Deck 18: Property, Plant, and Equipment

Question 1

The cost of land reported on the balance sheet is not depreciated.

Answer 1

True

Question 2

A business purchased equipment for $52,500 in March of the current year. The machine is expected to provide useful output of 100,000 units over its expected useful life. At the end of its useful life, the machine has an expected residual value of $2,500. Actual output for the current year was 35,000 units. Using the units-of-output method, the current year depreciation expense is
$17,500.

Answer 2

True

Question 3

Real property includes land, land improvements, buildings and other structures attached to the land.

Answer 3

True

Question 4

Interest costs incurred during the construction of a long-term asset are capitalized as part of the asset cost along with permits fees, insurance and measurable direct overhead considered reasonable and necessary during the construction period.

Question 5

Land purchased for a future building site or as an investment would not be shown in the Property, Plant, and Equipment section of the balance sheet.

Question 6

The salvage value is the asset's expected value at the end of its useful life.

Question 7

The full disclosure principle requires businesses to show balance information in the depreciable asset accounts, accumulated depreciation amounts and methods used to compute depreciation expense.

Question 8

Accelerated depreciation methods allocate greater amounts of depreciation expense in the asset's early years of useful life which provides an investment incentive to businesses to take this
non-cash deduction and reduce current period income taxes.

Question 9

The book value of an asset is usually the same as the fair market value of the asset.

Question 10

Use of the sum-of-the-years'-digits method of depreciation results in lower depreciation charges in the early years of an asset's life and higher charges in the later years.

Question 11

Use of the sum-of-the-years'-digits method of depreciation results in higher depreciation charges in the early years of an asset's life and lower charges in the later years.

Question 12

Depreciation is the allocation of the cost of the asset less salvage value over the asset's estimated useful life.

Question 13

Net Book Value is the difference between the net acquisition cost of an asset and its fair market value.

Question 14

Book value is used in calculating a gain or loss on the disposal of an asset.

Question 15

Depreciation refers to the decrease in the market value of an asset.

Question 16

The conservatism principle requires choosing a depreciation method which matches the cost of the asset to the periods when the asset provides benefits to the business.

Question 17

The recorded cost of an asset should include both the net invoice price and all transportation and installation costs.

Question 18

Tangible personal property is depreciated but real property is not depreciated.

Question 19

Accumulated Depreciation is classified as an expense on the income statement.

Question 20

Book Value is the asset's cost less the accumulated depreciation to date.

Question 21

The entry to record the disposal of a worn out machine with cost of $8,000 and accumulated depreciation of $7,200 includes a debit of $800 to the Loss on Disposal account.

Question 22

The balance of an Accumulated Depletion account is subtracted from the related natural resource account to determine the book value of the natural resource.

Question 23

Gains and losses on the disposal of long term assets are considered routine operating activities.

Question 24

The sale of a depreciable asset for an amount less than its cost always requires the recognition of a loss in the financial records of the company.

Question 25

In computing the current period expense associated with the depletion of a natural resource, the depletion per unit is calculated by dividing the cost of the natural resource by the total estimated amount of the resource to be extracted and then multiplying by the units extracted.

Question 26

Under federal income tax rules, neither gains or losses are recognized on trade-ins.

Question 27

Depletion is the process of allocating the cost of natural resources to expense over the period in which the resource produces revenue.

Question 28

Patents, land held for investment and copyrights are intangible assets.

Question 29

The Haznot Company acquired a machine for a net cost of $21,600 in September of the current year. It is expected to have no salvage value after 5 years of intensive use. Under the
Sum-of-the-Years'-Digits method, the depreciation recorded in year two would be $6,720.

Question 30

The Modified Accelerated Cost Recovery System (MACRS)was designed to encourage taxpayers to invest in business property by providing them with an accelerated depreciation method that lowered or postponed payment of income tax.

Question 31

The Modified Accelerated Cost Recovery System (MACRS)utilizes a half-year convention in calculating depreciation expense regardless of the asset purchase date.

Question 32

The adjusting entry to record depletion for the period includes a credit to the Depletion Expense account.

Question 33

Before an asset is sold, the depreciation must be updated to the date of sale.

Question 34

Percentage depletion for tax purposes provides a business deduction even when the cost basis has been reduced to zero.

Question 35

The modified accelerated cost recovery system (MACRS)is acceptable for financial accounting purposes because it matches the costs of assets with the revenues produced by those assets.

Question 36

Depletion is the name given to the periodic allocation of the cost extracted natural resources over the period in which the resource produces revenues.

Question 37

When the units-of-output method is used to compute depreciation, the useful life of an asset is the total estimated number of units of output the asset will perform.

Question 38

For financial accounting purposes, when an asset is traded in for a similar asset, a gain is reported if the trade-in allowance exceeds the book value of the asset traded in.

Question 39

The acquisition cost of an intangible asset should be charged to expense over the shorter of its legal or useful life, whichever is shorter.

Question 40

Under GAAP and the conservatism principle, losses on trade-ins are recognized and recorded but gains on trade-ins are not allowed.

Question 41

The Modified Accelerated Cost Recovery System (MACRS)is required for purposes.

Question 42

The acquisition cost of an intangible asset is amortized over its legal life or life, whichever is shorter.

Question 43

A company uses the units-of-output method of computing depreciation on its fleet of cars. A car that costs $44,800 is expected to have a useful life of 85,000 miles and an expected salvage value of $4,000. The rate for each mile is .

Question 44

Each year an intangible asset's value is assessed which is then compared to the existing book value in order to determine if impairment of the asset's value must be recorded.

Question 45

If a depreciable asset is sold for an amount that is less than the asset's book value, a(n)is recognized.

Question 46

When an asset is traded for a similar asset, if the trade-in allowed is less than the book value of the asset, the loss is not recognized for financial accounting purposes.

Question 47

A company uses the units-of-output method of computing depreciation on its fleet of cars. A car that costs $65,000 is expected to have a useful life of 120,000 miles and an expected salvage value of $2,600. The rate for each mile is .

Question 48

The normal balance of Accumulated Depreciation is a(n) .

Question 49

All costs incurred to purchase an asset and get it in proper working condition, such as net purchase price, transportation costs, installation costs, and costs of adjustments or modifications are referred to as .

Question 50

The allocation of the acquisition cost of an intangible asset to expense during its estimated useful life is called .

Question 51

The difference between the acquisition cost of an asset and its accumulated depreciation is called the .

Question 52

When the sum-of-the-years'-digits method is used to depreciate an asset with a four-year life, the depreciation expense is computed by multiplying a fractional part of the asset's cost less the salvage value. The denominator of the fraction each year is the number .

Question 53

The periodic transfer of the acquisition cost to expense when minerals or other natural resources are physically removed during production is .

Question 54

In determining the impairment of a long-term asset, the test is used to compare the asset's net book value with estimated cash flows from the asset's future use.

Question 55

If the property used in a business has physical substance and is not real estate it is
property.

Question 56

The entry to record amortization of the acquisition cost of an intangible asset includes a credit directly to the intangible asset account.

Question 57

When an asset is acquired by trading in an asset already owned in exchange for the new one, the amount received on the trade-in is called the .

Question 58

Patents, trademarks, and copyrights are examples of assets.

Question 59

To calculate declining-balance depreciation, the of an asset is multiplied by a predetermined appropriate rate.

Question 60

The declining-balance method and the sum-of-the-years'-digits method are referred to as
methods of depreciation.

Question 61

The book value of an asset is:

A)the market value of the asset.
B)the acquisition cost shown in the asset account less the estimated salvage value.
C)the portion of the asset's cost that has not yet been charged to expense.
D)the replacement cost of the asset.

Question 62

At the beginning of the current year, a firm purchases an asset for $60,000 and estimates that it will have a useful life of five years and a salvage value of $5,000. Under the straight-line method, the depreciation expense for the first year of the asset's useful life is:

A)$12,000.
B)$11,000.
C)$9,000.
D)$20,000.

Question 63

If an asset is purchased at the beginning of a year, the method of depreciation that results in the same amount of depreciation expense each year is the:

A)units-of-output method.
B)declining-balance method.
C)sum-of-the-years'-digits method.
D)straight-line method.

Question 64

An example of real property is:

A)building.
B)factory equipment.
C)computer equipment.
D)machinery.

Question 65

A firm purchases an asset for $60,000 and estimates that it will have a useful life of five years and a salvage value of $5,000. Under the straight-line method, the balance in the accumulated depreciation account, after the second year, will be:

A)$12,000.
B)$24,000.
C)$11,000.
D)$22,000.

Question 66

An asset that cost $64,000 was sold for $20,000 cash. Accumulated depreciation on the asset was
$41,000. The entry to record this transaction includes the recognition of:

A)a gain of $3,000.
B)a loss of $5,000.
C)neither a gain nor a loss.
D)a loss of $3,000.

Question 67

A company purchased equipment for $16,000 cash. In addition, the company paid $1,120 in sales taxes, $930 to have the equipment delivered and $500 to have it installed. The cost of this asset for financial accounting purposes is:

A)$16,000.
B)$17,120.
C)$18,050.
D)$18,550.

Question 68

Equipment that cost $32,000 was sold for $10,000 cash. Accumulated depreciation on the asset was $24,000. The entry to record the sale includes a credit to the Equipment account for:

A)$8,000.
B)$10,000.
C)$24,000.
D)$32,000.

Question 69

At the beginning of the current year a firm purchased an asset for $60,000 and estimates that it will have a useful life of five years and a salvage value of $5,000. Under the double-declining-balance method, the depreciation expense for the first year of the asset's useful life is:

A)$24,000.
B)$22,000.
C)$12,000.
D)$9,000.

Question 70

Which method of depreciation is not acceptable for financial accounting purposes?

A)the straight-line method
B)the sum-of-the-years'-digits method
C)the declining-balance method
D)the modified accelerated cost recovery system (MACRS)

Question 71

Assume that a business trades in an old cash register for a new one. Under the income tax method:

A)a gain may be recognized, but a loss cannot be recorded.
B)the cost of the new asset is recorded as the cash paid for the new asset.
C)the cost of the new asset is recorded as the book value of the old asset plus the cash amount paid or to be paid.
D)the asset account is debited for the difference between the original cost of the old asset and the fair market value of the new asset.

Question 72

The entry to record the sale of equipment used in a business may include a debit to:

A)the Equipment account.
B)the Accumulated Depreciation-Equipment account.
C)the Gain on Sale of Equipment account.
D)the Depreciation Expense account.

Question 73

Harrod's Landscape Artists acquired a new truck for $42,000 less the trade-in allowance of $6,000 for his old truck. The old truck was purchased for $31,000 and had a book value of $5,000 on the exchange date. The entry to record the acquisition of the new truck will include a debit to the Truck account for:

A)$42,000.
B)$41,000.
C)$37,000.
D)$36,000.

Question 74

An asset that cost $35,000 was sold for $10,000 cash. Accumulated depreciation on the asset was
$29,000. The entry to record this transaction includes the recognition of:

A)a gain of $10,000.
B)a loss of $6,000.
C)a gain of $6,000
D)a gain of $4,000.

Question 75

An asset that cost $25,000 was sold for $8,000 cash. Accumulated depreciation on the asset was
$16,000. The entry to record this transaction includes the recognition of:
A)a gain of $8,000.

A)neither a gain nor a loss.
B)a loss of $1,000.
D)a gain $1,000.

Question 76

At the beginning of the current year a firm purchased an asset for $60,000 and estimates that it will have a useful life of five years and a salvage value of $5,000. Under the double-declining-balance method, the depreciation expense for the second year of the asset's useful life is:

A)$14,400.
B)$22,000.
C)$7,200.
D)$9,600.

Question 77

Which method of depreciation is often used to depreciate the cost of cars, trucks and other motor vehicles?
A)the declining-balance method

A)the straight-line method
B)the units-of-output method
D)the sum-of-the-years'-digits method

Question 78

A company purchased equipment on account for $25,000. They paid within the discount period and saved 1% of the purchase cost. In addition, the company paid $1,500 to have the equipment delivered and $500 to have it installed. In setting up the machine, the maintenance assistant caused
$300 in damages which was repaired before the machine was put into service. The cost of this asset for financial accounting purposes is:

A)$25,250.
B)$26,750.
C)$27,000.
D)$27,300.

Question 79

The cost of an intangible asset:

A)should be immediately charged to expense if the cost was incurred to develop the intangible asset.
B)should be immediately charged to expense whether the intangible asset was developed internally or purchased.
C)should be recorded as an asset whose cost, like the cost of land, will not be allocated to expense.
D)should be charged to expense over the life of the intangible asset.

Question 80

Harrod's Landscape Artists acquired a new truck for $42,000 less the trade-in allowance of $4,000 for his old truck. The old truck was purchased for $31,000 and had a book value of $5,000 on the exchange date. The entry to record the acquisition of the new truck will include a:

A)credit to Gain on Trade-in of Truck $1,000.
B)credit to Truck (old)for $5,000.
C)debit to Loss on Trade-in of Truck for $1,000.
D)credit to cash for $4,000.