Question 1

Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended.

Accepted Answer

This is correct definition of functional depreciation.

Question 2

As a company records depreciation expense for a period of time,cash is accumulated to replace fixed assets as they wear out.

Accepted Answer

Depreciation expense is a non-cash expense, meaning it does not involve the outflow of cash. Cash is not accumulated specifically for the purpose of replacing fixed assets, but rather funds may be allocated in anticipation of future purchases or as needed when assets need to be replaced.

Question 3

Land acquired as a speculation is reported under Investments on the balance sheet.

Accepted Answer

Land acquired as a speculation is considered an investment, and therefore, it is reported under Investments on the balance sheet.

Question 4

The book value of a fixed asset reported on the balance sheet represents its market value on that date.

Accepted Answer

The book value of a fixed asset reported on the balance sheet represents its cost minus accumulated depreciation, not its market value.

Question 5

The cost of replacing an engine in a truck is an example of ordinary maintenance.

Accepted Answer

The cost of replacing an engine in a truck is not an example of ordinary maintenance, as it is a major repair that goes beyond routine upkeep and is typically more expensive. Ordinary maintenance would include regular oil changes, tire rotations, and other minor maintenance tasks.

Question 6

When land is purchased to construct a new building,the cost of removing any structures on the land should be charged to the building account.

Accepted Answer

The answer of When land is purchased to construct a...

Question 7

A tangible asset is one that lacks physical existence.

Accepted Answer

A tangible asset is one that has physical existence, such as property or equipment. Intangible assets, on the other hand, lack physical existence and include things like patents, trademarks, and copyrights.

Question 8

Long-lived assets held for sale are classified as fixed assets.

Accepted Answer

Long-lived assets held for sale are not classified as fixed assets, but are instead classified as current assets.

Question 9

During construction of a building,the cost of interest on a construction loan should be charged to an expense account.

Accepted Answer

The cost of interest on a construction loan for a building is capitalized as part of the building's cost, not expensed.

Question 10

Standby equipment held for use in the event of a breakdown of regular equipment is reported as property,plant,and equipment on the balance sheet.

Accepted Answer

Standby equipment held for use in the event of a breakdown of regular equipment is considered a part of property, plant, and equipment and is reported on the balance sheet under this category.

Question 11

The cost of repairing damage to a machine during installation is debited to a fixed asset account.

Accepted Answer

The cost of repairing damage to a machine during installation should be debited to a repair and maintenance expense account, not a fixed asset account.

Question 12

The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.

Accepted Answer

The cost of new equipment is considered a capital expenditure because it is a long-term investment in the company and is not directly related to generating immediate revenue. However, the equipment may indirectly contribute to generating revenue over time.

Question 13

Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are called capital expenditures.

Accepted Answer

Capital expenditures are expenditures that increase the operating efficiency or capacity for the remaining useful life of a fixed asset.

Question 14

All property,plant,and equipment assets are depreciated over time.

Accepted Answer

Not all property, plant, and equipment (PPE) assets are depreciated. Land, for example, is not depreciated because it does not typically lose value over time.

Question 15

The normal balance of the accumulated depreciation account is a debit.

Accepted Answer

The normal balance of the accumulated depreciation account is a credit, as it accumulates depreciation expense over time, reducing the value of an asset.

Question 16

Capital expenditures are costs that improve a fixed asset or extend its useful life.

Accepted Answer

Capital expenditures are costs incurred to acquire, improve or extend the life of a fixed asset. They are not immediately expensed, but rather depreciated over their useful life.

Question 17

An asset leased under an operating lease will appear on the balance sheet as a long-term asset.

Accepted Answer

An asset leased under an operating lease does not appear on the balance sheet as a long-term asset as it is treated as an off-balance sheet item. Instead, the lease payments are recorded as expenses in the income statement.

Question 18

The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment.

Accepted Answer

The statement is false, as the consultant's fee is typically considered a part of the overall cost of installation and is included in the total cost of computer equipment installation.

Question 19

The acquisition costs of property,plant,and equipment should include all normal,reasonable and necessary costs to get the asset in place and ready for use.

Accepted Answer

The acquisition costs of property, plant, and equipment should include all normal, reasonable, and necessary costs to get the asset in place and ready for use. This includes purchase price, transportation costs, installation costs, testing costs, and any other costs directly related to bringing the asset into working condition.

Question 20

Long-lived assets that are intangible in nature,used in the operations of the business,and not held for sale in the ordinary course of business are called fixed assets.

Accepted Answer

Long-lived assets that are intangible in nature and used in the operations of the business are called intangible assets, not fixed assets. Fixed assets typically refer to tangible assets like buildings, machinery, and equipment.

Quiz 10: Long-Term Assets: Fixed and Intangible