Content check — Financial Accounting, Chapter 11: Long-Term Assets

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Chapter 11: Long-Term Assets

15 problems · 0 figures

Multiple Choice 11.1 §11.1 source ↗

Property, Plant, and Equipment is considered which type of asset?

a.
current asset
b.
contra asset
c.
tangible asset
d.
intangible asset

Answer

C. tangible asset

Multiple Choice 11.3 §11.1 source ↗

The legal protection that provides a company exclusive rights to produce and sell a unique product is known as which of the following?

a.
trademark
b.
copyright
c.
patent
d.
goodwill

Answer

C. patent

Multiple Choice 11.5 §11.2 source ↗

Ngo Company purchased a truck for $54,000. Sales tax amounted to $5,400; shipping costs amounted to $1,200; and one-year registration of the truck was $100. What is the total amount of costs that should be capitalized?

a.
$60,600
b.
$66,100
c.
$54,000
d.
$59,400

Answer

A. $60,600

Multiple Choice 11.7 §11.3 source ↗

Depreciation of a plant asset is the process of ________.

a.
asset valuation for statement of financial position purposes
b.
allocation of the asset’s cost to the periods of use
c.
fund accumulation for the replacement of the asset
d.
asset valuation based on current replacement cost data

Answer

B. allocation of the asset’s cost to the periods of use

Multiple Choice 11.9 §11.3 source ↗

The estimated economic life of an asset is also known as ________.

a.
residual value
b.
book value
c.
salvage life
d.
useful life

Answer

D. useful life

Multiple Choice 11.11 §11.4 source ↗

How are intangible assets with an indefinite life treated?

a.
They are depreciated.
b.
They are amortized.
c.
They are depleted.
d.
They are tested yearly for impairment.

Answer

D. They are tested yearly for impairment.

Multiple Choice 11.13 §11.4 source ↗

Which of the following represents an event that is less routine when accounting for long-term assets?

a.
recording an asset purchase
b.
recording depreciation on an asset
c.
recording accumulated depreciation for an asset or asset category
d.
changing the estimated useful life of an asset

Answer

D. changing the estimated useful life of an asset

Multiple Choice 11.15 §11.4 source ↗

The loss in value from all causes within a property except those due to physical deterioration is known as which of the following?

a.
functional obsolescence
b.
obsolescence
c.
true obsolescence
d.
deterioration

Answer

A. functional obsolescence

Question 11.1 §11.1 source ↗

What is the difference between tangible and intangible assets?

Answer

The main difference between tangible and intangible assets is that tangible assets have a physical substance to them. This means they can be touched and have some physical form.

Question 11.3 §11.1 source ↗

What is the difference between a patent and a copyright?

Answer

A patent is a contract that provides a company with exclusive rights to produce and sell a unique product. It is granted by the federal government and provides exclusivity from competition for twenty years. A copyright provides the exclusive right to reproduce and sell artistic, literary, or musical compositions for a period of seventy years beyond the death of the original author.

Question 11.5 §11.2 source ↗

For each of the following transactions, state whether the cost would be capitalized (C) or recorded as an expense (E).

A. Purchased a machine, $100,000; gave long-term note

B. Paid $600 for ordinary repairs

C. Purchased a patent for $45,300 cash

D. Paid $200,000 cash for addition to old building

E. Paid $20,000 for monthly salaries

F. Paid $250 for routine maintenance

G. Paid $16,000 for major repairs

Answer

A. capitalized. B. expense. C. capitalized. D. capitalized. E. expense. F. expense. G. capitalized.

Question 11.7 §11.2 source ↗

Describe the relationship between expense recognition and long-term assets.

Answer

In measuring and reporting long-term assets, the expense recognition (“matching”) principle is applied. Under the expense recognition or “matching” principle, the acquisition cost of the asset must be allocated to the periods in which it is used to earn revenue. In this way, the cost of the asset is matched, as an expense, with the revenues that are earned from period to period through the use of the asset.

Question 11.9 §11.3 source ↗

Explain the difference between depreciation, depletion, and amortization.

Answer

Depreciation is the process of allocating the cost of using a long-term asset over its anticipated economic (useful) life, whereas depletion is the process of expensing the cost of natural resources over the life of the asset, typically using a unit-consumed method. Amortization is specifically for intangible assets and typically is calculated using straight-line with no salvage value.

Question 11.11 §11.4 source ↗

What is goodwill, and what are the unique aspects of accounting for it?

Answer

Goodwill is internally generated, but it is not recorded as an asset unless (and only when) one company acquires another company at a price greater than the total value of the net assets being purchased. The purchaser will record goodwill for the difference between the fair value of net assets acquired and the purchase price. Goodwill is not amortized and will be tested annually for impairment.

Question 11.13 §11.5 source ↗

What is the difference between functional obsolescence and physical obsolescence?

Answer

Obsolescence refers to the reduction in value and/or use of an asset. It may refer to the actual physical deterioration of the asset, which is known as physical obsolescence, or to the loss of value from causes other than physical deterioration, which is functional obsolescence. Functional obsolescence is specific to the organization and the usefulness the asset has for the company going forward. This type of obsolescence could be the result of simply not needing the asset any longer.

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Problems and answers are adapted from Principles of Accounting, Volume 1: Financial Accounting by Mitchell Franklin, Patty Graybeal and Dixon Cooper, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.