Acc chapter 8

The Black Limo Company (BLC) sold a limo that had been used in it operations. The limo cost $48,000, had accumulated depreciation of $20,000, and was sold for $30,000. The journal entry to record the disposal of the limo includes a ______ account.

$2,000 credit to the gain on the sale of limo correct Reason: $30,000 sales price - $28,000 book value = $2,000 gain. The journal entry to record the asset disposal would include a debit to cash for $30,000, a debit to accumulated depreciation for $20,000, a credit to limo for $48,000, and a credit to gain on the sale of limo for $2,000.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC spent $6,000 to remodel the interior of the limo, improving the quality of the asset. Based on this information, the cost of the asset shown on the Year 3 balance sheet is _

$54,000 Reason: The amount of the capital expenditure is added to the historical cost of the asset ($48,000 + $6,000 = $54,000).

Deep Tunnel Coal paid $2,000,000 cash to purchase a mine with an estimated 8,000,000 tons of coal. They extracted 2,000,000 tons of coal in Year 1 and 3,000,000 tons in Year 2. Based on this, the depletion expense shown on the Year 2 income statement is ______

$750,000

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. Depreciation expense for Year 2 using straight-line depreciation is ______.

10,000 Reason: ($48,000 cost - $8,000) ÷ 4 = $10,000 per year. The depreciation expense account is closed at the end of each year, so it does not accumulate.

Buck Company purchased a computer and a desk for $9,000 cash. An appraiser determined the fair market value of computer to be $3,000 and the desk to be $7,000. Based on this information, the recorded cost of the computer is $_______ and the recorded cost of the desk is $________ .

2,700 and 6,300

The recognition of cash paid for a capital expenditure that increases the useful life of an existing asset affects the _________

Balance sheet Statement of cash flows

Amortizing intangible assets with identifiable useful lives affects the ______.

Balance sheet Statement of changes in stockholders' equity Income statement

Impairment loss affects the ______,

Balance sheet Statement of changes in stockholders' equity Income statement

Which of the following statements regarding copyrights is true?

Copyrights are granted by the federal government. A copyright is usually expensed early because of uncertain royalties

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC spent $6,000 to replace the engine of the limo, thereby extending the useful life of the asset. To record this transaction, BLC should ______ for $6,000.

Debit Accumulated Depreciation Reason: The $6,000 expenditure extends the useful life of the asset. Therefore, BLC should decrease or Debit the accumulated depreciation account.

Which of the following statements is correct?

Depreciation expense is a temporary account and Accumulated depreciation is a permanent account.

Which of the following statements are true?

Franchises may be issued by the federal government. Franchises may be issued by private businesses.

The value attributable to favorable factors such as reputation, location, and superior products is called _______

Goodwill

Which of the following is not a tangible asset? Pepsi trademark, oil reserves, land

Pepsi trademark

The recognition of cash paid for a capital expenditure that improves the quality of an existing asset affects the ______.

Statement of Cash Flows Balance Sheet

Regardless of whether a company uses straight-line, double-declining-balance or units-of-production depreciation, the total amount of depreciation expense recognized over the useful life of an asset is the same. The methods simply assign different amounts to accounting periods.

True Reason: The depreciable cost (cost - salvage) is the total amount of depreciation expense recognized over the life of an asset regardless of which method is used to determine the annual amount of depreciation expense.

Preston Trucking Company made a major expenditure to improve the amount of cargo one of its trucks could carry. The journal entry to record this transaction includes a ______ account.

debit to the truck Reason: Major expenditures that improve the quality of an asset are debited to the asset account.

The expensing of natural resources is called ______.

depletion

The term used to recognize expense for property, plant, and equipment is ______.

depreciation

The number of years that a company expects to use a depreciable asset is called the _________.

estimated, useful

The salvage value of an asset is the ______.

expected market value of a fully depreciated asset

Costs are expensed in the period incurred for amounts spent ______

for routine maintenance for minor repairs

Exclusive rights to sell products or perform services in certain geographic areas are granted by a ____

franchise

A capital expenditure that extends the useful life of a building will...

increase the book value of the building decrease the balance in the accumulated depreciation account

A trademark has a(n) ______ useful life.

indefinite

When it comes to income tax reporting, the matching principle ______ relevant.

is not

Cash paid for revenue expenditures are reported as ______ activities on the statement of cash flow.

operating

Exclusive legal right to produce and sell a product that has one or more unique features is granted by a ______

patent

Intangible assets with an identifiable useful life include ______.

patents, copyrights

When a company revises the expected life of an asset without changing the salvage value, the revised calculation is based upon the ______.

remaining life of the asset

The cost of a building includes ______.

renovation cost realtor commissions purchase price

The cost of equipment includes ______.

sales tax paid on the purchase delivery costs Purchase price ordinary installation cost

MACRS ______.

specifies the useful life for designated categories of assets

Assets that have a physical presence that enables them to be seen and touched are called ______

tangible assets

Property, plant and equipment is a classification of __________ long-term assets.

tangible, fixed, or plant

Costs ______ are capitalized.

that improve the quality of a long-term asset that extend the life of a long-term asset

When a company decides to revise an asset's useful life or salvage value, the revised amounts are used for ______.

the full year of the change

A name or symbol that identifies a company or a product is a(n) ______.

trademark

When depreciation is recorded, the asset reduction is reported ______.

using a contra asset account

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. BLC uses straight-line depreciation. When BLC records the annual depreciation expense, the cash flow from operating activities reported on the statement of cash flows is ______.

$0 Reason: Cash paid for the limo is shown on the Year 1 cash flow statement as an investing activity. There is no cash flow associated with the recognition of depreciation expense.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 4 is

$0 Reason: The asset will be fully depreciated in Year 3. Therefore, zero depreciation expense would be recognized in Year 4, regardless of the calculations generated by the double-declining balance formula.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 4 is ______.

$0 Reason: The asset will be fully depreciated in Year 3. Therefore, zero depreciation expense would be recognized in Year 4, regardless of the calculations generated by the double-declining balance formula.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 2 is ______.

$12,000 Reason: ($48,000 cost - zero accumulated depreciation) x 50% = $24,000 Year 1; ($48,000 cost - 24,000 accumulated depreciation) x 50% = $12,000 Year 2.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated salvage value from $8,000 to $4,000. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be _

$12,000 Reason: At the beginning of Year 3, the book value of the limo is $28,000 ($48,000 cost - $20,000 accumulated depreciation from Year 1 + Year 2). The remaining useful life is 2 years. Depreciation expense for each of the 2 years, including Year 3, is $12,000 per year ($28,000 book value - $4,000 salvage value) ÷ 2 years = $12,000.

Kate Company submitted an offer to purchase land listed at $120,000 for 10% below the list price. The offer was accepted. Kate paid $10,000 to remove an old structure in order to make the land ready for use. Title and attorney fees were $3,000. Annual property taxes for the first year will be $5,000. Based on this information, the cost of the land as shown on the balance sheet is ______.

$121,000 Reason: $120,000 List price x 90% = $108,000 purchase price + $10,000 structure removal + $3,000 title and attorney fees = $121,000.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000 and has an $8,000 salvage value. BLC expected to drive the limo a total of 100,000 miles. Actual miles driven were: Year 1: 30,000 milesYear 2: 40,000 miles Year 3: 20,000 miles Year 4: 25,000 miles Based on this information, depreciation expense for Year 2 using units-of-production depreciation is ______.

$16,000 Reason: ($48,000 cost - $8,000 salvage) ÷ 100,000 miles = 0.40 per mile; 40,000 miles x 0.40 = $16,000 Year 2 depreciation expense.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. Assume BLC uses straight-line depreciation. At the beginning of Year 3, the limo was sold for $30,000. As a result of the asset disposal, BLC will recognize a ______.

$2,000 gain

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. Assuming BLC uses straight-line depreciation, accumulated depreciation shown on the Year 2 balance sheet is ______.

$20,000 Reason: This is the amount reported in depreciation expense each year.

Jason Company purchased a newly granted patent for $60,000 cash. The patent is expected to have a useful life of 25 years, a legal life of 20 years and a zero salvage value. The annual amortization charge is ______.

$3,000 Reason: $60,000 ÷ 20 years = $3,000 per year.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 3 is ______.

$4,000 Reason: ($48,000 cost - $36,000 accumulated depreciation) x 50% = $6,000 Year 3 Depreciation Expense per formula. However, total depreciable cost is $40,000 ($48,000 - $8,000). Since accumulated depreciation from Year 1 + Year 2 is $36,000, only an additional $4,000 of depreciation expense can be recognized.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000 and has an $8,000 salvage value. BLC expected to drive the limo a total of 100,000 miles. Actual miles driven were: Year 1: 30,000 milesYear 2: 40,000 miles Year 3: 20,000 miles Year 4: 25,000 miles Based on this information, depreciation expense for Year 4 using units-of-production depreciation is ______.

$4,000 Reason: 25,000 miles x 0.40 = $10,000. However, total depreciable cost is $40,000 ($48,000 - $8,000). Since accumulated depreciation from Year 1 + Year 2 + Year 3 is $36,000, only an additional $4,000 of depreciation expense can be recognized.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated useful life from 4 years to 7 years. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be ______.

$4,000 Reason: At the beginning of Year 3, the book value of the limo is $28,000 ($48,000 cost - $20,000 accumulated depreciation from Year 1 + Year 2). The remaining useful life is 5 years (2 years from the original estimate + 3 additional years due to change in estimate). Depreciation expense for each of the 5 years of useful life, including Year 3, is $4,000 per year ($28,000 book value - $8,000 salvage value) ÷ 5 years = $4,000.

Which of the following statements are true?

The legal life of a patent is 20 years. A patent grants its owner an exclusive legal right to produce and sell a product that has one or more unique features.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. BLC expected to drive the limo for 100,000 miles before disposing of it. Actual miles driven per year was 30,000 miles in Year 1, 40,000 miles in Year 2, 20,000 miles in Year 3, and 25,000 miles in Year 4. Based on this information which of the following statements are true?

The timing of the expense is the only difference between the three methods. The total amount of accumulated depreciation at the end of Year 4 is $40,000, regardless of the method used to depreciate the asset. The impact on net income will only be constant if the straight-line method is used.

The term used when recognizing expense for intangible assets with identifiable useful lives is called_____

amortization

Goodwill appears on the ______.

balance sheet

Acquiring a group of assets in a single transaction is known as a _______

basket purchase

Substantial amounts spent to improve the quality or extend the life of an asset are called __________ expenditures.

capital

Writings, musical compositions, works of art, and other intellectual property are protected for the exclusive benefit of the creator or persons assigned the right by the creator by a ______.

copyright

The journal entry to recognize depreciation expense includes a _______ to accumulated depreciation and a ________ to depreciation expense.

credit, debit

The journal entry to recognize depreciation expense includes a ________ to accumulated depreciation and a ____________- to depreciation expense

credit, debit

The journal entry to recognize the impairment of goodwill includes a _____to the goodwill account and a _________ to the impairment loss account

credit, debit

The Yellow Taxi Company paid cash for a major expenditure to improve gas mileage on one of its cars. The journal entry to record this transaction would include a ______ to the cash account.

debit to the car account and a credit Reason: Major expenditures that improve the quality of an asset are debited to the asset account, while major expenditures that extend the life of an asset are debited to the associated accumulated depreciation account.