Long-Term Assets I: Property, Plant, and Equipment

Any property conveyed by a closely held company in exchange for preferred shares must be documented at the

• a. Total par value of the stock issued

• b. Total book value of the stock issued

• c. Appraised value of the land

• d. Total liquidating value of the stock issued

Depreciation using a straight line has the major drawback of

• a.      Provides for the declining productivity of an aging asset

• b. Ignores variations in the rate of asset use

• c. Tends to result in a constant rate of return on a diminishing investment base

• d. Gives smaller periodic write-offs than decreasing charge methods

The traditional presentation of property, plant, and equipment on a balance sheet is at

• a. Replacement cost less accumulated depreciation

• b. Historical cost less salvage value

• c. Original cost adjusted for general price level changes

• d. Acquisition cost less depreciated portion thereof

According to conventional accounting wisdom, depreciation

• a. Is a process of asset valuation for balance sheet purposes

• b. Applies only to long-lived intangible assets

• c. Is used to indicate a decline in market value of a long-lived asset

• d. Is an accounting process that allocates long-lived asset cost to accounting periods

Under the terms of a deferred payment contract, Lincoln, Inc. acquired specific plant assets on December 31, 2023. The purchase price was $20,000, with additional payments of $20,000 due at the end of each of the following five years. You should put a price on the plant assets at

• a. The present value of a $20,000 ordinary annuity for five years

• b. $120,000

• c. $120,000 less imputed interest

• d. $120,000 plus imputed interest

Depreciation is considered a variable expense for income statement purposes if the method utilized for bookkeeping is

• a. Units of production

• b. Straight line

• c. Sum-of-the-year’s-digits

• d. Declining balance

Depreciation methods that do not include salvage value in their basic calculations are

• a. Straight line

• b. Sum-of-the-year’s digits

• c. Double-declining balance

• d. Productive output

When a business buys a plot of land that already has a structure on it and then decides to demolish it to make way for a new factory, the amount spent on demolition should be

• a. Expensed as incurred

• b. Added to the cost of the plant

• c. Added to the cost of the land

• d. Amortized over the estimated time period between the tearing down of the building and the completion of the plant

On January 1, 2021, a machine was purchased with an estimated salvage value of 15% and a four-year anticipated usable life. By the end of 2023, the total depreciation calculated using the sum-of-years technique would be

• a. (Original cost less salvage value) multiplied by 9/10

• b. Original cost multiplied by 9/10

• c. Original cost multiplied by 9/10 less total salvage value

• d. (Original cost less salvage value) multiplied by 1/10

The term "avoidable interest" is used to calculate the amount of interest that needs to be capitalized.

• a. A cost of capital charge for stockholders' equity

• b. That portion of weighted-average accumulated expenditures on which no interest cost was incurred

• c. The total interest cost actually incurred

• d. That portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made