Question 1

An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange.

Accepted Answer

A) True 
 B)False

Question 2

Accountants do not attempt to measure the change in a plant asset's fair value during ownership because

Accepted Answer

A)  the assets are not held for resale. 
B)  plant assets cannot be sold. 
C)  losses would have to be recognized. 
D)  it is management's responsibility to determine fair values. 
A)  the assets are not held for resale. 
B)  plant assets cannot be sold. 
C)  losses would have to be recognized. 
D)  it is management's responsibility to determine fair values.

Question 3

A plant asset acquired on October 1 2017 at a cost of $400000 has an estimated useful life of 10 years. The salvage value is estimated to be $40000 at the end of the asset's useful life.
Instructions
Determine the depreciation expense for the first two years using:
(a) the straight-line method.
(b) the double-declining-balance method.

Accepted Answer

(a) Straight-line method @#LAT-DLM& Year

Question 4

On January 1 a machine with a useful life of five years and a residual value of $30000 was purchased for $90000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?

Accepted Answer

A)  $21600 
B)  $36000 
C)  $28800 
D)  $17280 
A)  $21600 
B)  $36000 
C)  $28800 
D)  $17280

Question 5

To qualify as natural resources in the accounting sense assets must be

Accepted Answer

A)  underground. 
B)  replaceable. 
C)  of a mineral nature. 
D)  physically extracted in operations. 
A)  underground. 
B)  replaceable. 
C)  of a mineral nature. 
D)  physically extracted in operations.

Question 6

A company decides to exchange its old machine and $231000 cash for a new machine. The old machine has a book value of $189000 and a fair value of $210000 on the date of the exchange. The cost of the new machine would be recorded at

Accepted Answer

A)  $420000. 
B)  $441000. 
C)  $399000. 
D)  cannot be determined. 
A)  $420000. 
B)  $441000. 
C)  $399000. 
D)  cannot be determined.

Question 7

Once an asset is fully depreciated no additional depreciation can be taken even though the asset is still being used by the business.

Accepted Answer

A) True 
 B)False

Question 8

Recording depreciation each period is necessary in accordance with the

Accepted Answer

A)  going concern principle. 
B)  historical cost principle. 
C)  expense recognition principle. 
D)  asset valuation principle. 
A)  going concern principle. 
B)  historical cost principle. 
C)  expense recognition principle. 
D)  asset valuation principle.

Question 9

In an exchange of plant assets that has commercial substance any difference between the fair value and the book value of the old plant asset is

Accepted Answer

A)  recorded as a gain or loss. 
B)  recorded if a gain but is deferred if a loss. 
C)  recorded if a loss but is deferred if a gain. 
D)  deferred if either a gain or loss. 
A)  recorded as a gain or loss. 
B)  recorded if a gain but is deferred if a loss. 
C)  recorded if a loss but is deferred if a gain. 
D)  deferred if either a gain or loss.

Question 10

Research and development costs should be charged to expense when incurred.

Accepted Answer

A) True 
 B)False

Question 11

If a plant asset is retired before it is fully depreciated and the salvage value received is less than the asset's book value

Accepted Answer

A)  a gain on disposal occurs. 
B)  a loss on disposal occurs. 
C)  there is no gain or loss on disposal. 
D)  additional depreciation expense must be recorded. 
A)  a gain on disposal occurs. 
B)  a loss on disposal occurs. 
C)  there is no gain or loss on disposal. 
D)  additional depreciation expense must be recorded.

Question 12

Interest may be included in the acquisition cost of a plant asset

Accepted Answer

A)  during the construction period of a self-constructed asset. 
B)  if the asset is purchased on credit. 
C)  if the asset acquisition is financed by a long-term note payable. 
D)  if it is a part of a lump-sum purchase. 
A)  during the construction period of a self-constructed asset. 
B)  if the asset is purchased on credit. 
C)  if the asset acquisition is financed by a long-term note payable. 
D)  if it is a part of a lump-sum purchase.

Question 13

The depreciation method that applies a constant percentage to depreciable cost in calculating depreciation is

Accepted Answer

A)  straight-line. 
B)  units-of-activity. 
C)  declining-balance. 
D)  none of these. 
A)  straight-line. 
B)  units-of-activity. 
C)  declining-balance. 
D)  none of these.

Question 14

A patent should

Accepted Answer

A)  be amortized over a period of 20 years. 
B)  not be amortized if it has an indefinite life. 
C)  be amortized over its useful life or 20 years whichever is longer. 
D)  be amortized over its useful life or 20 years whichever is shorter. 
A)  be amortized over a period of 20 years. 
B)  not be amortized if it has an indefinite life. 
C)  be amortized over its useful life or 20 years whichever is longer. 
D)  be amortized over its useful life or 20 years whichever is shorter.

Question 15

Presented below are two independent situations:
(a) Yount Company exchanged an old machine (cost $150000 less $90000 accumulated depreciation) plus $10000 cash for a new machine. The old machine had a fair value of $54000. Prepare the entry to record the exchange of assets by Yount Company.
(b) Lawson Company trades old equipment (cost $90000 less $54000 accumulated deprecia-tion) for new equipment. Lawson paid $36000 cash in the trade. The old equipment that was traded had a fair value of $54000. Prepare the entry to record the exchange of assets by Lawson Company. The transaction has commercial substance.

Accepted Answer

None

Question 16

Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.

Accepted Answer

A) True 
 B)False

Question 17

A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the

Accepted Answer

A)  salvage value of the asset sold. 
B)  market value of the asset sold. 
C)  book value of the asset sold. 
D)  accumulated depreciation on the asset sold. 
A)  salvage value of the asset sold. 
B)  market value of the asset sold. 
C)  book value of the asset sold. 
D)  accumulated depreciation on the asset sold.

Question 18

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

Accepted Answer

A) True 
 B)False

Question 19

If a fully depreciated plant asset is still used by a company the

Accepted Answer

A)  estimated remaining useful life must be revised to calculate the correct revised depreciation. 
B)  asset is removed from the books. 
C)  accumulated depreciation account is removed from the books but the asset account remains. 
D)  asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired. 
A)  estimated remaining useful life must be revised to calculate the correct revised depreciation. 
B)  asset is removed from the books. 
C)  accumulated depreciation account is removed from the books but the asset account remains. 
D)  asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired.

Question 20

When purchasing land the costs for clearing draining filling and grading should be charged to a Land Improvements account.

Accepted Answer

A) True 
 B)False

Exam 10: Plant Assets, Natural Resources, and Intangible Assets

An exchange of plant assets has commercial substance if the future cash flows change as a result of the exchange.

Accountants do not attempt to measure the change in a plant asset's fair value during ownership because

On January 1 a machine with a useful life of five years and a residual value of $30000 was purchased for $90000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?

To qualify as natural resources in the accounting sense assets must be

A company decides to exchange its old machine and $231000 cash for a new machine. The old machine has a book value of $189000 and a fair value of $210000 on the date of the exchange. The cost of the new machine would be recorded at

Once an asset is fully depreciated no additional depreciation can be taken even though the asset is still being used by the business.

Recording depreciation each period is necessary in accordance with the

In an exchange of plant assets that has commercial substance any difference between the fair value and the book value of the old plant asset is

Research and development costs should be charged to expense when incurred.

If a plant asset is retired before it is fully depreciated and the salvage value received is less than the asset's book value

Interest may be included in the acquisition cost of a plant asset

The depreciation method that applies a constant percentage to depreciable cost in calculating depreciation is

A patent should

Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.

A gain on sale of a plant asset occurs when the proceeds of the sale are greater than the

Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.

If a fully depreciated plant asset is still used by a company the

When purchasing land the costs for clearing draining filling and grading should be charged to a Land Improvements account.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Incremental Analysis and Capital Budgeting

Time Value of Money

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