Multiple Choice Answers

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

2.
Hopson Company incurred $300,000 of research and development costs in its laboratory to develop a new product. It spent $40,000 in legal fees for a patent granted on January 2, 2010. On July 31, 2010, Hopson paid $30,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2010?
A) $300,000.
B) $70,000.
C) $370,000.
D) Some other amount.

3.
A company purchased land for $70,000 cash. Real estate brokers’ commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at
A) $77,000.
B) $70,000.
C) $75,000.
D) $82,000.
4.
A company sells a plant asset that originally cost $150,000 for $50,000 on December 31, 2010. The accumulated depreciation account had a balance of $60,000 after the current year’s depreciation of $15,000 had been recorded. The company should recognize a
A) $100,000 loss on disposal.
B) $40,000 gain on disposal.
C) $40,000 loss on disposal.
D) $25,000 loss on disposal.
5.
A machine that was purchased on January 1 for $15,000 has an estimated salvage value of $3,000. If the machine’s depreciation rate is 20%, its annual depreciation is
A) $3,000.
B) $12,000.
C) $2,400.
D) $3,600.

6.
The cost of land does not include
A) real estate brokers’ commission.
B) annual property taxes.
C) accrued property taxes assumed by the purchaser.
D) title fees.

7.
Salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining-balance method of depreciation.
A) True
B) False

8.
The return on assets ratio indicates how efficiently a company uses its assets.
A) True
B) False

9.
Rodgers Company purchased equipment and these costs were incurred:
Rodgers will record the acquisition cost of the equipment as
A) $22,500.
B) $24,300.
C) $24,620.
D) $25,050.

10.
Newell Company purchased a machine with a list price of $16,000. They were given a 10% discount by the manufacturer. They paid $100 for shipping and sales tax of $750. Newell estimates that the machine will have a useful life of 10 years and a residual value of $5,000. If Newell uses straight-line depreciation, annual depreciation will be
A) $1,025.
B) $1,018.
C) $1,525.
D) $940.

11.
If an acquired franchise or license is for an indefinite time period, then the cost of the asset should not be amortized.
A) True
B) False

12.
In recording the acquisition cost of an entire business
A) goodwill is recorded as the excess of cost over the fair value of identifiable net assets.
B) assets are recorded at the seller’s book values.
C) goodwill, if it exists, is never recorded.
D) goodwill is recorded as the excess of cost over the book value of identifiable net assets.

13.
If a plant asset is retired and is fully depreciated
A) a gain on disposal will be recorded.
B) phantom depreciation must be taken as though the asset were still on the books.
C) a loss on disposal will be recorded.
D) no gain or loss on disposal will be recorded.

14.
All of the following are factors that a company should consider before a write-down impairment of an asset is recorded except
A) an appraisal of the asset.
B) market trends.
C) company profits.
D) obsolescence of the asset.

15.
Land improvements are generally charged to the Land account.
A) True
B) False
16.
All plant assets (fixed assets) must be depreciated for accounting purposes.
A) True
B) False

17.
Trademarks are generally shown on the balance sheet under
A) Intangibles.
B) Investments.
C) Property, Plant, and Equipment.
D) Current Assets.

18.
A company purchased land for $72,000 cash. Real estate brokers’ commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the cost principle, the cost of land would be recorded at
A) $82,800.
B) $72,000.
C) $77,800.
D) $84,000.
19.
Interline Trucking purchased a tractor trailer for $98,000. Interline uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $14,000. If the truck is driven 90,000 miles in its first year, how much depreciation expense should Interline record?
A) $7,000.
B) $8,820.
C) $7,560.
D) $8,167.
20.
Pearson Company bought a machine on January 1, 2010. The machine cost $72,000 and had an expected salvage value of $12,000. The life of the machine was estimated to be 5 years. The depreciable cost of the machine is
A) $72,000.
B) $60,000.