Question 1

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

Accepted Answer

The cost of the party to celebrate the grand opening should not be capitalized as it is an expense incurred after the ski resort is already in operation and does not contribute to its future economic benefit. The rest of the costs - purchasing the land, paying for a title search, and cutting down timber - are all necessary expenses to acquire and prepare the land for the ski resort and can be capitalized as part of the cost of the new ski resort.

Question 2

Urban Outsiders has a building that originally cost $375,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The balance of the related Accumulated Depreciation account is $258,000.The residual value of the facility is:
A) $117,000.
B) $151,000.
C) $268,000.
D) $107,000.

Accepted Answer

The answer of Urban Outsiders has a building that originally...

Question 3

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.

Accepted Answer

The answer of Your company buys a computer server that...

Question 4

Which of the following costs associated with long-lived assets are expensed (rather than capitalized)?
A) Extraordinary repairs and maintenance
B) Delivery costs
C) Installation costs
D) Interest on loans to purchase the assets

Accepted Answer

The answer of Which of the following costs associated with...

Question 5

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.

Accepted Answer

Costs to get an asset in place and ready for use should be capitalized, meaning they are recorded as an asset on the balance sheet and gradually expensed through depreciation over its useful life. This includes costs such as purchase price, delivery, installation, and testing.

Question 6

Acme Enterprises just bought a new manufacturing machine.Which of these costs should not be capitalized?
A) The $500,000 invoice price of the machine
B) The $15,000 freight bill to deliver the machine to Acme's factory
C) The $8,000 cost of tearing down Acme's factory wall to get the machine inside
D) The $100 increase in monthly utility bills to operate the machine

Accepted Answer

The invoice price of the machine (A), the freight bill (B), and the cost of tearing down the factory wall (C) are all costs directly related to acquiring and getting the machine ready for use. These costs should be capitalized and added to the cost of the machine to determine its total cost. However, the increase in monthly utility bills (D) is an ongoing operating expense and should not be capitalized as part of the cost of the machine.

Question 7

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.

Accepted Answer

The book value of a long-lived tangible asset represents its net carrying amount on the balance sheet and is determined by subtracting the accumulated depreciation from the acquisition cost. Therefore, option A is the correct answer. Option B would result in the asset being overvalued. Option C refers to the fair market value of the asset, which may be different from its book value. Option D is unrelated to the determination of book value.

Question 8

When a company capitalizes a cost,its ______ increase.
A) long-lived assets
B) liabilities
C) expenses
D) revenues

Accepted Answer

Capitalizing a cost means adding it to the cost of a long-lived asset instead of expensing it immediately. This increases the value of long-lived assets on the balance sheet. Therefore, the correct choice is A - long-lived assets.

Question 9

Miss Hap,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.

Accepted Answer

The answer of Miss Hap,the company bookkeeper,recorded the annual repair...

Question 10

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.

Accepted Answer

The answer of The book value of a depreciable asset...

Question 11

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.

Accepted Answer

Tangible assets are first recorded at all costs to acquire them and prepare them for use. This includes the purchase price, any freight or delivery charges, installation costs, and any other expenses incurred to make the asset ready for its intended use.

Question 12

A company has long-lived tangible assets with a cost of $3.5 million; its Accumulated Depreciation account has a balance of $1.1 million.Which of the following statements is correct?
A) The book value of long-lived assets is $2.4 million.
B) The market value of long-lived assets is $3.5 million.
C) The carrying value of long-lived assets is $3.5 million.
D) The resale value of long-lived assets is $2.4 million.

Accepted Answer

The book value of long-lived assets is calculated as the cost of the assets minus the accumulated depreciation. Therefore, the book value of long-lived assets in this case is $3.5 million - $1.1 million = $2.4 million. Option A is the correct statement. Option B is incorrect because market value can be different from cost or book value. Option C uses the term "carrying value", which is not commonly used for long-lived assets. Option D implies a resale value, which is not given in the question, and may or may not be equal to the book value.

Question 13

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.

Accepted Answer

Capitalized costs are costs that are added to the long-lived asset account on the balance sheet rather than being recognized as an expense on the income statement. Therefore, capitalized costs increase the long-lived asset account, which is an asset and not a liability or equity account.

Question 14

Sunny Skys,Inc.bought a derelict hunting lodge,which it tore down at a cost of $45,000 and replaced with a new lodge.The demolition cost should be:
A) expensed .
B) capitalized.
C) a liability.
D) an addition to contributed capital.

Accepted Answer

The cost of demolishing an existing building to make way for a new building should be capitalized as part of the cost of the new asset. This is because it is necessary to incur the cost of demolition in order to construct the new asset.

Question 15

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.

Accepted Answer

The answer of Executives at WorldCom committed an $11 billion...

Question 16

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

Accepted Answer

Book value is calculated as cost less accumulated depreciation, also known as carrying value. Unused cost is not a commonly used term in accounting, and market value represents the current market price of an asset, which may be different from its book value.

Question 17

Sunny Sky paid $30,000 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.

Accepted Answer

The answer of Sunny Sky paid $30,000 cash for piece...

Question 18

Busy Beaver,Inc.signed a $315,000,5-year note payable to buy a new industrial veneer cutter.Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs.What is the overall effect of this transaction on the accounting equation?
A) Total liabilities increase $320,750.
B) Total assets increase $309,250.
C) Machinery, an asset, increases $315,000.
D) Total liabilities increase $315,000.

Accepted Answer

The answer of Busy Beaver,Inc.signed a $315,000,5-year note payable to...

Question 19

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.

Accepted Answer

The cost of a new building that is currently under construction and not for sale but for a company's own use is reported on the balance sheet as an asset called Construction in Progress. This is because the building is still in the process of being constructed and is not yet ready for use. Once construction is complete, the cost is then moved to an asset account for the completed building.

Question 20

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

Accepted Answer

Economic benefits generated by the asset are not used in the calculation of depreciation expense. Depreciation expense is based on the useful life and residual value of the asset, as well as the capitalized cost of the asset.

Quiz 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets

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

Urban Outsiders has a building that originally cost $375,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The balance of the related Accumulated Depreciation account is $258,000.The residual value of the facility is:

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:

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

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

Acme Enterprises just bought a new manufacturing machine.Which of these costs should not be capitalized?

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

When a company capitalizes a cost,its ______ increase.

Miss Hap,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?

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

Tangible assets are first recorded at:

A company has long-lived tangible assets with a cost of $3.5 million; its Accumulated Depreciation account has a balance of $1.1 million.Which of the following statements is correct?

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

Sunny Skys,Inc.bought a derelict hunting lodge,which it tore down at a cost of $45,000 and replaced with a new lodge.The demolition cost should be:

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?

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

Sunny Sky paid $30,000 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?

Busy Beaver,Inc.signed a $315,000,5-year note payable to buy a new industrial veneer cutter.Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs.What is the overall effect of this transaction on the accounting equation?

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:

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