Chapter 9 – Long-Term Assets: Fixed and Intangible
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
4. Land acquired as a speculation is reported under Investments on the balance sheet.
a.
True
b.
False
Chapter 9 – Long-Term Assets: Fixed and Intangible
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
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
Chapter 9 – Long-Term Assets: Fixed and Intangible
9. Capital expenditures are costs that improve a fixed asset or extend its useful life.
a.
True
b.
False
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
Chapter 9 – Long-Term Assets: Fixed and Intangible
13. An intangible asset is one that has a physical existence.
a.
True
b.
False
14. A leased 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
Chapter 9 – Long-Term Assets: Fixed and Intangible
17. The normal balance of the accumulated depreciation account is a debit.
a.
True
b.
False
18. As a company records depreciation expense for a period of time, cash is accumulated to replace fixed assets as they
wear out.
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
Chapter 9 – Long-Term Assets: Fixed and Intangible
21. The depreciable cost of a building is the same as its acquisition cost.
a.
True
b.
False
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
Chapter 9 – Long-Term Assets: Fixed and Intangible
25. The units-of-output depreciation method provides a good match of expenses against revenue.
a.
True
b.
False
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 cannot 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 9 – Long-Term Assets: Fixed and Intangible
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. 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
31. 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
Chapter 9 – Long-Term Assets: Fixed and Intangible
32. 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
33. When depreciation estimates are revised, all years of the asset’s life are affected.
a.
True
b.
False
34. For income tax purposes, most companies use an accelerated deprecation method called double declining balance.
a.
True
b.
False
Chapter 9 – Long-Term Assets: Fixed and Intangible
35. 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
36. Revising depreciation estimates affects the amounts of depreciation expense recorded in past periods.
a.
True
b.
False
37. Capital expenditures are costs that are charged to stockholders’ equity accounts.
a.
True
b.
False
38. Minerals removed from the earth are classified as intangible assets.
a.
True
b.
False
Chapter 9 – Long-Term Assets: Fixed and Intangible
39. The method used to calculate the depletion of a natural resource is the straight-line method.
a.
True
b.
False
40. Intangible assets differ from property, plant, and equipment assets in that they lack physical substance.
a.
True
b.
False
41. 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
42. 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
Chapter 9 – Long-Term Assets: Fixed and Intangible
43. Costs associated with normal research and development activities should be treated as intangible assets.
a.
True
b.
False
44. Patents are exclusive rights to produce and sell goods with one or more unique features.
a.
True
b.
False
45. 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
46. 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
Chapter 9 – Long-Term Assets: Fixed and Intangible
47. 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
48. 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
49. 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
50. Losses on the discarding of fixed assets are reported in the income statement.
a.
True
b.
False
Chapter 9 – Long-Term Assets: Fixed and Intangible
51. A gain can be realized when a fixed asset is discarded.
a.
True
b.
False
52. 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
53. When a plant asset is traded for another similar asset, losses on the asset traded are not recognized.
a.
True
b.
False
54. When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.
a.
True
b.
False
Chapter 9 – Long-Term Assets: Fixed and Intangible
55. 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
56. The entry to record the disposal of fixed assets will include a credit to accumulated depreciation.
a.
True
b.
False
57. 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
58. 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
59. 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
60. A characteristic of a fixed asset is that it is
a.
intangible
b.
used in the operations of a business
c.
held for sale in the ordinary course of the business
d.
a short-term investment
61. Land acquired so it can be resold in the future is listed on the balance sheet as a(n)
a.
fixed asset
b.
current asset
c.
investment
d.
intangible asset
Chapter 9 – Long-Term Assets: Fixed and Intangible
62. Which of the following should be included in the acquisition cost of a piece of equipment?
a.
transportation costs
b.
installation costs
c.
testing costs prior to placing the equipment into production
d.
all of these
63. Which of the following is included in the cost of constructing a building?
a.
insurance costs during construction
b.
cost of paving the parking lot
c.
cost of repairing vandalism damage during construction
d.
cost of removing the demolished building existing on the land when it was purchased
64. Which of the following is included in the cost of land?
a.
cost of paving a parking lot
b.
brokerage commission
c.
outdoor parking lot lighting attached to the land
d.
fences on the land
Chapter 9 – Long-Term Assets: Fixed and Intangible
65. Accumulated Depreciation
a.
is used to show the amount of cost expiration of intangibles
b.
is the same as Depreciation Expense
c.
is a contra asset account
d.
is used to show the amount of cost expiration of natural resources
66. 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.
$154,000
b.
$172,000
c.
$160,000
d.
$120,000
67. 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.
$93,000
b.
$90,000
c.
$82,000
d.
$85,000
Chapter 9 – Long-Term Assets: Fixed and Intangible
68. 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.
$114,000
b.
$126,000
c.
$121,000
d.
$132,000
cost + Special acquisition fees = $109,000 + $12,000 + $5,000 + $6,000 = $132,000
69. Expenditures that add to the utility of fixed assets for more than one accounting period are
a.
committed expenditures
b.
revenue expenditures
c.
utility expenditures
d.
capital expenditures
70. A capital expenditure results in a debit to
a.
an expense account
b.
a capital account
c.
a liability account
d.
an asset account
Chapter 9 – Long-Term Assets: Fixed and Intangible
71. Which of the following below is an example of a capital expenditure?
a.
cleaning the carpet in the front room
b.
tune-up for a company truck
c.
replacing an engine in a company car
d.
replacing all burned-out light bulbs in the factory
72. In a lease contract, the party who legally owns the asset is the
a.
lessee
b.
lessor
c.
operator
d.
banker
73. The journal entry for recording payment for the short-term lease of a fixed asset would
a.
be a memo entry only
b.
debit the fixed asset and credit Cash
c.
debit Rent Expense and credit Cash
d.
debit a liability and credit Cash