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Chapter 9 Quiz NAME: FINANCIAL ACCOUNTING 1 Asset impairment occurs when the fair value of a long-term asset falls below its carrying value. a. True b. False 2 Depreciation refers to the periodic allocation of the cost of a tangible longlived asset over its estimated useful life. a. True b. False 3 Which of the following is not a component of free cash flow? a. Dividends b. Gross profit c. Sales of plant assets d. Net cash flows from operating activities 4 Which of the following is not a characteristic of all long-term assets? a. Possess physical substance b. Useful life of more than a year c. Not for resale d. Used in operations of business 5 If net cash flows from operating activities total $208,000, purchases of plant assets total $60,000, dividends total $24,000, and sales of plant assets total $34,000, the free cash flow equals a. $158,000. b. $210,000. c. $90,000. d. $326,000. 6 Which of the following is not a characteristic of an ordinary repair? a. Periodic in nature. b. Extends the useful life or increases the residual value of the asset. c. Necessary to maintain the asset in good operational condition. d. An expense of the current period. 7 Which of the following would be considered a revenue expenditure? a. Installation of a heating system b. Purchase of a microcomputer c. Addition of a building wing d. Replacement of a truck's battery - - - - - - - Chapter 9 Quiz NAME: FINANCIAL ACCOUNTING 8 The expensing of a long-lived asset such as a wastebasket is justified by which of the following accounting rules or principles? a. Matching b. Materiality c. Cost-benefit d. Conservatism 9 All of the following are needed for the computation of depreciation except a. estimated useful life. b. cost. c. residual value. d. current market value. 10 The depreciable cost of an asset is a. the unexpired cost of the asset. b. original cost minus accumulated depreciation. c. original cost minus residual value. d. the expired cost of the asset. 11 Which of the following accounting principles best justifies accelerated depreciation accounting? a. Conservatism b. Cost-benefit c. Matching d. Materiality 12 A truck is purchased for $35,000. It has a five-year life and a $5,000 residual value. Under the double-declining-balance method, what is the accumulated depreciation after two years? a. $22,400 b. $19,200 c. $25,600 d. $21,200 - - - - - Chapter 9 Quiz NAME: FINANCIAL ACCOUNTING 13 Hickman Company purchases a piece of equipment on Jan. 2, 2,013, for $60,000. The equipment has an estimated life of eight years or 50,000 units of production and an estimated residual value of $6,000. Hickman uses a calendar fiscal year. The entry to record the amount of depreciation for 2,013, using the production method and assuming that 6,100 units are produced, is: a. b. c. d. 14 When an asset is sold, a gain is calculated as the difference between a. sale price and the carrying value of the asset sold. b. sale price and the depreciable cost of the asset sold. c. carrying value and the residual value of the asset sold. d. sale price and the original cost of the asset sold. 15 A truck that cost $12,000 and on which $9,000 of accumulated depreciation has been recorded was disposed of on January 1. Assume that the truck was disposed of for $2,000 cash. The entry to record this event is: a. b. - - c. d. 16 Which of the following items is not classified as a natural resource? a. A gas reserve b. Mineral deposits c. Patent d. An oil well - - Chapter 9 Quiz NAME: FINANCIAL ACCOUNTING 17 Cook Mining Company purchases a gravel pit for $5,000,000. It estimates that 10,000,000 tons of gravel can be extracted over the pit's useful life. If 930,000 tons are extracted and sold during the first year, the entry to record the depletion expense is: a. b. c. d. 18 The exclusive right to sell a product within a certain geographic area is called a a. franchise. b. trademark. c. noncompete covenant. d. copyright. 19 Office furniture was purchased for $28,000. It had an estimated residual value of $4,000 and has a current carrying value of $12,000. Its depreciable cost must have been a. $18,000. b. $24,000. c. $30,000. d. impossible to determine from the facts given. 20 Accelerated depreciation assumes all of the following except that a. asset benefit increases with each year of use. b. obsolescence makes an asset less valuable in its later years. c. the asset provides more benefit in the early years. d. repair expense is less in the early years than in the later years