Orion Chapter 9 Reporting and Analyzing Long-Lived Assets

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 9.2: 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 9.3: 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 9.4: 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 9.5: 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 9.6: _________ 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 9.7: 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 9.8: 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 9.9: 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 9.10: The cost of intangible assets with
_____ should not be amortized.

A) limited life
B) indefinite lives

B) indefinite lives

Q 9.11: Companies usually show intangible assets separately under "Intangible assets."

A :
True

B :
False

A : True

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 9.13: 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 9.14: 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 9.15: 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 9.16: 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 9.17: 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 9.18: 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 9.19: 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 9.20: 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 9.21: A plant asset may be removed from the books even though it is not fully depreciated.

A :
True

B :
False

A True

Q 9.22: 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 9.23: 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 9.24: 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 9.25: 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 9.26: 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 9.27: 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 9.28: 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 9.29: 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 9.30: 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 9.31: Capital expenditures add to the utility of plant assets for ______
accounting period.

a) more than one
b) only one

a) more than one

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 9.33: 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 9.34: ________ 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 9.35: Intangible assets with indefinite lives are not amortized.

A :
True

B :
False

A : True

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 9.37: 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 9.38: 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 9.39: 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 9.40: 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