Deck 9: Plant Assets, natural Resources, and Intangibles

Question 1

Prepare the journal entry to record the acquisition of a plant asset for $5,000 cash.

Answer 1

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

Question 2

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

Answer 2

False

Question 3

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

Answer 3

A

Question 4

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 work use the asset in normal operations

Question 5

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 6

Roberts Construction Group paid $6,000 for a plant asset that had a market value of $10,500.At which of the following amounts should the plant asset be recorded?

A)$10,500
B)$3,000
C)$6,000
D)$12,000

Question 7

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 8

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

Question 9

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

Question 10

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

Question 11

Capitalizing a cost involves crediting the asset account.

Question 12

Acer,Inc.plans to develop a shopping center.In the first quarter,the following amounts were spent: $$\begin{array} { | l | r | } \hline \text { Acquisition of land } & \$ 17,000 \\\hline \text { Surveys and legal fees } & 600 \\\hline \text { Land clearing } & 800 \\\hline \text { Fencing } & 5,000 \\\hline \text { Install lighting and signage } & 1,560 \\\hline\end{array}$$ What amount should be recorded as the cost of the land in the corporation's books?

A)$23,400
B)$18,400
C)$19,960
D)$22,800

Question 13

Danube Corp.purchased a used machine for $17,000.The machine required installation costs of $7,000 and insurance while in transit of $600.At which of the following amounts would the be recorded? $\text { machine }$

A)$17,000
B)$24,000
C)$17,600
D)$24,600

Question 14

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 15

Arthur,Inc.plans to develop a shopping center.In the first quarter,the following amounts were spent: $$\begin{array} { | l | r | } \hline \text { Acquisition of land } & \$ 23,000 \\\hline \text { Surveys and legal fees } & 1,400 \\\hline \text { Land clearing } & 1,100 \\\hline \text { Fencing } & 8,000 \\\hline \text { Install lighting and signage } & 11,060 \\\hline\end{array}$$ What amount should be recorded as the land improvement cost?

A)$9,100
B)$10,500
C)$19,060
D)$2,500

Question 16

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

Question 17

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 18

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

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

Which of the following requires businesses to record depreciation?

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

Question 26

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 27

Westland,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 28

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 29

Hastings Corporation has purchased a group of assets for $25,000.The assets and their relative market values are listed below. $$\begin{array} { | l | r | } \hline \text { Land } & \$ 6,800 \\\hline \text { Equipment } & 2,900 \\\hline \text { Building } & 3,800 \\\hline\end{array}$$ 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)$4,500
B)$12,500
C)$5,250
D)$7,000

Question 30

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

Question 31

Safari 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.

Question 32

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

Question 33

Fred,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)change of oil filters
C)replacement of tires
D)normal engine repair

Question 34

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

Question 35

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

Question 36

Hawkeye Corporation has acquired a property that included both land and a building for $570,000.The corporation hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $430,000.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)$444,600
B)$123,000
C)$285,000
D)$233,700

Question 37

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 38

Bingo Corporation has acquired a property that included both land and a building for $500,000.The corporation hired an appraiser who has determined that the market value of the land is $360,000 and that of the building is $420,000.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)$226,800
B)$270,000
C)$250,000
D)$320,000

Question 39

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 40

Nobells Corp.has acquired land and paid $500 as brokerage 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 41

Which of the following depreciation methods allocates a varying amount of depreciation 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 42

On January 1,2017,Zade Manufacturing Corporation purchased a machine for $41,000,000.Zade's management expects to use the machine for 33,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $44,000.The machine was used for 3,700 hours in 2017 and 5,900 hours in 2018.What is the depreciation expense for 2017 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)$4,592,033
B)$13,666,667
C)$7,322,431
D)$4,596,954

Question 43

On January 1,2016,Martini,Inc.acquired a machine for $1,050,000.The estimated useful life of the asset is five years.Residual value at the end of five years is estimated to be $100,000.What is the book value of the machine at the end of 2017 if the company uses the straight-line method of depreciation?

A)$630,000
B)$670,000
C)$570,000
D)$629,996

Question 44

Businesses are required to use Modified Accelerated Cost Recovery System (MACRS)for tax purposes.

Question 45

The cost of an asset is $1,000,000,and its residual value is $290,000.Estimated useful life of the asset is five years.Calculate depreciation for the first year using the double-declining-balance method of depreciation.

A)$284,000
B)$400,000
C)$200,000
D)$142,000

Question 46

The use of MACRS is acceptable for financial reporting under GAAP.

Question 47

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

Question 48

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

Question 49

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

Question 50

The expected cash 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 51

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

Question 52

The cost of an asset is $1,110,000,and its residual value is $300,000.Estimated useful life of the asset is five years.Calculate depreciation for the second year using the double-declining-balance method of depreciation.

A)$222,000
B)$162,000
C)$324,000
D)$266,400

Question 53

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

Question 54

A company purchased a computer on July 1,2017 for $50,000.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 55

Residual value is also known as depreciable cost.

Question 56

On January 1,2017,Henry Manufacturing Corporation purchased a machine for $40,600,000.Henry's management expects to use the machine for 34,000 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 4,000 hours in 2017 and 5,400 hours in 2018.Calculate the book value of the machine at the end of 2018 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)$29,388,244
B)$40,600,000
C)$29,375,272
D)$35,829,040

Question 57

On January 1,2017,Anodel,Inc.acquired a machine for $1,010,000.The estimated useful life of the asset is five years.Residual value at the end of five years is estimated to be $62,000.Calculate the depreciation expense per year using the straight-line method.

A)$202,000
B)$189,600
C)$251,600
D)$252,500

Question 58

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

Question 59

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

Question 60

Which of the following depreciation methods 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 61

If an asset is disposed of during the year,there is no need to calculate depreciation from the beginning of the year of disposal to the date of disposal.

Question 62

On January 1,2016,Amethyst Manufacturing Corporation purchased a machine for $40,000,000.The corporation expects to use the machine for 24,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $40,000.The schedule of usage of the machine is below.
$$\begin{array} { | r | c | } \hline \text { Year } & \text { Usage } \\\hline 1 & 4,500 \\\hline 2 & 6,000 \\\hline 3 & 5,200 \\\hline 4 & 4,300 \\\hline 5 & 2,000 \\\hline 6 & 2,000 \\\hline\end{array}$$ Prepare the depreciation schedule using the units-of-production method of depreciation.

Question 63

On July 31,2016,Colora Printers purchased a printer for $57,000.It expects the printer to last for four years and have a residual value of $11,000.Compute the depreciation expense on the printer for the year ended December 31,2016,using the straight-line method.

A)$11,500
B)$4,792
C)$14,250
D)$6,708

Question 64

Adams Bakery uses the modified half month convention to calculate depreciation expense in the year an asset is purchased or sold.Adams has a calendar year accounting period and uses the straight-line method to compute depreciation expense.On March 17,2016,Adams acquired equipment at a cost of $200,000.The equipment has a residual value of $40,000 and an estimated useful life of 6 years.What amount of depreciation expense will be recorded for the year ending December 31,2016? (Round your answer to the nearest dollar. )

A)$26,667
B)$22,222
C)$20,000
D)$13,333

Question 65

Houlihan,Inc.purchased a van on January 1,2016,for $800,000.Estimated life of the van was five years,and its estimated residual value was $90,000.Houlihan uses the straight-line method of depreciation.Give the journal entry to record the depreciation expense for 2016 on the van.

Question 66

On January 1,2017,Doyle Manufacturing Corporation purchased a machine for $40,000,000.The corporation expects to use the machine for 24,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $40,000.The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in 2018.Calculate depreciation expense for 2018 if the company uses the units-of-production method of depreciation.

Question 67

General,Inc.purchased a van on May 1,2016,for $800,000.Estimated life of the van was five years,and its estimated residual value was $80,000.General uses the straight-line method of depreciation.Prepare the journal entry to record the depreciation expense for 2016 on the van.

Question 68

The cost of an asset is $10,000,000,and its residual value is $100,000.Estimated useful life of the asset is four years.Prepare the schedule of depreciation using the double-declining-balance method of accounting.

Question 69

Ivorycoast,Inc.purchased a van on January 1,2017,for $880,000.Estimated life of the van was five years,and its estimated residual value was $101,000.Ivorycoast uses the straight-line method of depreciation.Calculate the book value of the van at the end of 2017.

A)$715,000
B)$825,000
C)$779,000
D)$724,200

Question 70

Five O'Clock,Inc.purchased a van on January 1,2017,for $800,000.Estimated life of the van was five years,and its estimated residual value was $90,000.Five O'Clock uses the straight-line method of depreciation.Prepare the depreciation schedule.

Question 71

A truck costs $303,000 and is expected to be driven 115,000 miles during its five-year life.Residual value is expected to be zero.If the truck is driven 29,000 miles during the first year,how much depreciation should the business record under the units-of-production method? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )

A)$97,750
B)$25,423
C)$76,270
D)$47,520

Question 72

Which of the following is true when the estimate of an asset's useful life is changed?

A)The new estimate is ignored until the last year of the asset's life.
B)The depreciation expense in the prior year is restated.
C)Prior years' financial statements must be restated.
D)The asset's remaining depreciable book value will be spread over the asset's remaining life.

Question 73

On January 1,2016,a corporation acquired a truck for $100,000.Residual value was estimated to be $20,000.The truck can be driven for 50,000 miles over the next three years.Actual usage of the truck was recorded as 8,640 miles for the first year.Give the journal entry to record depreciation for the first year calculated as per the units-of-production method.(Do not round your intermediate calculations. )

Question 74

On January 1,2017,a corporation acquired a truck for $600,000.The residual value was estimated to be $20,000.The truck can be driven for 50,000 miles over the next three years.The actual usage of the truck was 8,640 miles for the first year.Calculate the rate of depreciation to be applied and depreciation for the first year using the units-of-production method.(Do not round your intermediate calculations. )

Question 75

On January 1,2017,Blizzard Manufacturing Corporation purchased a machine for $40,000,000.The corporation expects to use the machine for 24,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $40,000.The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in 2018.What is the depreciation expense for 2017 and 2018 if the corporation uses the double-declining-balance method of depreciation?

Question 76

If a business changes the estimated useful life,or estimated residual value,of a plant asset,depreciation expense must be recalculated.

Question 77

On January 1,2017,Real Planes Manufacturing Corporation purchased a machine for $40,000,000.The corporation expects to use the machine for 24,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $40,000.The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in 2018.What is the book value of the machine at the end of year 2018 if the corporation uses double-declining-balance method of depreciation? (Round your intermediate calculations. )

Question 78

A business,which has a calendar year accounting period,purchased an asset on March 1,2016.The business disposed of the asset on August 31,2017.For the calendar year 2017,depreciation should be calculated from January 1 to August 31.

Question 79

Blake,Inc.purchased a van on January 1,2015,for $800,000.Estimated life of the van was five years,and its estimated residual value was $90,000.Blake uses the straight-line method of depreciation.Give the journal entry to record the purchase of van for cash.

Question 80

When a company makes an accounting change,Generally Accepted Accounting Principles require that the company make changes to financial statements of prior years.