Question 1

Under the double-declining-balance method the depreciation rate used each year remains constant.

Accepted Answer

In the double-declining-balance method of depreciation, a constant rate, which is double the straight-line depreciation rate, is applied to the book value of the asset at the beginning of each year, making the rate used constant throughout the depreciation process.

Question 2

When purchasing land the costs for clearing draining filling and grading should be charged to a Land Improvements account.

Accepted Answer

These costs are directly associated with preparing the land for its intended use, so they should be capitalized to the Land account, not to a separate Land Improvements account. Land Improvements typically refer to depreciable assets placed on the land.

Question 3

Recording depreciation on plant assets affects the balance sheet and the income statement.

Accepted Answer

Depreciation is recorded as an expense on the income statement, which reduces the net income. This, in turn, reduces the retained earnings on the balance sheet. Additionally, the corresponding decrease in the value of the plant assets is reflected on the balance sheet as accumulated depreciation, which reduces the asset value. Therefore, recording depreciation affects both the balance sheet and the income statement.

Question 4

Additions and improvements to a plant asset that increase the asset's operating efficiency productive capacity or expected useful life are generally expensed in the period incurred.

Accepted Answer

Additions and improvements to a plant asset that increase its operating efficiency, productive capacity, or expected useful life are generally capitalized and depreciated over its useful life, rather than expensed in the period incurred.

Question 5

Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Accepted Answer

The total amount of depreciation expense recorded over the life of the asset will be the same under both the units-of-activity method and the straight-line method; the difference between the two methods lies in the timing and pattern of the expense, not the total amount.

Question 6

When purchasing delivery equipment sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

Accepted Answer

Sales taxes should be included in the cost of the delivery equipment, but motor vehicle licenses are considered an expense and should not be capitalized as part of the equipment cost.

Question 7

In calculating depreciation both plant asset cost and useful life are based on estimates.

Accepted Answer

The answer of In calculating depreciation both plant asset cost...

Question 8

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Accepted Answer

The declining-balance method is considered an accelerated depreciation method because it results in higher depreciation expenses in the early years of an asset's life, not because it depreciates an asset in a shorter period than the asset's useful life.

Question 9

Once cost is established for a plant asset it becomes the basis of accounting for the asset unless the asset appreciates in value in which case market value becomes the basis for accountability.

Accepted Answer

Once cost is established for a plant asset, it remains the basis of accounting for the asset even if the asset appreciates in value. Market value is only used for disclosure purposes and does not replace the cost basis of accounting.

Question 10

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Accepted Answer

The IRS allows taxpayers to use different depreciation methods for tax returns and financial statements as long as they follow the guidelines and rules for each method.

Question 11

All plant assets (fixed assets) must be depreciated for accounting purposes.

Accepted Answer

Not all plant assets must be depreciated. Some plant assets, such as land, are not subject to depreciation because their value does not decrease over time.

Question 12

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

Accepted Answer

The declining-balance method of depreciation does not deduct salvage value in determining depreciation expense. Instead, it uses a fixed percentage rate to apply to the asset's book value each year until it is fully depreciated.

Question 13

Ordinary repairs should be recognized when incurred as revenue expenditures.

Accepted Answer

Ordinary repairs are routine maintenance expenses and are recognized as revenue expenditures when incurred. They do not improve or extend the life of the asset and are necessary to keep it in good working condition.

Question 14

A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership.

Accepted Answer

Capital expenditures are typically one-time investments made at the beginning of the period of ownership, rather than frequent expenses. They are investments in long-term assets that are expected to provide benefits over many years, such as the purchase of new equipment or the construction of a new building. While some ongoing maintenance expenses may be required to keep these assets in good working order, they are not considered capital expenditures.

Question 15

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods but not to prior periods.

Accepted Answer

A change in the estimated useful life of a plant asset will only affect the current and future periods since it is a prospective change in depreciation. It does not affect the depreciation recognized in prior periods.

Question 16

To determine a new depreciation amount after a change in estimate of a plant asset's useful life the asset's remaining depreciable cost is divided by its remaining useful life.

Accepted Answer

This is the correct method for determining a new depreciation amount after a change in estimate of a plant asset's useful life.

Question 17

The book value of a plant asset is always equal to its fair market value.

Accepted Answer

The book value of a plant asset is the original cost of the asset minus any accumulated depreciation, which may or may not reflect its current fair market value. Therefore, the book value and the fair market value of a plant asset are not always equal.

Question 18

Capital expenditures are expenditures that increase the company's investment in productive facilities.

Accepted Answer

Capital expenditures refer to investments made by a company in order to acquire or upgrade physical assets, such as machinery, buildings, and equipment, that are used to generate revenue over a long period of time. These investments are expected to provide benefits for several years, and are therefore considered to be long-term investments in productive facilities.

Question 19

Land improvements are generally charged to the Land account.

Accepted Answer

Land improvements are considered separate from the land itself and should be charged to a separate account called "Land Improvements" or "Site Improvements" to accurately reflect the total cost of the property.

Question 20

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

Accepted Answer

A change in the estimated salvage value of a plant asset does not require a restatement of prior years' depreciation. Instead, the depreciation expense is adjusted for future periods to account for the new salvage value.

Quiz 10: Plant Assets, Natural Resources, and Intangible Assets