Question 1

The primary difference between ordinary repairs and extraordinary repairs is:
A) ordinary repairs cost less.
B) ordinary repairs are expenditures for routine maintenance and upkeep, whereas extraordinary repairs increase an assets economic usefulness in the future through increased efficiency, capacity, or longer life.
C) extraordinary repairs only maintain the asset for a short time, whereas ordinary repairs increase the usefulness of assets beyond their original condition.
D) extraordinary repairs are expenditures, not expenses.

Accepted Answer

Ordinary repairs are routine maintenance expenses that are necessary for keeping an asset in its original condition, whereas extraordinary repairs are expenditures that improve an asset's productivity, efficiency, or longevity beyond its original level. Hence, the primary difference between ordinary and extraordinary repairs is the degree to which they increase an asset's economic usefulness in the future.

Question 2

Why should a company divide up the cost of a "basket purchase" among the different assets purchased?
A) A company with a longer list of assets will appear to be stronger.
B) Some of the assets might be paid for more quickly than others.
C) The different assets might be depreciated over different useful lives.
D) Baskets are not long-lived assets.

Accepted Answer

The different assets might be depreciated over different useful lives. By dividing up the cost of a "basket purchase" among the different assets purchased, a company can more accurately reflect the useful life of each asset and allocate depreciation expenses accordingly. This also ensures that each asset is valued correctly on the company's balance sheet.

Question 3

Extraordinary repairs:
A) are revenue expenditures.
B) extend an asset's life beyond the original estimate.
C) are expensed as incurred.
D) are credited to Accumulated Depreciation.

Accepted Answer

Extraordinary repairs are major repairs that extend the useful life of an asset beyond its original estimate. Therefore, they are considered capital expenditures and not revenue expenditures. They are capitalized and depreciated over their useful life, rather than expensed as incurred. They are not credited to Accumulated Depreciation as they represent an increase in the carrying amount of the asset.

Question 4

Which of the following accurately describes the treatment of ordinary and extraordinary repairs?
A) Ordinary repairs are expensed as incurred; extraordinary repairs are expensed as incurred
B) Ordinary repairs are treated as a capital expenditure; extraordinary repairs are expensed as incurred
C) Ordinary repairs are expensed as incurred; extraordinary repairs are treated as a capital expenditure
D) Ordinary repairs are treated as a capital expenditure; extraordinary repairs are treated as a capital expenditure

Accepted Answer

Ordinary repairs are maintenance expenses that are expected to occur periodically to keep the asset in its originally expected operating condition. Therefore, they are expensed as incurred. Extraordinary repairs, on the other hand, are significant repairs that exceed normal maintenance and are not expected to occur frequently. These repairs improve or extend the life of the asset beyond its original useful life, and as a result, they are considered a capital expenditure and should be capitalized.

Question 5

The costs assigned to the individual assets acquired in a basket purchase are based on their relative:
A) historical costs.
B) market values.
C) book values.
D) depreciable costs.

Accepted Answer

The costs assigned to individual assets acquired in a basket purchase are based on their relative market values. This is because market value provides the most accurate representation of an asset's worth at the time of acquisition. Historical cost may not reflect the true value of the asset due to factors such as inflation, while book value is based on a company's accounting methods and may not accurately reflect market value. Depreciable cost is relevant for accounting for depreciation expenses over time but not for determining initial cost allocation.

Question 6

Baldini's Restaurant purchased a new building with the surrounding land.The price paid was $1,200,000,including the commission charged on the sale.An appraisal of the land and building at the time of purchase indicated that the market value of the land was $1,000,000 and the market value of the building was $500,000.What amounts would be recorded for the purchase of the two assets?
A) Land $800,000, Building $400,000
B) Land $1,000,000, Building $500,000
C) Land $1,000,000, Building $200,000
D) Land $700,000, Building $500,000

Accepted Answer

The answer of Baldini's Restaurant purchased a new building with...

Question 7

A company bought land and a building for $128,000.The building has a useful life of 20 years.Why should the company split the $128,000 cost between the land and the building?
A) Land is not depreciated, while the building will be depreciated over its 20year useful life.
B) The cost should not be split between the land and building.
C) The land will be depreciated over 40 years and the building will be depreciated over 20 years.
D) Both the land and the building will be depreciated over 20 years.

Accepted Answer

Land is not a depreciable asset because it does not have a limited useful life. On the other hand, buildings and other tangible assets do depreciate over time due to wear and tear, obsolescence, and other factors. Therefore, the company should split the cost between the land and the building so that only the building's value is subject to depreciation over its useful life.

Question 8

The carrying value of a long-lived asset is referred to as its:
A) residual value.
B) book value.
C) market value.
D) sales value.

Accepted Answer

The carrying value of a long-lived asset is its book value, which represents the original cost of the asset minus any accumulated depreciation.

Question 9

The Three Little Pigs built three houses for a total cost of $160,000.Appraisal values for the three completed houses were: straw house,$40,000,wood house $60,000,and brick house $100,000.Using the basket purchase allocation,the recorded value of the brick house should be:
A) $80,000.
B) $100,000.
C) $53,333.
D) $66,667.

Accepted Answer

The answer of The Three Little Pigs built three houses...

Question 10

Ordinary repairs and maintenance:
A) are part of the asset cost of equipment and facilities.
B) are recorded as expenses.
C) are always recorded as liabilities.
D) improve the asset beyond the current accounting period.

Accepted Answer

Ordinary repairs and maintenance are recorded as expenses and do not improve the asset beyond the current accounting period.

Question 11

A company purchased office equipment for $24,500 and paid $1,470 in sales tax,$550 for installation,$3,200 for a needed adjustment to the equipment,and $2,600 for supplies that will be used for periodic routine maintenance.How should the company record this transaction?
A) Debit Equipment $24,500, debit Repairs and Maintenance Expense for $5,220, debit Supplies for $2,600, and credit Cash for $32,320
B) Debit Equipment for $29,720, debit Supplies for $2,600, and credit Cash for $32,320
C) Debit Equipment for $25,970, debit Repairs and Maintenance Expense $3,750, debit Supplies for $2,600, and credit Cash for $32,320
D) Debit Equipment and credit Cash for $32,320

Accepted Answer

The answer of A company purchased office equipment for $24,500...

Question 12

A company purchased property for $100,000.The property included a building,equipment and land.The building was appraised at $62,000,the land at $45,000,and the equipment at $18,000 for a total appraised value of $125,000.What is the amount of cost to be allocated to the building in the accounting records?
A) $0
B) $49,600
C) $62,000
D) $100,000

Accepted Answer

The answer of A company purchased property for $100,000.The property...

Question 13

When a company records depreciation it debits:
A) a liability account and credits Depreciation Expense.
B) Depreciation Expense and credits Cash.
C) Depreciation Expense and credits a contra-asset account.
D) a long-lived tangible asset account and credits Depreciation Expense.

Accepted Answer

The answer of When a company records depreciation it debits:
A)...

Question 14

Accumulated Depreciation:
A) appears in the asset section of a balance sheet.
B) appears on the income statement.
C) is a liability on the balance sheet.
D) is a contra-stockholders' equity item.

Accepted Answer

Accumulated Depreciation is a contra-asset account and appears in the asset section of a balance sheet. It represents the total depreciation expense recognized to date for a long-term asset.

Question 15

A company acquired property that included land,building and equipment for a total cost of $163,000.The land was appraised at $87,500,the building at $35,000,and the equipment at $52,500.What should be the allocation of the total cost in the accounting records?
A) Land $75,000; Building $30,000; Equipment $45,000
B) Land $75,000; Building $30,800; Equipment $46,200
C) Land $87,500; Building $35,000; Equipment $52,500
D) Land $81,500; Building $32,600; Equipment $48,900

Accepted Answer

The answer of A company acquired property that included land,building...

Question 16

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?
A) To indicate how the asset has physically deteriorated
B) To show that the asset will eventually and gradually become obsolete
C) To record that the asset's market value declines over time
D) To match the cost of the asset to the period in which it generates revenue

Accepted Answer

Depreciating a long-lived tangible asset is done to match the cost of the asset to the period in which it generates revenue. This process ensures that the expense of the asset is recognized over its useful lifetime rather than expensed all at once. This method of matching expenses with revenue is important for accurate financial reporting and analysis.

Question 17

If a truck's engine is overhauled for $8,000,the journal entry would normally include a debit to:
A) Vehicles.
B) Accounts Payable.
C) Depreciation Expense.
D) Cash.

Accepted Answer

The answer of If a truck's engine is overhauled for...

Question 18

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation costs.One-half of the total cost or $250,000 is paid in cash; a note in the amount of $250,000 is signed.How should the company record this transaction?
A) Debit Cash for $250,000, debit Notes Payable for $250,000, and credit Equipment for $500,000
B) Debit Equipment for $500,000, credit Cash for $250,000, and credit Notes Payable for $250,000
C) Debit cash for $250,000, debit Notes Payable for $250,000, credit Equipment for $450,000, and credit Operating Expenses for $50,000
D) Debit Equipment for $450,000, debit Operating Expenses for $50,000, credit cash for $250,000, and credit Notes Payable for $250,000

Accepted Answer

The purchase of the soda machines and installation costs should be recorded using the cost principle, which requires that assets be recorded at their cost. The total cost of $500,000 should be debited to the Equipment account, as this is the account that records the cost of assets. The payment of $250,000 in cash reduces the cash account with a credit, and the note payable for $250,000 increases the Notes Payable account with a credit. Therefore, the entry should be to debit Equipment for $500,000, credit Cash for $250,000, and credit Notes Payable for $250,000. Option A is incorrect because it records the cost of the equipment twice. Option C is incorrect because it records the installation costs as an operating expense, which is not correct. Option D is incorrect because it records the installation costs as a debit to operating expenses, which is not correct.

Question 19

A company began the year with Property and Equipment costing $680,000 and accumulated depreciation of $120,000.The only change affecting the long-lived assets account during the year is the $55,000 of depreciation expense that must be recorded for the year.What is the amount of Property and Equipment,net,to be reported on the balance sheet at the end of the year?
A) $680,000
B) $625,000
C) $505,000
D) $560,000

Accepted Answer

The answer of A company began the year with Property...

Question 20

Accumulated Depreciation is classified as a(n):
A) expense account.
B) contra-asset account.
C) liability account.
D) stockholders' equity account.

Accepted Answer

Accumulated Depreciation is a contra-asset account because it has a credit balance and is subtracted from the related asset account on the balance sheet to arrive at the net book value.

Quiz 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets

The primary difference between ordinary repairs and extraordinary repairs is:

Why should a company divide up the cost of a "basket purchase" among the different assets purchased?

Extraordinary repairs:

Which of the following accurately describes the treatment of ordinary and extraordinary repairs?

The costs assigned to the individual assets acquired in a basket purchase are based on their relative:

A company bought land and a building for $128,000.The building has a useful life of 20 years.Why should the company split the $128,000 cost between the land and the building?

The carrying value of a long-lived asset is referred to as its:

The Three Little Pigs built three houses for a total cost of $160,000.Appraisal values for the three completed houses were: straw house,$40,000,wood house $60,000,and brick house $100,000.Using the basket purchase allocation,the recorded value of the brick house should be:

Ordinary repairs and maintenance:

A company purchased office equipment for $24,500 and paid $1,470 in sales tax,$550 for installation,$3,200 for a needed adjustment to the equipment,and $2,600 for supplies that will be used for periodic routine maintenance.How should the company record this transaction?

When a company records depreciation it debits:

Accumulated Depreciation:

A company acquired property that included land,building and equipment for a total cost of $163,000.The land was appraised at $87,500,the building at $35,000,and the equipment at $52,500.What should be the allocation of the total cost in the accounting records?

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?

If a truck's engine is overhauled for $8,000,the journal entry would normally include a debit to:

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation costs.One-half of the total cost or $250,000 is paid in cash; a note in the amount of $250,000 is signed.How should the company record this transaction?

Accumulated Depreciation is classified as a(n) :