Chapter 7

Machines used in manufacturing, computers, printers, vehicles, furniture, and fixtures generally are classified as __________.

equipment

Compute the asset turnover ratio using the following information: net sales is $100,000 for the year, last year's assets in place were $900,000 and this year's assets in place are $1,100,000. Receivables for both years are $50,000.

10% Reason: Net sales/average total assets = $100,000/[($900,000 + $1,100,000)/2] = 10%

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

he exclusive legal right to manufacture a product or to use a process is called a(n) __________.

patent

The formula for straight-line depreciation is Multiple choice question. (cost + residual value)/service life. cost/service life. service life/(cost + residual value). (cost - residual value)/service life.

(cost - residual value)/service life.

Select all that apply Which of the following are long-term tangible assets? Accounts receivable Trademark Property Copyright Equipment

Property Equipment

A(n) ____________ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.

trademark

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a Multiple choice question. trademark. franchise. patent. copyright.

trademark.

Asset turnover ratio is net sales divided by ___________. average total assets. average accounts receivable. average noncurrent assets. average current assets.

average total assets.

When assets are purchased in a group for a single sum, it is referred to as a Multiple choice question. composite purchase. basket purchase. business consolidation. group asset divestiture.

basket purchase.

The first step in determining whether an impairment loss should be recorded is to determine if the sum of estimated future cash flows from an asset is less than the asset's Multiple choice question. net present value. fair value. book value. net realizable value.

book value.

Goodwill may only be recognized Multiple choice question . when assets are impaired. when intangible assets are undervalued. when a company pays less than fair value for an intangible. in a business acquisition.

in a business acquisition.

An asset that has no physical substance is referred to as a(n) Multiple choice question. finite asset. intangible asset. current asset. depreciable asset.

intangible asset.

Goodwill is recognized only when one company _______ another company.

purchase

________ value is the amount the company expects to receive for the asset at the end of its service life.

residual

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the Multiple choice question. MACRS double-declining-balance method. straight-line method. units-of-output method.

straight-line method.

The service life or useful life of an asset is Multiple choice question. the time period from the purchase of the asset until it becomes impaired. the estimated use that the company expects to obtain from the asset before disposing of it. determined by MACRS tables.

the estimated use that the company expects to obtain from the asset before disposing of it.

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries? Debit equipment $50,000 Debit equipment $32,000 Debit accumulated depreciation $40,000 Credit equipment $120,000 Debit loss on exchange $30,000 Credit accumulated depreciation $40,000

Debit equipment $50,000 Debit accumulated depreciation $40,000 Credit equipment $120,000 Debit loss on exchange $30,000

Select all that apply Which of the following items should be capitalized in the cost of equipment? Multiple select question. Insurance on equipment during shipping Repair costs for first year of operations Freight to deliver the equipment to its location Installation and testing of equipment Purchase price

Insurance on equipment during shipping Freight to deliver the equipment to its location Installation and testing of equipment Purchase price

Which statement is true about the straight-line method of depreciation? Multiple choice question. It allocates an equal amount of depreciation to each year the asset is used. It is an accelerated method of depreciation. It is the preferred method for companies expecting to use the asset more in its early years of life. It recognizes expense proportionately with the amount of use of the asset.

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

Select all that apply Which of the following items should be capitalized in the cost of equipment? Sales tax Freight to deliver the equipment Insurance paid in advance for the first year of use Legal fees to establish title Installation and testing of equipment

Sales tax Freight to deliver the equipment Legal fees to establish title Installation and testing of equipment

Select all that apply What are the two steps in the two-step process of measuring impairments? Multiple select question. Timing test on when the cash flows are received. Test for impairment using the future cash flows. Measurement of the impairment and record the loss. Percentage of assets test for total impaired assets.

Test for impairment using the future cash flows. Measurement of the impairment and record the loss.

Select all that apply The types of expenditures that can occur subsequent to an asset's acquisition are Multiple select question. goodwill. additions. repairs and maintenance. improvements.

additions. repairs and maintenance. improvements.

In accounting, the term impairment refers to Multiple choice question. allocation of an asset over its service life. an asset's significant decline in value. offsetting liabilities against the related assets. cost recovery of an asset for investment purposes.

an asset's significant decline in value.

The first step in determining whether an impairment loss should be recorded is to determine if the sum of estimated future cash flows from an asset is less than the asset's Multiple choice question. book value. net present value. net realizable value. fair value.

book value

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______. Multiple choice question. capitalized expensed accrued

capitalized

A(n) ________ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

Ling Corporation's long-term asset has a book value of $200,000 and an estimated fair value of $195,000. Ling estimates that the future cash flows associated with the asset are $198,000. To determine whether the asset may be impaired, Ling should compare the asset's book value to its Multiple choice question. estimated future cash flows. estimated fair value. estimated residual value.

estimated future cash flows.

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

Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as Multiple choice question. goodwill. internally developed intangibles. indefinite intangibles. finite intangibles.

internally developed intangibles.

The cost of land improvements are capitalized separately from land because land improvements tend to have a __________ useful life.

limited

Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? purchase price interest on the loan realtor commissions utilities for the building legal fees to obtain title

purchase price realtor commissions legal fees to obtain title

When an asset's fair value falls below its book value, the difference between fair value and book value is Multiple choice question. recorded in a revaluation account in OCI. recognized as a gain. recognized as an impairment loss. recognized as an extraordinary loss.

recognized as an impairment loss.

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

residualF

When an asset is no longer useful, but cannot be sold, it is called an asset __________.

retirement

The measurement of an impairment loss in step 2 is the difference between Multiple choice question. the asset's book value and its fair value. the asset's fair value and its lower-of-cost-or-market value. the asset's estimated future cash flows and its fair value. the asset's book value and its net present value.

the asset's book value and its fair value.

In a basket purchase of assets, the cost must be allocated to the individual assets because Multiple choice question. intangible assets must be identified and expensed. goodwill must be expensed immediately. the assets have different useful lives. some assets must be expensed upon acquisition.

the assets have different useful lives.

Select all that apply Which of the following are classified as natural resources? Timber tracts Land and land improvements Building Mineral deposits

Timber tracts Mineral deposits

For accounting purposes, depreciation is Multiple choice question. an allocation of a cost of an asset. a decline in value of an asset. the selling price of an asset.

an allocation of a cost of an asset.

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. Multiple choice question. net realizable fair net present book

book

The original cost of an asset minus accumulated depreciation is Multiple choice question. disposal value. goodwill. residual value. book value.

book value.

The original cost of the asset less the accumulated depreciation is the ______ ________ of asset

book; value

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

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 is called a ________. Multiple choice question. patent. franchise. trademark. copyright.

franchise

Select all that apply Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements? Cost of land Cost of driveways Cost of sidewalks Legal fees to acquire land Cost of lawn sprinkler system

Cost of driveways Cost of sidewalks Cost of lawn sprinkler system

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

patent; 20

Otto Inc. retires old equipment with a book value of $2,400. Otto should Multiple choice question. debit cash for $2,400 not make a journal entry recognize a gain of $2,400 recognize a loss of $2,400

recognize a loss of $2,400

Krasel

Debit accumulated depreciation $70,000 Credit equipment $90,000 Debit equipment $50,000 Credit gain on exchange of asset $30,000

Which of the following are commonly used depreciation methods? Multiple select question. Declining-balance Activity-based Value-based Increasing-balance Straight-line

Declining-balance Activity-based Straight-line

True or false: Internally developed goodwill should be capitalized as an asset.

False Reason: Costs of internally developed goodwill should be expensed as incurred.

Select all that apply Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? Grading the land Current year's property taxes Legal fees to secure title Costs to remove an old building Title insurance

Grading the land Legal fees to secure title Costs to remove an old building Title insurance

Select all that apply Which of the following are expenditures for assets subsequent to acquisition? Multiple select question. Improvements Repairs and maintenance Freight charges Additions

Improvements Repairs and maintenance Additions

Select all that apply Which of the following are classified as natural resources? Multiple select question. Building Equipment Patents Oil deposits Timber forests

Oil deposits Timber forests

Expensed Capitalized

Research and development costs Purchase price plus costs necessary to get asset ready for use

Part C A retirement or abandonment of an asset is different from a sale of an asset because Select All Applied a loss must be recognized for the remaining book value. no cash is received. the residual value is included as a gain. a gain is recognized for the undepreciated portion of the equipment.

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

The term _______ means to record an expenditure as an asset.

capitalize

In accounting, expenditures recorded as assets are said to be _____. Multiple choice question. accrued recognized capitalized expensed

capitalized

Straight-line, declining-balance, and activity-based refer to methods commonly used to ________

depreciate

When an asset has a significant decline in value and is written down, this is called __________.

impairment

A long-lived asset is assumed to be impaired if its estimated future cash flows are _________ than its book value.

less

Depreciation Depletion Amortization

Allocation of the cost of a tangible fixed asset Allocation of the cost of natural resources Allocation of the cost of an intangible asset

True or false: Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.

False Reason: Goodwill is an intangible asset that can only be recognized if a company acquires another company. It is valued at the purchase price less the fair value of net assets acquired.

Select all that apply Which of the following items typically are classified as equipment? Furniture and fixtures Office supplies Machinery held for resale Computers and printers used in office Machinery used in manufacturing

Furniture and fixtures Computers and printers used in office Machinery used in manufacturing

Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? Current year property taxes Realtor commissions Insurance on the building Legal fees to obtain title Remodeling building

Realtor commissions Legal fees to obtain title Remodeling building

The journal entry to retire old equipment that is not fully depreciated includes a: Multiple select question. debit to loss credit to equipment debit to accumulated depreciation credit to loss debit to cash

debit to loss credit to equipment debit to accumulated depreciation

The term used to describe the amount the company expects to receive for an asset at the end of its service life is Multiple choice question. historical cost. residual value. impairment value. lower of cost or market value.

residual value.

Total depreciation recorded over an asset's service life is: Multiple choice question. lowest when the straight-line method is used lowest when the activity-based method is used the same regardless of the depreciation method used highest when the double-declining balance method is used

the same regardless of the depreciation method used

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries? Credit accumulated depreciation $40,000 Credit equipment $90,000 Debit loss on exchange $10,000 Debit equipment $40,000 Debit accumulated depreciation $40,000 Debit equipment $35,000 Debit loss on equipment $15,000

Credit equipment $90,000 Debit loss on exchange $10,000 Debit equipment $40,000 Debit accumulated depreciation $40,000

The allocation of the cost of a tangible asset over its service life is referred to as __________.

depreciation

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the _______ life of the asset.

service (depreciable)

**** The depreciable cost is Multiple choice question. cost of the asset plus the residual value. cost of the asset minus depreciation expense. the cost of the asset minus the residual value. historical cost less accumulated depreciation.

the cost of the asset minus the residual value.

If a company generates its own goodwill through advertising or training, how should these costs be treated? Multiple choice question. Capitalize the costs and test for impairment. Expense the costs as incurred. Capitalize the costs and amortize them over the expected life of the goodwill. Record as an extraordinary loss in the current year.

Expense the costs as incurred.

Long-term tangible assets include patents. equipment. buildings. land. goodwill.

equipment. buildings. land.

Select all that apply Which of the following items should be capitalized in the cost of equipment? Multiple select question. Insurance on equipment during shipping Freight to deliver the equipment to its location Purchase price Installation and testing of equipment Repair costs for first year of operations

Insurance on equipment during shipping Freight to deliver the equipment to its location Purchase price Installation and testing of equipment

The distinction between land and land improvements is that: Multiple choice question. land has an indefinite life land is depreciated and land improvements are not land has a definite life there is no distinction, they are treated the same for accounting purposes

land has an indefinite life

Select all that apply Which of the following items should be capitalized as land improvements? Cost of sidewalks Cost of fences Cost of parking lots Cost of land

Cost of sidewalks Cost of fences Cost of parking lots

Purchased intangible asset Internally developed intangible asset

Patents, copyrights, trademarks, or franchise rights acquired from other companies. Product or process created internally for which patent may be obtained.

The gain or loss on disposal of an asset is calculated as: Multiple choice question. the fair value of the asset less the accumulated depreciation the cost of the asset less the accumulated depreciation amount received less the book value of asset sold consideration received less the fair value of the asset sold

amount received less the book value of asset sold

**** 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 ______. Multiple choice question. goodwill unidentifiable assets identified intangible assets restricted intangible assets

goodwill

Select all that apply Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land? Legal fees to secure title Current year's property taxes Costs to remove an old building Commissions

Legal fees to secure title Costs to remove an old building Commissions

What is the formula for the profit margin ratio? Multiple choice question. Gross profit divided by sales. Net income divided by average total assets. Net income divided by average shareholders' equity. Net income divided by net sales.

Net income divided by net sales.

Which of the following does not differ among the different depreciation methods? Multiple choice question. Depreciation recognized during the earlier years. Depreciation recognized during the last year of the asset's service life. Total depreciation recognized over the asset's service life.

Total depreciation recognized over the asset's service life.

The depreciable cost is Multiple choice question. historical cost less accumulated depreciation. cost of the asset minus depreciation expense. cost of the asset plus the residual value. the cost of the asset minus the residual value.

the cost of the asset minus the residual value.

The profit margin ratio is defined as _______ _______ divided by net sales.

net; income