Deck 9: Long-Lived Tangible and Intangible Assets

Question 1

Companies within the same industry do not always use the same depreciation method,but will use the same expected useful life for the same piece of equipment.

Answer 1

False
Explanation:Depreciation varies from one company to the next as a result of differences in depreciation methods,estimated useful lives,and estimated residual values.

Question 2

Accumulated Depreciation is classified as a contra-asset account on the balance sheet.

Answer 2

True
Explanation:Accumulated Depreciation is a contra-asset account.

Question 3

Extraordinary repairs,replacements,and additions are added to the appropriate asset accounts rather than being recorded as expenses.

Answer 3

True
Explanation:Extraordinary repairs,replacements,and additions extend the useful life of a tangible asset or improve its output in the future;they are recorded as increases in asset accounts,not as expenses.

Question 4

Tax accounting and financial accounting use the same depreciation calculations and there are no differences in the results between the two accounting systems.

Question 5

When assets are purchased as a group,the total cost must be divided up and allocated to each asset in proportion to the market value of the assets as a whole.

Question 6

Long-lived assets found on a company's balance sheet may include some assets that have no physical substance.

Question 7

Assuming nothing else changes,an increase in average net fixed assets will cause the fixed asset turnover ratio to decrease.

Question 8

Some analysts compare companies by focusing on earnings before interest,taxes,depreciation,and amortization (EBITDA),rather than net income.

Question 9

Assuming no additions,replacements,or extraordinary repairs,the book value of a long-lived asset declines over time.

Question 10

Intangible assets with limited lives are usually amortized using the straight-line method with no residual value.

Question 11

Impairment occurs when the estimated future cash flows from a long-lived asset are greater than the asset's book value.

Question 12

A declining fixed asset turnover ratio can be caused by acquiring additional assets in the current period in anticipation of increased revenue in the future.

Question 13

Depreciation is an allocation method,not a valuation method.

Question 14

Trademarks and goodwill are intangible assets that are not amortized.

Question 15

When the amount of annual depreciation is revised because of a change in the estimated useful life of an asset,prior years' financial statements should be restated.

Question 16

There are no significant differences between GAAP and IFRS with regards to the accounting for tangible and intangible assets.

Question 17

When an asset is sold and the selling price exceeds the asset's book value,net income will increase.

Question 18

If a company produces the same number of units per period over an asset's useful life,each period's depreciation expense using the straight-line method will be the same as that recorded using the units-of-production method.

Question 19

The calculation for depletion of natural resources is similar to the calculation for depreciation when the units-of-production method is used.

Question 20

The useful life of an asset is always measured in units of time,such as years or months.

Question 21

Fixed assets are ________ and are found on the ________:

A)long-lived tangible assets;balance sheet
B)long-lived intangible assets;balance sheet
C)current tangible assets;balance sheet
D)current intangible assets;income statement

Question 22

A productive asset:

A)will be used up within 1 year from the balance sheet date.
B)is the same as stockholders' equity.
C)is part of inventory.
D)is used to produce goods or services that will be sold to customers.

Question 23

Intangible assets are:

A)long-lived assets with no physical substance.
B)unnecessary for most major companies.
C)all current assets.
D)any assets acquired without using cash.

Question 24

Which of the following statements about capitalizing costs is correct?

A)Capitalizing costs refers to the process of converting assets to expenses.
B)All costs incurred to acquire an asset may be capitalized.
C)Capitalizing a cost means to record it as an asset.
D)Capitalizing costs results in an immediate decrease in net income.

Question 25

Which of the following items would not be considered a long-lived asset?

A)Buildings
B)Land improvements
C)Inventory
D)Land

Question 26

Which of these are natural resources that are depleted over time?

A)Timber
B)Mining equipment
C)Cash
D)Inventory

Question 27

Which of the following is a long-lived asset?

A)Land on which a new store is located
B)Land purchased for resale next month
C)Cash
D)Retained earnings

Question 28

Buckeye Industries purchased a truck and trailer for $81,000.The appraised values of the truck and trailer are $57,000 and $28,500,respectively.What is the amount of the cost that should be assigned to the trailer?

A)$28,500
B)$27,000
C)$24,000
D)$40,500

Question 29

Under the cost principle,a company capitalizes:

A)all ordinary repair expenditures incurred in the use of an asset.
B)any interest incurred in borrowing money to help pay for asset acquisitions.
C)all reasonable and necessary costs of acquiring an asset and preparing it for use.
D)the total market value of individual assets acquired in a 'basket purchase.'

Question 30

Which of the following is not a characteristic of tangible long-lived assets?

A)Productive
B)Used over one or more years
C)Not intended for resale
D)Amortized over their useful lives

Question 31

Which of the following would be properly classified as a long-lived asset?

A)A car held for resale by an automobile dealership.
B)Accounts receivable.
C)Merchandise inventory held for resale.
D)A warehouse used to store inventory.

Question 32

Hacienda Realty,a real estate management company,buys land that contains an abandoned apartment building for $9,000,000.It pays a construction company $1,000,000 to demolish the apartment building.Which of the following is correct?

A)The company would record $10,000,000 million as the cost of the land.
B)The company would record $9,000,000 as the cost of the land.
C)The company would record $8,000,000 as the cost of the land.
D)The company would record $1,000,000 as demolition expense.

Question 33

Generally,freight costs incurred when a long-lived asset is purchased should be:

A)expensed in the period incurred.
B)deducted from the Accumulated Depreciation account.
C)added to the cost of the asset.
D)not recorded in the accounts.

Question 34

If a company expenses costs that should be capitalized,how is its income statement for the current period impacted?

A)Net income is overstated.
B)Revenues are understated.
C)Expenses are overstated.
D)Assets are overstated.

Question 35

Tolleson Enterprises buys a computer system for $2,400,000 and pays the vendor $160,000 to install the computer system.Tolleson should record:

A)$2,400,000 as equipment and $160,000 as expenses.
B)$2,560,000 as expenses.
C)$2,240,000 as equipment and the rest as expenses.
D)$2,560,000 as equipment.

Question 36

Durango,Inc.purchased a parcel of land for $450,000.It paid attorney fees of $3,000 to verify title to the land.In addition,it paid a broker's fee of $7,500 to help find a suitable parcel of land.This parcel of land should be recorded in the accounting records for:

A)$450,000.
B)$453,000.
C)$457,500.
D)$460,500.

Question 37

A category of long-lived assets that are depleted over time is:

A)delivery equipment.
B)natural resources.
C)machinery.
D)cash.

Question 38

Which of the following terms does not mean the same as the others?

A)Tangible assets
B)Fixed assets
C)Property,plant,and equipment
D)Long-lived assets

Question 39

The MegaHit Film Studio owns a production lot and related equipment.How would MegaHit Company categorize these assets?

A)Tangible assets
B)Natural resources
C)Intangible assets
D)Goodwill

Question 40

Wilshire Company purchased land for $120,000.The cost to demolish the existing building and prepare the land for a new building was $16,000.The real estate commission paid to buy the land was $7,200.What amount should be recorded in Wilshire's accounting records for the cost of the land?

A)$143,200
B)$120,000
C)$127,200
D)$136,000

Question 41

Sheridan Manufacturing purchased a new building with the surrounding land.The price paid was $2,400,000,including the commission charged on the sale.An appraisal of the land and building at the time of purchase indicated that the market value of the land was $2,000,000 and the market value of the building was $1,000,000.What amounts would be recorded for the purchase of the two assets?

A)Land $1,600,000,Building $800,000
B)Land $2,000,000,Building $1,000,000
C)Land $2,000,000,Building $400,000
D)Land $1,400,000,Building $1,000,000

Question 42

The primary difference between ordinary repairs and extraordinary repairs is:

A)ordinary repairs cost less.
B)ordinary repairs are expenditures for routine maintenance and upkeep,whereas extraordinary repairs increase an assets economic usefulness in the future through increased efficiency,capacity,or longer life.
C)extraordinary repairs only maintain the asset for a short time,whereas ordinary repairs increase the usefulness of assets beyond their original condition.
D)extraordinary repairs are expenditures,not expenses.

Question 43

The costs assigned to the individual assets acquired in a basket purchase are based on their relative:

A)historical costs.
B)market values.
C)book values.
D)depreciable costs.

Question 44

When a company records depreciation it debits:

A)a liability account and credits Depreciation Expense.
B)Depreciation Expense and credits Cash.
C)Depreciation Expense and credits a contra-asset account.
D)a long-lived tangible asset account and credits Depreciation Expense.

Question 45

A company purchased office equipment for $24,500 and paid $1,470 in sales tax,$550 for installation,$3,200 for a needed adjustment to the equipment,and $2,600 for supplies that will be used for periodic routine maintenance.How should the company record this transaction?

A)Debit Equipment $24,500,debit Repairs and Maintenance Expense for $5,220,debit Supplies for $2,600,and credit Cash for $32,320.
B)Debit Equipment for $29,720,debit Supplies for $2,600,and credit Cash for $32,320.
C)Debit Equipment for $25,970,debit Repairs and Maintenance Expense $3,750,debit Supplies for $2,600,and credit Cash for $32,320.
D)Debit Equipment and credit Cash for $32,320.

Question 46

Accumulated Depreciation:

A)appears in the asset section of a balance sheet.
B)appears on the income statement.
C)is a liability on the balance sheet.
D)is a contra-stockholders' equity item.

Question 47

Riley,Inc.began the year with Property and Equipment costing $1,020,000 and accumulated depreciation of $180,000.The only change affecting the long-lived assets account during the year is the $82,500 of depreciation expense that must be recorded for the year.What is the amount of Property and Equipment,net,to be reported on the balance sheet at the end of the year?

A)$1,020,000
B)$937,500
C)$757,500
D)$840,000

Question 48

Which of the following accurately describes the treatment of ordinary and extraordinary repairs?

A)Ordinary repairs are expensed as incurred;extraordinary repairs are expensed as incurred.
B)Ordinary repairs are treated as a capital expenditure;extraordinary repairs are expensed as incurred.
C)Ordinary repairs are expensed as incurred;extraordinary repairs are treated as a capital expenditure.
D)Ordinary repairs are treated as a capital expenditure;extraordinary repairs are treated as a capital expenditure.

Question 49

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?

A)To indicate how the asset has physically deteriorated.
B)To show that the asset will eventually and gradually become obsolete.
C)To record that the asset's market value declines over time.
D)To match the cost of the asset to the period in which it generates revenue.

Question 50

If a truck's engine is overhauled for $8,000,the journal entry would normally include a debit to:

A)Vehicles.
B)Accounts Payable.
C)Depreciation Expense.
D)Cash.

Question 51

A company acquired property that included land,building and equipment for a total cost of $163,000.The land was appraised at $87,500,the building at $35,000,and the equipment at $52,500.What should be the allocation of the total cost in the accounting records?

A)Land $75,000;Building $30,000;Equipment $45,000
B)Land $75,000;Building $30,800;Equipment $46,200
C)Land $87,500;Building $35,000;Equipment $52,500
D)Land $81,500;Building $32,600;Equipment $48,900

Question 52

Crown King Burgers purchased new soda machines for $900,000 and pays $100,000 for installation costs.One-half of the total cost or $500,000 is paid in cash;a note in the amount of $500,000 is signed.How should the company record this transaction?

A)Debit Cash for $500,000,debit Notes Payable for $500,000,and credit Equipment for $1,000,000.
B)Debit Equipment for $1,000,000,credit Cash for $500,000,and credit Notes Payable for $500,000.
C)Debit cash for $500,000,debit Notes Payable for $500,000,credit Equipment for $900,000,and credit Operating Expenses for $100,000.
D)Debit Equipment for $900,000,debit Operating Expenses for $100,000,credit cash for $500,000,and credit Notes Payable for $500,000.

Question 53

A company bought land and a building for $128,000.The building has a useful life of 20 years.Why should the company split the $128,000 cost between the land and the building?

A)Land is not depreciated,while the building will be depreciated over its 20-year useful life.
B)The cost should not be split between the land and building.
C)The land will be depreciated over 40 years and the building will be depreciated over 20 years.
D)Both the land and the building will be depreciated over 20 years.

Question 54

Olivia Taylor Co.built three houses for a total cost of $192,000.Appraisal values for the three completed houses were: white house,$48,000,blue house $72,000,and green house $120,000.Using the basket purchase allocation,the recorded value of the green house should be:

A)$96,000.
B)$120,000.
C)$64,000.
D)$80,000.

Question 55

Why should a company divide up the cost of a "basket purchase" among the different assets purchased?

A)A company with a longer list of assets will appear to be stronger.
B)Some of the assets might be paid for more quickly than others.
C)The different assets might be depreciated over different useful lives.
D)Baskets are not long-lived assets.

Question 56

Ordinary repairs and maintenance:

A)are part of the asset cost of equipment and facilities.
B)are recorded as expenses.
C)are always recorded as liabilities.
D)improve the asset beyond the current accounting period.

Question 57

Tonto Company purchased property for $280,000.The property included a building,equipment and land.The building was appraised at $173,600,the land at $126,000,and the equipment at $50,400.What is the amount of cost to be allocated to the building in the accounting records?

A)$93,333
B)$138,880
C)$173,600
D)$280,000

Question 58

The carrying value of a long-lived asset is referred to as its:

A)residual value.
B)carrying value.
C)market value.
D)sales value.

Question 59

Accumulated Depreciation is classified as a(n):

A)expense account.
B)contra-asset account.
C)liability account.
D)stockholders' equity account.

Question 60

Extraordinary repairs:

A)are revenue expenditures.
B)extend an asset's life beyond the original estimate.
C)are expensed as incurred.
D)are credited to Accumulated Depreciation.

Question 61

Which of the following is not the same as book value?

A)Carrying value
B)Cost less accumulated depreciation
C)Unused cost
D)Market value

Question 62

Larkspur,Inc.bought a derelict hunting lodge,which it tore down at a cost of $78,000 and replaced with a new lodge.The demolition cost should be:

A)expensed.
B)capitalized.
C)a liability.
D)an addition to contributed capital.

Question 63

Luxton Ltd.signed a $378,000,5-year note payable to buy a new machine.Luxton paid $6,000 cash for transportation of the machine and $900 cash for installation costs.What is the overall effect of this transaction on the accounting equation?

A)Total liabilities increase $384,900.
B)Machinery,an asset,increases $378,000.
C)Total assets increase $378,000.
D)Total liabilities increase $371,100.

Question 64

When a company capitalizes a cost,its ________ increase.

A)long-lived assets
B)liabilities
C)expenses
D)revenues

Question 65

Larkspur,Inc.paid $82,000 cash for piece of land to be used for a new corporate headquarters building.What is the effect of this transaction on the accounting equation?

A)One asset increases,while another asset decreases.
B)Total assets increase and total liabilities increase.
C)Total assets increase and total stockholders' equity increases.
D)Total assets decrease and total liabilities decrease.

Question 66

Which of the following statements about capitalized costs and expenses is correct?

A)Capitalized costs decrease stockholders' equity.
B)Expenses increase stockholders' equity.
C)Capitalized costs increase long-lived assets.
D)Expenses increase assets.

Question 67

Your company buys a computer server that it expects to use for eight years and then sell when it upgrades to a more powerful model.The server would probably be used by the business that buys it at that time for another three years.The useful life of the server for your company is:

A)eight years.
B)eleven years.
C)five years.
D)three years.

Question 68

Holly,Inc.has a building that originally cost $562,500.Holly expects to be able to sell the facility for $160,500 at the end of its useful life.The balance of the related Accumulated Depreciation account is $387,000.The residual value of the facility is:

A)$175,500.
B)$226,500.
C)$402,000.
D)$160,500.

Question 69

The cost of a new building that is currently under construction,not for sale but for a company's own use,is reported on the balance sheet:

A)as an asset called Work in Process.
B)after construction is complete.
C)as an asset called Construction in Progress.
D)as a liability until construction is complete.

Question 70

All costs to get an asset in place and ready for use should be:

A)expensed.
B)capitalized.
C)recorded as construction in progress.
D)recorded only when they are paid in cash.

Question 71

Shenandoah Skies bought land to be used for a new ski resort.Which of the following costs should not be capitalized?

A)$5,000,000 to purchase the land.
B)$5,000 paid to Jack Mogul for a title search.
C)$50,000 paid to cut down timber to make way for ski runs
D)$7,500 paid for a party to celebrate the grand opening.

Question 72

Ms.Gardenia,the company bookkeeper,recorded the annual repair costs on the company's machinery as an increase to the Machinery account.As a result,which of the following statements correctly describes this situation?

A)Assets will be overstated.
B)Stockholders' equity will be understated.
C)Expenses will be overstated.
D)Liabilities will be overstated.

Question 73

Which of the following costs associated with long-lived assets are expensed (rather than capitalized)?

A)Extraordinary repairs and maintenance
B)Delivery costs
C)Interest on loans to purchase the assets
D)Installation costs

Question 74

Which of the following items does not affect the calculation of depreciation expense?

A)Economic benefits generated by the asset.
B)Useful life of the asset.
C)Residual value of the asset.
D)Capitalized cost of the asset.

Question 75

The book value of a depreciable asset can never be less than its:

A)historical cost.
B)market value.
C)capitalized cost.
D)residual value.

Question 76

Superior,Inc.just bought a new machine to be used on its production line.Which of these costs should not be capitalized?

A)The $600,000 invoice price of the machine.
B)The $18,000 freight bill to deliver the machine to Superior's factory.
C)The $9,600 cost of tearing down Superior's factory wall to get the machine inside.
D)The $520 increase in annual insurance costs for the machine.

Question 77

Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed.This fraud had many effects on WorldCom's balance sheet.Which of the following does not describe one of the misstatements that resulted on the company's balance sheet?

A)Total assets were too high.
B)Retained earnings were too high.
C)The balance sheet was in balance.
D)Total liabilities were too low.

Question 78

Forest Grove Industries has long-lived tangible assets with a cost of $350,000;its Accumulated Depreciation account has a balance of $110,000.Which of the following statements is correct?

A)The carrying value of long-lived assets is $240,000.
B)The market value of long-lived assets is $350,000.
C)The carrying value of long-lived assets is $350,000.
D)The market value of long-lived assets is $460,000.

Question 79

Tangible assets are first recorded at:

A)all costs to acquire them and prepare them for use.
B)current market value or resale value.
C)the amount of cash paid for them.
D)cost minus residual (or salvage)value.

Question 80

The book value of a long-lived tangible asset is equal to:

A)its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date.
B)its acquisition cost plus accumulated depreciation from the acquisition date to the balance sheet date.
C)the amount that could be obtained for the asset on the balance sheet date if it were sold.
D)the annual cost of carrying the asset in inventory.