Question Details

CHAPTER 10 PART 2 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS

TRUE-FALSE STATEMENTS
1. All plant assets (fixed assets) must be depreciated for accounting purposes.
2. When purchasing land, the costs for clearing, draining, filling, and grading should be
charged to a Land Improvements account.
3. When purchasing delivery equipment, sales taxes and motor vehicle licenses should be
charged to Delivery Equipment.
4. Land improvements are generally charged to the Land account.
5. Once cost is established for a plant asset, it becomes the basis of accounting for the asset
unless the asset appreciates in value, in which case, market value becomes the basis for
accountability.
6. The book value of a plant asset is always equal to its fair market value.
7. Recording depreciation on plant assets affects the balance sheet and the income
statement.
8. The depreciable cost of a plant asset is its original cost minus obsolescence.
9. Recording depreciation each period is an application of the matching principle.
10. The Accumulated Depreciation account represents a cash fund available to replace plant
assets.
11. In calculating depreciation, both plant asset cost and useful life are based on estimates.
12. Using the units-of-activity method of depreciating factory equipment will generally result in
more depreciation expense being recorded over the life of the asset than if the straightline
method had been used.
13. Salvage value is not subtracted from plant asset cost in determining depreciation expense
under the declining-balance method of depreciation.
14. The declining-balance method of depreciation is called an accelerated depreciation
method because it depreciates an asset in a shorter period of time than the asset's useful
life.
15. Under the double-declining-balance method, the depreciation rate used each year
remains constant.
16. The IRS does not require the taxpayer to use the same depreciation method on the tax
return that is used in preparing financial statements.
17. A change in the estimated useful life of a plant asset may cause a change in the amount
of depreciation recognized in the current and future periods, but not to prior periods.
18. A change in the estimated salvage value of a plant asset requires a restatement of prior
years' depreciation.
10 - 6 Test Bank for Accounting Principles, Eighth Edition
19. To determine a new depreciation amount after a change in estimate of a plant asset's
useful life, the asset's remaining depreciable cost is divided by its remaining useful life.
20. Additions and improvements to a plant asset that increase the asset's operating efficiency,
productive capacity, or expected useful life are generally expensed in the period incurred.