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

2. Copyright © 2007 Prentice-Hall. All rights reserved 2 All of the following are characteristics of a plant asset except: 1.Long-lived 2.Used in production of income 3.Held for resale to customers 4.Has physical form

3. Copyright © 2007 Prentice-Hall. All rights reserved 3 Answer: 3

4. Copyright © 2007 Prentice-Hall. All rights reserved 4 All of the following assets are subject to depreciation except: 1.Land 2.Land improvements 3.Building 4.Equipment

5. Copyright © 2007 Prentice-Hall. All rights reserved 5 Answer: 1

6. Copyright © 2007 Prentice-Hall. All rights reserved 6 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

7. Copyright © 2007 Prentice-Hall. All rights reserved 7 Answer: 2 Grading the land and removing the old building are added to the Land account. Mowing the grass is a maintenance expense.

8. Copyright © 2007 Prentice-Hall. All rights reserved 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?

9. Copyright © 2007 Prentice-Hall. All rights reserved 9 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

10. Copyright © 2007 Prentice-Hall. All rights reserved 10 Which of the following costs is a capital expenditure? 1.Replace broken window in office building 2.Paint foyer of office building 3.Addition on building for three new offices 4.Paid maintenance plan on heating system

11. Copyright © 2007 Prentice-Hall. All rights reserved 11 Answer: 3 An addition is a permanent improvement that makes the building more useful for a long period of time.

12. Copyright © 2007 Prentice-Hall. All rights reserved 12 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.

13. Copyright © 2007 Prentice-Hall. All rights reserved 13 Answer: $1,000 (Cost – Residual value) ÷ Years of useful life ($9,000 - $1,000) ÷ 8 years = $1,000

14. Copyright © 2007 Prentice-Hall. All rights reserved 14 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?

15. Copyright © 2007 Prentice-Hall. All rights reserved 15 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

16. Copyright © 2007 Prentice-Hall. All rights reserved 16 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?

17. Copyright © 2007 Prentice-Hall. All rights reserved 17 Answer: $2,250 (Cost–Accumulated depreciation) x (2/yrs of life) = ($9,000 – 0) x (2/8) = $2,250

18. Copyright © 2007 Prentice-Hall. All rights reserved 18 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-line 2.Units of production 3.Double-declining balance 4.None of the above

19. Copyright © 2007 Prentice-Hall. All rights reserved 19 Answer: 2 Depreciation expense is recognized only to extent that an asset has been used in a period.

20. Copyright © 2007 Prentice-Hall. All rights reserved 20 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?

21. Copyright © 2007 Prentice-Hall. All rights reserved 21 Answer: $500 Cost$6,000 Depreciation for 2005$1,000 Depreciation for 20061,000(2,000) Book value$4,000 Less residual value(1,000) $3,000 $3,000 ÷ (8 – 2 years) = $500

22. Copyright © 2007 Prentice-Hall. All rights reserved 22 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?

23. Copyright © 2007 Prentice-Hall. All rights reserved 23 Answer: ($5,000) Cost$35,000 Accumulated Depreciation(20,000) Book value$15,000 Cash received from sale(10,000) Loss on sale$5,000

24. Copyright © 2007 Prentice-Hall. All rights reserved 24 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

25. Copyright © 2007 Prentice-Hall. All rights reserved 25 Answer: 3

26. Copyright © 2007 Prentice-Hall. All rights reserved 26 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

27. Copyright © 2007 Prentice-Hall. All rights reserved 27 Answer: 2

28. Copyright © 2007 Prentice-Hall. All rights reserved 28 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

29. Copyright © 2007 Prentice-Hall. All rights reserved 29 Answer: 3

30. Copyright © 2007 Prentice-Hall. All rights reserved 30