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Exam 8: Operating Assets: Property, plant, and Equipment, and Intangibles

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Question 81

Multiple Choice

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Research and development costs are

A) treated as an expense when incurred.
B) capitalized but not amortized.
C) capitalized and amortized over the periods that will probably benefit from the research and development.
D) included with the cost of the patent resulting from the research and development.

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Question 82

Multiple Choice

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Cripple Creek Inc. Use the information presented below for Cripple Creek,Inc.for 2013 and 2012 to answer the questions that follow.Cripple Creek uses the straight-line depreciation method. Refer to the information for Cripple Creek,Inc. Between 2012 and 2013,Cripple Creek sold some equipment that had an original cost of $57,500.Which statement is most likely true concerning transactions that must have occurred during the period?

A) Cripple Creek also purchased additional equipment during the year.
B) The selling price of the equipment sold was reported with net sales.
C) The equipment that was sold had a book value of $12,500.
D) The equipment sold had not been reported with Cripple Creek's property,plant and equipment.

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Question 83

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A change in estimate of an asset's residual value involves restating the income statements of past periods for the estimate change.

Interest is capitalized when incurred in connection with the construction of plant assets because

Focus,Inc.determined that it had incorrectly estimated both the estimated life and the estimated residual value of equipment that it purchased two years ago.When Focus accounts for the change in accounting estimates,it must depreciate the remaining book value of the asset over the current and future accounting periods.

Capitalizing an expenditure rather than recording it as a revenue expenditure

For each of the following sentences 11-14,select the word or group of words that best completes the statement. ______________________________ is (are)the right to produce or sell a published work.

Plant assets,current assets,property,plant and equipment,and fixed assets are all tangible assets.

The FASB standards do not have a specific rule that requires residual value and asset life to be reviewed annually for property,plant,and equipment.

Using different depreciation methods for book purposes versus tax purposes for the same asset is

You have just received an email from the new staff person,Jennifer Lark.She has just started working in the Fixed Assets Department of your company.She would like to know under what circumstances should she capitalize interest as part of the cost of an asset.In a brief memo,explain the issues to Ms.Lark.

Capitalizing interest increases the recorded cost of a plant asset.

The Property,Plant,and Equipment category includes long-term investments.

Wind Chime and Fire Hut Companies purchased identical equipment having an estimated useful life of ten years.Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation.Assuming the two entities are similar in all other respects,which of the following statements is correct?

When a real estate company sells equipment for a gain,the Gain on Sale of Asset is treated as revenue.

Land is not a depreciable asset,but the amount allocated to the building is subject to ______________.

Wen's Export Co. Wen's Export Co.purchased a new delivery truck at the beginning of 2013.The truck has a cost of $37,000,an estimated life of 5 years,and an estimated residual value of $7,000.A full year's depreciation expense is to be recorded in 2013.The truck was driven 20,000 miles during 2013 and 24,000 miles during 2014.The number of expected miles over five years is 100,000. Refer to information for Wen's Export Co. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck?

River Company wants to minimize the amount of time and effort its bookkeepers spend on calculating depreciation.Since River has not been profitable,taxes are not an issue,but maximizing the profit and minimizing reported losses are major concerns.Recommend a course of action for River.Support your recommendation.

Waxman Company purchased a patent for $170,000 at the beginning of 2013,and estimated that its expected useful life was 10 years.The patent has a legal life of 17 years.What amount should be recorded as amortization expense for the patent in 2013?

If a company chooses to treat small plant asset expenditures as expenses,GAAP are being violated.