Question 1

SportsWorld spent $17,000 to remodel its store.This cost will be recognized with a debit to Store Building.

Accepted Answer

The cost of remodeling the store will be recognized as a capital expenditure and will be debited to the Store Building account.

Question 2

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

Accepted Answer

False

Question 3

Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner over the asset's estimated useful life.

Accepted Answer

This is the accepted definition of depreciation.

Question 4

Property,plant and equipment are assets held for sale.

Accepted Answer

Property, plant, and equipment are not assets held for sale. They are fixed assets held for use in the production or provision of goods or services or for administrative purposes. Assets held for sale are classified as current assets.

Question 5

Because land has unlimited life,it is not subject to depreciation.Therefore,items that increase the usefulness of the land such as parking lots are also not depreciated.

Accepted Answer

Land improvements, such as parking lots, are subject to depreciation even though land itself is not.

Question 6

The cost of an asset includes all normal and reasonable expenditures necessary to get it in place and ready for its intended use.

Accepted Answer

According to Generally Accepted Accounting Principles (GAAP), the cost of an asset includes not only its purchase price but also all necessary costs incurred to bring it to its intended use, such as installation, testing, and any other costs associated with preparing the asset for its intended use.

Question 7

Inadequacy refers to the condition where the capacity of a property,plant and equipment item is too small to meet the company's productive demands.

Accepted Answer

Inadequacy refers to a situation where an item's capacity is insufficient to fulfill the company's needs.

Question 8

The cost principle requires that an asset be recorded at the cash or cash equivalent amount given in exchange.

Accepted Answer

The cost principle is a fundamental accounting principle that requires assets to be recorded at their historical cost (i.e., the cash or cash equivalent amount given in exchange at the time of acquisition). This means that an asset's value on the balance sheet reflects the amount of money paid for it, rather than its current market value or future earning potential. Therefore, option A is correct.

Question 9

Residual value is an estimate of an asset's value at the end of its useful life.

Accepted Answer

Residual value is indeed an estimate of an asset's value at the end of its useful life.

Question 10

Revenue expenditures are expenditures to keep assets in normal operating condition.

Accepted Answer

Revenue expenditures are ongoing expenditures incurred to maintain the functioning and efficiency of assets, such as routine repairs and maintenance expenses which are necessary to keep assets in normal operating condition. These expenses are typically recurring and are not major investments in the assets themselves.

Question 11

Non-current assets can be divided into two groups including tangible and intangible assets.These assets are generally used in operations of a business and have useful lives extending over more than one accounting period.

Accepted Answer

Non-current assets, also known as long-term assets, include tangible assets like property, plant, and equipment as well as intangible assets like patents, trademarks, and goodwill. These assets are meant to be used in the business for a long period of time and are not meant for resale.

Question 12

Any expenditures for legal fees,surveying,and accrued property taxes should not be included in the cost of land.

Accepted Answer

Legal fees, surveying, and accrued property taxes are considered necessary costs associated with acquiring the land and therefore should be included in the cost of the land.

Question 13

The purchase of real estate that includes land,building,and land improvements is called a lump-sum purchase.

Accepted Answer

A lump-sum purchase includes the acquisition of all aspects of the real estate property, including land, building, and land improvements, for a single, total cost.

Question 14

Land purchased as a building site is a tangible asset called property,plant and equipment and is classified under the "Long-term Investments" section on the balance sheet.

Accepted Answer

Land purchased as a building site is indeed a tangible asset and classified under property, plant, and equipment (PP&E), but it is not classified under "Long-term Investments" on the balance sheet. It is directly listed under PP&E.

Question 15

Revenue expenditures are additional costs of property,plant and equipment that provide material benefits extending beyond the current period.

Accepted Answer

Revenue expenditures are costs that are immediately charged against revenues in the period in which they are incurred, typically relating to the maintenance and repair of assets, rather than extending the useful life or capacity of the asset.

Question 16

Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of financial statements.

Accepted Answer

The answer of Treating small-dollar-amount capital expenditures as revenue expenditures...

Question 17

Subsequent expenditures are purchases made after the acquisition of equipment to operate,maintain,repair,and improve it.

Accepted Answer

Subsequent expenditures refer to purchases made after acquiring equipment for the purpose of operating, maintaining, repairing, and improving it.

Question 18

To be charged to and reported as part of the cost of property,plant and equipment,an expenditure must be normal,reasonable,and necessary in preparing the asset for its intended use.

Accepted Answer

According to generally accepted accounting principles, for an expenditure to be capitalized and reported as part of the cost of an asset, it must meet the criteria of being normal, reasonable, and necessary in preparing the asset for its intended use.

Question 19

Capital expenditures are also called balance sheet expenditures.

Accepted Answer

Capital expenditures are recorded on the balance sheet as an asset, hence they are also called balance sheet expenditures.

Question 20

Non-current assets are any liabilities that are used in the operations of a business.

Accepted Answer

This statement is incorrect. Non-current assets are assets, not liabilities, that are used in the operations of a business, such as property, plant, and equipment, long-term investments, and intangible assets.

Quiz 1: Property, plant and Equipment Intangibles