Accounting, 9e (Horngren)
Chapter 9 Plant Assets and Intangibles
Learning Objective 9-1
1) The cost of razing a building on a parcel of land to build a new building is added to the cost of the land.
2) The cost of excavating a basement for a new building is added to the price of the land.
3) The cost of land includes the cost of removing unwanted buildings.
4) The cost of fencing around a building is included in the cost of the building.
5) Treating a capital expenditure as an expense causes an understatement of net income.
6) Treating a cost which should be an expense as a capital expenditure will make a company’s net income higher.
7) Expenditures which extend the life of an asset or increase its productive capacity should be expensed.
8) Normal expenditures for repairs and maintenance should be capitalized.
9) Which of the following is included in the cost of land?
A) The cost of fencing
B) The cost of paving
C) The cost of clearing the land
D) The cost of outdoor lighting
10) Which of the following is included in the cost of a plant asset?
A) Amounts paid to ready the asset for its intended use
B) Regular maintenance cost
C) Normal repair cost
D) Wages of workers who use the asset
11) Which of the following asset categories would include fencing?
A) Machinery and equipment
B) Land improvements
C) Buildings
D) Land
12) Which of the following asset categories would include the cost of clearing land and removing unwanted
buildings?
A) Land
B) Buildings
C) Land improvements
D) Machinery and equipment
13) Which of the following is NOT a characteristic of a plant asset?
A) The asset is used in the production of income for the business.
B) The asset is available for sale to customers in the ordinary course of business.
C) The asset has physical form.
D) The asset has future usefulness and value.
14) Hastings Company has purchased a group of assets for $350,000. The assets and their market values are listed
as follows:
Land
$125,000
Equipment
75,000
Building
200,000
Which of the following amounts would be debited to the Land account?
A) $125,000
B) $109,375
C) $65,625
D) $175,000
15) Which of the following would be capitalized and depreciated, rather than expensed?
A) Modification for new use
B) Paint job
C) Replacement of tires
D) Normal repair of engine
16) Which of the following would be expensed, rather than capitalized?
A) Oil change and lubrication
B) Major engine overhaul
C) Modification for new use
D) Addition to storage capacity
17) A company’s accountant capitalizes a payment that should be recorded as an expense. Which of the following is
TRUE?
A) Revenue is overstated.
B) Expenses are overstated.
C) Assets are overstated.
D) Liabilities are overstated.
18) A company’s accountant capitalizes a payment that should be recorded as an expense. Which of the following is
TRUE?
A) Net income is overstated.
B) Revenues are understated
C) Assets are understated.
D) Liabilities are overstated.
19) A company’s accountant expenses a payment that should be capitalized. Which of the following is TRUE?
A) Net income is understated.
B) Liabilities are overstated.
C) Revenue is overstated.
D) Assets are overstated.
20) Which of the following costs related to a company car would NOT be expensed?
A) The cost to install an engine with higher horsepower
B) The cost to change car’s oil
C) The cost to replace a broken windshield
D) The cost of new tires
21) Roberts Construction Company paid $40,000 for equipment with a market value of $45,000. At which of the
following amounts should the equipment be recorded?
A) $45,000
B) $40,000
C) $42,500
D) $5,000
22) A company purchased a used machine for $80,000. The machine required installation costs of $8,000 and
insurance while in transit of $500. At which of the following amounts would the equipment be recorded?
A) $80,500
B) $88,500
C) $88,000
D) $80,000
23) Which of the following should be included in the cost of land?
A) Cost to build sidewalks on the land
B) Cost to clear the land of old buildings
C) Cost of installing signage
D) Cost of installing fences
24) Acme Investments plans to develop a shopping center. In the first quarter, they spent the following amounts:
Purchase land
$100,000
Surveys and legal fees
1,200
Land clearing
5,000
Install fences around the property
4,600
Install lighting and signage
2,600
What amount should be recorded as the land cost?
A) $7,200
B) $101,200
C) $46,200
D) $106,200
25) Acme Investments plans to develop a shopping center. In the first quarter, they spent the following amounts:
Purchase land
$100,000
Surveys and legal fees
1,200
Land clearing
5,000
Install fences around the property
4,600
Install lighting and signage
2,600
What amount should be recorded as the land improvements cost?
A) $7,200
B) $101,200
C) $46,200
D) $106,200
26) Acme purchased a property that included both land and a building for $200,000. Acme hired an appraiser who
determined that the market value of the land was $140,000 and the market value of the building was $50,000. At
what amount should Acme record the land cost?
A) $147,368
B) $52,632
C) $200,000
D) $140,000
27) Acme purchased a property that included both land and a building for $200,000. Acme hired an appraiser who
determined that the market value of the land was $140,000 and the market value of the building was $50,000. At
what amount should Acme record the building cost?
A) $147,368
B) $52,632
C) $200,000
D) $140,000
1) Estimated residual value is the expected cash value of an asset at the end of its useful life.
2) The straight-line method of depreciation assigns a fixed amount of depreciation to each unit of output produced
by an asset.
3) Accelerated depreciation differs from straight–line depreciation in that depreciation expense is greater in the first
year and less in the later years.
4) Asset impairments occur when the asset’s value has a significant decline, outside of normal depreciation.
5) Tangible assets must be tested for impairment at least once a year.
6) An asset impairment will be reflected by an increase in the book value of an asset, as shown on the balance sheet.
7) When an asset is fully depreciated, the salvage value must be written off.
8) When an asset is fully depreciated, no further depreciation expense is recorded.
9) Once an asset is fully depreciated, it may not be used any more, but must be sold or disposed of.
10) If an asset is fully depreciated, but it can continue to be used, the asset account and accumulated depreciation
balance remain on the books, and no further depreciation is recorded.
11) Which of the following items should be depreciated?
A) Tangible property, plant, and equipment, other than land
B) Intangible property
C) Land
D) Natural resources
12) Which of the following items should NOT be depreciated, depleted, or amortized?
A) Natural resources
B) Land
C) Tangible property, plant, and equipment, other than land
D) Intangible property
13) Which of the following accounting principles requires depreciation?
A) The revenue recognition principle
B) The matching principle
C) The reliability principle
D) The entity concept
14) Which of the following depreciation methods allocates an equal amount of depreciation to each year?
A) Units-of-production
B) Straight-line
C) Declining-balance
D) Double-declining-balance
15) Which of the following depreciation methods allocates a fixed amount of depreciation to miles driven, hours
used, or some other measure of the asset’s utilization?
A) Straight-line
B) Declining-balance
C) Units-of-production
D) Double-declining-balance
16) Which of the following depreciation methods writes off more depreciation near the start of an asset’s life than in
later years?
A) Units-of-production
B) Straight-line
C) Double-declining-balance
D) First-In, First-Out
17) Which of the following properly describes accumulated depreciation?
A) Accumulated depreciation is a contra liability account.
B) Accumulated depreciation is an expense account.
C) Accumulated depreciation is a contra equity account.
D) Accumulated depreciation is a contra asset account.
18) Which of the following depreciation methods does NOT use a residual value in the depreciation formula?
A) Units-of-production
B) Double-declining-balance
C) Straight-line
D) First-In, First-Out
19) Which of the following is the expected cash value of an asset at the end of its useful life?
A) Book value
B) Residual value
C) Carrying value
D) Market value
20) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is depreciation expense for 2013 if the company uses double-declining-balance depreciation?
A) $6,667
B) $6,000
C) $13,333
D) $12,000
21) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is depreciation expense for 2014 if the company uses double-declining-balance depreciation?
A) $13,333
B) $8,889
C) $6,000
D) $10,000
22) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is the book value of the machine at the end of 2014 if the company uses double-declining-balance
depreciation?
A) $20,000
B) $17,778
C) $13,333
D) $28,000
23) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is depreciation expense for 2013 if the company uses straight-line depreciation?
A) $6,667
B) $13,333
C) $12,000
D) $6,000
24) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is depreciation expense for 2014 if the company uses straight-line depreciation?
A) $6,000
B) $9,000
C) $13,333
D) $10,000
25) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is the book value of the machine at the end of 2014 if the company uses straight–line depreciation?
A) $10,000
B) $28,000
C) $17,778
D) $20,000
26) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is depreciation expense for 2013 if the company uses units–of-production depreciation?
A) $6,000
B) $13,333
C) $6,667
D) $12,000
27) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is depreciation expense for 2014 if the company uses units–of-production depreciation?
A) $6,000
B) $18,000
C) $10,000
D) $9,000
28) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to
use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of
6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.
What is the book value of the machine at the end of 2014 if the company uses units–of–production depreciation?
A) $20,000
B) $10,000
C) $17,778
D) $28,000
29) Which of the following is TRUE when the estimate of an asset’s useful life is increased?
A) The new estimate is ignored until the last year of the asset’s life.
B) Annual depreciation expense is increased for the remaining years of the asset’s life.
C) Prior years’ financial statements must be restated.
D) Annual depreciation expense is decreased for the remaining years of the asset’s life.
30) Lexis Company purchased equipment on January 1, 2012 for $35,500. The estimated useful life of the
equipment was 7 years and the estimated residual value was $4,000. After using the straight-line method of
depreciation for 3 years, the estimated useful life was revised to 9 years on January 1, 2015. How much is
depreciation expense for 2015?
A) $2,444
B) $3,000
C) $2,000
D) $3,667
31) The depreciation method in which salvage value is ignored until the end of the life of the asset is:
A) straight-line.
B) First-In, First-Out.
C) double-declining-balance.
D) units-of-output.
32) An asset has a life of 3 years. It cost $90,000 and has an expected salvage value of $15,000. Using straight-line
depreciation, what is the depreciation expense each of the three years?
A) $30,000
B) $35,000
C) $25,000
D) $45,000
33) An asset costs $80,000 and has a salvage value of $7,000. It has a four-year life. Using double-declining-
balance depreciation, Year 1 depreciation would be:
A) $20,000.
B) $40,000.
C) $18,250.
D) $36,500.
34) An asset costs $80,000 and has a salvage value of $7,000. It has a four-year life. Using double-declining–
balance depreciation, Year 2 depreciation would be:
A) $15,000.00.
B) $15,437.50.
C) $20,000.00.
D) $18,250.00.
35) A factory has a machine costing $76,000. It has a 5-year life and an estimated capacity of 160,000 parts. The
salvage value of the machine is zero. Assume 35,000 parts are machined in the first year of operation. Using the
units-of-production method, what is the depreciation expense in Year 1?
A) $16,625
B) $14,187
C) $15,200
D) $12,160
36) An asset has a life of 3 years. It cost $90,000 and has an expected salvage value of $15,000. Using double–
declining-balance depreciation, what is the depreciation for Year 1?
A) $29,700
B) $60,000
C) $15,000
D) $50,000
37) A company purchased a computer on July 1, 2012. The computer has an estimated useful life of 5 years and will
have no salvage value. It was purchased for $10,000. It is estimated that the computer can be used for 5,000 hours.
The computer was used for 450 hours during 2012. If the goal is to record higher depreciation expense in the earlier
years, which method should be used?
A) Units-of-production
B) Straight-line
C) Double-declining-balance
D) First-In, First-Out
38) On January 1, 2013, a company buys a truck for $42,000 cash. It has estimated residual value of $2,000, and an
estimated life of 4 years, or 200,000 miles. Assume the company uses units-of-production depreciation. The truck
drove 40,000 miles in 2013, 60,000 miles in 2014, 80,000 miles in 2015, and 20,000 miles in 2016. What is the
depreciation rate?
A) $4.00/mile
B) $0.21/mile
C) $0.20/mile
D) $0.25/mile
39) Avery Sales purchased telecom equipment for $5,000 on July 1, 2013. It has estimated residual value of $200,
and an estimated life of 8 years. If Avery uses straight-line depreciation, how much expense will be recorded in
2013?
A) $312
B) $300
C) $600
D) $625
40) Avery Sales purchased telecom equipment for $5,000 on November 1, 2013. It has estimated residual value of
$200, and an estimated life of 8 years. If Avery uses straight-line depreciation, how much expense will be recorded
in 2013?
A) $312
B) $120
C) $100
D) $225
41) Avery Sales purchased telecom equipment for $12,000 on October 1, 2013. It has estimated residual value of
$1,800, and an estimated life of 8 years. If Avery uses double–declining-balance depreciation, how much expense
will be recorded in 2013?
A) $312
B) $375
C) $250
D) $750
42) Charterhouse Services purchased a van on January 1, 2012, for $56,000. It has an estimated life of 5 years, and
an estimated salvage value of $6,000. Charterhouse uses straight-line depreciation. At the end of 2013, what was
the book value of the asset?
A) $36,000
B) $30,000
C) $36,000
D) $12,000
43) Charterhouse Services purchased a van on January 1, 2012, for $56,000. It has an estimated life of 5 years, and
an estimated salvage value of $6,000. Charterhouse uses straight-line depreciation. At the end of 2013,
Charterhouse revised the estimated life of the asset from 5 years to 6 years. How much was the depreciation
expense in the year 2014?
A) $12,000
B) $6,000
C) $9,000
D) $7,500