Practice Quiz 4 - Non Current Assets

A company purchased a patent for $100,000 at the beginning of the current year which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in the current year?

$20,000 $100,000 / 5 = $20,000

Flag Financial uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much shorter than 10 years, perhaps 5 years. What is the impact on earnings per share and net income of depreciating equipment over 5 years rather than 10 years?

Both earnings per share and net income will decrease.

Depreciation is

an effort to achieve proper matching of the cost of operating assets with related revenues.

A company should choose a depreciation method that

best allocates the original cost of the asset to the periods benefited by the use of the asset.

Goodwill can be recorded as an asset when a(n)

business is purchased and payment is made in excess of the value of the net assets.

The effect of recording depreciation for the year is a(n)

decrease in assets and a decrease in net income.

Assets classified as property, plant, and equipment are reported at

each asset's original cost less depreciation since acquisition.

How should intangible assets be disclosed on the balance sheet?

net of the costs already amortized

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should

not be amortized, but should be reviewed annually for impairment.

Research and development costs are

treated as an expense when incurred.

Which of the following is an intangible asset?

goodwill

Focal Point Engineering purchased a trademark at the beginning of the year for $200,000. Although the trademark's legal life is 20 years, economic benefits were expected for only 10 years. Also, during the year, the company incurred research and development costs of $200,000. The book value of the trademark at the end of the year, is

$200,000 − ($200,000 / 10) = $180,000

Which statement is true concerning operating assets?

Operating assets are used over two or more periods to generate revenues.

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?

depreciation expense--buildings

Generally accepted accounting principles (GAAP) require that research and development costs to develop a new product be

expensed in the period incurred.

Operating assets with no physical properties are called

intangible assets.

Plant assets are depreciated because

the accrual basis of accounting requires matching of costs to revenues.

Depreciation is a process by which

the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.

The accounting life of intangible assets is determined by

their legal lives or useful lives, whichever is shorter.

Land is not depreciated because it

will provide future benefits for a company for an unlimited period of time.