Deck 7: Property plant and Equipment Intangibles and Natural Resources

Question 1

Depreciation has an effect on the company's income taxes.

Answer 1

True

Question 2

The reason some major intangible assets are NOT in the financial statements is because they cannot be measured.

Answer 2

True

Question 3

When plant assets are purchased in a group,each asset is debited to the respective plant asset account for its fair market value at the time of acquisition.

Answer 3

False

Question 4

Plant assets,current assets,property,plant and equipment,and fixed assets are all tangible assets.

Question 5

An impairment is a temporary decline in the future benefit or service potential of an asset.

Question 6

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

Question 7

If a company were concerned about minimizing its income tax burden,it would use the straight-line depreciation method to accomplish this objective.

Question 8

Research and development costs should be added to the cost of patents.

Question 9

When plant assets are reported,the current period's depreciation expense is subtracted from the original cost on the balance sheet.

Question 10

Companies are allowed to use different depreciation methods so they can capture declining service potential of an operating asset.

Question 11

All intangible assets are subject to amortization.

Question 12

If new equipment purchased in Year 1 is reported on the balance sheet at December 31,Year 1 as a long-term asset,there will be no related item on the Year 1 income statement.

Question 13

When making lending decisions,lenders are not generally interested in the company's operating assets.

Question 14

On the balance sheet,a company reports plant assets by subtracting residual value from the original cost of the plant asset.

Question 15

Costs incurred to keep plant assets in normal operating condition are called revenue expenditures.

Question 16

One reason management may choose the straight-line method of depreciation is because it is easy to compute.

Question 17

Costs incurred related to plant assets that are already in use are called revenue expenditures if the cost increases the useful life or the asset's productivity.

Question 18

A company determined that it had incorrectly estimated the useful life of equipment that it had purchased two years ago.It must now depreciate the asset's remaining book value over the current and future accounting periods.

Question 19

If a company uses the same depreciation method as other firms in the same industry,investors will have enhanced comparability of the financial reporting results.

Question 20

Double-declining-balance depreciation is most commonly used by businesses for financial reporting purposes.

Question 21

Natural resources can be replaced or restored only by an act of nature.

Question 22

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-costs incurred after putting the asset into service that would extend the asset's useful life

A)capital expenditure
B)revenue expenditure

Question 23

A contra account called ____________________ is used to depreciate property,plant,and equipment.

Question 24

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-costs incurred prior to using the asset,such as installation and other costs to prepare the asset for use

A)capital expenditure
B)revenue expenditure

Question 25

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-costs related to acquiring an asset,such as sales or excise taxes,transportation,insurance during shipment

A)capital expenditure
B)revenue expenditure

Question 26

The intangible asset called ____________________ can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired.

Question 27

An expenditure that does not increase the future economic benefits of the asset is referred to as a capital expenditure.

Question 28

Two reasons why a company might choose an accelerated depreciation method are _______________ and ______________.

Question 29

A(n) _________________ is the right to produce or sell a published work.

Question 30

To revise depreciation expense,the accountant should compute depreciation expense using the asset's remaining book value,its useful life,and its new residual value.

Question 31

An accumulated ________ account is used when writing off natural resources.

Question 32

The ______________ depreciation method is the depreciation method used most frequently.

Question 33

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-costs paid to clear land

A) Land
B) Land Improvements
C) Buildings
D) Machinery and Equipment
E) Expense Account

Question 34

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-transportation charges related to the acquisition costs of a new piece of machinery

A) Land
B) Land Improvements
C) Buildings
D) Machinery and Equipment
E) Expense Account

Question 35

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-costs incurred after putting the asset into service that keep the asset in normal operating condition

A)capital expenditure
B)revenue expenditure

Question 36

The more efficiently a company uses its fixed assets the lower the fixed asset turnover ratio will be.

Question 37

____________ costs are expenditures incurred in the discovery of new knowledge and the translation of research into a design or plan for a new product.

Question 38

The two items that must be estimated with respect to a plant asset to properly allocate cost to the affected accounting periods are ____________________ and ____________________.

Question 39

A(n) ____________________ is a cost that improves an operating asset and is therefore added to the asset account.

Question 40

The ________________ method of depreciation method is referred to as an "accelerated" method.

Question 41

Match these terms with their correct definition.

-cost less accumulated depreciation

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 42

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)

-This method is the best for management bonus plans.

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

Question 43

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)

-This method maximizes net income.

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

Question 44

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)

-This method minimizes taxable income

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

Question 45

Match these terms with their correct definition.

-amount of cash or trade-in consideration that is expected when an asset is retired from service

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 46

A construction company purchased a piece of equipment with a price of $100,000 on March 1, Year 1. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.)

-The company purchased a three-year liability insurance policy to cover possible damage caused by the new equipment at a cost of $6,000.

A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question 47

A construction company purchased a piece of equipment with a price of $100,000 on March 1, Year 1. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.)

-During the installation,the equipment was damaged and repair costs of $2,000 were incurred.

A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question 48

A construction company purchased a piece of equipment with a price of $100,000 on March 1, Year 1. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.)

-Freight costs of $3,000 were paid to ship the equipment from the manufacturer.

A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question 49

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-annual painting costs of an office building

A) Land
B) Land Improvements
C) Buildings
D) Machinery and Equipment
E) Expense Account

Question 50

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-sales taxes paid related to a machine purchased

A) Land
B) Land Improvements
C) Buildings
D) Machinery and Equipment
E) Expense Account

Question 51

Match these terms with their correct definition.

-permanent decline in the future benefit or service potential of an asset

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 52

Select the account to which each of the following costs would be debited. (Choices may be used more than once.)

-costs to pave a parking lot

A) Land
B) Land Improvements
C) Buildings
D) Machinery and Equipment
E) Expense Account

Question 53

A construction company purchased a piece of equipment with a price of $100,000 on March 1, Year 1. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.)

-The company financed the equipment purchase with a bank loan.Interest of $3,000 was paid on the loan during Year 1.

A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question 54

Match these terms with their correct definition.

-any expenditure necessary to acquire an asset and to prepare it for use

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 55

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)

-This method is the easiest to use.

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

Question 56

A construction company purchased a piece of equipment with a price of $100,000 on March 1, Year 1. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.)

-A state agency required that a pollution-control device be installed on the equipment at a cost of $5,000.

A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question 57

Match these terms with their correct definition.

-process of allocating the cost of a tangible fixed asset to expense over the asset's useful life

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 58

A construction company purchased a piece of equipment with a price of $100,000 on March 1, Year 1. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.)

-The cash purchase was made on March 8 with terms of 2/10,net 30.

A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question 59

A construction company purchased a piece of equipment with a price of $100,000 on March 1, Year 1. The amounts are related to the equipment purchase. Match the items and explain how each item should be accounted for. (Choices may be used more than once.)

-It was necessary for an architect to redesign the workspace to accommodate the new equipment.A fee of $6,000 was paid.

A)This item should be included as part of the cost of the equipment.
B)This item should be considered a revenue expenditure.

Question 60

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given. (Choices may be used more than once.)

-This method is used in situations where technological advances are rapid.

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

Question 61

Match these terms with their correct definition.

-include costs such as legal fees,share issue costs,accounting fees,and promotional fees

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal

Question 62

Fabian Woodworks
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of five years, or 100,000 hours of operation. The truck was purchased on January 1, Year 1, and was used for 27,000 hours in Year 1 and 26,000 hours in Year 2.

-Based on the information presented in the figure Fabian Woodworks,which method of depreciation will maximize depreciation expense in Year 2?

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

Question 63

Fabian Woodworks
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of five years, or 100,000 hours of operation. The truck was purchased on January 1, Year 1, and was used for 27,000 hours in Year 1 and 26,000 hours in Year 2.

-Refer to the figure Fabian Woodworks.If the company uses the straight-line method of depreciation,what is the book value on December 31,Year 2?

A) $4,000
B) $6,000
C) $8,000
D) $10,000

Question 64

On the balance sheet,what is the name of the cumulative amount of plant and equipment already expensed that is reported in an account?

A) accumulated amortization
B) accumulated depreciation
C) amortization expense
D) depreciation expense

Question 65

Fabian Woodworks
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of five years, or 100,000 hours of operation. The truck was purchased on January 1, Year 1, and was used for 27,000 hours in Year 1 and 26,000 hours in Year 2.

-Refer to the figure Fabian Woodworks.If the company uses the units-of-production method,what is the depreciation rate per hour for the equipment?

A) $0.10
B) $0.12
C) $1.00
D) $1.10

Question 66

Match these terms with their correct definition.

-consist of the long-lived assets that are owned by a business

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal

Question 67

Match these terms with their correct definition.

-tangible operating assets used in the normal operations of a business

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal

Question 68

Match these terms with their correct definition.

-assets such as coal deposits,oil reserves,and mineral deposits

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal

Question 69

Fabian Woodworks
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of five years, or 100,000 hours of operation. The truck was purchased on January 1, Year 1, and was used for 27,000 hours in Year 1 and 26,000 hours in Year 2.

-Based on the information presented in the figure Fabian Woodworks,which method of depreciation will maximize depreciation expense in Year 1?

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

Question 70

Match these terms with their correct definition.

-cost less residual value

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 71

Fabian Woodworks
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of five years, or 100,000 hours of operation. The truck was purchased on January 1, Year 1, and was used for 27,000 hours in Year 1 and 26,000 hours in Year 2.

-Refer to the figure Fabian Woodworks.What amount will be reported as depreciation expense over the five-year life of the equipment?

A) $4,000
B) $8,000
C) $10,000
D) $12,000

Question 72

Match these terms with their correct definition.

-right to exclusive use of a distinctive name,phrase,or symbol

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal

Question 73

Match these terms with their correct definition.

-exclusive right to conduct a certain type of business in some particular geographic area

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal

Question 74

Match these terms with their correct definition.

-situation where an asset is lost or destroyed through theft,acts of nature,or by accident

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 75

Fabian Woodworks
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of five years, or 100,000 hours of operation. The truck was purchased on January 1, Year 1, and was used for 27,000 hours in Year 1 and 26,000 hours in Year 2.

-Refer to the figure Fabian Woodworks.If the company uses the double-declining-balance depreciation method,what is the depreciation expense for Year 2?

A) $1,728
B) $2,000
C) $2,880
D) $4,800

Question 76

Match these terms with their correct definition.

-process of allocating the cost of a natural resource to each period in which the resource is used

A)book value
B)cost
C)depletion
D)depreciable cost
E)depreciation
F)impairment
G)involuntary disposal
H)residual value

Question 77

Which of the following accounts would NOT be reported in the property,plant,and equipment section of a balance sheet?

A) accumulated depreciation-buildings
B) buildings
C) depreciation expense-buildings
D) land

Question 78

Match these terms with their correct definition.

-represent future economic benefit to the company but lack physical substance

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal

Question 79

Fitness Depot purchased a building on a tract of land and allocated the entire cost of the purchase to building.Normally the company depreciates buildings over 40 years using the straight-line method with zero residual value and does not depreciate land.What is the impact of the improper accounting treatment of the purchase on the company's income for the next 20 years?

A) overstated
B) understated
C) unaffected
D) indeterminable from the information provided

Question 80

Match these terms with their correct definition.

-occurs when a company determines that an asset is no longer useful

A)franchise
B)intangible operating assets
C)natural resources
D)operating assets
E)organizational costs
F)property, plant, and equipment
G)trademark
H)voluntary disposal