Deck 9: Plant Assets, Natural Resources, and Intangibles

Question 1

The cost principle requires a business to record the assets acquired, or services received, at their actual cost.

Answer 1

True

Question 2

Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash. Omit explanation.

Answer 2

$$\begin{array} { | c | r | r | } \hline \text { Land Improvements } & 5,000 & \\\hline \text { Cash } & & 5,000 \\\hline\end{array}$$

Question 3

Land and land improvements are one and the same and therefore must be recorded in single account.

Answer 3

False

Question 4

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

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

Question 5

The process of allocating the cost of a plant asset over its useful life is known as cost reduction.

Question 6

Capitalizing a cost involves crediting the asset account.

Question 7

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

A) land
B) buildings
C) land improvements
D) machinery and equipment

Question 8

Which of the following is a characteristic of a plant asset, such as a building?

A) It is used in the operations of a business.
B) It is available for sale to customers in the ordinary course of business.
C) It has a short useful life.
D) It will have a negligible value at the end of its useful life.

Question 9

Which of the following is included in the cost of a plant asset?

A) amounts paid to make the asset ready for its intended use
B) regular repair and maintenance costs
C) replacement of damaged parts of the asset
D) wages of workers who use the asset in normal operations

Question 10

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

A) cost of fencing
B) cost of paving
C) brokerage commission
D) cost of outdoor lighting

Question 11

Bachman, Inc. plans to develop a shopping center. In the first quarter, the following amounts were spent: $$\begin{array} { | l | r | } \hline \text { Acquisition of land } & \$ 23,000 \\\hline \text { Surveys and legal fees } & 1500 \\\hline \text { Land clearing } & 400 \\\hline \text { Fencing } & 7000 \\\hline \text { Install lighting and signage } & 1860 \\\hline\end{array}$$ What amount should be recorded as the cost of the land in the corporation's books?

A) $31,900
B) $24,900
C) $26,760
D) $30,400

Question 12

The cost of land does not include the cost of fencing and paving.

Question 13

A business that has a vacant building that is not currently being used would classify the building as a plant asset.

Question 14

The cost of a plant asset includes all amounts paid to ready the asset for its intended use.

Question 15

Plant assets are long-lived, tangible assets used in the operation of a business.

Question 16

The cost of a building depends on whether the company is constructing the building or is acquiring an existing one.

Question 17

Which of the following statements is incorrect?

A) The life cycle of a plant asset includes: acquisition, usage, and disposal.
B) Depreciation is recorded on all plant assets.
C) Plant assets not currently being used in business operations are classified as long-term investments.
D) Plant assets are long-lived tangible assets used in the operations of a business.

Question 18

McArthur, Inc. plans to develop a shopping center. In the first quarter, the following amounts were spent: $$\begin{array} { | l | r | } \hline \text { Acquisition of land } & \$ 19,000 \\\hline \text { Surveys and legal fees } & 900 \\\hline \text { Land clearing } & 1100 \\\hline \text { Fencing } & 2000 \\\hline \text { Install lighting and signage } & 14,060 \\\hline\end{array}$$ What amount should be recorded as the land improvements cost?

A) $3100
B) $4000
C) $16,060
D) $2000

Question 19

Masonry Construction Group paid $10,000 for a plant asset that had a market value of $14,500. At which of the following amounts should the plant asset be recorded?

A) $14,500
B) $5000
C) $10,000
D) $20,000

Question 20

All plant assets are depreciated.

Question 21

The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values.

Question 22

Laramie Corporation has acquired a property that included both land and a building for $560,000. The corporation hired an appraiser who has determined that the market value of the land is $370,000 and that of the building is $440,000. At what amount should the corporation record the cost of the building? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $237,600
B) $302,400
C) $280,000
D) $386,400

Question 23

Repair work that generates a capital expenditure because it extends a plant asset's useful life past the normal expected life is known as an extraordinary repair.

Question 24

After a machine is installed and is up and running, repairs and maintenance are recorded as part of the cost of the machine.

Question 25

Ordinary repairs to plant assets are referred to as revenue expenditures.

Question 26

Millburn Corporation has acquired a property that included both land and a building for $510,000. The corporation hired an appraiser who has determined that the market value of the land is $320,000 and that of the building is $440,000. At what amount should the corporation record the cost of land? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $341,700
B) $134,400
C) $255,000
D) $214,200

Question 27

A lump-sum purchase or basket purchase involves paying a single price for several assets as a group.

Question 28

Brentwood Auto Repair purchased a new machine and placed it in service on June 14. Which of the following is NOT included in the cost of equipment?

A) cost of testing the machine on June 12
B) purchase commission
C) sales tax
D) a six month insurance policy which was paid on June 5 and became effective on June 15

Question 29

The cost of furniture and fixtures includes all costs to ready the asset for its intended use.

Question 30

Anderson Corporation has purchased a group of assets for $20,300. The assets and their relative market values are listed below. $$\begin{array} { | l | r | } \hline \text { Land } & \$ 6800 \\\hline \text { Equipment } & 2300 \\\hline \text { Building } & 3600 \\\hline\end{array}$$ Which of the following amounts would be debited to the Land account? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $4233
B) $10,962
C) $3654
D) $5684

Question 31

For each of the following amounts paid by a purchaser, determine whether the amount is debited to Land, Land Improvements, or Building.
$$\begin{array} { | l | l | } \hline \text { Pransaction } & \text { Account Debited } \\\hline \text { Building permits } & \\\hline \text { Cost of clearing land and removing unwanted } & \\\text { buildings } & \\\hline \text { Parking lot lighting } & \\\hline \text { Delinquent property taxes on land } & \\\hline \begin{array} { l } \text { Cost to renovate a building to make it ready for } \\\text { use }\end{array} & \\\hline \begin{array} { l } \text { Taxes assessed to transfer ownership (title) of } \\\text { land }\end{array} & \\\hline\end{array}$$

Question 32

When constructing a building for plant operations, payments for materials, labor, and miscellaneous costs are recorded as expenses.

Question 33

If a minor repair was incorrectly debited to the asset account, expenses and net income would be understated.

Question 34

Great Plains Corporation has acquired a property that included both land and a building for $500,000. The corporation paid cash. The corporation hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000. Journalize the lump-sum purchase. Omit explanation. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Question 35

Installation costs are recorded as part of the cost of equipment.

Question 36

The cost paid to a laborer to assemble a desk is recorded as an expense.

Question 37

Which of the following is NOT included as furniture and fixtures?

A) file cabinets
B) shelving
C) display racks
D) computers

Question 38

Danube Corp. purchased a used machine for $21,000. The machine required installation costs of $6000 and insurance while in transit of $1800. At which of the following amounts would the machine be recorded?

A) $21,000
B) $27,000
C) $22,800
D) $28,800

Question 39

An expenditure that increases the capacity or efficiency of a plant asset or that extends the asset's life is known as a revenue expenditure.

Question 40

Which of the following is NOT recorded as the cost of a building?

A) building permits
B) fencing
C) architectural fees
D) contractor charges

Question 42

The useful life of a plant asset is the length of the service period expected from the asset.

Question 44

Which of the following costs related to a business car would be capitalized?

A) the cost to install an engine with higher horsepower
B) the cost to change the oil
C) the cost to replace a broken windshield
D) the cost of new tires

Question 45

Westin Delivery Service, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be treated as a revenue expenditure?

A) oil change and lubrication
B) major engine overhaul
C) modification for new use
D) addition to storage capacity

Question 46

An asset is considered to be obsolete when a newer asset can perform the job more efficiently.

Question 47

If a company expenses an extraordinary repair, net income would be understated and the asset would be understated.

Question 48

For each of the following expenditures, indicate whether the amount is debited to an asset account or to an expense account.
$$\begin{array} { | l | l | } \hline \text { Pransaction } & \text { Account Debited } \\\hline \text { Paint job } & \\\hline \text { Major engine overhaul } & \\\hline \text { Tire replacement } & \\\hline \text { Asset modified for new use } & \\\hline \text { Routine maintenance that keeps a machine in } & \\\text { normal operating condition } & \\\hline \text { Replacement of a roof } & \\\hline\end{array}$$

Question 49

Residual value is also known as depreciable cost.

Question 50

Which of the following requires businesses to record depreciation?

A) revenue recognition principle
B) matching principle
C) cost principle
D) going concern principle

Question 51

Freeman, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be capitalized and depreciated?

A) modification for new use
B) oil change and lubrication
C) replacement of tires
D) normal engine repair

Question 52

Estimated residual value is not depreciated because the company is guaranteed to receive this amount when the asset is sold.

Question 53

Depreciation is the allocation of a plant asset's cost to expense over its useful life.

Question 54

Depreciation means that the business sets aside cash to replace an asset when it is used up.

Question 55

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

A) Net income will be understated.
B) Expenses will be overstated.
C) Assets will be overstated.
D) Liabilities will be overstated.

Question 56

Provide definitions for the following terms.
1. Capitalize
2. Revenue Expenditure
3. Depreciation

Question 57

An asset is considered to be obsolete ________.

A) only when it wears out
B) only at the end of its useful life
C) when it is fully depreciated
D) when a newer asset can perform the job more efficiently than the old asset can

Question 58

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

A) Net income will be overstated.
B) Revenues will be understated.
C) Assets will be understated.
D) Liabilities will be understated.

Question 59

Provide definitions for the following terms.
1. Depreciation
2. Extraordinary Repair
3. Property, Plant, and Equipment

Question 60

Newell Corp. has acquired land and paid $500 as a brokerage commission to acquire the land. However, the company's accountant has recorded the $500 as a revenue expenditure. What is the effect of this error?

A) Net income is understated by $500.
B) Liabilities are overstated by $500.
C) Revenue is overstated by $500.
D) Assets are overstated by $500.

Question 61

On January 1, 2018, Sanderson, Inc. acquired a machine for $1,110,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $91,000. What is the book value of the machine at the end of 2019 if the company uses the straight-line method of depreciation?

A) $666,000
B) $702,400
C) $611,400
D) $665,996

Question 62

Which of the following depreciation methods always allocates a higher amount of depreciation in earlier years than in later years?

A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method

Question 63

The units-of-production method allocates a varying amount of depreciation each year based on an asset's usage.

Question 64

Which of the following depreciation methods allocate a varying amount of depreciation to expense each year based on an asset's usage?

A) the straight-line method
B) the annuity method
C) the units-of-production method
D) the double-declining-balance method

Question 65

Estimated residual value can be zero if the company does not expect to receive anything when disposing of the asset.

Question 66

The use of the Modified Accelerated Cost Recovery System (MACRS) is acceptable for financial reporting under GAAP.

Question 67

The double-declining-balance method ignores the residual value until the depreciation expense takes the book value below the residual value.

Question 68

On January 1, 2018, Tyson Manufacturing Corporation purchased a machine for $41,100,000. Tyson's management expects to use the machine for 32,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $47,000. The machine was used for 4000 hours in 2018 and 6000 hours in 2019. What is the depreciation expense for 2018 if the corporation uses the units-of-production method of depreciation? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $5,131,640
B) $13,700,000
C) $7,697,460
D) $5,137,520

Question 69

The cost of an asset is $1,070,000, and its residual value is $220,000. Estimated useful life of the asset is ten years. Calculate depreciation for the first year using the double-declining-balance method of depreciation. (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)

A) $170,000
B) $214,000
C) $107,000
D) $85,000

Question 70

When a business uses the straight-line method of depreciation, the amount of depreciation is reduced from year to year.

Question 71

The expected value of an asset at the end of its useful life is known as ________.

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

Question 72

The cost of an asset is $1,020,000, and its residual value is $160,000. Estimated useful life of the asset is five years. Calculate depreciation for the second year using the double-declining-balance method of depreciation. (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)

A) $204,000
B) $172,000
C) $344,000
D) $244,800

Question 73

A company purchased a computer on July 1, 2019 for $50,000. The estimated useful life of the computer was five years, and it has no residual value. Which of the following methods should be used to best match its expense against the revenue it produces?

A) the units-of-production method
B) the straight-line method
C) the double-declining-balance method
D) the first-in, first-out method

Question 74

For tax purposes, an asset is fully depreciated to a book value of zero.

Question 75

On January 1, 2018, McHenry Manufacturing Corporation purchased a machine for $40,600,000. McHenry's management expects to use the machine for 26,000 hours over the next six years. The estimated residual value of the machine at the end of the sixth year is $45,000. The machine was used for 3700 hours in 2018 and 5200 hours in 2019. Calculate the book value of the machine at the end of 2019 if the company uses the units-of-production method of depreciation. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $26,717,691
B) $40,600,000
C) $26,702,294
D) $34,828,703

Question 76

Gulfcoast, Inc. purchased a van on January 1, 2019, for $930,000. Estimated life of the van was five years, and its estimated residual value was $93,000. Gulfcoast uses the straight-line method of depreciation. Calculate the book value of the van at the end of 2019.

A) $755,625
B) $871,875
C) $837,000
D) $762,600

Question 77

On January 1, 2018, Jordan, Inc. acquired a machine for $1,100,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $61,000. Calculate the depreciation expense per year using the straight-line method.

A) $220,000
B) $207,800
C) $268,800
D) $275,000

Question 78

An accelerated depreciation method expenses more of the asset's cost at the end of its useful life.

Question 79

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

Question 80

The book value of a plant asset is reported on the balance sheet as the cost of the asset minus accumulated depreciation.