Chapter 9

Question 1

What is the primary purpose of property, plant, and equipment (PPE)?

Answer 1

To provide long-term assets for the production of goods or services.

Question 2

True or False: Property, plant, and equipment are considered current assets.

Answer 2

False

Question 3

Which accounting method is commonly used to depreciate property, plant, and equipment?

Answer 3

Straight-line method

Question 4

Fill in the blank: The cost of property, plant, and equipment includes all expenditures necessary to acquire the asset and prepare it for its intended use, known as __________.

Answer 4

capitalized costs

Question 5

What are the two main categories of costs associated with acquiring PPE?

Answer 5

Acquisition costs and installation costs

Question 6

What is included in the acquisition cost of PPE?

Answer 6

Purchase price, taxes, transportation, and installation costs.

Question 7

True or False: Land is subject to depreciation.

Answer 7

False

Question 8

What is the useful life of an asset?

Answer 8

The period over which the asset is expected to be used.

Question 9

Define ‘disposition’ in the context of property, plant, and equipment.

Answer 9

The sale, retirement, or disposal of an asset.

Question 10

What is impairment in relation to property, plant, and equipment?

Answer 10

A permanent reduction in the value of an asset.

Question 11

Multiple Choice: Which of the following is NOT a method of depreciation? A) Straight-line B) Double declining balance C) Net present value D) Units of production

Answer 11

C) Net present value

Question 12

What is the formula for calculating straight-line depreciation?

Answer 12

Cost of asset minus salvage value divided by useful life.

Question 13

True or False: Salvage value is the estimated residual value at the end of an asset’s useful life.

Answer 13

True

Question 14

Fill in the blank: A gain or loss on the disposition of PPE is calculated by comparing the __________ to the book value.

Answer 14

selling price

Question 15

What is the purpose of a capital expenditure?

Answer 15

To acquire or improve long-term assets.

Question 16

True or False: Routine maintenance costs are capitalized.

Answer 16

False

Question 17

What is the effect of a capital lease on property, plant, and equipment?

Answer 17

It is recorded as an asset and a liability on the balance sheet.

Question 18

Multiple Choice: Which of the following is a criterion for determining if an asset should be capitalized? A) It has a useful life of more than one year B) It costs less than $1,000 C) It is used for personal use D) It is easily replaceable

Answer 18

A) It has a useful life of more than one year

Question 19

What is the journal entry to record the purchase of PPE?

Answer 19

Debit PPE account and credit cash or payable account.

Question 20

True or False: The book value of an asset is its original cost minus accumulated depreciation.

Answer 20

True

Question 21

What is the primary financial statement that reflects property, plant, and equipment?

Answer 21

The balance sheet

Question 22

Fill in the blank: When an asset is disposed of, any accumulated depreciation is __________.

Answer 22

removed from the books

Question 23

What is the difference between a capital lease and an operating lease?

Answer 23

A capital lease transfers ownership risks and benefits, while an operating lease does not.

Question 24

Multiple Choice: Which of the following is NOT typically included in the cost of land? A) Purchase price B) Closing costs C) Land improvements D) Demolition costs

Answer 24

C) Land improvements

Question 25

What is the effect of an asset impairment on financial statements?

Answer 25

It reduces the asset's book value and increases expenses.

Question 26

True or False: The residual value of an asset affects its depreciation expense.

Answer 26

True

Question 27

What is a 'capitalization policy'?

Answer 27

The guidelines for determining which costs should be capitalized.

Question 28

Fill in the blank: The __________ method of depreciation accelerates expense recognition in the early years of an asset's life.

Answer 28

double declining balance

Question 29

What is the main reason for performing a periodic review of PPE?

Answer 29

To assess for impairment and ensure accurate valuation.

Question 30

True or False: All costs incurred during the construction of a building should be capitalized.

Answer 30

True

Question 31

What is the journal entry when disposing of an asset?

Answer 31

Debit accumulated depreciation, debit loss or credit gain, and credit the asset account.

Question 32

Multiple Choice: Which term describes the process of allocating the cost of a tangible asset over its useful life? A) Amortization B) Depreciation C) Depletion D) Capitalization

Answer 32

B) Depreciation

Question 33

What does the term 'useful life' refer to in accounting?

Answer 33

The estimated period that an asset is expected to be economically usable.

Question 34

Fill in the blank: The __________ approach to depreciation allocates the cost based on the asset's usage.

Answer 34

units of production

Question 35

What is 'depletion' in relation to property, plant, and equipment?

Answer 35

The allocation of the cost of natural resources over time.

Question 36

True or False: Depreciation methods can be changed once an asset is in use.

Answer 36

False

Question 37

What is the significance of a 'salvage value' in depreciation calculations?

Answer 37

It reduces the total depreciable amount of the asset.

Question 38

Multiple Choice: Which financial statement would you find impairment losses reported? A) Income Statement B) Statement of Cash Flows C) Statement of Changes in Equity D) Balance Sheet

Answer 38

A) Income Statement

Question 39

What is the impact of a gain on the sale of PPE on taxes?

Answer 39

It may increase taxable income.

Question 40

Fill in the blank: The __________ is the difference between the selling price of an asset and its book value at the time of sale.

Answer 40

gain or loss

Question 41

What should companies disclose regarding property, plant, and equipment in their financial statements?

Answer 41

Policies for depreciation and impairment, and a breakdown of asset categories.

Question 42

True or False: Capital expenditures are often financed through long-term debt.

Answer 42

True

Question 43

What is the primary reason for recording the acquisition cost of an asset?

Answer 43

To reflect the true cost of the asset on the balance sheet.