fixed assets and intangible assets test bank

Question The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $

Name Chapter 9 Fixed Assets and Intangible Assets

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Question Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in the ordinary course of business are called fixed assets

False

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Question The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use

False

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Question When land is purchased to construct a new building, the cost of removing any structures on the land should be charged to the building account

False

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Question Land acquired as a speculation is reported under Investments on the balance sheet

False

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Question To a major resort, timeshare properties would be classified as property, plant and equipment

False

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Question Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment on the balance sheet

False

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Question The cost of repairing damage to a machine during installation is debited to a fixed asset account

False

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Question During construction of a building, the cost of interest on a construction loan should be charged to an expense account

False

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Question The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment

False

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Question When cities give land or buildings to a company to locate in the community, no entry is made since there is no cost to the company

False

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Question Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment

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Question The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future

False

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Question Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments

False

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Question The cost of replacing an engine in a truck is an example of ordinary maintenance

False

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Question A capital lease is accounted for as if the asset has been purchased

False

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Question An operating lease is accounted for as if the lessee has purchased the asset

False

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Question An intangible asset is one that has a physical existence

False

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Question A capitalized asset will appear on the balance sheet as a long term asset

False

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Question Long lived assets held for sale are classified as fixed assets

False

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Question Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it was intended

False

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Question The normal balance of the accumulated depreciation account is debit

False

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Question As a company depreciates a piece of equipment, it cash flow goes up

False

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Question All property, plant, and equipment assets are depreciated over time

False

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Question The book value of a fixed asset reported on the balance sheet represents its market value on that date

False

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Question The depreciable cost of a building is the same as its acquisition cost

False

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Question It is necessary for a company to use the same depreciation method for all of its depreciable assets

False

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Question It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes

False

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Question An estimate of the amount which an asset can be sold at the end of its useful life is called residual value

False

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Question The units of production depreciation method matches expenses against revenue the best

False

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Question Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts can not be changed

False

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Question Residual value is not incorporated in the initial calculations for double-declining-balance depreciation

False

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Question The double-declining-balance method is an accelerated depreciation method

False

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Question The double declining balance depreciation method calculates depreciation each year by taking twice the straight line rate times the book value of the asset at the beginning of each year

False

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Question When minor errors occur in the estimates used in the determination of depreciation, the amounts recorded for depreciation expense in the past should be corrected

False

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Question The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method

False

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Question The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units-of-production method during a period when the asset was used for 4,500 hours

False

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Question The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000, with an estimated residual value of $5,000 and a useful life of 4 years, is $25,000 by the declining-balance method at twice the straight-line rate

False

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Question When depreciation estimates are revised, all years of the asset’s life are affected

False

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Question For income tax purposes most companies use an accelerated deprecation method called double declining balance

False

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Question Assets may be grouped according to common traits and depreciated by using a single composite rate

False

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Question Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same

False

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Question Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods

False

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Question Capital expenditures are costs that are charged to Stockholders' Equity accounts

False

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Question Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has been fully depreciated

False

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Question If an asset has not been fully depreciated, depreciation should be recorded prior to removing it from service and the accounting records

False

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Question When selling a piece of equipment for cash, a loss will result when the proceeds of the sale are less than the book value of the asset

Answer True

False

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Question When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded

False

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Question Ordinary gains from the sale of fixed assets should be reported in the other income section of the income statement

False

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Question A gain can be realized when a fixed asset is discarded

False

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Question When old equipment is traded in for a new equipment, the difference between the list price and the trade in allowance is called boot

False

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Question When a plant asset is traded for another of similar asset, losses on the asset traded are not recognized

False

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Question When exchanging equipment, if the trade-in allowance is greater than the book value a loss results

False

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Question Since gains are not recognized in the exchange of similar assets, the cost basis of the new asset is equal to the book value

of the old asset plus boot

False

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Question If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, and a trade-in allowance of $15,000 is granted

by the seller, the buyer would report a gain on disposal of fixed assets of $5,000

False

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Question The entry to record the disposal of fixed assets will include a credit to accumulated depreciation

False

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Question Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset

False

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Question Minerals removed from the earth are classified as intangible assets

False

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Question 58

Question The method used to calculate the depletion of a natural resource is the straight line method

False

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Question Intangible assets differ from property, plant and equipment assets in that they lack physical substance

False

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Question The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization

False

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Question The cost of a patent with a remaining legal life of 10 years and an estimated useful life of 7 years is amortized over 10 years

False

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Question Costs associated with normal research and development activities should be treated as intangible assets

False

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Question Patents are exclusive rights to manufacture, use, or sell a particular product or process

False

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Question When a major corporation develops its own trademark and over time it becomes very valuable, the trademark may not be shown on their balance sheet due lack of a material cost

False

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Question When a company establishes an outstanding reputation and has a competitive advantage because of it, the company should record goodwill on its financial statements

False

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Question The difference between the balance in a fixed asset account and its related accumulated depreciation account is the asset's book value

False

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Question The-sum-of-the-years'-digits method is the only depreciation method that does not consider the plant asset's estimated residual value in the depreciation equation

False

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Question The amount of depreciation expense for the first full year of use of a fixed asset costing $65,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $20,000 by the sum-of-the-years’-digits method

False

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Question When a seller allows a buyer an amount for old equipment that is traded in for new equipment of similar use, this amount is

known as boot

False

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Question An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange

False

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Question Classify each of the following as:

C - A Overhauling an engine in a large truck A Ordinary Maintenance and Repairs

A - B Exterior and interior painting B Asset Improvements

B - C Paving a new parking lot C Extraordinary Repairs

B - D New landscaping

B - E Installing a new air conditioning system in an old building

C - F Resurfacing a pool in an apartment building

A - G Adding freon to an air conditioning system

A - H Fixing damage due to a car accident

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Question Match the intangible assets with their proper classification

B - A Rights to sell this book and make a profit A Patent

A - C A new kitchen gadget that can be profited by only one company C Trademark

B - E I-Tunes Music

D - F Reputation of a company

C - G Nike Swoosh

C - H Mickey Mouse

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Question A characteristic of a fixed asset is that it is Answer intangible

used in the operations of a business held for sale in the ordinary course of the business

a long term investment

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Question Land acquired so it can be resold in the future is listed in the balance sheet as a(n)

current asset investment intangible asset

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Question Which of the following should be included in the acquisition cost of a piece of equipment?

Answer transportation costs

installation costs testing costs prior to placing the equipment into production all are correct

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Question Which of the following is included in the cost of constructing a building?

Answer insurance costs during construction

cost of paving parking lot cost of repairing vandalism damage during construction cost of removing the demolished building existing on the land when it was purchased

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Question Which of the following is included in the cost of land?

Answer cost of paving a parking lot

brokerage commission outdoor parking lot lighting attached to the land

fences on the land

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Question Accumulated Depreciation Answer is used to show the amount of cost expiration of intangibles

is the same as Depreciation Expense

is a contra asset account

is used to show the amount of cost expiration of natural resources

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Question A building with an appraisal value of $147,000 is made available at an offer price of $152,000 The purchaser acquires the property for $35,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $65,000 The cost basis recorded in the buyer's accounting records to recognize this purchase is

$152,000 $145,000 $110,000

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Question A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of $5,000, and special acquisition fees of $3,000, would have a cost basis of

$90,000 $82,000 $85,000

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Question A new machine with a purchase price of $94,000, with transportation costs of $8,000, installation costs of $5,000, and special acquisition fees of $2,000, would have a cost basis of

$107,000 $102,000 $109,000

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Question Expenditures that add to the utility of fixed assets for more than one accounting period are

revenue expenditures current expenditures capital expenditures

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Question A capital expenditure results in a debit to Answer an expense account

a stockholders’ equity account

a liability account

an asset account

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Question Which of the following below is an example of a capital expenditure?

Answer cleaning the carpet in the front room

tune-up for a company truck replacing an engine in a company car replacing all burned-out light bulbs in the factory

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Question In a lease contract, the party who legally owns the asset is the

lessor operator banker

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Question All leases are classified as either Answer capital leases or long-term leases

capital leases or operating leases

operating leases or current leases long-term leases or current leases

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Question The journal entry for recording an operating lease payment would Answer be a memo entry only

debit the fixed asset and credit Cash debit an expense and credit Cash debit a liability and credit Cash

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Question When determining whether to record an asset as a fixed asset, what two criteria must be met?

Answer Must be an investment and must be long lived

Must be long lived and must use the asset in a productive manner

Must be long lived and must be a tangible asset

Must be a tangible asset and must be an investment

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Question Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories

physical and functional residual and salvage functional and residual

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Question A fixed asset's estimated value at the time it is to be retired from service is called

residual value market value carrying value

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Question All of the following below are needed for the calculation of straight-line depreciation except

residual value estimated life units produced

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Question The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is

declining-balance straight-line time-valuation

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Question When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is

straight-line units-of-production MACRS

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Question A machine with a cost of $80,000 has an estimated residual value of $5,000 and an estimated life of 5 years or 15,000 hours

It is to be depreciated by the units-of-production method What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

$25,000 $15,000 $26,667

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Question Equipment with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 12,000 hours It is to be depreciated by the straight-line method What is the amount of depreciation for the first full year, during which the

equipment was used 3,300 hours?

$32,500 $33,000 $35,750

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Question A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years or 18,000 hours What is the amount of depreciation for the second full year, using the double declining-balance method?

$37,500 $18,750 $16,667

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Question The most widely used depreciation method is Answer straight-line

sum-of-the-years-digits declining-balance units-of-production

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Question Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years Due to obsolescence, it was determined that the useful life should be shortened by

3 years and the residual value changed to zero The depreciation expense for the current and future years is

$16,000 $11,000 $8,000

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Question The depreciation method that does not use residual value in calculating the first year's depreciation expense is

units-of-production double-declining-balance none of the above

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Question If a fixed asset, such as a computer, were purchased on January 1st for $3,750 with an estimated life of 3 years and a salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation is:

(Note: EOM indicates the last day of each month.) Answer EOM Depreciation Expense 100

Accumulated Depreciation 100 EOM Depreciation Expense 1,200 Accumulated Depreciation 1,200 EOM Accumulated Depreciation 1,200 Depreciation Expense 1,200 EOM Accumulated Depreciation 100

Depreciation Expense 100

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Question The proper journal entry to purchase a computer on account to be utilized within the business would be:

Answer Jan 2 Office Supplies 1,350

Accounts Payable 1,350 Jan 2 Office Equipment 1,350

Accounts Payable 1,350 Jan 2 Office Supplies 1,350

Accounts Receivable 1,350 Jan 2 Office Equipment 1,350

Accounts Receivable 1,350

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Question Residual value is also known as all of the following except

trade in value salvage value net book value

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Question The formula for depreciable cost is Answer initial cost + residual value

initial cost - residual value initial cost - accumulated depreciation depreciable cost = initial cost

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Question Expected useful life is Answer calculated when the asset is sold

estimated at the time that the asset is placed in service

determined each year that the depreciation calculation is made

none of the answers are correct

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Question The calculation for annual depreciation using the straight-line depreciation method is Answer initial cost / estimated useful life

depreciable cost / estimated useful life depreciable cost * estimated useful life initial cost * estimated useful life

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Question The calculation for annual depreciation using the units-of-production method is Answer (initial cost/estimated output) * the actual yearly output

(depreciable cost / yearly output) * estimated output depreciable cost / yearly output

(depreciable cost / estimated output) * the actual yearly output

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Question Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual value of

$3,000 and an estimated useful life of 5 years Determine the 2nd year’s depreciation using straight-line depreciation

$24,800 $12,400 $13,000

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Question Which of the following is true?

Answer If using the double-declining-balance the total amount of depreciation expense during the life of the asset will be the

highest

If using the units-of-production method, it is possible to depreciate more than the depreciable cost

If using the straight line method, the amount of depreciation expense during the first year is higher than that of the declining-balance

Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same

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Question An asset was purchased for $120,000 and originally estimated to have a useful life of 10 years with a residual value of

$10,000 After two years of straight line depreciation, it was determined that the remaining useful life of the asset was only 4 years with

a residual value of $2,000 Calculate this year’s depreciation using the revised amounts and straight line method

$11,000 $24,000 $24,500

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Question A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced at $60,000 Assuming a trade-in allowance of $5,000, the cost basis of the new asset is

$59,500 $60,000 $60,500

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Question A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000 Assuming a trade-in allowance of $4,000, the cost basis of the new asset is

$45,000 $51,000

$50,000

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Question A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000 Assuming a trade-in allowance of $3,000, the recognized loss on the trade is

$4,500 $ 500 $1,500

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Question A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500 What is the amount of the gain or loss on disposal of the fixed asset?

$1,500 loss $3,500 gain $2,000 gain

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Question The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery and paying

$12,700 The old machinery originally cost $9,000 and had accumulated depreciation of $5,000 In recording this transaction, Bacon Company should record

the new machinery at $12,700

a gain of $1,500

a loss of $1,500

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Question When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry Answer debit Accumulated Depreciation; credit Machinery

debit Machinery; credit Accumulated Depreciation debit Cash; credit Accumulated Depreciation debit Depreciation Expense; credit Accumulated Depreciation

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Question When a company sells machinery at a price equal to its book value, this transaction would be recorded with an entry that would include the following:

Answer debit Cash and Accumulated Depreciation; credit Machinery

debit Machinery; credit Cash and Accumulated Depreciation debit Cash and Machinery; credit Accumulated Depreciation debit Cash and Depreciation Expense; credit Accumulated Depreciation

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Question When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry:

Answer debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal

debit Machinery and Accumulated Depreciation; credit Machinery and Cash debit Cash and Machinery; credit Accumulated Depreciation

debit Cash and Machinery; credit Accumulated Depreciation and Machinery

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Question When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would

be recorded with the following entry:

Answer debit Machinery and Accumulated Depreciation; credit Machinery and Cash

debit Cash and Machinery; credit Accumulated Depreciation debit Cash and Machinery; credit Accumulated Depreciation and Machinery debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and Cash

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Question On December 31, Strike Company has decided to discard one of its batting cages The initial cost of the equipment was

$215,000 with an accumulated depreciation of $185,000 Depreciation has been taken up to the end of the year The following will be included in the entry to record the disposal

Answer Accumulated Depreciation Dr $215,000

Loss on Disposal of Asset $185,000 Equipment Cr $215,000

Gain on Disposal of Asset $30,000

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