CHAPTER 10: FIXED ASSETS AND INTANGIBLE ASSETS
1.
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
2.
The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs
to
get the asset in place and ready for use.
a.
True
b.
False
3.
When land is purchased to construct a new building, the cost of removing any structures on the land should
be
charged to the building account.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
4.
Land acquired as a speculation is reported under Investments on the balance sheet.
a.
True
b.
False
5.
Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant,
and
equipment on the balance sheet.
a.
True
b.
False
6.
The cost of repairing damage to a machine during installation is debited to a fixed asset account.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
7.
During construction of a building, the cost of interest on a construction loan should be charged to an
expense
account.
a.
True
b.
False
8.
The cost of computer equipment does not include the consultant’s fee to supervise installation of the equipment.
a.
True
b.
False
9.
Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
10.
The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.
a.
True
b.
False
11.
Expenditures that increase operating efficiency or capacity for the remaining useful life of a fixed asset are
called
capital expenditures.
a.
True
b.
False
12.
The cost of replacing an engine in a truck is an example of ordinary maintenance.
a.
True
b.
False
13.
An intangible asset is one that has a physical existence.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
14.
A capitalized asset will appear on the balance sheet as a long-term asset.
a.
True
b.
False
15.
Long-lived assets held for sale are classified as fixed assets.
a.
True
b.
False
16.
Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which it
was
intended.
a.
True
b.
False
17.
The normal balance of the accumulated depreciation account is a debit.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
18.
As a company records depreciation expense for a period of time, a corresponding cash inflow from
investing
activities is reported on the statement of cash flows.
a.
True
b.
False
19.
All property, plant, and equipment assets are depreciated over time.
a.
True
b.
False
20.
The book value of a fixed asset reported on the balance sheet represents its market value on that date.
a.
True
b.
False
21.
The depreciable cost of a building is the same as its acquisition cost.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
22.
It is necessary for a company to use the same depreciation method for all of its depreciable assets.
a.
True
b.
False
23.
It is not necessary for a company to use the same depreciation method for financial statements and for determining
income taxes.
a.
True
b.
False
24.
An estimate of the amount for which an asset can be sold at the end of its useful life is called residual value.
a.
True
b.
False
25.
The units-of-output depreciation method provides a good match of expenses against revenue.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
26.
Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has
been determined, the amounts can not be changed.
a.
True
b.
False
27.
Residual value is not incorporated in the initial calculations for double-declining-balance depreciation.
a.
True
b.
False
28.
The double-declining-balance method is an accelerated depreciation method.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
29.
The double-declining-balance depreciation method calculates depreciation each year by taking twice the
straight-
line rate times the book value of the asset at the beginning of each year.
a.
True
b.
False
30.
When minor errors occur in the estimates used in the determination of depreciation, the amounts recorded for
depreciation expense in the past should be corrected.
a.
True
b.
False
31.
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, is $19,000 by the straight-line method.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
32.
The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of $5,000
and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units–of-output method during a period
when
the asset was used for 4,500 hours.
a.
True
b.
False
33.
The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000, with an
estimated residual value of $5,000 and a useful life of 4 years, is $25,000 by the double-declining-balance
method.
a.
True
b.
False
34.
When depreciation estimates are revised, all years of the asset’s life are affected.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
35.
For income tax purposes, most companies use an accelerated deprecation method called double declining balance.
a.
True
b.
False
36.
Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will be
the
same.
a.
True
b.
False
37.
Revising depreciation estimates affects the amounts of depreciation expense recorded in past periods.
a.
True
b.
False
38.
Capital expenditures are costs that are charged to stockholders’ equity accounts.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
39.
Minerals removed from the earth are classified as intangible assets.
a.
True
b.
False
40.
The method used to calculate the depletion of a natural resource is the straight-line method.
a.
True
b.
False
41.
Intangible assets differ from property, plant, and equipment assets in that they lack physical substance.
a.
True
b.
False
42.
The cost of a patent with a remaining legal life of 10 years and an estimated useful life of 7 years is amortized
over
10 years.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
43.
The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is
called amortization.
a.
True
b.
False
44.
Costs associated with normal research and development activities should be treated as intangible assets.
a.
True
b.
False
45.
Patents are exclusive rights to produce and sell goods with one or more unique features.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
46.
When a company establishes an outstanding reputation and has a competitive advantage because of it, the
company
should record goodwill on its financial statements.
a.
True
b.
False
47.
The difference between the balance in a fixed asset account and its related accumulated depreciation account is
the asset’s book value.
a.
True
b.
False
48.
Though a piece of equipment is still being used, the equipment should be removed from the accounts if it has
been
fully depreciated.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
49.
When selling a piece of equipment for cash, a loss will result when the proceeds of the sale are less than the book
value of the asset.
a.
True
b.
False
50.
When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.
a.
True
b.
False
51.
Losses on the discarding of fixed assets are reported in the income statement.
a.
True
b.
False
52.
A gain can be realized when a fixed asset is discarded.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
53.
When old equipment is traded in for a new equipment, the difference between the list price and the trade
in
allowance is called boot.
a.
True
b.
False
54.
When a plant asset is traded for another similar asset, losses on the asset traded are not recognized.
a.
True
b.
False
55.
When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
56.
If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, a trade-in allowance of $15,000
is
granted by the seller, and the transaction is deemed to have commercial substance, the buyer would report a
gain
on exchange of fixed assets of $5,000.
a.
True
b.
False
57.
The entry to record the disposal of fixed assets will include a credit to accumulated depreciation.
a.
True
b.
False
58.
Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the disposal
of
the asset.
a.
True
b.
False
Chapter 10: Fixed Assets and Intangible Assets
59.
When a seller allows a buyer an amount for old equipment that is traded in for new equipment of similar use,
this
amount is known as boot.
a.
True
b.
False
60.
An exchange is said to have commercial substance if future cash flows remain the same as a result of the
exchange.
a.
True
b.
False
61.
A characteristic of a fixed asset is that it is
a.
used in the operations of a business
b.
a short-term investment
c.
intangible
d.
held for sale in the ordinary course of the business
Chapter 10: Fixed Assets and Intangible Assets
62.
Land acquired so it can be resold in the future is listed on the balance sheet as a(n)
a.
fixed asset
b.
intangible asset
c.
investment
d.
current asset
63.
Which of the following should be included in the acquisition cost of a piece of equipment?
a.
installation costs
b.
transportation costs
c.
testing costs prior to placing the equipment into production
d.
all of these
64.
Which of the following is included in the cost of constructing a building?
a.
cost of paving the parking lot
b.
cost of removing the demolished building existing on the land when it was purchased
c.
insurance costs during construction
d.
cost of repairing vandalism damage during construction
Chapter 10: Fixed Assets and Intangible Assets
65.
Which of the following is included in the cost of land?
a.
outdoor parking lot lighting attached to the land
b.
cost of paving a parking lot
c.
fences on the land
d.
brokerage commission
66.
Accumulated Depreciation
a.
is the same as Depreciation Expense
b.
is used to show the amount of cost expiration of intangibles
c.
is a contra asset account
d.
is used to show the amount of cost expiration of natural resources
67.
A building with an appraisal value of $154,000 is made available at an offer price of $172,000.
The purchaser
acquires the property for $40,000 in cash, a 90-day note payable for $45,000,
and a mortgage amounting to $75,000. The cost basis recorded in the buyer’s accounting
records to recognize this purchase is
a. $160,000
b. $120,000
c. $172,000
d. $154,000