Deck 9: Long Term Assets

Question 1

Free cash flow is a good measure of a company's ability to finance long-term assets.

Answer 1

True

Question 2

Intangible assets are subject to a process called depreciation.

Answer 2

False

Question 3

If the net present value of a long-term asset under consideration for purchase is negative,then the asset should not be purchased.

Answer 3

True

Question 4

Fair value is the amount for which an asset could be bought or sold in a current transaction.

Question 5

A natural resource is subject to a process called depletion.

Question 6

Leasehold improvements are not subject to any form of cost allocation.

Question 7

Asset impairment occurs when the fair value of a long-term asset exceeds its carrying value.

Question 8

A tractor held by a farm equipment company for sale to farmers is classified as a long-term asset.

Question 9

A building not currently used because economic conditions have limited a company's expansion is classified properly as property,plant,and equipment.

Question 10

Depreciation refers to the periodic allocation of the cost of a tangible long-lived asset over its estimated useful life.

Question 11

Book value refers to the market value of a long-term asset.

Question 12

A reduction in carrying value as a result of impairment is recorded as a loss.

Question 13

An older term for long-term assets is fixed assets.

Question 14

In the calculation of free cash flow,dividends and sales of plant assets are both deducted.

Question 15

The basic accounting problems associated with accounting for long-term assets are similar to those of short-term assets.

Question 16

Land held for speculative purposes should be classified as a long-term investment.

Question 17

Mineral deposits are subject to a process called amortization.

Question 18

A positive net present value of a long-term asset under consideration for purchase indicates that the asset should probably be purchased.

Question 19

Leasehold improvements become the property of the lessor at the end of the lease.

Question 20

Inventory is classified as a long-term asset.

Question 21

Small expenditures for what ordinarily are considered revenue expenditures frequently are treated as capital expenditures.

Question 22

A revenue expenditure results in the recognition of an asset.

Question 23

Extraordinary repairs are recorded with a debit to Accumulated Depreciation.

Question 24

The cost of assets acquired for a lump sum should be allocated equally among the acquired assets.

Question 25

A capital expenditure is an expenditure that benefits only the current accounting period.

Question 26

Additions and betterments are examples of revenue expenditures.

Question 27

The cost of equipment would include the cost of test runs to see that the equipment is operating properly.

Question 28

A debit to Accumulated Depreciation will increase the carrying value of an asset.

Question 29

The cost of land should include accrued property taxes paid by the purchaser.

Question 30

Driveways and parking lots are properly included in the Land account because they are not subject to depreciation.

Question 31

A betterment does not add to the physical layout of an asset.

Question 32

The cost of a sewage system should be included in the Land Improvements account.

Question 33

The replacement of tires on a truck is considered an ordinary repair.

Question 34

A revenue expenditure results in the immediate recognition of an expense.

Question 35

The cost of repairing a machine damaged during installation should be charged as an operating expense.

Question 36

Installation of an air-conditioning system is considered an addition.

Question 37

Ordinary repairs usually result in a debit to the appropriate Accumulated Depreciation account.

Question 38

The cost of land would include the cost of a building purchased with the land and torn down because it was not needed.

Question 39

Rebuilding the engine of a company vehicle is an example of an ordinary repair.

Question 40

A capital expenditure will result in an immediate increase in long-term assets.

Question 41

Federal tax law allows the rapid write-off of plant assets.

Question 42

Normally,depreciation calculations are based on the exact number of days the asset is held during the period.

Question 43

Accelerated methods of depreciation result in lower net income in the last years of an asset's life compared to the straight-line method.

Question 44

Prior to the disposal of an asset,depreciation should be updated and recorded.

Question 45

The production method is an accelerated method of depreciation.

Question 46

When disposing of equipment,the Equipment account is credited for the existing carrying value.

Question 47

Depreciation is a process of allocation,not of valuation.

Question 48

Computation of a partial year's depreciation is often required for the proper determination of net income.

Question 49

In accounting,depreciation means the decline in value of an asset.

Question 50

Depreciation for tax purposes is identical to depreciation for financial reporting purposes.

Question 51

Residual value is not relevant when calculating double-declining-balance depreciation.

Question 52

When depreciation rates are revised,all years of the asset's life are affected by the new computation.

Question 53

For tax purposes,small businesses may expense the first $250,000 of equipment expenditures,rather than having to allocate their costs over a number of years.

Question 54

One argument in favor of accelerated depreciation is that repair expense is likely to be greater in later years.

Question 55

Depreciation should not be recorded for a depreciable asset that is increasing in value.

Question 56

One argument in favor of accelerated depreciation is that the assets benefit is greater in the earlier years.

Question 57

One reason for an asset's limited useful life is obsolescence.

Question 58

Typically,depreciation calculations are rounded to the nearest whole month.

Question 59

Group depreciation is an appropriate method for a large company calculating depreciation on office equipment.

Question 60

All tangible assets including land have a limited useful life,and the costs of these assets must be distributed as expenses over the years they benefit.

Question 61

Under the successful efforts method,the costs of both successful and unsuccessful exploration for oil and gas are recorded as assets.

Question 62

Intangible assets are also called wasting assets.

Question 63

A patent has a legal life of 20 years.

Question 64

In calculating the depletion of a natural resource,its useful life in years is irrelevant.

Question 65

The exclusive right to use an identifying symbol is called a patent.

Question 66

An intangible asset with a determinable useful life should be amortized over that useful life.

Question 67

According to generally accepted accounting principles,most expenditures for intangible assets acquired from others should be treated as revenue expenditures when incurred.

Question 68

Goodwill equals the excess paid for a business over the book value of the net assets purchased.

Question 69

When the trade-in allowance exceeds the carrying value of an asset exchanged,a loss has occurred.

Question 70

Drilling equipment with a five-year useful life is used solely in conjunction with an oil well that has an eight-year life.The equipment should be depreciated over eight years.

Question 71

Estimated useful life and legal life are synonymous terms when dealing with intangible assets.

Question 72

Licenses are properly classified as intangible assets.

Question 73

When disposing of equipment,Accumulated Depreciation is debited for the existing carrying value.

Question 74

A $750 gain on the sale of an asset means that $750 in cash was received.

Question 75

Gain on Sale of Machinery is recorded as a debit.

Question 76

When an asset lasts longer than its estimated useful life,depreciation no longer should be recorded past the point at which its carrying value equals its residual value.

Question 77

Natural resources are classified as intangible assets on the balance sheet.

Question 78

The exclusive right to sell a computer program is called a copyright.

Question 79

Plant asset exchanges can be categorized as the exchange of similar assets and the exchange of dissimilar assets.

Question 80

An on-site building with a twelve-year life will be abandoned after the associated timber tract with a nine-year life is depleted.The building should be depreciated over nine years.