Fundamental Accounting Principles 14e Canadian Edition (Volume
2) Kermit Larson Tilly Jensen (Ch 10-18) (Test Bank All Chapters,
100% Original Verified, A+ Grade)
Answers At The End Of Each Chapter
Chapter 10_Capital Assets and Goodwill
Student: ___________________________________________________________________________
1. Property, plant and equipment are assets held for sale.
True False
2. Non-current assets are any liabilities that are used in the operations of a business.
True False
3. Non-current assets can be divided into two groups including tangible and intangible assets. These
assets are generally used in operations of a business and have useful lives extending over more than one
accounting period.
True False
4. Land purchased as a building site is a tangible asset called property, plant and equipment and is classified
under the "Long-term Investments" section on the balance sheet.
True False
5. The cost of an asset includes all normal and reasonable expenditures necessary to get it in place and ready
for its intended use.
True False
6. If a machine is damaged during unpacking, the repairs are added to its cost.
True False
7. To be charged to and reported as part of the cost of property, plant and equipment, an expenditure must
be normal, reasonable, and necessary in preparing the asset for its intended use.
True False
8. The purchase of real estate that includes land, building, and land improvements is called a lump-sum
purchase.
True False
9. Any expenditures for legal fees, surveying, and accrued property taxes should not be included in the cost
of land.
True False
10. Revenue expenditures are additional costs of property, plant and equipment that provide material benefits
extending beyond the current period.
True False
11. Revenue expenditures are expenditures to keep assets in normal operating condition.
True False
12. Capital expenditures are also called balance sheet expenditures.
True False
13. SportsWorld spent $17,000 to remodel its store. This cost will be recognized with a debit to Store
Building.
True False
14. Treating small-dollar-amount capital expenditures as revenue expenditures is likely to mislead users of
financial statements.
True False
,15. The cost principle requires that an asset be recorded at the cash or cash equivalent amount given in
exchange.
True False
16. Subsequent expenditures are purchases made after the acquisition of equipment to operate, maintain,
repair, and improve it.
True False
17. Depreciation is the process of allocating the cost of a tangible asset in a rational and systematic manner
over the asset's estimated useful life.
True False
18. Residual value is an estimate of an asset's value at the end of its useful life.
True False
19. Inadequacy refers to the condition where the capacity of a property, plant and equipment item is too small
to meet the company's productive demands.
True False
20. Depreciation should always be recorded as soon as an asset is purchased.
True False
21. Depreciation measures the decline in market value of an asset.
True False
22. Because depreciation is based on predictions of residual value and useful life, depreciation is an
estimate.
True False
23. On the balance sheet, it is not necessary to report both the cost and the accumulated depreciation of an
asset.
True False
24. Accumulated depreciation represents funds set aside to buy new assets when the assets currently owned
are replaced.
True False
25. The relevance principle requires that property, plant and equipment be reported at book value rather than
at market value.
True False
26. Regardless of the method of depreciation, total depreciation expense will be the same over an asset's
useful life.
True False
27. Financial accounting and tax accounting require the same recordkeeping; therefore, there should be no
difference in results between the two accounting systems.
True False
28. Companies are required to use the straight line depreciation method for tax purposes because this method
yields the lowest depreciation expense and results in the highest payment of tax.
True False
29. The Income Tax Act generally requires that companies use a double-declining-balance method of cost
allocation called Capital Cost Allowance to determine the maximum amount of deduction for a taxation
year.
True False
30. Because land has unlimited life, it is not subject to depreciation. Therefore, items that increase the
usefulness of the land such as parking lots are also not depreciated.
True False
,31. The most frequently used method of depreciation is the straight-line method.
True False
32. The cost of an asset plus its accumulated depreciation equals the asset's book value.
True False
33. The units of production method of depreciation charges a varying amount of expense for each period of
an asset's useful life depending on its usage.
True False
34. An accelerated depreciation method yields smaller depreciation expense in the early years of an asset's
life and larger charges in later years.
True False
35. The double-declining balance method is applied by (1) calculating the asset's straight-line depreciation
rate, (2) doubling it, (3) subtracting residual value from cost, and (4) multiplying the rate times the
cost.
True False
36. SportsWorld purchased store equipment for $65,000. The equipment has an estimated residual value of
$6,000, with an estimated useful life of 10 years. The annual depreciation using the straight-line method
will be $3,900 per year.
True False
37. A company is required to purchase all assets at the beginning of an accounting period so that a full year's
worth of depreciation can be taken.
True False
38. Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on
June 28. Using the nearest whole month method, the company would recognize $11,250 for depreciation
expense at the end of the first year, December 31.
True False
39. A depreciable asset that is purchased on March 18 would be depreciated for nine months of the first year,
if the fiscal year ends on December 31 using nearest whole month method.
True False
40. The half year rule is the partial-year depreciation method that calculates depreciation by determining if
the asset was used for more than half of the month.
True False
41. Machinery after two years worth of depreciation has an opening book value of $6,400. At the beginning
of the third year, the predicted number of years remaining in its useful life changes from three years to
four years and its estimated residual value changes from the original $1,000 to $400. The revised annual
depreciation using the straight-line method is $1,500.
True False
42. An asset that cost $5,000 has a current book value of $2,000. A revision of the useful life of the asset
estimates the asset has a remaining useful life of four years and will have a residual value of $400. Using
the straight-line method, the revised depreciation will be $500 per year.
True False
43. When the cost of the asset changes because of a subsequent capital expenditure, revised depreciation for
current and future periods must be calculated and adjusted.
True False
44. Depreciation amounts can be revised because of changes in the estimates for residual value, useful life or
because of subsequent revenue expenditures.
True False
, 45. An asset with a current book value of $5,000 has a current market value of $2,000. The company should
recognize an impairment loss of $3,000.
True False
46. If the book value of a property, plant and equipment item is less than the amount to be recovered through
the asset's use or sale, the difference is an impairment loss and the asset is described as impaired.
True False
47. Impairment can result from a variety of situations that include a significant decline in an asset's market
value or a major adverse effect caused by technological, economic, or legal factors.
True False
48. Impairment losses must be assessed by companies on an annual basis.
True False
49. The gain or loss from disposal of property, plant and equipment is the difference between an asset's book
value and the value received.
True False
50. Property, plant and equipment can be disposed of by discarding, sale, or exchange of the asset.
True False
51. The first step in accounting for the disposal of property, plant and equipment is calculating the gain or
loss on disposal.
True False
52. Equipment costing $14,000 with accumulated depreciation of $10,000 was sold for $3,000. The company
should recognize a $1,000 loss on disposal of the equipment.
True False
53. At the time a plant asset is being discarded or sold, it is necessary to update the accumulated depreciation
of the plant asset to the date of disposal.
True False
54. When accumulated depreciation equals the asset's cost, the asset is fully depreciated. The entry to record
the removal of the asset is called exchanging the equipment.
True False
55. When assigning values to an exchange of assets you should use the fair value of the asset given up.
True False
56. When assigning values to an exchange of assets you should always use the fair value of the asset
received.
True False
57. A patent is an exclusive right granted to its owner to manufacture and sell a patented machine or device,
or to use a process, for a specified period of time.
True False
58. Intangible assets should be amortized over their anticipated legal, regulatory, contractual, competitive or
economic life.
True False
59. Amortization is the process of allocating the cost of intangibles over their estimated useful life.
True False
60. Drilling rights are legal permissions to extract natural resources from the earth and are treated as
intangible assets.
True False
