ACC 206 Week 5 Mid-Term Exam – Strayer

ACC 206 Week 5 Mid-Term Exam – Strayer

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Chapters 10 Through 13

CHAPTER10

PLANTASSETS,NATURALRESOURCES,ANDINTANGIBLEASSETS



CHAPTERSTUDYOBJECTIVES


1.Describehowthecostprincipleappliestoplantassets.

2.Explaintheconceptofdepreciation..

3.Computeperiodicdepreciationusingdifferentmethods.

4.Describetheprocedureforrevisingperiodicdepreciation.

5.Distinguishbetweenrevenueandcapitalexpenditures,andexplaintheentriesforeach.

6.Explainhowtoaccountforthedisposalofaplantasset.

7.Computeperiodicdepletionofnaturalresources.

8.Explainthebasicissuesrelatedtoaccountingforintangibleassets.

9.Indicatehowplantassets,naturalresources,andintangibleassetsarereported.

10.Explainhowtoaccountfortheexchangeofplantassets.


TRUE-FALSESTATEMENTS


1. Allplantassets(fixedassets)mustbedepreciatedfor accountingpurposes.

2. Whenpurchasingland,thecostsforclearing,draining,filling,andgradingshouldbe chargedto aLandImprovementsaccount.

3. Whenpurchasingdeliveryequipment,salestaxesandmotorvehiclelicensesshouldbe chargedto DeliveryEquipment.

4. Landimprovementsaregenerallychargedto theLandaccount.

5. Oncecostisestablishedforaplantasset,itbecomes thebasis ofaccounting fortheasset unlesstheassetappreciatesinvalue,inwhichcase,marketvaluebecomesthebasisfor accountability.

6. Thebookvalueof aplantassetisalwaysequaltoitsfairmarketvalue.

7. Recordingdepreciationonplantassetsaffectsthebalancesheetandtheincome statement.

8. Thedepreciablecostof aplant asset is itsoriginalcostminusobsolescence.

9. Recordingdepreciationeachperiodisanapplicationof thematchingprinciple.

10. TheAccumulatedDepreciationaccountrepresentsacashfundavailabletoreplaceplant assets.

11. Incalculatingdepreciation,bothplantassetcost andusefullifearebasedonestimates.

12. Usingtheunits-of-activitymethodofdepreciatingfactoryequipmentwillgenerallyresultin moredepreciationexpensebeingrecordedoverthelifeoftheassetthanifthestraight-line method hadbeenused.

13. Salvagevalueisnotsubtractedfromplantassetcostindeterminingdepreciationexpense underthedeclining-balancemethodofdepreciation.

14. Thedeclining-balancemethodofdepreciationiscalledanaccelerateddepreciation methodbecauseitdepreciatesanassetinashorterperiodoftimethantheasset'suseful life.

15. Underthedouble-declining-balancemethod,thedepreciationrateusedeachyear remainsconstant.

16. TheIRSdoesnotrequirethetaxpayertousethesamedepreciationmethodonthetax returnthatisusedinpreparingfinancialstatements.

17. Achangeintheestimatedusefullifeofaplantassetmaycauseachangeintheamount ofdepreciationrecognizedinthecurrentandfutureperiods,but nottopriorperiods.

18. Achangeintheestimatedsalvagevalueofaplantassetrequiresarestatementofprior years'depreciation.

19. Todetermineanewdepreciationamountafterachangeinestimateofaplantasset's useful life, the asset'sremaining depreciablecost isdividedbyits remainingusefullife.

20. Additionsand improvementstoaplantassetthatincreasethe asset'soperatingefficiency, productive capacity,or expectedusefullife aregenerallyexpensed intheperiodincurred.

21. Capitalexpendituresareexpendituresthatincreasethecompany'sinvestmentin productive facilities.

22. Ordinaryrepairs shouldberecognizedwhenincurredas revenueexpenditures.

23. A characteristicofcapitalexpendituresis that theexpendituresoccurfrequently duringthe period ofownership.

24. Onceanassetisfullydepreciated,noadditionaldepreciationcanbetakeneventhough theasset is still beingusedbythebusiness.

25. Thefairmarketvalueof a plantasset isalwaysthesameasits bookvalue.

26. Iftheproceedsfromthesaleofaplantassetexceeditsbookvalue,againondisposal occurs.

27. Alossondisposalofaplantassetcanonlyoccurifthecashproceeds received fromthe assetsaleis lessthanthe asset'sbook value.

28. Thebookvalueofaplantassetistheamount originallypaid fortheassetlessanticipated salvagevalue.

29. Alossondisposal ofaplantasset asaresult ofasaleoraretirementiscalculated inthe sameway.

30. A plantassetmustbefullydepreciatedbeforeit canberemovedfromthe books.

31. Ifaplantasset issoldata gain,thegain ondisposal shouldreducethecost ofgoodssold section of the incomestatement.

32. Depletioncostperunitiscomputedbydividingthetotalcostofanaturalresourcebythe estimatednumberof unitsintheresource.

33. TheAccumulatedDepletionaccountisdeductedfromthecostofthenaturalresourcein thebalancesheet.

34. Depletionexpenseforaperiodisonlyrecognizedonnaturalresourcesthathavebeen extractedandsoldduringtheperiod.

35. Naturalresourcesarelong-livedproductiveassetsthatareextractedinoperationsand arereplaceableonlybyanactof nature.

36. Thecostofnaturalresourcesisnotallocatedtoexpensebecausethenaturalresources arereplaceableonlybyanactof nature.

37. Conceptually,thecostallocationproceduresfornaturalresourcesparallelsthatofplant assets.

38. Naturalresourcesincludestandingtimberandundergrounddepositsofoil,gas,and minerals.

39. Ifanacquiredfranchiseorlicensehasanindefinitelife,thecostoftheassetisnot amortized.

40. Whenanentirebusinessispurchased,goodwillistheexcessofcostoverthebookvalue of thenet assetsacquired.

41. Researchand development costswhich result in asuccessful product which ispatentable arechargedtothePatentaccount.

42. Thecostof apatentmustbeamortizedovera 20-yearperiod.

43. Thecostofapatentshouldbeamortizedoveritslegallifeorusefullife,whicheveris shorter.

44. The balancesofthe majorclassesofplantassetsand accumulated depreciationby major classes shouldbedisclosedinthebalance sheetornotes.

45. Theassetturnover ratioiscalculated astotalsales dividedbyendingtotalassets.

46. Researchanddevelopmentcostscanbeclassifiedasaproperty,plant,andequipment itemoras an intangibleasset.

a47. An exchangeofplantassetshas commercial substanceifthe futurecashflows change as a resultofthe exchange.

a48. Companiesrecordagainorlossontheexchangeofplantassetsbecausemost exchangeshavecommercialsubstance.

a49. Whenplantassetsareexchanged,thecostofthenewassetisthebookvalueoftheold assetplus anycashpaid.

Additional True-FalseQuestions

50. Whenconstructingabuilding,acompanyispermittedtoincludetheacquisitioncostand certaininterest costs incurredinfinancingtheproject.

51. Recognitionofdepreciationpermitstheaccumulationofcashforthereplacementofthe asset.

52. Whenanassetispurchasedduringtheyear,itisnotnecessarytorecorddepreciation expense inthefirst yearunderthedeclining-balancedepreciationmethod.

53. Depletionexpenseisreported intheincomestatementas anoperatingexpense.

54. Goodwillisnotrecognizedinaccountingunlessitisacquiredfromanotherbusiness enterprise.

55. Researchanddevelopmentcostsshouldbechargedtoexpensewhenincurred.

56. Alossontheexchangeofplantassetsoccurswhenthefairmarketvalueoftheoldasset islessthanitsbookvalue.







MULTIPLECHOICEQUESTIONS


57. Thecostof apurchasedbuildingincludes allofthefollowingexcept a.closingcosts.
b.realestatebroker's commission. c.remodeling costs.
d.Allof theseareincluded.

58. Acompanypurchasedlandfor$90,000cash.Realestatebrokers'commissionwas $5,000and$7,000wasspentfordemolishinganoldbuildingonthelandbefore constructionofanewbuildingcouldstart.Underthecostprinciple,thecostoflandwould be recordedat
a.$97,000. b.$90,000. c.$95,000. d.$102,000.

59. Whichoneofthefollowingitemsisnotconsideredapartofthecostofatruckpurchased for businessuse?
a.Salestax
b.Trucklicensec.Freightcharges
d.Costofletteringonsideoftruck

60. Whichofthefollowingassetsdoesnotdeclineinservicepotentialoverthecourseofits useful life?
a.Equipment b.Furnishings c.Land
d.Fixtures

61. Thefoursubdivisions forplantassetsare
a.land,landimprovements,buildings,andequipment. b.intangibles,land,buildings,andequipment.
c.furnishingsandfixtures,land,buildings, andequipment. d.property,plant,equipment,andland.

62. Thecostof landdoesnotinclude
a.realestatebrokers' commission. b.annualpropertytaxes.
c.accruedpropertytaxesassumedbythepurchaser. d.title fees.

63. FeeneyClinicpurchaseslandfor$130,000cash.Theclinicassumes$1,500inproperty taxesdueontheland.Thetitleandattorneyfeestotaled$1,000.Theclinichastheland gradedfor $2,200.WhatamountdoesFeeneyClinicrecordasthecostforthe land?
a.$132,200 b.$130,000 c.$134,700 d.$132,500

64. BelleCompanybuyslandfor$50,000on12/31/07.Asof3/31/08,thelandhas appreciatedinvalueto$50,700.On12/31/08,thelandhasanappraisedvalueof $51,800.Bywhatamountshouldthe Landaccount beincreasedin 2008?
a.$0b.$700
c.$1,100 d.$1,800

65. PineCompanyacquireslandfor$86,000cash.Additional costsareasfollows:

Removalof shed $300 Fillingandgrading                                      1,500 Salvagevalue oflumberofshed                   120 Brokercommission                                     1,130 Pavingofparkinglot                                 10,000 Closingcosts                                                 560

Pinewillrecordtheacquisitioncostof thelandas a.$86,000.
b.$87,690. c.$89,610. d.$89,370.

66. ShawneeHospitalinstallsanewparkinglot.Thepavingcost$30,000andthelightsto illuminatethenewparkingareacost$15,000.Whichofthefollowingstatementsistrue with respecttotheseadditions?
a.$30,000shouldbedebitedtothe Landaccount.
b.$15,000shouldbedebitedtoLandImprovements. c.$45,000shouldbedebitedtotheLandaccount.d.$45,000shouldbedebitedtoLandImprovements.
10-10

67. Landimprovementsshouldbedepreciatedovertheusefullife of the a.land.
b.buildingsontheland.
c.land or landimprovements,whicheverislonger. d.landimprovements.

68. GeneralMoldingisbuildinganewplantthatwilltakethreeyearstoconstruct.The constructionwillbefinancedinpartbyfundsborrowedduringtheconstructionperiod. Therearesignificantarchitectfees,excavationfees,andbuildingpermitfees.Whichof the followingstatementsis true?
a.Excavationfeesarecapitalizedbut building permitfeesarenot. b.Architectfeesarecapitalizedbut buildingpermitfeesarenot.
c.Interestiscapitalizedduring theconstructionas partof thecostofthebuilding.
d.The capitalizedcost is equaltothecontractprice tobuildthe plant less any in