Deck 9: Long-Term Assets

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Extraordinary repairs are recorded with a debit to Accumulated Depreciation.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Mineral deposits are subject to a process called depletion.

Question 9

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

Question 10

Intangible assets are subject to a process called depreciation.

Question 11

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

Question 12

A building not currently used because economic conditions have limited a company's expansion is classified as an investment.

Question 13

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

Question 14

Additions and betterments are examples of capital expenditures.

Question 15

Inventory is classified as a long-term asset.

Question 16

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

Question 17

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

Question 18

Overhauling a company's cooling system is an example of an extraordinary repair.

Question 19

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

Question 20

Book value is another term for carrying value.

Question 21

One argument in favor of accelerated depreciation is that the asset's benefit is greater in the earlier years.

Question 22

When depreciation rates are revised,an adjustment for previous years' depreciation must be recorded.

Question 23

Residual value is relevant when calculating double-declining-balance depreciation.

Question 24

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 25

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

Question 26

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

Question 27

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

Question 28

The production method is an accelerated method of depreciation.

Question 29

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

Question 30

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

Question 31

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

Question 32

The cost of land should not include accrued property taxes paid by the purchaser.

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

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

Improvements to real estate are never subject to depreciation.

Question 40

A revenue expenditure results in the recognition of an asset.

Question 41

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

Question 42

When the trade-in allowance exceeds the carrying value of an asset exchanged,a gain is realized.

Question 43

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

Question 44

Whether exchanging similar or dissimilar assets,accounting for the transaction is the same.

Question 45

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

Question 46

When an asset lasts longer than its estimated useful life,depreciation no longer should be recorded.

Question 47

When discarding equipment,depreciation need not by updated.

Question 48

Partial-year depreciation may be rounded to the nearest whole month or the half-year convention may be used.

Question 49

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

Question 50

Under tax depreciation,estimated useful life and residual value must be strictly adhered to.

Question 51

Federal tax law does not allow the rapid write-off of plant assets.

Question 52

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

Question 53

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

Question 54

Depreciation is a process of allocation,not of valuation.

Question 55

Gain on Sale of Machinery is recorded as a debit.

Question 56

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

Question 57

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 58

A natural resource is expensed in the year it is extracted rather than when it is sold.

Question 59

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

Question 60

Obsolescence is not a reason for an asset's limited useful life.

Question 61

Drilling equipment with a ten-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 using the production method.

Question 62

A patent has a legal life of 20 years.

Question 63

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

Question 64

If the carrying value of goodwill is more than its fair value,an impairment loss must be recorded.

Question 65

When a company can prove it is worth more than its balance sheet indicates,it may record some goodwill.

Question 66

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

Question 67

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

Question 68

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

Question 69

The entire cost of developing computer software should be capitalized and amortized over the software's useful life.

Question 70

Licenses are properly classified as intangible assets.

Question 71

Research and development costs normally are capitalized and amortized over the estimated sales life of the product developed.

Question 72

The cost to defend a patent successfully should be expensed in the period incurred.

Question 73

A copyright should be amortized over its legal life regardless of its expected useful life.

Question 74

Goodwill represents the excess paid for a business over the fair value of its net assets.

Question 75

The copyright granting the exclusive rights to sell artistic materials and computer programs ends with the author's life.

Question 76

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

Question 77

Intangible assets are also called wasting assets.

Question 78

Goodwill reflects all the factors that allow a company to earn a higher-than-market rate of return on its assets.

Question 79

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

Question 80

Using the full-costing method,the cost of dry wells is capitalized with the cost of producing wells.