Question 1

If a company determines that due to damage, the recoverable cost of its asset is reduced, it increases accumulated depreciation.

Accepted Answer

When a company determines that the recoverable cost of its asset is reduced, it records an impairment loss, not an increase in accumulated depreciation.

Question 2

Which of the following would not be capitalized as part of a purchased asset's cost?
A) non-refundable taxes
B) installation cost
C) shipping costs
D) insurance costs

Accepted Answer

D

Question 3

Upon the disposal of an asset, if the carrying value is NOT equal to the proceeds, a gain or loss must be recognized.

Accepted Answer

This is true according to the generally accepted accounting principles (GAAP). The gain or loss is calculated as the difference between the proceeds from the disposal and the carrying value of the asset.

Question 4

Which of the following is not a tangible capital asset?
A) buildings
B) land
C) copyrights
D) equipment

Accepted Answer

Buildings, land, and equipment all have physical substance and are therefore tangible capital assets. Copyrights, on the other hand, are intangible assets and do not have a physical form.

Question 5

Internally generated goodwill may be capitalized annually.

Accepted Answer

Internally generated goodwill is not eligible for capitalization under international accounting standards. It is only recognized when it is acquired through a business combination.

Question 6

The only long-term asset that cannot be separated from the business and sold is
A) land.
B) buildings.
C) goodwill.
D) trademarks.

Accepted Answer

Goodwill is an intangible asset that represents the reputation and customer base of a business. Unlike land and buildings, goodwill cannot be physically separated from the business and sold as a standalone asset. Similarly, trademarks can be sold or licensed separately from the business, and therefore do not fit the criteria of an asset that cannot be separated and sold.

Question 7

Barium Corp. purchased a piece of equipment on September 30 for $27,000. It cost $400 to ship the equipment to the company's facilities and another $1,000 to install the equipment. After the equipment was installed the company had to pay an additional $1,500 for increased insurance. The capitalized cost of the equipment was
A) $29,900.
B) $29,500.
C) $28,400.
D) $27,400.

Accepted Answer

The answer of Barium Corp. purchased a piece of equipment...

Question 8

The cash inflows generated from a long-term asset will be received over several future periods.

Accepted Answer

Long-term assets, such as buildings or equipment, generate cash inflows over their useful lives, which can extend to several years or even decades. Thus, the cash inflows are expected to be received over multiple future periods.

Question 9

Capital assets include all of the following except for
A) goodwill.
B) franchise rights.
C) buildings.
D) inventory.

Accepted Answer

Inventory is not considered a capital asset because it is not a long-term asset held for the purpose of generating revenue or profit. Instead, it is a current asset that is expected to be consumed or sold within a year. Goodwill, franchise rights, and buildings are examples of capital assets because they are typically held for many years and contribute to the long-term success of a business.

Question 10

The total accumulated depreciation on a long-term asset is also known as the asset's amortized cost.

Accepted Answer

The total accumulated depreciation on a long-term asset is referred to as accumulated depreciation, not amortized cost. Amortized cost typically refers to the adjusted cost of a financial asset or liability after accounting for amortization or depreciation.

Question 11

In a basket purchase, the total purchase price is divided equally among the assets acquired.

Accepted Answer

In a basket purchase, the total purchase price is allocated to the individual assets based on their fair market value, not divided equally among them.

Question 12

Depreciation expense is a measure of an asset's increase in value due to wear and tear.

Accepted Answer

Depreciation expense is a measure of an asset's decrease in value over time due to wear and tear, obsolescence, or other factors.

Question 13

All patents have useful and economic lives of 20 years.

Accepted Answer

Patents typically have a maximum term of 20 years from the filing date, but the economic life of a patent, which refers to the period during which it provides financial benefits, can vary widely depending on the technology, market conditions, and other factors. Additionally, some patents may expire earlier due to failure to pay maintenance fees, and others, such as pharmaceuticals, might have extensions under certain conditions.

Question 14

Which of the following would not be classified as property, plant, and equipment?
A) buildings in current use
B) land purchased for resale
C) machinery
D) tools used in production

Accepted Answer

Land purchased for resale would be considered inventory, not property, plant, and equipment.

Question 15

Under ASPE, property, plant, and equipment must be recognized using the revaluation model.

Accepted Answer

Under ASPE, property, plant, and equipment can be recognized using either the cost model or the revaluation model. The cost model recognizes assets at cost less accumulated depreciation, while the revaluation model allows for assets to be revalued at fair value and recognized at that amount less accumulated depreciation.

Question 16

Depreciation is a cost allocation method and has nothing to do with determining an asset's market value.

Accepted Answer

Depreciation is a method of allocating the cost of an asset over its useful life. It does not determine the market value of the asset. Market value is determined by factors such as supply and demand, competition, and economic conditions.

Question 17

An impairment loss should be recognized if the net recoverable amount of the asset exceeds the carrying value.

Accepted Answer

An impairment loss should be recognized if the carrying value of the asset exceeds the net recoverable amount.

Question 18

In 2020 as part of a property purchase, Melrose Ltd. incurred and paid 2019 property taxes. These costs should be
A) recognized as an impairment loss.
B) recognized on the Statement of Income as an expense.
C) recognized as a capital cost.
D) not be taken into consideration, these costs are irrelevant.

Accepted Answer

Property taxes paid at the time of purchase are typically capitalized and added to the cost basis of the property. This is because they are considered part of the acquisition cost, rather than an operational expense.

Question 19

Residual value directly enters into the calculation of depreciation expense under all depreciation methods.

Accepted Answer

Residual value is considered in the calculation of depreciation expense for methods like straight-line depreciation, but it does not directly affect the calculation in methods such as double-declining balance, where depreciation is calculated based on the book value of the asset at the beginning of each period without directly considering the residual value.

Question 20

Basic research costs that occur prior to any decision to develop a product or process are usually capitalized.

Accepted Answer

Basic research costs that occur prior to any decision to develop a product or process are expensed as incurred, not capitalized. Capitalization of costs only occurs once the decision to start developing a product or process has been made.

Quiz 8: Long-Term Assets

If a company determines that due to damage, the recoverable cost of its asset is reduced, it increases accumulated depreciation.

Which of the following would not be capitalized as part of a purchased asset's cost?