Question 1

Accumulated Depreciation is a temporary account that is closed each year.

Accepted Answer

Accumulated depreciation is a permanent account.

Question 2

Intangible assets include patents,copyrights,and franchises.

Accepted Answer

Intangible assets are,in fact,rights or privileges.They cannot be seen or touched.

Question 3

With an accelerated depreciation method,an asset can be depreciated below its salvage value.

Accepted Answer

An accelerated depreciation method such as the double-declining-balance method depreciates an asset to its salvage value and no further.

Question 4

A trademark is a tangible asset with an indefinite useful life.

Accepted Answer

A trademark is a name or symbol that identifies a company or a product and is an intangible asset.Trademarks are registered with the federal government and have an indefinite legal lifetime.

Question 5

When a building is purchased simultaneously with land,the purchase price must be allocated between the building and the land.

Accepted Answer

Acquiring a group of assets in a single transaction is known as a basket purchase.The total price of a basket purchase must be allocated among the assets acquired.

Question 6

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

Accepted Answer

The depreciable cost is the total amount of an asset's cost that will be depreciated over its useful life.

Question 7

In choosing a depreciation method for financial reporting,a company should use the method that most closely approximates the amount of depreciation on the tax return.

Accepted Answer

The method used to recognize depreciation expense should match the asset's usage pattern.

Question 8

Late in a plant asset's useful life,the amount of depreciation that would be recorded with the double-declining-balance method is less than the amount that would be recognized with the straight-line method.

Accepted Answer

Double-declining-balance depreciation recognizes greater amounts of expense in an asset's early life and lesser amounts in its later life,while the straight-line method recognizes equal amounts of expense each year.

Question 9

Title search and transfer document costs incurred to purchase a building are expensed in the period the building is acquired.

Accepted Answer

Title search and transfer document costs are included in the cost of the building and expensed over the building's useful life.

Question 10

The term used to recognize expense for property,plant,and equipment assets is depletion.

Accepted Answer

The term used to recognize expense for property,plant,and equipment is depreciation.The term used to recognize expense for natural resources is depletion.

Question 11

When using the modified accelerated cost recovery system (MACRS)the highest amount of depreciation expense will be recognized in the year the asset is acquired.

Accepted Answer

Because of the half-year convention,the greatest amount of expense will be recognized in the second year of the asset's life.

Question 12

Gains and losses are reported as part of operating income on the income statement.

Accepted Answer

Gains and losses are reported after operating income on the income statement.

Question 13

Land differs from other property because it is not subject to depreciation.

Accepted Answer

Land is classified separately from other property because land is not subject to depreciation or depletion.Land has an infinite life.It is not worn out or consumed as it is used.

Question 14

When depreciation is recorded on equipment,Depreciation Expense is debited and Equipment is credited.

Accepted Answer

When depreciation is recorded on equipment,depreciation expense is debited and accumulated depreciation is credited.

Question 15

Recognizing depreciation expense on equipment or a building is an asset use transaction.

Accepted Answer

Recognizing depreciation expense is an asset use transaction that decreases assets by increasing the Accumulated Depreciation account,a contra asset account.

Question 16

Tangible assets include land,equipment,and goodwill.

Accepted Answer

Tangible assets have a physical presence;they can be seen and touched.Goodwill is an intangible asset.

Question 17

How is depreciation expense reported in the financial statements?
A)Long-term liabilities section of the statement of stockholder's equity
B)Financing activities section of the statement of cash flows
C)Current assets section of the balance sheet
D)Operating expenses section of the income statement

Accepted Answer

Generally,depreciation expense is reported as an operating expense on the income statement.

Question 18

A copyright is an intangible asset with an indefinite useful life.

Accepted Answer

A copyright protects writers' works,musical compositions,works of art,and other intellectual property for the exclusive benefit of the creator or persons assigned the right by the creator.Copyrights granted by the federal government extend for the life of the creator plus 70 years.

Question 19

The purchase of a new delivery truck for cash is an asset use transaction.

Accepted Answer

The purchase is an asset exchange transaction that increases one asset,delivery truck,and decreases another asset,cash.

Question 20

EFG Transportation Company uses the straight-line method to depreciate its delivery truck.Which of the following reflects how recognizing depreciation expense would affect the elements of the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

Depreciation expense is an asset use transaction that decreases assets and stockholders' equity (retained earnings).It increases expenses,which decreases net income.It does not affect the statement of cash flows.

Quiz 8: Accounting for Long-Term Operational Assets