51. A loss on disposal of a plant asset can only occur if the cash proceeds received from the asset sale is less than the asset’s book value.
52. Natural resources are assets that include standing timber, mineral deposits, and oil and gas fields.
53. Amortization is the process of allocating the cost of natural resources to periods when they are consumed.
54. Natural resources are often called wasting assets because they are physically consumed when used.
55. Natural resources are reported on the balance sheet at cost plus accumulated depletion.
56. When the usefulness of plant assets used to extract natural resources is directly related to the depletion of a natural resource, their costs are depreciated using the units-of-production method of depreciation, as long as the assets will not be moved to and used at another site when extraction of the natural resources is complete.
57. An ore deposit costing $800,000 is expected to produce 1,600,000 tons of ore. A total of 70,000 tons are mined and sold in the current year. The depletion expense for the current year is $35,000.
58. The cost of an intangible asset must be systematically allocated to depreciation expense over its estimated useful life.
59. Intangible assets are certain nonphysical assets used in operations that confer on their owners long-term rights, privileges, or competitive advantage.
60. Goodwill is the amount by which a company’s value exceeds the value of its individual assets and liabilities.
61. The cost of an intangible is systematically allocated to expense over its estimated useful life through the process of depletion.
62. Since goodwill is an intangible, it is amortized each year using the straight-line method, the same as other intangibles are amortized.
63. A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to use a process for 20 years.
64. A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 17 years.
65. The cost of developing, maintaining, or enhancing the value of a trademark is always added to the value of the asset when incurred.
Multiple Choice Questions
66. Plant assets are:
A. Tangible assets used in the operation of a business that have a useful life of more than one accounting period.
B. Current assets.
C. Held for sale.
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 the operation of business that have a useful life of less than one accounting period.
67. A main accounting issue for plant assets is:
A. Computing the cost of the plant assets.
B. Matching the costs of plant assets against revenues for the periods they benefit.
C. Accounting for repairs and improvements to plant assets.
D. The disposal of plant assets.
E. All of these.