CHAP 11: LONGTERM ASSETS

Over what period of time should goodwill be amortized? A) 40 years B) its useful economic life C) 40 years or its useful economic life, whichever is shorter D) Goodwill is never amortized.

D) Goodwill is never amortized.

Which of the following is a realistic assumption of the straight-line method of depreciation? A) Depreciation is a function usage. B) The rate of return analysis is enhanced using the straight-line method. C) The repair and maintenance expense is essentially the same each period. D) The asset's economic usefulness is the same each year.

D) The asset's economic usefulness is the same each year.

Construction costs for fences and driveways are reported on the statement of financial position as ________. A) current assets B) intangible assets C) land D) land improvements

D) land improvements

Generally, which of the following costs are capitalized for self-constructed assets? A) materials and labor only B) labor and overhead only C) materials and overhead only D) materials, labor, and overhead

D) materials, labor, and overhead

Goodwill is recorded as an intangible asset when ________. A) the fair value of a company's assets exceed carrying value of those assets B) the fair value of a company's assets are greater than the cost of acquiring that company C) a company's exceptional quality, reputation, or capability enables it to generate exceptional earnings D) one company acquires another company

D) one company acquires another company

Which of the following is *not* a required disclosure for property, plant, and equipment? A) the amount of depreciation expense for the period B) the accumulated depreciation at the end of the fiscal year C) the balances of depreciable assets by major classes at the end of the fiscal year D) the acquisition cost of each material asset acquired during the fiscal year

D) the acquisition cost of each material asset acquired during the fiscal year

Factors considered in determining an intangible asset's useful life include all of the following except ________. A) legal provisions B) effects of technological advances C) contractual factors D) the amortization method

D) the amortization method

Which, if any, intangible assets are subject to amortization? A) Only finite-life intangible assets are subject to amortization. B) Only indefinite-life intangible assets are subject to amortization. C) Both finite and indefinite-life intangible assets are subject to amortization. D) No intangible assets are subject to amortization.

A) Only finite-life intangible assets are subject to amortization.

IFRS requires that firms *expense costs during a research phase* but allows firms to *capitalize development phase* costs under certain conditions. Under IFRS, which of the following is not a condition that must be met for a firm to capitalize development-phase expenditures? A) The company can reliably identify the research costs incurred to bring the project to economic feasibility. B) The company can reliably identify the development costs incurred to bring the project to economic feasibility. C) The project has achieved technical feasibility. D) The company intends to complete the project and either use or sell the intangible asset.

A) The company can reliably identify the research costs incurred to bring the project to economic feasibility.

When a firm sells or abandons an asset, how is the gain or loss to be recognized on the income statement measured? A) The difference between cash proceeds received and the carrying value of the asset. B) The difference between cash proceeds received and the acquisition value of the asset. C) The difference between cash proceeds received and the accumulated depreciation of the asset. D) The difference between the book value of the asset and the carrying value of the asset.

A) The difference between cash proceeds received and the carrying value of the asset.

For income statement purposes, when is depreciation expense considered to be a variable expense? A) When units-of-output method is used. B) When double-declining-balance method is used. C) When straight-line method is used. D) Never.

A) When units-of-output method is used.

Which of the following is not a major characteristic of a fixed asset? A) acquired for resale B) tangible in nature C) expected to be used for more than one year D) used in the production and sale of other assets

A) acquired for resale

Assets that qualify for *interest cost capitalization* include ________. A) assets under construction for a company's own use B) assets not currently being used because of excess capacity C) assets that are ready for their intended use and acquired through issuance of long-term debt D) All of the above.

A) assets under construction for a company's own use

Fixed asset turnover ratio is computed as total sales revenue divided by ________. A) average net fixed assets B) ending net fixed assets C) average gross fixed assets D) ending gross fixed assets

A) average net fixed assets

In the context of constructing a plant asset, the interest that the company would not have paid if it had not borrowed funds to construct the asset is referred to as ________. A) avoidable interest B) marginal interest C) capital interest D) financing interest

A) avoidable interest

Which of the following is an exclusive right to reproduce and sell an original creative work? A) copyright B) franchise C) trademark D) patent

A) copyright

Which of the following costs should be capitalized in the year incurred? A) costs to successfully defend a patent B) research and development costs for a new product to be introduced later this year C) cost to internally generate goodwill D) organizational costs

A) costs to successfully defend a patent

Which of the following is not a method for determining depreciation expense for a specific asset? A) net method B) units-of-output method C) declining-balance method D) straight-line method

A) net method

Which of the following methods of amortization is normally used for intangible assets? A) straight-line method B) units-of-production method C) finite-life method D) declining-balance method

A) straight-line method

Which of the following is the legal life of a patent? A) 17 years B) 20 years C) life of the inventor plus 20 years D) life of the inventor plus 70 years

B) 20 years

A fixed asset with a five-year estimated useful life and no scrap value is sold at the end of the second year of its useful life. How would using the straight-line method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset? A) A gain would be greater or a loss would be less using straight-line depreciation. B) A gain would be less or a loss would be greater using straight-line depreciation. C) A gain would be less or a loss would be less using straight-line depreciation. D) Neither the gain or loss would be different using straight-line depreciation instead of double-declining-balance method.

B) A gain would be less or a loss would be greater using straight-line depreciation.

Which of the following statements about the double-declining-balance (DDB) method is true? A) Companies that use the DDB method do not use partial-year depreciation. B) Companies that use the DDB method generally do not use scrap value to calculate current-year depreciation expense. C) Using the DDB method, the amount of depreciation expense varies from year to year depending on usage of the asset. D) All of the above statements are true.

B) Companies that use the DDB method generally do not use scrap value to calculate current-year depreciation expense.

Which of the following situations always results in a loss on derecognition of an asset? A) The asset is abandoned. B) The cash proceeds from the sale are less than the book value of the asset. C) The carrying value of the asset is less than its book value at the time of derecognition. D) The cash proceeds from the sale (if any) are less than the acquisition cost of the asset.

B) The cash proceeds from the sale are less than the book value of the asset.

What type of account is Accumulated Depreciation? A) contra-equity B) contra-asset C) expense D) asset

B) contra-asset

The cost of land does not include ________. A) costs of removing old buildings B) costs of improvements with limited lives C) costs of grading and clearing the land D) legal fees and closing costs

B) costs of improvements with limited lives

Which of the following intangible assets is not subject to amortization? A) franchise B) goodwill C) copyright D) customer list

B) goodwill

Companies should evaluate indefinite life intangible assets at least annually for ________. A) amortization B) impairment C) useful life D) gains or losses

B) impairment

Which of the following is a characteristic of intangible assets? A) held for resale B) long-lived C) monetary asset D) physical existence

B) long-lived

Gabraile Company acquired Itsy Inc. for a price that was substantially less than the fair value of the identifiable asset acquired. The difference between the fair value of the assets and the bargain purchase price is ________. A) recorded as negative goodwill B) reported as a gain that increases income from continuing operations C) allocated to reduce carrying value for each purchased asset D) reported as a gain that increases other comprehensive income

B) reported as a gain that increases income from continuing operations

When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to ________. A) that portion of average accumulated expenditures on which no interest cost was incurred B) that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made C) the amount of interest cost actually incurred on financing undertaken specifically for the acquisition of the asset D) a cost of capital charge for equity restricted to the acquisition of the specific asset

B) that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made

Average age of a company's long-term operating assets is computed as ________. A) the amount of depreciation expense divided by accumulated depreciation B) the amount of accumulated depreciation divided by depreciation expense C) the amount of depreciation expense divided by the balance of ending net fixed assets D) the balance of ending net fixed assets divided by depreciation expense

B) the amount of accumulated depreciation divided by depreciation expense

Average remaining life of a company's long-term operating assets is computed as ________. A) the amount of depreciation expense divided by accumulated depreciation B) the amount of accumulated depreciation divided by depreciation expense C) the amount of depreciation expense divided by the balance of ending net fixed assets D) the balance of ending net fixed assets divided by depreciation expense

B) the amount of accumulated depreciation divided by depreciation expense

Which of the following statements about derecognition of an asset is true? A) Derecognition requires that the firm remove the asset acquisition value from the balance sheet but not the related accumulated depreciation. B) Derecognition increases or decreases the balance of the Allowance for Derecognition account. C) Before a gain or loss on derecognition is recognized, the firm must always first recognize current period depreciation expense. D) A loss on derecognition occurs when the amount of cash proceeds (if any) is less than the acquisition cost of the asset.

C) Before a gain or loss on derecognition is recognized, the firm must always first recognize current period depreciation expense.

Which of the following is a way that IFRS disclosure requirements of property, plant, and equipment differ from U.S. GAAP disclosure requirements? A) Companies disclose the accumulated depreciation at the end of the fiscal year by major class or in total. B) Companies provide a general description of the method(s) used in computing depreciation with respect to major classes of depreciable assets. C) Companies provide a reconciliation of the carrying values at the beginning of the year to the end of the year. D) Companies report the carrying value of property, plant, and equipment in total or by major class of long-term assets on the balance sheet.

C) Companies provide a reconciliation of the carrying values at the beginning of the year to the end of the year.

The period of time for which interest is to be capitalized ends when ________. A) no additional interest cost is actually being incurred on direct financing for the acquisition of the asset B) a constructed is substantially complete and put into use C) a constructed asset is substantially complete and ready for its intended use D) an acquired asset is received and ready for its intended use

C) a constructed asset is substantially complete and ready for its intended use

Which of the following costs are capitalized as the asset value of an internally-developed patent? A) research and development costs B) legal costs for patent defense C) both R&D and legal defense costs D) No costs are capitalized for internally-developed patents.

C) both R&D and legal defense costs

An improvement made to a machine increased its fair value and its production capacity. The cost of the improvement should be debited to ________. A) expense B) accumulated depreciation C) equipment D) intangible assets

C) equipment

U.S. GAAP requires significant disclosures for goodwill, including all of the following except ________. A) goodwill acquired B) goodwill included in the disposal of a business unit C) goodwill amortization D) goodwill impaired

C) goodwill amortization

Under current accounting practice, what are the two general classes of intangible assets? A) legally restricted and unrestricted B) monetary and non-monetary C) indefinite-life and finite-life D) specifically identifiable and non-identifiable

C) indefinite-life and finite-life

Over what period of time should a copyright be amortized? A) life of the creator plus 70 years B) its useful economic life C) life of the creator plus 70 years or its useful economic life, whichever is shorter D) Copyrights are never amortized.

C) life of the creator plus 70 years or its useful economic life, whichever is shorter

Use of the double-declining balance method ________. A) ignores the scrap value of the asset for all purposes B) results in twice the depreciation expense that would be recognized by the straight-line method each period C) means that amount of depreciation expense decreases year after year D) All of the above are true.

C) means that amount of depreciation expense decreases year after year

Which of the following is not a characteristic of intangible assets? A) economic value B) long-term benefits C) monetary in nature D) lack physical existence

C) monetary in nature

The debit for a sales tax paid on the purchase of machinery would be a charge to ________. A) accumulated depreciation for machinery B) a deferred liability account C) the machinery account D) miscellaneous tax expense

C) the machinery account

Which of the following is an indefinite-life intangible asset? A) land B) patent C) trademark D) copyright

C) trademark

Over what period of time should a patent be amortized? A) twenty years B) its useful life C) twenty years or its useful life, whichever is shorter D) twenty years or its useful life, whichever is longer

C) twenty years or its useful life, whichever is shorter

The purchase of a building would involve a number of different components, such as the foundation and frame, heating and air conditioning systems, and other non-weight-bearing parts. Which of the following statements concerning the components-based approach for determining depreciation is true? A) Both U.S. GAAP and IFRS require the components-based approach. B) Both U.S. GAAP and IFRS allow the components-based approach but do not require it. C) IFRS allows the components-based approach but does not require it; U.S. GAAP requires the components-based approach. D) U.S. GAAP allows the components-based approach but does not require it; IFRS requires the components-based approach.

D) U.S. GAAP allows the components-based approach but does not require it; IFRS requires the components-based approach.

A cost that is recorded as an asset is ________. A) an operating expenditure B) a tangible expenditure C) an intangible expenditure D) a capital expenditure

D) a capital expenditure

Which of the following expenditures made subsequent to acquisition should be fully expensed in the period the expenditure is made? A) an expenditure made to add new asset services B) an expenditure made to maintain an existing asset so that it can function in the manner intended C) an expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated D) an expenditure made to increase the efficiency or effectiveness of an existing asset

D) an expenditure made to increase the efficiency or effectiveness of an existing asset

Finite-life intangible assets are reported on the balance sheet at their ________. A) net realizable value B) replacement cost C) acquisition cost D) carrying value

D) carrying value

Which of the following is a finite-life intangible asset? A) goodwill B) building C) trademark D) copyright

D) copyright

Which of the following information is not used to determine current period depreciation expense associated with a specific asset? A) acquisition cost of the asset B) useful life of the asset C) residual value of the asset D) current carrying value of the asset

D) current carrying value of the asset

For intangible assets, U.S. GAAP requires significant disclosures for ________. A) each indefinite-life intangible asset B) each finite-life intangible asset C) each finite and indefinite-life intangible asset D) each major type of finite and indefinite-life intangible asset

D) each major type of finite and indefinite-life intangible asset