Deck 7: Plant Assets,natural Resources, Intangibles

Question 1

The ________ method is used to allocate the cost of multiple assets acquired in a basket purchase.

A)book-value
B)cost
C)gross margin ratio
D)relative-sales-value

Answer 1

D

Question 2

If a company buys a building and the surrounding land for cash,total assets increase.

Answer 2

False

Question 3

Minor Company purchased some land and is preparing the land for a new building.Which of the following costs should be included in the cost of the land by Minor Company?

A)cost of removing an old building
B)cost of clearing and grading the land
C)cost of 6 foot fence around property
D)A and B

Answer 3

D

Question 4

The installation costs for a new machine should be part of the cost of the machine and depreciated.

Question 5

Gengler Company acquired equipment #1,equipment #2,and equipment #3,for $1,300,000.Equipment #1 is appraised at $450,000,equipment #2 is appraised at $250,000 and equipment #3 is appraised for $800,000.The cost of equipment #1 is:

A)$250,000.
B)$325,000.
C)$390,000.
D)$450,000.

Question 6

The costs assigned to the Land account include attorney fees and survey fees paid to find the lot lines for the property in question.

Question 7

A lump-sum purchase of multiple,long-term plant assets:

A)requires the company to record the assets bought as a single asset.
B)requires the company to divide the total cost among the various assets according to their historical costs.
C)requires the company to divide the total cost among the various assets according to their market values.
D)requires the company to divide the total cost among the various assets according to their book values.

Question 8

The long-term asset that does not depreciate or amortize is:

A)land improvement.
B)leasehold improvement.
C)furniture and fixtures.
D)land.

Question 9

Jimmy Company leased a delivery van for payments of $10,000 per year for three years.Jimmy Company also paid $1,200 for new larger windows in the van.Jimmy Company also spent $4,300 for special storage racks for the van.What do Leasehold Improvements equal?

A)$0.
B)$1,200.
C)$4,300.
D)$5,500.

Question 10

Land,a building and equipment are acquired for a lump sum of $1,000,000.The market values of the land,building and equipment are $300,000,$600,000 and $300,000,respectively.What is the cost assigned to the equipment?

A)$200,000
B)$250,000
C)$300,000
D)$333,333

Question 11

The cost of a new building will include the cost to demolish and remove an old building on the same site as the new building.

Question 12

The cost of land includes the cost of fencing the property and paving the parking lot on the land.

Question 13

The cost of land may include the cost of any back property taxes that the purchaser pays.

Question 14

Land is purchased for $600,000.Back taxes paid by the purchaser were $8,500; total costs to demolish an existing building were $12,000 and the cost to clear the land was $15,000.The cost of paving the parking lot was $100,000.What is the cost of the land and land improvements?

A)$620,500; $0
B)$635,500; $100,000
C)$708,500; $0
D)$735,500; $0

Question 15

The cost of installing lights in a company's parking lot should be recorded as a cost of:

A)land.
B)land improvements.
C)leasehold improvements.
D)leaseholds.

Question 16

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

A)fencing
B)sprinkler system for bushes and lawn
C)lighted signs
D)all of the above

Question 17

Leasehold improvements are not subject to depreciation or amortization.

Question 18

ABC Company purchased land with an old building that they plan on demolishing so that they can construct a new,modern building.The cost of demolishing the building will be part of the cost of the:

A)new building.
B)old building.
C)land.
D)land improvements.

Question 19

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

A)Platform for the equipment
B)Employee training costs for the use of the new equipment
C)Testing costs to see if the equipment is working properly
D)All of the above

Question 20

Major Company purchased a piece of equipment.All of the following costs should be included in the cost of the equipment EXCEPT for:

A)insurance while in transit.
B)wages of workers who test the equipment before it is placed in service.
C)employee training costs before the equipment is placed in service.
D)insurance costs after the equipment is up and running.

Question 21

Barbarino Corporation purchased land and a building for $800,000.An appraisal indicates that the land's market value is $400,000 and the building's market value is $600,000.When recording this transaction Barbarino should debit:

A)Land for $400,000.
B)Land for $320,000.
C)Building for $600,000.
D)Building for $500,000.

Question 22

Which cost is NOT included in the cost of Land Improvements?

A)sprinkler systems for landscaping
B)lights on exterior of new building
C)back property taxes on land parcel
D)B and C

Question 23

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 4 years.The overhaul is expected to extend the useful life of the van to 10 years.The overhaul is regarded as a(n):

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

Question 24

Land Improvements include:

A)fences.
B)lights in parking lot.
C)neon signs on property.
D)all of the above.

Question 25

The Manson Company purchased assets for a lump sum price of $1,000,000.The assets purchased had an appraised value of:
Prepare the appropriate journal entry if Manson Company paid cash for this transaction.

Question 26

Morgan Oaks Company replaced the windshields and painted several of its vehicles during the year.These costs should be:

A)debited to Equipment.
B)depreciated over the life of the vehicles.
C)credited to Accumulated Depreciation.
D)debited to Repair Expense.

Question 27

Miscellaneous costs associated with the purchase of new equipment follow: What is the amount assigned to the new equipment?

A)$1,200
B)$2,200
C)$2,700
D)$4,000

Question 28

On June 1,Roadway'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 $7,500 changing the storage capacity of the truck so that it could haul more merchandise.Which of the following statements is TRUE?

A)The $3,000 is a capital expenditure and the $7,500 is an expense.
B)The $3,000 is an expense and the $7,500 is a capital expenditure.
C)Both items are capital expenditures.
D)Both items are expenses.

Question 29

Costs that do not extend a plant 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)extraordinary repairs.
D)modification of assets.

Question 30

Capital expenditures are not immediately expensed because these items:

A)extend the useful life of a plant asset.
B)return a plant asset to its prior condition.
C)decrease the plant asset's capacity.
D)maintain a plant asset in working condition.

Question 31

The journal entry to record an addition to an office building would include:

A)credit to Depreciation Expense.
B)credit to Accumulated Depreciation.
C)debit to Repair Expense.
D)debit to Office Building.

Question 32

Costs that extend a plant asset's useful life should be capitalized.

Question 33

A company incurred the following costs for a new vehicle: What is the cost of the delivery truck?

A)$137,800
B)$140,800
C)$145,800
D)$146,900

Question 34

Treating a capital expenditure as an immediate expense:

A)overstates assets and stockholders' equity in the year of the error.
B)understates assets and stockholders' equity in the year of the error.
C)understates assets and overstates stockholders' equity in the year of the error.
D)overstates assets and understates stockholders' equity in the year of the error.

Question 35

A company incurred the following costs: What is the cost of the land?

A)$210,000
B)$243,000
C)$283,000
D)$298,000

Question 36

Which of the following costs associated with a delivery van should NOT be capitalized?

A)The van's engine is overhauled and this will extend the useful life by five years.
B)The van's transmission is overhauled and this will extend the useful life by two years.
C)The van is repainted.
D)The van is modified so the van can be used for multiple purposes in the business.

Question 37

On January 1,2015,Roadway Delivery Company purchased a truck for $10,000.Depreciation Expense is $1,000 per year.During the first year of use,the company paid $1,000 to repaint the truck and $2,000 for new tires.What amount is expensed in the first year of use of the truck?

A)$1,000
B)$2,000
C)$3,000
D)$4,000

Question 38

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.Testing runs of the new machine cost $5,000.What is the cost of the machine?

A)$70,000
B)$75,000
C)$80,000
D)$80,700

Question 39

The distinction between a capital expenditure and an expense can be difficult to determine for a plant asset.

Question 40

Auto Shop,Inc.,incurred the following costs in acquiring plant assets:
a.Purchased land with a $100,000 down payment and signed a $75,000 note payable for the balance.
b.Delinquent property tax of $2,500 and legal fees of $1,000 had to be paid before the land could be purchased.
c.$12,000 was paid to demolish an unwanted building on the land.
d.Architect fee of $7,000 was paid for the design of a new office building.
e.An office building was constructed at a cost of $500,000.A long-term note payable was used to pay for the cost.
f.$17,500 was paid for fencing around the new building.$55,000 was paid for paving the parking lot by the new building.
g.$20,000 was paid for lights in the new parking lot.
h.$10,000 was paid for a sprinkler system for the bushes and grass.
Required:
Prepare journal entries for the above transactions.Explanations are not required.

Question 41

Costs that maintain a plant asset in its present condition should be ________.Costs that restore a plant asset to working order or its prior condition should be ________.

A)capitalized; capitalized
B)capitalized; expensed
C)expensed; capitalized
D)expensed; expensed

Question 42

When compared to the accelerated depreciation methods,the use of the straight-line method increases a company's tax liability.

Question 43

An asset is ________ when another asset can do the job more efficiently.

A)fully depreciated
B)old
C)physically worn
D)obsolete

Question 44

At the end of its useful life,the book value of an asset must be zero.

Question 45

Which of the following costs for a delivery vehicle should NOT be capitalized?

A)repair dented fender
B)service air conditioning system
C)repair air conditioning system
D)all of the above

Question 46

The Accumulated Depreciation account is an income statement account.

Question 47

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 the book value of the plant asset.
D)is all of the above.

Question 48

Book value of a plant asset equals the cost of the asset less the current year's depreciation expense.

Question 49

The normal balance of the Accumulated Depreciation account is a debit.

Question 50

The depreciation process follows the revenue recognition principle.

Question 51

The book value of an asset cannot be less than its residual value.

Question 52

Under the double-declining balance method of depreciation,residual value is initially ignored.

Question 53

A conservative policy with regard to capitalizing or expensing costs associated with plant assets avoids _________.

A)understating profits and assets
B)overstating profits and assets
C)overstating profits and understating assets
D)understating profits and overstating assets

Question 54

Depreciation expense decreases both assets and stockholders' equity.

Question 55

The depreciation process follows the ________ principle.

A)revenue recognition
B)expense recognition
C)disclosure
D)consistency

Question 56

Dorman Company purchased new machinery for its production process.The following costs were incurred for the new machine: Which costs should be added to the cost of the machine?

A)$10,000
B)$30,000
C)$42,000
D)$142,000

Question 57

If a company capitalizes a plant asset that should have been expensed:

A)expenses and net income will be overstated in the year of the error.
B)expenses and net income will be understated in the year of the error.
C)expenses will be overstated and net income will be understated in the year of the error.
D)expenses will be understated and net income will be overstated in the year of the error.

Question 58

In the units-of production method,a fixed amount of depreciation expense is assigned to each unit of output.

Question 59

WorldCom's fraudulent scheme of capitalizing telephone line costs instead of expensing them was discovered by:

A)external auditors.
B)astute investors.
C)U.S.Securities and Exchange Commission.
D)internal auditors.

Question 60

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

Question 61

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 62

On January 2,2015,Kaiman Corporation acquired equipment for $300,000.The estimated life of the equipment is 5 years or 40,000 hours.The estimated residual value is $20,000.What is the balance in Accumulated Depreciation on December 31,2016,if Kaiman Corporation uses the straight-line method of depreciation?

A)$30,000
B)$60,000
C)$112,000
D)$120,000

Question 63

On January 2,2015,Kellogg Corporation acquired equipment for $300,000.The estimated life of the equipment is 5 years or 40,000 hours.The estimated residual value is $20,000.What is the book value of the asset on December 31,2016,if Kellogg Corporation uses the straight-line method of depreciation?

A)$180,000
B)$188,000
C)$240,000
D)$244,000

Question 64

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)all of the above.

Question 65

Cost minus residual value divided by useful life in years is the:

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

Question 66

As a depreciable plant asset is used in operations:

A)accumulated depreciation increases and the book value of the asset increases.
B)accumulated depreciation increases and the book value of the asset decreases.
C)accumulated depreciation remains the same and the book value of the asset decreases.
D)accumulated depreciation increases and the book value of the asset remains the same.

Question 67

On January 2,2015,Konrad Corporation acquired equipment for $300,000.The estimated life of the equipment is 5 years or 40,000 hours.The estimated residual value is $20,000.If Konrad Corporation uses the units of production method of depreciation,what will be the debit to Depreciation Expense for the year ended December 31,2016,assuming that during this period,the asset was used 9,000 hours?

A)$48,000
B)$56,000
C)$63,000
D)$67,500

Question 68

On January 2,2015,Konan Corporation acquired equipment for $300,000.The estimated life of the equipment is 5 years or 40,000 hours.The estimated residual value is $20,000.What is the balance in Accumulated Depreciation on December 31,2016,if Konan Corporation uses the double-declining-balance method of depreciation?

A)$192,000
B)$195,200
C)$208,000
D)$240,000

Question 69

On January 4,2012,Margaret's Cafe acquired equipment for $180,000.The estimated life of the equipment is 4 years or 42,500 hours.The estimated residual value is $10,000.What is the depreciation for 2012,if Margaret's Cafe uses the asset 14,100 hours and uses the units-of-production method of depreciation?

A)$12,056
B)$56,400
C)$59,717
D)$170,000

Question 70

Which of the following is an accurate statement about book and tax depreciation methods?

A)Straight-line depreciation is the most popular method for income-tax purposes.
B)The IRS has their own set of rules to compute depreciation for income tax purposes.
C)The Modified Accelerated Cost Recovery System can be used for both book and tax purposes.
D)If an accelerated depreciation method is used for tax purposes,a company will pay more in income taxes.

Question 71

When computing depreciation using the units-of-production method:

A)a variable amount of depreciation is assigned to each unit of output.
B)a fixed amount of depreciation is assigned to each unit of output.
C)the depreciation expense depends directly on the amount of output or usage.
D)B and C.

Question 72

The depreciable cost of a plant asset equals the:

A)historical cost of the asset plus the estimated residual value.
B)historical cost of the asset minus the estimated residual value.
C)historical cost of the asset minus accumulated depreciation.
D)current replacement cost minus accumulated depreciation.

Question 73

When computing depreciation for a partial year using straight-line depreciation:

A)compute depreciation for a full year under straight-line depreciation and multiply it by 50%.
B)compute depreciation for a full year under straight-line depreciation and use that amount.
C)the straight-line method automatically adjusts for partial periods,so no adjustments are needed.
D)compute depreciation for a full year under straight-line depreciation and multiply it by the fraction of the year that you held the asset.

Question 74

On January 2,2015,Kornis Corporation acquired equipment for $300,000.The estimated life of the equipment is 5 years or 40,000 hours.The estimated residual value is $20,000.What is the balance in Accumulated Depreciation on December 31,2015,if Kornis Corporation uses the double-declining-balance method of depreciation?

A)$56,000
B)$60,000
C)$112,000
D)$120,000

Question 75

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 76

When a plant asset is fully depreciated:

A)the asset's accumulated depreciation is higher than the historical cost of the asset.
B)the book value is equal to the salvage value.
C)the depreciable cost is equal to the salvage value,and the asset is of no further use to the company.
D)the book value is zero,and the asset has no market value.

Question 77

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)higher in the earlier periods.
C)approximately the same in earlier periods as with other methods.
D)the same from year to year.

Question 78

The book value of a plant asset is defined as:

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

Question 79

The journal entry to record depreciation expense is:

A)debit Depreciation Expense,credit the asset account.
B)debit Accumulated Depreciation,credit the asset account.
C)debit the asset account,credit Accumulated Depreciation.
D)debit Depreciation Expense,credit Accumulated Depreciation.

Question 80

All of the following are needed to measure depreciation,EXCEPT for:

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