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Accounting 201 - Chapter 7 Copy

39 Questions
Accounting Quizzes & Trivia

Study Guide

Questions and Answers
  • 1. 
    Long-lived tangible assets that are used in the operation of the business are called:
    • A. 

      Intangible assets.

    • B. 

      Natural resources.

    • C. 

      Plant assets.

    • D. 

      Goodwill.

  • 2. 
    The only plant asset that does not depreciate is:
    • A. 

      Office supplies. (not a plant asset)

    • B. 

      Furniture.

    • C. 

      Land.

    • D. 

      Patents.

  • 3. 
    An asset with no physical form, but that has special rights to current and expected future benefits is a(n):
    • A. 

      Intangible asset.

    • B. 

      Natural resource.

    • C. 

      Plant asset.

    • D. 

      Fixed asset.

  • 4. 
    Costs that would be included with the purchase of a plant asset are:
    • A. 

      The sum of all of the costs incurred to bring the asset to its intended use.

    • B. 

      Only costs that exceed a certain amount.

    • C. 

      Only the purchase price.

    • D. 

      None of the above.

  • 5. 
    Which of the following should be included in the cost of land?
    • A. 

      Construction cost of a parking lot

    • B. 

      Landscaping

    • C. 

      Real estate brokerage commission

    • D. 

      Lighting

  • 6. 
    Which of the following should be included in the cost of land?
    • A. 

      Costs of grading and clearing the land

    • B. 

      Costs of removing an unwanted building

    • C. 

      Cost of fencing (land inprovements)

    • D. 

      Both A and B

  • 7. 
    Although located on the land, they are subject to decay and their cost is depreciated. This is the definition of:
    • A. 

      Land improvement.

    • B. 

      Plant and equipment.

    • C. 

      a building

    • D. 

      land.

  • 8. 
    Which of the following should be included in the Machinery account? 
    • A. 

      The cost of transporting the machinery to its setup location

    • B. 

      The cost of a maintenance insurance plan after the machinery is up and running

    • C. 

      The cost of calibrating the machinery after it has been used for a year

    • D. 

      The cost of insurance while the machinery is being overhauled

  • 9. 
    Morton Corporation purchased equipment for $46,000. Morton also paid $1,200 for freight and insurance while the equipment was in transit. Sales tax amounted to $850. Insurance, taxes and maintenance for the first year of use was $1,000. How much should Morton Corporation capitalize as the cost of the equipment?           
    • A. 

      46,000

    • B. 

      46,850

    • C. 

      $48,050

    • D. 

      $49,050

  • 10. 
    A company recently purchased a building that it plans to renovate to get ready for use in its operations.  All expenditures to repair and renovate the existing building for its intended use are charged to:
    • A. 

      Land.

    • B. 

      Land improvements.

    • C. 

      Land improvements expense.

    • D. 

      Building.

  • 11. 
    An expenditure that increases an asset’s capacity or efficiency or extends its useful life is a(n):
    • A. 

      Capital expenditure.

    • B. 

      Expense.

    • C. 

      Addition.

    • D. 

      Improvement.

  • 12. 
    A capital expenditure is:
    • A. 

      Debited to an expense account.

    • B. 

      Credited to an expense account.

    • C. 

      Debited to an asset account.

    • D. 

      Debited to a stockholders’ equity account.

  • 13. 
    Costs that do not extend the asset’s capacity or its useful life, but merely maintain the asset or restore it to working order are recorded as:
    • A. 

      Capital expenditures.

    • B. 

      Expenses.

    • C. 

      Additions.

    • D. 

      improvements.

  • 14. 
    The journal entry to record a major expenditure to upgrade equipment that extends its useful life beyond the original estimate would include a:
    • A. 

      Credit to Depreciation Expense.

    • B. 

      Debit to Equipment.

    • C. 

      Debit to Depreciation Expense.

    • D. 

      Debit to Repair Expense.

  • 15. 
    Capital expenditures are not immediately expensed because these items:
    • A. 

      Do not extend the life of an asset.

    • B. 

      Return an asset to its prior condition.

    • C. 

      Increase the asset’s capacity.

    • D. 

      Do all of the above.

  • 16. 
    Repairs made to equipment as part of a yearly maintenance project would be recorded in the journal by debiting:
    • A. 

      Accumulated Depreciation.

    • B. 

      Depreciation Expense.

    • C. 

      Equipment.

    • D. 

      Repair Expense.

  • 17. 
    Which of the following should be included in the cost of equipment?
    • A. 

      Freight costs to deliver the equipment

    • B. 

      Installation costs for the equipment

    • C. 

      Testing costs to get the equipment ready for use

    • D. 

      All of the above

  • 18. 
    The book value of a plant asset is the:
    • A. 

      Cost less depreciation expense.

    • B. 

      Cost plus accumulated depreciation.

    • C. 

      Cost less accumulated depreciation.

    • D. 

      Original cost of the asset, plus any capital expenditures.

  • 19. 
    The process of allocating the cost of a plant asset to expense over its life is:
    • A. 

      Amortization.

    • B. 

      Depletion.

    • C. 

      Matching.

    • D. 

      Depreciation.

  • 20. 
    The length of service that a business expects to get from an asset as expressed in years, units of output, miles or other measures is the:
    • A. 

      Depreciable cost.

    • B. 

      Estimated useful life.

    • C. 

      Salvage value.

    • D. 

      Accelerated depreciation method.

  • 21. 
    The depreciation process attempts to match the:
    • A. 

      Salvage value of the asset and the future market value of the asset.

    • B. 

      Book value and the current market value of the asset.

    • C. 

      Cost of the asset and the cash required to replace the asset.

    • D. 

      revenues earned by the asset and the cost of the asset.

  • 22. 
    A depreciation method in which an equal amount of depreciation expense is assigned to each year of the asset’s use is the:
    • A. 

      Units-of-production method.

    • B. 

      Straight-line method.

    • C. 

      Accelerated depreciation method.

    • D. 

      Estimated residual value method.

  • 23. 
    The expected cash value of a plant asset at the end of its useful life is known as:
    • A. 

      Scrap value.

    • B. 

      Salvage value.

    • C. 

      Residual value.

    • D. 

      Any of the above.

  • 24. 
    For financial reporting purposes, most companies use:
    • A. 

      Straight-line depreciation.

    • B. 

      Units-of-production depreciation.

    • C. 

      Double-declining balance depreciation.

    • D. 

      Modified accelerated cost recovery system of depreciation.

  • 25. 
    Using an accelerated depreciation method will cause a profitable company to incur:
    • A. 

      Less taxes in early years of the asset’s use as compared to later years.

    • B. 

      More taxes in early years of the asset’s use as compared to later years.

    • C. 

      the same amount of taxes in early years of the asset’s use as in the later years.

    • D. 

      None of the above.

  • 26. 
    Managers prefer accelerated depreciation over straight-line depreciation for income tax purposes because accelerated depreciation:
    • A. 

      Provides the fastest tax deductions.

    • B. 

      Decreases immediate tax payments.

    • C. 

      Allows the company to reinvest the tax savings back in the business.

    • D. 

      Does all of the above.

  • 27. 
    A loss is recorded on the sale of a plant asset when the:
    • A. 

      cash received exceeds the asset’s book value.

    • B. 

      Asset’s book value is less than its historical cost.

    • C. 

      asset’s book value is greater than the amount of cash received from the sale.

    • D. 

      Cash received exceeds the cash paid for the replacement asset.

  • 28. 
    If an asset is scrapped before being fully depreciated:
    • A. 

      The company will incur a loss on the disposal

    • B. 

      The equipment account will be credited.

    • C. 

      The accumulated depreciation account will be debited.

    • D. 

      All of the above will occur.

  • 29. 
    Equipment purchased for $85,000 on January 1, 2010, was sold on July 1, 2013.  The company uses the straight-line method of computing depreciation and recognizes $17,000 of depreciation expense annually.  When recording the sale, the company should record a debit to Accumulated Depreciation for:
    • A. 

      $51,000.

    • B. 

      $59,500.

    • C. 

      $68,000.

    • D. 

      Nothing; Accumulated Depreciation is not debited.

  • 30. 
    All of the following are classified as natural resources and are depleted EXCEPT for: 
    • A. 

      Land

    • B. 

      Timber

    • C. 

      Minerals

    • D. 

      Oil

  • 31. 
    Accumulated Depletion is a(n):
    • A. 

      Contra-asset account

    • B. 

      Contra-revenue account

    • C. 

      Contra-liability account

    • D. 

      Expense account

  • 32. 
    The computation of depletion expense is most closely related to which method for computing depreciation?
    • A. 

      Straight-line

    • B. 

      Units-of-production

    • C. 

      Double-declining balance

    • D. 

      The method selected depends upon the specific natural resource

  • 33. 
    Accumulated Depreciation is a(n):
    • A. 

      Contra-asset account

    • B. 

      Contra-revenue account

    • C. 

      Contra-liability account.

    • D. 

      Expense account.

  • 34. 
    The journal entry to record depletion would include:
    • A. 

      A debit to Depletion Expense and credit to Accumulated Depreciation.

    • B. 

      A debit to Accumulated Depletion and a credit to Depletion Expense.

    • C. 

      A debit to Depletion Expense and a credit to Accumulated Depletion.

    • D. 

      None of the above.

  • 35. 
    The entry to record amortization:
    • A. 

      Increases total assets and decreases total equity.

    • B. 

      Decreases total assets and increases total equity.

    • C. 

      Decreases both total assets and total equity.

    • D. 

      Increases both total assets and total equity.

  • 36. 
    When compared to the other methods of depreciation, the double-declining-balance method of depreciation gives depreciation expense that is:
    • A. 

      Less in the earlier periods

    • B. 

      More in the earlier periods

    • C. 

      Approximately the same in earlier periods as with other methods.

    • D. 

      An accelerated method; therefore, companies cannot use this method.

  • 37. 
    Research and development costs incurred by a company should be:
    • A. 

      Capitalized and depreciated over a period not to exceed 20 years.

    • B. 

      Capitalized and amortized over the useful life of the asset.

    • C. 

      Either capitalized and depreciated or expensed immediately at the option of the accountant.

    • D. 

      Expensed on the current year’s income statement.

  • 38. 
    Land, buildings and equipment are acquired for a lump sum of $875,000. The market values of the three assets are, respectively, $200,000, $500,000 and $300,000. What is the cost assigned to the equipment?
    • A. 

      $250,000

    • B. 

      $262,500

    • C. 

      $300,000

    • D. 

      $342,857

  • 39. 
    Land is purchased for $62,500. Back taxes paid by the purchaser were $7,500; total costs to demolish an            existing building were $11,000; fencing costs were $12,500; and lighting costs were $1,500. What is the cost of the land?           
    • A. 

      $62,500

    • B. 

      $81,000

    • C. 

      $93,500

    • D. 

      $95,000