Accounting 201 - Chapter 7 Copy
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Study Guide
- 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
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