Question 1

Which of the following costs should NOT be included in the capitalized cost of land when purchased for use in a business?

Accepted Answer

Cost to pave the parking lot

Question 2

A company purchases a machine for $$50,000. Additional costs include 2$$,000 for transportation, $$1,000 for installation, and 500 $$for testing. What is the total cost to be capitalized for the machine?

Accepted Answer

$53,500

Question 3

Which depreciation method results in the highest depreciation expense in the first year of an asset’s useful life?

Accepted Answer

Double-declining-balance method

Question 4

A company buys a group of assets (land, building, and equipment) for a lump-sum price. How should the cost be allocated among the assets?

Accepted Answer

Based on the relative fair market values of each asset

Question 5

Which of the following is NOT depreciated?

Accepted Answer

Land

Question 6

A company purchased a truck for $$40,000. The estimated useful life is 5 years, and the estimated residual value is 5$$,000. Using the straight-line method, what is the annual depreciation expense?

$$	ext{Depreciation Expense} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}}$$

Accepted Answer

$7,000

Question 7

Which of the following best describes a capital expenditure?

Accepted Answer

An expenditure that increases the asset’s capacity or extends its useful life

Question 8

A company extracts 3 million barrels of oil from a reserve purchased for $$100 million (10 million barrels estimated total). What is the depletion expense for the year?

$$	ext{Depletion Rate} = \frac{	ext{Cost}}{	ext{Total Estimated Units}}$$ 
$$	ext{Depletion Expense} = 	ext{Depletion Rate} 	imes 	ext{Units Extracted}$

Accepted Answer

$30,000,000

Question 9

Which of the following is an example of an intangible asset with an indefinite life?

Accepted Answer

Trademark

Question 10

Under U.S. GAAP, how are research and development (R&D) costs treated?

Accepted Answer

Expensed as incurred

Question 11

A company sells equipment for $$12,000. The equipment’s book value is 15$$,000. What is the journal entry for the loss on disposal?

Accepted Answer

Dr: Cash $$12,000; Dr: Accumulated Depreciation; Dr: Loss on Disposal 3$$,000; Cr: Equipment $15,000

Question 12

Which depreciation method is best suited for assets that generate more revenue in the early years of their useful life?

Accepted Answer

Double-declining-balance method

Question 13

A company purchases a patent for $$60,000 with a legal life of 20 years. What is the annual amortization expense?

$$	ext{Amortization Expense} = \frac{	ext{Cost}}{	ext{Useful Life}}$

Accepted Answer

$3,000

Question 14

Which of the following is NOT an example of a natural resource?

Accepted Answer

Trademark

Question 15

If an asset is sold for more than its book value, how is the gain recorded?

Accepted Answer

Credited to Gain on Disposal

Question 16

Which of the following expenditures should be expensed immediately rather than capitalized?

Accepted Answer

Routine maintenance on equipment

Question 17

A company uses the units-of-production method for a machine costing $$100,000 with a residual value of 10$$,000 and an estimated total output of 90,000 units. If 30,000 units are produced in the first year, what is the depreciation expense for that year?

$$	ext{Depreciation per Unit} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Total Estimated Units}}$$ 
$$	ext{Depreciation Expense} = 	ext{Depreciation per Unit} 	imes 	ext{Units Produced}$$

Accepted Answer

$30,000

Question 18

Which of the following is a characteristic of intangible assets?

Accepted Answer

They have no physical substance but provide future economic benefits

Question 19

Which of the following best describes the matching principle as it relates to depreciation?

Accepted Answer

Allocating the cost of an asset to expense over the periods it benefits

Plant Assets, Natural Resources, and Intangibles: Study Notes

Guida di studio - Domande di pratica

Study guide - Flashcard