Chapter 09 Plant and Intangible Assets Answer Key
True / False Questions
1.
Incidental costs incurred in the purchase of land that are charged to Land Improvements
will affect net income at some future time.
2.
The term plant assets refers to long-lived assets acquired for use in business operations,
rather than for resale to customers.
3.
If a piece of equipment is dropped and damaged during installation, the cost of repairing
the damage should be added to the cost of the equipment.
4.
Natural resources such as oil or minerals are categorized as intangible assets.
5.
Sales tax on equipment is not part of the acquisition cost and should not be capitalized.
Topic: Acquisition of Plant Assets
6.
Topic: Acquisition of Plant Assets
Land improvements are not subject to depreciation.
7.
Topic: Acquisition of Plant Assets
To capitalize an expenditure means charging it to an asset account.
8.
A revenue expenditure is recorded in an expense account.
9.
Charging an expenditure directly to an expense account is based on the assumption that
the benefits of that expenditure have been used up in the current period.
10.
It is an acceptable accounting practice to treat an expenditure that is not material in dollar
amount as an expense of the current period even though the expenditure may benefit
several periods.
11.
The erroneous recording of a revenue expenditure as a capital expenditure will cause an
overstatement of net income for the period.
12.
Physical deterioration refers to the process of an asset becoming outdated as a result of
the availability of improved, more efficient assets.
13.
Maintenance and fuel costs are types of revenue expenditures.
14.
A revenue expenditure is deducted from revenues in determining the net income for the
period.
15.
A capital expenditure is charged to owners’ capital.
16.
Assets are shown in the balance sheet at their book value.
17.
The journal entry to record depreciation expense consists of a debit to the asset being
depreciated and a credit to Accumulated Depreciation.
18.
The book value of an asset is equal to its cost plus accumulated depreciation.
19.
Book value represents the cost of an asset that has already been allocated to expense.
20.
The half-year convention permits a company to take six months depreciation during the
first year of an asset’s life even if the asset was purchased on January 25th.
21.
The formula for the double-declining balance method of computing depreciation expense
is: Remaining book value times the straight line rate.
22.
The rule of consistency is violated when a company uses one method of depreciation for
financial statements and another method of depreciation for tax purposes.
23.
In the early years of an asset’s life, straight-line depreciation will cause a company to
report higher profits than would be reported with an accelerated depreciation method.
24.
Just as there are depreciation methods to calculate the decline in market value of assets,
there are appreciation methods to record the increase in market value of assets.
25.
If an accelerated depreciation method is used for an asset with a useful life of five years,
more depreciation expense would be recorded in the third year than in the fifth year.
26.
Under the half-year convention, six months’ depreciation is recorded on an asset in the
year of acquisition and in the year of retirement regardless of the month in which the
asset is actually purchased or retired.
27.
Once the estimated life is determined for a depreciable asset it can never be changed.
28.
Annual depreciation expense is increased when salvage values are small.
29.
Most companies benefit by using accelerated depreciation methods for income tax
purposes.
30.
Straight-line is the most widely used depreciation method in financial statements, and
MACRS is the most widely used method in federal income tax returns.
31.
In the early years of an asset’s life, an accelerated depreciation method results in a more
conservative balance sheet amount for the asset and a more conservative net income
amount.
32.
Estimating the useful life and residual value of an asset is the responsibility of the firm of
independent accountants that audit the company.
33.
Any rational, systematic method of depreciation is acceptable, as long as costs are
allocated to expense in a reasonable manner.
34.
Sum–of-the-years’ digits is a decelerated method of depreciation which produces less
depreciation expense in the early years of the asset’s life and more expense in the later
years.
35.
Sum–of-the-years’ digits is a popular depreciation method for small businesses due to its
simplicity.
36.
Material gains and losses from the disposal of plant and equipment are shown on the
income statement as part of income from operations.
37.
Ding Company traded in one of its automobiles for a newer model. This transaction may
result in a gain or a loss being recorded on Ding’s financial statements.
38.
Under international accounting standards, companies may revalue their plant and
equipment rather than using historical cost throughout the assets’ lives.
39.
The systematic write-off of intangible assets to expense is called depletion.
40.
Goodwill is only recorded when the value of a company increases and not when it
decreases in value.
41.
U. S. GAAP requires a company to capitalize goodwill and adjust its value if subject to
impairment.
42.
An oil reserve is depreciated because of physical deterioration or obsolescence.
43.
A coal mine is regarded as an underground inventory of coal and is recorded as a current
asset, Underground Coal Inventory, in the balance sheet.
44.
Accumulated depletion is a contra-equity account and is recorded in the stockholders’
equity section of the balance sheet.
45.
Amortization expense increases net income and reduces cash flows from investing
activities.
46.
The write-down of an impaired asset is treated as a cash outflow from investing activities.
Multiple Choice Questions
47.
Land is purchased for $256,000. Additional costs include a $15,300 fee to a broker, a
survey fee of $2,400, $1,750 to construct a fence, and a legal fee of $8,500. What is the
cost of the land?
48.
Which of the following would
not
be considered as part of the cost of equipment recently
purchased?
49.
Armstrong Company recently acquired a new computer system. Which of the following
costs associated with the computer should
not
be debited to the Equipment account?
50.
Tomassi Company paid $450,000 to acquire a piece of real estate consisting of land and
an office building with a parking lot. In this situation:
51.
Which of the following assets is
not
subject to depreciation and whose usefulness does
not decline over time?