Question 1

Land improvements should be depreciated over the useful life of the
A) land.
B) buildings on the land.
C) land or land improvements, whichever is longer.
D) land improvements.

Accepted Answer

Land improvements, such as driveways, parking lots, and fences, have a limited useful life and should be depreciated over that useful life. The land itself does not depreciate, since it is considered a long-term asset that does not wear out or become obsolete. Therefore, only the cost of the land improvements should be depreciated.

Question 2

The balance in the Accumulated Depreciation account represents the
A) cash fund to be used to replace plant assets.
B) amount to be deducted from the cost of the plant asset to arrive at its fair market value.
C) amount charged to expense in the current period.
D) amount charged to expense since the acquisition of the plant asset.

Accepted Answer

The balance in the Accumulated Depreciation account represents the amount charged to expense since the acquisition of the plant asset. It is a contra asset account that offsets the cost of the plant asset on the balance sheet. It accumulates the total amount of depreciation expense recognized over the life of the asset. Choices A, B, and C are incorrect because they do not accurately describe the purpose and function of the Accumulated Depreciation account.

Question 3

Carey Company buys land for $50,000 on 12/31/09. As of 3/31/10, the land has appreciated in value to $50,700. On 12/31/10, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2010?
A) $0
B) $700
C) $1,100
D) $1,800

Accepted Answer

Land is recorded at historical cost and is not adjusted for changes in market value under generally accepted accounting principles (GAAP).

Question 4

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?
A) Excavation fees are capitalized but building permit fees are not.
B) Architect fees are capitalized but building permit fees are not.
C) Interest is capitalized during the construction as part of the cost of the building.
D) The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Accepted Answer

According to the generally accepted accounting principles, interest costs incurred during the construction period should be capitalized as part of the cost of the building. This means that the interest costs will be added to the contracted price of the plant to determine the total capitalized cost. Excavation fees, building permit fees, and architect fees are also included in the capitalized cost of the building. Therefore, option C is the correct answer.

Question 5

The book value of an asset is equal to the
A) asset's market value less its historical cost.
B) blue book value relied on by secondary markets.
C) replacement cost of the asset.
D) asset's cost less accumulated depreciation.

Accepted Answer

The book value of an asset is calculated by subtracting the accumulated depreciation from the original cost of the asset. Therefore, the correct choice is D – asset's cost less accumulated depreciation.

Question 6

Interest may be included in the acquisition cost of a plant asset
A) during the construction period of a self-constructed asset.
B) if the asset is purchased on credit.
C) if the asset acquisition is financed by a long-term note payable.
D) if it is a part of a lump-sum purchase.

Accepted Answer

Interest can be included in the acquisition cost of a plant asset during the construction period of a self-constructed asset. This is because the interest cost is considered part of the cost of constructing the asset, making it ready for its intended use.

Question 7

A company purchases a remote site building for computer operations. The building will be suitable for operations after some expenditures. The wiring must be replaced to computer specifications. The roof is leaky and must be replaced. All rooms must be repainted and recarpeted and there will also be some plumbing work done. Which of the following statements is true?
A) The cost of the building will not include the repainting and recarpeting costs.
B) The cost of the building will include the cost of replacing the roof.
C) The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.
D) The wiring is part of the computer costs, not the building cost.

Accepted Answer

The cost of the building includes all expenditures necessary to make the building ready for its intended use, which includes replacing the roof to ensure the building is structurally sound and protected from the elements.

Question 8

Hull Company acquires land for $86,000 cash. Additional costs are as follows:  Hull will record the acquisition cost of the land as
A) $86,000.
B) $87,690.
C) $89,610.
D) $89,370.

Accepted Answer

The acquisition cost of the land includes the purchase price plus any additional costs that are directly attributable to the acquisition. Here, the additional costs are:
Survey and clearing fees: $2,370
Delinquent property taxes: $1,000
The total additional costs are $3,370.
Therefore, the acquisition cost of the land is $86,000 + $3,370 = $89,370. The correct answer is D.

Question 9

Presto Company purchased equipment and these costs were incurred:  Presto will record the acquisition cost of the equipment as
A) $22,500.
B) $24,300.
C) $24,620.
D) $25,050.

Accepted Answer

The answer of Presto Company purchased equipment and these costs...

Question 10

Depreciation is the process of allocating the cost of a plant asset over its service life in
A) an equal and equitable manner.
B) an accelerated and accurate manner.
C) a systematic and rational manner.
D) a conservative market-based manner.

Accepted Answer

Depreciation is a systematic and rational manner of allocating the cost of a plant asset over its service life. This method ensures that the cost of the asset is spread out in a way that reflects its usage and decline in value over time. Option A is not always possible as different assets may have different patterns of usage and decline in value. Option B is not always accurate as some assets may depreciate at a steady rate, while others may have a varying rate of decline in value. Option D does not consider the actual decline in value of the asset, but rather the conservative estimate of its market value.

Question 11

Wesley Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions?
A) $30,000 should be debited to the Land account.
B) $15,000 should be debited to Land Improvements.
C) $45,000 should be debited to the Land account.
D) $45,000 should be debited to Land Improvements.

Accepted Answer

Land improvements include additions to land such as parking lots, sidewalks, fencing, landscaping, and so on. Therefore, the cost of paving the new parking lot ($30,000) and the lights to illuminate the new parking area ($15,000) should be debited to the Land Improvements account. The Land account is used to record the purchase price of the land when it was acquired, and does not include any additions or improvements that are made to the land.

Question 12

The four subdivisions for plant assets are
A) land, land improvements, buildings, and equipment.
B) intangibles, land, buildings, and equipment.
C) furnishings and fixtures, land, buildings, and equipment.
D) property, plant, equipment, and land.

Accepted Answer

The four subdivisions for plant assets are land, land improvements, buildings, and equipment. Intangibles, furnishings and fixtures, and property are not included in the subdivisions for plant assets.

Question 13

The cost of land does not include
A) real estate brokers' commission.
B) annual property taxes.
C) accrued property taxes assumed by the purchaser.
D) title fees.

Accepted Answer

Annual property taxes are a recurring expense related to the ownership of property, not a cost included in the acquisition of land.

Question 14

Yocum Company purchased equipment on January 1 at a list price of $50,000, with credit terms 2/10, n/30. Payment was made within the discount period and Yocum was given a $1,000 cash discount. Yocum paid $2,500 sales tax on the equipment, and paid installation charges of $880. Prior to installation, Yocum paid $2,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?
A) $52,380
B) $54,380
C) $55,380
D) $50,500

Accepted Answer

List Price of equipment = $50,000
Cash discount = 2% of $50,000 = $1,000
Amount to be paid within the discount period = $50,000 - $1,000 = $49,000

Total cost of equipment without tax and installation charges = List price - Cash discount = $49,000

Sales tax = $2,500
Installation charges = $880
Cost of concrete slab = $2,000

Total cost of new equipment = Cost of equipment without tax and installation charges + Sales tax + Installation charges + Cost of concrete slab
= $49,000 + $2,500 + $880 + $2,000
= $54,380

Therefore, the best choice is B.

Question 15

Accountants do not attempt to measure the change in a plant asset's market value during ownership because
A) the assets are not held for resale.
B) plant assets cannot be sold.
C) losses would have to be recognized.
D) it is management's responsibility to determine fair values.

Accepted Answer

Plant assets are not held for resale, therefore their market value during ownership is not relevant to accounting for these assets. Instead, accountants focus on their historical cost and subsequent depreciation or impairment.

Question 16

Engler Company purchases a new delivery truck for $45,000. The sales taxes are $3,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Engler record as the cost of the new truck?
A) $49,540
B) $49,420
C) $48,000
D) $47,420

Accepted Answer

The answer of Engler Company purchases a new delivery truck...

Question 17

All of the following factors in computing depreciation are estimates except
A) cost.
B) residual value.
C) salvage value.
D) useful life.

Accepted Answer

While cost is a known value, estimates must be made for residual value, salvage value, and useful life.

Question 18

Gagner Clinic purchases land for $130,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?
A) $132,200
B) $130,000
C) $134,700
D) $132,500

Accepted Answer

The cost of the land includes the purchase price, assumed property taxes, title and attorney fees, and grading costs. Therefore, $130,000 + $1,500 + $1,000 + $2,200 = $134,700.

Question 19

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?
A) Salvage value
B) Estimated useful life
C) Cash needed to replace the plant asset
D) Cost

Accepted Answer

When recording periodic depreciation expense on plant assets, cash needed to replace the plant asset is not a consideration. The other three items, namely salvage value, estimated useful life, and cost, are all important factors to consider when calculating depreciation expense.

Question 20

Angie's Blooms purchased a delivery van for $20,000. The company was given a $2,000 cash discount by the dealer, and paid $1,000 sales tax. Annual insurance on the van is $500. As a result of the purchase, by how much will Angie's Blooms increase its van account?
A) $20,000
B) $18,000
C) $19,500
D) $19,000

Accepted Answer

The cost of the van after the cash discount and sales tax is $19,000 ($20,000 - $2,000 + $1,000). The annual insurance does not affect the cost of the van but is an additional expense. Therefore, the van account will increase by $19,000.

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

Land improvements should be depreciated over the useful life of the

The balance in the Accumulated Depreciation account represents the

Carey Company buys land for $50,000 on 12/31/09. As of 3/31/10, the land has appreciated in value to $50,700. On 12/31/10, the land has an appraised value of $51,800. By what amount should the Land account be increased in 2010?

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

The book value of an asset is equal to the

Interest may be included in the acquisition cost of a plant asset

Hull Company acquires land for $86,000 cash. Additional costs are as follows: Hull will record the acquisition cost of the land as

Presto Company purchased equipment and these costs were incurred: Presto will record the acquisition cost of the equipment as

Depreciation is the process of allocating the cost of a plant asset over its service life in

Wesley Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $15,000. Which of the following statements is true with respect to these additions?

The four subdivisions for plant assets are

The cost of land does not include

Accountants do not attempt to measure the change in a plant asset's market value during ownership because

Engler Company purchases a new delivery truck for $45,000. The sales taxes are $3,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Engler record as the cost of the new truck?

All of the following factors in computing depreciation are estimates except

Gagner Clinic purchases land for $130,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Gagner Clinic record as the cost for the land?

Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets?

Angie's Blooms purchased a delivery van for $20,000. The company was given a $2,000 cash discount by the dealer, and paid $1,000 sales tax. Annual insurance on the van is $500. As a result of the purchase, by how much will Angie's Blooms increase its van account?