Chapter 10: Fixed Assets and Intangible Assets
68.
A used machine with a purchase price of $77,000, requiring an overhaul costing $8,000, installation costs of
$5,000,
and special acquisition fees of $3,000, would have a cost basis of
a. $82,000
b. $90,000
c. $85,000
d. $93,000
69.
A new machine with a purchase price of $109,000, with transportation costs of $12,000, installation costs of
$5,000,
and special acquisition fees of $6,000, would have a cost basis of
a. $121,000
b. $132,000
c. $114,000
d. $126,000
70.
Expenditures that add to the utility of fixed assets for more than one accounting period are
a.
capital expenditures
b.
revenue expenditures
c.
utility expenditures
d.
committed expenditures
Chapter 10: Fixed Assets and Intangible Assets
71.
A capital expenditure results in a debit to
a.
an asset account
b.
an expense account
c.
a liability account
d.
a capital account
72.
Which of the following below is an example of a capital expenditure?
a.
replacing an engine in a company car
b.
cleaning the carpet in the front room
c.
replacing all burned-out light bulbs in the factory
d.
tune-up for a company truck
73.
In a lease contract, the party who legally owns the asset is the
a.
lessor
b.
lessee
c.
banker
d.
operator
Chapter 10: Fixed Assets and Intangible Assets
74.
The journal entry for recording payment for the short-term lease of a fixed asset would
a.
debit the fixed asset and credit Cash
b.
debit Rent Expense and credit Cash
c.
debit a liability and credit Cash
d.
be a memo entry only
75.
Which of the following are criteria for determining whether to record an asset as a fixed asset?
a.
must be tangible and an investment
b.
must be long lived and used by the company in its normal operations
c.
must be short lived and tangible
d.
must be an investment and long lived
76.
Factors contributing to a decline in the usefulness of a fixed asset may be divided into the following two categories
a.
functional and residual
b.
salvage and functional
c.
physical and functional
d.
residual and salvage
Chapter 10: Fixed Assets and Intangible Assets
77.
A fixed asset’s estimated value at the time it is to be retired from service is called
a.
book value
b.
carrying value
c.
residual value
d.
market value
78.
All of the following are needed for the calculation of straight-line depreciation except
a.
units produced
b.
estimated life
c.
residual value
d.
cost
79.
The method of determining depreciation that yields successive reductions in the periodic depreciation charge
over
the estimated life of the asset is the
a.
time-valuation method
b.
units-of-production method
c.
straight-line method
d.
double-declining-balance method
Chapter 10: Fixed Assets and Intangible Assets
80.
When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense
that best matches allocation of cost with revenue is
a.
units-of-output method
b.
MACRS
c.
straight-line method
d.
double-declining-balance method
81.
A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5 years
or
15,000 hours. It is to be depreciated by the units-of-output method. What is the amount of depreciation for
the
second full year, during which the machine was used 5,000 hours?
a. $5,000
b. $21,000
c. $35,000
d. $45,000
82.
Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or
19,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first
full
year, during which the equipment was used 2,100 hours?
a. $21,000
b. $30,000
c. $22,000
d. $19,000
Chapter 10: Fixed Assets and Intangible Assets
83.
A machine with a cost of $75,000 has an estimated residual value of $5,000 and an estimated life of 4 years
or
18,000 hours. What is the amount of depreciation for the second full year, using the double-declining-
balance
method?
a. $17,500
b. $18,750
c. $37,500
d. $16,667
84.
The most widely used depreciation method is
a.
straight-line
b.
other
c.
units-of-output
d.
double-declining-balance
85.
Equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years
was
depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful
life
should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the
current
and future years is
a. $16,000
b. $11,636
c. $11,000
d. $8,000
Chapter 10: Fixed Assets and Intangible Assets
86.
The depreciation method that does not use residual value in calculating the first year’s depreciation expense is
a.
straight-line
b.
units-of-output
c.
double-declining-balance
d.
none of the above
87.
If a fixed asset, such as a computer, were purchased on January 1 for $3,750 with an estimated life of 3 years and
a salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation is
a. Accumulated Depreciation
Depreciation Expense
1,200
1,200
b. Depreciation Expense
Accumulated Depreciation
1,200
1,200
c. Accumulated Depreciation
Depreciation Expense
100
100
d. Depreciation Expense
Accumulated Depreciation
100
100
Chapter 10: Fixed Assets and Intangible Assets
88.
The proper journal entry to purchase a computer costing $975 on account to be utilized within the business would
be
a. Office Supplies
Accounts Payable
975
975
b. Office Equipment
Accounts Receivable
975
975
c. Office Equipment
Accounts Payable
975
975
d. Office Supplies
Accounts Receivable
975
975
89.
Residual value is also known as all of the following except
a.
net book value
b.
salvage value
c.
scrap value
d.
trade-in value
90.
The formula for depreciable cost is
a.
Initial cost + Residual value
b.
Initial cost – Residual value
c.
Depreciable cost = Initial cost
d.
Initial cost – Accumulated depreciation
Chapter 10: Fixed Assets and Intangible Assets
91.
Expected useful life is
a.
calculated when the asset is sold
b.
estimated at the time that the asset is placed in service
c.
determined each year that the depreciation calculation is made
d.
none of these
92.
The calculation for annual depreciation using the straight-line depreciation method is
a.
Initial cost / Estimated useful life
b.
Initial cost × Estimated useful life
c.
Depreciable cost × Estimated useful life
d.
Depreciable cost / Estimated useful life
93.
The calculation for annual depreciation using the units-of-output method is
a.
(Depreciable cost / Estimated output) × Actual yearly output
b.
Depreciable cost / Yearly output
c.
(Initial cost / Estimated output) × Actual yearly output
d.
(Depreciable cost / Yearly output) × Estimated output
Chapter 10: Fixed Assets and Intangible Assets
94.
On June 1, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000
and
an estimated useful life of 3 years and 30,000 hours.
Using straight-line depreciation, calculate depreciation expense for the final (partial) year of service.
a. $12,500 b. $17,500
c. $40,000 d. $30,000
95.
On June 1, Michael Company purchased equipment at a cost of $120,000 that has a depreciable cost of
$90,000
and an estimated useful life of 3 years or 30,000 hours.
Using straight-line depreciation, calculate depreciation expense for the second year.
a. $17,500 b. $12,500
c. $30,000 d. $40,000
96.
On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000
and
an estimated useful life of 3 years or 30,000 hours.
Using straight-line depreciation, calculate depreciation expense for the first year.
a. $12,500 b. $30,000
c. $17,500 d. $40,000
Chapter 10: Fixed Assets and Intangible Assets
97.
Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual
value of $9,000 and an estimated useful life of 5 years. Determine the second-year depreciation using the straight-
line method.
a. $13,200
b. $19,200
c. $9,000
d. $9,600
98.
Which of the following is true?
a.
If using the straight-line method, the amount of depreciation expense during the first year is higher than
that
of the double-declining-balance.
b.
Regardless of the depreciation method, the amount of total depreciation expense during the life of the
asset
will be the same.
c.
If using the double-declining-balance method, the total amount of depreciation expense during the life of
the
asset will be the highest.
d.
If using the units-of-output method, it is possible to depreciate more than the depreciable cost.
99.
An asset was purchased for $120,000 on January 1, Year 1 and originally estimated to have a useful life of 10
years with a residual value of $10,000. At the beginning of the third year, it was determined that the
remaining
useful life of the asset was only 4 years with a residual value of $2,000. Calculate the third-year
depreciation
expense using the revised amounts and straight-line method.
a. $24,000
b. $25,000
c. $11,000
d. $24,500
Chapter 10: Fixed Assets and Intangible Assets
100.
The accumulated depletion account is
a.
an intangible asset account
b.
reported on the balance sheet as a deduction from the cost of the mineral deposit
c.
reported on the income statement as other expense
d.
an expense account
101.
The accumulated depletion of a natural resource is reported on the
a.
balance sheet as depreciation from the cost of the resource
b.
income statement as a deduction from revenues
c.
income statement as an increase in revenue
d.
balance sheet as a deduction from the cost of the resource
102.
The process of transferring the cost of metal ores and other minerals removed from the earth to an expense
account is called
a.
deferral
b.
depreciation
c.
amortization
d.
depletion
Chapter 10: Fixed Assets and Intangible Assets
103.
Sands Company purchased mining rights for $500,000. They expect to harvest 1 million tons of ore over the
next
five years. During the current year, Sands mined 350,000 tons of ore. The entry to record the depletion
would
include
a.
a credit to Accumulated Depletion for $350,000
b.
a debit to Accumulated Depletion for $175,000
c.
a debit to Depletion Expense for $175,000
d.
a credit to Depletion Expense for $350,000
104.
The natural resources of some companies include
a.
metal ores, copyrights, and supplies
b.
timber, equipment, and patents
c.
minerals, trademarks, and land
d.
timber, metal ores, and minerals
105.
The Weber Company purchased a mining site for $1,750,000 on July 1. The company expects to mine ore for
the
next 10 years and anticipates that a total of 400,000 tons will be recovered. The estimated residual value of
the
property is $150,000. During the first year, the company extracted 6,500 tons of ore. The depletion expense
is
a. $15,000
b. $16,000
c. $17,500
d. $26,000
Chapter 10: Fixed Assets and Intangible Assets
106.
Expenditures for research and development are generally recorded as
a.
assets and amortized over their estimated useful life
b.
current operating expenses
c.
assets and amortized over 40 years
d.
current assets
107.
The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of
intangible
assets is
a.
allocation
b.
depreciation
c.
amortization
d.
depletion
108.
Xtra Company purchased a business from Argus for $96,000 above the fair value of its net assets. Argus had
developed the goodwill over 12 years. How much would Xtra amortize the goodwill for its first year?
a.
not enough information to calculate amortization
b.
$7,000
c. $8,000
d. goodwill is not amortized
Chapter 10: Fixed Assets and Intangible Assets
109.
Which intangible assets are amortized over their useful life?
a.
goodwill
b.
patents
c.
trademarks
d.
all of the above
110.
The name, term, or symbol used to identify a business and its products is called
a.
goodwill
b.
a trademark
c.
a patent
d.
a copyright
111.
The process of transferring the cost of an asset to an expense account is called all of the following except
a.
depletion
b.
allocation
c.
amortization
d.
depreciation
Chapter 10: Fixed Assets and Intangible Assets
112.
Fixed assets are ordinarily presented on the balance sheet
a.
at current market values
b.
at cost less accumulated depreciation
c.
at replacement costs
d.
in a separate section along with intangible assets
113.
The ratio measuring the number of dollars of sales earned per dollar of fixed assets is the
a.
fixed asset turnover ratio
b.
days’ in assets ratio
c.
current asset turnover ratio
d.
intangible asset ratio
114.
The higher the fixed asset turnover, the
a.
more efficiently a company is using its fixed assets in generating sales
b.
more efficiently a company is using its intangible assets in generating sales
c.
less efficiently a company is using its fixed assets in generating sales
d.
more efficiently a company is using its current assets in generating sales
Chapter 10: Fixed Assets and Intangible Assets
115.
Which of the following statements is true?
a.
The fixed asset ratio is not useful for comparing different companies.
b.
A smaller fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed
asset investments.
c.
The fixed asset ratio cannot be compared across time for an individual company.
d.
A larger fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed
asset investments.
116.
Newport Company has sales of $2,025,000 for the current year. The book value of its fixed assets at the
beginning of the year was $550,000 and at the end of the year was $800,000. The fixed asset turnover ratio for
Newport is
a. 3.0
b. 3.6
c. 2.5
d. 3.7
117.
A fixed asset with a cost of $52,000 and accumulated depreciation of $47,500 is traded for a similar asset priced
at $60,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of
$5,000,
at what cost will the new equipment be recorded in the books?
a. $60,500
b. $60,000
c. $54,000
d. $59,500
Chapter 10: Fixed Assets and Intangible Assets
118.
A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at
$50,000 (fair market value) in a transaction with commercial substance. Assuming a trade-in allowance of $4,000,
at
what cost will the new equipment be recorded in the books?
a. $50,000
b. $45,000
c. $51,000
d. $54,000
119.
A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at
$60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
a. $3,000
b. $4,500
c. $500
d. $1,500
120.
A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is
the
amount of the gain or loss on disposal of the fixed asset?
a.
$2,000 loss
b.
$2,000 gain
c.
$1,500 loss
d.
$3,500 gain
Chapter 10: Fixed Assets and Intangible Assets
121.
The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery
and
paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of $5,000.
In
recording this transaction, Bacon Company should record
a.
a loss of $1,500
b.
the new machinery at $16,700
c.
a gain of $1,500
d.
the new machinery at $12,700
122.
When a company discards machinery that is fully depreciated, this transaction would be recorded with the
following
entry
a.
debit Accumulated Depreciation; credit Machinery
b.
debit Machinery; credit Accumulated Depreciation
c.
debit Depreciation Expense; credit Accumulated Depreciation
d.
debit Cash; credit Accumulated Depreciation
123.
When a company sells machinery at a price equal to its book value, this transaction would be recorded with
an
entry that would include the following:
a.
debit Machinery; credit Cash and Accumulated Depreciation
b.
debit Cash and Machinery; credit Accumulated Depreciation
c.
debit Cash and Depreciation Expense; credit Accumulated Depreciation
d.
debit Cash and Accumulated Depreciation; credit Machinery
Chapter 10: Fixed Assets and Intangible Assets
124.
When a company exchanges machinery and receives a trade-in allowance greater than the book value, this
transaction would be recorded with which of the following entries (assuming the exchange was considered to
have
commercial substance)?
a.
debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Exchange
of
Machinery
b.
debit Cash and Machinery; credit Accumulated Depreciation and Machinery
c.
debit Machinery and Accumulated Depreciation; credit Machinery and Cash
d.
debit Cash and Machinery; credit Accumulated Depreciation
125.
When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction
would be recorded with which of the following entry?
a.
debit Cash and Machinery; credit Accumulated Depreciation and Machinery
b.
debit Machinery, Accumulated Depreciation, and Loss on Exchange of Machinery; credit Machinery
and
Cash
c.
debit Cash and Machinery; credit Accumulated Depreciation
d.
debit Machinery and Accumulated Depreciation; credit Machinery and Cash