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Fixed Assets

Fixed Assets MCQs

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Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,00...

$155,000
$145,000
$135,000
$125,000

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Cole Co. began constructing a building for its own use in January year 4. During year 4, Cole incurred interest of $50,000 on specific construction ...

$20,000
$40,000
$50,000
$70,000

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Clay Company started construction of a new office building on January 1, year 4, and moved into the finished building on July 1, year 5. Of the buil...

$102,000
$120,000
$150,000
$240,000

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On July 1, year 4, Balt Co. exchanged a truck for twenty-five shares of Ace Corp.’s common stock. On that date, the truck’s carrying amount was ...

$3,000
$2,500
$1,500
$1,250

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A nonmonetary exchange is recognized at fair value of the assets exchanged unless

Exchange has commercial substance.
Fair value is not determinable.
The assets are similar in nature.
The assets are dissimilar.

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In a nonmonetary exchange, which of the following situations will require the asset to be recognized at the recorded value of the asset relinquished...

A delivery truck exchanged for a delivery van that can deliver four times the quantity of goods to customers.
The exchanged item is intended to facilitate sales to customers.
The cash flows from the new asset will be significantly different from cash flows of the exchanged asset.
The assets are both productive assets.

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For purposes of nonmonetary exchanges, the configuration of cash flows includes which of the following?

The implicit rate, maturity date of loan, and amount of loan.
The risk, timing, and amount of cash flows of the assets.
The entity-specific value of the asset which is equal to the fair value of the asset exchanged.
The estimated present value of the assets exchanged.

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When determining the commercial substance of the exchange, which of the following items is not considered?

Cash flow of exchanged asset.
Cash flow of new asset.
Cash flow from tax effects on the exchange to avoid taxes.
Cash flow from potential sale of new equipment at a later date.

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On March 31, year 4, Winn Company traded in an old machine having a carrying amount of $16,800, and paid a cash difference of $6,000 for a new machi...

$0
$2,300
$3,700
$6,000

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In an exchange of assets that is deemed to lack commercial substance, Transit Co. received equipment with a fair value equal to the carrying amount ...

A loss equal to the cash given up.
A loss determined by the proportion of cash paid to the total transaction value.
A gain determined by the proportion of cash paid to the total transaction value.
Neither gain nor loss.

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May Co. and Sty Co. exchanged nonmonetary assets. The exchange did not result in the expected cash flows of the assets being significantly different...

Yes Yes
Yes No
No Yes
No No

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Vik Auto and King Clothier exchanged goods, held for resale, with equal fair values. Each will use the other’s goods to promote their own products...

A profit is not recognized.
A profit equal to the difference between the retail prices of the clothes received and the car.
A profit equal to the difference between the retail price and the cost of the car.
A profit equal to the difference between the fair value and the cost of the car.

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An entity disposes of a nonmonetary asset in a nonreciprocal transfer. A gain or loss should be recognized on the disposition of the asset when the ...

No Yes
No No
Yes No
Yes Yes

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On July 1, year 4, one of Rudd Co.’s delivery vans was destroyed in an accident. On that date, the van’s carrying value was $2,500. On July 15, ...

$1,000
$ 300
$0
$ (200)

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During year 4, King Company made the following expenditures relating to its plant building: Continuing and frequent repairs $40,000 Repainted the p...

$96,000
$82,000
$64,000
$54,000

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On June 18, year 4, Dell Printing Co. incurred the following costs for one of its printing presses: Purchase of collating and stapling attachment $8...

$0
$ 84,000
$120,000
$160,000

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A building suffered uninsured fire damage. The damaged portion of the building was refurbished with higher quality materials. The cost and related a...

Reduce accumulated depreciation equal to the cost of refurbishing.
Record a loss in the current period equal to the sum of the cost of refurbishing and the carrying amount of the damaged portion of the building.
Capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the damaged portion of the building.
Capitalize the cost of refurbishing by adding the cost to the carrying amount of the building.

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Derby Co. incurred costs to modify its building and to rearrange its production line. As a result, an overall reduction in production costs is expec...

Yes No
Yes Yes
No No
No Yes

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Rago Company takes a full year’s depreciation expense in the year of an asset’s acquisition, and no depreciation expense in the year of disposit...

$12,000
$18,000
$22,000
$24,000

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On January 2, year 1, Union Co. purchased a machine for $264,000 and depreciated it by the straight-line method using an estimated useful life of ei...

$176,000
$160,000
$154,000
$146,000

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On January 1, year 1, Crater, Inc. purchased equipment having an estimated salvage value equal to 20% of its original cost at the end of a ten-year ...

Double-declining balance.
Sum-of-the-years’ digits.
Straight-line.
Composite.

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In which of the following situations is the units-of-production method of depreciation most appropriate?

An assetâ€™s service potential declines with use.
An assetâ€™s service potential declines with the passage of time.
An asset is subject to rapid obsolescence.
An asset incurs increasing repairs and maintenance with use.

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A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salv...

Cash proceeds received and original cost of the truck.
Cash proceeds received.
Original cost of the truck less the cash proceeds.
Original cost of the truck

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During year 4, the management of West Inc. decided to dispose of some of its older equipment and machinery. By year-end, December 31, year 4, these ...

Fair value.
Carrying amount.
The lower of carrying amount or fair value.
The lower of carrying amount or fair value less cost to sell.

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At December 31, year 4, Matson Inc. was holding long-lived assets that it intended to sell. The assets do not constitute a separate component of the...

Extraordinary item.
Component of income from continuing operations before income taxes.
Separate component of selling or general and administrative expenses, disclosed net of tax benefit.
Component of the gain (loss) from sale of discontinued operations, disclosed net of income taxes.

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Taft Inc. recognized a loss in year 3 related to long-lived assets that it intended to sell. These assets were not sold during year 4, and the compa...

Fair value on December 31, year 3.
Fair value less cost to sell on December 31, year 3.
Fair value on December 31, year 4.
Carrying amount on December 31, year 3.

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Cranston Inc. reported an impairment loss of $150,000 on its income statement for the year ended December 31, year 3. This loss was related to long-...

$761,000
$736,000
$945,000
$756,000

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Assets intended to be held and used for productive purposes may suffer from impairment in each of the following circumstances except

A change in the way the assets are used or physical change in the assets.
Asset costs incurred exceed the original amounts planned.
Discounted expected future cash flows and interest charges are less than the carrying amount of the assets.
A significant adverse change in legal factors that might affect the assets’ fair value.

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With regard to impaired assets, the FASB standards provide for Recognition of loss upon impairment Restoration of previously recognized impairment ...

Yes Yes
Yes No
No Yes
No No

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Scarbrough Company had purchased equipment for $280,000 on January 1, year 1. The equipment had an eight-year useful life and a salvage value of $40...

$175,000
$170,000
$150,000
$130,000

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Linx Corporation acquired equipment on January 1, year 3, for $100,000. The equipment had a ten-year useful life and no salvage value. On December 3...

$ 6,000
$ 8,000
$10,000
$0

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Conner Corporation has equipment with a carrying value of $160,000 on December 31, year 4, after recording depreciation expense for year 4. The foll...

$160,000
$140,000
$135,000
$130,000

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Dahle Corporation has equipment with a carrying value of $450,000 on December 31, year 4. The following information was available on December 31, ye...

$50,000
$35,000
$30,000
$22,000

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Under the reporting requirements for impaired assets, impairment losses for assets to be held and used shall be reported

As an extraordinary item.
As a component of discontinued operations.
As a component of income from continuing operations.
As a change in accounting estimate.

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During December year 4, Bubba Inc. determined that there had been a significant decrease in the market value of its equipment used in its manufactur...

$ 75,000
$ 25,000
$325,000
$375,000

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Marjorie, Inc. acquired a machine for $320,000 on August 31, year 1. The machine has a five-year life, a $50,000 salvage value, and was depreciated ...

$6,352
$5,000
$4,500
$3,148

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Which of the following statements is(are) correct about the carrying amount of a long-lived asset after an impairment loss has been recognized? Assu...

I only.
II only.
Both I and II.
Neither I nor II.

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According to ASC Topic 360, if a long-lived asset is determined to be impaired, how is the loss calculated?

Future discounted cash flows less asset’s carrying (book) value.
Future undiscounted cash flows less asset’s carrying (book) value.
Fair value less asset’s carrying (book) value.
Cash outflows needed to obtain cash inflows.

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In accordance with ASC Topic 360, long-lived assets are required to be reviewed for impairment

At the balance sheet date, every three years.
When the asset is fully depreciated.
When circumstances indicate that the carrying amount of an asset might not be recoverable.
At the balance sheet date, every year.

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During December year 4, Toni Corp. determined that there had been a significant decrease in the market value of its equipment used in its roofing bu...

$ 50,000
$100,000
$150,000
$200,000

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Miller Company acquired a machine for $420,000 on June 30, year 2. The machine has a seven-year life, no salvage value, and was depreciated using th...

$4,000
$4,350
$4,500
$5,000

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In January year 4, Vorst Co. purchased a mineral mine for $2,640,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ...

$135,000
$144,000
$150,000
$159,000

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Brunson Corp., a major US winery, begins construction of a new facility in Italy. Following are some of the costs incurred in conjunction with the s...

$975,000
$160,000
$0
$139,200

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On January 1, year 4, Kew Corp. incurred organization costs of $24,000. What portion of the organization costs will Kew defer to years subsequent to...

$23,400
$19,200
$ 4,800
$0

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Which of the following statements is(are) correct regarding the treatment of start-up activities related to the opening of a new facility? I. Costs...

I only.
III only.
Both I and III.
I, II, and III.

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Cody Corp. incurred the following costs during year 4: Design of tools, jigs, molds, and dies involving new technology $125,000 Modification of the...

$125,000
$160,000
$235,000
$285,000

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In year 4, Ball Labs incurred the following costs: Direct costs of doing contract research and development work for the government to be reimbursed...

$1,080,000
$1,380,000
$1,580,000
$1,780,000

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West, Inc. made the following expenditures relating to Product Y: Legal costs to file a patent on Product Y-$10,000. Production of the finished pro...

$280,000
$295,000
$340,000
$350,000

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Brill Co. made the following expenditures during year 4: Costs to develop computer software for internal use in Brill’s general management informa...

$175,000
$100,000
$ 75,000
$0

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On January 1, year 4, Jambon purchased equipment for use in developing a new product. Jambon uses the straight-line depreciation method. The equipme...

The total cost of the equipment.
One-fifth of the cost of the equipment.
One-tenth of the cost of the equipment.
Zero.

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On December 31, year 3, Bit Co. had capitalized costs for a new computer software product with an economic life of five years. Sales for year 4 were...

70%
72%
80%
90%

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Which of the following statements is incorrect regarding internal-use software?

The application and development costs of internal-use software should be amortized on a straight-line basis unless another systematic and rational basis is more representative of its costs.
Internal-use software is considered to be software that is marketed as a separate product or as part of a product or process.
The costs of testing and installing computer hardware should be capitalized as incurred.
The costs of training and application maintenance should be expensed as incurred.

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Which of the following statements is(are) correct regarding the proper accounting treatment for internal-use software costs? I. Preliminary costs sh...

I only.
II only.
Both I and II.
Neither I nor II.

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For companies that prepare financial statements in accordance with IFRS, plant, property, and equipment should be valued using which models?

The cost model or the revaluation model.
The cost model or the fair value model.
The cost model or the fair value through profit or loss model.
The revaluation model or the fair value model.

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Which is true about the revaluation model for valuing plant, property, and equipment?

Revaluation of assets must be made on the last day of the fiscal year.
Revaluation of assets must be made on the same date each year.
There is no rule for the frequency or date of revaluation.
Revaluation of assets must be made every two years.

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When the revaluation model is used for reporting plant, property, and equipment, the gain or loss should be included in

Income for the period.
Gain from revaluation on the income statement.
A revaluation surplus account is other comprehensive income.
An extraordinary gain or loss on the income statement.

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Linden Corporation has investment property that is held to earn rental income. Linden prepares its financial statements in accordance with IFRS. Lin...

Changes in fair value are reported as profit or loss in the current period.
Changes in fair value are reported as other comprehensive income for the period.
Changes in fair value are reported as an extraordinary gain on the income statement.
Changes in fair value are reported as deferred revenue for the period.

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Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the followi...

When an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued.
When an asset is revalued, individual assets within a class of property, plant, and equipment to which that asset belongs can be revalued.
Revaluations of property, plant, and equipment must be made at least every three years.
Increases in an asset’s carrying value as a result of the first revaluation must be recognized as a component of profit or loss.

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On January 1, year 1, an entity acquires for $100,000 a new piece of machinery with an estimated useful life of 10 years. The machine has a drum tha...

$10,000
$10,800
$12,000
$13,200

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Taylor Company uses IFRS for financial reporting purposes. Which of the following is true about accounting for the development costs of the company?...

Development costs must be expensed.
Development costs are always deferred and expensed against future revenues.
Development costs may be capitalized as an intangible asset in very restrictive situations.
Development costs are recorded in other comprehensive income.

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Which of the following is true about biological assets under IFRS?

Biological assets are only found in Biotech companies.
Biological assets are living animals or plants and must be disclosed as a separate item on the balance sheet.
Biological assets must be valued at cost.
Biological assets do not generally have future economic benefits.

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Roland Corp. signed an agreement with Linx, which requires that if Linx does not meet certain contractual obligations, Linx must forfeit land worth ...

As investment property in the asset section of the balance sheet.
As a contingent asset in the current asset section of the balance sheet.
In a footnote disclosure if the economic benefits are probable.
As a contingent asset and other comprehensive income for the period.

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The cost of self-constructed fixed assets should:

Include allocated indirect costs just as they are for production of products.
Include only incremental indirect costs.
Include only specifically identifiable indirect costs.
Not include indirect costs.

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Gains on the cash sales of fixed assets:

Are the excess of the book value over the cash proceeds.
Are part of cash flows from operations.
Are reported on a net-of-tax basis if material.
Are the excess of the cash proceeds over the book value of the assets.

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