Copyright © 2007 Prentice-Hall. All rights reserved 1 Plant Assets and Intangibles Chapter 10.

Copyright © 2007 Prentice-Hall. All rights reserved

1

Plant Assets and IntangiblesPlant Assets and Intangibles

Chapter 10


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All of the following are characteristics of a plant asset except:

1. Long-lived2. Used in production of income3. Held for resale to customers4. Has physical form


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Answer: 3


4

All of the following assets are subject to depreciation except:

1. Land

2. Land improvements

3. Building

4. Equipment


5

Answer: 1


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Which of the following costs would be included in the Land Improvements account?

1. Grading the land

2. Paving parking lot

3. Removal of useless, old barn on land

4. Mowing the grass


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Answer: 2Grading the land and removing the old building are added to the Land account. Mowing the grass is a maintenance expense.


8

Tyne Company made a lump-sum purchase of land and building for $100,000. The appraised values for the land was $22,000 and the for the building was $88,000. How much should be debited to Building?


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Answer: $80,000

Total appraised value = $22,000 + $88,000 = $110,000

80% (88,000 ÷ 110,000) of the $100,000 cost should be allocated to the Building.

$100,000 x 80% = $80,000


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Which of the following costs is a capital expenditure?

1. Replace broken window in office building2. Paint foyer of office building3. Addition on building for three new offices4. Paid maintenance plan on heating system


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Answer: 3 An addition is a permanent improvement that makes the building more useful for a long period of time.


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On January 1, Finley Company purchased a machine for $9,000. It has a residual value of $1,000 and a useful life of 8 years or 10,000 hours of operation.

How much depreciation is recognized at the end of the first year of use assuming the company uses the straight-line method of depreciation.


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Answer: $1,000 (Cost – Residual value) ÷ Years of useful life($9,000 - $1,000) ÷ 8 years = $1,000


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On January 1, Finley Company purchased a machine for $9,000. It has a residual value of $1,000 and a useful life of 8 years or 10,000 hours of operation.If the machine operated for 1,200 hours during the year, how much depreciation is recognized at the end of the year assuming the company uses the units of production method of depreciation?


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Answer: $960 (Cost – Residual value) ÷ Total units of output($9,000 - $1,000) ÷ 10,000 hours = $0.80 per hour

$0.80 x 1,200 hours = $960


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On January 1, Finley Company purchased a machine for $9,000. It has a residual value of $1,000 and a useful life of 8 years or 10,000 hours of operation.

How much depreciation is recognized at the end of the first year assuming the company uses the double-declining balance method of depreciation?


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Answer: $2,250 (Cost–Accumulated depreciation) x (2/yrs of life) =($9,000 – 0) x (2/8) = $2,250


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If the amount of use of a machine varies from year to year, the depreciation method that best matches expense with revenue is

1. Straight-line2. Units of production3. Double-declining balance4. None of the above


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Answer: 2Depreciation expense is recognized only to extent that an asset has been used in a period.


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In 2005, Conway Company purchased an asset for $6,000. It was estimated to have a useful life of 5 years and a residual value of $1,000. The straight-line method of depreciation is used. At the beginning of 2007, Conway revises the estimated useful to a total of 8 years. How much depreciation expense will Conway recognize on the asset at the end of 2007?


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Answer: $500

Cost $6,000Depreciation for 2005 $1,000Depreciation for 2006 1,000 (2,000) Book value $4,000 Less residual value (1,000)

$3,000

$3,000 ÷ (8 – 2 years) = $500


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Roge Company owns a truck that cost $35,000 and has total accumulated depreciation of $20,000 to-date. Roge sells the truck for $10,000. What amount of gain/(loss) is recognized on the date of sale?


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Answer: ($5,000)Cost $35,000Accumulated Depreciation (20,000) Book value $15,000Cash received from sale (10,000) Loss on sale $5,000


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Research and development costs incurred by a company should be

1. Capitalized and amortized

2. Capitalized and remain on the books at cost

3. Expensed when incurred

4. Expensed only if the project is terminated


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Answer: 3


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The process of allocating the cost of a natural resource to expense is called

1. Depreciation

2. Depletion

3. Amortization

4. The cost of a natural resource is not allocated to expense


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Answer: 2


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When the utility of an intangible asset has declined, the process of transferring some of the cost of the intangible to expense is called

1. Depreciation

2. Depletion

3. Amortization

4. The cost of a intangible assets are never allocated to expense


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Answer: 3


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Copyright © 2007 Prentice-Hall. All rights reserved 1 Plant Assets and Intangibles Chapter 10.

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