Deck 7: Plant Assets Intangibles

Question 1

Any cost to get machinery up and running and ready for its intended use should be part of the cost of the asset and depreciated.

Answer 1

True

Question 2

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

A) set up costs.
B) expenditures .
C)maintenance expense.
D)the cost of an asset.

Answer 2

D

Question 3

The depreciation process is in accordance with the matching principle.

Answer 3

True

Question 4

An asset with no physical form, but that has special rights to current and expected future benefits is a(n):

A)intangible asset.
B)natural resource.
C)plant asset.
D)fixed asset.

Question 5

The cost of any plant asset is the sum of all of the costs incurred to bring the asset to its intended use.

Question 6

Which of the following should be included in the cost of land?

A)Construction cost of a parking lot
B)Landscaping
C)Real estate brokerage commission
D)Lighting

Question 7

Costs of land improvements are included in the Land account.

Question 8

When a company spends money on a plant asset, it must decide whether to record an asset or an expense.

Question 9

Buildings depreciate, natural resources are amortized and intangible assets deplete.

Question 10

Long-lived tangible assets that are used in the operation of the business are called:

A)intangible assets.
B)natural resources.
C)plant assets.
D)goodwill.

Question 11

Of the plant assets, buildings are depreciated because these are long-term tangible assets.

Question 12

The cost of land may include the cost to remove an unwanted building.

Question 13

The cost of leasehold improvements should be expensed immediately, as this is not a capital asset.

Question 14

Land improvements are not subject to depreciation, as these items are subject to decay.

Question 15

An example of a long-term tangible asset would be:

A)office supplies.
B)furniture.
C)investment in LQH company.
D)patents.

Question 16

Which of the following statements is TRUE?

A)Land does not depreciate; natural resources are depreciated.
B)Land does not depreciate; buildings depreciate, and natural resources are amortized.
C)Land does not depreciate; natural resources are depleted and intangibles are amortized.
D)Land does not depreciate; buildings and natural resources depreciate.

Question 17

Costs that would be included with the purchase of a plant asset are:

A)the sum of all of the costs incurred to bring the asset to its intended use.
B)only costs that exceed a certain amount.
C)only the purchase price.
D)none of the above.

Question 18

Many companies will have a policy of expensing all items above a certain dollar amount.

Question 19

The cost of assets purchased together in a lump sum should be allocated using the market value of each of the assets.

Question 20

The only plant asset that does not depreciate is:

A)office supplies.
B)furniture.
C)land.
D)patents.

Question 21

Which of the following costs associated with a delivery van should be capitalized? I. The van is repainted.
II) The van's transmission is completely overhauled to extend useful life for two years.
III) The van is modified for a specific use.

A)I and II
B)I and III
C)II and III
D)All of these answers are correct.

Question 22

Which of the following should be included in the Machinery account?

A)The cost of transporting the machinery to its setup location
B)The cost of a maintenance insurance plan after the machinery is up and running
C)The cost of calibrating the machinery after it has been used for a year
D)The cost of insurance while the machinery is being overhauled

Question 23

Which of the following should be included in the cost of land?

A)Costs of grading and clearing the land
B)Costs of removing an unwanted building
C)Cost of fencing
D)Both A and B

Question 24

A capital expenditure is:

A)debited to an expense account.
B)credited to an expense account.
C)debited to an asset account.
D)debited to a stockholders' equity account.

Question 25

In a lump-sum purchase of assets, the relative-sales-value is defined as the:

A)total price paid less the value of the most valuable asset.
B)total price paid compared to the total market value.
C)ratio of each asset's market value to the total market value.
D)ratio of each asset's market value to the total book value.

Question 26

Morton Corporation purchased equipment for $46,000. Morton also paid $1,200 for freight and insurance while the equipment was in transit. Sales tax amounted to $850. Insurance, taxes and maintenance for the first year of use was $1,000. How much should Morton Corporation capitalize as the cost of the equipment?

A)$46,000
B)$46,850
C)$48,050
D)$49,050

Question 27

Costs that do not extend the asset's capacity or its useful life, but merely maintain the asset or restore it to working order are recorded as:

A)capital expenditures.
B)expenses.
C)additions.
D)improvements.

Question 28

The Augusta Health Company purchased land, buildings and equipment for $2,400,000. The land has been appraised at $915,000, the buildings at $1,125,000 and the equipment at $510,000. The equipment account will be debited for:

A)$541,875.
B)$500,000.
C)$480,000.
D)$410,156.

Question 29

Land, buildings and equipment are acquired for a lump sum of $875,000. The market values of the three assets are, respectively, $200,000, $500,000 and $300,000. What is the cost assigned to the equipment?

A)$250,000
B)$262,500
C)$300,000
D)$342,857

Question 30

Land is purchased for $62,500. Back taxes paid by the purchaser were $7,500; total costs to demolish an existing building were $11,000; fencing costs were $12,500; and lighting costs were $1,500. What is the cost of the land?

A)$62,500
B)$81,000
C)$93,500
D)$95,000

Question 31

The cost of installing shrubbery should be recorded as:

A)land.
B)land improvements.
C)land maintenance expense.
D)land improvement expense.

Question 32

Although located on the land, they are subject to decay and their cost is depreciated. This is the definition of:

A)land improvement.
B)plant and equipment.
C)a building.
D)land.

Question 33

Which of the following is NOT an intangible asset?

A)Copyright A. Goodwill
C)Patent
D)Mineral rights

Question 34

Bixby Corporation purchased land and a building for $800,000. An appraisal indicates that the land's value is $400,000 and the building's value is $500,000. When recording this transaction Galaxy should debit:

A)Land for $800,000.
B)Building for $355,555.
C)Land Improvement-Building for $500,000.
D)Building for $444,444.

Question 35

Maxco Company acquired land and buildings for $1,000,000. The land is appraised at $450,000 and the buildings are appraised at $800,000. The debits to the Land and Buildings accounts will be:

A)Land $360,000; Building $640,000.
B)Land $500,000; Building $500,000.
C)Land $450,000; Building $800,000.
D)Land $562,500; Building $437,500.

Question 36

The journal entry to record a major expenditure to upgrade equipment that extends its useful life beyond the original estimate would include a:

A)credit to Depreciation Expense.
B)debit to Equipment.
C)debit to Depreciation Expense.
D)debit to Repair Expense.

Question 37

A company recently purchased a building that it plans to renovate to get ready for use in its operations. All expenditures to repair and renovate the existing building for its intended use are charged to:

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

Question 38

Pat's Pets recently paid to have the engine in its delivery van overhauled. The estimated useful life of the van was originally estimated to be 7 years. The overhaul is expected to extend the useful life of the van to 9 years. The overhaul is regarded as a(n):

A)revenue expenditure.
B)capital expenditure.
C)equity expenditure.
D)matching expenditure.

Question 39

The cost of assets acquired in a lump-sum purchase must be allocated using which method?

A)Book-value method B Cost method
B) Per capita method
C) Relative-sales-value-method

Question 40

An expenditure that increases an asset's capacity or efficiency or extends its useful life is a(n):

A)capital expenditure.
B)expense.
C)addition.
D)improvement.

Question 41

Capital expenditures are not immediately expensed because these items:

A)do not extend the life of an asset.
B)return an asset to its prior condition.
C)increase the asset's capacity.
D)do all of the above.

Question 42

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

Question 43

Which of the following statements is TRUE?

A)Depreciation expense and accumulated depreciation are both reported on the income statement.
B)Depreciation expense and accumulated depreciation are both reported on the balance sheet.
C)Depreciation expense is reported on the income statement and accumulated depreciation is reported on the balance sheet.
D)Depreciation expense is reported on the balance sheet and accumulated depreciation is reported on the income statement.

Question 44

A machine is purchased for $70,000. The transportation costs were $4,000, installation costs were $1,000 and taxes on the purchase price were $700. The cost basis of the machine is:

A)$70,000.
B)$74,000.
C)$75,700.
D)none of the above.

Question 45

Treating a capital expenditure as an immediate expense:

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

Question 46

The Accumulated Depreciation account represents a contra-revenue account.

Question 47

Depreciation is:

A)a process of valuation.
B)the setting aside of cash to replace assets as they wear out.
C)the allocation of a plant asset's cost to expense over its life.
D)not calculated for assets that are appreciating in value.

Question 48

On June 1, Puff's Trucking Company paid $3,000 to overhaul the engine on a delivery truck to allow it to be used for two additional years. It also paid $75 for an oil change on the truck. Which of the following statements is true?

A)The $3,000 is a capital expenditure and the $75 is an expense.
B)The $3,000 is an expense and the $75 is a capital expenditure.
C)Both items are capital expenditures.
D)Both items are expenses.

Question 49

Which of the following should be included in the cost of equipment?

A)Freight costs to deliver the equipment
B)Installation costs for the equipment
C)Testing costs to get the equipment ready for use
D)All of the above

Question 50

Repairs made to equipment as part of a yearly maintenance project would be recorded in the journal by debiting:

A)Accumulated Depreciation.
B)Depreciation Expense.
C)Equipment.
D)Repair Expense.

Question 51

The book value of a plant asset is the:

A)cost less depreciation expense.
B)cost plus accumulated depreciation.
C)cost less accumulated depreciation.
D)original cost of the asset, plus any capital expenditures.

Question 52

The units-of production method depends directly on the time the asset is used.

Question 53

Obsolescence may cause an asset's useful life to be longer than the asset's physical life.

Question 54

At the end of its useful life, an asset is said to be fully depreciated.

Question 55

The process of allocating the cost of a plant asset to expense over its life is:

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

Question 56

The straight-line method is one of the most widely used methods of computing depreciation for financial statement purposes.

Question 57

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

Question 58

The three depreciation methods allocate different amounts of depreciation to each period, but all result in the same total amount of depreciation over the life of the asset.

Question 59

Book value equals the cost of the asset less the total accumulated depreciation.

Question 60

When using the units-of-production depreciation method, the asset's actual cost is used in computing the first year of depreciation.

Question 61

The depreciation method that does NOT use residual value in calculating depreciation expense until the last year is the:

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

Question 62

The expected cash value of a plant asset at the end of its useful life is known as:

A)scrap value.
B)salvage value.
C)residual value.
D)any of the above.

Question 63

The depreciable cost of an asset using straight line depreciation is defined as:

A)cost minus accumulated depreciation.
B)cost minus salvage value.
C)current sales value minus historical cost.
D)cost minus annual maintenance expense.

Question 64

The book value of an asset is defined as:

A)cost minus accumulated depreciation.
B)cost minus salvage value.
C)current sales value minus historical cost.
D)cost minus annual maintenance expense.

Question 65

The depreciation process attempts to match the:

A) salvage value of the asset and the future market value of the asset.
B) book value and the current market value of the asset.
C) cost of the asset and the cash required to replace the asset.
D) revenues earned by the asset and the cost of the asset.

Question 66

Which accounting principle directs the depreciation process?

A)Full disclosure
B)Going concern
C)Historical cost
D)Matching

Question 67

A depreciation method in which an equal amount of depreciation expense is assigned to each year of the asset's use is the:

A)units-of-production method.
B)straight-line method.
C)accelerated depreciation method.
D)estimated residual value method.

Question 68

On January 2, 2010, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. If KJ Corporation uses the units of production method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 2011-assuming that during this period, the asset was used 8,250 hours?

A)$48,000
B)$49,500
C)$51,500
D)$53,625

Question 69

Which of the following depreciation methods best fits those assets that tend to wear out before they become obsolete?

A)Straight-line method
B)Depletion method
C)Double-declining-balance method
D)Units-of-production method

Question 70

When compared to the other methods of depreciation, the double-declining-balance method of depreciation gives depreciation expense that is:

A)less in the earlier periods.
B)more in the earlier periods.
C)approximately the same in earlier periods as with other methods.
D)an accelerated method; therefore, companies cannot use this method.

Question 71

The process of allocating a plant asset's cost to expense over the period in which the asset is used is called:

A)amortization.
B)allocation.
C)depreciation.
D)disclosure.

Question 72

For financial reporting purposes, most companies use:

A)straight-line depreciation.
B)units-of-production depreciation.
C)double-declining balance depreciation.
D)modified accelerated cost recovery system of depreciation.

Question 73

Which of the following statements is FALSE?

A)As an asset is used in operations, accumulated depreciation increases.
B)As an asset is used in operations, the book value of the asset decreases.
C)As an asset is used in operations, the book value of the asset increases.
D)An asset's final book value is its residual value.

Question 74

Which of the following statements is FALSE?

A)Assets that are increasing in value are still subject to depreciation.
B)Depreciation is a non-cash expense.
C)Accumulated depreciation represents a growing amount of cash to be used to replace the existing asset.
D)Accumulated depreciation is that portion of a plant asset's cost that has been recorded previously as an expense.

Question 75

When computing depreciation for a plant asset, which of the following must be estimated?

A)Useful life and residual value
B)Residual value and current market value
C)Useful life and current market value
D)Useful life, current market value, and residual value

Question 76

At the end of an asset's useful life, the balance in Accumulated Depreciation will be the same as the:

A)tax liability.
B)book value.
C)salvage value.
D)total depreciation expense over its useful life.

Question 77

Which of the following depreciation methods best applies to those assets that generate greater revenue earlier in their useful lives?

A)Straight-line method
B)Depletion method
C)Double-declining-balance method
D)Units-of-production method

Question 78

A depreciation method that writes off a relatively larger amount of the asset's cost nearer the start of its useful life than the straight-line method is the:

A)units-of-production method.
B)straight-line method.
C)accelerated depreciation method.
D)estimated residual value method.

Question 79

The length of service that a business expects to get from an asset as expressed in years, units of output, miles or other measures is the:

A)depreciable cost.
B)estimated useful life.
C)salvage value.
D)accelerated depreciation method.

Question 80

Double-declining balance depreciation:

A)is an accelerated method of depreciation.
B)ignores the residual value in computing depreciation, except during the last year.
C)is based on book value.
D)is all of the above.