Deck 7: Fixed Assets and Intangible Assets

Question 1

The balance in Accumulated Depreciation account is deducted from the cost of fixed assets on the balance sheet.

Answer 1

True

Question 2

The straight-line method of depreciation is appropriate if usage of the asset varies considerably from year to year.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

The estimated amount that an asset can be sold for at the end of its useful life is called its book value.

Question 5

The double-declining-balance method of depreciation is also referred to as an accelerated depreciation method.

Question 6

A current asset account must be increased for revenue expenditures since they benefit only the current period.

Question 7

Intangible assets do not exist physically.

Question 8

Goodwill refers to the excess of purchase price of a business over the fair value of its net assets.

Question 9

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.

Question 10

Expenditures made to extend an asset's life are called revenue expenditures.

Question 11

If an asset is discarded,a loss is recognized equal to its salvage value.

Question 12

If a company sells a fixed asset for an amount which is less than its book value,a gain must be recognized.

Question 13

The difference between a fixed asset's initial cost and its current market value is called the asset's depreciable cost.

Question 14

Depletion is the process of transferring the cost of intangible assets to an expense account.

Question 15

Companies usually compute depletion by using the double-declining-balance method.

Question 16

If the proceeds from a sale of equipment is greater than the book value of the equipment as on the date of sale,a loss is recorded.

Question 17

The total depreciation across the years of an asset's life is the same under the double­declining­balance method or the straight-line method.

Question 18

Physical depreciation occurs when changes in customer needs causes a fixed asset to no longer provide services for which it was intended.

Question 19

Under the straight-line method,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,will be $18,000.

Question 20

Amortization refers to systematic periodic transfer of the cost of a fixed asset to an expense account.

Question 21

If a capital expenditure is treated as a revenue expenditure,then:

A)expenses are overstated and owners' equity is understated.
B)expenses are understated and assets are overstated.
C)expenses are understated and owners' equity is overstated.
D)net income is overstated and owners' equity is understated.

Question 22

Fixed assets are reported at their book value on the balance sheet.

Question 23

Land improvements include:

A)freight.
B)surveying fees.
C)sales tax.
D)outdoor lighting.

Question 24

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

A)Cleaning the carpet in the front-office room
B)Regular tune-up for a company truck
C)Replacing an engine in a company car
D)Replacing all burned-out light bulbs in the factory

Question 25

A company acquired some land for $75,000 to construct a new office complex.Legal fees paid were $2,750,delinquent taxes assumed were $3,250,and $6,350 was paid to remove an old building.Materials salvaged from the demolition of the building were sold for $2,300.Determine the cost of the land to be reported on the balance sheet.

A)$85,050
B)$89,650
C)$84,100
D)$87,350

Question 26

Which of the following is considered under the straight-line method but not under double-declining-balance method?

A)The asset's book value
B)The asset's salvage value
C)The asset's expected useful life
D)The asset's initial cost

Question 27

A capital expenditure would appear on the:

A)income statement under operating expenses.
B)balance sheet under fixed assets.
C)balance sheet under investments.
D)income statement under other expenses.

Question 28

Which type of depreciation occurs when an asset can no longer provide services for which it was intended?

A)Physical depreciation
B)Market depreciation
C)Cost depreciation
D)Functional depreciation

Question 29

Which of the following is a characteristic of fixed assets?

A)Fixed assets are offered for sale as part of normal operations.
B)Fixed assets do not exist physically.
C)Fixed assets are long-term or relatively permanent assets.
D)Fixed assets that are no longer used in operations are still classified as fixed assets.

Question 30

The cost of removal of an old building to make the land ready for its intended use is charged to:

A)land.
B)land improvements.
C)buildings.
D)operating expenses.

Question 31

If a revenue expenditure is treated as a capital expenditure,then:

A)expenses are overstated and owners' equity is understated.
B)expenses are overstated and assets are overstated.
C)expenses are understated and owners' equity is overstated.
D)net income is overstated and owners' equity is understated.

Question 32

Book value is computed as:

A)current market value less residual value.
B)cost less residual value.
C)current market value less accumulated depreciation.
D)cost less accumulated depreciation.

Question 33

Depreciable cost is computed as:

A)cost less accumulated depreciation.
B)book value less residual value.
C)cost less residual value.
D)market value less residual value.

Question 34

Which of the following expenditures would be included in the cost of a fixed asset?

A)Uninsured theft
B)Vandalism
C)Sales taxes
D)Mistakes in installation

Question 35

Which of the following is a characteristic of accumulated depreciation account?

A)Accumulated depreciation represents cash reserved for asset replacement.
B)Accumulated depreciation account is a contra-liability account.
C)Accumulated depreciation may be disclosed in the notes to the income statement.
D)Accumulated depreciation is reported on the balance sheet as a deduction from the cost of the asset.

Question 36

All amounts paid to get an asset in place and ready for use are referred to as:

A)deferred expenditures.
B)revenue expenditures.
C)residual value.
D)cost of an asset.

Question 37

The inventory turnover measures how efficiently a company is generating sales from its property,plant,and equipment.

Question 38

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

A)committed expenditures.
B)revenue expenditures.
C)current expenditures.
D)capital expenditures.

Question 39

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

A)Uninsured theft
B)Mistakes in installation
C)Vandalism
D)Installation costs

Question 40

Which of the following is a fixed asset?

A)Cash
B)Equipment
C)Land held for investment
D)Notes receivable

Question 41

If a fixed asset is sold and the book value of the asset is less than its selling price,the company must:

A)recognize a loss on the income statement under other expenses.
B)recognize a loss on the income statement under operating expenses.
C)recognize a gain on the income statement under other revenues.
D)recognize a gain on the income statement under revenues.

Question 42

A company sold a delivery truck for $22,000 cash.The truck costs $45,800 and had accumulated depreciation of $32,000 as of the date of sale.The entry to record the sale would include:

A)an increase in accumulated depreciation for $32,000.
B)a total decrease in delivery truck for $13,800.
C)a gain for $8,200.
D)a loss for $10,000.

Question 43

On September 1,a machine was purchased for $47,000 with a useful life of 8 years,and a residual value of $3,000.What is the depreciation expense in the year of purchase under straight-line method,assuming a December 31 year- end?

A)$3,917
B)$3,667
C)$1,958
D)$1,833

Question 44

A computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000,and an estimated useful life of 5 years.Determine the second year's depreciation expense using the straight-line method.

A)$10,200
B)$22,400
C)$11,200
D)$12,200

Question 45

A gain is recorded on the sale of fixed assets when:

A)the asset is sold for a price less than its book value.
B)the asset is sold for a price more than its book value.
C)accumulated depreciation on asset is less than its selling price.
D)accumulated depreciation on asset is more than its selling price.

Question 46

If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold for $15,000,the company must:

A)recognize a loss on the income statement under other expenses.
B)recognize a loss on the income statement under operating expenses.
C)recognize a gain on the income statement under other revenues.
D)recognize a gain on the income statement under revenues.

Question 47

A machine was purchased for $68,000.It has a useful life of 5 years and a residual value of $8,000.Determine the annual depreciation expense using the straight-line method?

A)$20,000
B)$12,000
C)$60,000
D)$16,000

Question 48

A fully depreciated asset must be:

A)removed from the books.
B)kept on the books until sold or discarded.
C)disclosed only in the notes to the financial statements.
D)recognized on the income statement as a loss.

Question 49

A company purchased an oil well for $10 million.It is estimated that 5 million barrels can be extracted from the well.Determine depletion expense assuming 4 million barrels are extracted and sold during the year.

A)$1,250,000
B)$8,000,000
C)$12,500,000
D)$8,750,000

Question 50

A machine was purchased for $35,500,having a useful life of 10 years,and a residual value of $6,000.Compute the annual depreciation expense using the straight-line method.

A)$3,550
B)$4,150
C)$5,800
D)$2,950

Question 51

The depreciation calculated using Modified Accelerated Cost Recovery System is primarily used for:

A)financial statement reporting by large companies.
B)income tax purposes.
C)financial statement reporting by small companies.
D)comparing the performance of two companies in the same industry.

Question 52

An equipment was purchased for $15,000.It has a useful life of 5 years and a residual value of $4,000.Determine the depreciation expense for the first year using the double-declining-balance method?

A)$5,400
B)$6,000
C)$2,200
D)$2,600

Question 53

The accounting term depreciation measures:

A)the decline in an asset's market value.
B)the amount of cash a company sets aside for asset replacement.
C)the amount of asset cost allocated to expense over periods benefited.
D)the anticipated loss if asset is sold in the used-asset market.

Question 54

A company sold office furniture costing $15,800 with accumulated depreciation of $13,000 for $1,500 cash.The entry to record the sale would include:

A)an increase in accumulated depreciation for $15,800.
B)a loss for $1300.
C)a total decrease in office furniture for $2,800.
D)a decrease in cash for $1,300.

Question 55

The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called:

A)depletion.
B)deferral.
C)amortization.
D)depreciation.

Question 56

To measure depreciation,which of the following must be known?

A)market value of asset.
B)fixed asset turnover
C)cost of asset.
D)the amount of cash to replace fixed asset

Question 57

A fixed asset with a cost of $15,000 and accumulated depreciation of $12,500 is sold for $1,750.What is the amount of gain or loss on disposal of the fixed asset?

A)$750 loss
B)$2,500 loss
C)$2,500 gain
D)$750 gain

Question 58

Recording depreciation:

A)decreases net income and cash flows.
B)decreases net income but has no effect on cash flows.
C)decreases net income,fixed assets,and cash flows.
D)decreases net income but has no effect on fixed assets and cash flows.

Question 59

An equipment was purchased for $30,000.It has a useful life of 5 years,and a residual value of $4,000.Compute the depreciation expense for the second year using the double-declining-balance method.

A)$5,200
B)$6,000
C)$6,240
D)$7,200

Question 60

Which method of depreciation considers residual value in computing the normal periodic depreciation?

A)Straight-line
B)MACRS
C)Double-declining-balance
D)Accelerated

Question 61

The cost of a patent should be amortized :

A)over 10 years.
B)over its economic life.
C)over 20 years or its economic life,whichever is shorter.
D)only if an impairment occurs.

Question 62

Which of the following is not an intangible asset?

A)Goodwill
B)Trademark
C)Copyright
D)Long-term receivable

Question 63

Goodwill is:

A)amortized in a manner similar to other intangibles.
B)written down only if an impairment in value occurs.
C)charged to expense immediately.
D)amortized over 40 years or its economic life,whichever is shorter.

Question 64

A fixed asset turnover ratio of 1.65 for a company indicates that:

A)a company is generating $1.65 of sales per average dollar of fixed asset.
B)a company is generating $1.65 of net income per average dollar of fixed asset.
C)a company has $1.65 of long term debt for every dollar of fixed asset.
D)a company has $1.65 of current assets for every dollar of fixed asset.

Question 65

A company purchased a photocopy machine for $16,000.It has a useful life of 4 years and a residual value of $1,000.Compute depreciation for the second year under each of the following methods: (a)straight-line and
(b)double-declining-balance.

Question 66

Cook Co.incurred the following costs related to the office building used in operating its sports supply company:
(a) Replaced a broken window.
(b) Replaced the roof that had been on the building for 23 years.
(c) Serviced all the air conditioners before summer started.
(d) Replaced the air conditioners with refrigerated air conditioners in the customer service areas.
(e) Added a warehouse to the back of the building.
(f) Repainted the interior walls.
(g) Installed window shutters on all windows.

Classify each of the costs as a capital expenditure or a revenue expenditure.

Question 67

Fixed assets are ordinarily presented in the balance sheet:

A)at its current market value.
B)at its replacement cost.
C)at its cost less accumulated depreciation.
D)under intangible assets.

Question 68

A pressurized spray painter was purchased on April 1 of the fiscal year for $3,900.It has a useful life of 4 years and a residual value of $300.Determine depreciation expense for the first two years,assuming a fiscal year end of December 31 and using (a)the straight-line method and (b)the double-declining-balance method.

Question 69

Expenditures for research and development are generally recorded as:

A)current operating expenses.
B)assets,and amortized over their estimated useful life.
C)assets,and usually amortized over 40 years.
D)current assets.

Question 70

Which of the following is true of fixed asset turnover?

A)It measures the efficiency with which a company uses its fixed assets to generate sales.
B)It measures the proportion of fixed assets to total assets.
C)It uses net purchases as a denominator in its calculation.
D)It measures the profits generated by the fixed and current assets of the company.

Question 71

A company acquired a truck for $79,000 at the beginning of the fiscal year.It has a useful life of 5 years and a residual value of $9,000.The company uses the straight-line method of depreciation.After owning the truck for two years,the company sold it for $34,000.
(a)Determine depreciation expense for each of the first two years,and
(b)determine the gain or loss resulting from the sale.

Question 72

Which of the following statement is true about intangible assets?

A)They are usually presented in the balance sheet as fixed assets.
B)They are short-lived assets.
C)They are not held for resale.
D)They have physical existence.

Question 73

A patent was purchased for $585,000 with a legal life of 20 years.Management estimates that the patent has an 12- year economic life.The entry to record amortization would include:

A)an increase in amortization expense for $29,250.
B)an increase in research and development expense for $585,000.
C)a decrease in patent for $48,750.
D)an increase in accumulated amortization for $585,000.

Question 74

Which of the following intangible assets are amortized over their useful life?

A)Trademarks
B)Goodwill
C)Patents
D)All of the above

Question 75

BlueInk Roadways Corporation operates throughout the United States.The following data (in millions)were adapted from recent financial statements of BlueInk.

A)2.08
B)1.02
C)2.01
D)2.10

Question 76

The fixed asset turnover is calculated as .

A)net income divided by average fixed assets
B)net sales divided by cost of the assets
C)average fixed assets divided by net sales
D)net sales divided by average fixed assets

Question 77

A drilling company purchased a mining site for $450,000 on July 1,2015.The company expects to mine ore for the next 10 years and anticipates that a total of 80,000 tons will be recovered.During 2015,the company extracted 5,800 tons of ore.The depletion expense for the year 2015 is:

A)$45,000.
B)$50,800.
C)$5,860.
D)$32,625.

Question 78

The exclusive right to use a certain name or symbol is called a:

A)franchise.
B)patent.
C)trademark.
D)copyright.

Question 79

A company made some expensive repairs to equipment and buildings during the past year.(a)What criteria is used in determining whether the repairs are capital expenditures or revenue expenditures,and (b)what is the effect on the company's financial statements if they are incorrectly recorded as capital expenditures?

Question 80

Paleota Company purchased a patent from Finise for $234,000.At the time of purchase,the patent had a remaining useful life of 10 years.Determine the patent amortization expense for the first year.

A)$23,400
B)$23,000
C)$14,000
D)$9,800