Chapter 9—Investments: Property, Plant, and Equipment and
Intangible Assets Key
1. Which of the following is NOT a current asset?
2. The caption “property, plant, and equipment” generally includes
3. Which of the following is considered to be a long-term asset?
4. Assets that are NOT acquired for resale, but used by a business to generate revenues, are
5. Which of the following is an asset that does NOT have physical substance?
6. The process of comparing the cost of an asset to the value of expected cash inflows, after adjusting for the
time value of money, is called
7. To properly evaluate the purchase of a long-term asset, the expected future cash flows must be adjusted for
8. Long-term operating assets have value because they are expected to
9. A long-term operating asset should be acquired if
10. Freight costs incurred when an operating asset is purchased should generally be
11. The party who owns an asset that is rented to another is referred to as the
12. Which of the following is NOT a consideration in classifying a lease?
13. A noncancelable lease should be recorded as a capital lease if
14. How would a company classify a 2-year lease that requires monthly rental payments of $1,000 and also
requires that the company must move out of the building, or negotiate a new lease when the current one ends?
15. Leased assets are capitalized at
16. How many of the criteria for determining whether a lease should be classified as an operating lease or a
capital lease must a noncancelable lease meet to be recorded as a capital lease?
17. Which of the following is NOT a reason for leasing rather than purchasing an asset?
18. Which of the following is NOT a capitalizable cost on a self-constructed asset?
19. The cost assigned to the individual assets acquired in a basket purchase is based on their relative
20. When purchasing an entire company, what is the accounting term for the purchase price in excess of
identifiable assets?
21. Furniture with a list price of $6,000 is purchased on account for $5,000. Which of the following entries
properly records this transaction?
22. Boone Company purchased a piece of machinery by paying $5,000 cash. In addition to the purchase price,
the company incurred $100 freight charges. The machine has an estimated useful life of 5 years and will require
$125 for insurance over that period. Boone Company would record the cost of the machine at
23. Radner Shipping purchased a truck and a trailer for $54,000. An appraisal has set the fair market values of
the truck and the trailer at $19,000 and $38,000, respectively. At what amount should Radner record the truck?
24. Henner Corporation made a basket purchase of three pieces of machinery for $72,000. The fair market
values of the machinery were determined to be as follows:
Machine A
$13,500
Machine B
27,000
Machine C
40,500
What cost should Henner record for Machine C?
25. Land and a building were purchased for a sum of $200,000. If appraisals set the value of the land at
$140,000 and the building at $70,000, the building will be recorded at
26. On January 1, 2012, Alberta Company purchased land and a building for $1,120,000. At the time of the
purchase, it was estimated that the building had a market value of $700,000. On January 5, Alberta installed a
fence around the property at a cost of $7,000. Given this information, the journal entry to record the purchase of
the land and building would include a
27. A company leases an asset for a 7-year period under a capital lease and agrees to pay an annual rental of
$15,000. The initial entry to record this transaction, assuming the present value of the lease payments is
$84,000, would include
28. Assume a company enters into a capital lease on January 1, 2012, to acquire the use of a machine for 5
years. The present value of the lease payments is $60,000, and the interest rate is 12 percent. If annual rental
payments of $18,000 are due at the end of each year, the journal entry to record the first annual payment on
December 31, 2012, would include a debit to
29. Assume that a company leases equipment for a 5-year period under a capital lease and agrees to pay an
annual rental of $16,000 at the end of each year. If the present value of the lease payments is $59,200, the entry
to record the leasing transaction would include
30. On January 1, 2012, Eugene Inc. entered into a capital lease to acquire the use of a computer for 5 years.
The present value of the lease payments is $85,000, the applicable interest rate is 10 percent, and payments of
$24,000 are due at the end of each year. The entry to record the first $24,000 payment on December 31, 2012,
will include a debit to
31. During 2012, Bernard Inc. constructed a new factory. Bernard used its current employees to build the
factory. Building material costs for the new factory were $2,700,000; total labor costs were $1,400,000; total
company overhead was $7,500,000 (20% of which could be assigned to the new project); and interest paid on a
new construction loan for the project was $750,000. What was the total cost of the self-constructed factory?
32. Chapman Company purchased Horace Company for $54,000,000. At the time of purchase, Horaces’s
identifiable assets equaled $30,000,000. What was the amount of goodwill recorded by Chapman Company at
the time of purchase?
33. The undepreciated cost of an asset is referred to as
34. How is Accumulated Depreciation classified?
35. A depreciable asset’s book value can never be less than its
36. The Accumulated Depreciation account is credited when
37. Which of the following assets is NOT usually depreciated, depleted, or amortized?
38. Depreciation can best be described as a method of
39. Another name for residual value is
40. The book value of an asset is the
41. When the cost of equipment is divided by its estimated useful life, the result is referred to as
42. In order to calculate periodic depreciation expense, which of the following need NOT be known about an
asset?
43. The calculation for depletion of natural resources is similar to the calculation for
44. On January 1, 2012, Bushong Company purchased equipment at a cost of $12,600. The equipment had an
estimated useful life of 6 years or 30,000 hours. The equipment will have a $1,200 salvage value at the end of
its life. The depreciation expense for the year ending December 31, 2012, using the straight-line method would
be
45. On January 1, 2012, Bushong Company purchased equipment at a cost of $12,600. The equipment had an
estimated useful life of 6 years or 30,000 hours. The equipment will have a $1,200 salvage value at the end of
its life. The equipment was used 6,500 hours in 2012. The depreciation expense for the year ending December
31, 2012, using the units-of-production method would be
46. Rapid Deliveries purchased a delivery truck on July 1, 2012, at a cost of $16,800. The truck has an
estimated useful life of 4 years or 40,000 miles and a salvage value of $1,200. If the truck was driven 5,200
miles during 2012, the depreciation expense for 2012 under the units-of-production method would be
47. Rapid Deliveries purchased a delivery truck on July 1, 2012, at a cost of $16,800. The truck has an
estimated useful life of 4 years or 40,000 miles and a salvage value of $1,200. The depreciation expense for the
year ending December 31, 2012, under the straight-line depreciation method would be
48. Spears Corporation bought a machine on January 1, 2011. In purchasing the machine, the company paid
$50,000 cash and signed an interest-bearing note for $100,000. The estimated useful life of the machine is 5
years, after which time the salvage value is expected to be $15,000. The machine is expected to produce 67,500
widgets during its useful life. Given this information, if 10,000 widgets are produced in 2012, how much
depreciation should be recorded in 2012, assuming that Spears Corporation uses the units-of-production
depreciation method?
49. Coppola Company purchased a machine on January 1, 2011, for $20,000 cash. In addition, Coppola paid
$4,000 to have the machine delivered and installed. The estimated useful life of the machine is 4 years, after
which time it is expected to have a salvage value of $8,000. It is also estimated that the machine will produce
200,000 units of product during its useful life. Assuming that the straight-line depreciation method is used, what
will be the machine’s book value on December 31, 2013?
50. Wings Manufacturing Company purchased a new machine on July 1, 2011. It was expected to produce
200,000 units of product over its estimated useful life of eight years. Total cost of the machine was $600,000,
and salvage value was estimated to be $60,000. Actual units produced by the machine in 2011 and 2012 are
shown below:
2011
16,000 units
2012
30,000 units
Wings reports on a calendar-year basis and uses the units-of-production method of depreciation. The amount of depreciation expense for this
machine in 2012 would be
51. On January 1, 2012, Brown Company purchased a mine for $100,000. On this same date, it was estimated
that the mine contained 1,000 tons of ore. During 2012, 300 tons of ore were extracted from the mine. The
amount of depletion expense for 2012 would be
52. Which of the following is a criterion for a capital expenditure?
53. An expenditure for the repair of an asset must be capitalized if it
54. If a truck’s engine is overhauled for $8,000, the journal entry would normally include a debit to
55. On January 1, 2012, Salina Company purchased land and a building for $2,240,000. At the time of the
purchase, it was estimated that the building had a market value of $1,400,000. On January 5, Alberta installed a
fence around the property at a cost of $14,000. Given this information, the entry to record the cost of the fence
would include a
56. On January 1, 2010, Wayne’s Waffle House purchased a freezer for $45,000. The freezer had an estimated
useful life of 10 years and an estimated residual value of $3,000 at the time of purchase. Wayne spent $10,000
on January 1, 2012, to replace the freezer motor. This replacement increased the freezer’s life by 5 years and the
residual value by $2,000. Assuming that straight-line depreciation is used, what will be the depreciation expense
for 2012?
57. The Giovanni Company purchased a tooling machine in 2002 for $120,000. The machine was being
depreciated by the straight-line method over an estimated useful life of 20 years, with no salvage value. At the
beginning of 2012, after 10 years of use, Giovanni paid $20,000 to overhaul the machine. Because of this
improvement, the machine’s estimated useful life would be extended an additional 5 years. What would be the
depreciation expense recorded for the above machine in 2012?
58. The entry to record an impairment loss on equipment would include which of the following?
59. The entry to record a gain on the increase in value of land would include which of the following?
60. Occasionally, events occur that change an asset’s value after purchase. Which of the following is true
regarding these changes in value?
61. Under U.S. accounting rules (generally accepted accounting principles), an asset is impaired when
62. Once an asset has been determined to be impaired, the amount of impairment is measured as
63. If an asset value recovers after an impairment loss has been recognized for the asset, what amount of
restoration of that loss is recognized?
64. Zenda Corporation purchased a building for $800,000. The current book value of the building is $400,000
and the fair value is $360,000. The sum of future cash flows from the building is $320,000. The amount of
impairment loss that should be recognized is
65. Tanner Company purchased a building during 2010 for $600,000. From 2010 to 2012, $240,000 of
depreciation was recorded. The current fair value is $350,000 and the sum of future cash flows from the
building is $370,000. The amount of impairment that should be recognized is
66. Which of the following is necessary when recording the disposal of a piece of equipment?
67. Which of the following is NOT a way to dispose of an asset?
68. On January 1, 2011, Kinnear Company purchased equipment at a cost of $20,000. The equipment has an
estimated useful life of 5 years and a salvage value of $2,000. Kinnear Company uses the straight-line
depreciation method for all its assets. Given this information, if Kinnear Company sells the equipment for
$13,600 on December 31, 2012, it will have a(n)
69. On January 1, 2011, Kinnear Company purchased equipment at a cost of $20,000. The equipment has an
estimated useful life of 5 years and a salvage value of $2,000. Kinnear Company uses the straight-line
depreciation method for all its assets. Given this information, if Kinnear Company scraps the equipment on
December 31, 2012, it will have a loss of
70. What is the gain or loss on the sale of an asset that originally cost $12,000, has accumulated depreciation of
$5,000, and is sold for $6,000?
71. A truck that cost $19,200 and was expected to last 5 years was scrapped after 3 years. If the truck was being
depreciated on a straight-line basis (with no salvage value), the loss recognized on disposal would be
72. A truck that cost $19,200 and was expected to last 5 years was scrapped after 3 years. If the truck was being
depreciated on a straight-line basis (with no salvage value), the book value of the truck at the time of disposal
was
73. The Suvari Company purchased a machine on November 1, 2003, for $148,000. At the time of acquisition,
the machine was estimated to have a useful life of 10 years and a salvage value of $4,000. Suvari recorded
monthly depreciation using the straight-line method. On July 1, 2012, the machine was sold for $13,000. What
should be the loss recognized from the sale of the machine?
74. The balance sheet category “intangible assets” includes
75. Intangible assets are usually amortized using
76. When a franchisee purchases a franchise, the amount recorded in the books for the franchise asset would be
equal to
77. Which of the following is considered to be an intangible asset?
78. Which of the following assets would normally involve a straight-line method of cost allocation?
79. The periodic allocation to expense of an intangible asset’s cost is
80. The exclusive right to use a certain name or symbol is called a
81. When Scranton Tools bought Tipton Hardware, included in the purchase price was a patent valued at
$26,000. The patent still has 10 years remaining of its legal life. However, it is estimated that the useful life of
the patent is only 8 years. The journal entry to record the annual patent amortization expense would include a