Long-Term Assets Practice Exam Quiz Questions and Answers

Long-Term Assets Practice Exam Quiz Questions and Answers

Understanding long‑term assets is a cornerstone of solid financial accounting and analysis. Whether you’re preparing for academic exams, professional credentials like CPA, CMA, or managing corporate financials, the Long‑Term Assets Practice Exam Quiz Questions and Answers offers a focused, interactive way to master depreciation, amortization, impairment, and classification of assets over time.

This practice quiz combines realistic scenarios with thoughtful explanations designed to reinforce your reasoning and boost your confidence. Each question simulates practical accounting situations, guiding you through identifying asset types, applying valuation techniques, and reflecting their impact on financial statements.

Key topics covered in the Long‑Term Assets Practice Exam Quiz Questions and Answers include:

• Distinguishing between tangible and intangible long‑term assets
• Choosing the appropriate cost model—historical cost versus fair value
• Applying depreciation methods such as straight-line, declining balance, and units-of-production
• Recognizing when and how to test for asset impairment and record write-downs
• Allocating acquisition costs, goodwill, and subsequent expenditures
• Understanding amortization for intangible assets like patents and trademarks
• Interpreting how long‑term assets affect balance sheet presentation, equity, and ratio analysis

What sets this tool apart is its blend of practice exam questions with transparent, concise answers. Instead of merely giving the correct choice, each answer explains the underlying accounting principle, helping you internalize concepts and apply them effectively.

Who benefits from this quiz?

• Students studying financial accounting topics or preparing for exams
• Aspiring professionals aiming for certifications focused on asset accounting
• Finance managers and controllers who review asset-related journal entries in practice
• Educators seeking accessible, concept-driven material for classroom or review sessions

Why it works for you:

• Active learning: Real-world scenarios encourage application, not rote memorization.
• Solid conceptual footing: Every question is followed by a reasoned explanation, reinforcing best practices.
• Exam-ready performance: Familiarity with varied asset scenarios sharpens confidence under test conditions.
• Enhanced financial literacy: You’ll gain clarity on how long‑term assets contribute to decision-making and reporting.

Engaging with the Long‑Term Assets Practice Exam Quiz Questions and Answers expands your ability to evaluate asset lifecycles, understand financial impacts, and ensure compliance with accounting standards. Through immersive, scenario-driven practice, you’ll transform theoretical knowledge into practical expertise.

FAQs

What topics are included in the Long‑Term Assets Practice Exam Quiz Questions and Answers?
It covers asset classification, depreciation methods, impairment recognition, cost allocation, amortization, and the effect of asset changes on financial statements.

Who should use this practice exam quiz?
Students preparing for accounting courses or certifications, professionals involved in asset accounting, and educators seeking exam-like material will find this resource valuable.

Are explanations provided with each answer?
Yes. Every question is paired with an answer that includes a clear explanation of the accounting principle behind it.

Does this help with real-world application of long‑term asset accounting?
Absolutely. It uses realistic scenarios to help you apply concepts confidently in both exam and real-world settings.

Will this quiz improve my understanding of financial statement impacts?
Yes—by reinforcing how long‑term assets influence balance sheet presentation, asset ratios, and overall financial analysis.

Questions

Which of the following costs should be capitalized as part of the cost of property, plant, and equipment?

A) Cost of land improvements

B) Cost of employee training

C) Routine maintenance expenses

D) Interest on new loans for operating expenses

When should a company recognize a long-term asset on its balance sheet?

A) When it is purchased and paid for

B) When the asset is fully depreciated

C) When the asset is installed and ready for use

D) When it is ordered but not yet delivered

What is the correct accounting treatment for the repair of an old building that does not significantly extend its useful life?

A) Capitalize as an improvement

B) Expense it as a maintenance cost

C) Treat it as an extraordinary repair

D) Capitalize as a land cost

Which of the following is not included in the cost of a building?

A) Purchase price

B) Broker’s fees

C) Insurance during construction

D) Cost of landscaping after purchase

Which method of depreciation allocates an equal amount of the asset’s cost to each period?

A) Declining balance method

B) Straight-line method

C) Units-of-production method

D) Sum-of-the-years’-digits method

A machine purchased for $100,000 with an estimated useful life of 10 years and a salvage value of $10,000 is depreciated using the straight-line method. What is the annual depreciation expense?

A) $9,000

B) $10,000

C) $1,000

D) $2,000

If a company disposes of an asset before its estimated useful life is completed, it should:

A) Continue to depreciate the asset until the end of its useful life

B) Adjust the book value and record any gain or loss at the time of disposal

C) Ignore any gain or loss from the disposal

D) Capitalize any gain or loss and report it as revenue

Which of the following is an example of an intangible asset?

A) A building

B) A trademark

C) A vehicle

D) A piece of machinery

What is the main purpose of using the units-of-production method for depreciation?

A) To match expense with time

B) To match expense with usage or production

C) To spread costs evenly over the asset’s life

D) To accelerate the depreciation

If an asset is leased, who owns the asset for accounting purposes?

A) The lessor

B) The lessee

C) Both parties equally

D) The financial institution

Which of the following would be considered a capital expenditure?

A) Monthly utility bills for an office building

B) Cost to paint a building

C) Cost to replace a roof on an existing building

D) Cost of routine cleaning services

What is the journal entry to record the purchase of new machinery for cash?

A) Debit Machinery, credit Cash

B) Debit Cash, credit Machinery

C) Debit Equipment, credit Accounts Payable

D) Debit Machinery, credit Equipment

When an asset is revalued upward, how should the increase be recorded?

A) As a gain on the income statement

B) Directly in equity as a revaluation surplus

C) As a deferred credit

D) As an expense

Which cost is NOT considered part of the cost of land?

A) Survey costs

B) Title fees

C) Demolition of an old building

D) Initial landscaping

A company has a building that cost $500,000 with accumulated depreciation of $200,000. If the building is sold for $350,000, what is the gain or loss on sale?

A) $50,000 gain

B) $150,000 gain

C) $150,000 loss

D) $100,000 gain

The method of depreciation that accelerates expense in the earlier years of an asset’s life is called:

A) Straight-line method

B) Declining balance method

C) Units-of-production method

D) Sum-of-the-years’-digits method

What is the initial value of an asset that is obtained through a lease agreement?

A) The fair market value of the asset

B) The present value of lease payments

C) The cash price of the asset

D) The amount of monthly lease payments

Which of the following is considered an improvement rather than a repair?

A) Replacing a broken window

B) Repainting a building

C) Adding a new wing to a building

D) Replacing a faucet

If an asset is fully depreciated, what happens to its book value?

A) It remains the same as its original cost

B) It is zero

C) It is recorded as a loss

D) It is adjusted to fair market value

Which type of asset is land classified as?

A) Tangible asset

B) Intangible asset

C) Current asset

D) Investment asset

Under which circumstance should a company capitalize an expenditure for equipment?

A) If it repairs an item that adds no additional value

B) If it extends the useful life of the equipment

C) If it incurs a monthly maintenance fee

D) If it is a routine service cost

When a company sells equipment at a loss, the loss should be:

A) Recorded as revenue

B) Ignored, as it does not affect the financial statements

C) Reported as an expense on the income statement

D) Capitalized as part of the asset cost

The cost of a machine includes:

A) Only the purchase price

B) Purchase price and transportation costs

C) Purchase price, installation, and testing costs

D) Purchase price, training for employees, and warranty costs

The revaluation model for property, plant, and equipment is:

A) Used only for land

B) Used for both tangible and intangible assets

C) A model where assets are recorded at their fair market value

D) Never used in U.S. GAAP

Which of the following is NOT a factor in determining the cost of a long-term asset?

A) Shipping charges

B) Interest cost on loan for the asset

C) Cost of installation

D) Training costs for using the asset

Which depreciation method considers the asset’s use rather than time?

A) Straight-line

B) Declining balance

C) Units-of-production

D) Sum-of-the-years’-digits

What happens when the carrying amount of a long-term asset exceeds its recoverable amount?

A) The asset is written off completely

B) The asset is revalued at fair market value

C) An impairment loss is recognized

D) Depreciation is recalculated

Which of the following statements is true about the revaluation of assets?

A) It results in the asset being recorded at historical cost

B) It affects the asset’s accumulated depreciation only

C) It updates the asset’s value to fair market value

D) It is mandatory under all accounting principles

How is the sale of equipment recorded when it is sold at a gain?

A) As a credit to the equipment account

B) As a debit to the equipment account

C) As an increase in revenue

D) As a gain on sale on the income statement

What is the purpose of an impairment test?

A) To ensure assets are recorded at fair value

B) To assess if the asset’s carrying amount exceeds its recoverable amount

C) To check if the asset is still usable

D) To adjust the depreciation expense

What is the typical useful life of a building for depreciation purposes?

A) 5-10 years

B) 10-20 years

C) 20-40 years

D) 40-60 years

Which of the following costs related to an asset is not capitalized?

A) Installation cost

B) Purchase price

C) Routine maintenance

D) Transportation cost

What is the definition of capital expenditure?

A) Expense related to the current period

B) Cost incurred to maintain an asset in working condition

C) Cost incurred to acquire or improve a long-term asset

D) Cost of daily operations

Which of the following best describes the straight-line method of depreciation?

A) It charges a higher expense in the earlier years and less in the later years.

B) It charges the same expense amount each year.

C) It charges depreciation based on the usage of the asset.

D) It charges more in the later years and less in the earlier years.

The cost of an asset should be allocated over its:

A) Life expectancy

B) Useful life

C) Operating cycle

D) Initial purchase period

How should a company record the purchase of a building with a land and structure combined price?

A) Allocate the full price to the land only.

B) Allocate the full price to the building only.

C) Separate the purchase price into land and building based on fair market value.

D) Treat the entire amount as land.

What is a major disadvantage of using the declining balance method for depreciation?

A) It is too simple to calculate.

B) It allocates a higher expense in the earlier years.

C) It does not align with matching principles.

D) It charges the same amount every year.

Which of the following is true regarding the depreciation of land?

A) Land is never depreciated.

B) Land is depreciated over 30 years.

C) Land can be depreciated if it is improved.

D) Land is depreciated using the straight-line method only.

What should a company do when an asset is impaired?

A) Continue depreciating the asset as normal.

B) Revalue the asset and adjust its carrying amount.

C) Write off the asset immediately.

D) Increase the useful life of the asset.

When calculating depreciation, the term ‘salvage value’ refers to:

A) The value at which an asset can be sold after its useful life ends

B) The original purchase cost of the asset

C) The value of an asset before depreciation

D) The current market value of the asset

Which of the following is an example of a capital expenditure for equipment?

A) Monthly repair costs for a machine

B) Replacement of worn-out parts to extend the life of the equipment

C) Annual insurance premium for equipment

D) Cost of cleaning the equipment

When should a company record the removal of an asset?

A) When the asset is no longer in use

B) When the asset reaches the end of its estimated useful life

C) When it is sold or disposed of

D) When its fair market value decreases significantly

If an asset is leased and classified as an operating lease, who records the asset on their books?

A) The lessor

B) The lessee

C) Both parties

D) The financial institution

Which of the following is true about the cost of a machine?

A) Only the purchase price is included in the cost.

B) Any amount spent on training employees for machine use is included.

C) Costs for testing the machine to ensure it is working correctly are included.

D) Repair costs incurred after purchase are included in the machine’s cost.

When an asset is sold at a price higher than its book value, what is recorded?

A) Loss on sale of asset

B) Gain on sale of asset

C) Reduction in income tax expense

D) No entry is recorded

Which accounting standard allows the revaluation model for property, plant, and equipment?

A) GAAP (Generally Accepted Accounting Principles)

B) IFRS (International Financial Reporting Standards)

C) FASB (Financial Accounting Standards Board)

D) SEC (Securities and Exchange Commission)

A company purchased a machine for $120,000 and paid $10,000 for transportation and installation. The estimated useful life is 10 years, and the residual value is $10,000. What is the total cost of the machine?

A) $120,000

B) $130,000

C) $110,000

D) $100,000

What is the purpose of an impairment test?

A) To adjust the salvage value of an asset

B) To ensure the asset’s fair value exceeds its carrying value

C) To calculate the depreciation expense accurately

D) To assess whether the carrying amount exceeds the recoverable amount

If an asset’s fair market value falls below its carrying value, what should the company do?

A) Continue to depreciate the asset normally

B) Record an impairment loss

C) Revalue the asset upwards

D) Ignore the change in value

What happens to the accumulated depreciation when an asset is sold?

A) It is removed from the books entirely

B) It is transferred to the income statement

C) It is written off alongside the asset

D) It is reported as a separate asset on the balance sheet

How should expenditures for replacing a roof on a building be recorded if it extends the building’s life?

A) As an expense

B) As a capital expenditure

C) As a liability

D) As deferred income

Which of the following is true about the book value of an asset?

A) It always equals the original cost of the asset.

B) It is the difference between the asset’s cost and accumulated depreciation.

C) It changes based on market value.

D) It represents the fair market value of the asset.

Which of the following is an indicator of potential asset impairment?

A) Increase in the market price of the asset

B) A significant change in the asset’s use

C) Regular repairs and maintenance

D) Acquisition of new equipment

The initial cost of a truck includes:

A) Only the purchase price

B) The purchase price and annual insurance

C) The purchase price, sales tax, and vehicle registration fees

D) The cost of fuel and annual maintenance

Which of the following is true for the treatment of interest costs related to an asset?

A) It is always capitalized.

B) It is capitalized only if the asset is under construction.

C) It is always expensed in the period incurred.

D) It can be capitalized only if it’s a lease.

What type of asset is recorded under the “Land Improvements” category?

A) A parcel of land without any changes made

B) Buildings constructed on land

C) Upgrades made to the land like paving a parking lot

D) A vacant plot of land

Which depreciation method results in the largest expense in the first year of an asset’s life?

A) Straight-line method

B) Declining balance method

C) Units-of-production method

D) Sum-of-the-years-digits method

What type of asset is not depreciated over its useful life?

A) Equipment

B) Building

C) Land

D) Furniture

A company spends $5,000 to replace the engine of a truck, which extends the truck’s life by five more years. How should this expenditure be recorded?

A) As an expense

B) As a capital expenditure

C) As accumulated depreciation

D) As revenue

The matching principle in accounting states that:

A) Revenue should be matched with its corresponding asset.

B) Expenses should be matched with the revenues they help generate.

C) Liabilities should be matched with corresponding assets.

D) Income should be matched with the cost of goods sold

What type of asset is typically not depreciated?

A) Buildings

B) Machinery

C) Land

D) Equipment

What is the main purpose of capitalizing an expenditure?

A) To recognize it as an immediate expense

B) To spread the cost of an asset over its useful life

C) To reduce taxable income in the current period

D) To increase the cash balance

Which of the following methods would be most appropriate for an asset that will lose value rapidly in the first few years?

A) Straight-line method

B) Declining balance method

C) Units-of-production method

D) Sum-of-the-years-digits method

What is the effect on financial statements when an asset is sold at a loss?

A) Increase in net income

B) No impact on net income

C) Decrease in net income

D) No change in assets

What should a company do if the carrying amount of an asset exceeds its recoverable amount?

A) Write up the asset to fair value

B) Continue to depreciate it as usual

C) Record an impairment loss and reduce the carrying amount

D) Increase its useful life estimate

What type of cost is included in the initial measurement of an asset?

A) Routine repairs

B) Installation costs

C) General administrative expenses

D) Monthly insurance premiums

How is the cost of a leased asset classified on the balance sheet?

A) As a liability only

B) As an expense

C) As both an asset and liability

D) As an investment

Which of the following would be considered a capital expenditure for a building?

A) Painting the walls

B) Replacing the roof

C) Cleaning the windows

D) Replacing light bulbs

What is the primary reason for performing a review of long-term assets for impairment?

A) To ensure compliance with tax regulations

B) To assess if the asset’s fair value has increased

C) To determine if the asset’s carrying value is recoverable

D) To update the asset’s useful life

Which of the following costs would be expensed rather than capitalized?

A) Major overhauls of equipment

B) Installation of a new machine

C) Repair of a broken component in a machine

D) Construction of a new building

A company applies the units-of-production method of depreciation. What is required to calculate annual depreciation?

A) Annual usage of the asset

B) The asset’s market value at year-end

C) Estimated residual value

D) Total cost of the asset only

What is the correct accounting treatment for the donation of an asset?

A) Record the asset at its fair market value as revenue

B) Write off the asset and record an expense

C) Record the asset and recognize a gain or loss on disposal

D) Do not record the asset or any related gain/loss

When an asset’s fair value exceeds its carrying value, what is the appropriate journal entry?

A) Record a loss on the asset

B) No journal entry is required

C) Record an impairment gain

D) Record an increase in the asset’s value

What must be included in the cost of a leased asset under capital lease criteria?

A) Only the lease payments made

B) Lease payments plus any additional financing costs

C) The fair market value of the asset at lease inception

D) The present value of future lease payments

What kind of asset is typically not depreciated under IFRS?

A) Equipment

B) Buildings

C) Land

D) Vehicles

How does a company record a loss on the sale of a building?

A) As a credit to the building account

B) As a debit to a gain on sale account

C) As a debit to loss on sale of asset

D) As an increase in revenue

Which of the following would be classified as a long-term asset?

A) A company’s inventory

B) A building used in business operations

C) A five-year investment in stocks

D) Prepaid insurance

Which of the following methods for calculating depreciation allocates an equal amount of expense each year?

A) Declining balance method

B) Units-of-production method

C) Straight-line method

D) Sum-of-the-years-digits method

What is the purpose of recording accumulated depreciation?

A) To represent the original cost of the asset

B) To track the current fair value of the asset

C) To show the total depreciation expense taken over the asset’s life

D) To record the net worth of the company

If an asset’s carrying amount is less than its recoverable amount, what action should be taken?

A) Record an impairment loss

B) Continue to use the asset without changes

C) Increase the carrying value to fair market value

D) Reclassify the asset as a current asset

When should the cost of a long-term asset be capitalized rather than expensed?

A) When it is used to maintain the asset’s condition

B) When it improves or extends the asset’s useful life

C) When it is an ordinary repair

D) When it is for training employees

What is the impact of recording an impairment loss on the financial statements?

A) It increases net income

B) It decreases net income and asset value

C) It increases the value of assets

D) It has no impact on net income or asset value

What should be included in the cost of an asset when acquired?

A) Only the purchase price

B) Any cost that increases the asset’s value or extends its life

C) All routine maintenance costs

D) Only interest paid during the acquisition period

A company’s machine has been used for ten years and has reached its residual value. What should be done next?

A) Continue depreciating it until it is fully disposed of.

B) Stop recording depreciation expense.

C) Increase the machine’s carrying value.

D) Sell it at fair market value.

If a company makes an expenditure that extends the useful life of an asset by three years, how is this expenditure treated?

A) It is capitalized as part of the asset’s cost.

B) It is recorded as an immediate expense.

C) It is ignored until the next accounting period.

D) It is treated as a liability.

What type of account is “Accumulated Depreciation”?

A) Asset account

B) Liability account

C) Contra-asset account

D) Revenue account

Which of the following statements about depreciation is true?

A) Depreciation applies only to tangible assets.

B) Depreciation is used to reflect the increase in asset value.

C) Depreciation is a method for estimating the asset’s market value.

D) Depreciation expense is recorded as an asset.

What is true about the residual value of an asset?

A) It is always zero at the end of the asset’s life.

B) It is the estimated value the asset will have at the end of its useful life.

C) It is the initial purchase price of the asset.

D) It is the cost of the asset when sold.

When an asset is leased under a capital lease, what type of entry is made at the inception of the lease?

A) Debit “Lease Expense” and credit “Cash”

B) Debit “Leased Asset” and credit “Lease Liability”

C) Debit “Asset” and credit “Deferred Revenue”

D) Debit “Accrued Liability” and credit “Leased Asset”

Which of the following best defines a capital expenditure?

A) An expense that only occurs once and is non-recurring

B) A cost that adds value or extends the life of an asset

C) A regular payment for an ongoing service

D) A cost related to general office supplies

What is the primary characteristic of a tangible long-term asset?

A) It can be easily liquidated

B) It is not subject to depreciation

C) It has a physical form and can be used for production

D) It is always recorded at its market value

What would be included in the cost of a new building?

A) Annual utility costs

B) Purchase price, legal fees, and construction costs

C) Cost of painting the walls after construction

D) Regular cleaning expenses

Which of the following best describes the declining balance method of depreciation?

A) It charges the same amount of expense each year.

B) It charges a fixed percentage of the asset’s carrying amount each year.

C) It depreciates the asset based on the units produced.

D) It spreads the cost evenly over the asset’s useful life.

When a company revalues an asset and the value has increased, how should this be reflected in the financial statements?

A) Record the increase as a gain in the income statement.

B) Adjust the asset’s value and record a revaluation surplus in equity.

C) Record it as a revenue item.

D) Write off the asset entirely.

Which type of cost is typically considered a repair and should be expensed rather than capitalized?

A) Replacing a worn-out part of machinery

B) Installing new machinery components that extend the asset’s life

C) Painting a building

D) Replacing the roof of a building to increase its value

What is the term for the process of allocating the cost of a long-term asset over its useful life?

A) Amortization

B) Depreciation

C) Impairment

D) Appreciation

Which type of asset is reported as an intangible asset?

A) Equipment

B) Land

C) Trademark

D) Building

What effect does an impairment loss have on the carrying value of an asset?

A) It increases the carrying value.

B) It decreases the carrying value.

C) It has no effect on the carrying value.

D) It records the asset at its fair market value.

How is the cost of a leasehold improvement typically depreciated?

A) Over the useful life of the improvement or the remaining term of the lease, whichever is shorter.

B) Over the entire life of the asset it improves.

C) Only when the improvement is first made.

D) Over a 5-year period.

Which of the following is true about a finance lease?

A) The lessee does not report the leased asset or liability.

B) The lessee has the option to purchase the asset at the end of the lease term for a nominal price.

C) The lessee records the leased asset and the related liability on their balance sheet.

D) The lease payment is expensed as rent.

What happens to an asset when it is fully depreciated?

A) It is removed from the books.

B) It is recorded as an expense.

C) It remains on the balance sheet at its original cost but is no longer depreciated.

D) It is revalued at market value.

What type of cost should be capitalized when acquiring a piece of machinery?

A) Insurance cost during transit

B) Repairs done after initial use

C) Interest on a loan used to purchase the machine

D) Cost of labor to install the machine

When a company buys a long-term asset with a useful life of 10 years and an expected residual value of $5,000, what is the annual depreciation expense using the straight-line method if the asset cost $50,000?

A) $4,500

B) $5,000

C) $4,000

D) $5,500

Which of the following is considered a tangible asset?

A) Goodwill

B) Copyright

C) Building

D) Trademark

What must be included in the calculation of the book value of an asset?

A) Its market value

B) The total cost minus accumulated depreciation

C) The cost of any repairs made after purchase

D) The future cash flows it is expected to generate

Which method of depreciation is most appropriate for assets whose usage varies from year to year?

A) Straight-line method

B) Units-of-production method

C) Sum-of-the-years-digits method

D) Declining balance method

What is the main purpose of recording a revaluation surplus?

A) To increase net income

B) To adjust the asset’s value to fair market value

C) To report the asset at its historical cost

D) To record the depreciation expense

Which of the following statements about accumulated depreciation is false?

A) It is a contra-asset account.

B) It appears on the income statement.

C) It reduces the carrying value of an asset.

D) It reflects the total amount of depreciation taken on an asset.

What is the impact on the balance sheet when an asset is impaired?

A) The asset’s carrying value is increased.

B) The asset’s carrying value is reduced, and an impairment loss is recorded.

C) The asset is reclassified as a current asset.

D) No change is recorded.

Which of the following would be classified as an asset retirement obligation?

A) The cost of replacing a broken part

B) A contract to lease property

C) The estimated cost of dismantling an asset at the end of its life

D) Cost of repairs to machinery

What is the result of capitalizing an expenditure on a long-term asset?

A) The expense is recorded immediately on the income statement.

B) The asset’s value is increased and expensed over its useful life.

C) The expense is deferred and never recognized.

D) The asset’s value is not affected at all.

When a company sells a piece of equipment for less than its book value, what is the result?

A) The company recognizes a gain.

B) The company recognizes a loss.

C) The company adjusts the asset value to market value.

D) The company reclassifies it as a liability.

Which of the following is true about land improvements?

A) They are not depreciated.

B) They are depreciated over the life of the asset.

C) They do not add value to the property.

D) They are included in the cost of land.

What type of expense is incurred when an asset is repaired to restore it to its original condition?

A) Capital expense

B) Operating expense

C) Extraordinary expense

D) Maintenance expense

How is an asset’s useful life defined?

A) The time it can be sold at a profit

B) The length of time an asset is expected to be used in operations

C) The period until the asset is obsolete

D) The amount of time the asset is legally owned by the company

What is the impact on the financial statements if a long-term asset is sold for its book value?

A) There is a gain recognized on the income statement.

B) There is a loss recognized on the income statement.

C) No gain or loss is recognized; cash increases, and the asset is removed from the books.

D) The asset’s value is adjusted to fair market value.

Which of the following would be included in the cost of land?

A) Cost of paving the parking lot

B) Cost of land survey and legal fees

C) Cost of erecting a building on the land

D) Cost of landscaping around the building

What happens to a long-term asset if it is reclassified as held for sale?

A) It is revalued at its historical cost.

B) It is recorded at its fair market value and depreciated until sold.

C) It is recorded at the lower of carrying amount or fair market value less cost to sell.

D) It is removed from the balance sheet.

Which of the following best describes an asset’s useful life?

A) The time the asset can be resold for profit

B) The period during which an asset is expected to be used in production

C) The total period the asset can be legally owned by the company

D) The period before an asset becomes obsolete

What is the definition of “book value” for a long-term asset?

A) The estimated value an asset will have when sold.

B) The cost of an asset minus any accumulated depreciation and impairment losses.

C) The market value of an asset.

D) The cost of an asset plus any revaluation surplus.

If an asset is sold for a price higher than its book value, the company records:

A) An asset adjustment.

B) A gain on sale of asset.

C) A loss on sale of asset.

D) No change in financial statements.

What is the correct accounting treatment for improvements that extend the useful life of an asset?

A) Expensed as repairs

B) Capitalized and added to the asset’s cost

C) Recorded as a new asset

D) Deducted from accumulated depreciation

Which of the following is considered an impairment loss?

A) The increase in fair value of a long-term asset

B) The decrease in the market value of an asset below its carrying amount

C) The annual depreciation expense recorded on an asset

D) The revaluation surplus recognized in equity

What is true about the straight-line method of depreciation?

A) It allocates a higher expense in the early years of an asset’s life.

B) It spreads the cost of an asset evenly over its useful life.

C) It adjusts the expense amount based on actual usage.

D) It results in different expense amounts each year.

What kind of expense is a replacement part that increases the value of an asset?

A) It should be expensed immediately.

B) It should be capitalized as part of the asset cost.

C) It should be reported as a liability.

D) It should be deducted from accumulated depreciation.

Which of the following statements about capital expenditures is true?

A) They are recorded as operating expenses.

B) They extend the useful life or increase the value of an asset.

C) They are only incurred when an asset is purchased.

D) They are reported in the cash flow from operating activities.

What type of asset is a patent?

A) Tangible long-term asset

B) Intangible asset

C) Investment asset

D) Inventory

If a company purchases a truck for $60,000 with a $5,000 residual value and a 5-year useful life, what is the annual straight-line depreciation?

A) $10,000

B) $11,000

C) $12,000

D) $13,000

What is the main reason a company would revalue an asset?

A) To reflect the asset’s increase in market value

B) To record a higher depreciation expense

C) To avoid impairment losses

D) To adjust accumulated depreciation

What is the difference between tangible and intangible assets?

A) Tangible assets are more liquid than intangible assets.

B) Tangible assets have a physical form, while intangible assets do not.

C) Intangible assets are always depreciated, while tangible assets are not.

D) Tangible assets include patents, while intangible assets include buildings.

What type of asset would be considered part of ‘property, plant, and equipment’?

A) Inventory

B) Goodwill

C) Office building

D) Patent

Which of the following statements is true about land as an asset?

A) Land is depreciated over its useful life.

B) Land has an indefinite useful life and is not depreciated.

C) Land is classified as an intangible asset.

D) Land is recorded at its market value.

When calculating depreciation, what is used to determine the cost allocated each year?

A) The market price of the asset

B) The purchase price minus the residual value

C) The expected increase in value

D) The cost of repairs and maintenance

If an asset is sold at a price below its book value, what is recorded?

A) A gain on sale of asset

B) A loss on sale of asset

C) No entry is needed.

D) An adjustment to the asset’s market value

What is the term for allocating the cost of an intangible asset over its useful life?

A) Depreciation

B) Amortization

C) Impairment

D) Depletion

Which of the following is NOT included in the cost of an asset?

A) Purchase price

B) Installation costs

C) Cost of repairs after installation

D) Legal fees for asset acquisition

What is the primary purpose of capitalizing a cost related to long-term assets?

A) To immediately expense it on the income statement

B) To spread the expense over the asset’s useful life

C) To reduce the asset’s market value

D) To recognize the full cost in the year it was incurred

How should a company treat the cost of demolishing an old building when preparing a site for a new one?

A) Expensed as demolition cost

B) Capitalized as part of the cost of land

C) Capitalized as part of the cost of the new building

D) Recorded as an intangible asset

Which of the following is true about a leased asset under operating lease accounting?

A) It is considered an asset on the lessee’s balance sheet.

B) Lease payments are recorded as a liability and an asset.

C) It is not recorded as an asset; payments are expensed.

D) It must be capitalized as a long-term asset.

What is the effect on the financial statements when a long-term asset is impaired?

A) It has no effect on financial statements.

B) The asset is revalued upward, and a gain is recorded.

C) The asset’s value is written down, and an impairment loss is recognized.

D) The asset’s value is removed from the balance sheet without any impact on income.

What type of asset is a delivery truck purchased by a company?

A) Intangible asset

B) Investment asset

C) Tangible long-term asset

D) Current asset

Which of the following would NOT be considered a long-term asset?

A) Land

B) Building

C) Inventory

D) Equipment

If a company is using the double-declining balance method of depreciation, which of the following is true?

A) The depreciation expense decreases each year.

B) The asset will be depreciated to its residual value by the end of its useful life.

C) The depreciation expense is the same each year.

D) The method allocates a larger expense in the later years of the asset’s life.

What is the main difference between a capital lease and an operating lease?

A) A capital lease is expensed fully, while an operating lease is capitalized.

B) A capital lease transfers ownership or benefits to the lessee, while an operating lease does not.

C) An operating lease requires a large up-front payment, while a capital lease does not.

D) A capital lease does not appear on the lessee’s balance sheet, while an operating lease does.

What must be disclosed in the financial statements regarding long-term assets?

A) Only the cost of acquisition

B) The estimated residual value and useful life

C) Only the accumulated depreciation

D) The market value of the asset

Which of the following costs is capitalized when acquiring a long-term asset?

A) Routine maintenance costs

B) Major overhaul that extends the asset’s useful life

C) Repairs that do not improve the asset

D) Advertising costs related to the asset

In a business acquisition, what is included in the fair value of the assets acquired?

A) Only the assets with physical form

B) Only tangible assets

C) All identifiable assets, both tangible and intangible

D) Only the financial assets

What type of asset is an investment in land that is not intended for use but held for future appreciation?

A) Tangible asset

B) Current asset

C) Intangible asset

D) Investment asset

Which of the following statements is true regarding the revaluation model for long-term assets?

A) It can only be used for intangible assets.

B) It allows for the asset to be adjusted to its fair value periodically.

C) The revalued amount is always written down to historical cost.

D) It requires that all assets be revalued to zero.

Which method of depreciation would result in the highest depreciation expense in the first year of an asset’s use?

A) Straight-line method

B) Double-declining balance method

C) Units-of-production method

D) Sum-of-the-years-digits method