Question 1

The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment.

Accepted Answer

The statement is false. The cost of computer equipment may include the consultant's fee to supervise installation of the equipment.

Question 2

During construction of a building, the cost of interest on a construction loan should be charged to an expense account.

Accepted Answer

The cost of interest on a construction loan for a building is capitalized as part of the building's cost, not expensed.

Question 3

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

Accepted Answer

According to accounting principles, acquisition costs of property, plant, and equipment should include all costs that are normal, reasonable, and necessary to get the asset in place and ready for use.

Question 4

Land acquired as a speculation is reported under Investments on the balance sheet.

Accepted Answer

Land acquired as a speculation is considered an investment and is reported under the Investments category on the balance sheet.

Question 5

Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment on the balance sheet.

Accepted Answer

Standby equipment is considered a part of property, plant, and equipment because it is held for use in the company's regular operations, even though it may not be actively used on a day-to-day basis. Its purpose is to provide backup in case of equipment failure, and as such, it is considered an integral part of the company's fixed assets.

Question 6

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.

Accepted Answer

The definition given in the statement pertains to intangible assets, which are a subset of fixed assets. Therefore, the statement is false as it conflates the two terms.

Question 7

The cost of repairing damage to a machine during installation is debited to a fixed asset account.

Accepted Answer

The cost of repairing damage to a machine during installation should be debited to a repairs and maintenance expense account, not a fixed asset account.

Question 8

The normal balance of the accumulated depreciation account is a debit.

Accepted Answer

The normal balance of the accumulated depreciation account is a credit because it is a contra asset account that reduces the value of the asset it is associated with.

Question 9

A tangible asset is one that lacks physical existence.

Accepted Answer

A tangible asset is one that has physical existence, while an intangible asset lacks physical existence.

Question 10

Capital expenditures are costs that improve a fixed asset or extend its useful life.

Accepted Answer

Capital expenditures are defined as costs incurred to acquire, add a permanent improvement to, or replace a fixed asset, with the intention of increasing its productive capacity, efficiency, or extend its useful life.

Question 11

All property, plant, and equipment assets are depreciated over time.

Accepted Answer

Not all property, plant, and equipment (PPE) assets are depreciated; land is a common example of a PPE asset that is not depreciated because it does not typically lose value over time.

Question 12

Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are called capital expenditures.

Accepted Answer

Capital expenditures are investments made in fixed assets that are expected to increase the asset's useful life, improve its efficiency or capacity, or provide other economic benefits beyond the current period. These expenditures are capitalized and depreciated or amortized over the asset's useful life. Expenditures that only maintain or repair an asset's existing condition are typically considered operating expenditures.

Question 13

Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended.

Accepted Answer

Functional depreciation occurs when a fixed asset is no longer providing the level of service for which it was intended. This can be due to obsolescence, wear and tear, or changes in technology or usage.

Question 14

The book value of a fixed asset reported on the balance sheet represents its market value on that date.

Accepted Answer

The book value of a fixed asset reported on the balance sheet represents its historical cost less accumulated depreciation. It does not necessarily reflect the current market value of the asset.

Question 15

When land is purchased to construct a new building, the cost of removing any structures on the land should be charged to the building account.

Accepted Answer

The cost of removing structures on the land should be added to the cost of the land, not the building account, as it is part of preparing the land for its intended use.

Question 16

An asset leased under an operating lease will appear on the balance sheet as a long-term asset.

Accepted Answer

An asset leased under an operating lease will not appear on the balance sheet as a long-term asset. Instead, it will be recorded as an expense on the income statement over the lease term.

Question 17

The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.

Accepted Answer

The cost of new equipment is a capital expenditure because it is a long-term investment in the business and is not expected to generate revenue immediately. However, it will help to generate revenue over its useful life.

Question 18

The cost of replacing an engine in a truck is an example of ordinary maintenance.

Accepted Answer

The cost of replacing an engine in a truck is a major repair and not considered as ordinary maintenance. Ordinary maintenance includes tasks such as oil changes, tire rotations, and regular inspections to keep a vehicle running smoothly.

Question 19

As a company records depreciation expense for a period of time, cash is accumulated to replace fixed assets as they wear out.

Accepted Answer

Depreciation expense is an accounting method to allocate the cost of a tangible asset over its useful life. It does not involve the actual accumulation of cash; rather, it reduces the book value of the asset and the earnings for the period.

Question 20

Long-lived assets held for sale are classified as fixed assets.

Accepted Answer

Long-lived assets held for sale are not classified as fixed assets, but rather as assets held for sale or discontinued operations. The classification of assets depends on their expected use and whether they are held for investment or for potential sale.

Quiz 10: Long-Term Assets: Fixed and Intangible