Deck 10: Property, Plant, and Equipment; Goodwill; and Intangibles

Question 1

In a lump-sum purchase of assets, the total cost of the assets is divided among the assets according to their relative market values.

Answer 1

True

Question 2

The cost of removing an old building from acquired land would be a part of the land account.

Answer 2

True

Question 3

If a company constructs its own assets, the cost of the building may include the cost of interest on money borrowed to finance the construction.

Answer 3

True

Question 4

Construction in progress is a current liability if the construction period is less than one year.

Question 5

The cost of improvements to leased assets appears on the business's balance sheet as leasehold improvements.

Question 6

Provincial sales taxes (PST)paid on the purchase of property, plant, and equipment is included in the cost of the asset.

Question 7

Leasehold improvements are not subject to amortization.

Question 8

The renewal option period is excluded from the amortization period for leasehold improvements.

Question 9

The relative-fair-value method is the most conservative method of amortizing buildings and equipment.

Question 10

The cost of land includes fencing, paving, sprinkler systems, and lighting.

Question 11

Goods and services tax (GST)paid on the purchase of an asset is recoverable only if the asset acquired is used in the business as property, plant, and equipment.

Question 12

Transportation charges and insurance while in transit are part of the cost of equipment and therefore debited to the equipment account.

Question 13

Betterments must be expensed as capitalizing the transaction would affect the subsequent calculations of amortization.

Question 14

Expenditures that increase the asset's capacity or efficiency and/ or extend its useful life are called betterments.

Question 15

All of the following are property, plant and equipment except:

A)land.
B)prepaid taxes.
C)a building.
D)equipment.

Question 16

The only requirement an asset must meet in order for it to be recorded as property, plant, and equipment is that it have a useful life beyond one year.

Question 17

Land improvements are not subject to amortization.

Question 18

The cost of land improvements includes fencing, paving, sprinkler systems, and lighting.

Question 19

The cost of a property, plant, and equipment asset includes the purchase price, provincial sales taxes, purchase commissions, and all other amounts paid to acquire the asset and to make it ready for its intended use.

Question 20

Paving, fencing, and exterior lighting should be debited to the land account.

Question 21

All of the following are characteristics of property, plant and equipment except:

A)tangible.
B)long-lived.
C)held for investment.
D)used in the business.

Question 22

The cost of land would include all of the following except:

A)delinquent property taxes paid by the purchaser.
B)net purchase price.
C)grading of the land.
D)paving.

Question 23

A company purchased a used machine for $80,000. The machine required installation costs of $8,000 and insurance while in transit of $500. At which of the following amounts would the equipment be recorded?

A)$80,500
B)$88,500
C)$88,000
D)$80,000

Question 24

Cycle Company Ltd. made a lump-sum purchase of land, buildings, and equipment for $630,000. The appraised market values for the items are respectively, $210,000, $322,000, and $168,000. Cycle Company Ltd. should debit the equipment account for:

A)$289,800.
B)$189,000.
C)$151,200.
D)$168,000.

Question 25

Acme Investments plans to develop a shopping center. In the first quarter, they spent the following amounts: $$\begin{array} { | l | r| } \hline \text { Purchase land } & \$ 90,000 \\\hline \text { Surveys and legal fees } & 1,200 \\\hline \text { Land clearing } & 5,000 \\\hline \text { Install fences around the property } & 4,600 \\\hline \text { Install lighting and signage } & 2,600 \\\hline\end{array}$$ What amount should be recorded as the land cost?

A)$90,000
B)$91,200
C)$103,400
D)$96,200

Question 26

A lump-sum purchase of assets requires an allocation of the purchase price among the assets acquired. This allocation method is called the:

A)book-value method.
B)relative-fair-value method.
C)accumulated method.
D)betterment approach.

Question 27

Jackson Construction Company Ltd. paid $42,000 for equipment with a fair market value of $46,000. Jackson Construction Company Ltd. will record equipment at:

A)$42,000.
B)$46,000.
C)either $42,000 or $46,000.
D)$44,000 (average).

Question 28

Which of the following assets is never amortized?

A)land
B)land improvements
C)patents
D)leasehold improvements

Question 29

Utsman Enterprises Ltd. purchased land, buildings, and equipment for $2,400,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The equipment account will be debited for:

A)$500,000.
B)$525,000.
C)$410,156.
D)$480,000.

Question 30

Lumac Corporation purchased land and a building for $1,500,000. An appraisal indicates that the land's value is $650,000 and the building's value is $975,000. The amount that would be debited to the building account is:

A)$1,056,250.
B)$900,000.
C)$975,000.
D)$995,000.

Question 31

Grubbs Company Ltd. acquired land and buildings for $1,350,000. The land is appraised at $475,000 and the buildings are appraised at $775,000. The debit to the buildings account will be:

A)$712,500.
B)$675,000.
C)$837,000.
D)$775,000.

Question 32

The cost of a building would include all of the following except:

A)architectural fees.
B)clearing and grading the land prior to construction of the building.
C)cost of repairs made to an old building to get it ready for occupancy.
D)costs of construction.

Question 33

Five hundred hectares of land are purchased for $120,000. Additional costs include $5,000 real estate commission, $10,000 for removal of an old building, $6,000 for paving, and $800 delinquent property taxes. What is the cost of the land?

A)$141,800
B)$141,000
C)$135,000
D)$135,800

Question 34

Talbert Company Ltd. purchased land, buildings, and equipment for $3,000,000. The land has been appraised at $865,000, the buildings at $1,175,000, and the equipment at $510,000. The land account will be debited for:

A)$1,382,353.
B)$1,017,647.
C)$600,000.
D)$865,000.

Question 35

The cost of fencing should be charged to:

A)repairs expense.
B)land improvements.
C)land.
D)improvements expense.

Question 36

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

A)equity expenditures.
B)salvage expenditures.
C)the cost of an asset.
D)revenue expenditures.

Question 37

The cost of paving a parking lot should be charged to:

A)a natural resource.
B)land improvements.
C)land.
D)repairs and maintenance expense.

Question 38

Jet Tool Company Ltd. paid $184,000 for equipment and a building with fair market values of $100,000 and $150,000, respectively. Jet Tool Company Ltd. should debit the equipment account for:

A)$73,600.
B)$184,000.
C)$110,400.
D)$100,000.

Question 39

Which of the following would not be included in the building account?

A)cost of repairing roof that was damaged prior to the purchase of the building
B)cost of demolishing an old building to make room for construction
C)architect fees
D)building permits

Question 40

Which of the following is included in the cost of a plant asset?

A)amounts paid to ready the asset for its intended use
B)regular maintenance cost
C)normal repair cost
D)wages of workers who use the asset

Question 41

Double-declining-balance amortization computes annual amortization by multiplying the asset's book value by two times the straight-line rate.

Question 42

A machine acquired on April 1 would be amortized a total of eight months for the year ended December 31.

Question 43

With respect to amortization, a business should match an asset's expense against the revenue the asset produces.

Question 44

Durham Bike Shop Ltd.'s year end is December 31. Some of the company's transactions are as follows: Durham Bike Shop Ltd. plans to use the straight-line amortization method for the building.
April 15 Purchased a used pickup truck for $10,500 cash. The truck sells for $15,900 when new. The truck is expected to be used for eight years and driven 120,000 km. The estimated salvage value is $3,900. It will be amortized using the units-of-production method.
April 16 Installed heavy-duty racks costing $1,400 that will enable the truck to carry several bicycles.
June 30 Paid John's garage for an oil change ($35)and the replacement of a muffler ($425).
Dec. 31 Recorded amortization on the assets. The truck was driven 9,000 kilometres since it was purchased.
Record the above transactions of Durham Bike Shop Ltd. Round all amounts to the nearest dollar. Explanations are not required.

Question 45

Large Construction Ltd. bought land, a building, and equipment for a lump-sum of $1,800,000. Following are the appraised fair market values of the newly acquired assets:

Question 46

Record journal entries for the following transactions involving property, plant and equipment for Blankenship Company Ltd.:
a)Purchased equipment costing $100,000.
b)Paid freight to have equipment delivered, $500.
c)Paid $1,000 to have equipment installed.
d)Paid $50,000 to have a similar piece of equipment overhauled.
e)Paid $100 for periodic maintenance to the new equipment.

Question 47

Which of the following expenditures would be debited to an expense account?

A)cost to rebuild the company car's engine
B)cost to replace the engine of the company car
C)cost to paint the car after a fender bender
D)cost to replace the transmission of the company car

Question 48

A fully amortized asset always has a book value of zero.

Question 49

Jane Browning purchased a tract of land and contracted with a builder to build an office building on the property. She also engaged other contractors for lighting, fencing, paving, etc.
Based on the following transactions, determine the total costs allocated to the land, building, and land improvements accounts.
a)Purchased land for $125,000.
b)Paid a contractor $150,000 to design and build the office building.
c)Paid a demolition company $20,000 to remove an old structure on the property.
d)Paid $15,000 in delinquent taxes on the property.
e)Paid $20,000 for fencing.
f)Paid $10,000 for paving.
g)Paid an electrical contractor $15,000 for outdoor lighting.

Question 50

Little Construction Ltd. bought land, a building, and equipment for a lump-sum of $600,000. Following are the appraised fair market values of the newly acquired assets: Determine the cost of each asset. Round to the nearest dollar if necessary.

Question 51

Book value is determined by subtracting the residual value from the cost of an asset.

Question 52

Double-declining-balance amortization computes annual amortization by multiplying the asset's book value less residual value by two times the straight-line rate.

Question 53

A company's accountant capitalizes a payment that should be recorded as an expense. Which of the following is true?

A)Net income is overstated.
B)Revenues are understated
C)Assets are understated.
D)Liabilities are overstated.

Question 54

Amortization is a process of asset valuation.

Question 55

For an asset that generates revenue fairly evenly over time, which is the most appropriate method of amortization?

A)units-of-production method
B)double declining balance method
C)straight-line method
D)declining-balance method

Question 56

An amortizable asset's carrying value is the assets cost less accumulated amortization.

Question 57

Using the double-declining balance method of amortization means that the book value should not be reduced below the residual value.

Question 58

A company's accountant capitalizes a payment that should be recorded as an expense. Which of the following is true?

A)Revenue is overstated.
B)Expenses are overstated.
C)Assets are overstated.
D)Liabilities are overstated.

Question 59

Cost minus salvage value is called amortizable cost.

Question 60

Amortization is a process of allocating the cost of an asset over its useful life.

Question 61

A fully amortized asset no longer has value to the business.

Question 62

Which amortization method generally results in the greatest amortization expense in the first full year of an asset's life?

A)straight-line
B)units-of-production
C)double-declining-balance
D)either straight-line or double-declining-balance

Question 63

Ronnie's Wings acquired equipment on January 1, 2019, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2022, Ronnie's Wings revised the total useful life of the equipment to 12 years. Compute amortization expense for the year ended December 31, 2022, if Ronnie's Wings uses straight-line amortization.

A)$21,389
B)$24,167
C)$18,125
D)$16,042

Question 64

If a firm changes its estimate of the useful life of an asset, the firm must recalculate amortization expense for each previous year since the asset was placed in service.

Question 65

Book value is defined as:

A)cost minus residual value.
B)cost minus accumulated amortization.
C)current market value minus residual value.
D)current market value minus accumulated amortization.

Question 66

Which of the following is false?

A)Amortization is a process of valuation.
B)Amortization expense is the amortized amount for the current period only.
C)Accumulated amortization is that portion of the property, plant, and equipment asset's cost that has already been recorded as an expense.
D)Book value is cost less accumulated amortization.

Question 67

To measure amortization for a property, plant, and equipment asset, all of the following must be known except:

A)estimated useful life.
B)historical cost.
C)current market value.
D)estimated residual value.

Question 68

Which of the following is not a recognized amortization method?

A)straight-line method
B)lower-of-cost-or-market method
C)units-of-production method
D)double-declining-balance method

Question 69

The process of allocating a property, plant, and equipment asset's cost to expense over the period the asset is used is called:

A)cash-basis accounting.
B)amortization.
C)accruing.
D)direct write-off.

Question 70

A revision of an estimate that extends the asset's useful life:

A)requires restatement of prior years' financial statements.
B)is ignored until the last year of the asset's life.
C)decreases amortization expense per year for the remaining years of the asset's life.
D)increases amortization expense per year for the remaining years of the asset's life.

Question 71

Amortizable cost equals cost minus:

A)residual value.
B)book value.
C)accumulated amortization.
D)current year's amortization expense.

Question 72

If amortization expense for an asset is the same every year, which method is being used?

A)straight-line
B)units-of-production
C)double-declining-balance
D)either units-of-production or double-declining-balance

Question 73

Canada Revenue Agency specifies the maximum amortization a taxpayer may deduct for income tax purposes.

Question 74

On January 1, 2019, Bithe Smarney & Co. purchased $35,500 worth of office equipment with an estimated useful life of seven years and an estimated residual value of $4,000. Bithe Smarney uses the straight-line method of amortization for all office equipment. At the beginning of 2022, Bithe Smarney revised its estimate of the useful life of the office equipment to a total of nine years. The 2022 amortization expense is:

A)$2,000.
B)$3,667.
C)$2,444.
D)$3,000.

Question 75

The entry to record amortization on a building is:

A) $$\begin{array}{|l|}\hlineAmortization ~Expense\\\hlineAccumulated ~Amortization-Building\\\hline\end{array}$$
B) $\begin{array}{|l|}\hlineAmortization ~Expense\\\hlineBuilding\\\hline\end{array}$
C) $\begin{array}{|l|}\hlineBuilding~ Expense\\\hlineAccumulated ~Building ~Expense\\\hline\end{array}$
D) $\begin{array}{|l|}\hlineBuilding~ Expense\\\hlineBuilding\\\hline\end{array}$

Question 76

The amortization method that initially ignores residual value in the initial calculation is:

A)double-declining-balance.
B)straight-line.
C)both double-declining-balance and straight-line.
D)units-of-production.

Question 77

Incorrectly treating a repair expenditure as a betterment:

A)understates expenses and understates owner's equity.
B)understates expenses and understates assets.
C)overstates expenses and understates net income.
D)overstates assets and overstates owner's equity.

Question 78

Ronnie's Wings acquired equipment on January 1, 2019, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2022, Ronnie's Wings revised the total useful life of the equipment to eight years. Compute amortization expense for the year ended December 31, 2022, if Ronnie's Wings uses straight-line amortization.

A)$43,500
B)$38,500
C)$60,000
D)$27,500

Question 79

Which of the following statements is true?

A)Accumulated amortization is that portion of a property, plant, and equipment asset's cost that has already been recorded as an expense.
B)Amortization is a process of valuation.
C)Amortization represents the cash a business has set aside to replace assets as they become fully amortized.
D)Accumulated amortization is classified as a liability account on the balance sheet.

Question 80

Multiplying the asset's book value by a constant percentage is the computation of amortization under:

A)the double-declining-balance method.
B)the units-of-production method.
C)the straight-line method.
D)either double-declining-balance method or straight-line method.