Incidental costs incurred in the purchase of land that are charged to Land Improvements will affect net income at some future time.


To capitalize an expenditure means charging it to an asset account.


Charging an expenditure directly to an expense account is based on the assumption that the benefits of that expenditure have been used up in the current period.


The journal entry to record depreciation expense consists of a credit to Accumulated Depreciation and a debit to the asset being depreciated.


Depreciation is a process of asset valuation.


Book value represents the cost of an asset that has yet to be allocated to expense.


The half-year convention allows us to take six months depreciation during the first year of an asset's life even if the asset was purchased on January 25th.


The book value of an asset is equal to its cost plus accumulated depreciation.


The formula for the double-declining balance method of depreciation is: Remaining book value times the straight line rate is equal to depreciation expense.


The rule of consistency does not require a company to use the same method of depreciation from year to year for all assets.


The term plant assets refers to long-lived assets acquired for use in business operations, rather than for resale to customers.


Any reasonable and necessary expenditures to place a newly acquired plant asset in service should be debited to a separate asset account.


Sales tax on equipment is not part of the acquisition cost and should not be capitalized.


Land improvements are not subject to depreciation.


It is an acceptable accounting practice to treat an expenditure that is not material in dollar amount as an expense of the current period even though the expenditure may benefit several periods.


The erroneous recording of a revenue expenditure as a capital expenditure will cause an overstatement of total revenue for the period.


In accounting, depreciation refers to a decline in the asset's current market value, not the allocation of the cost of an asset to expense.


Just as there are depreciation methods to calculate the decline in value of assets, there are appreciation methods to record the increase in value of assets.


If an accelerated depreciation method is used for an asset with a useful life of five years, more depreciation expense would be recorded in the third year than in the fifth year.


Revenue expenditures are a part of selling and administrative expenses.


Under the half-year convention, six months' depreciation is recorded on an asset in the year of acquisition and in the year of retirement regardless of the month in which the asset is actually purchased or retired.


Once the estimated life is determined for a depreciable asset it can never be changed.


Annual depreciation expense is increased when salvage values are small.


Most companies benefit by using accelerated depreciation methods for income tax purposes.


Goodwill is only recorded when the value of a company increases and not when it decreases in value.


Straight-line is the most widely used depreciation method in financial statements, and MACRS is the most widely used method in federal income tax returns.


The tax basis of a depreciable asset generally is higher than the book value of that asset for financial reporting purposes.


Research and development costs should be capitalized to match the period of benefit.


The systematic write-off of intangible assets to expense is called depletion.


The balance sheet always reflects a company's current values.


U. S. GAAP requires that a company should capitalize goodwill and adjust its value if subject to impairment.


A revenue expenditure is an operating expense.


A capital expenditure is charged to owners'_ capital.


The Sarbanes-Oxley Act requires that companies disclose whether they have a code of ethics that applies to the CEO, CFO, and Chief Accounting Officer.

Be capitalized and reviewed annually and its value should be adjusted if impaired.

After March, 2004 international standards required that goodwill

written down to its fair market value.

If an asset is determined to be impaired, it should be:

Accounts receivable

All of the following may be considered intangible assets except:

1 divided by the life of the asset

When straight-line depreciation is in use, the depreciation rate of an asset is equal to

A debit to accumulated depreciation

When a depreciable asset is sold at a price equal to its book value, a journal entry would include

Natural resources

All of the following assets are amortized except:

A debit to amortization expense

The entry to record amortization on a copyright would include:

A revenue expenditure

The cost of a new windshield wiper on a delivery vehicle would be classified as:

All three are capitalized costs

Which of the following would not be considered part of the cost of equipment recently purchased?

Replacement of several circuit boards damaged during installation.

Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer should not be debited to the Equipment account?

A trademark

Coca-Cola's famous name printed in distinctive typeface is an example of:

The depreciation expense in the first year may be greater than, equal to, or less under the units-of-
output method.

When comparing the units-of-output method of depreciation with straight-line depreciation:

The purchase price should be apportioned among the Land, Land Improvement, and Building accounts.

Tomassi Company paid $450,000 to acquire a piece of real estate consisting of land and an office building with a parking lot. In this situation:

Sales tax paid in conjunction with the purchase of office equipment.

Which of the following is a capital expenditure?

20 years

The legal life of most patents is:

Delivery costs on newly purchased equipment.

Which of the following should not be treated as a revenue expenditure?

Advertising expenditures to introduce a new product line.

Which of the following is not a capital expenditure?

Offsetting revenue of an accounting period with the portion of the cost of plant and equipment estimated to have been used up during the accounting period.

The application of the matching principle to depreciation of plant and equipment can best be described as:

The portion of a plant asset recognized as expense since the asset was acquired.

The term accumulated depreciation, as used in accounting, is best defined as:


Which depreciation method is most commonly used among publicly owned corporations?

The undepreciated cost of the asset.

The book value of an asset in the plant and equipment category is:

The sales price is greater than the book value and greater than the residual value.

A gain is recognized on the disposal of plant assets when:

Oil well

Which of the following would not be amortized?

Recognizes more depreciation expense in the early years of an asset's useful life and less in the later

An accelerated depreciation method:

Income tax returns

Accelerated depreciation methods are used primarily in:

An asset

Capital expenditures are recorded as:

A constant depreciation rate.

In the fixed-percentage-of-declining-balance depreciation method, the book value of the asset is multiplied by:

An expense

Revenue expenditures are recorded as:

Book value is less than residual value.

Which of the following situations is impossible?

Either the 150% or 200% declining-balance method.

For depreciable property other than real estate, MACRS is based upon:

If a company uses MACRS in its income tax returns, it also must use MACRS in its financial

Which of the following statements about MACRS is not correct?

All assets except goodwill, minus all liabilities.

The term net identifiable assets means:

Company management

Responsibility for selection of the depreciation methods used in financial reporting rests with:

A company should use the same depreciation method from year to year for a given plant asset.

With respect to depreciation policies, the principle of consistency means:

Decreases with the passage of time.

The book value of plant assets (other than land):

The book value of the equipment is less than the value received.

The gain on the disposal of equipment is recognized when:

Sales price with its book value

For financial reporting purposes, the gain or loss on the sale of a plant asset is determined by comparing the asset's:

Different depreciation methods have been used in financial statements and in income tax returns.

The gain or loss on the disposal of a depreciable asset reported in financial statements often differs from that reported for income tax purposes. The principal reason for the difference is:

All of the above statements are correct

When a company uses straight-line depreciation and the half-year convention, assets with a five-year life:


Which of the following assets is not subject to depreciation and whose usefulness does not decline over time?

Lack physical substance

Intangible assets are assets used in business operations but which:

Is not considered to be in conformity with GAAP.

For the financial statements of publicly traded companies, MACRS:

That the company has purchased a going business at a price in excess of the fair market value of the
net identifiable assets.

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:

Should be charged to expense when incurred.

Expenditures for research and development intended to lead to new products of commercial value:

Research and development

The basic purpose of the matching principle is to allocate the cost of an asset to expense over the years in which the asset contributes to revenue. Current accounting practice does not strictly apply this principle to expenditures for:

Reduce net income, but have no direct effect on cash balances.

The adjusting entries to record depreciation or amortization expense, or to write down assets that have become impaired:

Revenue expenditure

An expenditure to pay an expense of the current period.


The accelerated depreciation system used in federal income tax returns for depreciable assets purchased after 1986.


An intangible asset representing the present value of future earnings in excess of normal return on net identifiable assets.

Research and development

Expenditures that could lead to the introduction of new products, but which, according to the FASB, should be viewed as an expense of the current accounting period.

Accumulated depreciation

An account showing the portion of the cost of a plant asset that has been written off to date as depreciation expense.

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