Financial Accounting Chapter 9 Review

Plant assets are long-lived, tangible assets used in the operation of a business. (True or false)

True

Plant assets are reported at book value on the balance sheet. (True or false)

True

Regardless of the type of plant asset disposal, the first step is to bring the depreciation up to date. (True or false)

True

The cost of land does not include the cost of fencing and paving. (True or false)

True

The cost principle requires a business to record the assets acquired, or services received, at their actual cost. (True or false)

True

The units-of-production method is used to compute depletion expense.

True

Which of the following accounting methods is generally used to compute amortization expense? A) declining-balance B) units-of-production C) straight-line D) first-in, first-out

straight-line

Intangible assets ______________. A) always have a definite life B) are always expensed through amortization C) that are purchased are recorded at cost D) which definite lives are tested annually for impairment

that are purchased are recorded at cost

Radar, Inc purchased a van on January 1, 2016, for $830,000. Estimated life of the van was five years, and its estimated residual value was $104,000. Radar uses the straight-line method of depreciation. At the beginning of 2018, the corporation revised the total estimated life of the asset from five years to six years. The estimated residual value remained the same as estimated earlier. Calculate the depreciation expense for 2018. A) $145,200 B) $134,900 C) $108,900 D) $72,600

$108,900

Hastings Corporation has purchased a group of assets for $25,000. The assets and their relative market values are listed below. Land $6,800 Equipment 2,900 Building 3,800 Which of the following amounts would be debited to the Land account? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.) A) $4,500 B) $12,500 C) $5,250 D) $7,000

$12,500

Arthur, Inc plans to develop a shopping center. In the first quarter, the following amounts were spent: Acquisition of land $17,000 Surveys and legal fees 600 Land clearing 800 Fencing 5,000 Install lighting and signage 1,560 What amount should be recorded as the cost of the land in the corporation's books? A) $23,400 B) $18,400 C) $19,960 D) $22,800

$18,400

On January 1, 2017, Anodel, Inc acquired a machine for $1,010,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $62,000. Calculate the depreciation expense per year using the straight-line method. A) $202,000 B) $189,600 C) $251,600 D) $252,500

$189,600

Arthur, Inc plans to develop a shopping center. In the first quarter, the following amounts were spent: Acquisition of land $23,000 Surveys and legal fees 1,400 Land clearing 1,100 Fencing 8,000 Install lighting and signage 11,060 What amount should be recorded as the land improvement cost? A) $9,100 B) $10,500 C) $19,060 D) $2,500

$19,060

A coal mine cost $1,003,000 and is estimated to hold 50,000 tons of coal. There is no residual value. During the first year of operations, 6,000 tons are extracted and sold. Calculate depletion per unit. (Round your answer to the nearest cent.) A) $10.03 B) $5.02 C) $20.06 D) $15.04

$20.06

The cost of an asset is $1,000,000, and its residual value is $290,000. Estimated useful life of the asset is five years. Calculate depreciation for the first year using the double-declining-balance method of depreciation. A) $284,000 B) $400,000 C) $200,000 D) $142,000

$400,000

Roberts Construction Group paid $6,000 for a plant asset that had a market value of $10,500. At which of the following amounts should the plant asset be recorded?

$6,000

On January 1, 2016, Martini, Inc. acquired a machine for $1,050,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $100,000. What is the book value of the machine at the end of 2017 if the company uses the straight-line method of depreciation? A) $670,000 B) $570,000 C) $629,996 D) $630,000

$670,000

Revised depreciation

(book value - residual value) / remaining useful life

Straight-line method

(cost- residual value)/useful life

Double-declining-balance

(cost-accumulated depreciation) x 2 x (1/useful life)

Units-of-production depreciation method

1) (cost - residual value)/ useful life in units 2) depreciation per unit x current yr usage

On June 30, 2017, Regal Furniture discarded fully depreciated equipment with a cost $35,000 and no residual value. Prepare the journal entry for the disposal of the equipment. (What will be an ideal response)

Accum. Dep-Equipment $35,000 Equipment $35,000

Coney Island Corp. discards a truck that was originally purchased for $50,000 and had accumulated depreciation of $30,000. Prepare the journal entry for the disposal. (What will be an ideal response)

Accum. Dep-Truck $30,000 Loss on disposal $20,000 Equipment $50,000

On October 1, 2017, Mulcahy, Inc purchased a patent for $100,000 cash Although the patent gives legal protection for 20 years, it is expected to be used for only eight years. Journalize the amortization expense for 2017. Assume straight-line amortization. What will be an ideal response

Amortization Expense-Patent 3,125 Patent 3,125

Gideon Electronics paid $200,000 to acquire Tabletz, Inc, an electronic gadget-advertising website. At the time of the acquisition, Tabletz's balance sheet reported total assets of $200,000 and liabilities of $100,000. The fair market value of Tabletz's assets was $200,000. The fair market value of its liabilities was $100,000. Journalize the acquisition of Tabletz in the books of Gideon Electronics. What will be an ideal response

Assets 200,000 Goodwill 100,000 Liabilities 100,000 Cash 200,000

A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements? A) Net income will be understated. B) Expenses will be overstated. C) Assets will be overstated. D) Liabilities will be overstated.

Assets will be overstated.

An oil well cost $1,832,500 and is calculated to hold 160,000 barrels of oil There is no residual value. Which journal entry is needed to record the expense for the extraction of 37,000 barrels of oil during the year? All 37,000 barrels were sold ding the year. (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.) A) Cost of Goods Sold - Oil 423,650 Accumulated Depletion - Oil 423,650 B) Depletion Expense - Oil 423,650 Oil Revenue 423,650 C) Depletion Expense - Oil 423,650 Accumulated Depletion - Oil 423,650 D) Oil Reserve Inventory 423,650 Accumulated Depletion - Oil 423,650

Depletion Expense - Oil 423,650 Accumulated Depletion - Oil 423,650

On June 30, 2017, Adilide, Inc discarded equipment costing $40,000. Accumulated Depreciation as of December 31, 2016, was $25,000. Assume annual depreciation on the equipment is $2,500. Prepare the journal entries for the 2017 depreciation expense and for the disposal of the equipment. What will be an ideal response

Depreciation Expense-Equipment 1,250 Accumulated Depreciation-Equipment 1,250 Accumulated Dep-eqipment 26,250 Loss on Disposal 13,750 Equipment 40,000

On January 1, 2016, a corporation acquired a truck for $100,000. Residual value was estimated to be $20,000. The truck can be driven for 50,000 miles over the next three years. Actual usage of the truck was recorded as 8,640 miles for the first year. Give the journal entry to record depreciation for the first year calculated as per the units-of-production method. (Do not round your intermediate calculations.) What will be an ideal response

Depreciation Expense-Truck 13,824 Accumulated Depreciation-Truck 13,824

Houlihan, Inc purchased a van on January 1, 2016, for $800,000. Estimated life of the van was five years, and its estimated residual value was $90,000. Houlihan uses the straight-line method of depreciation. Give the journal entry to record the depreciation expense for 2016 on the van. What will be an ideal response

Depreciation Expense-Van 142,000 Accumulated Depreciation-Van 142,000

Which of the following statements is incorrect? A) Depreciation is recorded on all plant assets. B) Plant assets not currently being used in business operations are classified as long-term investments. C)The life cycle of a plant asset includes: acquisition, usage, and disposal. D) Plant assets are long-lived tangible assets used in the operations of a business.

Depreciation is recorded on all plant assets.

A business that has a vacant building that is not currently being used would classify the building as a plant asset. (True or false)

False

A fully depreciated asset that is still in service is not reported as an asset on the balance sheet. (True or false)

False

An expenditure that increases the capacity or efficiency of a plant asset that extends the asset's life is known as a revenue expenditure. (True or false)

False

Capitalizing a cost involves crediting the asset account. (True or false)

False

Land and land improvements are one and the same and therefore must be recorded in single account. (True or false)

False

Regarding impairment of intangible assets, which of the following statements is incorrect? A) Impairment occurs when the fair value of an intangible asset is less than the book value. B) Intangible assets are impaired when there has been a permanent decline in the value of the asset. C) Intangible assets are tested for impairment annually. D) If any impairment occurs, the company records a loss in the period in which the intangible asset was acquired.

If any impairment occurs, the company records a loss in the period in which the intangible asset was acquired.

Which of the following is a characteristic of a plant asset, such as a building? A) It is used in the operations of a business. B) It is available for sale to customers in the ordinary course of business. C) It has a short useful life. D) It will have a negligible value at the end of its useful life.

It is used in the operations of a business.

Which of the following is true when the estimate of an asset's useful life is changed? A) The new estimate is ignored until the last year of the asset's life. B) The depreciation expense in the prior year is restated. C) Prior years' financial statements must be restated. D) The asset's remaining depreciable book value will be spread over the asset's remaining life.

The asset's remaining depreciable book value will be spread over the asset's remaining life.

A natural resource is an asset that comes from the earth and is consumed. (True or false)

True

According to Generally Accepted Accounting Principles, if the fair value of goodwill decreases below its book value, an impairment loss must be recorded. (True or false)

True

Amortization is the process by which businesses spread the allocation of an intangible asset's cost over its useful life. (True or false)

True

An intangible asset is an asset with no physical form that is valuable because of the special rights it carries. (True or false)

True

Franchises are privileges granted by a business to sell goods and services under specified conditions. (True or false)

True

Goodwill is the excess cost of an acquired company over the market value of its net assets. (True or false)

True

A photocopier cost $102,000 when new and has accumulated depreciation of $90,000. If the business discards this plant asset, the result is ________. A) a loss of $12,000 B) a loss of $11,250 C) a gain of $12,000 D) no gain or no loss

a loss of $12,000

Which of the following is included in the cost of a plant asset? A) amounts paid to make the asset ready for its intended use B) regular repair and maintenance costs C) replacement of damaged parts of the asset D) wages of workers who work use the asset in normal operations

amounts paid to make the asset ready for its intended use

Under U.S. GAAP, which of the following is not an acceptable way to report plant assets? A) at fair market value B) at book value C) as a single amount, with a note to the financial statements that provides detailed information D) with detailed information on the face of the balance sheet

at fair market value

Which of the following is included in the cost of land? A) cost of paving B) cost of fencing C) cost of outdoor lighting D) brokerage commission

brokerage commsison

Book value

cost - accumulated depreciation

A plant asset is fully depreciated when the book value is ________. A) greater than the residual value B) greater than the market value C) equal to the residual value D) equal to the market value

equal to the residual value

The asset turnover ratio measures ________. A) how efficiently a business uses its sales to finance the assets B) how efficiently a business uses its average total assets to generate sales C) how efficiently a business uses its net profit to finance the assets D) how the ending inventory helps increase the value of assets

how efficiently a business uses its average total assets to generate sales

Which of the following requires businesses to record depreciation? A) revenue recognition principle B) matching principle C) cost principle D) going concern principle

matching principle

The expected cash value of an asset at the end of its useful life is known as ________. A) book value B) residual value C) carrying value D) market value

residual value

Which of the following items should be amortized? A) natural resources B) goodwill C) patents, copyrights, trademarks D) tangible property, plant, and equipment, other than land

patents, copyrights, trademarks

A company purchased a computer on July 1, 2017 for $50,000. Estimated useful life of the computer was five years, and it has no residual value. Which of the following methods should be used to best match its expense against the revenue it produces? A) the units-of-production method B) the straight-line method C) the double-declining-balance method D) the first-in, first-out method

the double-declining-balance method

Which of the following depreciation methods allocates a higher amount of depreciation in earlier years than in later years? A) the units-of-production method B) the straight-line method C) the double-declining-balance method D) the first-in, first-out method

the double-declining-balance method

Which of the following depreciation methods allocates a varying amount of depreciation each year based on an asset's usage? A) the straight-line method B) the annuity method C) the units-of-production method D) the double-declining-balance method

the units-of-production method

An asset is considered to be obsolete ________. A) only when it wears out B) only at the end of its useful life C) when it is fully depreciated D) when a newer asset can perform the job more efficiently than the old asset can

when a newer asset can perform the job more efficiently than the old asset can