Deck 8: Reporting and Analyzing Long-Term Assets

Question 1

Financial accounting and tax accounting require the same recordkeeping and there should be no difference in results between the two accounting systems.

Answer 1

False

Question 2

The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use is called depletion.

Answer 2

False

Question 3

If land is purchased as a building site,the cost of removing existing structures is not charged to the Land account.

Answer 3

False

Question 4

Depreciation does not measure the decline in market value of an asset each period.

Question 5

Depreciation expense is calculated using its cost,estimates of an asset's salvage value,and an estimated useful life.

Question 6

Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current,and future financial statements.

Question 7

Obsolescence refers to the insufficient capacity of a company's plant assets to meet the company's production demands.

Question 8

Plant assets are reported on a balance sheet at their depreciated costs (book value),not at fair (market)values.

Question 9

The phrase capital-intensive refers to companies with large amounts invested in plant assets.

Question 10

The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use is called depreciation.

Question 11

It is necessary to report both the cost and the accumulated depreciation of plant assets in the financial statements.

Question 12

Once an asset's book value equals its salvage value,depreciation stops.

Question 13

Depreciation expense is higher in earlier years and income is lower in the later years when using straight-line versus accelerated methods.

Question 14

When an asset is purchased (or disposed of)at a time other than the beginning or the end of an accounting period,depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.

Question 15

Total depreciation expense over an asset's useful life will be identical under all methods of depreciation.

Question 16

Plant assets refer to nonphysical assets that are used in the operations of a business.

Question 17

Salvage value is an estimate of an asset's value at the end of its benefit period.

Question 18

A plant asset's useful life is the length of time it is productively used in a company's operations.

Question 19

Plant assets are used in operations and have useful lives that extend over more than one accounting period.

Question 20

When plant assets are purchased as a group in a single transaction for a lump-sum price,the cost of the purchase is allocated among the different types of assets acquired based on their relative market (or appraised)values.

Question 21

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.

Question 22

Total asset cost plus depreciation expense equals book value.

Question 23

The Modified Accelerated Cost Recovery System (MACRS)is part of the U.S.federal income tax laws and may be used for financial reporting.

Question 24

Edmond reported average total assets of $9,965 million and net sales of $10,430 million.Its total asset turnover equals .96.

Question 25

Total asset turnover is calculated by dividing average total assets by net sales.

Question 26

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

Question 27

Total asset cost less accumulated depreciation equals book value.

Question 28

Depreciation expense is higher in earlier years and income is higher in the later years when using accelerated versus straight-line methods.

Question 29

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

Question 30

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

Question 31

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

Question 32

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.

Question 33

Duncan reported net sales of $2,523 million and average total assets of $1,476 million.Its total asset turnover equals 1.71.

Question 34

Asset turnover is computed by dividing net sales by average total assets.

Question 35

The straight-line depreciation method yields a steady pattern of depreciation expense.

Question 36

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

Question 37

Decision makers and other users of financial statements are especially interested in evaluating a company's ability to use its assets in generating sales.

Question 38

The book value of an asset when using double-declining-balance depreciation is always greater than the book value from using straight-line depreciation,except at the beginning and the end of the asset's useful life,when it is the same.

Question 39

Duncan reported net sales of $2,523 million and average total assets of $1,476 million.Its total asset turnover equals 0.59.

Question 40

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

Question 41

Betterments are a type of capital expenditure.

Question 42

The first step in accounting for an asset disposal is to calculate the gain or loss on disposal.

Question 43

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

Question 44

On January 1 of the current year,a company purchased a plant asset for $120,000.The asset has an estimated salvage value of $16,000,and an estimated useful life of 8 years.Depreciation expense in the first year using the double-declining-balance method is $30,000.

Question 45

Depletion is the process of allocating the cost of natural resources to periods when they are consumed.

Question 46

A loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less than the asset's book value.

Question 47

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

Question 48

Accounting for the exchange of assets depends on whether the transaction has commercial substance; commercial substance implies that it alters the company's future cash flows.

Question 49

Revenue expenditures are also called balance sheet expenditures.

Question 50

Amortization is the process of allocating the cost of natural resources to periods when they are consumed.

Question 51

Depreciation expense under the double-declining-balance method is equal to the book value of the asset at the beginning of the period multiplied by twice the straight-line depreciation rate.

Question 52

The units-of-production method of depreciation charges a constant amount of expense for each unit produced during an asset's useful life.

Question 53

Natural resources are assets that include standing timber,mineral deposits,and oil and gas fields.

Question 54

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.

Question 55

Capital expenditures,also called balance sheet expenditures,are additional costs of plant assets that provide benefits extending beyond the current period.

Question 56

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 net value.

Question 57

Gain or loss on the disposal of assets is determined by comparing the disposed asset's book value to the market value of any assets received.

Question 58

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

Question 59

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

Question 60

If an asset is sold above its book value,the selling company records a loss.

Question 61

Once the estimated depreciation expense for an asset is calculated:

A)It cannot be changed,based on the historical cost principle.
B)It may be revised based on new information.
C)Any changes are accumulated and recognized when the asset is sold.
D)The estimate itself cannot be changed; however,new information should be disclosed in financial statement footnotes.
E)It cannot be changed,based on the consistency principle.

Question 62

The cost of an intangible asset is systematically allocated to depreciation expense over its estimated useful life.

Question 63

A copyright gives its owner the exclusive right to publish and sell a musical,literary,or artistic work during the life of the creator plus 17 years.

Question 64

Plant assets are defined as:

A)Tangible assets that have a useful life of more than one accounting period and are used in the operation of a business.
B)Current assets.
C)Held for sale.
D)Intangible assets used in the operations of a business that have a useful life of more than one accounting period.
E)Tangible assets used in the operation of business that have a useful life of less than one accounting period.

Question 65

Salvage value is:

A)Not a factor relevant to determining depletion.
B)A factor relevant to amortizing an intangible asset with an indefinite life.
C)An estimate of the asset's value at the end of its benefit period.
D)A factor relevant to determining depreciation under MACRS.
E)A factor relevant to determining depreciation that cannot be revised during an asset's useful life.

Question 66

A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to use a process for 20 years.

Question 67

Natural resources may be reported under either plant assets or their own separate category on the balance sheet.

Question 68

Depreciation:

A)Measures the decline in market value of an asset.
B)Measures physical deterioration of an asset.
C)Is the process of allocating the cost of a plant asset to expense.
D)Is an outflow of cash from the use of a plant asset.
E)Is applied to land.

Question 69

When the usefulness of plant assets used to extract natural resources is directly related to the depletion of a natural resource,their costs are depreciated using the units-of-production method of depreciation,as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.

Question 70

Intangible assets are nonphysical assets used in operations that confer on their owners' long-term rights,privileges,or competitive advantages.

Question 71

A copyright gives its owner the exclusive right to publish and sell a musical,literary,or artistic work during the life of the creator plus 70 years.

Question 72

The term inadequacy,as it relates to the useful life of an asset,refers to:

A)The inability of a company's plant assets to meet the company's demands.
B)An asset that is worn out.
C)An asset that is no longer useful in producing goods and services.
D)The condition where the salvage value is too small to replace the asset.
E)The condition where the asset's salvage value is less than its cost.

Question 73

A trademark is an exclusive right granted to its owner to publish and sell a musical,literary,or artistic work during the life of the creator plus 70 years.

Question 74

Since goodwill is an intangible asset,it is amortized each year using the straight-line method.

Question 75

The term,obsolescence,as it relates to the useful life of an asset,refers to:

A)The end of an asset's useful life.
B)A plant asset that no longer has a competitive advantage because of innovations.
C)The inability of a company's plant assets to meet the company's demands.
D)An asset's salvage value becoming less than its replacement cost.
E)Intangible assets that have been fully amortized.

Question 76

A machine originally had an estimated useful life of 6 years,but after 4 complete years,it was decided that the original estimate of useful life should have been 10 years.At that point the remaining cost to be depreciated should be allocated over the remaining:

A)2 years.
B)4 years.
C)6 years.
D)16 years.
E)10 years.

Question 77

The useful life of a plant asset is:

A)The length of time it is productively used in a company's operations.
B)Never related to its physical life.
C)Its productive life,but not to exceed one year.
D)Determined by the FASB.
E)Determined by law.

Question 78

A leasehold refers to the rights the lessor grants to the lessee under the terms of the lease.

Question 79

One characteristic of plant assets is that they are:

A)Current assets.
B)Used in operations.
C)Natural resources.
D)Long-term investments.
E)Intangible.

Question 80

The relevant factors in computing depreciation do not include:

A)Cost.
B)Salvage value.
C)Useful life.
D)Depreciation method.
E)Market value.