Question 1

Depreciation measures the actual decline in market value of an asset.

Accepted Answer

Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life, not to measure its actual decline in market value.

Question 2

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Accepted Answer

The units-of-production method of depreciation is based on the idea that an asset's useful life is more closely related to usage than to the passage of time. Therefore, the method charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Question 3

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Accepted Answer

This is true according to generally accepted accounting principles (GAAP).

Question 4

Total asset cost plus depreciation expense equals book value.

Accepted Answer

The answer of Total asset cost plus depreciation expense equals...

Question 5

When an asset is purchased (or disposed of) at any time other than the beginning or the end of an accounting period,depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.

Accepted Answer

This is because when an asset is purchased or disposed of at any time other than the beginning or end of an accounting period, it has been in use for only a fraction of the year, and so it should only be charged with a fraction of its annual depreciation. This is known as prorating the depreciation.

Question 6

Most companies use accelerated depreciation for tax purposes as it reduces taxable income due to higher depreciation expense in the early years of an asset's life.

Accepted Answer

Accelerated depreciation allows companies to deduct a larger portion of an asset's cost in the early years, reducing taxable income and resulting in lower taxes. It is commonly used for tax purposes.

Question 7

Depreciation is the process of allocating the cost of a plant asset to an expense account in the accounting periods benefiting from its use.

Accepted Answer

Depreciation is the systematic allocation of the cost of a plant asset to an expense account over the asset's useful life. This matches the expense with the revenue generated by using the asset.

Question 8

The purchase of a property that included land,building,and improvements is called a lump-sum purchase.

Accepted Answer

A lump-sum purchase involves buying all components of a property (land, building and improvements) in a single transaction, as opposed to buying each separately.

Question 9

The going-concern principle supports the reporting of plant assets at book value rather than market value.

Accepted Answer

The going-concern principle assumes that a company will continue to operate indefinitely, so it is appropriate to report plant assets at their historical cost or book value rather than their current market value, which may be significantly higher or lower. This is because the market value can fluctuate due to economic conditions or supply and demand, but the book value is based on the actual cost incurred by the company to acquire the asset. Therefore, the going-concern principle supports reporting plant assets at book value rather than market value.

Question 10

The most frequently used method of depreciation is the straight-line method.

Accepted Answer

The straight-line method of depreciation is widely used because of its simplicity and ease of calculation. It involves spreading the cost of an asset evenly over its useful life.

Question 11

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

Accepted Answer

Evaluating a company's ability to use its assets in generating sales is an important aspect of financial analysis for decision makers and other users of financial statements. This is because the efficiency with which a company uses its assets can have a significant impact on its profitability and overall financial performance.

Question 12

Plant assets are assets that are held for sale.

Accepted Answer

Plant assets are not held for sale, they are held to be used in the production or operations of a business. Examples of plant assets include buildings, equipment, and vehicles.

Question 13

A plant asset's useful life might not be the same as its productive life.

Accepted Answer

A plant asset's useful life refers to the period of time over which it is expected to be useful in generating revenue or providing services. On the other hand, its productive life refers to the period of time over which it is actually used to generate revenue or provide services. These two periods can be different due to factors such as technological advancements, changes in demand, and wear and tear on the asset.

Question 14

Plant assets are used in everyday operations of the business and have useful lives that extend over more than one accounting period.

Accepted Answer

Plant assets, also known as fixed assets, are expected to provide economic benefits to the company for more than one accounting period and are therefore not expensed in the period they are acquired. Instead, their cost is allocated over their useful lives through depreciation expense. Examples of plant assets include buildings, vehicles, equipment, and land.

Question 15

When a company constructs a building,the cost of the building includes materials and labor,design fees,building permits,and insurance during construction.

Accepted Answer

This statement is true. The cost of a building includes not only the materials and labor but also other expenses like design fees, building permits, and construction insurance.

Question 16

The total depreciation expense over an asset's useful life will be identical across all methods of depreciation.

Accepted Answer

The total depreciation expense over an asset's useful life will be the same regardless of the depreciation method used, as it is based on the asset's initial cost minus its salvage value.

Question 17

Salvage value is an estimate of an asset's value at the end of its benefit period.

Accepted Answer

Salvage value is indeed an estimate of an asset's value at the end of its benefit period.

Question 18

Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned are replaced.

Accepted Answer

Accumulated depreciation is a contra asset account that represents the total amount of depreciation expense that has been charged to an asset since it was placed in service. It is not funds set aside for new asset purchases.

Question 19

Coors reported net sales of $2,463 million and average total assets of $1,546 million.Its total asset turnover is equal to 1.59.

Accepted Answer

Total Asset Turnover = Net Sales / Average Total Assets
= 2,463 million / 1,546 million
= 1.59
Therefore, the statement is true.

Question 20

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the past,current,and future financial statements.

Accepted Answer

The answer of Revising an estimate of the useful life...

Quiz 8: Reporting and Analyzing Long-Term Assets