Test bank accounting 25th editon warren chapter 10 fixed assets and intangible assets PDF

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Chapter 10--Fixed Assets and Intangible Assets Student: ___________________________________________________________________________ 1. 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. True False

2. 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. True False

3. 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. True False

4. Land acquired as a speculation is reported under Investments on the balance sheet. True False

5. To a major resort, timeshare properties would be classified as property, plant and equipment. True False

6. 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. True False

7. The cost of repairing damage to a machine during installation is debited to a fixed asset account. True False

8. During construction of a building, the cost of interest on a construction loan should be charged to an expense account. True False

9. The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment. True False

10. 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. True False

11. Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment. True False

12. The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future. True False

13. Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are betterments. True False

14. The cost of replacing an engine in a truck is an example of ordinary maintenance. True False

15. A capital lease is accounted for as if the asset has been purchased. True False

16. An operating lease is accounted for as if the lessee has purchased the asset. True False

17. An intangible asset is one that has a physical existence. True False

18. A capitalized asset will appear on the balance sheet as a long term asset. True False

19. Long lived assets held for sale are classified as fixed assets. True False

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

21. The normal balance of the accumulated depreciation account is debit. True False

22. As a company records depreciation expense for a period of time a corresponding cash inflow from investing activities is reported on the statement of cash flows. True False

23. All property, plant, and equipment assets are depreciated over time. True False

24. The book value of a fixed asset reported on the balance sheet represents its market value on that date. True False

25. The depreciable cost of a building is the same as its acquisition cost. True False

26. It is necessary for a company to use the same depreciation method for all of its depreciable assets. True False

27. It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes. True False

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

29. The units of production depreciation method provides a good match of expenses against revenue. True False

30. 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. True False

31. Residual value is not incorporated in the initial calculations for double-declining-balance depreciation. True False

32. The double-declining-balance method is an accelerated depreciation method. True False

33. 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. True False

34. 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. True False

35. 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. True False

36. 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. True False

37. 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. True False

38. When depreciation estimates are revised, all years of the asset’s life are affected. True False

39. For income tax purposes most companies use an accelerated deprecation method called double declining balance. True False

40. Assets may be grouped according to common traits and depreciated by using a single composite rate. True False

41. Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be the same. True False

42. Revising depreciation estimates does affect the amounts of depreciation expense recorded in past periods. True False

43. Capital expenditures are costs that are charged to Stockholders' Equity accounts. True False

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

45. 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. True False

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

47. Ordinary gains from the sale of fixed assets should be reported in the other income section of the income statement. True False

48. A gain can be realized when a fixed asset is discarded. True False

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

50. When a plant asset is traded for another similar asset, losses on the asset traded are not recognized. True False

51. When exchanging equipment, if the trade-in allowance is greater than the book value a loss results. True False

52. 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, if the transaction is deemed to have commercial substance, the buyer would report a gain on disposal of fixed assets of $5,000. True False

53. The entry to record the disposal of fixed assets will include a credit to accumulated depreciation. True False

54. Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal of the asset. True False

55. Minerals removed from the earth are classified as intangible assets. True False

56. The method used to calculate the depletion of a natural resource is the straight line method. True False

57. Intangible assets differ from property, plant and equipment assets in that they lack physical substance. True False

58. The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization. True False

59. 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. True False

60. Costs associated with normal research and development activities should be treated as intangible assets. True False

61. Patents are exclusive rights to manufacture, use, or sell a particular product or process. True False

62. 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 to lack of a material cost. True False

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

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

65. 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. True False

66. An exchange is said to have commercial substance if future cash flows remain the same as a result of the exchange. True False

67. A characteristic of a fixed asset is that it is A. intangible B. used in the operations of a business C. held for sale in the ordinary course of the business D. a short-term investment

68. Land acquired so it can be resold in the future is listed in the balance sheet as a(n) A. fixed asset B. current asset C. investment D. intangible asset

69. Which of the following should be included in the acquisition cost of a piece of equipment? A. transportation costs B. installation costs C. testing costs prior to placing the equipment into production D. all are correct

70. Which of the following is included in the cost of constructing a building? A. insurance costs during construction B. cost of paving parking lot C. cost of repairing vandalism damage during construction D. cost of removing the demolished building existing on the land when it was purchased

71. Which of the following is included in the cost of land? A. cost of paving a parking lot B. brokerage commission C. outdoor parking lot lighting attached to the land D. fences on the land

72. Accumulated Depreciation A. is used to show the amount of cost expiration of intangibles B. is the same as Depreciation Expense C. is a contra asset account D. is used to show the amount of cost expiration of natural resources

73. A building with an appraisal value of $154,000 is made available at an offer price of $172,000. The purchaser acquires the property for $40,000 in cash, a 90-day note payable for $45,000, and a mortgage amounting to $75,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is A. $154,000 B. $172,000 C. $160,000 D. $120,000

74. 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 A. $93,000 B. $90,000 C. $82,000 D. $85,000

75. A new machine with a purchase price of $109,000, with transportation costs of $12,000, installation costs of $5,000, and special acquisition fees of $6,000, would have a cost basis of A. $114,000 B. $126,000 C. $121,000 D. $132,000

76. Expenditures that add to the utility of fixed assets for more than one accounting period are A. committed expenditures B. revenue expenditures C. utility expenditures D. capital expenditures

77. A capital expenditure results in a debit to A. an expense account B. a capital account C. a liability account D. an asset account

78. Which of the following below is an example of a capital expenditure? A. cleaning the carpet in the front room B. tune-up for a company truck C. replacing an engine in a company car D. replacing all burned-out light bulbs in the factory

79. In a lease contract, the party who legally owns the asset is the A. lessee B. lessor C. operator D. banker

80. All leases are classified as either A. capital leases or long-term leases B. capital leases or operating leases C. operating leases or current leases D. long-term leases or current leases

81. The journal entry for recording an operating lease payment would A. be a memo entry only B. debit the fixed asset and credit Cash C. debit an expense and credit Cash D. debit a liability and credit Cash

82. When determining whether to record an asset as a fixed asset, what two criteria must be met? A. Must be an investment and must be long lived. B. Must be long lived and must use the asset in a productive manner. C. Must be short lived and must be a tangible asset. D. Must be a tangible asset and must be an investment.

83. Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories A. salvage and functional B. physical and functional C. residual and salvage D. functional and residual

84. A fixed asset's estimated value at the time it is to be retired from service is called A. book value B. residual value C. market value D. carrying value

85. All of the following below are needed for the calculation of straight-line depreciation except A. cost B. residual value C. estimated life D. units produced

86. The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is A. units-of-production B. declining-balance C. straight-line D. time-valuation

87. 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 A. declining-balance B. straight-line C. units-of-production D. MACRS

88. A machine with a cost of $120,000 has an estimated residual value of $15,000 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? A. $ 5,000 B. $35,000 C. $21,000 D. $45,000

89. Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or 19,000 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 2,100 hours? A. $19,000 B. $21,000 C. $22,000 D. $30,000

90. 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? A. $17,500 B. $37,500 C. $18,750 D. $16,667

91. The most widely used depreciation method is A. straight-line B. double-declining-balance C. units-of-production D. units-of-production or double-declining-balance

92. 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 A. $11,636 B. $16,000 C. $11,000 D. $8,000

93. The depreciation method that does not use residual value in calculating the first year's depreciation expense is A. straight-line B. units-of-production C. double-declining-balance D. none of the above

94. 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.) A. EOM Depreciation Expense 100 Accumulated Depreciation 100 B. EOM Depreciation Expense 1,200 Accumulated Depreciation 1,200 C. EOM Accumulated Depreciation 1,200 Depreciation Expense 1,200 D. EOM Accumulated Depreciation 100 Depreciation Expense 100

95. The proper journal entry to purchase a computer costing $975 on account on January 2 to be utilized within the business would be: A. Jan 2 Office Supplies 975 Accounts Payable 975 B. Jan 2 Office Equipment 975 Accounts Payable 975 C. Jan 2 Office Supplies 975 Accounts Receivable 975 D. Jan 2 Office Equipment 975 Accounts Receivable 975

96. Residual value is also known as all of the following except A. scrap value B. trade in value C. salvage value D. net book value

97. The formula for depreciable cost is A. initial cost + residual value B. initial cost - residual value C. initial cost - accumulated depreciation D. depreciable cost = initial cost

98. Expected useful life is A. calculated when the asset is sold. B. estimated at the time that the asset is placed in service. C. determined each year that the depreciation calculation is made. D. none of the answers are correct.

99. The calculation for annual depreciation using the straight-line depreciation method is A. initial cost / estimated useful life B. depreciable cost / estimated useful life C. depreciable cost * estimated useful life D. initial cost * estimated useful life

100. The calculation for annual depreciation using the units-of-production method is A. (initial cost/estimated output) * the actual yearly output B. (depreciable cost / yearly output) * estimated output C. depreciable cost / yearly output D. (depreciable cost / estimated output) * the actual yearly output

101. Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual value of $9,000 and an estimated useful life of 5 years. Determine the 2nd year’s depreciation using straight-line depreciation. A. $13,200 B. $19,200 C. $ 9,600 D. $ 9,000

102. Which of the following is true? A. If using the double-declining-balance the total amount of depreciation expense during the life of the asset will be the highest. B. If using the units-of-production method, it is possible to depreciate more than the depreciable cost. C. If using the straight line method, the amount of depreciation expense during the first year is higher than that of the double-declining-balance. D. Regardless of the depreciation method, the amount of total depreciation expense during the life of the asset will be the same.

103. An asset was purchased for $120,000 on January 1, 2010 and originally estimated to have a useful life of 10 years with a residual value of $10,000. At the beginning of 2012, it was determined that the remaining useful life of the asset was only 4 years with a residual value of $2,000. Calculate the 2012 depreciation expense using the revised amounts and straight line method. A. $25,000 B. $11,000 C. $24,000 D. $24,500

104. 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 in a transaction with commercial substance. Assuming a trade-in allowance of $5,000, the cost basis of the new asset is A. $54,000 B. $59,500 C. $60,000 D. $60,500

105. 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 A...