FIXED ASSETS AND INTANGIBLE ASSETS
1. Expenditures made to extend an asset’s life are called revenue expenditures.
a. True
b. False
2. The acquisition costs of property, plant, and equipment should include all costs necessary to get
the asset in place and ready for use.
a. True
b. False
3. Long-lived assets that are intangible in nature, used in the operations of the business, and not
held for sale in the ordinary course of business are called fixed assets.
a. True
b. False
4. Amortization refers to systematic periodic transfer of the cost of a fixed asset to an expense
account.
a. True
b. False
5. The estimated amount that an asset can be sold for at the end of its useful life is called its book
value.
a. True
b. False
6. Under the straight-line method, the amount of depreciation expense for the first full year of use
of a fixed asset costing $95,000, with an estimated residual value of $5,000, and a useful life of
5 years, will be $18,000.
a. True
b. False
7. Physical depreciation occurs when changes in customer needs causes a fixed asset to no longer
provide services for which it was intended.
a. True
b. False
Fixed Assets and Intangible Assets
8. The straight-line method of depreciation is appropriate if usage of the asset varies considerably
from year to year.
a. True
b. False
9. The total depreciation across the years of an asset’s life is the same under the
double-declining-balance method or the straight-line method.
a. True
b. False
10. The difference between a fixed asset’s initial cost and its current market value is called the
asset’s depreciable cost.
a. True
b. False
11. The double-declining-balance method of depreciation is also referred to as an accelerated
depreciation method.
a. True
b. False
12. Depletion is the process of transferring the cost of intangible assets to an expense account.
a. True
b. False
13. If the proceeds from a sale of equipment is greater than the book value of the equipment as on
the date of sale, a loss is recorded.
a. True
b. False
14. Companies usually compute depletion by using the double-declining-balance method.
a. True
b. False
Fixed Assets and Intangible Assets
15. If an asset is discarded, a loss is recognized equal to its salvage value.
a. True
b. False
16. If a company sells a fixed asset for an amount which is less than its book value, a gain must be
recognized.
a. True
b. False
17. A current asset account must be increased for revenue expenditures since they benefit only the
current period.
a. True
b. False
18. Intangible assets do not exist physically.
a. True
b. False
19. Goodwill refers to the excess of purchase price of a business over the fair value of its net assets.
a. True
b. False
20. The balance in Accumulated Depreciation account is deducted from the cost of fixed assets on
the balance sheet.
a. True
b. False
21. Fixed assets are reported at their book value on the balance sheet.
a. True
b. False
Fixed Assets and Intangible Assets
22. The inventory turnover measures how efficiently a company is generating sales from its
property, plant, and equipment.
a. True
b. False
23. Which of the following is a characteristic of fixed assets?
a. Fixed assets are offered for sale as part of normal operations.
b. Fixed assets do not exist physically.
c. Fixed assets are long-term or relatively permanent assets.
d. Fixed assets that are no longer used in operations are still classified as fixed assets.
24. A capital expenditure would appear on the:
a. income statement under operating expenses.
b. balance sheet under fixed assets.
c. balance sheet under investments.
d. income statement under other expenses.
25. If a revenue expenditure is treated as a capital expenditure, then:
a. expenses are overstated and owners’ equity is understated.
b. expenses are overstated and assets are overstated.
c. expenses are understated and owners’ equity is overstated.
d. net income is overstated and owners’ equity is understated.
26. If a capital expenditure is treated as a revenue expenditure, then:
a. expenses are overstated and owners’ equity is understated.
b. expenses are understated and assets are overstated.
c. expenses are understated and owners’ equity is overstated.
d. net income is overstated and owners’ equity is understated.
27. Which of the following expenditures would be included in the cost of a fixed asset?
a. Uninsured theft
b. Vandalism
c. Sales taxes
d. Mistakes in installation
Fixed Assets and Intangible Assets
28. A company acquired some land for $75,000 to construct a new office complex. Legal fees paid
were $2,750, delinquent taxes assumed were $3,250, and $6,350 was paid to remove an old
building. Materials salvaged from the demolition of the building were sold for $2,300.
Determine the cost of the land to be reported on the balance sheet.
a. $85,050
b. $89,650
c. $84,100
d. $87,350
29. All amounts paid to get an asset in place and ready for use are referred to as:
a. deferred expenditures.
b. revenue expenditures.
c. residual value.
d. cost of an asset.
30. The cost of removal of an old building to make the land ready for its intended use is charged to:
a. land.
b. land improvements.
c. buildings.
d. operating expenses.
31. Expenditures that add to the utility of fixed assets for more than one accounting period are
called:
a. committed expenditures.
b. revenue expenditures.
c. current expenditures.
d. capital expenditures.
32. Which of the following should be included in the acquisition cost of a piece of equipment?
a. Uninsured theft
b. Mistakes in installation
c. Vandalism
d. Installation costs
Fixed Assets and Intangible Assets
33. Which of the following is an example of a capital expenditure?
a. Cleaning the carpet in the front-office room
b. Regular tune-up for a company truck
c. Replacing an engine in a company car
d. Replacing all burned-out light bulbs in the factory
34. Land improvements include:
a. freight.
b. surveying fees.
c. sales tax.
d. outdoor lighting.
35. Which of the following is a fixed asset?
a. Cash
b. Equipment
c. Land held for investment
d. Notes receivable
36. Book value is computed as:
a. current market value less residual value.
b. cost less residual value.
c. current market value less accumulated depreciation.
d. cost less accumulated depreciation.
37. Which type of depreciation occurs when an asset can no longer provide services for which it
was intended?
a. Physical depreciation
b. Market depreciation
c. Cost depreciation
d. Functional depreciation
Fixed Assets and Intangible Assets
38. Which of the following is considered under the straight-line method but not under double-
declining-balance method?
a. The asset’s book value
b. The asset’s salvage value
c. The asset’s expected useful life
d. The asset’s initial cost
39. Depreciable cost is computed as:
a. cost less accumulated depreciation.
b. book value less residual value.
c. cost less residual value.
d. market value less residual value.
40. Which of the following is a characteristic of accumulated depreciation account?
a. Accumulated depreciation represents cash reserved for asset replacement.
b. Accumulated depreciation account is a contra-liability account.
c. Accumulated depreciation may be disclosed in the notes to the income statement.
d. Accumulated depreciation is reported on the balance sheet as a deduction from the cost of the
asset.
41. Which method of depreciation considers residual value in computing the normal periodic
depreciation?
a. Straight-line
b. MACRS
c. Double-declining-balance
d. Accelerated
42. The accounting term depreciation measures:
a. the decline in an asset’s market value.
b. the amount of cash a company sets aside for asset replacement.
c. the amount of asset cost allocated to expense over periods benefited.
d. the anticipated loss if asset is sold in the used-asset market.
Fixed Assets and Intangible Assets
43. The depreciation calculated using Modified Accelerated Cost Recovery System is primarily
used for:
a. financial statement reporting by large companies.
b. income tax purposes.
c. financial statement reporting by small companies.
d. comparing the performance of two companies in the same industry.
44. Recording depreciation:
a. decreases net income and cash flows.
b. decreases net income but has no effect on cash flows.
c. decreases net income, fixed assets, and cash flows.
d. decreases net income but has no effect on fixed assets and cash flows.
45. To measure depreciation, which of the following must be known?
a. market value of asset.
b. fixed asset turnover
c. cost of asset.
d. the amount of cash to replace fixed asset
46. A machine was purchased for $68,000. It has a useful life of 5 years and a residual value of
$8,000. Determine the annual depreciation expense using the straight-line method?
a. $20,000
b. $12,000
c. $60,000
d. $16,000
47. An equipment was purchased for $15,000. It has a useful life of 5 years and a residual value of
$4,000. Determine the depreciation expense for the first year using the double-declining-
balance method?
a. $5,400
b. $6,000
c. $2,200
d. $2,600
Fixed Assets and Intangible Assets
48. A computer equipment was acquired at the beginning of the year at a cost of $56,000 with an
estimated residual value of $5,000, and an estimated useful life of 5 years. Determine the
second year’s depreciation expense using the straight-line method.
a. $10,200
b. $22,400
c. $11,200
d. $12,200
49. An equipment was purchased for $30,000. It has a useful life of 5 years, and a residual value of
$4,000. Compute the depreciation expense for the second year using the double-declining-
balance method.
a. $5,200
b. $6,000
c. $6,240
d. $7,200
50. On September 1, a machine was purchased for $47,000 with a useful life of 8 years, and a
residual value of $3,000. What is the depreciation expense in the year of purchase under
straight-line method, assuming a December 31 year- end?
a. $3,917
b. $3,667
c. $1,958
d. $1,833
51. A machine was purchased for $35,500, having a useful life of 10 years, and a residual value of
$6,000. Compute the annual depreciation expense using the straight-line method.
a. $3,550
b. $4,150
c. $5,800
d. $2,950
52. If a fixed asset with an original cost of $18,000 and accumulated depreciation of $2,000 is sold
for $15,000, the company must:
a. recognize a loss on the income statement under other expenses.
b. recognize a loss on the income statement under operating expenses.
c. recognize a gain on the income statement under other revenues.
d. recognize a gain on the income statement under revenues.
Fixed Assets and Intangible Assets
53. If a fixed asset is sold and the book value of the asset is less than its selling price, the company
must:
a. recognize a loss on the income statement under other expenses.
b. recognize a loss on the income statement under operating expenses.
c. recognize a gain on the income statement under other revenues.
d. recognize a gain on the income statement under revenues.
54. A fixed asset with a cost of $15,000 and accumulated depreciation of $12,500 is sold for
$1,750. What is the amount of gain or loss on disposal of the fixed asset?
a. $750 loss
b. $2,500 loss
c. $2,500 gain
d. $750 gain
55. A gain is recorded on the sale of fixed assets when:
a. the asset is sold for a price less than its book value.
b. the asset is sold for a price more than its book value.
c. accumulated depreciation on asset is less than its selling price.
d. accumulated depreciation on asset is more than its selling price.
56. A fully depreciated asset must be:
a. removed from the books.
b. kept on the books until sold or discarded.
c. disclosed only in the notes to the financial statements.
d. recognized on the income statement as a loss.
57. A company sold a delivery truck for $22,000 cash. The truck costs $45,800 and had
accumulated depreciation of $32,000 as of the date of sale. The entry to record the sale would
include:
a. an increase in accumulated depreciation for $32,000.
b. a total decrease in delivery truck for $13,800.
c. a gain for $8,200.
d. a loss for $10,000.
Fixed Assets and Intangible Assets
58. A company sold office furniture costing $15,800 with accumulated depreciation of $13,000 for
$1,500 cash. The entry to record the sale would include:
a. an increase in accumulated depreciation for $15,800.
b. a loss for $1300.
c. a total decrease in office furniture for $2,800.
d. a decrease in cash for $1,300.
59. A company purchased an oil well for $10 million. It is estimated that 5 million barrels can be
extracted from the well. Determine depletion expense assuming 4 million barrels are extracted
and sold during the year.
a. $1,250,000
b. $8,000,000
c. $12,500,000
d. $8,750,000
60. The process of transferring the cost of metal ores and other minerals removed from the earth to
an expense account is called:
a. depletion.
b. deferral.
c. amortization.
d. depreciation.
61. A drilling company purchased a mining site for $450,000 on July 1, 2015. The company
expects to mine ore for the next 10 years and anticipates that a total of 80,000 tons will be
recovered. During 2015, the company extracted 5,800 tons of ore. The depletion expense for the
year 2015 is:
a. $45,000.
b. $50,800.
c. $5,860.
d. $32,625.
62. Goodwill is:
a. amortized in a manner similar to other intangibles.
b. written down only if an impairment in value occurs.
c. charged to expense immediately.
d. amortized over 40 years or its economic life, whichever is shorter.