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True or False
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1
Tangible plant assets have physical substance.
A)True
B)False
2
An oil deposit is an intangible asset.
A)True
B)False
3
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
4
When a business buys and then immediately repairs an old building prior to putting into service, the cost of the building repairs should be charged to the Building account.
A)True
B)False
5
The cost to assemble a second-hand machine would be charged to an expense account, since the machine is not new.
A)True
B)False
6
Interest costs related to the construction of an asset should be charged directly to the Interest Expense account.
A)True
B)False
7
The cost of land and the cost of installing parking lot surfaces, fences, and lighting systems should be debited to the Land account.
A)True
B)False
8
Land, vehicles, buildings, parking lots, and business equipment, are examples of plant and equipment assets, and each will be depreciated over its estimated useful life.
A)True
B)False
9
The allocation of the cost of a lump-sum purchase to individual items is usually based on the historical cost of the items.
A)True
B)False
10
Outlays of cash for the addition, improvement, or replacement of plant assets are referred to as revenue expenditures.
A)True
B)False
11
Capital expenditures are debited to an expense account.
A)True
B)False
12
Miscellaneous shop tools purchased periodically should be charged directly to an appropriate operating expense account.
A)True
B)False
13
The basic purpose of depreciation is to match the cost of using the asset against the revenues that the asset helps to generate during any particular accounting period.
A)True
B)False
14
The normal balance of a contra-asset account is a debit balance.
A)True
B)False
15
Book value is the cost of an asset less its salvage value.
A)True
B)False
16
An asset purchased for $40,000, with an accumulated depreciation balance at the end of the year totaling $30,000, has a book value of $70,000.
A)True
B)False
17
Depreciation is a process of asset valuation.
A)True
B)False
18
Accumulated Depletion is a contra-liability account.
A)True
B)False
19
Accumulated depreciation represents a cash fund that will be available to replace the asset when its useful life has been exhausted.
A)True
B)False
20
A decline in the usefulness of a plant asset because of its obsolescence is considered to be physical depreciation.
A)True
B)False
21
Any method of calculating depreciation expense that results in amounts greater than those calculated using the straight-line method during the early years of the estimated life of an asset is referred to as an accelerated depreciation method.
A)True
B)False
22
The term residual value (or salvage value) refers to the estimated value of an asset on its disposal date.
A)True
B)False
23
The straight-line method of depreciation allocates the cost of an asset (minus any residual value) equally to each year of its life.
A)True
B)False
24
The half-year convention approach cannot be used with the straight-line depreciation method.
A)True
B)False
25
If an asset costs $45,000, has an estimated salvage value of $3,000, and an estimated useful life of 6 years, the depreciation expense for 9 months will be $5,250 (ignore the half-year convention).
A)True
B)False
26
The straight-line rate for an asset with a 10-year life is 10%.
A)True
B)False
27
The depreciation method that applies a constant rate to a declining base is called the fixed-percentage-of-declining-balance method.
A)True
B)False
28
If at the end of the last fiscal year of the service life of a tangible asset, the book value is $500 and the scheduled depreciation of the year is $750, the entire $750 should be recorded as the depreciation expense for the asset.
A)True
B)False
29
If an asset costs $45,000, has an estimated life of 5 years, and an estimated residual value of $3,000, it will be depreciated $11,280 in its second full year of use under the double-declining-balance method of depreciation.
A)True
B)False
30
When using accelerated depreciation methods, you must always apply a rate that is twice the straight-line rate.
A)True
B)False
31
It is not permissible to use depreciation methods for income-tax reporting purposes other than those used in financial statements that are distributed to other external users.
A)True
B)False
32
While the consistency principle applies to the method of inventory valuation used, it does not apply to methods of depreciation used.
A)True
B)False
33
The write-down of an asset to its net realizable value as a result of impairment is debited to an expense account.
A)True
B)False
34
When it is determined that the useful life of an asset has been underestimated, it is permissible to recalculate the depreciation schedule from that point.
A)True
B)False
35
If an asset is purchased for $30,000 on April 1, and depreciation is calculated at $.60 per hour, 20,000 hours of service will require recording $9,000 (= $30,000 × $0.60 × 9/12) of depreciation expense.
A)True
B)False
36
MACRS is an example of a depreciation method that is commonly used in financial accounting to more accurately determine the net income of a business.
A)True
B)False
37
Use of the sum-of-the-years' digits method of depreciation has increased in recent years.
A)True
B)False
38
At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation and the book value of the plant asset at the date of sale.
A)True
B)False
39
The gain or loss on an exchange of assets for financial reporting purposes is the difference between the trade-in allowance and the up-to-date book value.
A)True
B)False
40
Selling a plant asset for an amount different than its book value can result in a gain or a loss.
A)True
B)False
41
The financial reporting of gains and losses on exchanges of plant assets is different than the income tax reporting of gains and losses on exchanges of plant assets.
A)True
B)False
42
The periodic allocation of the cost of a patent is called amortization.
A)True
B)False
43
The most common method of amortization of intangible assets is the straight-line method.
A)True
B)False
44
Goodwill can be estimated and can be reported on the business records any time management feels the business has increased in value.
A)True
B)False
45
The term net identifiable assets refers to all assets shown at the current or book value on the year-end balance sheet.
A)True
B)False
46
Goodwill should be amortized using the straight-line method of amortization.
A)True
B)False
47
If research of an industry finds that businesses within the industry generally sell for 4.5 times annual earnings, then a company with annual earnings of $800,000 and a fair market value of net identifiable assets of $3,200,000 has goodwill of $400,000.
A)True
B)False
48
Patents are granted for 20 years.
A)True
B)False
49
The costs of developing a trademark or trade name are treated just as the costs of purchasing a trademark or trade name are treated.
A)True
B)False
50
The cost of recognizing the cost of a natural resource over its useful life is called depletion and the cost of recognizing the cost of a franchise over its useful life is called amortization.
A)True
B)False
51
If you purchased a 10-year franchise that is expected to generate revenue for 8-1/2 years, you should amortize the cost of the franchise over the 10-year life.
A)True
B)False
52
Copyrights are exclusive rights to protect the production and sale of literary or artistic materials for the life of the creator plus 70 years.
A)True
B)False
53
When the cost of obtaining a copyright is minor, it is chargeable to expense account when paid.
A)True
B)False
54
Research and development costs (R & D) for a product or process should be capitalized and amortized over the life of the product or process as it is sold or used.
A)True
B)False
55
The Research and development costs (R & D) to Sales ratio is of major importance to most life science industries.
A)True
B)False
56
Recording the depletion of a natural resource requires the establishment of an Inventory account.
A)True
B)False
57
Depreciation is reported on the statement of cash flows as use of cash from operating activities.
A)True
B)False





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