accounting chapter 6

Exclusive rights to sell products or perform services in certain geographic areas is granted by a ______.

Franchise

Which of the following statements regarding franchises are true? Franchises may be issued by the federal government. Brand labels are trademarks that cannot be franchised. Franchises may be issued by private businesses. Franchises have a 15 year legal life as defined by federal law.

Franchises may be issued by the federal government. Franchises may be issued by private businesses.

Exclusive legal right to produce and sell a product that has one or more unique features is granted by a ______.

Patent

The term used when recognizing expense for intangible assets with identifiable useful lives is

amortization

Which of the following is not a trademark? Polo emblem Nike slogan "Just do it" Recipe for Kentucky Fried Chicken The name Coca-Cola

Recipe for Kentucky Fried Chicken

Intangible assets with an identifiable useful life include ______.

copyrights patents

True or false: Two companies that experience the exact same accounting events could report different amounts of depreciation expense.

true

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. At the start of Year 2, BLC determined the limo will only last for a total of 3 years. Assuming the salvage value did not change, the depreciation expense recorded in Year 2 will be

$15,000

Recognizing an impairment loss affects the ______. balance sheet income statement statement of cash flows

-balance sheet -income statement

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. At the start of Year 2, BLC determined the salvage value should be changed to $11,000. Based on this, the depreciation expense recorded in Year 2 will be

$ 9,000

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated salvage value from $8,000 to $4,000. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be:

$12,000. Reason: At the beginning of Year 3, the book value of the limo is $28,000 ($48,000 cost - $20,000 accumulated depreciation). The remaining useful life is 2 years. Depreciation expense for the remaining 2 years is: ($28,000 book value - $4,000 salvage value) ÷ 2 = $12,000.

Jason Company purchased a newly granted patent for $60,000 cash. The patent is expected to have a useful life of 25 years, a legal life of 20 years and a zero salvage value. Based on this information, the annual amortization charge is ______.

$3,000

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated useful life from 4 years to 7 years. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be:

$4,000. Reason: At the beginning of Year 3, the book value of the limo is $28,000 ($48,000 cost - $20,000 accumulated depreciation). The remaining useful life is 5 years (2 years from the original estimate + 3 additional years due to change in estimate). Revised depreciation expense is: ($28,000 book value - $8,000 salvage value) ÷ 5 years = $4,000

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. At the start of Year 2, BLC determined the salvage value should be changed to $11,000. Based on this, the depreciation expense recorded in Year 2 will be

$9,000

Which of the following statements regarding patents are true? The legal life of a patent is 20 years. Research and development costs incurred to develop patentable products are usually capitalized in the patent account. Patent rights are normally controlled by state government authorities.

-The legal life of a patent is 20 years. -A patent grants a company or an individual the exclusive right to a product or process. -Different companies may use different depreciation methods for identical assets. Companies are required to disclose not only the amount of depreciation, but also the methods they use to calculate it.

When an intangible asset with an identifiable useful life is amortized, ______.

-net income decreases -cash flow is not affected -liabilities are not affected

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. BLC expected to drive the limo for 100,000 miles before disposing of it. The limo had a $8,000 salvage value. Actual miles driven per year turns out to be 30,000 miles in Year 1, 40,000 miles in Year 2, 20,000 miles in Year 3, and 25,000 miles in Year 4. Based on this information, at the end of Year 2, the accumulated depreciation shown the balance sheet was

28,000

The gain or loss on the disposal of an asset is equal to the sales price minus ______.

Book value

Writings, musical compositions, works of art, and other intellectual property for the exclusive benefit of the creator or persons assigned the right by the creator are protected by a ______.

Copyright

Which of the following statements regarding copyrights are true?

Copyrights are granted by the federal government. A copyright is usually expensed early because of uncertain royalties.

Which of the following statements are true? If the fair value of goodwill is greater than its book value, an impairment gain must be recognized. Goodwill must be tested for impairment annually. A company may choose to amortize goodwill over its legal life. If the fair value of goodwill is lower than its book value, an impairment loss must be recognized.

Goodwill must be tested for impairment annually. If the fair value of goodwill is lower than its book value, an impairment loss must be recognized.

A trademark has a(n) ______ legal life.

Indefinite

Which of the following statements regarding patents are true?

The legal life of a patent is 20 years. A patent grants a company or an individual the exclusive right to a product or process.

Costs related to long-term assets are expensed in the period incurred when they ______

are for routine maintenance are for minor repairs

Goodwill appears on the ______.

balance sheet

Exclusive rights to sell products or perform services in certain geographic areas is granted by a ______.

franchise

The value attributable to favorable factors such as reputation, location, and superior products is called

goodwill

Costs related to long-term assets are capitalized when they _____

improve the quality of the asset extend the asset's useful life