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Accounting: What the Numbers Mean, 5/e

David H. Marshall, Millikin University
Wayne W. McManus, International College of the Cayman Islands
Daniel F. Viele, Webster University

Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets

Multiple Choice Quiz

Please answer all questions


1	When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land:
		A)	any of the purchase cost allocated to the old building is reported as a loss.
		B)	the cost assigned to the land excludes the cost of the old building.
		C)	the total cost of the land and old building are capitalized as land cost.
		D)	any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building.
		E)	any of the above are generally acceptable accounting alternatives.


2	Expenditures capitalized as noncurrent assets generally include those expenditures that:
		A)	are made for normal repairs to maintain the usefulness of the asset over a number of years.
		B)	are for items that have a physical life of more than a year, regardless of their cost.
		C)	are material and that have an economic benefit to the entity only in the current year.
		D)	are material and that have an economic benefit to the entity that extends beyond the current year.
		E)	are immaterial.


3	Which of the following statements best describes the process of accounting depreciation?
		A)	A process that attempts to recognize loss in economic value over a period of time.
		B)	A process for setting aside cash so funds will be available to replace the asset.
		C)	A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
		D)	A process for recognizing all of the economic cost associated with using an asset in a revenue generating activity.
		E)	A process that measures the physical wear and tear of an asset.


4	The entry to record depreciation on long-term assets:
		A)	decreases total assets and increases net income.
		B)	decreases current assets and increases expenses.
		C)	decreases total assets and decreases earnings before taxes.
		D)	increases earnings before taxes and increases tax expense.
		E)	decreases total assets and decreases expenses.


5	Which depreciation method results in equal depreciation expense amounts for each year of an asset's useful life?
		A)	Units-of-production
		B)	Sum-of-the-years-digits
		C)	Double-declining-balance
		D)	MACRS
		E)	Straight-line


6	When a depreciable asset is sold:
		A)	a gain arises if the sales proceeds exceed the net book value.
		B)	a loss arises if the sales proceeds exceed the net book value.
		C)	any cash received results in a gain.
		D)	depreciation expense is adjusted so there is no gain or loss.
		E)	accumulated depreciation increases.


7	The present value concept is widely applied in business because:
		A)	inflation erodes the purchasing power of money.
		B)	money has value over time.
		C)	accounting for operating leases requires its use.
		D)	most obligations are settled within a year.
		E)	depreciation calculations require its use.


8	If you owed $200 at the end of each year for the next three years, the present value of the obligation would be:
		A)	less than it would be if you owed all $600 at the end of three years.
		B)	the same as it would be if you had to pay $300 today and $300 at the end of three years.
		C)	more than $600.
		D)	less than it would be if you had to pay $300 today and $300 at the end of this year.
		E)	none of the above.


9	Noncurrent, intangible assets such as leasehold improvements, patents, and goodwill are all subject to:
		A)	depreciation
		B)	amortization
		C)	depletion
		D)	consolidation
		E)	recognition


10	Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI is:
		A)	more than the fair market value of the net assets of the acquiring company.
		B)	less than the fair market value of the net assets of the acquiring company.
		C)	equal to the fair market value of the net assets of the acquiring company.
		D)	less than the fair market value of the net assets of the acquired company.
		E)	more than the fair market value of the net assets of the acquired company.

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