Question 1

Betterments are a type of capital expenditure.

Accepted Answer

Betterments are a type of capital expenditure as they involve making improvements or upgrades to an existing asset to increase its value or functionality.

Question 2

The purchase of a property that included land, building, and related improvements is called a lump-sum or basket purchase.

Accepted Answer

A lump-sum or basket purchase refers to the purchase of a property that includes land, building, and related improvements as a package deal.

Question 3

Additions to land that increase the usefulness of the land such as parking lots, fences, and lighting are not depreciated.

Accepted Answer

The answer of Additions to land that increase the usefulness...

Question 4

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Accepted Answer

The answer of The cost of fees for insuring the...

Question 5

The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.

Accepted Answer

The units-of-production method charges a varying amount of expense for each period of an asset's useful life based on the number of units the asset produces or how much it is used. This method is commonly used for assets such as manufacturing equipment, airplanes, or cars.

Question 6

Companies that have a relatively large amount invested in assets to generate a given level of sales are considered capital-intensive.

Accepted Answer

A company that has a large amount invested in assets (such as property, equipment, and machinery) to generate sales is considered capital-intensive. This is because the company requires a significant amount of capital investment in order to function and produce its goods or services. In contrast, a company that requires less capital investment to generate sales is considered less capital-intensive.

Question 7

If a machine is damaged during unpacking, the repairs are added to its cost.

Accepted Answer

The answer of If a machine is damaged during unpacking,...

Question 8

Revenue expenditures are additional costs of plant assets that do not materially increase the assets' life or productive capabilities.

Accepted Answer

Revenue expenditures are expenses incurred for the purpose of maintaining or generating revenue from an asset, but do not materially improve the asset's life or increase its productive capabilities. Examples include repairs, maintenance, and small replacements. These expenses are recorded as expenses on the income statement and do not affect the value of the asset on the balance sheet.

Question 9

An asset's cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

Accepted Answer

This is in accordance with the Generally Accepted Accounting Principles (GAAP) which state that an asset's cost includes all costs that are directly related to acquiring the asset and preparing it for its intended use. These costs can include purchase price, transportation costs, installation costs, and any other necessary expenses.

Question 10

When a company constructs a building, the cost of the building includes materials and labor but not design fees, building permits, or insurance during construction.

Accepted Answer

The cost of constructing a building includes materials, labor, design fees, building permits, and insurance during construction. These are all considered direct costs of construction.

Question 11

A company purchased a plant asset for $60,000. The asset has an estimated salvage value of $4,000, and an estimated useful life of 7 years. The annual depreciation expense using the straight-line method is $4,000 per year.
Depreciation Expense = (Cost - Salvage Value)/Estimated Useful Life
Depreciation Expense = ($60,000 - $4,000)/7; Depreciation Expense = $8,000

Accepted Answer

The correct annual depreciation expense is $8,000, not $4,000, as calculated using the straight-line method formula.

Question 12

The double-declining balance method is applied by (1) computing the asset's straight-line depreciation rate, (2) doubling it, (3) subtracting salvage value from cost, and (4) multiplying the rate times the book value.

Accepted Answer

The double-declining balance method does not subtract the salvage value from the cost before applying the depreciation rate; it applies the doubled rate directly to the book value without considering salvage value until the end of the asset's useful life.

Question 13

Duncan reported net sales of $2,523 million and average total assets of $1,476 million. Its total asset turnover equals 1.71.
Total Asset Turnover = Net Sales/Average Total Assets
Total Asset Turnover = $2,523/$1,476 = 1.71

Accepted Answer

The calculation for total asset turnover is correct and the result is 1.71. Therefore, the statement is true.

Question 14

Extraordinary repairs are expenditures extending the asset's useful life beyond its original estimate, and are capital expenditures because they benefit future periods.

Accepted Answer

Extraordinary repairs are considered capital expenditures since they increase the asset's useful life and benefit future periods.

Question 15

An accelerated depreciation method yields larger depreciation expense in the early years of an asset's life and less depreciation expense in later years.

Accepted Answer

This is because the accelerated method uses a higher percentage of the asset's cost as depreciation expense in the early years, and a lower percentage in later years. This reflects the fact that assets generally lose value more quickly in their early years of use.

Question 16

Total asset cost plus depreciation expense equals book value.

Accepted Answer

The answer of Total asset cost plus depreciation expense equals...

Question 17

Capital expenditures are expenditures that keep assets in normal, good operating condition.

Accepted Answer

Capital expenditures are expenditures made to acquire, improve or maintain fixed assets such as buildings, machinery, or equipment. They are not just to keep assets in normal, good operating condition, but to enhance their value or extend their useful life.

Question 18

Revenue expenditures are also called balance sheet expenditures.

Accepted Answer

Revenue expenditures are expenses that are incurred in the normal course of business operations, such as salaries, rent, and utilities. They are recorded on the income statement and are deducted from revenues to determine net income. Balance sheet expenditures, on the other hand, are expenditures that are capitalized and recorded as assets on the balance sheet, such as land, buildings, and equipment.

Question 19

Plant assets can be disposed of by discarding, selling, or exchanging them.

Accepted Answer

Plant assets can be disposed of by discarding them, selling them, or exchanging them for other assets.

Question 20

Edmond reported average total assets of $9,965 million and net sales of $10,430 million. Its total asset turnover equals .96.
Total Asset Turnover = Net Sales/Average Total Assets
Total Asset Turnover = $10,430/$9,965 = 1.05

Accepted Answer

The calculation of the total asset turnover is incorrect. Using the given formula, the correct calculation is:

Total Asset Turnover = Net Sales/Average Total Assets
Total Asset Turnover = $10,430/$9,965 = 1.045

Therefore, the statement that the total asset turnover equals 0.96 is false.

Quiz 8: Reporting and Analyzing Long-Term Assets