Chapter 9 Study Quiz

On April 30, 2014, Tilton Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value. Assume that in its financial statements, Tilton Products uses straight-line depreciation and the half-year convention. Depreciation expense recognized on this machinery in 2014 and 2015 will be:

$5,000 in 2014 and $10,000 in 2015. ($88,000 − $8,000)/8 = $10,000/2 = $5,000 in 2014 and $10,000 in 2015

With respect to depreciation policies, the principle of consistency means:

A company should use the same depreciation method from year to year for a given plant asset.

An asset which costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000. What amount of gain or loss will be recognized when the asset is sold?

A gain of $2,400. ($97,600 - $82,000) - $18,000 = $2,400 gain

An asset which costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600. What amount of gain or loss will be recognized when the asset is sold?

A loss of $1,200. ($18,800 - $6,000) - $11,600 = $1,200 loss

An asset which costs $28,800 and has accumulated depreciation of $6,000 is sold for $21,600. What amount of gain or loss will be recognized when the asset is sold?

A loss of $1,200. ($28,800 - $6,000) - $21,600 = $1,200 loss

An asset which costs $32,000 and has accumulated depreciation of $11,400 is sold for $17,700. What amount of gain or loss will be recognized when the asset is sold?

A loss of $2,900.

An asset which costs $14,400 and has accumulated depreciation of $8,000 is sold for $5,600. What amount of gain or loss will be recognized when the asset is sold?

A loss of $800. ($14,400 - $8,000) - $5,600 = $800 loss

International standards require that goodwill:

Be capitalized and reviewed annually and its value should be adjusted if impaired.

The book value of equipment:

Decreases with the passage of time.

Machinery is purchased on May 15, 2015 for $50,000 with a $5,000 salvage value and a five year life. The half year convention is followed. What method of depreciation will give the highest amount of depreciation expense in year 2?

Double declining balance. Straight-line Year 2 ($50,000 - $5,000)/5 = $9,000; Double-declining-balance Year 1 $50,000 × 2/5 × ½ = $20,000/2 = $10,000, Year 2 $40,000 × 2/5 = $16,000; 150% declining-balance Year 1 $50,000 × 1.5/5 × ½ = $15,000/2 = $7,500, Year 2 $42,500 × 1.5/5 = $12,750

Total stockholders' equity of Tucker Company is $4,000,000. The fair market value of Tucker's net identifiable assets (assets less liabilities) is $5,000,000. Empire Corporation makes an offer to purchase Tucker's entire business for $5,800,000. In this situation:

Empire Corporation is willing to pay $800,000 for goodwill generated by Tucker, and Empire will report this goodwill in its balance sheet if the purchase is finalized.

Which of the following would not be amortized?

Goodwill.

Intangible assets are assets used in business operations but which:

Lack physical substance.

An accelerated depreciation method:

Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years.

For financial reporting purposes, the gain or loss on the sale of a plant asset is determined by comparing the asset's:

Sales price with its book value.

Which of the following is a capital expenditure?

Sales tax paid in conjunction with the purchase of office equipment.

Expenditures for research and development intended to lead to new products of commercial value:

Should be charged to expense when incurred.

Which depreciation method is most commonly used among publicly owned corporations?

Straight-line.

The term accumulated depreciation, as used in accounting, is best defined as:

The portion of a plant asset recognized as expense since the asset was acquired.

The book value of an asset in the plant and equipment category is:

The undepreciated cost of the asset.

When straight-line depreciation is in use, the depreciation rate of an asset is equal to:

The cost of the asset divided by the life of the asset.

Which of the following would not be considered as part of the cost of equipment recently purchased?

The cost to repair damage incurred after dropping the equipment.

If the 150% declining balance method is being used and an asset has a useful life of 20 years. What is the depreciation rate?

7.5% = 1.50/ 20

The cost of a new windshield wiper on a delivery vehicle would be classified as:

A revenue expenditure.

All of the following may be considered intangible assets except:

Accounts receivable.

Capital expenditures are recorded as:

An asset.

Revenue expenditures are recorded as:

An expense.

Accelerated depreciation methods are used primarily in:

Income tax returns.

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:

That the company has purchased a going business at a price in excess of the fair market value of the net identifiable assets.