Chapter 10--Fixed Assets and Intangible Assets
Student: ___________________________________________________________________________
1. Long-lived assets that are intangible in nature, used in the operations of the business, and not held for sale in
the ordinary course of business are called fixed assets.
True False

2. The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary
costs to get the asset in place and ready for use.
True False

3. When land is purchased to construct a new building, the cost of removing any structures on the land should
be charged to the building account.
True False

4. Land acquired as a speculation is reported under Investments on the balance sheet.
True False

5. To a major resort, timeshare properties would be classified as property, plant and equipment.
True False

6. Standby equipment held for use in the event of a breakdown of regular equipment is reported as property,
plant, and equipment on the balance sheet.
True False

7. The cost of repairing damage to a machine during installation is debited to a fixed asset account.
True False

8. During construction of a building, the cost of interest on a construction loan should be charged to an expense
account.
True False


17. An intangible asset is one that has a physical existence.
True False


18. A capitalized asset will appear on the balance sheet as a long term asset.
True False

19. Long lived assets held for sale are classified as fixed assets.
True False

20. Functional depreciation occurs when a fixed asset is no longer able to provide services at the level for which
it was intended.
True False

21. The normal balance of the accumulated depreciation account is debit.
True False

22. As a company records depreciation expense for a period of time a corresponding cash inflow from investing
activities is reported on the statement of cash flows.
True False

23. All property, plant, and equipment assets are depreciated over time.
True False

24. The book value of a fixed asset reported on the balance sheet represents its market value on that date.
True False

25. The depreciable cost of a building is the same as its acquisition cost.
True False


True False

35. The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an
estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method.
True False


36. The amount of depreciation expense for a fixed asset costing $95,000, with an estimated residual value of
$5,000 and a useful life of 5 years or 20,000 operating hours, is $21,375 by the units-of-production method
during a period when the asset was used for 4,500 hours.
True False

37. The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000,
with an estimated residual value of $5,000 and a useful life of 4 years, is $25,000 by the declining-balance
method at twice the straight-line rate.
True False

38. When depreciation estimates are revised, all years of the asset’s life are affected.
True False

39. For income tax purposes most companies use an accelerated deprecation method called double declining
balance.
True False

40. Assets may be grouped according to common traits and depreciated by using a single composite rate.
True False

41. Regardless of the depreciation method, the amount that will be depreciated during the life of the asset will
be the same.
True False


50. When a plant asset is traded for another similar asset, losses on the asset traded are not recognized.
True False

51. When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.
True False

52. If a fixed asset with a book value of $10,000 is traded for a similar fixed asset, and a trade-in allowance of
$15,000 is granted by the seller, if the transaction is deemed to have commercial substance, the buyer would
report a gain on disposal of fixed assets of $5,000.
True False

53. The entry to record the disposal of fixed assets will include a credit to accumulated depreciation.
True False


54. Both the initial cost of the asset and the accumulated depreciation will be taken off the books with the
disposal of the asset.
True False

55. Minerals removed from the earth are classified as intangible assets.
True False

56. The method used to calculate the depletion of a natural resource is the straight line method.
True False

57. Intangible assets differ from property, plant and equipment assets in that they lack physical substance.
True False

58. The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in

66. An exchange is said to have commercial substance if future cash flows remain the same as a result of the
exchange.
True False

67. A characteristic of a fixed asset is that it is
A. intangible
B. used in the operations of a business
C. held for sale in the ordinary course of the business
D. a short-term investment

68. Land acquired so it can be resold in the future is listed in the balance sheet as a(n)
A. fixed asset
B. current asset
C. investment
D. intangible asset

69. Which of the following should be included in the acquisition cost of a piece of equipment?
A. transportation costs
B. installation costs
C. testing costs prior to placing the equipment into production
D. all are correct


70. Which of the following is included in the cost of constructing a building?
A. insurance costs during construction
B. cost of paving parking lot
C. cost of repairing vandalism damage during construction
D. cost of removing the demolished building existing on the land when it was purchased

71. Which of the following is included in the cost of land?

C. $121,000
D. $132,000


76. Expenditures that add to the utility of fixed assets for more than one accounting period are
A. committed expenditures
B. revenue expenditures
C. utility expenditures
D. capital expenditures

77. A capital expenditure results in a debit to
A. an expense account
B. a capital account
C. a liability account
D. an asset account

78. Which of the following below is an example of a capital expenditure?
A. cleaning the carpet in the front room
B. tune-up for a company truck
C. replacing an engine in a company car
D. replacing all burned-out light bulbs in the factory

79. In a lease contract, the party who legally owns the asset is the
A. lessee
B. lessor
C. operator
D. banker

80. All leases are classified as either
A. capital leases or long-term leases

85. All of the following below are needed for the calculation of straight-line depreciation except
A. cost
B. residual value
C. estimated life
D. units produced

86. The method of determining depreciation that yields successive reductions in the periodic depreciation
charge over the estimated life of the asset is
A. units-of-production
B. declining-balance
C. straight-line
D. time-valuation

87. When the amount of use of a fixed asset varies from year to year, the method of determining depreciation
expense that best matches allocation of cost with revenue is
A. declining-balance
B. straight-line
C. units-of-production
D. MACRS


88. A machine with a cost of $120,000 has an estimated residual value of $15,000 and an estimated life of 5
years or 15,000 hours. It is to be depreciated by the units-of-production method. What is the amount of
depreciation for the second full year, during which the machine was used 5,000 hours?
A. $ 5,000
B. $35,000
C. $21,000
D. $45,000

89. Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10


93. The depreciation method that does not use residual value in calculating the first year's depreciation expense
is
A. straight-line
B. units-of-production
C. double-declining-balance
D. none of the above

94.
If a fixed asset, such as a computer, were purchased on January 1st for $3,750 with an estimated life of 3 years
and a salvage or residual value of $150, the journal entry for monthly expense under straight-line depreciation
is:
(Note: EOM indicates the last day of each month.)
A. EOM Depreciation Expense
100
Accumulated Depreciation
100
B. EOM Depreciation Expense
1,200
Accumulated Depreciation
1,200
C. EOM Accumulated Depreciation
1,200
Depreciation Expense
1,200
D. EOM Accumulated Depreciation
100
Depreciation Expense
100


D. depreciable cost = initial cost

98. Expected useful life is
A. calculated when the asset is sold.
B. estimated at the time that the asset is placed in service.
C. determined each year that the depreciation calculation is made.
D. none of the answers are correct.

99. The calculation for annual depreciation using the straight-line depreciation method is
A. initial cost / estimated useful life
B. depreciable cost / estimated useful life
C. depreciable cost * estimated useful life
D. initial cost * estimated useful life

100. The calculation for annual depreciation using the units-of-production method is
A. (initial cost/estimated output) * the actual yearly output
B. (depreciable cost / yearly output) * estimated output
C. depreciable cost / yearly output
D. (depreciable cost / estimated output) * the actual yearly output

101. Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated
residual value of $9,000 and an estimated useful life of 5 years. Determine the 2nd year’s depreciation using
straight-line depreciation.
A. $13,200
B. $19,200
C. $ 9,600
D. $ 9,000


102. Which of the following is true?

D. $50,000

106. A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset
priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
A. $3,000
B. $4,500
C. $ 500
D. $1,500


107. A fixed asset with a cost of $30,000 and accumulated depreciation of $28,500 is sold for $3,500. What is
the amount of the gain or loss on disposal of the fixed asset?
A. $2,000 loss
B. $1,500 loss
C. $3,500 gain
D. $2,000 gain

108. The Bacon Company acquired new machinery with a price of $15,200 by trading in similar old machinery
and paying $12,700. The old machinery originally cost $9,000 and had accumulated depreciation of
$5,000. In recording this transaction, Bacon Company should record
A. the new machinery at $16,700
B. the new machinery at $12,700
C. a gain of $1,500
D. a loss of $1,500

109. When a company discards machinery that is fully depreciated, this transaction would be recorded with the
following entry
A. debit Accumulated Depreciation; credit Machinery
B. debit Machinery; credit Accumulated Depreciation
C. debit Cash; credit Accumulated Depreciation

C. Equipment Cr. $310,000
D. Gain on Disposal of Asset Cr. $50,000

114. On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the
equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the
end of the year. The company found a company that is willing to buy the equipment for $50,000. What is the
amount of the gain or loss on this transaction?
A. Gain of $50,000
B. Loss of $50,000
C. No gain or loss
D. Cannot be determined

115. On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the
equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the
end of the year. The company found a company that is willing to buy the equipment for $20,000. What is the
amount of the gain or loss on this transaction?
A. Gain of $20,000
B. Loss of $30,000
C. No gain or loss
D. Cannot be determined

116. On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the
equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the
end of the year. The company found a company that is willing to buy the equipment for $55,000. What is the
amount of the gain or loss on this transaction?
A. Cannot be determined
B. No gain or loss
C. Gain of $ 5,000
D. Gain of $55,000



121. The Weber Company purchased a mining site for $1,750,000 on July 1, 2014. The company expects to
mine ore for the next 10 years and anticipates that a total of 400,000 tons will be recovered. The estimated
residual value of the property is $150,000. During 2014 the company extracted 6,500 tons of ore. The
depletion expense for 2014 is
A. $17,500
B. $16,000
C. $26,000
D. $15,000


122. Expenditures for research and development are generally recorded as
A. current operating expenses
B. assets and amortized over their estimated useful life
C. assets and amortized over 40 years
D. current assets

123. The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of
intangible assets is
A. amortization
B. depletion
C. depreciation
D. allocation

124. Xtra Company purchased goodwill from Argus for $96,000. Argus had developed the goodwill over 12
years. How much would Xtra amortize the goodwill for its first year?
A. $7,000
B. $ 8,000
C. Goodwill is not amortized.
D. Not enough information.

A. $17,500
B. $30,000
C. $12,500
D. $40,000

130. On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of
$90,000 and an estimated useful life of 3 years and 30,000 hours.
Using straight line depreciation, calculate depreciation expense for the second year.
A. $17,500
B. $30,000
C. $12,500
D. $40,000

131. On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of
$90,000 and an estimated useful life of 3 years and 30,000 hours.
Using straight line depreciation, calculate depreciation expense for the last year.
A. $17,500
B. $30,000
C. $12,500
D. $40,000


132. What is the cost of the land, based upon the following data?

Land purchase price
Broker's commission
Payment for the demolition
and removal of existing building
Cash received from the sale of materials
salvaged from the demolished building

139. A machine costing $85,000 with a 5-year life and $5,000 residual value was purchased January 2,
2011. Compute depreciation for each of the five years, using the declining-balance method at twice the
straight-line rate.

140. Computer equipment was acquired at the beginning of the year at a cost of $63,000 that has an estimated
residual value of $3,000 and an estimated useful life of 5 years. Determine the (a) depreciable cost (b)
double-declining-balance rate, and (c) double-declining-balance depreciation for the first year.


141. An asset was purchased for $58,000 and originally estimated to have a useful life of 10 years with a
residual value of $3,000. After two years of straight line depreciation, it was determined that the remaining
useful life of the asset was only 2 years with a residual value of $2,000.
a) Determine the amount of the annual depreciation for the first two years.
b) Determine the book value at the end of the 2nd year.
c) Determine the depreciation expense for each of the remaining years after revision.

142. Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated
using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of
$7,500.

a)
b)
c)

What was the depreciation expense for the first year?
Assuming the equipment was sold at the end of the second year for $59,000, determine the gain or loss on sale of the equipment.
Journalize the entry to record the sale.

143. On the first day of the fiscal year, a new walk-in cooler with a list price of $58,000 was acquired in
exchange for an old cooler and $44,000 cash. The old cooler had a cost of $25,000 and accumulated