Question 1

An expenditure that increases the capacity or efficiency of a plant asset that extends the asset's life is known as a revenue expenditure.

Accepted Answer

An expenditure that increases the capacity or efficiency of a plant asset and extends its useful life is known as a capital expenditure, not a revenue expenditure. Revenue expenditures are expenses incurred in the regular course of business operations, such as paying salaries, advertising expenses, and utility bills.

Question 2

Bingo Corporation has acquired a property that included both land and a building for $520,000. The corporation hired an appraiser who has determined that the market value of the land is $320,000 and that of the building is $400,000. At what amount should the corporation record the cost of the building? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

B)Building percentage of total value = 400,000 / (320,000 + 400,000)= 0.56
Cost of building = Lump-sum purchase price / Building percentage of total value =
$520,000 × 0.56 = $291,200

Question 3

Depreciation is the allocation of a plant asset's cost to expense over its useful life.

Accepted Answer

Depreciation is the process of allocating the cost of a plant asset over its useful life to match the expense with the revenue that the asset helps generate. This results in a reduction of the asset's value on the balance sheet to reflect its decreasing usefulness over time.

Question 4

The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values. This method is known as the relative-market-value method.

Accepted Answer

The statement is correct, the lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values, and this method is known as the relative-market-value method.

Question 5

Which of the following costs related to a business car would be capitalized?

Accepted Answer

The answer of Which of the following costs related to...

Question 6

For each of the following expenditures, indicate whether the amount is debited to an asset account or to an expense account.

Accepted Answer

The answer of For each of the following expenditures, indicate...

Question 7

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

Accepted Answer

Capitalizing a payment means that it will be recorded as an asset on the balance sheet. However, if it should have been recorded as a revenue expenditure, then it should have been recorded as an expense on the income statement. Thus, by capitalizing the payment, assets are overstated and expenses are understated, leading to an overstatement of net income.

Question 8

A lump-sum purchase or basket purchase involves paying a single price for several assets as a group.

Accepted Answer

A lump-sum purchase or basket purchase refers to the purchase of a group of assets together at a single price.

Question 9

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

Accepted Answer

Capitalizing a payment means that it will be recorded as an asset instead of an expense. This will result in an overstatement of assets and net income. Therefore, the correct answer is A - net income will be overstated.

Question 10

Which of the following requires businesses to record depreciation?

Accepted Answer

The matching principle requires businesses to match the expenses of the period with the related revenues to determine the net income of the period. Recording depreciation is a way of matching the cost of long-term assets with the periods in which they are used, as the cost of the asset is spread out over its useful life.

Question 11

Nobells Corp. has acquired land and paid $500 as brokerage to acquire the land. However, the company's accountant has recorded the $500 as a revenue expenditure. What is the effect of this error?

Accepted Answer

The answer of Nobells Corp. has acquired land and paid...

Question 12

Repair work that generates a capital expenditure because it extends a plant asset's useful life past the normal expected life is known as an extraordinary repair.

Accepted Answer

An extraordinary repair is a repair that extends the useful life of a plant asset beyond its normal expected life and is considered a capital expenditure because it improves the asset's value and increases its useful life.

Question 13

Westland, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be treated as a revenue expenditure?

Accepted Answer

Oil change and lubrication is a routine maintenance cost that is needed to keep the truck in operating condition and does not add any value to the truck. Therefore, it will be treated as a revenue expenditure. Major engine overhaul, modification for new use and addition to storage capacity are all capital expenditures that provide a lasting benefit and increase the value of the truck.

Question 14

An asset is considered to be obsolete when a newer asset can perform the job more efficiently.

Accepted Answer

Obsolescence refers to the state of being outdated or no longer useful. When a newer asset can perform the job more efficiently, the older asset becomes obsolete.

Question 15

An asset is considered to be obsolete ________.

Accepted Answer

An asset is considered obsolete when a newer asset can perform the job more efficiently than the old asset can. This means that the old asset may still have some useful life left, but it is no longer the most efficient or effective option for the job, which makes it obsolete.

Question 16

Fred, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be capitalized and depreciated?

Accepted Answer

The answer of Fred, Inc. owns a delivery truck. Which...

Question 17

Safari Corporation has acquired a property that included both land and a building for $500,000. The corporation paid cash. The corporation hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000. Journalize the lump-sum purchase.

Accepted Answer

The answer of Safari Corporation has acquired a property that...

Question 18

Ordinary repairs to plant assets are referred to as revenue expenditures.

Accepted Answer

Ordinary repairs to plant assets are considered revenue expenditures because they maintain or restore the asset to its normal operating conditions and do not increase the asset's useful life or efficiency. This type of expenditure is typically expensed in the period it occurs rather than capitalized as a plant asset.

Question 19

Hastings Corporation has purchased a group of assets for $21,900. The assets and their relative market values are listed below.  Which of the following amounts would be debited to the Land account? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

The answer of Hastings Corporation has purchased a group of...

Question 20

Hawkeye Corporation has acquired a property that included both land and a building for $560,000. The corporation hired an appraiser who has determined that the market value of the land is $370,000 and that of the building is $400,000. At what amount should the corporation record the cost of land? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

Accepted Answer

D)Land percentage of total value = 370,000 / (370,000 + 400,000)= 0.48
Cost of land = Lump-sum purchase price / Land percentage of total value = $560,000 × 0.48 = $268,800

Quiz 10: Plant Assets, Natural Resources, and Intangibles

An expenditure that increases the capacity or efficiency of a plant asset that extends the asset's life is known as a revenue expenditure.

Depreciation is the allocation of a plant asset's cost to expense over its useful life.

The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values. This method is known as the relative-market-value method.

Which of the following costs related to a business car would be capitalized?

For each of the following expenditures, indicate whether the amount is debited to an asset account or to an expense account.

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

A lump-sum purchase or basket purchase involves paying a single price for several assets as a group.

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?

Which of the following requires businesses to record depreciation?

Nobells Corp. has acquired land and paid $500 as brokerage to acquire the land. However, the company's accountant has recorded the $500 as a revenue expenditure. What is the effect of this error?

Repair work that generates a capital expenditure because it extends a plant asset's useful life past the normal expected life is known as an extraordinary repair.

Westland, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be treated as a revenue expenditure?

An asset is considered to be obsolete when a newer asset can perform the job more efficiently.

An asset is considered to be obsolete ________.

Fred, Inc. owns a delivery truck. Which of the following costs, associated with the truck, will be capitalized and depreciated?

Safari Corporation has acquired a property that included both land and a building for $500,000. The corporation paid cash. The corporation hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000. Journalize the lump-sum purchase.

Ordinary repairs to plant assets are referred to as revenue expenditures.