Deck 9: Plant Assets and Intangibles

Question 1

Which of the following is a characteristic of a plant asset?

A) The asset is used in the production of income for the business.
B) The asset is available for resale to customers in the ordinary course of business.
C) The asset lacks physical form.
D) Both A and B are characteristics of a plant asset.

Answer 1

The asset is used in the production of income for the business.

Question 2

Hastings Company has purchased a group of assets for $350,000. The assets and their market values are listed as follows:
$$\begin{array} { | l | r | } \hline \text { Land } & \$ 125,000 \\\hline \text { Equipment } & 75,000 \\\hline \text { Building } & 200,000 \\\hline\end{array}$$ Which of the following amounts would be debited to the Land account?

A) $125,000
B) $109,375
C) $ 65,625
D) $175,000

Answer 2

$109,375

Question 3

A company's accountant expenses a payment that should be capitalized. Which of the following is TRUE?

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

Answer 3

Expenses are overstated.

Question 4

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

A) The cost to replace the transmission of the company car
B) The cost to change the company car's oil
C) The cost to overhaul the company car's engine
D) All of the above

Question 5

Which of the following are expenditures that are periodic and routine?

A) Ordinary repairs
B) Asset expenditures
C) Extraordinary repairs
D) Capital expenditures

Question 6

Which of the following is a common ethical dilemma related to fixed assets?

A) Should goodwill be amortized?
B) Should expenses be recorded as capitalized costs?
C) Should natural resources be depleted?
D) Should old assets be replaced or repaired?

Question 7

Costs that are not part of the land account costs include:

A) flood prevention.
B) streets.
C) park.
D) installing fences.

Question 8

Normal expenditures for repairs and maintenance would be:

A) capitalized.
B) expensed.
C) added to the value of the asset.
D) subtracted from the value of the asset.

Question 9

Assets that provide benefits for a single accounting period are called:

A) property, plant and equipment.
B) long-term assets.
C) fixed assets.
D) current assets.

Question 10

three major depreciation methods are straight-line, declining-balance, and specific identification.

Question 11

of the following items is a factor to consider when computing depreciation expense?

A) The useful life of the asset
B) The residual value of the asset
C) The cost of the asset
D) All of the above

Question 12

of the following factors are estimates?

A) The cost of the asset
B) The useful life of the asset
C) The residual value of the asset
D) Both B and C

Question 13

Which of the following depreciation methods allocates a fixed amount of depreciation to each: miles driven, copies made, or some other number of components?

A) Straight-line
B) Declining-balance
C) Units-of-production
D) All of the above

Question 14

Which of the following depreciation methods writes off more depreciation near the start of an asset's life than in later years?

A) Units-of-production
B) Straight-line
C) Declining-balance
D) All of the above

Question 15

Which of the following is the purpose of accumulated depreciation?

A) Accumulated depreciation's purpose is to provide details about the cost expiration of natural assets.
B) Accumulated depreciation's purpose is to provide details about the cost expiration of intangible assets.
C) Accumulated depreciation is an expense.
D) Accumulated depreciation's purpose is to capture all the depreciation taken to date on plant assets.

Question 16

Which of the following depreciation methods does NOT use a residual value in the depreciation formula?

A) Units-of-production
B) Declining-balance
C) Straight-line
D) All of the above

Question 17

Which of the following depreciation methods is commonly used by companies for their financial statements?

A) Declining-balance
B) Units-of-production
C) Straight-line
D) All of the above methods are used about equally

Question 18

On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is depreciation expense for 2011 if the company uses double-declining balance depreciation?

A) $6,667
B) $6,000
C) $13,333
D) $12,000

Question 19

On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is the book value of the machine at the end of 2012 if the company uses double-declining balance depreciation?

A) $20,000
B) $17,778
C) $13,333
D) $28,000

Question 20

On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is depreciation expense for 2011 if the company uses straight-line depreciation?

A) $6,667
B) $13,333
C) $12,000
D) $6,000

Question 21

On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is depreciation expense for 2012 if the company uses straight-line depreciation?

A) $6,000
B) $9,000
C) $13,333
D) $10,000

Question 22

On January 1, 2011, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2011 and 12,000 in 2012.
What is the book value of the machine at the end of 2012 if the company uses units-of-production depreciation?

A) $20,000
B) $10,000
C) $17,778
D) $28,000

Question 23

In 2011, a company's accountant expenses a payment that should be recorded as equipment. In 2012, which of the following is TRUE?

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

Question 24

Which of the following are acceptable methods of computing depreciation?

A) Units-of-production
B) Straight-line
C) Declining-balance
D) All of the above

Question 25

Furniture is an example of a(n):

A) amortizable fixed asset.
B) depletable fixed asset.
C) depreciable fixed asset.
D) B or C would be correct.

Question 26

An asset costs $80,000 and has a salvage value of $7,000. It has a four-year life. Using double- declining-balance depreciation, year 1 depreciation would be:

A) $20,000.
B) $40,000.
C) $18,250.
D) $36,500.

Question 27

An asset costs $80,000 and has a salvage value of $7,000. It has a four-year life. Using double- declining-balance depreciation, year 2 depreciation would be:

A) $15,000.
B) $15,437.50.
C) $20,000.
D) $18,250.

Question 28

A factory has a machine costing $76,000. It has a 5-year life and an estimated capacity of 150,000 parts. The salvage value of the machine is 20% of its cost. If 35,000 parts are machined in the first year of operation, what is the depreciation expense?

A) $17,733 rounded
B) $14,187 rounded
C) $15,200
D) $12,160

Question 29

An asset has a life of 3 years. It cost $90,000 and has an expected salvage value of $15,000. Using double-declining-balance depreciation, what is the depreciation for year 2?

A) $29,700
B) $20,000
C) $15,000
D) $50,000

Question 30

Which of the following depreciation methods is used by MOST companies for their tax returns?

A) Declining-balance
B) Straight-line
C) Units-of-production
D) All of the above methods are used about equally

Question 31

A company purchased a truck for $50,000 on July 1, 2009. The truck has an estimated useful life of 5 years and will have no salvage value. It is estimated that the truck can be driven for 150,000 miles. The truck was driven for 18,000 miles during 2009. If the goal is to reduce taxable income to the lowest amount, which method should be elected and how much depreciation can be deducted in 2009?

A) Units-of-production, $6,000
B) Only straight-line can be elected
C) Double declining-balance, $10,000
D) Straight-line, $5,000

Question 32

A company purchased a computer on July 1, 2009. The computer has an estimated useful life of 5 years and will have no salvage value and was purchased for $10,000. It is estimated that the computer can be used for 5,000 hours. The computer was used for 450 hours during 2009. If the goal is to reduce taxable income to the lowest amount, which method should be elected and how much depreciation can be deducted in 2009?

A) Units-of-production, $900
B) Straight-line, $1,000
C) Double declining-balance, $2,000
D) None of the above

Question 33

Which depreciation method is used most often for tax purposes?

A) Units of production
B) Straight-line
C) Double-declining-balance
D) None of the above

Question 34

If a company uses MACRS to compute depreciation, salvage value is:

A) added to the straight-line depreciation.
B) subtracted from the cost of the asset.
C) omitted from the formula.
D) added to the cost of the asset.

Question 35

gain on the exchange of a like-kind plant asset is not recorded, but results in a smaller basis in the new asset received.

Question 36

is a gain on disposal of an asset recorded?

A) A gain is recorded when accumulated depreciation is less than the cash received.
B) A gain is recorded when the asset's residual value is less than the cash received.
C) A gain is recorded when the asset is sold for a price less than the asset's book value.
D) A gain is recorded when the asset is sold for a price greater than the asset's book value.

Question 37

is a loss on disposal of an asset recorded?

A) A loss is recorded when the asset is sold for a price greater than the asset's book value.
B) A loss is recorded when accumulated depreciation is less than the cash received.
C) A loss is recorded when the asset's residual value is less than the cash received.
D) A loss is recorded when the asset is sold for a price less than the asset's book value.

Question 38

asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much depreciation is deducted in the fourth year of use if the straight line method of depreciation was used?

A) $1,000
B) $2,000
C) $667
D) None

Question 39

asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $3,000 at the beginning of the fourth year?

A) $1,000 gain
B) $2,000 loss
C) No gain or loss
D) $1,000 loss

Question 40

asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $3,000 at the end of the fourth year?

A) $1,000 loss
B) $1,000 gain
C) $2,000 loss
D) No gain or loss

Question 41

An asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $1,000 at the beginning for the fourth year?

A) No gain or loss
B) $2,000 loss
C) $1,000 gain
D) $1,000 loss

Question 42

An asset was purchased for $12,000. The asset's estimated useful life was 3 years and its residual value was $2,000. How much gain or loss is reported if the asset is sold for $5,333 at the beginning for the third year if the straight line method of depreciation was used?

A) $1,000 loss
B) $1,000 gain
C) No gain or loss
D) $2,000 loss

Question 43

Kelly Petroleum Products owns furniture that was purchased for $19,600. Accumulated depreciation is $17,300. The furniture was sold for $3,800. Which of the following is the correct entry to record the transaction?

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Accumulated depreciation } & & 17,300 & \\\hline \text { Cash } & & 3,800 & \\\hline & \text { Gain on sale of furniture } & & 1,500 \\\hline & \text { Furniture } & & 19,600 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Accumulated depreciation } & & 17,300 & \\\hline \text { Cash } & & 3,800 & \\\hline & \text { Furniture } & & 31,100 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Furniture } & & 19,600 & \\\hline \text { Gain on sale of furniture } & & 3,800 & \\\hline & \text { Cash } & & 2,700 \\\hline & \text { Accumulated depreciation } & & 17,300 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | l | l | } \hline \text { Furniture } & & 19,600 & \\\hline \text { Cash } & & 2,700 & \\\hline & \text { Gain on sale of furniture } & & 5,000 \\\hline & \text { Accumulated depreciation } & & 17,300 \\\hline\end{array}$$

Question 44

Kelly Petroleum Products owns fully depreciated equipment that was purchased for $26,500. The equipment had an estimated useful life of 8 years and an estimated residual value of $2,500. The equipment was sold for $2,700. Which of the following is the correct entry to record the transaction?

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Accumulated depreciation } & & 26,500 & \\\hline \text { Cash } & & 2,700 & \\\hline & \text { Gain on sale of equipment } & & 2,700 \\\hline & \text { Equipment } & & 26,500 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Accumulated depreciation } & & 24,000 & \\\hline \text { Cash } & & 2,700 & \\\hline & \text { Gain on sale of equipment } & & 200 \\\hline & \text { Equipment } & & 26,500 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Accumulated depreciation } & & 26,500 & \\\hline & \text { Cash } & & 2,700 \\\hline & \text { Equipment } & & 23,800 \\\hline\end{array}$$
D) None of the above

Question 45

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $8,500. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Refrigeration equipment } & & 12,000 & \\\hline \text { Accumulated depreciation } & & 8,500 & \\\hline \begin{array} { l } \text { Gain on exchange of } \\\text { equipment }\end{array} & & 500 & \\\hline & \text { Cash } & & 10,000 \\\hline & \text { Refrigeration equipment } & & 10,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Refrigeration equipment } & & 12,000 & \\\hline \text { Accumulated depreciation } & & 8,500 & \\\hline \begin{array} { l } \text { Loss on exchange of } \\\text { equipment }\end{array} & & 500 & \\\hline & & & 10,000 \\\hline & \text { Cash } & & 10,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Refrigeration equipment } & & 11,500 & \\\hline \text { Accumulated depreciation } & & 8,500 & \\\hline & \text { Cash } & & 10,000 \\\hline & \text { Refrigeration equipment } & & 10,000 \\\hline\end{array}$$
D) None of the above

Question 46

Kelly Petroleum Products owns furniture that was purchased for $25,000. Accumulated depreciation is $22,000. The furniture was sold for $3,900. Which of the following is the correct entry to record the transaction?

A) $$\begin{array} { | l | l | l | l | } \hline \text { Accumulated depreciation } & & 22,000 & \\\hline \text { Cash } & & 3,900 & \\\hline & \text { Gain on sale of furniture } & & 900 \\\hline & \text { Furniture } & & 25,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | l | l | } \hline \text { Furniture } & & 25,000 & \\\hline \text { Gain on sale of furniture } & & 900 & \\\hline & \text { Cash } & & 3,900 \\\hline & \text { Accumulated depreciation } & & 22,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | l | l | } \hline \text { Furniture } & & 25,000 & \\\hline \text { Cash } & & 3,900 & \\\hline & \text { Gain on sale of furniture } & & 900 \\\hline & \text { Accumulated depreciation } & & 22,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | l | } \hline \text { Accumulated depreciation } & & 22,000 & \\\hline \text { Cash } & & 3,900 & \\\hline & \text { Furniture } & & 25,900 \\\hline\end{array}$$

Question 47

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $7,400. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Refrigeration equipment } & & 10,000 & \\\hline \text { Accumulated depreciation } & & 10,000 & \\\hline \begin{array} { l } \text { Gain on exchange of } \\\text { equipment }\end{array} & & 600 & \\\hline & \text { Cash } & & 12,000 \\\hline & \text { Refrigeration equipment } & & 7,400 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Refrigeration equipment } & & 12,000 & \\\hline \text { Accumulated depreciation } & & 7,400 & \\\hline & \text { Cash } & & 10,000 \\\hline & \text { Refrigeration equipment } & & 9,400 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \text { Refrigeration equipment } & & 12,000 & \\\hline \text { Accumulated depreciation } & & 7,400 & \\\hline \begin{array} { l } \text { Loss on exchange of } \\\text { equipment }\end{array} & & 600 & \\\hline & \text { Cash } & & 10,000 \\\hline & \text { Refrigeration equipment } & & 10,000 \\\hline\end{array}$$
D) None of the above

Question 48

To determine if there is a gain or loss on a disposal of an asset, you must compare:

A) market value and book value.
B) market value and salvage value.
C) market value and cost.
D) book value and salvage cost.

Question 49

Accumulated depletion is a contra-liability account.

Question 50

would not be written-off by the depletion method?

A) Oil reserves
B) Timber reserves
C) Land
D) Coal reserves

Question 51

patent is an exclusive right to reproduce and sell a book, musical composition, film, other work of art, or computer program, and must be amortized over the useful life of the patent.

Question 52

Goodwill of $20,000 was recorded upon the purchase of Smith Repair Parts. The company has been very successful and has increased in value during its first year of operation under its new management. How much amortization should be recorded for the first year?

A) $4,000
B) $-0-
C) $1,000
D) $2,000

Question 53

To write-off the cost of a copyright is an example of:

A) depreciation.
B) amortization.
C) depletion.
D) deterioration.

Question 54

A _________ bars other manufacturers from using the same name for a product.

A) trademark
B) patent
C) copyright
D) cease and desist order