Question 1

The Accumulated Depreciation account represents a cash fund available to replace plant assets.

Accepted Answer

The Accumulated Depreciation account represents the total amount of depreciation expense that has been charged against a plant asset, not a cash fund available to replace it.

Question 2

When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.

Accepted Answer

These costs are directly associated with preparing the land for its intended use, so they should be capitalized to the Land account, not to a separate Land Improvements account. Land Improvements typically refer to depreciable assets placed on the land.

Question 3

Land improvements are generally charged to the Land account.

Accepted Answer

Land improvements are not considered a part of the land itself and therefore should not be charged to the Land account. They should be charged to a separate account, such as Land Improvements or Buildings and Improvements.

Question 4

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Accepted Answer

The IRS allows taxpayers to choose the most appropriate depreciation method for tax purposes, regardless of the method used for financial statement reporting.

Question 5

Recording depreciation on plant assets affects the balance sheet and the income statement.

Accepted Answer

Depreciation expense is recorded on the income statement and accumulated depreciation is recorded as a contra asset on the balance sheet, which decreases the carrying value of the plant asset.

Question 6

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

Accepted Answer

A change in the estimated salvage value of a plant asset does not require a restatement of prior years' depreciation. Instead, the depreciation expense is adjusted for future periods to account for the new salvage value.

Question 7

Recording depreciation each period is an application of the matching principle.

Accepted Answer

Recording depreciation each period is an application of the matching principle as it allocates the cost of the asset over its useful life and matches it against the revenues it helps to generate. This ensures that the expenses are properly matched with the revenues in the period they are incurred, resulting in accurate financial statements.

Question 8

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

Accepted Answer

Additions and improvements to a plant asset that increase its operating efficiency, productive capacity or expected useful life are capitalized and recorded as a part of the plant asset's cost. This cost is then depreciated over the remaining useful life of the asset.

Question 9

When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

Accepted Answer

The answer of When purchasing delivery equipment, sales taxes and...

Question 10

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.

Accepted Answer

A change in estimate only affects the current and future periods, as it is not possible to go back and change the depreciation already recognized in prior periods.

Question 11

The depreciable cost of a plant asset is its original cost minus obsolescence.

Accepted Answer

The depreciable cost of a plant asset is its original cost minus its salvage value (not obsolescence). Depreciation is the allocation of the cost of a plant asset to expense over its useful life. Obsolescence may affect the useful life of an asset, but it is not directly subtracted from the original cost to determine the depreciable cost.

Question 12

Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.

Accepted Answer

Once cost is established for a plant asset, it remains the basis of accounting for the asset even if it appreciates in value. The market value may be used for reporting purposes, but it does not change the basis of accounting.

Question 13

The book value of a plant asset is always equal to its fair market value.

Accepted Answer

The book value of a plant asset may be different from its fair market value, as it is based on the original cost of the asset and accumulated depreciation, rather than current market conditions.

Question 14

In calculating depreciation, both plant asset cost and useful life are based on estimates.

Accepted Answer

The answer of In calculating depreciation, both plant asset cost...

Question 15

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

Accepted Answer

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

Question 16

All plant assets (fixed assets) must be depreciated for accounting purposes.

Accepted Answer

Not all plant assets (fixed assets) must be depreciated for accounting purposes. Some assets, such as land, are considered to have an indefinite life and are not subject to depreciation.

Question 17

Under the double-declining-balance method, the depreciation rate used each year remains constant.

Accepted Answer

In the double-declining-balance method of depreciation, a constant rate, which is double the straight-line depreciation rate, is applied to the book value of the asset at the beginning of each year, making the rate used constant throughout the depreciation process.

Question 18

To determine a new depreciation amount after a change in estimate of a plant asset's useful life, the asset's remaining depreciable cost is divided by its remaining useful life.

Accepted Answer

This is correct. When there is a change in estimate of a plant asset's useful life, the new depreciation amount is determined by dividing the asset's remaining depreciable cost by its remaining useful life. This recalculates the annual depreciation expense to reflect the updated estimate of the asset's useful life.

Question 19

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Accepted Answer

The declining-balance method is considered an accelerated depreciation method because it results in higher depreciation expenses in the early years of an asset's life, not because it depreciates an asset in a shorter period than the asset's useful life.

Question 20

Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Accepted Answer

The total amount of depreciation expense recorded over the life of the asset will be the same under both the units-of-activity method and the straight-line method; the difference between the two methods lies in the timing and pattern of the expense, not the total amount.

Quiz 10: Plant Assets, Natural Resources, and Intangible Assets

The Accumulated Depreciation account represents a cash fund available to replace plant assets.

When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.

Land improvements are generally charged to the Land account.

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Recording depreciation on plant assets affects the balance sheet and the income statement.

A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.

Recording depreciation each period is an application of the matching principle.

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Delivery Equipment.

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.

The depreciable cost of a plant asset is its original cost minus obsolescence.

Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.

The book value of a plant asset is always equal to its fair market value.

In calculating depreciation, both plant asset cost and useful life are based on estimates.

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

All plant assets (fixed assets) must be depreciated for accounting purposes.

Under the double-declining-balance method, the depreciation rate used each year remains constant.

To determine a new depreciation amount after a change in estimate of a plant asset's useful life, the asset's remaining depreciable cost is divided by its remaining useful life.

The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.

Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.