TAMUCC ACCT 5312 Comprehensive Review Questions
plus Answers
Ex: Determine the cost to capitalize to a machine account ** Answ** Add up invoice
cost, sales tax, freight charges, supervisor's salary for day machine was installed,
installation labor and materials
Each year the hospital repaints each floor of its building. The costs should be **
Answ** expensed since the benefit is not over multiple periods given that this is
regularly recurring cost.
To capitalize a cost means to ** Answ** record it on the balance sheet (asset or
liability)
An expenditure: ** Answ** is recorded as either an expense or an asset depending
on the circumstances (monetary amount and extent and timing of future benefit)
We normally record the cost of a tangible long-term asset at the ** Answ**
acquisition costs plus all costs necessary to get the asset ready for use
Which of the following expenditures should recorded as an expense?
a. Repairs and maintenance that maintain existing productive capacity and operating
condition of the asset.
b. A major overhaul of an engine in a delivery truck.
c. Adding a major new component to an existing asset.
d. Lighting fixtures added to the staff and visitor's parking lot. ** Answ** Repairs and
maintenance that maintain existing productive capacity and operating condition of the
asset.
Which of the following statements about long-lived assets is FALSE?
a. They include account titles such as land, buildings, machinery, and intangible assets.
b. They may be either purchased or self-constructed.
c. The acquisition of long-lived assets is an investing activity.
d. "Depreciation expense" is a contra long-term asset account on the balance sheet.
e. They are resources that the company will use in operations. ** Answ**
"Depreciation expense" is a contra long-term asset account on the balance sheet.
False because that is "accumulated depreciation"
True: Depreciation expense is on the income statement and it is an expense account.
Capitalized costs for a purchased tangible asset include: ** Answ** transportation,
installation, and testing
What would constitute a long-term tangible asset account for Southwest Airlines? **
Answ** airplanes
,What best describes the proper accounting treatment for a long-term asset like a
building? ** Answ** Record as asset and then depreciate the cost over the asset's
service lives.
Example to determine capitalized costs: Stonebrecker should capitalize all costs that it
incurred that were necessary and reasonable to get the equipment in a serviceable
condition and location. The capitalizable costs are: (1-5) ** Answ** 1. purchase price
2. transportation costs
3. insurance coverage during transit
4. installation fees
5. $ to reinforce the floor
6. $ employee downtime
Compute the cost of the fixed asset that should be capitalized ** Answ** Cost =
Purchase Price + Transportation + Installation
Maintenance vs betterment ** Answ**
Expense costs normal maintenance costs. ** Answ**
If a cost is an annual expenditure, it: ** Answ** should not be added to the
capitalized cost of the long-term asset.
The cost of painting maintains the building in its normal _________. Thus, the cost of
painting should not be ___________________, but should be ___________. **
Answ** -operating condition
-added to the asset "building"
-expensed
A capital expenditure is a: ** Answ** a cost that is added to the reported cost of the
asset (a cost that is capitalized)
Capitalize costs of: (5) ** Answ** -major repairs
-modifications or additions that enhance the future quality of the asset's output
-its productivity (substantially extending the capacity or quantity of the asset's output)
-its efficiency or its usefulness (a betterment)
-any costs that increase the life of the asset beyond what was originally expected
If the installation of the fireproof tile roof has a useful life that is similar to the remaining
useful life of the building:
It is not a minor repair with a short useful life. Thus, the cost of the roof: ** Answ** -
the cost of the roof would be added to the building account
-would not be expensed
Major improvements to electrical system required to run new machinery would be added
to:
,Thus, those costs are considered part of: ** Answ** -the cost of the machinery
account since the update to the electrical system was necessary for the machinery's
use.
-the acquisition cost of the machinery
$75500 acquisition cost of the long-term asset + $1300 installation to ready the asset
for its intended use + $500 freight cost to get the equipment in the location where it will
be used + $3750 sales tax (necessary part of acquisition cost) = $81050
Advertising would be expensed as the ads run because it is: ** Answ** -not a cost
that is necessary to acquire the equipment or get it ready for its intended use.
For each transaction listed below, identify in which account it would be reported.
1. Annual painting costs of an office building.
2. Sales taxes paid related to a machine purchased.
3. Freight charges related to the acquisition costs of a production machine. ** Answ**
1. not capitalized
2. equipment
3. equipment
For each cost that is listed below, select the account in which it would be included and
reported.
1. Installation costs of a special attachment to newly acquired equipment.
2. Freight costs for shipping the equipment into our manufacturing facility.
3. Costs of repairing a hole knocked in the wall during installation of new equipment.
4. Interest costs on a note payable, which was used to purchase new equipment.
5. Training session to teach faculty how to use computer projection equipment recently
installed in classrooms. ** Answ** 1. equipment
2. equipment
3. expense
4. expense
5. expense
Identify which accounting treatment-capitalized or expensed-should be used to properly
account for the transactions.
1. Damaged during installation and repair costs.
2. Insurance policy for each year of the equipment's use
3. Sales tax on equipment purchase.
4. Insurance costs on the equipment during transit.
5. Freight costs on production equipment in transit.
6. Installation costs to get the equipment ready for use. ** Answ** 1. expensed
2. expensed
3. capitalized
4. capitalized
, 5. capitalized
6. capitalized
When companies construct their own long-lived assets, all costs required to get the
asset into operating condition must be: ** Answ** included in the long-lived asset's
cost
The following items represent common post acquisition expenditures incurred on
equipment.
A. An overhaul to increase useful life of the equipment
B. Routine replacement of a part
C. Lubrication service
D. Costs of redesign to increase output
Identify which of these items are considered to be betterment (and its costs capitalized).
** Answ** An overhaul to increase useful life of the equipment and costs of redesign
to increase output
The following items represent common post acquisition expenditures incurred on
equipment.
A. Replacement of defective parts
B. Rewiring costs to increase operating speed
C. Painting costs
D. Repair of the circuitry of the equipment
Identify which of these items is most likely to be capitalized. ** Answ** Rewiring
costs to increase operating speed
What will maximize net income by minimizing depreciation expense in the FIRST year
of an asset's life: ** Answ** Long service life, high salvage value, and straight-line
depreciation.
Book value of an asset is equal to the asset's replacement cost. ** Answ** cost less
accumulated depreciation
The balance of Accumulated Depreciation represents: ** Answ** The amount
charged to depreciation expense over the periods since the asset's acquisition
Equipment originally costing $100,000 has accumulated depreciation of $55,000. If it
sells the equipment for $50,000, the company should record: ** Answ** A gain of
$5,000.
Jlee purchases a machine for $2,000. It anticipates that the asset will last 5 years and
have $200 salvage value. Depreciation expense for year 3 using straight-line
depreciation is: ** Answ** $360
plus Answers
Ex: Determine the cost to capitalize to a machine account ** Answ** Add up invoice
cost, sales tax, freight charges, supervisor's salary for day machine was installed,
installation labor and materials
Each year the hospital repaints each floor of its building. The costs should be **
Answ** expensed since the benefit is not over multiple periods given that this is
regularly recurring cost.
To capitalize a cost means to ** Answ** record it on the balance sheet (asset or
liability)
An expenditure: ** Answ** is recorded as either an expense or an asset depending
on the circumstances (monetary amount and extent and timing of future benefit)
We normally record the cost of a tangible long-term asset at the ** Answ**
acquisition costs plus all costs necessary to get the asset ready for use
Which of the following expenditures should recorded as an expense?
a. Repairs and maintenance that maintain existing productive capacity and operating
condition of the asset.
b. A major overhaul of an engine in a delivery truck.
c. Adding a major new component to an existing asset.
d. Lighting fixtures added to the staff and visitor's parking lot. ** Answ** Repairs and
maintenance that maintain existing productive capacity and operating condition of the
asset.
Which of the following statements about long-lived assets is FALSE?
a. They include account titles such as land, buildings, machinery, and intangible assets.
b. They may be either purchased or self-constructed.
c. The acquisition of long-lived assets is an investing activity.
d. "Depreciation expense" is a contra long-term asset account on the balance sheet.
e. They are resources that the company will use in operations. ** Answ**
"Depreciation expense" is a contra long-term asset account on the balance sheet.
False because that is "accumulated depreciation"
True: Depreciation expense is on the income statement and it is an expense account.
Capitalized costs for a purchased tangible asset include: ** Answ** transportation,
installation, and testing
What would constitute a long-term tangible asset account for Southwest Airlines? **
Answ** airplanes
,What best describes the proper accounting treatment for a long-term asset like a
building? ** Answ** Record as asset and then depreciate the cost over the asset's
service lives.
Example to determine capitalized costs: Stonebrecker should capitalize all costs that it
incurred that were necessary and reasonable to get the equipment in a serviceable
condition and location. The capitalizable costs are: (1-5) ** Answ** 1. purchase price
2. transportation costs
3. insurance coverage during transit
4. installation fees
5. $ to reinforce the floor
6. $ employee downtime
Compute the cost of the fixed asset that should be capitalized ** Answ** Cost =
Purchase Price + Transportation + Installation
Maintenance vs betterment ** Answ**
Expense costs normal maintenance costs. ** Answ**
If a cost is an annual expenditure, it: ** Answ** should not be added to the
capitalized cost of the long-term asset.
The cost of painting maintains the building in its normal _________. Thus, the cost of
painting should not be ___________________, but should be ___________. **
Answ** -operating condition
-added to the asset "building"
-expensed
A capital expenditure is a: ** Answ** a cost that is added to the reported cost of the
asset (a cost that is capitalized)
Capitalize costs of: (5) ** Answ** -major repairs
-modifications or additions that enhance the future quality of the asset's output
-its productivity (substantially extending the capacity or quantity of the asset's output)
-its efficiency or its usefulness (a betterment)
-any costs that increase the life of the asset beyond what was originally expected
If the installation of the fireproof tile roof has a useful life that is similar to the remaining
useful life of the building:
It is not a minor repair with a short useful life. Thus, the cost of the roof: ** Answ** -
the cost of the roof would be added to the building account
-would not be expensed
Major improvements to electrical system required to run new machinery would be added
to:
,Thus, those costs are considered part of: ** Answ** -the cost of the machinery
account since the update to the electrical system was necessary for the machinery's
use.
-the acquisition cost of the machinery
$75500 acquisition cost of the long-term asset + $1300 installation to ready the asset
for its intended use + $500 freight cost to get the equipment in the location where it will
be used + $3750 sales tax (necessary part of acquisition cost) = $81050
Advertising would be expensed as the ads run because it is: ** Answ** -not a cost
that is necessary to acquire the equipment or get it ready for its intended use.
For each transaction listed below, identify in which account it would be reported.
1. Annual painting costs of an office building.
2. Sales taxes paid related to a machine purchased.
3. Freight charges related to the acquisition costs of a production machine. ** Answ**
1. not capitalized
2. equipment
3. equipment
For each cost that is listed below, select the account in which it would be included and
reported.
1. Installation costs of a special attachment to newly acquired equipment.
2. Freight costs for shipping the equipment into our manufacturing facility.
3. Costs of repairing a hole knocked in the wall during installation of new equipment.
4. Interest costs on a note payable, which was used to purchase new equipment.
5. Training session to teach faculty how to use computer projection equipment recently
installed in classrooms. ** Answ** 1. equipment
2. equipment
3. expense
4. expense
5. expense
Identify which accounting treatment-capitalized or expensed-should be used to properly
account for the transactions.
1. Damaged during installation and repair costs.
2. Insurance policy for each year of the equipment's use
3. Sales tax on equipment purchase.
4. Insurance costs on the equipment during transit.
5. Freight costs on production equipment in transit.
6. Installation costs to get the equipment ready for use. ** Answ** 1. expensed
2. expensed
3. capitalized
4. capitalized
, 5. capitalized
6. capitalized
When companies construct their own long-lived assets, all costs required to get the
asset into operating condition must be: ** Answ** included in the long-lived asset's
cost
The following items represent common post acquisition expenditures incurred on
equipment.
A. An overhaul to increase useful life of the equipment
B. Routine replacement of a part
C. Lubrication service
D. Costs of redesign to increase output
Identify which of these items are considered to be betterment (and its costs capitalized).
** Answ** An overhaul to increase useful life of the equipment and costs of redesign
to increase output
The following items represent common post acquisition expenditures incurred on
equipment.
A. Replacement of defective parts
B. Rewiring costs to increase operating speed
C. Painting costs
D. Repair of the circuitry of the equipment
Identify which of these items is most likely to be capitalized. ** Answ** Rewiring
costs to increase operating speed
What will maximize net income by minimizing depreciation expense in the FIRST year
of an asset's life: ** Answ** Long service life, high salvage value, and straight-line
depreciation.
Book value of an asset is equal to the asset's replacement cost. ** Answ** cost less
accumulated depreciation
The balance of Accumulated Depreciation represents: ** Answ** The amount
charged to depreciation expense over the periods since the asset's acquisition
Equipment originally costing $100,000 has accumulated depreciation of $55,000. If it
sells the equipment for $50,000, the company should record: ** Answ** A gain of
$5,000.
Jlee purchases a machine for $2,000. It anticipates that the asset will last 5 years and
have $200 salvage value. Depreciation expense for year 3 using straight-line
depreciation is: ** Answ** $360
