Deck 10: Property,plant and Equipment,and Intangibles

Question 1

The cost of an asset includes all normal and reasonable expenditures necessary to get it in place and ready for its intended use.

Answer 1

True

Question 2

Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner over the asset's estimated useful life.

Answer 2

True

Question 3

Capital expenditures are also called balance sheet expenditures.

Answer 3

True

Question 4

Residual value is an estimate of an asset's value at the end of its useful life.

Question 5

Subsequent expenditures are purchases made after the acquisition of equipment to operate,maintain,repair,and improve it.

Question 6

Property,plant and equipment are assets held for sale.

Question 7

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

Question 8

Any expenditures for legal fees,surveying,and accrued property taxes should not be included in the cost of land.

Question 9

Depreciation should always be recorded as soon as an asset is purchased.

Question 10

If a machine is damaged during unpacking,the repairs are added to its cost.

Question 11

Non-current assets can be divided into two groups including tangible and intangible assets.These assets are generally used in operations of a business and have useful lives extending over more than one accounting period.

Question 12

The purchase of real estate that includes land,building,and land improvements is called a lump-sum purchase.

Question 13

Non-current assets are any liabilities that are used in the operations of a business.

Question 14

Revenue expenditures are expenditures to keep assets in normal operating condition.

Question 15

SportsWorld spent $17,000 to remodel its store.This cost will be recognized with a debit to Store Building.

Question 16

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

Question 17

To be charged to and reported as part of the cost of property,plant and equipment,an expenditure must be normal,reasonable,and necessary in preparing the asset for its intended use.

Question 18

Revenue expenditures are additional costs of property,plant and equipment that provide material benefits extending beyond the current period.

Question 19

Land purchased as a building site is a tangible asset called property,plant and equipment and is classified under the "Long-term Investments" section on the balance sheet.

Question 20

Inadequacy refers to the condition where the capacity of a property,plant and equipment item is too small to meet the company's productive demands.

Question 21

Depreciation measures the decline in market value of an asset.

Question 22

The double-declining balance method is applied by (1)calculating the asset's straight-line depreciation rate,(2)doubling it,(3)subtracting residual value from cost,and (4)multiplying the rate times the cost.

Question 23

Because land has unlimited life,it is not subject to depreciation.Therefore,items that increase the usefulness of the land such as parking lots are also not depreciated.

Question 24

Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on June 28.Using the nearest whole month method,the company would recognize $11,250 for depreciation expense at the end of the first year,December 31.

Question 25

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 26

A company is required to purchase all assets at the beginning of an accounting period so that a full year's worth of depreciation can be taken.

Question 27

A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year,if the fiscal year ends on December 31 using nearest whole month method.

Question 28

SportsWorld purchased store equipment for $65,000.The equipment has an estimated residual value of $6,000,with an estimated useful life of 10 years.The annual depreciation using the straight-line method will be $3,900 per year.

Question 29

The relevance principle requires that property,plant and equipment be reported at book value rather than at market value.

Question 30

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

Question 31

The half year rule is the partial-year depreciation method that calculates depreciation by determining if the asset was used for more than half of the month.

Question 32

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

Question 33

An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's life and larger charges in later years.

Question 34

Financial accounting and tax accounting require the same recordkeeping; therefore,there should be no difference in results between the two accounting systems.

Question 35

Regardless of the method of depreciation,total depreciation expense will be the same over an asset's useful life.

Question 36

Because depreciation is based on predictions of residual value and useful life,depreciation is an estimate.

Question 37

The cost of an asset plus its accumulated depreciation equals the asset's book value.

Question 38

On the balance sheet,it is not necessary to report both the cost and the accumulated depreciation of an asset.

Question 39

The Income Tax Act generally requires that companies use a double-declining-balance method of cost allocation called Capital Cost Allowance to determine the maximum amount of deduction for a taxation year.

Question 40

Companies are required to use the straight line depreciation method for tax purposes because this method yields the lowest depreciation expense and results in the highest payment of tax.

Question 41

Machinery after two years worth of depreciation has an opening book value of $6,400.At the beginning of the third year,the predicted number of years remaining in its useful life changes from three years to four years and its estimated residual value changes from the original $1,000 to $400.The revised annual depreciation using the straight-line method is $1,500.

Question 42

When the cost of the asset changes because of a subsequent capital expenditure,revised depreciation for current and future periods must be calculated and adjusted.

Question 43

An asset with a current book value of $5,000 has a current market value of $2,000.The company should recognize an impairment loss of $3,000.

Question 44

A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device,or to use a process,for a specified period of time.

Question 45

Impairment can result from a variety of situations that include a significant decline in an asset's market value or a major adverse effect caused by technological,economic,or legal factors.

Question 46

Depreciation amounts can be revised because of changes in the estimates for residual value,useful life or because of subsequent revenue expenditures.

Question 47

When assigning values to an exchange of assets you should use the fair value of the asset given up.

Question 48

When assigning values to an exchange of assets you should always use the fair value of the asset received.

Question 49

Intangible assets should be amortized over their anticipated legal,regulatory,contractual,competitive or economic life.

Question 50

Impairment losses must be assessed by companies on an annual basis.

Question 51

Amortization is the process of allocating the cost of intangibles over their estimated useful life.

Question 52

Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000.The company should recognize a $1,000 loss on disposal of the equipment.

Question 53

Property,plant and equipment can be disposed of by discarding,sale,or exchange of the asset.

Question 54

If the book value of a property,plant and equipment item is less than the amount to be recovered through the asset's use or sale,the difference is an impairment loss and the asset is described as impaired.

Question 55

When accumulated depreciation equals the asset's cost,the asset is fully depreciated.The entry to record the removal of the asset is called exchanging the equipment.

Question 56

Drilling rights are legal permissions to extract natural resources from the earth and are treated as intangible assets.

Question 57

The first step in accounting for the disposal of property,plant and equipment is calculating the gain or loss on disposal.

Question 58

An asset that cost $5,000 has a current book value of $2,000.A revision of the useful life of the asset estimates the asset has a remaining useful life of four years and will have a residual value of $400.Using the straight-line method,the revised depreciation will be $500 per year.

Question 59

The gain or loss from disposal of property,plant and equipment is the difference between an asset's book value and the value received.

Question 60

At the time a plant asset is being discarded or sold,it is necessary to update the accumulated depreciation of the plant asset to the date of disposal.

Question 61

Revenue expenditures:

A) Are additional costs related to property,plant and equipment that do not materially increase the asset's life.
B) Are balance sheet expenditures.
C) Extend the asset's useful life.
D) Benefit future periods.
E) Are debited to asset accounts.

Question 62

The impairment of goodwill appears directly on the statement of changes in equity and not on the income statement.

Question 63

Intangible assets provide rights,privileges,and competitive advantages to the owner,are used in operations,and have no physical substance.

Question 64

Treating low-cost asset purchases as expenses is allowed by which principle?

A) Cost.
B) Prudence.
C) Materiality.
D) Matching.
E) Timeliness.

Question 65

Goodwill is written down to its fair value if the fair value is less than its carrying value.

Question 66

SportsWorld paid $140,000 for a property.The property included land appraised at $67,500,land improvements appraised at $25,000,and a building appraised at $55,500.What should be the allocation of costs in the accounting records (round calculations to 3 decimals)?

A) Land $62,000; land improvements,$23,000; building,$45,000.
B) Land $62,000; land improvements,$23,800; building,$46,200.
C) Land $63,840; land improvements,$23,660; building,$52,500.
D) Land $79,500; land improvements,$32,600; building,$47,700.
E) Land $87,500; land improvements; $35,000; building; $52,500.

Question 67

Additional subsequent expenditures that result in future economic benefits and can be reliably measured should be treated as a(n):

A) Revenue expenditure.
B) Asset expenditure.
C) Capital expenditure.
D) Contributed capital expenditure.
E) Balance sheet expenditurE.

Question 68

Property,plant and equipment are:

A) Tangible assets used in the operation of a business having a useful life of more than one accounting period.
B) Current assets.
C) Long-term investments.
D) Intangible assets used in the operations of a business having a useful life of more than one accounting period.
E) Tangible assets used in the operation of business having a useful life of less than one accounting period.

Question 69

SportsWorld purchased property for $100,000.The property included a building,parking lot,and land.The building was appraised at $65,000; the land at $40,000; and the parking lot at $10,000.To the nearest dollar,the value of the land to be recorded in the books should be:

A) $56,522.
B) $40,000.
C) $34,783.
D) $36,364.
E) $48,696.

Question 70

A main accounting issue for property,plant and equipment is:

A) The cost of property,plant and equipment.
B) Testing property,plant and equipment for impairment.
C) Accounting for repairs and improvements to property,plant and equipment.
D) Disposal of property,plant and equipment.
E) All of these answers are correct.

Question 71

Goodwill is depreciated over its useful life as estimated by the business's management.

Question 72

The cost of land can include:

A) Purchase price.
B) Back property taxes.
C) Costs of removing existing buildings.
D) Real estate commissions.
E) All of these answers are correct.

Question 73

SportsWorld purchased property for a building site.The costs associated with the property were: 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) $150,000 to Land; $18,800 to Building.
B) $190,000 to Land; $3,800 to Building.
C) $190,800 to Land; $3,000 to Building.
D) $192,800 to Land; $1,000 to Building.
E) $193,800 to Land; $0 to Building.

Question 74

Property,plant and equipment are:

A) Current assets.
B) Used in business operations.
C) Natural resources.
D) Long-term investments.
E) Never depreciated.

Question 75

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 20 years.

Question 76

Goodwill is an intangible asset.

Question 77

Property,plant and equipment include:

A) Land.
B) Land improvements.
C) Buildings.
D) Machinery and equipment.
E) All of these answers are correct.

Question 78

The cost of developing,maintaining,or enhancing the value of a trademark is capitalized,or added to the value of the asset when incurred.

Question 79

Goodwill is not depreciated or amortized but is instead decreased only if its value has been determined by management to be impaired .

Question 80

Land improvements are:

A) Assets that increase the usefulness of land,but that have a limited useful life.
B) Assets that increase the usefulness of land,and like land are not depreciated.
C) Included in the land account.
D) Expensed in the period incurred.
E) Never depreciated.