Chapter 7
Fixed Assets and Intangible Assets

Quiz Instructions

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1. If a capital expenditure is treated as a revenue expenditure, then __________.
a. Expenses are overstated and owners' equity is understated
b. Expenses are overstated and assets are overstated
c. Expenses are understated and owners' equity is overstated
d. Net income is overstated and owners' equity is understated

2. Which of the following expenditures would NOT be included in the cost of an asset?
a. Freight costs
b. Vandalism
c. Sales tax
d. Costs of clearing land

3. The process of transferring the cost of natural resources to an expense is termed __________.
a. Depreciation
b. Amortization
c. Depletion
d. Reserve recognition

4. A company acquired some land for $80,000 to construct a new office complex. Legal fees paid were $2,300, delinquent taxes assumed were $3,400 and $5,850 was paid to remove an old building from which salvaged materials sold for $950. What is the cost basis for the land?
a. $90,600
b. $91,550
c. $88,150
d. $87,200

5. A machine was purchased for $45,000. It has a useful life of 6 years and a residual value of $6,000. Under the straight-line method, what is annual depreciation expense?
a. $7,500
b. $15,000
c. $3,750
d. $6,500

6. Equipment was purchased for $16,000. It has a useful life of 5 years and a residual value of $2,000. What is depreciation expense for year two under the declining-balance method, using double the straight-line rate?
a. $6,400
b. $3,360
c. $3,840
d. $4,160

7. On April 1, a machine with a useful life of 4 years and a residual value of $12,000 was purchased for $87,000. What is depreciation expense for the second year under declining-balance depreciation, assuming a December 31 year-end?
a. $21,750
b. $18,750
c. $27,187.50
d. $23,437.50

8. A company acquired mineral rights for $10,000,000 which are estimated at 80,000 tons. During the year 15,000 tons were extracted and sold. How much depletion should be recorded for the year?
a. $5,000,000
b. $1,875,000
c. $3,750,000
d. $2,500,000

9. A company sold a delivery truck for $18,000 cash. The truck cost $47,500 and had accumulated depreciation of $36,000 as of the date of sale. The sale would include a(n) __________.
a. Increase in Accumulated Depreciation for $36,000
b. Decrease in Delivery Truck for $11,500
c. Increase in a loss for $6,500
d. Increase in a gain for $6,500

10. A patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 8-year economic life. The amortization would include a(n) __________.
a. Increase in amortization expense for $33,500
b. Increase in research and development expense for $670,000
c. Decrease in Patent for $83,750
d. Increase in Accumulated Amortization for $670,000



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