Question 1

The process of allocating the cost of plant and equipment over the time period of which they are used is referred to as:
A) depreciation.
B) depletion.
C) amortization.
D) deferred costs.

Accepted Answer

Depreciation is the process of allocating the cost of tangible assets like plant and equipment over their useful lives.

Question 2

During extended periods of rising prices of plant and equipment, the amount required to replace long-lived assets is typically:
A) less than total accumulated depreciation of those assets.
B) equal to the sum of all the depreciation recognized on those assets.
C) less than the balance sheet value of those assets.
D) greater than the sum of total depreciation expense recognized on those assets.

Accepted Answer

As prices of plant and equipment rise, the cost of replacing long-lived assets also increases. Therefore, the amount required to replace those assets would be greater than the sum of the total depreciation expense recognized on those assets.

Question 3

An increase in accumulated depreciation:
A) increases total assets.
B) decreases total assets.
C) decreases the current ratio.
D) increases the quick ratio.

Accepted Answer

Accumulated depreciation is a contra asset account that accumulates the amount of depreciation expense taken over the useful life of an asset. As depreciation is a non-cash expense, an increase in accumulated depreciation decreases the value of the asset and therefore decreases total assets.

Question 4

The Favre Company made the following expenditures related to its building:  The amount of the preceding expenditures that should be immediately expensed is:
A) $0.
B) $1,700.
C) $34,700.
D) $19,700.

Accepted Answer

The answer of The Favre Company made the following expenditures...

Question 5

On January 1, Scion Co. purchased land with a usable building on it for $210,000. At the time of purchase, the fair market values of the land and building were $80,000 and $160,000, respectively. Scion assigned the entire purchase cost of $240,000 to land. Scion should depreciate the building using the straight-line method over 20 years with an expected zero residual value. As a result of Scion's treatment of the purchase of land and building, its current net income is:
A) understated by $10,500.
B) understated by $7,000.
C) overstated by $7,000.
D) overstated by $10,500.

Accepted Answer

The answer of On January 1, Scion Co. purchased land...

Question 6

Which of the following long-lived assets is not amortized or depreciated to an expense?
A) Equipment use in production of inventory goods
B) Land improvements
C) Land
D) Company computers replaced every two years

Accepted Answer

Land is not depreciated because it has an indefinite useful life and does not wear out or become obsolete.

Question 7

Equipment with a cost of $22,000 and accumulated depreciation of $15,000 was retired with a gain of $1,000. The cash received from the disposition of equipment is:
A) $7,000.
B) $8,000.
C) $6,000.
D) $14,000.

Accepted Answer

The answer of Equipment with a cost of $22,000 and...

Question 8

The balance in accumulated depreciation on January 1 and December 31 is $15,000 and $19,000, respectively, during a year in which no assets were disposed. Depreciation expense during the year is:
A) $19,000.
B) $15,000.
C) $4,000.
D) $34,000.

Accepted Answer

The difference between the beginning and ending balance in accumulated depreciation is $4,000 ($19,000 - $15,000). This represents the amount of depreciation expense for the year. Therefore, the answer is choice C, $4,000.

Question 9

The process of expensing the cost of a gold mine as gold is withdrawn is referred to as:
A) amortization.
B) depletion.
C) depreciation.
D) decomposition.

Accepted Answer

Depletion is the process of expensing the cost of natural resources, such as a gold mine, as they are extracted or withdrawn from the ground. Amortization is the process of expensing the cost of intangible assets, such as patents or trademarks. Depreciation is the process of expensing the cost of tangible assets, such as buildings or equipment. Decomposition is not a term used in accounting.

Question 10

Which one of the following actions will help solve a cash shortage problem?
A) Issue common stock in exchange for plant assets
B) Recognize depreciation expense
C) Purchased long-lived asset by issuing long-term debt 
D) Retire plant assets at salvage value

Accepted Answer

The answer of Which one of the following actions will...

Question 11

Depreciation is an expense that does not use cash during the period in which it is recognized. When did (will) the cash outflow associated with the asset occur?
A) When the asset is retired
B) There is no cash outflow associated with depreciation or the asset.
C) When the replacement cost of the asset increases
D) When the asset was acquired

Accepted Answer

The cash outflow associated with a depreciating asset occurs when the asset is initially acquired, as this is when the company spends money to purchase the asset. Depreciation is merely the accounting process of allocating the asset's cost over its useful life; it does not involve actual cash outflow during the depreciation period.

Question 12

On January 1, Comicon Corp. purchased land with a usable building on it for $300,000. At the time of purchase, the fair market values of the land and building were $100,000 and $150,000, respectively. Comicon depreciates the building using the straight-line method over 20 years with an expected $24,000 residual value. The annual depreciation expense on the building is:
A) $0.
B) $5,000.
C) $7,800.
D) $10,800.

Accepted Answer

Depreciation expense = (Cost - Residual value) / Useful life= (150,000 - 24,000) / 20= $7,800

Question 13

On January 1, a company purchased land with a usable building on it for $270,000. At the time of purchase, the fair market values of the land and building were $120,000 and $200,000, respectively. The gain from the purchase of the land and building is:
A) $0.
B) $50,000.
C) $80,000.
D) $320,000.

Accepted Answer

The gain from the purchase is $0 because the transaction is recorded at the purchase price, not the fair market value. Gains are recognized when the asset is sold, not when it is purchased.

Question 14

Monroe Co. purchased a tract of land paying $100,000 in cash and assumed an existing mortgage of $60,000. The municipal tax bill disclosed an assessed valuation of $180,000. The amount Monroe should record as land connected with this acquisition is:
A) $100,000.
B) $160,000.
C) $180,000.
D) $200,000.

Accepted Answer

The answer of Monroe Co. purchased a tract of land...

Question 15

The purpose of recording depreciation expense is to:
A) provide cash necessary to replace plant assets when they are used up.
B) record the balance sheet amount of plant assets at replacement value.
C) match expenses with revenues using a reasonable systematic method.
D) gain a better understanding of estimating the extraction of natural resources.

Accepted Answer

The purpose of recording depreciation expense is to match expenses with revenues using a reasonable systematic method. Depreciation expense reflects the amount of wear and tear or obsolescence that occurs on a plant asset as it is used to help generate revenue. By matching the expense to the period of time the asset is used to help produce revenue, we are able to accurately reflect the asset’s overall “cost” to the business over time.

Question 16

Accumulated depreciation is an account which:
A) adjusts plant and equipment so that its balance sheet value approximates its replacement cost.
B) is a long-term liability.
C) is equal to total depreciation expense recorded and decreases total plant and equipment.
D) reduces intangible assets.

Accepted Answer

Accumulated depreciation is a contra-asset account that keeps track of the total amount of depreciation expense recognized over the life of an asset. It reduces the balance of the related asset account, plant and equipment, over time. Therefore, choice C is correct which states that accumulated depreciation is equal to total depreciation expense recorded and decreases total plant and equipment.

Question 17

Moss Company purchased a building costing $800,000 on January 1, 2010. Moss is depreciating the building over 80 years using the straight-line method with no salvage value. The economic life of the building is expected to be 40 years. As a result of Moss's accounting procedure, its 2010:
A) earnings per share is understated and debt/equity ratio is overstated.
B) earnings per share is understated and debt/equity ratio is understated.
C) earnings per share is overstated and debt/equity ratio is overstated.
D) earnings per share is overstated and debt/equity ratio is understated.

Accepted Answer

Moss is using an 80-year depreciation period instead of the expected 40-year economic life, resulting in lower annual depreciation expense. This overstates earnings per share and understates the debt/equity ratio.

Question 18

The process of expensing the cost of patents over an extended period of years is referred to as:
A) classification.
B) depletion.
C) depreciation.
D) amortization.

Accepted Answer

Amortization is the process of expensing the cost of intangible assets, such as patents, over an extended period of years. It is similar to depreciation but is specifically used for intangible assets.

Question 19

Which one of the following should be classified as land on the balance sheet?
A) A shed that houses the company's equipment.
B) Mineral rights representing gold in the soil
C) Two tracts of property that houses the company's backup computer site
D) Sidewalks and driveways which lead to the company's office building

Accepted Answer

The answer of Which one of the following should be...

Question 20

A company which complains that although their income is quite satisfactory, cash is not available for dividends because of the high cost of replacing fixed assets in operating in an economic environment where:
A) inflation is non-existent.
B) the balance sheet value of long-lived assets is more than their replacement value.
C) the prices of long-lived assets have been decreasing over an extended period of time.
D) expenditures required to replace long-lived assets are greater than depreciation expense.

Accepted Answer

When expenditures required to replace long-lived assets are greater than depreciation expense, it indicates that the cost of replacing these assets is higher than the amount being set aside through depreciation, leading to cash flow issues despite satisfactory income.

Quiz 9: Long-Lived Assets

The process of allocating the cost of plant and equipment over the time period of which they are used is referred to as:

During extended periods of rising prices of plant and equipment, the amount required to replace long-lived assets is typically:

An increase in accumulated depreciation:

The Favre Company made the following expenditures related to its building: The amount of the preceding expenditures that should be immediately expensed is:

Which of the following long-lived assets is not amortized or depreciated to an expense?

Equipment with a cost of $22,000 and accumulated depreciation of $15,000 was retired with a gain of $1,000. The cash received from the disposition of equipment is:

The balance in accumulated depreciation on January 1 and December 31 is $15,000 and $19,000, respectively, during a year in which no assets were disposed. Depreciation expense during the year is:

The process of expensing the cost of a gold mine as gold is withdrawn is referred to as:

Which one of the following actions will help solve a cash shortage problem?

Depreciation is an expense that does not use cash during the period in which it is recognized. When did (will) the cash outflow associated with the asset occur?

On January 1, a company purchased land with a usable building on it for $270,000. At the time of purchase, the fair market values of the land and building were $120,000 and $200,000, respectively. The gain from the purchase of the land and building is:

Monroe Co. purchased a tract of land paying $100,000 in cash and assumed an existing mortgage of $60,000. The municipal tax bill disclosed an assessed valuation of $180,000. The amount Monroe should record as land connected with this acquisition is:

The purpose of recording depreciation expense is to:

Accumulated depreciation is an account which:

Moss Company purchased a building costing $800,000 on January 1, 2010. Moss is depreciating the building over 80 years using the straight-line method with no salvage value. The economic life of the building is expected to be 40 years. As a result of Moss's accounting procedure, its 2010:

The process of expensing the cost of patents over an extended period of years is referred to as:

Which one of the following should be classified as land on the balance sheet?

A company which complains that although their income is quite satisfactory, cash is not available for dividends because of the high cost of replacing fixed assets in operating in an economic environment where: