Question 1

The land cost initially reported on the balance sheet may include legal fees and title insurance.

Accepted Answer

Legal fees and title insurance are common costs incurred in the purchase of land, and are often included in the initial land cost reported on the balance sheet.

Question 2

The cash-equivalent price of an asset received is measured as the fair value of the consideration given including cash,or the fair value of the asset received,whichever is more determinable.

Accepted Answer

The cash-equivalent price of an asset received is indeed measured as the fair value of the consideration given including cash or the fair value of the asset received, whichever is more determinable.

Question 3

On January 1,2019,equipment was purchased for $100,000.The equipment's estimated residual value is $20,000,and its estimated useful life is 8 years.On December 31,2019,the book value using the straight-line method of depreciation is $90,000.

Accepted Answer

Using the straight-line method, annual depreciation is calculated as (Cost - Residual Value) / Useful Life = ($100,000 - $20,000) / 8 = $10,000 per year. After one year, on December 31, 2019, the book value would be Cost - Accumulated Depreciation = $100,000 - $10,000 = $90,000.

Question 4

The units-of-production method of depreciation allocates an asset's cost over its useful life based on the current period's production relative to its total estimated production.

Accepted Answer

This is a correct statement about the units-of-production method of depreciation.

Question 5

The fixed asset turnover ratio measures the amount of operating income generated per dollar of average fixed assets.

Accepted Answer

The fixed asset turnover ratio measures how efficiently a company uses its fixed assets to generate sales, not operating income. It is calculated by dividing net sales by average fixed assets.

Question 6

On January 1,2019,equipment was purchased for $80,000;the equipment's estimated residual value is $15,000,and its estimated useful life is 10 years.For 2019,the depreciation expense under the double-declining balance method is $13,000.

Accepted Answer

Under the double-declining balance method, the depreciation rate is double the straight-line rate. The straight-line rate is 1/10 (or 10%) for a 10-year life. Doubling this gives a 20% depreciation rate. The first year's depreciation would be 20% of $80,000, which is $16,000, not $13,000.

Question 7

If a second-hand machine is purchased for productive use in a business,all renovation and repair costs on the used machine incurred by the purchaser prior to its productive use should be reported as part of the asset's cost on the balance sheet.

Accepted Answer

Renovation and repair costs incurred on a used machine before its productive use should be added to the cost of the asset and reported on the balance sheet as the total cost of the asset. This ensures that the cost of the used machine reflects its true value after any necessary repairs or renovations have been made.

Question 8

In accounting for depreciation,acquisition cost and useful life usually are known quantities,whereas residual value is an estimate because it relates to an amount in the future.

Accepted Answer

The answer of In accounting for depreciation,acquisition cost and useful...

Question 9

In most cases,the depreciation method chosen for financial reporting purposes (GAAP)must also be utilized for income tax reporting (IRS).

Accepted Answer

For financial reporting purposes, companies often use the straight-line method of depreciation, but for tax purposes, they might use an accelerated depreciation method, such as the Modified Accelerated Cost Recovery System (MACRS), to maximize tax deductions in the early years of an asset's life. The IRS allows different methods for tax reporting than what is used for financial reporting under Generally Accepted Accounting Principles (GAAP).

Question 10

The equipment cost initially reported on the balance sheet includes the equipment-related installation and transportation costs.

Accepted Answer

The equipment cost initially reported on the balance sheet includes the equipment-related installation and transportation costs as per generally accepted accounting principles (GAAP).

Question 11

Use of the double-declining-balance method of depreciation results in higher depreciation expense during the first year of an asset's life relative to use of the straight-line depreciation method.

Accepted Answer

The double-declining-balance method depreciates assets at a faster rate than the straight-line method, resulting in higher depreciation expense in the early years of an asset's life.

Question 12

The book value of a depreciable asset equals its acquisition cost minus the depreciation expense recorded since the acquisition date.

Accepted Answer

The book value of a depreciable asset is the net amount of value that it still holds on a company's balance sheet, and it is calculated by subtracting the accumulated depreciation from the original cost. Therefore, the statement is true.

Question 13

Depreciation is the process of allocating a long-lived asset's cost over its productive life.

Accepted Answer

Depreciation is the systematic allocation of the cost of a long-lived asset over its useful life in a rational and systematic manner.

Question 14

Ordinary repairs and maintenance costs are incurred to maintain a long-lived productive asset and are expensed as incurred.

Accepted Answer

Ordinary repairs and maintenance costs are expensed as incurred to maintain the long-lived productive asset. This practice follows the matching principle of accounting, which requires expenses to be recognized in the period that the related revenue is recognized.

Question 15

If depreciation expense is calculated without taking into account the asset's residual value,depreciation expense will be overstated.

Accepted Answer

If residual value is not considered, then the asset's useful life will be shorter than it actually is, leading to more depreciation expense each year and an overall overstatement of the asset's depreciation.

Question 16

Depreciation is the process of estimating a long-lived asset's current market value.

Accepted Answer

Depreciation is the process of allocating the cost of a long-lived asset over its useful life, not estimating its current market value.

Question 17

An expenditure is capitalized when it is reported as an expense on the income statement.

Accepted Answer

An expenditure is capitalized when it is recognized as an asset on the balance sheet, rather than reported as an expense on the income statement.

Question 18

Use of the double-declining-balance method of depreciation results in increasing amounts of depreciation expense over an asset's life.

Accepted Answer

The double-declining-balance method of depreciation results in decreasing amounts of depreciation expense over an asset's life, as it applies a constant rate to a decreasing book value each year.

Question 19

Patents,trademarks,and franchises are examples of tangible assets.

Accepted Answer

Patents, trademarks, and franchises are considered intangible assets because they represent non-physical rights or privileges held by a company.

Question 20

Tangible long-lived productive assets differ from intangible long-lived productive assets in that tangible assets have physical substance whereas intangible assets have no physical substance.

Accepted Answer

Tangible assets are physical assets such as buildings, land, and machinery, while intangible assets are non-physical assets such as patents, trademarks, and goodwill.

Quiz 8: Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources