Question 1

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

Accepted Answer

Capitalizing a payment that should be recorded as a revenue expenditure means that the expense is recorded as an asset rather than being expensed immediately. This results in an overstatement of net income because expenses are understated in the current period.

Question 2

Use of MACRS is acceptable for financial reporting under GAAP.

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) is used for tax purposes, not for financial reporting under GAAP, which requires depreciation methods like straight-line or declining balance.

Question 3

The units-of-production method allocates varying amounts of depreciation each year based on the usage of the asset.

Accepted Answer

The units-of-production method allocates more depreciation in years when the asset is used more heavily and less depreciation in years when it is used less. This is different from other methods, such as straight-line depreciation, which allocate the same amount of depreciation each year regardless of usage.

Question 4

Nobells Inc. has acquired a property that included both land and a building for $500,000. The company paid cash. The company 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 Nobells Inc. has acquired a property that...

Question 5

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

Accepted Answer

Depreciation is the systematic allocation of the cost of a plant asset to expense over its useful life. This helps to match the cost of the asset with the revenue it generates in each accounting period.

Question 6

Acer Investments plans to develop a shopping center. In the first quarter, they spent the following amounts:  What amount should be recorded as the cost of land in the books of the company?

Accepted Answer

The answer of Acer Investments plans to develop a shopping...

Question 7

Nobells Corp. has acquired land and paid an amount of $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 $500 brokerage should have been capitalized as part of the cost of the land, an asset. By recording it as a revenue expenditure, it was likely expensed, reducing net income by $500.

Question 8

Give journal entry to record the acquisition of a plant asset for cash.

Accepted Answer

The answer of Give journal entry to record the acquisition...

Question 9

Nobells Inc. has acquired a property that included both land and a building for $500,000. The company hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000. At what amount should the company record the cost of land?

Accepted Answer

The answer of Nobells Inc. has acquired a property that...

Question 10

Nobells Inc. has acquired a property that included both land and a building for $500,000. The company hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000. At what amount should the company record the cost of building?

Accepted Answer

The cost of the building should be allocated based on their relative market values. The total market value of the land and building is $700,000, with the building representing 57% of the total value ($400,000 / $700,000). Therefore, the cost of the building should be recorded at 57% of the total cost, which is $285,714 ($500,000 x 57%).

Question 11

Useful life of a plant asset refers to the period for which it can be used for the purposes of the business.

Accepted Answer

The useful life of a plant asset is the estimated period of time over which it can be used to generate income for the business.

Question 12

Residual value is also known as depreciable cost.

Accepted Answer

Residual value is the estimated value of an asset at the end of its useful life, while depreciable cost is the original cost of the asset that is subject to depreciation over its useful life.

Question 13

A company purchased a used machine for $10,000. The machine required installation costs of $1,000 and insurance while in transit of $500. At which of the following amounts would the machine be recorded?

Accepted Answer

The machine should be recorded at its total cost, which includes the purchase price, installation costs, and insurance while in transit. Therefore, the total cost is $10,000 + $1,000 + $500 = $11,500.

Question 14

Which of the following should be included in the cost of land?

Accepted Answer

The cost to clear the land of old buildings should be included in the cost of purchasing and developing the land. The other options (A, C, D) are costs related to improvements made to the land and would not be included in the cost of the land itself.

Question 15

Acer Inc. plans to develop a shopping center. In the first quarter, they spent the following amounts:  What amount should be recorded as the land improvements cost?

Accepted Answer

The answer of Acer Inc. plans to develop a shopping...

Question 16

Roberts Construction Group paid $5,000, for a plant asset that had a market value of $7,500. At which of the following amounts should the plant asset be recorded?

Accepted Answer

The plant asset should be recorded at its cost, which is the amount paid for it, $5,000, according to the historical cost principle in accounting.

Question 17

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

Accepted Answer

When a newer asset is able to perform the same job more efficiently, the older asset becomes obsolete.

Question 18

When a company uses the straight-line method of depreciation, the amount of depreciation charged to expense will be reduced from year to year.

Accepted Answer

The straight-line method of depreciation charges a consistent amount of depreciation expense each year, so the amount charged will not be reduced from year to year.

Question 19

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

Accepted Answer

The cost to install an engine with higher horsepower is a capital expenditure because it enhances the car's value or extends its useful life. Other costs are maintenance expenses and are not capitalized.

Question 20

The double-declining-balance method is an accelerated method of depreciation.

Accepted Answer

The double-declining-balance method is an accelerated method of depreciation as it results in higher depreciation expenses in the early years of an asset's life and lower expenses in later years.

Quiz 10: Plant Assets, Natural Resources, and Intangibles