Deck 7: Fixed Assets and Intangible Assets

Question 1

The total depreciation across the years of an asset's life is the same under the double-declining-balance method or the straight-line method.

Answer 1

True

Question 2

The balance in Accumulated Depreciation account is deducted from the cost of fixed assets on the balance sheet.

Answer 2

True

Question 3

Physical depreciation occurs when changes in customer needs causes a fixed asset to no longer provide services for which it was intended.

Answer 3

False

Question 4

Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets.

Question 5

Intangible assets do not exist physically.

Question 6

Goodwill refers to the excess of purchase price of a business over the fair value of its net assets.

Question 7

The difference between a fixed asset's initial cost and its current market value is called the asset's depreciable cost.

Question 8

A current asset account must be increased for revenue expenditures since they benefit only the current period.

Question 9

The acquisition costs of property, plant, and equipment should include all costs necessary to get the asset in place and ready for use.

Question 10

If an asset is discarded, a loss is recognized equal to its salvage value.

Question 11

The straight-line method of depreciation is appropriate if usage of the asset varies considerably from year to year.

Question 12

Expenditures made to extend an asset's life are called revenue expenditures.

Question 13

Companies usually compute depletion by using the double-declining-balance method.

Question 14

Depletion is the process of transferring the cost of intangible assets to an expense account.

Question 15

The double-declining-balance method of depreciation is also referred to as an accelerated depreciation method.

Question 16

The estimated amount that an asset can be sold for at the end of its useful life is called its book value.

Question 17

If the proceeds from a sale of equipment is greater than the book value of the equipment as on the date of sale, a loss is recorded.

Question 18

Amortization refers to systematic periodic transfer of the cost of a fixed asset to an expense account.

Question 19

If a company sells a fixed asset for an amount which is less than its book value, a gain must be recognized.

Question 20

Under the straight-line method, the amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000, and a useful life of 5 years, will be $18,000.

Question 21

Land improvements include:

A) freight.
B) surveying fees.
C) sales tax.
D) outdoor lighting.

Question 22

Depreciable cost is computed as:

A) cost less accumulated depreciation.
B) book value less residual value.
C) cost less residual value.
D) market value less residual value.

Question 23

If a revenue expenditure is treated as a capital expenditure, then:

A) expenses are overstated and owners' equity is understated.
B) expenses are overstated and assets are overstated.
C) expenses are understated and owners' equity is overstated.
D) net income is overstated and owners' equity is understated.

Question 24

Which of the following expenditures would not be included in the cost of a fixed asset?

A) Freight costs
B) Vandalism
C) Sales taxes
D) Surveying fees

Question 25

Which of the following is a fixed asset?

A) Cash
B) Equipment
C) Land held for investment
D) Notes receivable

Question 26

Which of the following is not considered under the double-declining-balance method?

A) The asset's book value
B) The asset's initial cost
C) The asset's expected useful life
D) The asset's residual value

Question 27

Expenditures that add to the utility of fixed assets for more than one accounting period are called:

A) committed expenditures.
B) revenue expenditures.
C) current expenditures.
D) capital expenditures.

Question 28

A company acquired some land for $80,000 to construct a new office complex. Legal fees paid were $2,300, delinquent taxes assumed were $3,400, and $5,850 was paid to remove an old building. Materials salvaged from the demolition of the building were sold for $1,950. Determine the cost of the land to be reported on the balance sheet.

A) $93,500
B) $91,550
C) $85,700
D) $89,600

Question 29

Which method of depreciation considers residual value in computing the normal periodic depreciation?

A) Straight-line
B) MACRS
C) Double-declining-balance
D) Accelerated

Question 30

Which of the following is an example of a capital expenditure?

A) Cleaning the carpet in the front-office room
B) Regular tune-up for a company truck
C) Replacing an engine in a company car
D) Replacing all burned-out light bulbs in the factory

Question 31

Which of the following should be included in the acquisition cost of a piece of equipment?

A) Uninsured theft
B) Mistakes in installation
C) Vandalism
D) Installation costs

Question 32

Which of the following is not a characteristic of accumulated depreciation account?

A) Accumulated depreciation represents cash reserved for asset replacement.
B) Accumulated depreciation account is a contra-asset account.
C) Accumulated depreciation may be disclosed in the notes to the financial statements.
D) Accumulated depreciation is reported on the balance sheet as a deduction from the cost of the asset.

Question 33

Which type of depreciation occurs when an asset can no longer provide services for which it was intended?

A) Physical depreciation
B) Market depreciation
C) Cost depreciation
D) Functional depreciation

Question 34

A capital expenditure would appear on the:

A) income statement under operating expenses.
B) balance sheet under fixed assets.
C) balance sheet under investments.
D) income statement under other expenses.

Question 35

If a capital expenditure is treated as a revenue expenditure, then:

A) expenses are overstated and owners' equity is understated.
B) expenses are understated and assets are overstated.
C) expenses are understated and owners' equity is overstated.
D) net income is overstated and owners' equity is understated.

Question 36

Which of the following is a characteristic of fixed assets?

A) Fixed assets are offered for sale as part of normal operations.
B) Fixed assets do not exist physically.
C) Fixed assets are long-term or relatively permanent assets.
D) Fixed assets that are no longer used in operations are still classified as fixed assets.

Question 37

All amounts paid to get an asset in place and ready for use are referred to as:

A) deferred expenditures.
B) revenue expenditures.
C) residual value.
D) cost of an asset.

Question 38

Fixed assets are reported at their book value on the balance sheet.

Question 39

The cost of removal of an old building to make the land ready for its intended use is charged to:

A) land.
B) land improvements.
C) buildings.
D) operating expenses.

Question 40

Book value is computed as:

A) current market value less residual value.
B) cost less residual value.
C) current market value less accumulated depreciation.
D) cost less accumulated depreciation.

Question 41

Recording depreciation:

A) decreases net income and cash flows.
B) decreases net income but has no effect on cash flows.
C) decreases net income, fixed assets, and cash flows.
D) decreases net income but has no effect on fixed assets and cash flows.

Question 42

On September 1, a machine was purchased for $47,000 with a useful life of 8 years, and a residual value of $3,000. What is the depreciation expense in the year of purchase under straight-line method, assuming a December 31 year-end?

A) $3,917
B) $3,667
C) $1,958
D) $1,833

Question 43

A company purchased an oil well for $25 million. It is estimated that 10 million barrels can be extracted from the well. Determine depletion expense assuming 3 million barrels are extracted and sold during the year.

A) $7,350,000
B) $7,500,000
C) $5,000,000
D) $7,650,000

Question 44

The accounting term depreciation measures:

A) the decline in an asset's market value.
B) the amount of cash a company sets aside for asset replacement.
C) the amount of asset cost allocated to expense over periods benefited.
D) the anticipated loss if asset is sold in the used-asset market.

Question 45

The depreciation calculated using Modified Accelerated Cost Recovery System is primarily used for:

A) financial statement reporting by large companies.
B) income tax purposes.
C) financial statement reporting by small companies.
D) comparing the performance of two companies in the same industry.

Question 46

A computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000, and an estimated useful life of 5 years. Determine the second year's depreciation expense using the straight-line method.

A) $10,200
B) $22,400
C) $11,200
D) $12,200

Question 47

A fixed asset with a cost of $30,000 and accumulated depreciation of $25,000 is sold for $3,500. What is the amount of gain or loss on disposal of the fixed asset?

A) $2,500 loss
B) $1,500 loss
C) $2,500 gain
D) $1,500 gain

Question 48

To measure depreciation, all of the following must be known except:

A) market value of asset.
B) residual value of asset.
C) cost of asset.
D) estimated life of asset.

Question 49

If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000, the company must:

A) recognize a loss on the income statement under other expenses.
B) recognize a loss on the income statement under operating expenses.
C) recognize a gain on the income statement under other revenues.
D) recognize a gain on the income statement under revenues.

Question 50

A company sold a delivery truck for $18,000 cash. The truck cost $47,500 and had accumulated depreciation of $36,000 as of the date of sale. The entry to record the sale would include:

A) an increase in accumulated depreciation for $36,000.
B) a total decrease in delivery truck for $11,500.
C) a loss for $6,500.
D) a gain for $6,500.

Question 51

If a fixed asset is sold and the book value of the asset is less than its selling price, the company must:

A) recognize a loss on the income statement under other expenses.
B) recognize a loss on the income statement under operating expenses.
C) recognize a gain on the income statement under other revenues.
D) recognize a gain on the income statement under revenues.

Question 52

An equipment was purchased for $30,000. It has a useful life of 5 years, and a residual value of $4,000. Compute the depreciation expense for the second year using the double-declining-balance method.

A) $5,200
B) $6,000
C) $6,240
D) $7,200

Question 53

A gain is recorded on the sale of fixed assets when:

A) the asset is sold for a price less than its book value.
B) the asset is sold for a price more than its book value.
C) accumulated depreciation on asset is less than its selling price.
D) accumulated depreciation on asset is more than its selling price.

Question 54

An equipment was purchased for $18,000. It has a useful life of 5 years and a residual value of $2,000. Determine the depreciation expense for the first year using the double-declining-balance method?

A) $6,400
B) $3,200
C) $7,200
D) $3,600

Question 55

A machine was purchased for $60,000. It has a useful life of 5 years and a residual value of $6,000. Determine the annual depreciation expense using the straight-line method?

A) $13,200
B) $12,000
C) $11,000
D) $10,800

Question 56

A drilling company purchased a mining site for $500,000 on July 1, 2012. The company expects to mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. During 2012 the company extracted 6,500 tons of ore. The depletion expense for the year 2012 is:

A) $37,700.
B) $42,000.
C) $32,500.
D) $27,300.

Question 57

A company sold office furniture costing $16,500 with accumulated depreciation of $14,000 for $1,800 cash. The entry to record the sale would include:

A) a loss for $700.
B) an increase in accumulated depreciation for $14,000.
C) a total decrease in office furniture for $2,500.
D) a decrease in cash for $1,800.

Question 58

The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called:

A) depletion.
B) deferral.
C) amortization.
D) depreciation.

Question 59

A machine was purchased for $30,000, having a useful life of 10 years, and a residual value of $4,000. Compute the annual depreciation expense using the straight-line method.

A) $3,000
B) $3,400
C) $2,600
D) $5,200

Question 60

A fully depreciated asset must be:

A) removed from the books.
B) kept on the books until sold or discarded.
C) disclosed only in the notes to the financial statements.
D) recognized on the income statement as a loss.

Question 61

You have been hired by a high-growth startup company to assist in the determination of what depreciation method to employ for financial reporting. The company's fixed assets are equally divided among buildings and high-tech equipment (heavily used in the initial years).
(a)Can the company select different methods of depreciation for financial reporting? Explain.
(b)Explain to company management which metho di of depreciation woutd be suit able for each type of fixed assets the company employs. Also, state why.

(c)Which method of depreciation would the company choose for taxes? Explain why.

Question 62

A machine with a useful life of 6 years and a residual value of $3,000 was purchased at the beginning of year 1 for $30,000. The machine was sold for $15,000 on April 1 in year 4.
(a)What was the book value of the machine at the end of yea 3 assuming the straight-line method of depreciation is used?
(b) Illustrate the effects on the accounts and financial statements of the depreciation from Jamuary 1 to April 1 of year 4.
(c)Illustrate the effects on the accounts and financial statements of the sale of the machine on April 1.

Question 63

A company purchased a photocopy machine for $16,000. It has a useful life of 4 years and a residual value of $1,000. Compute depreciation for the second year under each of the following methods: (a) straight-line and (b) double-declining-balance.

Question 64

Machine with a useful life of 5 years and a residual value of $6,000 was purchased on January 3, 2007, for $48,500. The machine was sold on January 5, 2012, for $13,000.
(a)What is the book value of the machine on January 5,2012 , assuming straight-line depreciation is used?
(b)Tliustrate the effects on the accounts and the finmcial statements of the sale of the machine on J wnury $5,2012$ .
(c)Illustrate the effects on the accounts and the finencial statements of the sale of the machine if it had been sold for $\$ 18,000$ instead

Question 65

Which of the following intangible assets are amortized over their useful life?

A) Trademarks
B) Goodwill
C) Patents
D) All of the above

Question 66

Cook Co. incurred the following costs related to the office building used in operating its sports supply company:
(a)Replaced a broken window.
(b)Replaced the rof that had been on the building for 23 years.
(c)Serviced all the air conclitioners before summer started.
(d)Replaced the air conditionerswith refrigerated air conditioners in the customer service areas.
(e)Added a warehouse to the back of the building.
(f)Repainted the interior walls.
(g)Installed window shutters on all windows.
Classify each of the costs as a capital expenditure or a revenue expenditure.

Question 67

A company acquired mineral rights for $7,500,000. The mineral deposit is estimated at 600,000 tons and during the year 100,000 tons were extracted and sold.
Calculate depletion expense for the year. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ (a)
Show the effects of (a) on the accounts and the financial statements of the company. $\quad$$\quad$ (b)
What is the book value of the mineral rights at the end of the current year? $\quad$$\quad$$\quad$$\quad$$\quad$ (c)

Question 68

Which of the following statement is true about intangible assets?

A) They are usually presented in the balance sheet as fixed assets.
B) They are short-lived assets.
C) They are not held for resale.
D) They have physical existence.

Question 69

The exclusive right to use a certain name or symbol is called a:

A) franchise.
B) patent.
C) trademark.
D) copyright.

Question 70

A company made some expensive repairs to equipment and buildings during the past year. (a) What criteria is used in determining whether the repairs are capital expenditures or revenue expenditures, and (b) what is the effect on the company's financial statements if they are incorrectly recorded as capital expenditures?

Question 71

Expenditures for research and development are generally recorded as:

A) current operating expenses.
B) assets, and amortized over their estimated useful life.
C) assets, and usually amortized over 40 years.
D) current assets.

Question 72

A patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 12-year economic life. The entry to record amortization would include:

A) an increase in amortization expense for $33,500.
B) an increase in research and development expense for $670,000.
C) a decrease in patent for $55,833.
D) an increase in accumulated amortization for $670,000.

Question 73

A pressurized spray painter was purchased on April 1 of the fiscal year for $3,900. It has a useful life of 4 years and a residual value of $300. Determine depreciation expense for the first two years, assuming a fiscal year end of December 31 and using (a) the straight-line method and (b) the double-declining-balance method.

Question 74

Fixed assets are ordinarily presented in the balance sheet:

A) at its current market value.
B) at its replacement cost.
C) at its cost less accumulated depreciation.
D) under intangible assets.

Question 75

Which of the following is not an intangible asset?

A) Goodwill
B) Trademark
C) Copyright
D) Long-term receivable

Question 76

NBC Company purchased a patent from ABC for $144,000. At the time of purchase the patent had a remaining useful life of 10 years. Determine the patent amortization expense for the first year.

A) $7,200
B) $18,000
C) $12,000
D) $14,400

Question 77

Identify each of the following expenditures as chargeable to (a) Land, (b) Land Improvements, (c) Buildings, (d) Machinery and Equipment, or (e) Other accounts.
(1)Cost of paving parking are a for employees and customers.
(2)Insurance duing constuction of buitding:
(3)Interest incured on money borrowed for construction of building.
(4)Fee paid for installation of equipment.
(5)Special foundation for new equipment acquired.
(6)Transit insurance on new equipment.
(7)Freight charges on new equipment.
(8)Cost of repairing vandalism damage to equipment during installation.
(9)Sales tax on new equipment.
(10)Cost incure din repairing danage resulting from installation of new equipment.
(11)Cost of landfill for building site.
(12)Cost of lubricating oil purchased for periodic oil changes for equipment.
(13)Parking lot lighting.
(14)Installing a fence around the parking lot.
(15)Repainting the trim on a building
(16)Special assessment paid to city for extension of water main to the property.
(17)Cost of razing and removing the old building on property accuired for a building site.
(18)Délinquent real est ate taxes assumed by purchaser on property accuired for a building site.
(19)Attomey's fee for title search.
(20)Architects fee for building plans and supervision of construction.

Question 78

A company acquired a truck for $79,000 at the beginning of the fiscal year. It has a useful life of 5 years and a residual value of $9,000. The company uses the straight-line method of depreciation. After owning the truck for two years, the company sold it for $34,000. (a) Determine depreciation expense for each of the first two years, and (b) determine the gain or loss resulting from the sale.

Question 79

The cost of a patent should be amortized :

A) over 10 years.
B) over its economic life.
C) over 20 years or its economic life, whichever is shorter.
D) only if an impairment occurs.

Question 80

Goodwill is:

A) amortized in a manner similar to other intangibles.
B) written down only if an impairment in value occurs.
C) charged to expense immediately.
D) amortized over 40 years or its economic life, whichever is shorter.