Shortening the estimated useful lives of operational assets will lead to a higher fixed asset turnoverA. Using an accelerated depreciation method instead of straight-line will lead to re
Trang 1True / False Questions
1 Tangible long-lived, productive assets differ from intangible long-lived, productive assets
in that intangible assets have physical substance whereas tangible assets have no physical substance
Trang 25 The cash-equivalent cost of an asset received is measured as any cash given plus the current market value of the non-cash consideration given up If this value is not determinable, the current market value of what is received should be used instead
Trang 39 On January 1, 2009 equipment was purchased for $80,000 and its estimated residual value
is $15,000 with an 8 year useful life In the first year, the depreciation expense under the double declining-balance method is $16,250
Trang 413 Using a shorter estimated useful life for their fixed assets allows a company to reduce reported net income over the fixed assets' useful lives However, early disposal of these assets could create reported gains thereby boosting income upon their disposal
Trang 517 Depreciation expense, as computed for financial reporting, has a direct effect on a
corporation's cash flow
Trang 6Multiple Choice Questions
21 Long-lived, productive assets do not include the following kind of assets
A land held for resale
B plant and equipment in use
Trang 724 Tangible assets include
A Land, buildings and natural resources
B Land, buildings and leaseholds
C Natural resources, buildings, and franchises
D Licenses, trademarks, and land
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
25 Intangible assets include
A Natural resources, patents, and trademarks
B Accounts receivable, franchises, and trademarks
C Copyrights, licenses, and land
D Leaseholds, patents and copyrights
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
26 Which statement is false?
A Shortening the estimated useful lives of operational assets will lead to a higher fixed asset turnover
B Using an accelerated depreciation method instead of straight-line will lead to reporting a higher fixed asset turnover
C Acquiring more long-lived, productive assets when a company is growing will lead to a lower fixed asset turnover
D Selling off long-lived, productive assets while maintaining sales will lead to a lower fixed
Trang 827 On March 1, Wright Company purchased new equipment for $50,000 Wright paid cash for the equipment Other costs associated with the equipment were: transportation costs,
$1,000; sales tax paid $3,000; and installation cost, $2,500 The cost recorded for the
28 The amount of sales tax paid on the purchase of new machinery should be debited to
A the machinery account
B a separate deferred charge account
C a sales tax expense account
D accumulated depreciation for machinery
Trang 930 Salvia Company recently purchased a truck The price negotiated with the dealer was
$40,000 Salvia Company also paid sales tax of $2,000 on the purchase, shipping and
preparation costs of $3,000, and insurance for the first year of operation of $4,000 For the truck, what amount should be debited to the asset account Vehicles?
B current estimated market value
C acquisition cost minus the balance in accumulated depreciation
D total depreciation that has been recorded on the asset to date
A Cost to install the equipment
B A purchase discount offered by the supplier
C The cost to widen an entrance in the building to bring the equipment into the facilities
D The cost of freight paid to get the equipment into the facilities
Trang 1033 If an expenditure is treated as a capital expenditure, instead of as a revenue expenditure, which of the following statements is true?
A The current year's net income will be lower and future depreciation expense will be higher
B The current year's net income will be higher and future depreciation expense will be lower
C The current year's net income will be higher and future depreciation expense will be
34 Which of the following would not be included in the acquisition cost of a building?
A The purchase price of a building including title transfer fees
B The cost of putting new windows and doors in the building before it opens for operations
C The cost of paving the parking lot and outdoor lighting in the lot
D The cost of paying an architect to design the remodeling modifications of the building before the store opens
A Using its appraised value of $250,000 and recognize a gain of $50,000 since we are issuing stock only currently worth $200,000
B Record the land at the value of the consideration given up, $200,000
C Record the land at the average of its appraised value of $250,000 and the $200,000 value
of the stock issued, thereby recognizing a $25,000 gain
D Record the land at the par value of the stock given up, $100,000
Trang 1136 A company may include interest cost as part of the cost of the asset
A when they buy a piece of equipment and finance its acquisition by a bank loan
B when they must borrow money to finance the manufacture of their inventory items
C when they are self-constructing a piece of equipment they will use to manufacture their
products but only during the period of construction
D under no circumstances as interest is never capitalized
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 2
37 Which of the following is false?
A Replacement of a truck's tires would be treated as a capital expenditure
B The cost of replacing carpet in a building would be a revenue expenditure
C Cost of replacing a roof on a newly purchased building before using it as a store would be
A The repair was accounted for correctly
B The error increased assets and net income in 2010
C In the years following 2010, net income will be too high
D The error decreased net income in 2010
Trang 1239 Which of the following would most likely not be a revenue expenditure?
A Replacing carpet in the sales department's offices
B Repairing a leaky roof
C Putting a hydraulic lift on a delivery truck making it easier and quicker to deliver
40 The main purpose of recording depreciation is to
A allocate the cost of a tangible asset to the periods in which its use contributes to generating
revenue
B estimate the remaining useful life of the asset
C report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date
D estimate the current replacement cost of the asset
A equal to the acquisition cost of a tangible long-lived, productive asset
B the same as book value of an asset
C the amount expected to be recovered when an asset is disposed of at the end of its
estimated useful life
D the current value of an asset as of the balance sheet date
Trang 1342 In accounting for tangible long-lived, productive assets, the continuity assumption is important
because it
A helps a company decide whether to use straight-line depreciation or an accelerated
depreciation method
B justifies depreciating the asset over its expected useful life, without anticipating that the
business will liquidate in the near future
C provides justification for including residual values in calculating depreciation
D is consistent with maintaining assets in the accounting records at market value rather than acquisition cost
of the machine is 6 years and the residual value is $5,000 Assuming straight-line
depreciation, the annual depreciation expense would be
Trang 1445 Warren Company plans to depreciate a new building using double declining-balance depreciation The building cost $800,000 The estimated residual value of the building is
$50,000 and it has an expected useful life of 25 years Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?
Trang 1548 Hill Inc purchased an asset on January 1, 2009 Hill Inc., chose the accelerated
depreciation method to depreciate the asset Had Hill Inc., chosen the straight-line method
A depreciation expense would be smaller in 2009
B the book value of the asset would be less at the end of 2009
C net income would be less in 2009
D the book value of the asset would be less at the end of the asset's life
50 Schager Company purchased a computer system on January 1, 2009, at a cash cost of
$25,000 The estimated useful life is 10 years, and the estimated residual value is $3,000 The company will use the double declining-balance method Depreciation expense for the second year will be
Trang 1651 A company decided to use the units of production method to calculate depreciation on a car to be driven by the sales manager The amount of annual depreciation will most likely vary with the
A age of the car
B balance in accumulated depreciation
C number of miles the car is driven
D amount of maintenance expense incurred on the car
long-A The matching principle requires a company to use the same depreciation
B Once a particular depreciation method is adopted for a particular asset, the owner must continue to use the same method
C The accountant who calculates the depreciation may assume that the company will
continue in business as long as the estimated useful life of the asset
D A portion of the cost of the asset should be allocated as an expense to the periods in which
the asset helps the business to generate revenue
AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 3
53 Which of the following is false?
A The book value at the end of an asset's useful life will be the same under all the
depreciation methods allowed under GAAP
B The total depreciation in the accumulated depreciation account will be the same at the end
of the asset's useful life under all the methods allowed under GAAP
C Once you select a depreciation method, then you must use this method for all depreciable
Trang 1754 Under what conditions would a company most likely adopt the double declining-balance method for financial reporting?
A They have high technology, robotic equipment in their plant that becomes obsolete quickly
and declines in utility to the company more rapidly in the early years of the assets' lives
B They have a fleet of trucks where repair costs are minimal as the fleet ages
C They expect the asset to lose its market value more rapidly in the first few years of its life
D They have a building that has an estimated useful life of 50 years
AACSB Tag: Relative Thinking
Difficulty: Hard
L.O.: 3
55 Which of the following is a true statement?
A Companies can change the method of depreciating assets from one year to the next
B Companies can affect the book value at the end of an asset's life by choosing one method
of depreciation over another
C Companies can use one method of depreciation for some of their long-lived, productive
assets but then use a different method for another group or type of long-lived, productive assets
D Companies can minimize an asset's book value in the first year of use by selecting the straight line method
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 3
56 Which of the following is true?
A Using straight-line depreciation in comparison to an accelerated method will lead to a lower earnings per share in the first year of an asset's life
B Using accelerated depreciation in the first year of an asset's life will report a higher net profit margin compared to using straight-line
C Using accelerated depreciation will lead to a higher total asset turnover in the first year
D Using straight-line depreciation in comparison to an accelerated method will lead to a higher current ratio in the first year of an asset's life
Trang 1857 Which of the following statements about the Modified Accelerated Cost Recovery System (MACRS) is true?
A It is similar to the double declining-balance method
B It is applied using longer asset lives than the estimated useful lives required by GAAP
C It provides a tax benefit because of the higher depreciation expense reported in the early years of the asset's life
D It is acceptable for use when preparing your financial statements
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 3
58 Which of the following statements about asset impairment is false?
A Asset impairment is caused by events or circumstances where the estimated future cash
flows are greater than the asset's net book value
B If an asset is impaired, a loss would be recognized in the period it can be estimated
C Impairment will lead to writing down the asset's cost
D Asset impairment is caused by events or circumstances where the estimated future cash flows are less than the asset's net book value
A the $8.5 million cost
B the $4.1 million book value
C the $.4 million difference between the book value and its future cash flows
D the $4.8 million difference between the asset's cost and its future cash flows
Trang 1960 If Southwest Airlines determines that an asset has been impaired by $2 million then which
of the following will occur at the end of the current accounting period?
A No action will be taken to recognize its impairment until the asset is sold
B The impairment will not affect the accounts but will be disclosed in the footnotes
C A debit to retained earnings will be recorded for the effect of the loss thereby bypassing the income statement
D A credit to the asset's account will be recorded for the amount of the loss
Trang 2063 Which of the following is correct when recording the disposal of equipment for a gain?
A A debit to a gain account
B A credit to the equipment account for the asset's book value
C A debit to accumulated depreciation for the depreciation accumulated to the time of
64 Carter Co disposed of an asset at the end of year 8 of the asset's life originally estimated
to be 10 years The original cost was $50,000 with an estimated residual value of $5,000 and
it was being depreciated under the straight-line method It was sold for $10,000 cash What was the gain or loss on the disposal at the end of year 8?
65 Amanda Company purchased a computer that cost $10,000 It had an estimated useful life
of five years and residual value of $0 The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash Amanda Company should record
A a gain of $1,000
B a loss of $1,000
C neither a gain nor a loss the computer was sold at its book value
D neither a gain nor a loss the gain that occurred in this case would not be recognized
Trang 2166 On March 1, 2009, Anniston Company purchased a producing oil well at a cash cost of
$1,000,000 It is estimated that 1,500,000 barrels of oil can be produced over the remaining life of the well By December 31, 2009 (end of the accounting period), 150,000 barrels of oil were produced and sold The amount of depletion for 2009 on this well that should be added
to oil inventory would be
Trang 2269 Which of the following methods ordinarily would be the most appropriate to determine depletion of natural resources for financial reporting purposes?
71 Failure to record amortization expense on a patent during the current year
A would cause net income to be overstated for the year but would have no effect on total assets
B would cause both net income for the year and total assets to be overstated
C would cause total assets to be overstated but would have no effect on net income for the year
D is allowed under Generally Accepted Accounting Principles