Question 1

Company A purchased a used piece of equipment. All of the following costs should be included in the cost of the equipment EXCEPT for:

Accepted Answer

Maintenance costs incurred after the equipment is up and running are considered operating expenses and should not be included in the cost of the equipment. The other options, insurance while in transit, sales tax paid, and installation costs, are all related to the acquisition and installation of the equipment and should be included in the cost of the equipment.

Question 2

The cost of assets purchased together in a lump sum should be allocated using the market value of each of the assets.

Accepted Answer

When assets are purchased together in a lump sum, the cost should be allocated based on the market value of each individual asset, rather than a simple average or any other method. This ensures that each asset is accounted for accurately and fairly.

Question 3

The cost of a building will include the costs to renovate the building for its intended use.

Accepted Answer

The cost of a building will not only include the purchase price or construction cost, but also the costs associated with renovating the building to suit its intended use. This may include costs for upgrades or alterations to meet safety, accessibility, and code requirements, as well as costs for aesthetic improvements or modifications to the interior layout.

Question 4

The cost of leasehold improvements should be depreciated over the life of the improvement.

Accepted Answer

Leasehold improvements should be depreciated over the shorter of the lease term or the useful life of the improvements.

Question 5

The only plant asset that does not depreciate is:

Accepted Answer

Land is the only plant asset that does not depreciate because it is considered to have an indefinite life and does not wear out or become obsolete like other assets.

Question 6

Which of the following is a natural resource?

Accepted Answer

The answer of Which of the following is a natural...

Question 7

Long-lived tangible assets that are used in the operation of the business are called:

Accepted Answer

Plant assets, also known as property, plant, and equipment (PP&E), are long-lived tangible assets used in business operations, such as buildings, machinery, equipment, vehicles, furniture, and fixtures. Intangible assets refer to non-physical assets, such as patents, trademarks, copyrights, and goodwill. Natural resources are raw materials extracted from the earth, such as oil, minerals, and timber. Goodwill represents the excess of the purchase price of a business over the fair value of the net assets acquired.

Question 8

An asset with no physical form, but that has special rights to current and expected future benefits is a(n):

Accepted Answer

An intangible asset is an asset with no physical form, but that has special rights to current and expected future benefits. Examples of intangible assets include patents, copyrights, trademarks, and goodwill. Natural resources are tangible assets, while plant assets and fixed assets typically refer to tangible property, plant, and equipment.

Question 9

The cost of land may include the cost of any back property taxes that the purchaser pays.

Accepted Answer

If back property taxes are owed on the land, the purchaser may be required to pay them as part of the cost of acquiring the land.

Question 10

Costs of land improvements are included in the land account.

Accepted Answer

Costs of land improvements are not included in the land account. They are recorded separately as a separate asset account called "Land Improvements."

Question 11

An example of an intangible asset is:

Accepted Answer

Goodwill is an intangible asset that represents the value of a company's reputation, brand recognition, and customer loyalty. It cannot be physically touched or seen, but it can still be measured and can contribute significantly to a company's overall value.

Question 12

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

Accepted Answer

Real estate brokerage commission is a cost directly associated with acquiring the land and should be included in the cost of land.

Question 13

ABC Company purchased land with an old building that they plan on demolishing so that they can construct a new, modern building. The cost of demolishing the building will be part of the cost of the:

Accepted Answer

The answer of ABC Company purchased land with an old...

Question 14

Land improvements are not subject to depreciation.

Accepted Answer

Land improvements, such as landscaping or pavement, are subject to depreciation over their useful life, even though land itself is not.

Question 15

Any cost to get machinery up and running and ready for its intended use should be part of the cost of the asset and depreciated.

Accepted Answer

Any cost incurred to get machinery up and running and ready for its intended use should be capitalized and included in the cost of the asset. It should then be depreciated over the useful life of the asset.

Question 16

The cost of any plant asset is the sum of all of the costs incurred to bring the asset to its intended use.

Accepted Answer

This is a correct statement according to the accounting principle of cost accumulation. The cost of a plant asset includes all costs of acquisition, such as purchase price, transportation costs, installation costs, and any other necessary expenses incurred to make the asset operational.

Question 17

The cost of land includes the cost of fencing and paving.

Accepted Answer

The cost of land typically includes the purchase price and legal fees, but not improvements like fencing and paving, which are considered separate capital expenditures.

Question 18

If a company buys equipment and land in a lump-sum purchase for cash, total assets increase.

Accepted Answer

When a company buys equipment and land for cash, it exchanges one asset (cash) for other assets (equipment and land), so the total assets remain unchanged.

Question 19

Company B purchased some land and is preparing the land for a new building. Company B should include which of the following in the cost of the land?

Accepted Answer

Grading and clearing the land are necessary costs to prepare the land for a new building. However, the cost of driveways, fencing, and sprinkler systems would be considered additional costs that are not necessary for the preparation of the land.

Question 20

All amounts paid to acquire a plant asset and to get it ready for its intended use are referred to as:

Accepted Answer

The cost incurred to acquire a plant asset and to bring it to the condition in which it can be used for its intended purpose is known as the cost of the asset. This cost includes all the necessary expenditures incurred in acquiring the asset, such as purchase price, transportation costs, installation costs, and any other costs associated with bringing the asset to its usable condition. Therefore, option D is the correct choice. Option A, set up costs, typically refer to costs associated with setting up a production line or process. Option B, expenditures, is too broad of a term and could include expenses unrelated to acquiring a plant asset. Option C, maintenance expense, refers to the cost incurred to maintain an asset after it has been put into use.

Quiz 7: Plant Assets, Natural Resources, Intangibles