Accounting 201 - Chapter 7

39 Questions | By Jc173 | Updated: Mar 21, 2022 | Attempts: 543

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There exist two types of assets namely short term and long term assets. In class we have fully covered what is to know about long-term assets and how they are recorded in financial statements. Take up the quiz below and note the key areas you did not understand in class.

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.