Accounting Chap 7

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

Cost of lawn sprinkler system Cost of sidewalk Cost of driveways

Long-term tangible assets include

Land Equipment Buildings

Activity-Based

Method that matches usage of the asset with revenues generated from the asset

What are the financial statement effects of using the declining balance method of depreciation as compared to the straight-line method in the first year of an asset's life?

Net income is lower. Total assets are lower.

Jan purchases a piece of land and immediately tears down an old building. The proceeds from selling the salvaged materials should be recognized as:

a reduction in the cost of the purchased land

Costs incurred to acquire equipment are recognized as a(n) ____________, while cost providing a benefit in the current period only are recognized as a(n) ______________.

asset; expense

The original cost of the asset less the accumulated depreciation is the _______ _________ of the asset.

book value

The formula for calculating the double-declining-balance method is

book value at beginning of year x 2/estimated service life

A(n) _______ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time.

franchise

The key factor in classifying items as repairs and maintenance is that

future benefits are not provided beyond those originally anticipated from the asset.

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______.

goodwill

An accelerated depreciation method is appropriate when the asset will provide

greater benefits in the earlier years of the asset's life.

Using the declining balance method, depreciation will be

higher in earlier years, but lower in later years.

Which of the following are expenditures for assets subsequent to acquisition?

improvements additions repairs and maintenance

A subsequent expenditure for an asset increases the future benefits of the asset if it

increases the operating efficiency of the asset. increases the quality of the goods or services produced by the asset. extends the asset's service life.

In accounting terminology, the life of a trademark is considered

indefinite

Which of the following costs are capitalized as an asset for an internally developed patent?

legal fees filing fees

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

provides benefits to the company.

Land costs include:

purchase price of land, closing cost, attorney fees, real estate commissions, recording fees, or back taxes (tax from previous years), leveling, filling, clearing, removing existing buildings and any expenditures to prepare land for its intended use. cost of any salvaged materials sold for cash is a reduction from total cost of land

Costs of periodically servicing equipment is an example of:

repair and maintenance

The depreciable cost of an asset is the asset's cost minus its estimated ______ value.

residual

The term used to describe the amount the company expects to receive for an asset at the end of its service life is

residual value

A trademark registered with the U.S. Patent and Trademark Office protects the trademark from use by others for a renewable period of

10 years

Berner Inc. internally develops a patent, which has an estimated value of $25 million. Related legal, design and registration fees were $155,000. The amount reported on Berner's balance sheet should be:

155,000

Declining-Balance Method

Accelerated method that multiplies a constant percentage rate times the decreasing book value

Straight-Line Method

Allocates an equal portion of the depreciable base to each year of the asset's service life

depreciation

Allocation of the cost of a tangible fixed asset The allocation of the cost of a tangible asset over its service life

amortization

Allocation of the cost of an intangible asset

depletion

Allocation of the cost of natural resources

Which of the following statements describe the accounting rules for a franchise agreement?

Capitalize the cost of the franchise. Amortize the cost of the franchise over its life. Expense periodic payments as incurred.

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Commissions Cost to remove an old building Legal fees to secure title Grading land Title insurance

Which of the following items are intangible assets?

Copyright Trademark Patent

Recurring costs related to equipment

Expense during the period they are incurred

Under what circumstances are accelerated depreciation methods most appropriate?

For an asset that will provide greater benefits in earlier years of its life. For an asset that will be used less in the later years of its life.

Cost of preparing asset for use

Include as part of asset cost

What costs are capitalized as an intangible asset for a franchise?

Initial payment for the franchise.

Which statement is true about the straight-line method of depreciation?

It allocates an equal amount of depreciation to each year the asset is used.

Which of the following does not differ among the different depreciation methods?

Total depreciation recognized over the asset's service life.

On January 1, 20X1, Claire Corp. purchases a patent. One month after acquiring the patent, Claire paid $3,000 in legal fees to successfully defend its right to the patent. The $3,000 should be:

added to the Patent account

Attorney fees and other costs necessary to secure a patent should be

added to the patent account

The types of expenditures that can occur subsequent to an asset's acquisition are

additions. improvements. repairs and maintenance.

The gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides

benefit, revenue, value

In accounting, expenditures recorded as assets are said to be _____.

capitalized

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

Expenditure increases future benefits derived from asset

capitalized as incurred

Costs that produce future benefits are ______, but costs that produce benefits only in the current period are ______.

capitalized; expensed

A(n) __________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

Which of the following costs may be capitalized into the cost of a trademark?

design costs fees for successful legal defense registration fees

Expenditure yields benefits in current period only.

expensed as incurred

For a patent developed internally, the research and development costs are

expensed as incurred

Which of the following items are capitalized into the cost of a patent?

filing fees attorney fees to secure patent purchase price

A retirement or abandonment of an asset is different from a sale of an asset because

no cash is received. a loss must be recognized for the remaining book value.

Land Improvements

o Paving, parking lots, driveways o Landscaping o Lighting system o Sprinkler system or irrigation recorded in a separate account, classified separately from cost of land

Equipment

o Sales taxes o Shipping and delivery expenses o Insurance or legal fees o Assembly, installation, or testing does not include recurring fees: property tax, insurance, service or maintenance

The exclusive legal right to manufacture a product or to use a process is called a(n)

patent

The cost of successfully defending a patent should be added to:

patent account

A(n) ____________, is the exclusive right to manufacture a product or use a process granted for a period of _________ years.

patent; 20

The accounting for copyrights uses the same accounting rules as

patents

The declining balance method of depreciation is a multiple of the

straight-line rate of depreciation.

Long tern assets are classified as

tangible and intangible

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year.

The depreciable cost is

the cost of the asset minus the residual value.

True or false: Repairs and maintenance expenditures that do not increase the future benefit of the asset are expensed.

true

True or false: The accounting treatment for the cost of copyrights is identical to that of patents.

true

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ______ value of the asset sold.

book