Chapter 8

Vango, Inc. sold its van for $10,000 cash. The van's original cost was $40,000, and its accumulated depreciation was $32,000. When recording the sale, Vango should record a ______.

Gain on Disposal of $2,000

Which of these are natural resources that are depleted over time? (Check all that apply.) Natural gas wells Inventory Cash Timber

Natural gas wells Timber

Which of the following may lead to a revision of an estimate of a company's depreciation expense? (Check all that apply.) A change in the estimated amount of property taxes Extraordinary repairs that significantly extend the asset's usefulness A change in the estimated residual value A change in the estimated useful life

Extraordinary repairs that significantly extend the asset's usefulness A change in the estimated residual value A change in the estimated useful life

GAAP require assets be reviewed for impairment ______.

at least once a year

The old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be ______.

capitalized as part of the cost of the theater

A category of long-lived assets that are depleted over time is ______.

natural resources

Goodwill equals the purchase price minus the fair market value of the purchased company's ______.

net assets which is its assets minus liabilities

On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______. (Check all that apply.) net income to be overstated cash to be overstated liabilities to be understated assets to be overstated retained earnings to be understated

net income to be overstated assets to be overstated

An intangible asset may be recorded when a company ______. (Check all that apply.) purchases a trademark internally creates an asset with no physical properties, such as outstanding customer loyalty pays more than the net assets of the company purchased trains its employees

purchases a trademark pays more than the net assets of the company purchased

The straight-line depreciation method ______.

reports an equal amount of depreciation expense each year

Amortization ______. (Check all that apply.) spreads the cost of intangible assets to expense over their useful lives is calculated using the straight-line method is used for expensing the cost of land over its useful life is in accordance with the matching principle

spreads the cost of intangible assets to expense over their useful lives is calculated using the straight-line method is in accordance with the matching principle

(Cost - residual value) x (1/useful life) is the formula for calculating the _____ - _____ method of depreciation. (Enter only one word per blank.)

straight-line

If a depreciable asset is expected to be used evenly over its useful life, then management should choose which method?

straight-line

Recording depreciation is an application of the _____ principle.

expense

Recording depreciation is an application of the ______.

expense principle

True or false: A company may record an asset called Goodwill if it has developed a brand new product.

false

True or false: GAAP require management to select an accelerated depreciation method if the long-lived asset produces more revenue in its early years than in its later years.

false

True or false: In accordance with US Generally Accepted Accounting Principles, a company will always capitalize the cost of a long-lived asset.

false

The formula for calculating straight-line depreciation is ______.

(cost - residual value) x (1/useful life)

Which of the following result in an increase to intangible assets? (Check all that apply,) A company purchased another company for $10,000 more than its net assets. $10,000 was spent on research and development. $10,000 was spent to purchase a patent. A company increased the number of clients on its customer list. A company purchased a franchise for $100,000.

A company purchased another company for $10,000 more than its net assets. $10,000 was spent to purchase a patent. A company purchased a franchise for $100,000.

Which of these depreciation methods are allowed by GAAP? (Select all that apply.) Declining-balance Units-of-production Straight-line Economic-benefits Salvage value Reclining-balance

Declining-balance Units-of-production Straight-line

Which of the following is true? Capitalized costs decrease stockholders' equity. Expenses increase stockholders' equity. Capitalized costs increase long-lived assets. Expenses increase assets.

Capitalized costs increase long-lived assets.

Why is the straight-line method of depreciation called "straight-line"?

Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.

If a company buys another company and pays more than the fair market value of the other company's net assets, then it will debit ______.

Goodwill

In accordance with US Generally Accepted Accounting Principles, which of the following costs associated with long-lived assets are expensed, not capitalized? (Check all that apply.) Ordinary repairs and maintenance Delivery costs Immaterial repairs and maintenance Installation costs Interest on loans to purchase the assets

Ordinary repairs and maintenance Immaterial repairs and maintenance Interest on loans to purchase the assets

Squid Roe, Inc.'s $48,000 sushi bar was originally expected to be used for 8 years with no residual value. Depreciation on the bar was $6,000 per year for the past 2 years. In the 3rd year, management changed the estimated life of the bar to be a total of only 6 years instead of 8. What should Squid Roe do?

Revise the depreciation expense to be $9,000 for years 3 through 6.

Net assets is the term used to describe ______.

assets minus liabilities

If a cost is capitalized, it is recorded as a(n) _____, not an expense. (Enter only one word per blank.)

asset

The write-down of goodwill for impairment will affect which of the following financial statements? (Check all that apply.) No financial statements are affected by impairment of goodwill because goodwill is expensed over its useful life as are all intangible assets. Balance sheet No financial statements are affected because goodwill is "amortized" and not "written down" in the event of impairment. Income statement

balance sheet and income statement

All costs to get an asset in place and ready for its intended use should be ______.

capitalized

The journal entry to record amortization expense includes a ______ to Amortization Expense.

debit

The journal entry to record the amortization of an intangible asset includes a ______.

debit to Amortization Expense

Trademarks ______.

have an unlimited life and hence are not amortized

An impairment loss is a(n) ______.

is a reduction to net income on the income statement

A productive asset ______.

is used to produce goods or services that will be sold to customers

Vango, Inc. sold its van for $6,000 cash. The van's original cost was $40,000, and its Accumulated depreciation was $32,000. When recording the sale, Vango should record a ______.

loss of $2,000

Which of these are long-lived productive assets? (Check all that apply.) Cash Retained earnings Machinery Inventory Delivery equipment

machinery, delivery equipment

Intangible assets with unlimited or indefinite lives are ______.

not amortized, but instead are reviewed for impairment

True or false: Assets are reviewed for impairment at least annually.

true

True or false: US GAAP allows companies to use different methods of depreciation for different specific assets or asset groups as long as the method is consistently applied.

true