Question 1

When a building is purchased simultaneously with land, the purchase price must be allocated between the building and the land.

Accepted Answer

This is because the value of a building is different from that of the land it is built upon. To properly record the purchase, the cost needs to be allocated between the two assets.

Question 2

Accumulated Depreciation is a temporary account that is closed each year.

Accepted Answer

Accumulated Depreciation is a contra-asset account that carries the cumulative depreciation of an asset over its useful life. It is not closed at the end of each year and continues to accrue depreciation until the asset is fully depreciated or disposed of.

Question 3

Gains and losses are reported as non-operating items on the income statement.

Accepted Answer

Gains and losses are typically related to transactions outside of a company's normal business operations and are therefore reported as non-operating items on the income statement.

Question 4

Recognizing depreciation expense on equipment or a building is an asset use transaction.

Accepted Answer

Depreciation expense is recognized as an asset use transaction because it reflects the reduction in the value of an asset due to its use and passage of time. This expense is recorded in the income statement and reduces the net income, while the asset's value is reduced in the balance sheet through accumulated depreciation.

Question 5

Expenditures that extend the useful life of a plant asset are added to the asset account.

Accepted Answer

The answer of Expenditures that extend the useful life of...

Question 6

Title search and document costs incurred to purchase a building are expensed in the period the building is acquired.

Accepted Answer

Title search and document costs incurred to purchase a building are considered a part of the cost of the building and should be capitalized and depreciated over the useful life of the building. They are not expensed in the period the building is acquired.

Question 7

The term used to recognize expense for property, plant, and equipment assets is depletion.

Accepted Answer

Depletion is used to recognize expense for natural resources, not property, plant, and equipment assets. Depreciation is used for property, plant, and equipment assets.

Question 8

Generally accepted accounting principles require that, when the estimated useful life of a long-term asset is changed, previously-issued financial statements should not be revised.

Accepted Answer

This is known as the principle of consistency, which states that accounting methods should be consistent over time in order to allow for accurate comparison of financial statements. Therefore, if the estimated useful life of a long-term asset is changed, the effect should be reflected in the current financial statements but not in any previously-issued financial statements.

Question 9

The use of estimates and revision of estimates are uncommon in financial reporting.

Accepted Answer

The use of estimates is common in financial reporting as many financial transactions involve estimations, such as provisions for bad debts, depreciation, and inventory valuation. Revision of estimates may also be necessary when new information becomes available or circumstances change. Therefore, financial reports often include disclosures of significant accounting estimates and the methods used to develop them.

Question 10

Late in a plant asset's useful life, the amount of depreciation that would be recorded with the double-declining-balance method is less than the amount that would be recognized with straight-line depreciation.

Accepted Answer

This is because the double-declining-balance method front-loads depreciation expenses, resulting in higher depreciation charges in the early years of an asset's life and lower charges as the asset ages, whereas straight-line depreciation spreads the cost evenly over the asset's useful life.

Question 11

Intangible assets include patents, copyrights, and franchises.

Accepted Answer

This is true, intangible assets refer to non-physical assets that have value, such as patents, copyrights, and franchises.

Question 12

The purchase of a new delivery truck for cash is an asset use transaction.

Accepted Answer

The purchase is an asset exchange transaction that increases one asset,delivery truck,and decreases another asset,cash.

Question 13

When depreciation is recorded on equipment, Depreciation Expense is increased and Equipment is decreased.

Accepted Answer

When depreciation is recorded, Depreciation Expense is increased, and Accumulated Depreciation, a contra asset account, is increased, not the Equipment account itself.

Question 14

Land differs from other property because it is not subject to depreciation.

Accepted Answer

Land is considered to have an indefinite useful life and therefore is not subject to depreciation like other forms of property such as vehicles or machinery.

Question 15

An expenditure that improves the quality of service provided by a plant asset is added to the historical cost of the asset.

Accepted Answer

This is known as a capital expenditure and serves to increase the usefulness, efficiency, or productive capacity of the asset. It is added to the historical cost of the asset and not expensed immediately.

Question 16

With an accelerated depreciation method, an asset can be depreciated below its salvage value.

Accepted Answer

Accelerated depreciation methods allocate higher depreciation expenses in the early years of an asset's life but do not depreciate an asset below its salvage value; the depreciation stops once the salvage value is reached.

Question 17

A substantial amount spent to improve the quality or extend the life of a long-term asset is called a revenue expenditure.

Accepted Answer

A substantial amount spent to improve the quality or extend the life of a long-term asset is called a capital expenditure, not a revenue expenditure.

Question 18

A copyright is an intangible asset with an indefinite useful life.

Accepted Answer

A copyright has a limited useful life, which varies depending on the type of work and the laws of the country in which it was created. In the United States, for example, the duration of a copyright depends on when the work was created, whether it was registered with the U.S. Copyright Office, and other factors. Generally, the maximum duration of a copyright is the life of the author plus a certain number of years after their death.

Question 19

A trademark is a tangible asset with an indefinite useful life.

Accepted Answer

A trademark is an intangible asset, representing a brand or logo, and its useful life can be indefinite as long as it remains in use and retains its value, but it is not tangible.

Question 20

The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.

Accepted Answer

The depreciable cost of a long-term asset is calculated as the difference between the cost of the asset and its salvage value, which is the estimated value of the asset at the end of its useful life. Depreciation expense is then calculated based on the depreciable cost.

Quiz 6: Accounting for Long-Term Operational Assets