ACC 557 Final Exam - Strayer
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Chapter 9 Through 14
PLANT ASSETS,
NATURAL RESOURCES, AND INTANGIBLE ASSETS
CHAPTER LEARNING OBJECTIVES
1. Describe how the historical cost principle
applies to plant assets.
2. Explain
the concept of depreciation and how to compute it.
3. Distinguish between revenue and capital
expenditures, and explain the entries for each.
4. Explain how to account for the disposal of a
plant asset.
5. Compute periodic depletion of natural
resources.
6. Explain the basic issues related to
accounting for intangible assets.
7. Indicate how plant assets, natural
resources, and intangible assets are reported.
8. Explain how to account for the exchange of plant assets.
TRUE-FALSE STATEMENTS
1. All plant assets (fixed assets) must be
depreciated for accounting purposes.
2. When purchasing land, the costs for
clearing, draining, filling, and grading should be charged to a Land
Improvements account.
3. When purchasing delivery equipment, sales
taxes and motor vehicle licenses should be charged to Delivery Equipment.
4. Land improvements are generally charged to
the Land account.
5. Once cost is established for a plant asset,
it becomes the basis of accounting for the asset unless the asset appreciates
in value, in which case, market value becomes the basis for accountability.
6. The book value of a plant asset is always
equal to its fair market value.
7. Recording depreciation on plant assets
affects the balance sheet and the income statement.
8. The depreciable cost of a plant asset is
its original cost minus obsolescence.
9. Recording depreciation each period is an
application of the expense recognition principle.
10. The
Accumulated Depreciation account represents a cash fund available to replace
plant assets.
11. In calculating depreciation, both plant
asset cost and useful life are based on estimates.
12. Using the units-of-activity method of
depreciating factory equipment will generally result in more depreciation
expense being recorded over the life of the asset than if the straight-line
method had been used.
13. Salvage value is not subtracted from
plant asset cost in determining depreciation expense under the
declining-balance method of depreciation.
14. The declining-balance method of
depreciation is called an accelerated depreciation method because it depreciates
an asset in a shorter period of time than the asset's useful life.
15. Under the double-declining-balance method,
the depreciation rate used each year remains constant.
16. The IRS does not require the taxpayer to
use the same depreciation method on the tax return that is used in preparing
financial statements.
17. A change in the estimated useful life of a
plant asset may cause a change in the amount of depreciation recognized in the
current and future periods, but not to prior periods.
18. A change in the estimated salvage value of
a plant asset requires a restatement of prior years' depreciation.
19. To determine a new depreciation amount
after a change in estimate of a plant asset's useful life, the asset's
remaining depreciable cost is divided by its remaining useful life.
20. Additions and improvements to a plant asset
that increase the asset's operating efficiency, productive capacity, or
expected useful life are generally expensed in the period incurred.
21. Capital expenditures are expenditures that
increase the company's investment in productive facilities.
22. Ordinary repairs should be recognized when
incurred as revenue expenditures.
23. A characteristic of capital expenditures is
that the expenditures occur frequently during the period of ownership.
24. Once an asset is fully depreciated, no
additional depreciation can be taken even though the asset is still being used
by the business.
25. The fair value of a plant asset is always
the same as its book value.
26. If the proceeds from the sale of a plant
asset exceed its book value, a gain on disposal occurs.
27. A loss on disposal of a plant asset can
only occur if the cash proceeds received from the asset sale are less than the
asset's book value.
28. The book value of a plant asset is the
amount originally paid for the asset less anticipated salvage value.
29. A loss on disposal of a plant asset as a
result of a sale or a retirement is calculated in the same way.
30. A plant asset must be fully depreciated
before it can be removed from the books.
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