Deck 8: Reporting and Analyzing Long-Term Assets

Question 1

It is not necessary to report both the cost and the accumulated depreciation of plant assets on the financial statements of the company.

Answer 1

False

Question 2

When a company constructs a building,the cost of the building includes materials and labor,design fees,building permits and insurance during construction.

Answer 2

True

Question 3

Plant assets refer to intangible assets that are used in the everyday operations of a business.

Answer 3

False

Question 4

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

Question 5

An assets' cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Question 6

The purchase of a property that included land,building and improvements is called a lump-sum purchase.

Question 7

The most frequently used method of depreciation is the straight-line method.

Question 8

Salvage value is an estimate of an asset's value at the end of its benefit period.

Question 9

Depreciation is the process of allocating the cost of a plant asset to an expense account in the accounting periods benefiting from its use.

Question 10

Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced.

Question 11

The going concern principle supports the reporting of plant assets at book value rather than market value.

Question 12

Most companies use accelerated depreciation for tax purposes as it reduces taxable income due to higher depreciation expense in the early years of an asset's life.

Question 13

Coors reported net sales of $2,463 million and average total assets of $1,546 million.Its total asset turnover is equal to 1.59.

Question 14

Plant assets are assets that are held for sale.

Question 15

The total depreciation expense over an asset's useful life will be identical across all methods of depreciation.

Question 16

Plant assets are used in everyday operations of the business and have useful lives that extend over more than one accounting period.

Question 17

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the past,current and future financial statements.

Question 18

Depreciation measures the actual decline in market value of an asset.

Question 19

When an asset is purchased (or disposed of)at any time other than the beginning or the end of an accounting period,depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.

Question 20

A plant asset's useful life might not be the same as its productive life.

Question 21

Natural resources are assets that include standing timber,mineral deposits,oil wells and gas fields.

Question 22

An ore deposit costing $800,000 is expected to produce 1,600,000 tons of ore.A total of 70,000 tons are mined and sold in the current year.The depletion expense for the current year is $35,000.

Question 23

Gain or loss on the disposal of an asset is determined by comparing "value given" (book value)to "value received".

Question 24

A company purchased a plant asset for $45,000.The asset has an estimated salvage value of $6,000 and an estimated useful life of 10 years.The annual depreciation expense using the straight-line method is equal to $3,900 per year.

Question 25

Ordinary repairs are expenditures that keep assets in normal,good operating condition.

Question 26

When the value of plant assets decline after acquisition,but before disposition,both GAAP and IFRS require companies to record those decreases as impairment losses.

Question 27

Intangible assets are certain nonphysical assets used in operations that confer on their owners long-term rights,privileges or competitive advantage.

Question 28

Natural resources are reported on the balance sheet at cost plus accumulated depletion.

Question 29

Extraordinary repairs are expenditures extending the asset's useful life beyond its original estimate and are capital expenditures because they benefit future periods.

Question 30

Total asset cost plus depreciation expense equals book value.

Question 31

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Question 32

Natural resources are often called wasting assets because they are physically consumed when used.

Question 33

When the usefulness of plant assets used to extract natural resources is directly related to the depletion of a natural resource,their costs are depreciated using the units-of-production method of depreciation,as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.

Question 34

Treating capital expenditures of a small dollar amount as revenue expenditures is likely to mislead the users of financial statements.

Question 35

If an asset is sold above its book value,the selling company records a loss.

Question 36

The historical cost principle requires that an asset be recorded at the cash or cash equivalent amount that was given in exchange for it.

Question 37

Revenue expenditures are additional costs of plant assets that materially increase the assets' life or productive capabilities.

Question 38

Goodwill is the amount by which a company's value exceeds the value of its individual assets and liabilities.

Question 39

Amortization is the process of allocating the cost of natural resources to periods when they are consumed.

Question 40

Since goodwill is intangible,it is amortized each year using the straight-line method,the same as other intangibles are amortized.

Question 41

Depreciation:

A)Measures the decline in market value of an asset
B)Measures physical deterioration of an asset
C)Is the process of allocating to expense the cost of a plant asset
D)Is an outflow of cash from the use of a plant asset
E)Is applied to land

Question 42

Cardco Inc.has an annual accounting period which ends on December 31.During the current year a depreciable asset which cost $42,000 was purchased on September 2.The asset has a $4,000 estimated salvage value.The company uses straight-line depreciation and expects the asset to have a 5 year life.What is the total depreciation expense for the current year?

A)$1,900.00
B)$7,600.00
C)$2,533.33
D)$2,800.00
E)$3,166.67

Question 43

The useful life of a plant asset is:

A)The length of time it is used productively in a company's operations
B)Never related to its physical life
C)Its productive life,but not to exceed one year
D)Determined by the FASB
E)Determined by law

Question 44

A company's annual accounting period ends on September 30.During the current year a depreciable asset which cost $16,000 was purchased on January 1.The asset has a $2,000 estimated salvage value.The company uses straight-line depreciation and expects the asset to have a 4-year life.What is the total depreciation expense for the current year?

A)$4,000
B)$3,000
C)$3,500
D)$2,625
E)$875

Question 45

A company used straight-line depreciation for an item of equipment that cost $12,000,had a salvage value of $2,000 and had a five-year useful life.After depreciating the asset for three complete years,the salvage value was reduced to $1,200 and its total useful life was increased from 5 years to 6 years.Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life:

A)$1,000
B)$1,800
C)$1,467
D)$1,600
E)$2,160

Question 46

A company had average total assets of $897,000.Its gross sales were $1,090,000 and its net sales were $1,000,000.The company's total asset turnover is equal to:

A)0.82
B)0.90
C)1.09
D)1.11
E)1.26

Question 47

A company's annual accounting period ends on December 31.During the current year a depreciable asset which cost $24,000 was purchased on October 1.The asset has a $1,000 estimated salvage value.The company uses straight-line depreciation and expects the asset to have a 6-year life.What is the total depreciation expense for the current year?

A)$3,833.33
B)$958.33
C)$4,000.00
D)$1,000.00
E)$1,041.67

Question 48

Total asset turnover is used to evaluate:

A)The efficiency of management's use of assets to generate sales
B)The need for asset replacement
C)The number of times operating assets were sold during the year
D)The cash flows used to acquire assets
E)The relation between asset cost and book value

Question 49

Both the straight-line depreciation method and the double-declining-balance depreciation method:

A)Produce the same total depreciation over an asset's useful life
B)Produce the same depreciation expense each year
C)Produce the same book value each year
D)Are acceptable for tax purposes only
E)Are the only acceptable methods of depreciation for financial reporting

Question 50

Many companies use accelerated depreciation in computing taxable income because:

A)It is required by the tax rules
B)It is required by financial reporting rules
C)It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due
D)Using it causes a company to use higher income in the early years of the asset's useful life
E)The results are identical to straight-line depreciation

Question 51

Plant assets are:

A)Tangible assets used in the operation of a business that have a useful life of more than one accounting period
B)Current assets
C)Held for sale
D)Intangible assets used in the operations of a business that have a useful life of more than one accounting period
E)Tangible assets used in the operation of business that have a useful life of less than one accounting period

Question 52

When originally purchased,a vehicle had an estimated useful life of 8 years.The vehicle cost $23,000 and its estimated salvage value is $1,500.After 4 years of straight-line depreciation,the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value.The depreciation expense in year 5 equals:

A)$5,375.00
B)$2,687.50
C)$5,543.75
D)$10,750.00
E)$2,856.25

Question 53

A machine originally had an estimated useful life of 5 years,but after 3 complete years,it was decided that the original estimate of useful life should have been 10 years.At that point the remaining cost to be depreciated should be allocated over the remaining:

A)2 years
B)5 years
C)7 years
D)8 years
E)10 years

Question 54

A change in an accounting estimate is:

A)Reflected in past financial statements
B)Reflected in future financial statements and also requires modification of past statements
C)A change in a calculated amount that is part of financial statements that results from new information or subsequent developments and from better insight or improved judgment
D)Not allowed under current accounting rules
E)Considered an error in the financial statements

Question 55

Inadequacy refers to:

A)The insufficient capacity of a company's plant assets to meet the company's growing production demands
B)An asset that is worn out
C)An asset that is no longer useful in producing goods and services
D)The condition where the salvage value is too small to replace the asset
E)The condition where the asset's salvage value is less than its cost

Question 56

Once the estimated depreciation expense for an asset is calculated:

A)It cannot be changed due to the historical cost principle
B)It may be revised based on new information
C)Any changes are accumulated and recognized when the asset is sold
D)The estimate itself cannot be changed; however,new information should be disclosed in financial statement footnotes
E)It cannot be changed due to the consistency principle

Question 57

Obsolescence:

A)Occurs when an asset is at the end of its useful life
B)Refers to a plant asset that is no longer useful in producing goods and services
C)Refers to the insufficient capacity of a company's plant assets to meet the company's productive demands
D)Occurs when an asset's salvage value is less than its replacement cost
E)Does not affect plant assets

Question 58

Total asset turnover is calculated by dividing:

A)Gross profit by average total assets
B)Average total assets by gross profit
C)Net sales by average total assets
D)Average total assets by net sales
E)Net assets by total assets

Question 59

A copyright gives its owner the exclusive right to publish and sell a musical,literary or artistic work during the life of the creator plus 17 years.

Question 60

Plant assets are:

A)Current assets
B)Used in operations
C)Natural resources
D)Long-term investments
E)Intangible

Question 61

A company purchased a machine for $970,000.The machine has a useful life of 12 years and a residual value of $4,500.It is estimated that the machine could produce 1,000,000 units over its useful life.In the first year,200,000 units were produced.In the second year,production increased to 300,000 units.Using the units-of-production method,what is the book value of this asset at the end of the second year of operations?

A)$482,750
B)$487,250
C)$485,000
D)$291,000
E)$289,650

Question 62

A company paid $150,000,plus a 6% commission and $4,000 in closing costs for a property.The property included land appraised at $87,500,land improvements appraised at $35,000 and a building appraised at $52,500.What should be the allocation of this property's costs in the company's accounting records?

A)Land $75,000; Land Improvements,$30,000; Building,$45,000
B)Land $75,000; Land Improvements,$30,800; Building,$46,200
C)Land $81,500; Land Improvements,$32,600; Building,$48,900
D)Land $79,500; Land Improvements,$32,600; Building,$47,700
E)Land $87,500; Land Improvements; $35,000; Building; $52,500

Question 63

A depreciable asset currently has a $24,500 book value.The company owning the asset uses straight-line depreciation.They paid $37,000 for this asset and consider it to have a $2,000 salvage value with a seven year useful life.How long has the company owned this asset?

A)2.5 years
B)2.36 years
C)2.1 years
D)7 years
E)Cannot be determined from the given information

Question 64

A depreciation method that produces larger depreciation expense during the early years of an asset's life and smaller expense in the later years is a(n):

A)Accelerated depreciation method
B)Book value depreciation method
C)Straight-line depreciation method
D)Units-of-production depreciation method
E)Unrealized depreciation method

Question 65

The formula for computing annual straight-line depreciation is:

A)Depreciable cost divided by useful life in units
B)Cost plus salvage value divided by the useful life in years
C)Cost less salvage value divided by the useful life in years
D)Cost divided by useful life in years
E)Cost divided by useful life in units

Question 66

A method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:

A)Accelerated depreciation
B)Declining-balance depreciation
C)Straight-line depreciation
D)Units-of-production depreciation
E)Modified accelerated cost recovery system (MACRS)depreciation

Question 67

.A company purchased a delivery van for $23,000 with a salvage value of $3,000 on September 1,2010.It has an estimated useful life of 5 years.Using the straight-line method,how much depreciation expense should the company recognize on December 31,2010?

A)$1,000
B)$1,333
C)$1,533
D)$4,000
E)$4,600

Question 68

A depreciation method in which a plant asset's depreciation expense for a period is determined by applying a constant depreciation rate each period to the asset's beginning book value is called:

A)Book value depreciation
B)Declining-balance depreciation
C)Straight-line depreciation
D)Units-of-production depreciation
E)Modified accelerated cost recovery system (MACRS)depreciation

Question 69

A company purchased property for a building site.The costs associated with the property were:
$\begin{array}{|l|r|}\hline \text { Purchase price } & \$ 175,000 \\\hline \text { Real estate commissions } & 15,000 \\\hline \text { Legal fees } & 800 \\\hline \text { Expenses of clearing the land } & 2,000 \\\hline \text { Expenses to remove old building } & 1,000\\\hline \end{array}$
What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

A)$175,800 to Land; $18,800 to Building
B)$190,000 to Land; $3,800 to Building
C)$190,800 to Land; $1,000 to Building
D)$192,800 to Land; $0 to Building
E)$193,800 to Land; $0 to Building

Question 70

Revenue expenditures:

A)Are additional costs of plant assets that do not materially increase the asset's life or its productive capabilities
B)Are known as balance sheet expenditures
C)Extend the asset's useful life
D)Substantially benefit future periods
E)Are debited to asset accounts

Question 71

A method that charges the same amount of expense over each period of the asset's useful life is called:

A)Accelerated depreciation
B)Declining-balance depreciation
C)Straight-line depreciation
D)Units-of-production depreciation
E)Modified accelerated cost recovery system (MACRS)depreciation

Question 72

A depreciable asset currently has a $40,100 book value.The company owning the asset uses straight-line depreciation.They paid $70,000 for this asset and consider it to have a $1,000 salvage value with a twelve year useful life.How long has the company owned this asset?

A)5.2 years
B)7 years
C)10.2 years
D)12 years
E)Cannot be determined from the given information

Question 73

Dell had net sales of $35,404 million.Its average total assets for the period were $14,502 million.Dell's total asset turnover is equal to:

A)0.40
B)0.35
C)1.45
D)2.44
E)3.50

Question 74

Land improvements are:

A)Assets that increase the usefulness of land and like land,are not depreciated
B)Assets that increase the usefulness of land,but that have a limited useful life and are subject to depreciation
C)Included in the cost of the land account
D)Expensed in the period incurred
E)Also called basket purchases

Question 75

A company purchased property for $100,000.The property included a building,a parking lot and land.The building was appraised at $62,000; the land at $45,000 and the parking lot at $18,000.The value of the land that will be included in the accounting record is:

A)$0
B)$36,000
C)$42,000
D)$45,000
E)$100,000

Question 76

A company purchased a rope braiding machine for $190,000.The machine has a useful life of 8 years and a residual value of $10,000.It is estimated that the machine could produce 750,000 units of climbing rope over its useful life.In the first year,105,000 units were produced.In the second year,production increased to 109,000 units.Using the units-of-production method,what is the amount of depreciation that should be recorded for the second year?

A)$25,200
B)$26,160
C)$26,660
D)$27,613
E)$53,160

Question 77

Acme Company has a total asset turnover of 1.25 for the current period.What are net sales given that average total assets are $40,000?

A)Net sales cannot be computed from the given information
B)$50,000
C)$32,000
D)$1.25 million
E)$90,000

Question 78

Another name for a capital expenditure is:

A)Revenue expenditure
B)Asset expenditure
C)Long-term expenditure
D)Contributed capital expenditure
E)Balance sheet expenditure

Question 79

The total cost of an asset less its accumulated depreciation is called:

A)Historical cost
B)Book value
C)Present value
D)Current (market)value
E)Replacement cost

Question 80

A company purchased a POS cash register on January 1 for $5,400.This register has a useful life of 10 years and a salvage value of $400.What would be the depreciation expense for the second-year of its useful life using the double-declining-balance method?

A)$500
B)$800
C)$864
D)$1,000
E)$1,080