Question 1

Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 4 years with a $5,000 salvage value. Depreciation expense in year 4 is:

Accepted Answer

A)  $15,000.
B)  $55,000.
C)  $0.
D)  $60,000.
E)  $13,750.F) B) and E)
G) C) and D)

Question 2

When plant assets are purchased as a group in a single transaction for a lump-sum price, the cost of the purchase is allocated among the different types of assets acquired based on their relative market values.

Accepted Answer

A) True 
 B)False

Question 3

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Accepted Answer

A) True 
 B)False

Question 4

Ngu owns equipment that cost $93,500 with accumulated depreciation of $64,000. Ngu asks $35,000 for the equipment but sells the equipment for $33,000. Compute the amount of gain or loss on the sale.

Accepted Answer

A)  $5,500 loss.
B)  $3,500 gain.
C)  $5,500 gain.
D)  $3,000 gain.
E)  $3,500 loss.F) A) and D)
G) B) and C)

Question 5

To capitalize an expenditure is to:

Accepted Answer

A)  Debit an expense account.
B)  Credit an expense account.
C)  Debit an asset account.
D)  Credit an asset account.
E)  Credit the owner's capital account.F) A) and C)
G) A) and E)

Question 6

Depreciation does not measure the decline in market value of an asset each period.

Accepted Answer

A) True 
 B)False

Question 7

The double-declining balance method is applied by (1)computing the asset's straight-line depreciation rate, (2)doubling it, (3)subtracting salvage value from cost, and (4)multiplying the rate times the net value.

Accepted Answer

A) True 
 B)False

Question 8

A company purchased a tract of land for its natural resources at a cost of $1,000,000. It expects to harvest 5,000,000 board feet of timber from this land. The salvage value of the land is expected to be $200,000. The depletion expense per board foot of timber is:

Accepted Answer

A)  $0.75.
B)  $0.20.
C)  $0.24.
D)  $0.04.
E)  $0.16.F) A) and B)
G) A) and C)

Question 9

Explain how to calculate total asset turnover. Describe what it reveals about a company's financial condition, whether a higher or lower ratio is desirable, and how it is best applied for comparative purposes.

Accepted Answer

Total asset turnover is calculated by di...

Question 10

The cost of land would not include:

Accepted Answer

A)  Government assessments.
B)  Purchase price.
C)  Cost of parking lot lighting.
D)  Fees for insuring the title.
E)  Costs of removing existing structures.F) All of the above
G) A) and D)

Question 11

The term inadequacy, as it relates to the useful life of an asset, refers to:

Accepted Answer

A)  An asset that is no longer useful in producing goods and services.
B)  The condition where the asset's salvage value is less than its cost.
C)  The insufficient capacity of a company's plant assets to meet the company's growing production demands.
D)  An asset that is worn out.
E)  The condition where the salvage value is too small to replace the asset.F) B) and D)
G) A) and E)

Question 12

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is:

Accepted Answer

A)  $4,800.
B)  $20,000.
C)  $9,600.
D)  $0.
E)  $4,000.F) A) and E)
G) All of the above

Question 13

Amortization is:

Accepted Answer

A)  The systematic allocation of the cost of an intangible asset to expense over its estimated useful life.
B)  The process of allocating to expense the cost of a plant asset to the accounting periods benefiting from its use.
C)  Also called depletion.
D)  An accelerated form of expensing an asset's cost.
E)  The process of allocating the cost of natural resources to periods when they are consumed.F) A) and D)
G) A) and E)

Question 14

Which of the following is an example of an extraordinary repair?

Accepted Answer

A)  Replacement of all florescent light tubes in an office.
B)  Carpet cleaning and repair.
C)  Routine machine maintenance.
D)  Replacing the roof on a manufacturing warehouse.
E)  New tires for a truck.F) A) and E)
G) A) and C)

Question 15

Natural resources are:

Accepted Answer

A)  Not subject to allocation to expense over their useful lives.
B)  Consumable assets such standing timber, mineral deposits, and oil and gas fields.
C)  Depleted using a straight-line method.
D)  Tangible assets used in the operations of the business.
E)  Current assets because they are depleted.F) A) and D)
G) C) and D)

Question 16

Which of the following statements regarding increases in the value of plant assets under U.S. GAAP and IFRS is true?

Accepted Answer

A)  IFRS prohibits upward asset revaluations.
B)  Under GAAP, a company can reverse an impairment and record that increase in income.
C)  U.S. GAAP prohibits companies from recording increases in the value of plant assets.
D)  U.S. GAAP allows companies to record increases in the value of plant assets.
E)  Under IFRS, an impairment increase beyond as asset's original cost is not recorded.F) A) and E)
G) B) and D)

Question 17

Revenue expenditures are also called balance sheet expenditures.

Accepted Answer

A) True 
 B)False

Question 18

Depreciation is higher in earlier years and income is lower in the later years when using straight-line versus accelerated methods.

Accepted Answer

A) True 
 B)False

Question 19

Once an asset's book value equals its salvage value, depreciation stops.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following would be classified as a natural resource?

Accepted Answer

A)  Land held as an investment.
B)  Diamond mine.
C)  Patent on an oil extraction process.
D)  Goodwill.
E)  Timber purchased by a lumber yard.F) A) and E)
G) B) and D)

Exam 10: Plant Assets, Natural Resoures, and Intangibles

When plant assets are purchased as a group in a single transaction for a lump-sum price, the cost of the purchase is allocated among the different types of assets acquired based on their relative market values.

Correct AnswerverifiedShow Answer

Which of the following is an example of an extraordinary repair?

Correct AnswerverifiedShow Answer

Ngu owns equipment that cost $93,500 with accumulated depreciation of $64,000. Ngu asks $35,000 for the equipment but sells the equipment for $33,000. Compute the amount of gain or loss on the sale.

Correct AnswerverifiedShow Answer

Which of the following statements regarding increases in the value of plant assets under U.S. GAAP and IFRS is true?

Correct AnswerverifiedShow Answer

Which of the following would be classified as a natural resource?

Correct AnswerverifiedShow Answer

Once an asset's book value equals its salvage value, depreciation stops.

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The cost of land would not include:

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To capitalize an expenditure is to:

Correct AnswerverifiedShow Answer

Martin Company purchases a machine at the beginning of the year at a cost of $60,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 4 years with a $5,000 salvage value. Depreciation expense in year 4 is:

Correct AnswerverifiedShow Answer

Explain how to calculate total asset turnover. Describe what it reveals about a company's financial condition, whether a higher or lower ratio is desirable, and how it is best applied for comparative purposes.

Correct AnswerverifiedTotal asset turnover is calculated by di...View AnswerShow Answer

Amortization is:

Correct AnswerverifiedShow Answer

Revenue expenditures are also called balance sheet expenditures.

Correct AnswerverifiedShow Answer

Depreciation is higher in earlier years and income is lower in the later years when using straight-line versus accelerated methods.

Correct AnswerverifiedShow Answer

Depreciation does not measure the decline in market value of an asset each period.

Correct AnswerverifiedShow Answer

The double-declining balance method is applied by (1)computing the asset's straight-line depreciation rate, (2)doubling it, (3)subtracting salvage value from cost, and (4)multiplying the rate times the net value.

Correct AnswerverifiedShow Answer

The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.

Correct AnswerverifiedShow Answer

Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 5 years with a $4,000 salvage value. Depreciation expense in year 2 is:

Correct AnswerverifiedShow Answer

The term inadequacy, as it relates to the useful life of an asset, refers to:

Correct AnswerverifiedShow Answer

A company purchased a tract of land for its natural resources at a cost of $1,000,000. It expects to harvest 5,000,000 board feet of timber from this land. The salvage value of the land is expected to be $200,000. The depletion expense per board foot of timber is:

Correct AnswerverifiedShow Answer

Natural resources are:

Correct AnswerverifiedShow Answer

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Total asset turnover is calculated by di...
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