ACCT 2101- Chapter 9 Latest Test
Questions Solved Correct.
Revenue expenditures - Answer Costs not included in a plant asset account that must be
expensed immediately
Capital expenditures - Answer Costs that are not expensed immediately but are instead
included on a plant asset account
Costs of Land - Answer 1. Cash purchase price
2. Closing costs such as title and attorney's fees
3. Real estate broker's commissions
4. Accrued property rates on land assumed by purchases
Land improvements - Answer Structural additions made to land
Factors to determine cost of equipment - Answer 1. Frequency of the cost- 1 time or
recurring?
2. Benefit period- life of the asset or one year?
Lease - Answer Owner of an asset lets another party use it for a period of time (Lessor and
lessee)
Advantages of leasing - Answer 1. Reduced risk of obsolescence (can upgrade for newer model
of the asset)
2. Little or no down payment
3. Shared tax advantages (lessor still gets tax advantages wile leasing asset to lessee)
4. Assets and liabilities are not reported
-Reporting lower assets improves return on taxes
-Reporting fewer liabilities makes the company look less risky
Operating leases - Answer Allow the lessee to account for the transaction as a rental, with
neither an asset nor a liability recorded
, Is depreciation a cost allocation process or an asset valuation process? - Answer Cost
allocation
Obsolescence - Answer Process by which an asset becomes out of date before it physically
wears out
Factors in computing depreciation - Answer 1. Cost
2. Useful life
3. Salvage value
Depreciation schedule - Answer When an annual rate is used under the straight-line method
Straight-line method - Answer Companies expense an equal amount of depreciation each year
by the asset's useful life
Declining-balance method - Answer Computes depreciation expense using a constant rate
applied to a declining book value
Accelerated depreciation method - Answer Results in higher depreciation in the early years of
an asset's life
Double-declining-balance method - Answer Double the straight-line rate (commonly declining
balance rate)
Units-of-activity method - Answer Useful life expressed in terms of the total units of
production or the use expected from the asset
Ordinary repairs - Answer Expenditures to maintain the operating efficiency and expected
productive life of the unit
Additions and improvements - Answer Costs incurred to increase the operating efficiency,
produce capacity, or expected useful life of the plant asset
Impairment - Answer Permanent decline in the fair value of an asset
Questions Solved Correct.
Revenue expenditures - Answer Costs not included in a plant asset account that must be
expensed immediately
Capital expenditures - Answer Costs that are not expensed immediately but are instead
included on a plant asset account
Costs of Land - Answer 1. Cash purchase price
2. Closing costs such as title and attorney's fees
3. Real estate broker's commissions
4. Accrued property rates on land assumed by purchases
Land improvements - Answer Structural additions made to land
Factors to determine cost of equipment - Answer 1. Frequency of the cost- 1 time or
recurring?
2. Benefit period- life of the asset or one year?
Lease - Answer Owner of an asset lets another party use it for a period of time (Lessor and
lessee)
Advantages of leasing - Answer 1. Reduced risk of obsolescence (can upgrade for newer model
of the asset)
2. Little or no down payment
3. Shared tax advantages (lessor still gets tax advantages wile leasing asset to lessee)
4. Assets and liabilities are not reported
-Reporting lower assets improves return on taxes
-Reporting fewer liabilities makes the company look less risky
Operating leases - Answer Allow the lessee to account for the transaction as a rental, with
neither an asset nor a liability recorded
, Is depreciation a cost allocation process or an asset valuation process? - Answer Cost
allocation
Obsolescence - Answer Process by which an asset becomes out of date before it physically
wears out
Factors in computing depreciation - Answer 1. Cost
2. Useful life
3. Salvage value
Depreciation schedule - Answer When an annual rate is used under the straight-line method
Straight-line method - Answer Companies expense an equal amount of depreciation each year
by the asset's useful life
Declining-balance method - Answer Computes depreciation expense using a constant rate
applied to a declining book value
Accelerated depreciation method - Answer Results in higher depreciation in the early years of
an asset's life
Double-declining-balance method - Answer Double the straight-line rate (commonly declining
balance rate)
Units-of-activity method - Answer Useful life expressed in terms of the total units of
production or the use expected from the asset
Ordinary repairs - Answer Expenditures to maintain the operating efficiency and expected
productive life of the unit
Additions and improvements - Answer Costs incurred to increase the operating efficiency,
produce capacity, or expected useful life of the plant asset
Impairment - Answer Permanent decline in the fair value of an asset
