Chapter 10 Plant Assets, Natural Resoures, and Intangibles
MULTIPLE CHOICE QUESTIONS
1)
Plant assets refer to nonphysical assets that are used in the operations of a business.
A)
True
B)
False
2)
Plant assets are used in operations and have useful lives that extend over more than one accounting
period.
A)
True
B)
False
3)
If land is purchased as a building site, the cost of removing existing structures is not charged to the
Land account.
A)
True
B)
False
4)
The phrase capital-intensive refers to companies with large amounts invested in plant assets.
A)
True
B)
False
5)
The process of allocating the cost of a plant asset to expense in the accounting periods benefiting
from its use is called depletion.
A)
True
B)
False
6)
Salvage value is an estimate of an asset’s value at the end of its benefit period.
A)
True
B)
False
7)
When plant assets are purchased as a group in a single transaction for a lump-sum price, the cost of
the purchase is allocated among the different types of assets acquired based on their relative market
values.
A)
True
B)
False
8)
Obsolescence refers to the insufficient capacity of a company’s plant assets to meet the company’s
growing productive demands.
A)
True
B)
False
9)
Depreciation does not measure the decline in market value of an asset each period.
A)
True
B)
False
10)
A plant asset’s useful life is the length of time it is productively used in a company’s operations.
A)
True
B)
False
11)
It is necessary to report both the cost and the accumulated depreciation of plant assets in the
financial statements.
A)
True
B)
False
12)
Depreciation expense is calculated using its cost, estimates of an asset’s salvage value, and an
estimated useful life.
A)
True
B)
False
13)
Once an asset’s book value equals its salvage value, depreciation stops.
A)
True
B)
False
14)
When an asset is purchased (or disposed of) at a time other than the beginning or the end of an
accounting period, depreciation is recorded for part of a year so that the year of purchase or the year
of disposal is charged with its share of the asset’s depreciation.
A)
True
B)
False
15)
Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in
accounting estimate and is reflected in the current, and future financial statements.
A)
True
B)
False
16)
Plant assets are reported on a balance sheet at their undepreciated costs (book value), not at fair
(market) values.
A)
True
B)
False
17)
Total depreciation expense over an asset’s useful life will be identical under all methods of
depreciation.
A)
True
B)
False
18)
Financial accounting and tax accounting require the same recordkeeping and there should be no
difference in results between the two accounting systems.
A)
True
B)
False
19)
Depreciation is higher in earlier years and income is lower in the later years when using
straight-line versus accelerated methods.
A)
True
B)
False
20)
The book value of an asset when using double-declining-balance depreciation is always greater
than the book value from using straight-line depreciation, except at the beginning and the end of
the asset’s useful life, when it is the same.
A)
True
B)
False
21)
The straight-line depreciation method yields a steady pattern of depreciation expense.
A)
True
B)
False
22)
The Modified Accelerated Cost Recovery System (MACRS) is part of the U.S. federal income tax
laws and may be used for financial reporting.
A)
True
B)
False
23)
Decision makers and other users of financial statements are especially interested in evaluating a
company’s ability to use its assets in generating sales.
A)
True
B)
False
24)
Asset turnover is computed by dividing net sales by average total assets.
A)
True
B)
False
25)
Companies that have a relatively large amount invested in assets to generate a given level of sales
are considered capital-intensive.
A)
True
B)
False
26)
Duncan reported net sales of $2,523 million and average total assets of $1,476 million. Its total
asset turnover equals 1.71.
A)
True
B)
False
27)
Total asset turnover is calculated by dividing net sales by average total assets.
A)
True
B)
False
28)
Total asset turnover is calculated by dividing average total assets by net sales.
A)
True
B)
False
29)
Edmond reported average total assets of $9,965 million and net sales of $10,430 million. Its total
asset turnover equals .96.
A)
True
B)
False
30)
An asset’s cost includes all normal and reasonable expenditures necessary to get the asset in place
and ready for its intended use.
A)
True
B)
False
31)
If a machine is damaged during unpacking, the repairs are added to its cost.
A)
True
B)
False
32)
The purchase of a property that included land, building, and related improvements is called a
lump-sum or basket purchase.
A)
True
B)
False
33)
When a company constructs a building, the cost of the building includes materials and labor but not
design fees, building permits, or insurance during construction.
A)
True
B)
False
34)
Additions to land that increase the usefulness of the land such as parking lots, fences, and lighting
are not depreciated.
A)
True
B)
False
35)
The cost of fees for insuring the title and any accrued property taxes are included in the cost of
land.
A)
True
B)
False
36)
Total asset cost plus depreciation expense equals book value.
A)
True
B)
False
37)
The units-of-production method of depreciation charges a varying amount of expense for each
period of an asset’s useful life depending on its usage.
A)
True
B)
False
38)
An accelerated depreciation method yields larger depreciation expense in the early years of an
asset’s life and less depreciation expense in later years.
A)
True
B)
False
39)
The double-declining balance method is applied by (1) computing the asset’s straight-line
depreciation rate, (2) doubling it, (3) subtracting salvage value from cost, and (4) multiplying the
rate times the net value.
A)
True
B)
False
40)
A company purchased a plant asset for $60,000. The asset has an estimated salvage value of
$4,000, and an estimated useful life of 7 years. The annual depreciation expense using the
straight-line method is $4,000 per year.
A)
True
B)
False
41)
Revenue expenditures, also called income statement expenditures, are additional costs of plant
assets that do not materially increase the assets’ life or productive capabilities.
A)
True
B)
False
42)
Capital expenditures, also called balance sheet expenditures, are additional costs of plant assets
that provide benefits extending beyond the current period.
A)
True
B)
False
43)
Extraordinary repairs are expenditures extending the asset’s useful life beyond its original estimate,
and are capital expenditures because they benefit future periods.
A)
True
B)
False
44)
Revenue expenditures are also called balance sheet expenditures.
A)
True
B)
False
45)
Betterments are a type of capital expenditure.
A)
True
B)
False
46)
Plant assets can be disposed of by discarding, selling, or exchanging them.
A)
True
B)
False
47)
The first step in accounting for an asset disposal is to calculate the gain or loss on disposal.
A)
True
B)
False
48)
Accounting for the exchange of assets depends on whether the transaction has commercial
substance; commercial substance implies that it alters the company’s future cash flows.
A)
True
B)
False
49)
No gain or loss is recorded for exchanges of plant assets without commercial substance.
A)
True
B)
False
50)
If an asset is sold above its book value, the selling company records a loss.
A)
True
B)
False
51)
Gain or loss on the disposal of assets is determined by comparing the disposed asset’s book value
to the market value of any assets received.
A)
True
B)
False
52)
A loss on disposal of a plant asset occurs if the cash proceeds received from the asset sale is less
than the asset’s book value.
A)
True
B)
False
53)
Natural resources are assets that include standing timber, mineral deposits, and oil and gas fields.
A)
True
B)
False
54)
Amortization is the process of allocating the cost of natural resources to periods when they are
consumed.
A)
True
B)
False
55)
Depletion is the process of allocating the cost of natural resources to periods when they are
consumed.
A)
True
B)
False
56)
Natural resources may be reported under either plant assets or their own separate category on the
balance sheet.
A)
True
B)
False
57)
When the usefulness of plant assets used to extract natural resources is directly related to the
depletion of a natural resource, their costs are depreciated using the units-of–production method of
depreciation, as long as the assets will not be moved to and used at another site when extraction of
the natural resources is complete.
A)
True
B)
False
58)
The cost of an intangible asset is systematically allocated to depreciation expense over its estimated
useful life.
A)
True
B)
False
59)
A leasehold refers to the rights the lessor grants to the lessee under the terms of the lease.
A)
True
B)
False
60)
Intangible assets are nonphysical assets used in operations that confer on their owners’ long-term
rights, privileges, or competitive advantages.
A)
True
B)
False