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| 1.
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When a business constructs a new building, the cost of the building should include the insurance on the building during the period of construction. |
| | A) | True |
| | B) | False |
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| 2.
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The cost to have a second-hand machine assembled at the time it is purchased would be charged to an expense account since the machine is not new. |
| | A) | True |
| | B) | False |
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| 3.
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When a business acquires land as a site to construct a new store, the cost of removing unwanted buildings, grading, clearing, and delinquent real estate taxes should be recorded as part of the cost of the new store. |
| | A) | True |
| | B) | False |
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| 4.
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Land improvements are assets that increase the usefulness of land but that have a limited useful life and are subject to amortization. |
| | A) | True |
| | B) | False |
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| 5.
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Obsolescence refers to a condition in which the capacity of the plant assets becomes too small for the productive demands of the business. |
| | A) | True |
| | B) | False |
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| 6.
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The terms trade-in allowance and salvage value refer to the anticipated value of an asset on its disposal date. |
| | A) | True |
| | B) | False |
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| 7.
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Book value is the recorded cost of a plant asset less its salvage value. |
| | A) | True |
| | B) | False |
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| 8.
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If an asset is purchased on April 1, 1999, for $30,000 and amortization is calculated at $6.00 an hour, two thousand hours of service will require recording amortization of $9,000 (2,000 x $6.00 x 9/12). |
| | A) | True |
| | B) | False |
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| 9.
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An amortizable asset that is purchased on March 18 would be amortized for nine months of the first year, if the fiscal year ends on December 31. |
| | A) | True |
| | B) | False |
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| 10.
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An amortization method that applies a constant rate to a declining base is the declining-balance method. |
| | A) | True |
| | B) | False |
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| 11.
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Major repairs that extend the useful life of a plant asset beyond the time period originally estimated may be referred to as betterments. |
| | A) | True |
| | B) | False |
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| 12.
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At the time a plant asset is being discarded or sold, it may be necessary to update the accumulated amortization of the plant asset. |
| | A) | True |
| | B) | False |
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| 13.
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The book value of the asset is equal to the market value of the asset. |
| | A) | True |
| | B) | False |
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| 14.
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An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset estimates the asset will last four years and will have a salvage value of $400. Using the straight-line method, the revised amortization will be $500 per year. |
| | A) | True |
| | B) | False |
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| 15.
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A parcel of land with a building is purchased for $200,000 cash. The assets are appraised at $144,000 for the building and $96,000 for the land. The journal entry to record this purchase will include a debit to the Land account for $80,000. |
| | A) | True |
| | B) | False |
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| 16.
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The periodic allocation of the cost of a patent is called amortization. |
| | A) | True |
| | B) | False |
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| 17.
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An exclusive right granted by the federal government or by international agreement to publish and sell a musical, literary, or artistic work for a period of years is called a copyright. |
| | A) | True |
| | B) | False |
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| 18.
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A contract under which the owner of property (the lessor) grants to the lessee the right to use the property is called a lease. |
| | A) | True |
| | B) | False |
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| 19.
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Goodwill is an intangible asset of a business that represents future earnings greater than the average in its industry and it is recognized on the balance sheet when such earnings become a reality. |
| | A) | True |
| | B) | False |
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| 20.
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A unique symbol used by a company in marketing its products or services is called a trade name. |
| | A) | True |
| | B) | False |
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| 21.
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Grading, levelling, fencing, and adding lighting are all examples of land improvements. |
| | A) | True |
| | B) | False |
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| 22.
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The purchase of patents, copyrights, trademarks, leaseholds, and goodwill need to be amortized. |
| | A) | True |
| | B) | False |
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| 23.
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When the cost of the asset changes because of a betterment, revised amortization for current and future periods must be calculated and adjusted. |
| | A) | True |
| | B) | False |
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| 24.
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When using the double-declining-balance method for amortization, the salvage value needs to be subtracted from the cost to derive the rate. |
| | A) | True |
| | B) | False |
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| 25.
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Federal income tax law requires that companies use the straight-line method to calculate amortization for tax purposes. |
| | A) | True |
| | B) | False |
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| 26.
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When a capital asset is disposed of, all accounts related to the asset including the asset account and its related accumulated amortization must be removed from the books. |
| | A) | True |
| | B) | False |
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| 27.
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Internally generated goodwill such as good management and talented employees should be recorded in the balance sheet. |
| | A) | True |
| | B) | False |
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