PROBLEM I

TRUE OR FALSE

$1.$ The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary cost to get the asset in place and ready for use.

a$.$ True

b$.$ False

$2.$ When land is purchased to construct a new building, the cost of removing any structures on the land should be charged to the building account.

a$.$ True

b$.$ False

$3.$ Land acquired as a speculation is reported under Investments on the balance sheet.

a$.$ True

b$.$ False

$4.$ Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment.

a$.$ True

b$.$ False

$5.$ The cost of repairing damage to a machine during installation is debited to a fixed asset account.

a$.$ True

b$.$ False

$6.$ During construction of a building, the cost of interest on a construction loan should be charged to an expense account.

a$.$ True

b$.$ False

$7.$ As a company depreciates a piece of equipment, it$$s cash flow goes up$.$

a$.$ True

b$.$ False

$8.$ When cities give land or buildings to a company to locate in the community, no entry is made since there is no cost to the company.

a$.$ True

b$.$ False

$9.$ The depreciable cost of a building is the same as its acquisition cost.

a$.$ True

b$.$ False

$10.$ It is not necessary for a company to use the same depreciation method for financial statements and for determining income taxes.

a$.$ True

b$.$ False

$11.$ An estimate of the amount which an asset can be sold at the end of its useful life is called residual value

a$.$ True

b$.$ False

$12.$ The amount of depreciation expense for the first full year of a fixed asset costing $$95,000,$ with and estimated residual value of $$5,000$ and a useful life of $5$ years, is $$19,000$ by straight$-$line method.

a$.$ True

b$.$ False

$13.$ The amount of depreciation expense for a fixed asset costing $$95,000,$ with and estimated residual value of $$5,000$ an a useful life of $5$ years or $20,000$ operating hours, is $$21,375$ by units$-$of$-$production method during a period when asset was used for $4,500$ hours.

a$.$ True

b$.$ False

$14.$ For income tax purposes most companies use an accelerated depreciation method called double decline balance.

a$.$ True

b$.$ False

$15.$ Capital expenditures are costs of acquiring, constructing, adding, or replacing property, plant and equipment.

a$.$ True

b$.$ False

$16.$ Capital expenditures are costs that are charged to Stockholder$$s equity accounts

a$.$ True

b$.$ False

$17.$ The cost of replacing an engine in a truck is an example of ordinary maintenance.

a$.$ True

b$.$ False

$18.$ When selling a piece of equipment for cash, a loss will result when the proceeds of sale are less than the book value.

a$.$ True

b$.$ False

$19.$ When a property, plant, and equipment asset is sold for cash, any gain or loss on the asset sold should be recorded.

a$.$ True

b$.$ False

$20.$ A gain can be realized when a fixed asset is discarded.

a$.$ True

b$.$ False