Question 1

Classify each of the following costs associated with long-lived assets as one of the following:
-Purchase price of land purchased for new business site
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

The cost associated with the purchase price of land should be classified under category C, which is "Land."

Question 2

Which of the following statements is true?
A) A larger fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed asset investments.
B) The fixed asset ratio cannot be compared across time for an individual company.
C) A smaller fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed asset investments.
D) The fixed asset ratio is not useful for comparing different companies.

Accepted Answer

A larger fixed asset turnover ratio means that the company is generating more revenue per dollar of fixed asset investment. This suggests that the company is more efficient in managing its fixed assets. In industries that require higher labor costs and smaller fixed asset investments, a higher turnover ratio is expected because they depend more on human resources rather than machinery or facilities. Therefore, choice A is correct. Choice B is incorrect because the fixed asset turnover ratio can be compared across time for an individual company to analyze its efficiency in managing its assets. Choice C is incorrect because a smaller fixed asset turnover ratio implies that the company generates less revenue per dollar of fixed asset investment, indicating lower asset efficiency. Lastly, choice D is incorrect because the fixed asset turnover ratio is a useful tool for comparing and evaluating the efficiency of different companies in various industries.

Question 3

When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with which of the following entries?
A) debit Machinery and Accumulated Depreciation; credit Machinery and Cash
B) debit Cash and Machinery; credit Accumulated Depreciation
C) debit Cash and Machinery; credit Accumulated Depreciation and Machinery
D) debit Machinery, Accumulated Depreciation, and Loss on Exchange of Machinery; credit Machinery and Cash

Accepted Answer

When a company exchanges machinery and receives a trade-in allowance less than the book value, it results in a loss. Therefore, the entry should debit Machinery, Accumulated Depreciation, and Loss on Exchange of Machinery and credit Machinery and Cash.

Question 4

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $4,000, at what cost will the new equipment be recorded in the books?
A) $54,000
B) $45,000
C) $51,000
D) $50,000

Accepted Answer

The new equipment will be recorded at its fair market value, which is $50,000.

Question 5

Classify each of the following costs associated with long-lived assets as one of the following:
-Fences around land at new business location
A)Land improvements
B)Buildings
C)Land
D)Machinery and equipment

Accepted Answer

Fences around land are considered a land improvement, which is a cost associated with long-lived assets.

Question 6

Classify each of the following costs associated with long-lived assets as one of the following:
-Interest on money borrowed to finance construction of new office building
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

Interest costs are associated with the construction of a new office building, which is classified as a building under long-lived assets.

Question 7

Classify each of the following costs associated with long-lived assets as one of the following:
-Sales taxes paid on new factory equipment
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

Sales taxes paid on new factory equipment are associated with machinery and equipment, which are long-lived assets used in the production of goods or services. Buildings, land, and land improvements are not directly related to the acquisition of new equipment.

Question 8

Classify each of the following costs associated with long-lived assets as one of the following:
-Costs to survey a new piece of land for a new business location
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

The cost to survey a new piece of land for a new business location is considered a cost associated with the purchase of land.

Question 9

On December 31, Strike Company traded in one of its batting cages for another one that has a cost of $500,000. Strike receives a trade-in allowance of $11,000. The old equipment had an initial cost of $215,000 and has accumulated depreciation of $185,000. Depreciation has been recorded up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?
A) loss of $11,000
B) gain of $11,000
C) loss of $19,000
D) No loss or gain will be recorded.

Accepted Answer

The old equipment has a book value of $30,000 ($215,000 - $185,000 = $30,000). Since the trade-in allowance is only $11,000, there is a loss of $19,000. The cost of the new batting cage ($500,000) is not relevant to the calculation of gain or loss.

Question 10

A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, at what cost will the new equipment be recorded in the books?
A) $54,000
B) $59,500
C) $60,000
D) $60,500

Accepted Answer

In a transaction with commercial substance, the new asset is recorded at its fair market value, which is $60,000. The trade-in allowance does not affect the recording cost of the new asset.

Question 11

Newport Company has sales of $2,025,000 for the current year. The book value of its fixed assets at the beginning of the year was $550,000 and at the end of the year was $800,000. The fixed asset turnover ratio for Newport is
A) 3.0
B) 3.6
C) 3.7
D) 2.5

Accepted Answer

The answer of Newport Company has sales of $2,025,000 for...

Question 12

When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with which of the following entries (assuming the exchange was considered to have commercial substance)?
A) debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Exchange of Machinery
B) debit Machinery and Accumulated Depreciation; credit Machinery and Cash
C) debit Cash and Machinery; credit Accumulated Depreciation
D) debit Cash and Machinery; credit Accumulated Depreciation and Machinery

Accepted Answer

When the trade-in allowance is greater than the book value and the exchange has commercial substance, a gain is recognized. The entry involves debiting the new Machinery and Accumulated Depreciation, and crediting the old Machinery, Cash, and Gain on Exchange of Machinery.

Question 13

Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Bacon Company should record
A) the new machinery at $16,700
B) the new machinery at $12,700
C) a gain of $1,500
D) a loss of $1,500

Accepted Answer

The answer of Bacon Company acquired new machinery with a...

Question 14

Classify each of the following costs associated with long-lived assets as one of the following:
-Repairs made to used office equipment
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

Repairs made to used office equipment are associated with machinery and equipment, which are long-lived assets used in the production of goods and services.

Question 15

Classify each of the following costs associated with long-lived assets as one of the following:
-Freight costs paid on purchase of new equipment
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

Freight costs paid on the purchase of new equipment are associated with machinery and equipment.

Question 16

Classify each of the following costs associated with long-lived assets as one of the following:
-Costs of government permits required to develop land for a new business location
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

Costs of government permits required to develop land for a new business location are directly associated with the preparation or development of the land itself, thus classified under Land costs. These costs are necessary to prepare the land for its intended use and are capitalized as part of the land's cost.

Question 17

Classify each of the following costs associated with long-lived assets as one of the following:
-Landscaping at new business location
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

Land improvements refer to enhancements made to land (excluding buildings) that increase its value, such as landscaping. Therefore, the cost associated with landscaping at a new business location would fall under land improvements.

Question 18

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
A) $3,000
B) $4,500
C) $500
D) $1,500

Accepted Answer

The recognized loss on the trade is $1,500. This is calculated as follows:Trade-in allowance - Book value = Recognized loss$3,000 - ($41,000 - $36,500) = $1,500

Question 19

Classify each of the following costs associated with long-lived assets as one of the following:
-Fees paid to architect to design new office building
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

Fees paid to an architect to design a new office building would fall under the Buildings category of long-lived assets.

Question 20

Classify each of the following costs associated with long-lived assets as one of the following:
-Cost of insurance during the construction of new office building
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements

Accepted Answer

The cost of insurance during the construction of a new office building is capitalized as part of the building's cost because it is a direct cost associated with bringing the building to its intended use.

Quiz 10: Long-Term Assets: Fixed and Intangible

Classify each of the following costs associated with long-lived assets as one of the following: -Purchase price of land purchased for new business site

Which of the following statements is true?

When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with which of the following entries?

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $4,000, at what cost will the new equipment be recorded in the books?

Classify each of the following costs associated with long-lived assets as one of the following: -Fences around land at new business location

Classify each of the following costs associated with long-lived assets as one of the following: -Interest on money borrowed to finance construction of new office building

Classify each of the following costs associated with long-lived assets as one of the following: -Sales taxes paid on new factory equipment

Classify each of the following costs associated with long-lived assets as one of the following: -Costs to survey a new piece of land for a new business location

A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, at what cost will the new equipment be recorded in the books?

Newport Company has sales of $2,025,000 for the current year. The book value of its fixed assets at the beginning of the year was $550,000 and at the end of the year was $800,000. The fixed asset turnover ratio for Newport is

When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with which of the following entries (assuming the exchange was considered to have commercial substance) ?

Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Bacon Company should record

Classify each of the following costs associated with long-lived assets as one of the following: -Repairs made to used office equipment

Classify each of the following costs associated with long-lived assets as one of the following: -Freight costs paid on purchase of new equipment

Classify each of the following costs associated with long-lived assets as one of the following: -Costs of government permits required to develop land for a new business location

Classify each of the following costs associated with long-lived assets as one of the following: -Landscaping at new business location

A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is

Classify each of the following costs associated with long-lived assets as one of the following: -Fees paid to architect to design new office building

Classify each of the following costs associated with long-lived assets as one of the following: -Cost of insurance during the construction of new office building