Deck 9: Reporting and Analyzing Long-Lived Assets

Question 1

The Accumulated Depreciation account represents a cash fund available to replace property, plant, and equipment.

Answer 1

False

Question 2

All property, plant, and equipment must be depreciated for accounting purposes.

Answer 2

False

Question 3

Under an operating lease, both the leased asset and the related lease obligation are shown on the statement of financial position.

Answer 3

False

Question 4

An item of property, plant, and equipment is considered to be impaired if its carrying amount exceeds its recoverable amount.

Question 5

The carrying amount of an asset is the original cost less anticipated residual value.

Question 6

If land is purchased with a building on it that is to be demolished, proceeds from any salvaged materials are reported in the Other Income and Expenses section of the statement of income.

Question 7

The depreciable amount of property, plant, and equipment is its original cost minus the depreciation for the current year.

Question 8

Recording depreciation on equipment affects both the statement of financial position and the statement of income.

Question 9

Leasehold improvements are depreciated over the remaining life of the lease or the useful life of the improvements, whichever is longer.

Question 10

In calculating depreciation, cost, useful life, and residual value are all based on estimates.

Question 11

Carrying amount is used in determining the amount that the diminishing-balance rate is applied to.

Question 12

When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.

Question 13

Using the diminishing-balance method results in higher expense in the early years, resulting in lower net income.

Question 14

Canada Revenue Agency requires a company to use the same depreciation method on its income tax return that is used in preparing financial statements.

Question 15

Using the units-of-production method of depreciation for equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Question 16

Under a capital lease, both the leased asset and the related lease obligation are shown on the statement of financial position.

Question 17

When purchasing a delivery truck, the cost of painting the company logo on the side should be debited to the Vehicles account.

Question 18

Land improvements are generally debited to the Land account.

Question 19

When an impairment loss is recorded for a depreciable asset, the offsetting credit is recorded in accumulated depreciation.

Question 20

Under IFRS, companies must account for their property, plant, and equipment using the revaluation model, where depreciable assets are re-valued upward to their fair values.

Question 21

When an asset is retired, a gain or loss must be recorded.

Question 22

When a company has a piece of property, plant, or equipment that has different components that depreciate at different rates, the total cost should be allocated to each component and each component should be depreciated separately.

Question 23

When an entire business is purchased, goodwill is the excess of the purchase price over the carrying amount of the net identifiable assets acquired.

Question 24

A loss on disposal results if the cash proceeds received from the asset sale are less than the asset's carrying amount.

Question 25

If the proceeds from the sale of equipment exceed its carrying amount, a gain on disposal is reported.

Question 26

If a trademark is developed internally, it cannot be recognized as an intangible asset on the statement of financial position.

Question 27

The cost of a patent should be amortized over its legal life or useful life; whichever, is shorter.

Question 28

If an acquired franchise or licence is for an indefinite time period, then the cost of the asset should not be amortized.

Question 29

All research costs should be capitalized when incurred.

Question 30

A tangible asset must be fully depreciated before it can be removed from the books.

Question 31

Normally, businesses only dispose of property, plant, and equipment by either sale or exchange.

Question 32

Impairment losses on goodwill are never reversed.

Question 33

When a change in estimate is made, there is no correction of previously recorded depreciation expense.

Question 34

Intangible assets involve rights, privileges, and/or competitive advantages that result from ownership of identifiable assets that do not possess physical substance.

Question 35

The asset turnover ratio is calculated as net sales divided by ending total assets.

Question 36

If a building is sold at a gain, the gain on disposal should be reported in the non-operating section of the statement of income.

Question 37

An intangible asset must be identifiable.

Question 38

The cash flows from the purchase and sale of long-lived assets are reported in the operating activities section of the cash flow statement.

Question 39

Profit margin can be determined by multiplying the asset turnover by the return on assets.

Question 40

A change in the estimated residual value of property, plant, and equipment requires a restatement of prior years' depreciation.

Question 41

Angus Corp.acquires land for $105,000 cash.Additional costs are as follows: Angus will record the cost of the land as
(a)$105,000.
(b)$109,400.
(c)$109,900.
(d)$126,200.

Question 42

The cost of land does not include

A)closing costs.
B)annual property taxes.
C)removal costs of an old building.
D)title fees.

Question 43

Interest incurred on the construction of a building can be included in the cost of the building
(a)during the construction period of a building.
(b)for as long as the interest is payable.
(c)if the building is financed by a mortgage.
(d)under no circumstances.

Question 44

The asset turnover indicates how efficiently a company uses its assets.

Question 45

Aye Corp.purchases a remote-site building for computer operations.The building will be suitable for operations after some necessary expenditures.The wiring must be replaced to handle the computer specifications.The roof is leaking and must be replaced.All rooms must be repainted and re-carpeted and there will also be some updating of the plumbing needed.Which of the following statements is true?
(a)The cost of the building will include the repainting and re-carpeting costs.
(b)The cost of the building will include the cost of replacing the roof.
(c)The cost of the building is the purchase price of the building, while the additional expenditures are all capitalized as Building Improvements.
(d)The wiring replacement will be part of the computer costs, not the building cost.

Question 46

Which of the following would not be included in the Equipment account?

A)installation costs
B)freight costs
C)cost of trial runs
D)electricity used by the machine

Question 47

Asset retirement costs are
(a)added to the cost of a depreciable asset.
(b)treated as a separate asset.
(c)deducted from the cost of a depreciation asset.
(d)have no effect on a depreciable asset.

Question 48

Enmerick Corporation purchases a new delivery truck for $45,000.The company logo is painted on the side of the truck for $1,500.The motor vehicle licence is $175.Annual insurance is $1,500.At what amount does Enmerick record the cost of the new truck?
(a)$45,000
(b)$45,175
(c)$46,500
(d)$46,675

Question 49

Which of the following is not an advantage of an operating lease?

A)reduced risk of obsolescence
B)100 percent financing
C)income tax advantages
D)accelerated depreciation

Question 50

Land improvements should be depreciated over the useful life of the
(a)land.
(b)buildings on the land.
(c)land or land improvements, whichever is longer.
(d)land improvements.

Question 51

The expected costs to retire an asset are called
(a)off-balance sheet financing.
(b)expected retirement costs.
(c)disposal costs.
(d)asset retirement costs.

Question 52

The Land account would include all of the following costs except

A)drainage costs.
B)the cost of building a parking lot.
C)title fees.
D)the cost of tearing down a building.

Question 53

Which of the following should not be classified as property, plant and equipment?

A)building used as a factory
B)land used in ordinary business operations
C)a truck held for resale by an automobile dealership
D)land improvements, such as parking lots and fences

Question 54

Harmon Medical Ltd.purchases land for $290,500 cash.The title and legal fees totalled $1,500.The clinic has the land graded for $25,000.What amount does Harmon Medical record as the cost for the land?
(a)$290,500
(b)$292,000
(c)$315,500
(d)$317,000

Question 55

Mercy General Hospital installs a new parking lot.The paving cost $25,000 and the lights to illuminate the new parking lot cost $13,000.Which of the following statements is true with respect to these expenditures?
(a)$25,000 should be debited to Land.
(b)$13,000 should be debited to Lighting Expense.
(c)$38,000 should be debited to Land.
(d)$38,000 should be debited to Land Improvements.

Question 56

A company purchased land for $120,000 cash; $7,000 was spent to demolish an old building on the land before construction of a new building could start; and $1,500 was received for material salvaged from the old building.The cost of the land would be recorded at
(a)$120,000.
(b)$125,500.
(c)$127,000.
(d)$128,500.

Question 57

Which of the following is not true for an operating expenditure?

A)It is recorded with a debit to a statement of financial position account.
B)It benefits the current period only.
C)It is incurred to maintain an asset in its normal operating condition.
D)It often recurs.

Question 58

Which one of the following items is notnotof a truck purchased for business use?

A)insurance during transit
B)motor vehicle licence
C)freight charges incurred when acquiring the truck
D)cost of lettering on the side of the truck

Question 59

Which of the following assets does not decline in service potential over the course of its useful life?

A)office equipment
B)furnishings
C)land
D)computers

Question 60

A characteristic of property, plant, and equipment 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)not currently used in the business but held for future use.

Question 61

When estimating the useful life of an asset, accountants do not consider

A)the cost to replace the asset at the end of its useful life.
B)vulnerability to obsolescence.
C)expected repairs and maintenance.
D)the intended use of the asset.

Question 62

Equipment with a cost of $160,000, an estimated residual value of $10,000, and an estimated life of 4 years, was purchased on April 1, 2022.If the straight-line method is used, the depreciation expense for calendar 2022 is
(a)$40,000.
(b)$37,500.
(c)$30,000.
(d)$28,125.

Question 63

Which of the following is included in the cost of constructing a building?
(a)cost of paving a parking lot
(b)cost of grading the land on which the building is to be constructed
(c)interest incurred during construction
(d)cost of removing the demolished building that existed on the land when it was purchased

Question 64

Assuming there are no impairment losses, the balance in the Accumulated Depreciation account represents the
(a)cash fund to be used to replace assets.
(b)amount to be deducted from the cost of the asset to arrive at its fair value.
(c)amount charged to depreciation expense in the current period.
(d)amount charged to depreciation expense since the acquisition of the asset.

Question 65

Which of the following is not an acceptable method of depreciation?

A)straight-line
B)increasing-balance
C)diminishing-balance
D)units-of-production

Question 66

The carrying amount of an asset is equal to the
(a)asset's fair value less its original cost.
(b)asset's cost less residual value less accumulated depreciation.
(c)asset's cost less residual value.
(d)asset's cost less accumulated depreciation.

Question 67

A company purchased factory equipment on May 1, 2022 for $30,000.It is estimated that the equipment will have a $4,200 residual value at the end of its 8-year useful life.Using straight-line depreciation, the depreciation expense for the years ended December 31, 2022 and 2023 is
(a)$2,500 in 2022 and $3,750 in 2023.
(b)$3,225 in 2022 and $3,225 in 2023.
(c)$2,150 in 2022 and $3,225 in 2023.
(d)none of the above

Question 68

Which of the following is not a consideration when calculating depreciation?

A)the method of payment for the asset
B)the cost of the asset
C)the useful life of the asset
D)the residual value of the asset

Question 69

Which statement is correct regarding the use of the cost model and the revaluation model?
(a)The cost model is not allowed under IFRS.
(b)The revaluation model is the only model allowed under IFRS.
(c)The cost model is the only model allowed under ASPE.
(d)Either the cost model or the revaluation model can be under ASPE.

Question 70

The diminishing-balance method of depreciation produces a(n)
(a)decreasing depreciation expense each period.
(b)increasing depreciation expense each period.
(c)diminishing percentage rate each period.
(d)constant amount of depreciation expense each period.

Question 71

Equipment was purchased for $25,000.Freight charges amounted to $700 and there was a cost of $3,000 for building a foundation and installing the equipment.It is estimated that the equipment will have a $1,600 residual value at the end of its 5-year useful life.Using the straight-line method, annual depreciation expense will be
(a)$4,540.
(b)$4,680.
(c)$5,420.
(d)$5,740.

Question 72

A truck was purchased for $40,000 and it was estimated to have a $4,000 residual value.Using the straight-line method, monthly depreciation expense of $600 was recorded.Therefore, the annual depreciation rate expressed as a percentage is
(a)2%.
(b)17%.
(c)18%.
(d)20%.

Question 73

The carrying amount of an asset with a residual value that has been in use for three years is:
(a)its depreciable amount.
(b)cost less residual value.
(c)its depreciable amount less accumulated depreciation.
(d)cost less accumulated depreciation.

Question 74

The cost of a depreciable long-lived asset is expensed
(a)when it is paid for.
(b)as the asset benefits the company.
(c)in the period in which it is acquired.
(d)in the period in which it is disposed of.

Question 75

The difference between a depreciable asset's cost and its residual value is called
(a)the annual depreciation.
(b)accumulated depreciation.
(c)the depreciable amount.
(d)the revaluation amount.

Question 76

Property, plant & equipment is subdivided into the following classes:
(a)land, lease improvements, buildings & equipment.
(b)land, computer equipment, plant & buildings.
(c)property, buildings & equipment.
(d)land, land improvements, buildings & equipment.

Question 77

Equipment was purchased for $20,000.It is estimated that the equipment will have a $3,000 residual value at the end of its 5-year useful life.Using the straight-line method, annual depreciation expense will be
(a)$3,400.
(b)$4,000.
(c)$4,600.
(d)$5,000.

Question 78

In calculating depreciation, residual value is
(a)the fair value of the asset on the date of acquisition.
(b)subtracted from accumulated depreciation to determine the asset's depreciable cost.
(c)an estimate of the asset's value at the end of its useful life.
(d)ignored in all the depreciation methods.

Question 79

The carrying amount of property, plant, and equipment
(a)is always equal to its fair value.
(b)is always greater than its fair value.
(c)is always less than its fair value.
(d)may be different than its fair value.

Question 80

Depreciation is a process of
(a)determining the asset's fair value.
(b)asset valuation.
(c)cost allocation.
(d)determining the asset's residual value.