Deck 7: Operating Assets

Question 1

FASB allows companies to use different depreciation methods so they can capture declining service potential of an operating asset.

Answer 1

True

Question 2

Research and Development costs should be added to the cost of patents.

Answer 2

False

Question 3

If new equipment purchased in 2013 is reported on the balance sheet at December 31, 2013 as a long-term asset, there will be no related item on the 2013 income statement.

Answer 3

False

Question 4

When plant assets are reported, the current period's depreciation expense is subtracted from the original cost on the balance sheet.

Question 5

When making lending decisions, lenders generally are not interested in the company's operating assets.

Question 6

All intangible assets are subject to amortization.

Question 7

On the balance sheet, a company reports plant assets by subtracting residual value from the original cost of the plant asset.

Question 8

The reason some major intangible assets are not in the financial statements is because they cannot be measured.

Question 9

When plant assets are purchased in a group, each asset is debited to the respective plant asset account for its fair market value at the time of acquisition.

Question 10

Costs incurred related to plant assets that are already in use are called revenue expenditures if the cost increases the useful life or the asset's productivity.

Question 11

Plant assets, current assets, property, plant and equipment, and fixed assets are all tangible assets.

Question 12

Depreciation has an effect on the company's income taxes.

Question 13

Costs incurred to keep plant assets in normal operating condition are called revenue expenditures.

Question 14

A company determined that it had incorrectly estimated the useful life of equipment that it had purchased two years ago. It must now depreciate the asset's remaining book value over the current and future accounting periods.

Question 15

An impairment is a temporary decline in the future benefit or service potential of an asset.

Question 16

One reason management may choose the straight-line method of depreciation is because it is easy to compute.

Question 17

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

Question 18

Double-declining-balance depreciation is most commonly used by businesses for financial reporting purposes.

Question 19

If a company is concerned about minimizing its income tax burden, it would use the straight-line depreciation method to accomplish this objective.

Question 20

If a company uses the same depreciation method as other firms in the same industry, investors will have enhanced comparability of the financial reporting results.

Question 21

An expenditure that does not increase the future economic benefits of the asset is referred to as a capital expenditure.

Question 22

Two reasons why a company might choose an accelerated depreciation method are _______________, and ______________.

Question 23

The more efficiently a company uses its fixed assets the lower will be the fixed asset turnover ratio.

Question 24

An accumulated ________ account is used when writing off natural resources.

Question 25

MATCHING
For each of the following items, indicate whether each would be treated as capital expenditure or revenue expenditure. (Choices may be used more than once.)
a. capital expenditure
b. revenue expenditure
Costs incurred after putting the asset into service which keep the asset in normal operating condition.

Question 26

____________ costs are expenditures incurred in the discovery of new knowledge and the translation of research into a design or plan for a new product.

Question 27

MATCHING
For each of the following items, indicate whether each would be treated as capital expenditure or revenue expenditure. (Choices may be used more than once.)
a. capital expenditure
b. revenue expenditure
Costs incurred prior to using the asset, such as installation and other costs to prepare the asset for use.

Question 28

MATCHING
For each of the following items, indicate whether each would be treated as capital expenditure or revenue expenditure. (Choices may be used more than once.)
a. capital expenditure
b. revenue expenditure
Costs incurred after putting the asset into service which would extend the asset's useful life.

Question 29

A contra account called ____________________ is used to depreciate property, plant, and equipment.

Question 30

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)
a.Land
b.Land Improvements
c.Buildings
d.Machinery and Equipment
e.An Expense Account
The annual painting costs of an office building.

Question 31

To revise depreciation expense, the accountant should compute depreciation expense using the asset's remaining book value and useful life and its new residual value.

Question 32

A ____________________ is a cost that improves an operating asset and is therefore added to the asset account.

Question 33

The two items that must be estimated with respect to a plant asset in order to properly allocate cost to the affected accounting periods are ____________________ and ____________________.

Question 34

Natural resources can be replaced or restored only by an act of nature.

Question 35

The ______________ depreciation method is the GAAP depreciation method used most frequently.

Question 36

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)
a.Land
b.Land Improvements
c.Buildings
d.Machinery and Equipment
e.An Expense Account
The transportation charges related to the acquisition costs of a new piece of machinery.

Question 37

The intangible asset called ____________________ can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired.

Question 38

MATCHING
For each of the following items, indicate whether each would be treated as capital expenditure or revenue expenditure. (Choices may be used more than once.)
a. capital expenditure
b. revenue expenditure
Costs related to acquiring an asset, such as sales or excise taxes, transportation, insurance during shipment.

Question 39

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)
a.Land
b.Land Improvements
c.Buildings
d.Machinery and Equipment
e.An Expense Account
The costs paid to clear land.

Question 40

A _________________ is the right to produce or sell a published work.

Question 41

Match the items and explain how each item should be accounted for. (Choices may be used more than once.)
a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure.
It was necessary for an architect to redesign the work space to accommodate the new equipment. A fee of $6,000 was paid.

Question 42

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Accumulated depreciation

Question 43

Match the items and explain how each item should be accounted for. (Choices may be used more than once.)
a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure.
$3,000 freight costs were paid to ship the equipment from the manufacturer,

Question 44

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Land improvements

Question 45

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Goodwill

Question 46

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Amortization expense

Question 47

Match the items and explain how each item should be accounted for. (Choices may be used more than once.)
a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure.
During the installation, the equipment was damaged and repair costs of $2,000 were incurred.

Question 48

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Depreciation expense

Question 49

Match the items and explain how each item should be accounted for. (Choices may be used more than once.)
a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure.
The company purchased a three-year liability insurance policy to cover possible damage caused by the new equipment at a cost of $6,000.

Question 50

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Research and development costs

Question 51

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Loss on disposal of plant asset

Question 52

Match the items and explain how each item should be accounted for. (Choices may be used more than once.)
a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure.
The company financed the equipment purchase with a bank loan. Interest of $3,000 was paid on the loan during 2013.

Question 53

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)
a.Land
b.Land Improvements
c.Buildings
d.Machinery and Equipment
e.An Expense Account
The sales taxes paid related to a machine purchased.

Question 54

Match the items and explain how each item should be accounted for. (Choices may be used more than once.)
a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure.
A state agency required that a pollution-control device be installed on the equipment at a cost of $5,000.

Question 55

Match the items and explain how each item should be accounted for. (Choices may be used more than once.)
a.This item should be included as part of the cost of the equipment.b.This item should be considered a revenue expenditure.
The cash purchase was made on March 8 with terms of 2/10, net 30.

Question 56

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Copyright

Question 57

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Building

Question 58

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)
a.Land
b.Land Improvements
c.Buildings
d.Machinery and Equipment
e.An Expense Account
The costs to pave a parking lot.

Question 59

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Patents

Question 60

Identify where each of the following accounts would be reported on the financial statements. (Choices may be used more than once.)
a.Balance Sheet--Property, Plant, and Equipment
b.Balance Sheet--Intangible Assets
c.Balance Sheet--Current Assets
d.Balance Sheet--Other Assets
e.Income Statement--Operating Section
f.Income Statement--Other Revenue and Expense Section
Gain on disposal of plant asset

Question 61

Match these terms with their correct definition.
a.Franchise
e.Organizational costs
b.Intangible operating assets
f.Property, plant, and equipment
c.Natural resources
g.Trademark
d.Operating assets
h.Voluntary disposal
Represent future economic benefit to the company but they lack physical substance

Question 62

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)
a.Straight-line
b.Units-of-production
c.Double-declining-balance
d.MACRS
This method maximizes net income.

Question 63

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)
a.Straight-line
b.Units-of-production
c.Double-declining-balance
d.MACRS
This method is the easiest to use.

Question 64

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
Cost less accumulated depreciation

Question 65

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
A permanent decline in the future benefit or service potential of an asset

Question 66

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
The process of allocating the cost of a tangible fixed asset to expense over the asset's useful life

Question 67

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
Cost less residual value

Question 68

Match these terms with their correct definition.
a.Franchise
e.Organizational costs
b.Intangible operating assets
f.Property, plant, and equipment
c.Natural resources
g.Trademark
d.Operating assets
h.Voluntary disposal
Consist of the long-lived assets that are owned by a business

Question 69

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
Any expenditure necessary to acquire an asset and to prepare it for use

Question 70

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)
a.Straight-line
b.Units-of-production
c.Double-declining-balance
d.MACRS
This method minimizes taxable income

Question 71

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)
a.Straight-line
b.Units-of-production
c.Double-declining-balance
d.MACRS
This method is used in situations where technological advances are rapid.

Question 72

Match these terms with their correct definition.
a.Franchise
e.Organizational costs
b.Intangible operating assets
f.Property, plant, and equipment
c.Natural resources
g.Trademark
d.Operating assets
h.Voluntary disposal
Include costs such as legal fees, stock issue costs, accounting and promotional fees

Question 73

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)
a.Straight-line
b.Units-of-production
c.Double-declining-balance
d.MACRS
This method is the best for management bonus plans.

Question 74

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
Situation where an asset is lost or destroyed through theft, acts of nature, or by accident

Question 75

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
The process of allocating the cost of a natural resource to each period in which the resource is used

Question 76

Match these terms with their correct definition.
a.Franchise
e.Organizational costs
b.Intangible operating assets
f.Property, plant, and equipment
c.Natural resources
g.Trademark
d.Operating assets
h.Voluntary disposal
Tangible operating assets used in the normal operations of a business

Question 77

Match these terms with their correct definition.
a.Franchise
e.Organizational costs
b.Intangible operating assets
f.Property, plant, and equipment
c.Natural resources
g.Trademark
d.Operating assets
h.Voluntary disposal
Right to exclusive use of a distinctive name, phrase, or symbol

Question 78

Match these terms with their correct definition.
a.Book value
e.Depreciation
b.Cost
f.Impairment
c.Depletion
g.Involuntary disposal
d.Depreciable cost
h.Residual value
The amount of cash or trade-in consideration that is expected when an asset is retired from service

Question 79

Match these terms with their correct definition.
a.Franchise
e.Organizational costs
b.Intangible operating assets
f.Property, plant, and equipment
c.Natural resources
g.Trademark
d.Operating assets
h.Voluntary disposal
Assets such as coal deposits, oil reserves, and mineral deposits

Question 80

Match these terms with their correct definition.
a.Franchise
e.Organizational costs
b.Intangible operating assets
f.Property, plant, and equipment
c.Natural resources
g.Trademark
d.Operating assets
h.Voluntary disposal
Exclusive right to conduct a certain type of business in some particular geographic area