the land.
D) The company would record $500,000 as demolition expense.

Question 36

Generally,freight costs incurred when a long-lived asset is purchased should be:

A) expensed in the period incurred.
B) deducted from the Accumulated Depreciation account.
C) added to the cost of the asset.
D) not recorded in the accounts.

Question 37

A productive asset:

A) will be used up within 1 year from the balance sheet date.
B) is the same as stockholders' equity.
C) is part of inventory.
D) is used to produce goods or services that will be sold to customers.

Question 38

Which of these are natural resources that are depleted over time?

A) Timber
B) Mining equipment
C) Cash
D) Inventory

Question 39

Which of the following would be properly classified as a long-lived asset?

A) A car held for resale by an automobile dealership.
B) Accounts receivable.
C) Merchandise inventory held for resale.
D) A warehouse used to store inventory.

Question 40

Which of the following statements about capitalizing costs is correct?

A) Capitalizing costs refers to the process of converting assets to expenses.
B) All costs incurred to acquire an asset may be capitalized.
C) Capitalizing a cost means to record it as an asset.
D) Capitalizing costs results in an immediate decrease in net income.

Question 41

The primary difference between ordinary repairs and extraordinary repairs is:

A) ordinary repairs cost less.
B) ordinary repairs are expenditures for routine maintenance and upkeep, whereas extraordinary repairs increase an assets economic usefulness in the future through increased efficiency, capacity, or longer life.
C) extraordinary repairs only maintain the asset for a short time, whereas ordinary repairs increase the usefulness of assets beyond their original condition.
D) extraordinary repairs are expenditures, not expenses.

Question 42

Why should a company divide up the cost of a "basket purchase" among the different assets purchased?

A) A company with a longer list of assets will appear to be stronger.
B) Some of the assets might be paid for more quickly than others.
C) The different assets might be depreciated over different useful lives.
D) Baskets are not long-lived assets.

Question 43

Extraordinary repairs:

A) are revenue expenditures.
B) extend an asset's life beyond the original estimate.
C) are expensed as incurred.
D) are credited to Accumulated Depreciation.

Question 44

Which of the following accurately describes the treatment of ordinary and extraordinary repairs?

A) Ordinary repairs are expensed as incurred; extraordinary repairs are expensed as incurred
B) Ordinary repairs are treated as a capital expenditure; extraordinary repairs are expensed as incurred
C) Ordinary repairs are expensed as incurred; extraordinary repairs are treated as a capital expenditure
D) Ordinary repairs are treated as a capital expenditure; extraordinary repairs are treated as a capital expenditure

Question 45

The costs assigned to the individual assets acquired in a basket purchase are based on their relative:

A) historical costs.
B) market values.
C) book values.
D) depreciable costs.

Question 46

Baldini's Restaurant purchased a new building with the surrounding land.The price paid was $1,200,000,including the commission charged on the sale.An appraisal of the land and building at the time of purchase indicated that the market value of the land was $1,000,000 and the market value of the building was $500,000.What amounts would be recorded for the purchase of the two assets?

A) Land $800,000, Building $400,000
B) Land $1,000,000, Building $500,000
C) Land $1,000,000, Building $200,000
D) Land $700,000, Building $500,000

Question 47

A company bought land and a building for $128,000.The building has a useful life of 20 years.Why should the company split the $128,000 cost between the land and the building?

A) Land is not depreciated, while the building will be depreciated over its 20year useful life.
B) The cost should not be split between the land and building.
C) The land will be depreciated over 40 years and the building will be depreciated over 20 years.
D) Both the land and the building will be depreciated over 20 years.

Question 48

The carrying value of a long-lived asset is referred to as its:

A) residual value.
B) book value.
C) market value.
D) sales value.

Question 49

The Three Little Pigs built three houses for a total cost of $160,000.Appraisal values for the three completed houses were: straw house,$40,000,wood house $60,000,and brick house $100,000.Using the basket purchase allocation,the recorded value of the brick house should be:

A) $80,000.
B) $100,000.
C) $53,333.
D) $66,667.

Question 50

Ordinary repairs and maintenance:

A) are part of the asset cost of equipment and facilities.
B) are recorded as expenses.
C) are always recorded as liabilities.
D) improve the asset beyond the current accounting period.

Question 51

A company purchased office equipment for $24,500 and paid $1,470 in sales tax,$550 for installation,$3,200 for a needed adjustment to the equipment,and $2,600 for supplies that will be used for periodic routine maintenance.How should the company record this transaction?

A) Debit Equipment $24,500, debit Repairs and Maintenance Expense for $5,220, debit Supplies for $2,600, and credit Cash for $32,320
B) Debit Equipment for $29,720, debit Supplies for $2,600, and credit Cash for $32,320
C) Debit Equipment for $25,970, debit Repairs and Maintenance Expense $3,750, debit Supplies for $2,600, and credit Cash for $32,320
D) Debit Equipment and credit Cash for $32,320

Question 52

A company purchased property for $100,000.The property included a building,equipment and land.The building was appraised at $62,000,the land at $45,000,and the equipment at $18,000 for a total appraised value of $125,000.What is the amount of cost to be allocated to the building in the accounting records?

A) $0
B) $49,600
C) $62,000
D) $100,000

Question 53

When a company records depreciation it debits:

A) a liability account and credits Depreciation Expense.
B) Depreciation Expense and credits Cash.
C) Depreciation Expense and credits a contra-asset account.
D) a long-lived tangible asset account and credits Depreciation Expense.

Question 54

Accumulated Depreciation:

A) appears in the asset section of a balance sheet.
B) appears on the income statement.
C) is a liability on the balance sheet.
D) is a contra-stockholders' equity item.

Question 55

A company acquired property that included land,building and equipment for a total cost of $163,000.The land was appraised at $87,500,the building at $35,000,and the equipment at $52,500.What should be the allocation of the total cost in the accounting records?

A) Land $75,000; Building $30,000; Equipment $45,000
B) Land $75,000; Building $30,800; Equipment $46,200
C) Land $87,500; Building $35,000; Equipment $52,500
D) Land $81,500; Building $32,600; Equipment $48,900

Question 56

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?

A) To indicate how the asset has physically deteriorated
B) To show that the asset will eventually and gradually become obsolete
C) To record that the asset's market value declines over time
D) To match the cost of the asset to the period in which it generates revenue

Question 57

If a truck's engine is overhauled for $8,000,the journal entry would normally include a debit to:

A) Vehicles.
B) Accounts Payable.
C) Depreciation Expense.
D) Cash.

Question 58

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation costs.One-half of the total cost or $250,000 is paid in cash; a note in the amount of $250,000 is signed.How should the company record this transaction?

A) Debit Cash for $250,000, debit Notes Payable for $250,000, and credit Equipment for $500,000
B) Debit Equipment for $500,000, credit Cash for $250,000, and credit Notes Payable for $250,000
C) Debit cash for $250,000, debit Notes Payable for $250,000, credit Equipment for $450,000, and credit Operating Expenses for $50,000
D) Debit Equipment for $450,000, debit Operating Expenses for $50,000, credit cash for $250,000, and credit Notes Payable for $250,000

Question 59

A company began the year with Property and Equipment costing $680,000 and accumulated depreciation of $120,000.The only change affecting the long-lived assets account during the year is the $55,000 of depreciation expense that must be recorded for the year.What is the amount of Property and Equipment,net,to be reported on the balance sheet at the end of the year?

A) $680,000
B) $625,000
C) $505,000
D) $560,000

Question 60

Accumulated Depreciation is classified as a(n):

A) expense account.
B) contra-asset account.
C) liability account.
D) stockholders' equity account.

Question 61

Shenandoah Skies bought land to be used for a new ski resort.Which of the following costs should not be capitalized?

A) $5,000,000 to purchase the land
B) $5,000 paid to Jack Mogul for a title search
C) $50,000 paid to cut down timber to make way for ski runs
D) $7,500 paid for a party to celebrate the grand opening

Question 62

Urban Outsiders has a building that originally cost $375,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The balance of the related Accumulated Depreciation account is $258,000.The residual value of the facility is:

A) $117,000.
B) $151,000.
C) $268,000.
D) $107,000.

Question 63

Your company buys a computer server that it expects to use for eight years and then sell when it upgrades to a more powerful model.The server would probably be used by the business that buys it at that time for another three years.The useful life of the server for your company is:

A) eight years.
B) eleven years.
C) five years.
D) three years.

Question 64

Which of the following costs associated with long-lived assets are expensed (rather than capitalized)?

A) Extraordinary repairs and maintenance
B) Delivery costs
C) Installation costs
D) Interest on loans to purchase the assets

Question 65

All costs to get an asset in place and ready for use should be:

A) expensed.
B) capitalized.
C) recorded as construction in progress.
D) recorded only when they are paid in cash.

Question 66

Acme Enterprises just bought a new manufacturing machine.Which of these costs should not be capitalized?

A) The $500,000 invoice price of the machine
B) The $15,000 freight bill to deliver the machine to Acme's factory
C) The $8,000 cost of tearing down Acme's factory wall to get the machine inside
D) The $100 increase in monthly utility bills to operate the machine

Question 67

The book value of a long-lived tangible asset is equal to:

A) its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date.
B) its acquisition cost plus accumulated depreciation from the acquisition date to the balance sheet date.
C) the amount that could be obtained for the asset on the balance sheet date if it were sold.
D) the annual cost of carrying the asset in inventory.

Question 68

When a company capitalizes a cost,its ______ increase.

A) long-lived assets
B) liabilities
C) expenses
D) revenues

Question 69

Miss Hap,the company bookkeeper,recorded the annual repair costs on the company's machinery as an increase to the Machinery account.As a result,which of the following statements correctly describes this situation?

A) Assets will be overstated.
B) Stockholders' equity will be understated.
C) Expenses will be overstated.
D) Liabilities will be overstated.

Question 70

The book value of a depreciable asset can never be less than its:

A) historical cost.
B) market value.
C) capitalized cost.
D) residual value.

Question 71

Tangible assets are first recorded at:

A) all costs to acquire them and prepare them for use.
B) current market value or resale value.
C) the amount of cash paid for them.
D) cost minus residual (or salvage) value.

Question 72

A company has long-lived tangible assets with a cost of $3.5 million; its Accumulated Depreciation account has a balance of $1.1 million.Which of the following statements is correct?

A) The book value of long-lived assets is $2.4 million.
B) The market value of long-lived assets is $3.5 million.
C) The carrying value of long-lived assets is $3.5 million.
D) The resale value of long-lived assets is $2.4 million.

Question 73

Which of the following statements about capitalized costs and expenses is correct?

A) Capitalized costs decrease stockholders' equity.
B) Expenses increase stockholders' equity.
C) Capitalized costs increase long-lived assets.
D) Expenses increase assets.

Question 74

Sunny Skys,Inc.bought a derelict hunting lodge,which it tore down at a cost of $45,000 and replaced with a new lodge.The demolition cost should be:

A) expensed .
B) capitalized.
C) a liability.
D) an addition to contributed capital.

Question 75

Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed.This fraud had many effects on WorldCom's balance sheet.Which of the following does not describe one of the misstatements that resulted on the company's balance sheet?

A) Total assets were too high.
B) Retained earnings were too high.
C) The balance sheet was in balance.
D) Total liabilities were too low.

Question 76

Which of the following is not the same as book value?

A) Carrying value
B) Cost less accumulated depreciation
C) Unused cost
D) Market value

Question 77

Sunny Sky paid $30,000 cash for piece of land to be used for a new corporate headquarters building.What is the effect of this transaction on the accounting equation?

A) One asset increases, while another asset decreases.
B) Total assets increase and total liabilities increase.
C) Total assets increase and total stockholders' equity increases.
D) Total assets decrease and total liabilities decrease.

Question 78

Busy Beaver,Inc.signed a $315,000,5-year note payable to buy a new industrial veneer cutter.Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs.What is the overall effect of this transaction on the accounting equation?

A) Total liabilities increase $320,750.
B) Total assets increase $309,250.
C) Machinery, an asset, increases $315,000.
D) Total liabilities increase $315,000.

Question 79

The cost of a new building that is currently under construction,not for sale but for a company's own use,is reported on the balance sheet:

A) as an asset called Work in Process.
B) after construction is complete.
C) as an asset called Construction in Progress.
D) as a liability until construction is complete.

Question 80

Which of the following items does not affect the calculation of depreciation expense?

A) Economic benefits generated by the asset
B) Useful life of the asset
C) Residual value of the asset
D) Capitalized cost of the asset