Chapter 8

The term, obsolescence, as it relates to the useful life of an asset, refers to:

• An asset’s salvage value becoming less than its replacement cost.

• Intangible assets that have been fully amortized.

• The process of becoming outdated and no longer used.

• The halfway point of an asset’s useful life.

• The inability of a company’s plant assets to reach its book value.

The depreciation method which uses a depreciation rate that is a multiple of the straight-line rate is called:

• Amortization.

• Declining-balance depreciation.

• Modified accelerated cost recovery system (MACRS) depreciation.

• Units-of-production depreciation.

• Book value depreciation.

Owning a patent

• Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.

• Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.

• Gives the owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years.

• Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.

Which of the following is an example of an extraordinary repair?

• Routine machine maintenance.

• An oil change for a truck.

• Replacement of all florescent light tubes in an office.

• Replacing the roof on a manufacturing warehouse.

• Carpet cleaning and repair.

Depreciation: Multiple Choice

• Is an outflow of cash from the use of a plant asset.

• Is applied to land.

• Measures the decline in market value of an asset.

• Measures physical deterioration of an asset.

• Is the process of allocating the cost of a plant asset to expense while it is in use.

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called:

• Modified accelerated cost recovery system (MACRS) depreciation.

• Units-of-production depreciation.

• Accelerated depreciation.

• Declining-balance depreciation.

• Straight-line depreciation.

The term inadequacy refers to:

• The condition where the salvage value is too small to replace the asset.

• An asset reaching its book value.

• The inability of a plant asset to meet its demands.

• The process of depletion.

• An asset that does not have a salvage value.

A company paid $35,000 cash for a new machine component that substantially increased the machine's productivity and efficiency. The journal entry to record this transaction consists of a:

Plant assets are defined as:

• A) Tangible assets used in the operation of business that have a useful life of less than one accounting period.

• B) Assets that are physically consumed when used.

• C) Current assets.

• D) Intangible assets used in the operations of a business that have a useful life of more than one accounting period.

• E) Tangible assets used in a company’s operations that have a useful life of more than one accounting period.

Betterments:

• Always increase an asset’s life.

• Are also called ordinary repairs.

• Are credited against the asset account when incurred.

• Are expenditures that make a plant asset more efficient or productive.

• Are revenue expenditures.