Multiple Choice Questions
1. Plant assets are:
A) Current assets.
B) Used in operations.
C) Natural resources.
D) Long-term investments.
E) Intangible.
2. The relevant factor(s) in computing depreciation include:
A) Cost.
B) Salvage value.
C) Useful life.
D) Depreciation method.
E) All of the above.
3. Salvage value is:
A) Also called residual value.
B) Also called scrap value.
C) An estimate of the asset's value at the end of its benefit period.
D) A factor relevant to determining depreciation.
E) All of the above.
4. Depreciation:
A) Measures the decline in market value of an asset.
B) Measures physical deterioration of an asset.
C) Is the process of allocating to expense the cost of a plant asset.
D) Is an outflow of cash from the use of a plant asset.
E) Is applied to land.
5. The useful life of a plant asset is:
A) The length of time it is productively used in a company's operations.
B) Never related to its physical life.
C) Its productive life, but not to exceed one year.
D) Determined by the FASB.
E) Determined by law.
6. Obsolescence:

A) Occurs when an asset is at the end of its useful life.
B) Refers to a plant asset that is no longer useful in producing goods and services.
C) Refers to the insufficient capacity of a company's plant assets to meet the company's productive demands.
D) Occurs when an asset's Salvage value is less than its replacement cost.
E) Does not affect plant assets.
7. The modified accelerated cost recovery system (MACRS):
A) Is included in the U.S. federal income tax rules for depreciating assets.
B) Is required for tax reporting.
C) Is required for financial reporting.
D) Is identical to units of production depreciation.
E) All of the above.
8. The straight-line depreciation method and the double-declining-balance depreciation method:
A) Produce the same total depreciation over an asset's useful life.
B) Produce the same depreciation expense each year.
C) Produce the same book value each year.
D) Are acceptable for tax purposes only.
E) Are the only acceptable methods of depreciation for financial reporting.
9. Once the estimated depreciation expense for an asset is calculated:
A) It cannot be changed due to the historical cost principle.
B) It may be revised based on new information.
C) Any changes are accumulated and recognized when the asset is sold.
D) The estimate itself cannot be changed; however, new information should be disclosed.
E) It cannot be changed due to the consistency principle.
10. Total asset turnover is used to evaluate:
A) The efficiency of management's use of assets to generate sales.
B) The necessity for asset replacement.
C) The number of times operating assets were sold during the year.
D) The cash flows used to acquire assets.
E) The relation between asset cost and book value.