Orion Chapter 9 Reporting and Analyzing Long-Lived Assets

Q 9.34: ________ is the difference between the cost of the plant asset and the accumulated depreciation to date. A : Book value B : Depreciated value C : Estimated value D : Fair market value

A Book value

Q 9.21: A plant asset may be removed from the books even though it is not fully depreciated. A : True B : False

A True

Q 9.37: Capital expenditures are expenditures that increase the company's investment in A : plant assets. B : stocks. C : purchased goods. D : bonds.

A plant assets.

Q 9.36: If the estimate of the useful life of equipment changes then A : the amount of periodic depreciation must be changed in the current year and in future years. B : the annual depreciation is prorated. C : current annual income begins to fall behind previous expectations. D : a retroactive change in the amount of periodic depreciation is applied to all previous years leading up to the present.

A the amount of periodic depreciation must be changed in the current year and in future years.

Q 9.26: Which of the following is used to determine the gain or loss on disposal of a plant asset? A : the book value of the asset and the proceeds received from its sale B : the original cost of the asset and the proceeds received from its sale C : the book value of the asset and the asset's original cost D : the replacement cost of the asset and the asset's original cost

A the book value of the asset and the proceeds received from its sale

Q 9.14: Companies can amortize a patent for a period that cannot exceed A : 20 years. B : 40 years. C : 50 years. D : 10 years.

A : 20 years.

Q 9.12: Which of the following should be disclosed in the balance sheet or the notes to the financial statements? A : All of the choices are correct B : balances of the major classes of assets C : amount of depreciation and amortization expense for the period D : depreciation and amortization methods used

A : All of the choices are correct

Q 9.6: _________ are the costs incurred to increase the operating efficiency or useful life of a plant asset. A : Capital expenditures B : Ordinary repairs C : Expense expenditures D : Revenue expenditures

A : Capital expenditures

Q 9.11: Companies usually show intangible assets separately under "Intangible assets." A : True B : False

A : True

Q 9.35: Intangible assets with indefinite lives are not amortized. A : True B : False

A : True

Q 9.13: A patent that has a legal life of 20 years and a useful life of less than 20 years should A : be amortized over its useful life. B : be amortized over 20 years regardless of its useful life. C : be expensed in the year of acquisition. D : not be amortized.

A : be amortized over its useful life.

Q 9.16: To find the book value of a plant asset, you find the difference between the A : cost of the asset and the accumulated depreciation to date. B : replacement cost of the asset and its historical cost. C : cost of the asset and the amount of depreciation expense for the year. D : proceeds received from the sale of the asset and its original cost.

A : cost of the asset and the accumulated depreciation to date.

Q 9.4: When can interest be included in the acquisition cost of a plant asset? A : during the construction period of a self-constructed asset B : if the asset acquisition is financed by a long-term note payable C : if it is a part of a lump-sum purchase D : if the asset is purchased on credit

A : during the construction period of a self-constructed asset

Q 9.17: If the estimate of the useful life of equipment changes, then this change requires A : that the amount of periodic depreciation be changed in the current year and in future years. B : a retroactive change in the amount of periodic depreciation recognized in previous years. C : that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset. D : that income for the current year be increased.

A : that the amount of periodic depreciation be changed in the current year and in future years.

Q 9.19: When estimating the useful life of an asset, accountants consider all of the following EXCEPT A : the cost to replace the asset at the end of its useful life. B : expected repairs and maintenance. C : obsolescence factors. D : the intended use of the asset.

A : the cost to replace the asset at the end of its useful life.

Q 9.38: Salvage value refers to which of the following? Select all that apply. A : the trade-in value of an asset at the end of its useful life B : the trade-in value of an asset before it is depreciated C : how much an asset may be worth as scrap at the end of its useful life D : the book value of an asset

A the trade-in value of an asset at the end of its useful life C how much an asset may be worth as scrap at the end of its useful life

Q 9.2: A company is building a new plant that will take three years to construct. Interest capitalized during the construction as part of the cost of the building. A) is B) is not

A) is

Q 9.28: The difference between the cost of the asset and the accumulated depreciation to date is the A : market value. B : book value. C : estimated value. D : current value.

B book value.

Q 9.27: If an intangible asset has a limited life, its cost must be amortized over a period of A : 20 years B : its useful life C : 10 years D : 5 years

B its useful life

Q 9.30: The asset turnover ratio is calculated by A : dividing net income by net sales. B : dividing net sales by average total assets. C : multiplying net income by average total assets. D : subtracting average total assets from net income.

B : dividing net sales by average total assets.

Q 9.23: An overall measure of profitability is the A : net sales ratio. B : return on assets ratio. C : average total assets. D : gross profit ratio.

B : return on assets ratio.

Q 9.22: Which of the following applies a constant percentage to depreciable cost in calculating depreciation? A : sum-of-year's-digits depreciation method B : straight-line depreciation method C : units-of-activity depreciation method D : declining-balance depreciation method

B : straight-line depreciation method

Q 9.1: The cost of a purchased building includes which of the following? Select all that apply. A : expenditures for repairs B : real estate broker's commission C : closing costs D : costs occurred after renovations

B : real estate broker's commission C : closing costs A : expenditures for repairs

Q 9.3: What is included in the cost of land? Select all that apply. A : parking lots B : real estate brokers' commissions C : closing costs D : accrued property taxes

B : real estate brokers' commissions C : closing costs D : accrued property taxes

Q 9.10: The cost of intangible assets with _____ should not be amortized. A) limited life B) indefinite lives

B) indefinite lives

Q 9.33: Which of the following statements is true? A : When land is acquired, expenditures for improvements made within one year can be charged to the land account. B : When land is acquired, expenditures for paving, fencing, and lighting a new company parking lot should be charged to the plant asset account. C : Land improvements such as paving, fencing, and lighting a new company parking lot should be charged to the land improvement account. D : Land improvements are not considered a subdivision of plant assets.

C Land improvements such as paving, fencing, and lighting a new company parking lot should be charged to the land improvement account.

Q 9.39: When the book value of a plant asset exceeds the cash received from sale proceeds the result is A : an amortization on disposal of the asset. B : a depreciation on disposal of the asset. C : a loss on disposal of the asset. D : a gain on disposal of the asset.

C a loss on disposal of the asset.

Q 9.25: Intangible assets should be reported A : in the subsidiary plant ledger. B : under the heading Property, Plant and Equipment. C : as a separate classification on the balance sheet. D : as current assets on the balance sheet.

C : as a separate classification on the balance sheet.

Q 9.24: Which term refers to a permanent decline in the market value of an asset? A : capital expenditure B : managed earning C : impairment D : plant asset disposal

C : impairment

Q 9.15: To find the asset turnover ratio, divide A : net income by ending total assets. B : net income by average total assets. C : net sales by average total assets. D : net sales by ending total assets.

C : net sales by average total assets.

Q 9.32: To record depreciation, taxpayers must use on their tax returns either the straight-line method or the A : double-declining-balance method. B : units-of-activity method. C : accelerated-balance method. D : Modified Accelerated Cost Recovery System (MACRS).

D Modified Accelerated Cost Recovery System (MACRS).

Q 9.40: Which of the following is computed and represented at cost less accumulated depreciation in the balance sheet? A : trademarks B : intangible assets C : goodwill D : plant assets

D plant assets

Q 9.18: In selecting a depreciation method, a company should choose the method that A : is easiest to apply. B : has been used most often in the past by the company. C : best measures the plan asset's market value over its useful life. D : best measures the plant asset's contribution to revenue over its useful life.

D : best measures the plant asset's contribution to revenue over its useful life.

Q 9.20: A change in the estimate of the useful life of equipment requires A : no change in the periodic depreciation. B : an increase in annual income. C : a retroactive change to the amount of periodic depreciation applied to all previous years. D : the amount of periodic depreciation be changed in the current year and in future years.

D : the amount of periodic depreciation be changed in the current year and in future years.

Q 9.5: What is depreciable cost? A : the cost of an asset less accumulated depreciation B : the book value of an asset less its salvage value C : the book value of an asset D : the cost of an asset less its salvage value

D : the cost of an asset less its salvage value

Q 9.29: The depreciation and amortization methods should be described in A : the capital expense report. B : the capital account sheet. C : the SEC filings. D : the notes to the financial statements.

D : the notes to the financial statements.

Q 9.9: Where are natural resources generally shown on the balance sheet? A : under owner's equity B : under investments C : under intangibles D : under property, plant, and equipment

D : under property, plant, and equipment

Q 9.8: Where is the loss on disposal of a plant asset reported in the financial statements? A : in the Other Revenues and Gains section of the income statement B : as a direct increase to the capital account on the balance sheet C : as a direct decrease to the capital account on the balance sheet D : in the Other Expenses and Losses section of the income statement

I GOT THIS WRONG. I DON'T KNOW THE RIGHT ANSWER. A : in the Other Revenues and Gains section of the income statement

Q 9.7: If a plant asset is retired before it is fully depreciated and no salvage value is received, a _____ on disposal occurs. a) gain b) loss

b) loss

Q 9.31: Capital expenditures add to the utility of plant assets for ______ accounting period. a) more than one b) only one

a) more than one