Long-Term Assets: Accounting Principles and Practices

Question 1

Depreciation expense for property, plant, and equipment is calculated based on:

Accepted Answer

Historical cost and estimated useful life

Answer

Fair value and estimated useful life

Answer

Historical cost and estimated salvage value

Answer

Fair value and estimated salvage value

Question 2

Which of the following methods is used to account for investments in equity securities where the investor has significant influence over the investee?

Accepted Answer

Equity method

Answer

Fair value method

Answer

Cost method

Answer

Lower of cost or market method

Question 3

Intangible assets with an indefinite useful life are:

Accepted Answer

Not amortized

Answer

Amortized over a specified period

Answer

Depreciated over a specified period

Answer

Depreciated over an indefinite period

Question 4

Depreciation methods result in different patterns of depreciation expense over an asset's useful life. Which of the following methods results in the highest depreciation expense in the early years?

Accepted Answer

Double-declining balance method

Answer

Straight-line method

Answer

Sum-of-the-years'-digits method

Answer

Units-of-production method

Question 5

Investments in bonds that are classified as held-to-maturity are accounted for using which method?

Accepted Answer

Cost method

Answer

Fair value method

Answer

Equity method

Answer

Lower of cost or market method

Question 6

Depreciation expense is recorded to:

Accepted Answer

Reduce the asset's carrying value on the balance sheet

Answer

Increase retained earnings on the income statement

Answer

Reduce current liabilities on the balance sheet

Answer

Increase cash flow from operations on the statement of cash flows

Question 7

Which of the following depreciation methods results in a constant periodic depreciation expense throughout the asset's useful life?

Accepted Answer

Straight-line

Answer

Units-of-production

Answer

Declining balance

Answer

Sum-of-the-years'-digits

Question 8

Intangible assets, such as patents and trademarks, are amortized over:

Accepted Answer

Their estimated useful life

Answer

10 years

Answer

15 years

Answer

Indefinitely

Question 9

The cost of major repairs and improvements to an asset is:

Accepted Answer

Capitalized and added to the asset's cost

Answer

Expensed as incurred

Answer

Depreciated over the asset's remaining useful life

Answer

Recorded as a separate asset

Question 10

The gain or loss on the sale of a long-term asset is:

Accepted Answer

Recorded as part of the income from operations

Answer

Reported as an extraordinary item

Answer

Recognized as a contra-asset account

Answer

Shown as a retained earnings adjustment

Question 11

Investments in debt securities, such as bonds, can be classified as:

Accepted Answer

Any of the above

Answer

Held-to-maturity

Answer

Available-for-sale

Answer

Trading

Question 12

The allocation of the cost of a capital asset over its estimated useful life is known as:

Accepted Answer

Depreciation

Answer

Amortization

Answer

Depletion

Answer

Accumulation

Question 13

Which factor is excluded when estimating an asset's useful life for depreciation calculations?

Accepted Answer

Technological advancements

Answer

Expected usage

Answer

Physical condition

Answer

Maintenance and repair costs

Question 14

Which of the following is NOT a widely recognized method of depreciating long-term assets?

Accepted Answer

Sinking fund method

Answer

Straight-line method

Answer

Units-of-production method

Answer

Double-declining balance method

Question 15

Which of the following costs is NOT included when calculating the capitalized cost of a building?

Accepted Answer

Rent paid during construction

Answer

Materials used in construction

Answer

Labor costs for construction

Answer

Property taxes incurred during construction

Question 16

Which of the following depreciation methods allocates the cost of a depreciable asset evenly over its useful life?

Accepted Answer

Straight-line method

Answer

Units-of-production method

Answer

Sum-of-the-years'-digits method

Answer

Double-declining balance method

Question 17

What is the primary reason for recognizing an impairment loss on a long-term asset?

Accepted Answer

To reflect a permanent decline in the asset's fair value below its carrying amount

Answer

To reduce the company's taxable income

Answer

To avoid overstating the asset's value on the balance sheet

Answer

To prepare for the future sale of the asset

Question 18

What is the primary distinction between a capital expenditure and a revenue expenditure?

Accepted Answer

Capital expenditures benefit future periods, while revenue expenditures benefit the current period.

Answer

Revenue expenditures benefit future periods, while capital expenditures benefit the current period.

Answer

Both capital expenditures and revenue expenditures benefit future periods.

Answer

Neither capital expenditures nor revenue expenditures benefit future periods.

Question 19

Which of the following accounting principles governs the recognition and measurement of long-term assets?

Accepted Answer

Historical cost principle

Answer

Matching principle

Answer

Going concern principle

Answer

Consistency principle

Question 20

Define the characteristic that is NOT applicable to long-term assets.

Accepted Answer

Convertible into cash within a year

Answer

Physically tangible

Answer

Utilized in operations for a period exceeding one year

Answer

Depreciation or amortization may be applied

Question 21

When determining the acquisition cost of land, which of the following is EXCLUDED?

Accepted Answer

Interest on secured loan

Answer

Purchase price

Answer

Closing costs

Answer

Property taxes

Question 22

Classify investments intended to be sold within a year.

Accepted Answer

Trading securities

Answer

Available-for-sale securities

Answer

Held-to-maturity securities

Answer

Not classifiable as any of the above

Question 23

Define fair value as it pertains to long-term assets.

Accepted Answer

The amount it could be sold for

Answer

Its original cost

Answer

Its replacement cost

Answer

The amount it would cost to construct a similar asset

Question 24

When is a loss recognized upon disposal of a long-term asset?

Accepted Answer

When sales proceeds are less than the carrying value

Answer

When sales proceeds exceed the carrying value

Answer

When the asset is exchanged for a similar asset

Answer

When the asset is abandoned

Question 25

Which financial statement provides the most detailed information on long-term assets?

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Statement of cash flows

Answer

Statement of changes in equity

Question 26

Which of the following is a defining characteristic of a long-term asset?

Accepted Answer

Anticipated to be owned for longer than one year

Answer

Expected to be converted into cash within a year

Answer

Utilized in the company's ongoing operations

Answer

Held for sale as part of the normal course of business

Question 27

What is the term for the process by which a company acquires an asset and records it on its financial statements?

Accepted Answer

Capitalization

Answer

Depreciation

Answer

Amortization

Answer

Impairment

Question 28

Which depreciation method allocates the cost of an asset evenly over its useful life?

Accepted Answer

Straight-line method

Answer

Declining-balance method

Answer

Units-of-production method

Answer

Depletion method

Question 29

What is the primary purpose of intangible assets?

Accepted Answer

To generate future economic benefits

Answer

To be sold for a profit

Answer

To reduce expenses

Answer

To comply with regulations

Question 30

How should an impairment loss be accounted for?

Accepted Answer

Decrease the asset's carrying amount

Answer

Increase the asset's carrying amount

Answer

Increase the retained earnings account

Answer

Decrease the other comprehensive income account

Question 31

What is a primary advantage of using the straight-line method of depreciation?

Accepted Answer

Simplicity and ease of calculation

Answer

More accurate reflection of asset usage

Answer

Lower depreciation expense in the early years

Answer

Higher depreciation expense in the later years

Question 32

Why is it important to consider expected future cash flows when valuing long-term assets?

Accepted Answer

To determine the asset's fair value

Answer

To assess the asset's riskiness

Answer

To forecast future profits

Answer

To calculate the asset's carrying amount

Question 33

What is the appropriate accounting treatment for a capital expenditure on a long-term asset?

Accepted Answer

Capitalized and depreciated over its useful life

Answer

Expensed immediately

Answer

Recorded as an asset and amortized over its useful life

Answer

Recorded as an expense and recognized as a loss

Question 34

Which of the following is an example of an intangible asset?

Accepted Answer

Patent

Answer

Land

Answer

Building

Answer

Equipment

Question 35

Which of the following is NOT a factor to consider in determining the fair value of a long-term asset?

Accepted Answer

Historical cost

Answer

Market value

Answer

Replacement cost

Answer

Estimated future cash flows

Question 36

Which of the following is NOT a category of long-term assets?

Accepted Answer

Current liabilities

Answer

Property, plant, and equipment

Answer

Intangible assets

Answer

Investments

Question 37

According to the historical cost principle, long-term assets are recorded at their:

Accepted Answer

Original acquisition cost

Answer

Current market value

Answer

Estimated future value

Answer

Depreciated value

Question 38

Which of the following is NOT a method used to depreciate fixed assets?

Accepted Answer

Amortization method

Answer

Straight-line method

Answer

Declining-balance method

Answer

Units-of-production method

Question 39

Which account is credited when an intangible asset is acquired?

Accepted Answer

Intangible assets

Answer

Accumulated amortization

Answer

Retained earnings

Answer

Cash

Question 40

Which of the following is a characteristic of goodwill?

Accepted Answer

Indefinite useful life

Answer

Identifiable and separable from other assets

Answer

Amortized over 10 years

Answer

Recognized only when acquired through a merger

Question 41

Which investment accounting method provides the investor with the least control over the investee?

Accepted Answer

Cost method

Answer

Equity method

Answer

Consolidation method

Answer

Unrealized gain or loss method

Question 42

What is the primary purpose of the allowance for doubtful accounts?

Accepted Answer

To estimate potential uncollectible accounts receivable

Answer

To track customer payments

Answer

To reduce the book value of accounts receivable

Answer

To calculate bad debt expense

Question 43

What is a key difference between property and equipment?

Accepted Answer

Property includes land and buildings, while equipment is movable

Answer

Equipment is more likely to be depreciated than property

Answer

Property is typically acquired through purchase, while equipment can be leased

Answer

Property is a current asset, while equipment is a long-term asset

Question 44

Identify the characteristic of a long-term asset:

Accepted Answer

Intended for long-term value appreciation

Answer

Convertible into cash within a year

Answer

Used in day-to-day business operations

Question 45

What expenses are included in the initial cost of an asset?

Accepted Answer

Purchase price, shipping, and installation costs

Answer

Purchase price only

Answer

Shipping and installation costs only

Question 46

Which depreciation method allocates an asset's cost equally over its useful life?

Accepted Answer

Straight-line method

Answer

Units-of-production method

Answer

Double-declining balance method

Question 47

Intangible assets encompass:

Accepted Answer

Patents, trademarks, and goodwill

Answer

Patents only

Answer

Patents and trademarks only

Question 48

When valuing an investment in another company, consider:

Accepted Answer

Market value of the investment, earnings of the investee company, and control over the investee company

Answer

Market value of the investment only

Answer

Earnings of the investee company only

Question 49

Selling a long-term asset resulting in a loss:

Accepted Answer

Decreases retained earnings

Answer

Increases retained earnings

Answer

Has no effect on retained earnings

Question 50

Depreciation expense is considered:

Accepted Answer

Both an operating and a non-cash expense

Answer

An operating expense only

Answer

A non-cash expense only

Question 51

Disposing of a long-term asset at a gain:

Accepted Answer

Increases retained earnings

Answer

Decreases retained earnings

Answer

Has no effect on retained earnings

Question 52

Which characteristic accurately describes property, plant, and equipment (PP&E)?

Accepted Answer

Physically tangible assets utilized in operations

Answer

Easily convertible into cash within one year

Answer

Owned by the business for a period less than one year

Answer

Used exclusively for administrative activities

Question 53

How is the cost of land initially acquired recorded in financial statements?

Accepted Answer

Recorded as an asset on the balance sheet

Answer

Expensed in the year of acquisition

Answer

Deducted from equity

Answer

Reported as a liability on the balance sheet

Question 54

What is the primary purpose of conducting an impairment test for long-term assets?

Accepted Answer

To assess if the asset's carrying value exceeds its recoverable amount

Answer

To determine the fair value of the asset

Answer

To calculate the depreciation expense for the year

Answer

To estimate the remaining useful life of the asset

Question 55

Which of the following is considered an example of an intangible asset?

Accepted Answer

Patents

Answer

Inventory held for sale

Answer

Land held for future development

Answer

Buildings used in operations

Question 56

How is goodwill accounted for on the balance sheet?

Accepted Answer

Reported as an asset under intangible assets

Answer

Classified as a liability under current liabilities

Answer

Expensed in the year of acquisition

Answer

Deducted from retained earnings