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ACC 557 WK 7 Chapter 9, 10 Quiz
TRUE-FALSE STATEMENTS 1. All plant assets (fixed assets) must be depreciated for accounting purposes.
2. When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a Land Improvements account.
3. When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to Delivery Equipment.
4. Land improvements are generally charged to the Land account.
5. Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciates in value, in which case, market value becomes the basis for accountability.
6. The book value of a plant asset is always equal to its fair market value.
7. Recording depreciation on plant assets affects the balance sheet and the income statement.
8. The depreciable cost of a plant asset is its original cost minus obsolescence.
9. Recording depreciation each period is an application of the expense recognition principle.
10. The Accumulated Depreciation account represents a cash fund available to replace plant assets.
11. In calculating depreciation, both plant asset cost and useful life are based on estimates.
12. Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.
13. Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.
14. The declining-balance method of depreciation is called an accelerated depreciation method because it depreciates an asset in a shorter period of time than the asset's useful life.
15. Under the double-declining-balance method, the depreciation rate used each year remains constant.
16. The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements. |
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7. A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.
18. A change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation.
19. To determine a new depreciation amount after a change in estimate of a plant asset's useful life, the asset's remaining depreciable cost is divided by its remaining useful life.
20. Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.
21. Capital expenditures are expenditures that increase the company's investment in productive facilities.
22. Ordinary repairs should be recognized when incurred as revenue expenditures.
23. A characteristic of capital expenditures is that the expenditures occur frequently during the period of ownership. |
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24. Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.
25. The fair market value of a plant asset is always the same as its book value.
26. If the proceeds from the sale of a plant asset exceed its book value, a gain on disposal occurs.
27. A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale is less than the asset's book value.
28. The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value.
29. A loss on disposal of a plant asset as a result of a sale or a retirement is calculated in the same way.
30. A plant asset must be fully depreciated before it can be removed from the books.
31. If a plant asset is sold at a gain, the gain on disposal should reduce the cost of goods sold section of the income statement.
32. Depletion cost per unit is computed by dividing the total cost of a natural resource by the estimated number of units in the resource.
33. The Accumulated Depletion account is deducted from the cost of the natural resource in the balance sheet.
34. Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.
35. Natural resources are long-lived productive assets that are extracted in operations and are replaceable only by an act of nature.
36. The cost of natural resources is not allocated to expense because the natural resources are replaceable only by an act of nature.
37. Conceptually, the cost allocation procedures for natural resources parallels that of plant assets.
38. Natural resources include standing timber and underground deposits of oil, gas, and minerals.
39. If an acquired franchise or license has an indefinite life, the cost of the asset is not amortized.
40. When an entire business is purchased, goodwill is the excess of cost over the book value of the net assets acquired.
41. Research and development costs which result in a successful product which is patentable are charged to the Patent account.
42. The cost of a patent must be amortized over a 20-year period.
43. The cost of a patent should be amortized over its legal life or useful life, whichever is shorter.
44. The balances of the major classes of plant assets and accumulated depreciation by major classes should be disclosed in the balance sheet or notes.
45. The asset turnover ratio is calculated as total sales divided by ending total assets.
46. Research and development costs can be classified as a property, plant, and equipment item or as an intangible asset.
47. Usually, companies combine plant assets and intangibles under "Property, plant, and equipment in the balance sheet.
48. The asset turnover ratio analyzes the productivity of a company's assets.
49. Accounting for exchanges of plant assets is easier if the transaction does not have commercial substance. a50. An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange.
a51. Companies record a gain or loss on the exchange of plant assets because most exchanges have commercial substance.
a52. When plant assets are exchanged with commercial substance, the cost of the new asset is the book value of the old asset plus any cash paid.
53. When constructing a building, a company is permitted to include in the acquisition cost and certain interest costs incurred in financing the project.
54. Recognition of depreciation provides for the accumulation of cash for the replacement of the asset.
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