ACCT TEST #4

Which of the following is an example of a marketing-related intangible asset? - Goodwill. - Noncompetition agreements. - Customer list. - Broadcast rights.

Noncompetition agreements.

Brill Co. made the following expenditures during year 4: Costs to develop computer software for internal use in Brill's general management information system$100,000Costs of market research activities75,000 What amount of these expenditures should Brill report in its year 4 income statement as research and development expenses? $175,000 $100,000 $ 75,000 $0

$0 Correct. The FASB excludes from its definitions of research and development expense the acquisition, development, or improvement of a product or process for use in its selling or administrative activities. Both costs given in this problem relate to selling or administrative activities, so the expenditures of $175,000 would not be reported as research and development expense.

Crowder Company acquired a tract of land containing an extractable natural resource. Crowder is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land$9,000,000Estimated restoration costs$1,500,000 If Crowder maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? $2.10 $1.90 $1.80 $1.60

$1.9 This answer is correct. The depletion computation is Net cost of resource=Depletion charge per unitUnits of resource The estimated net cost is the cost of the land ($9,000,000) and the related restoration costs ($1,500,000), less the salvage value of the land ($1,000,000). This results in a net cost of $9,500,000. The estimated recoverable reserves total 5,000,000 tons. Therefore, the depletion charge is $1.90 per ton ($9,500,000/5,000,000). $9,500,000=$1.90$5,000,000 Note that depletion cost on extractable natural resources does not become an expense until the mined resource is sold. If some of the extracted material remained in inventory that portion would be an asset, not an expense.

Vore Corp. bought equipment on January 2, 20X4 for $200,000. This equipment had an estimated useful life of five years and a salvage value of $20,000. Depreciation was computed by the 150% declining balance method.The accumulated depreciation balance at December 31, 20X5 should be: $102,000 $98,000 $91,800 $72,000

$102,000 Depreciation in 20X4 = $200,000(1.50/5)=$60,000Depreciation in 20X5 = ($200,000-$60,000)(1.50/5)=$42,000Accumulated depreciation balance at the end of 20X5=$102,000 The declining balance class of depreciation method does not deduct salvage value when computing depreciation although care must be taken not to depreciate the asset below salvage value. Also, the rate of depreciation applied to book value is the percentage of the method (150% in this case) divided by the useful life of the asset. Double declining balance, for example, is 200%/n or 2/n where n = useful life.

In January 2012, Winn Corp. purchased equipment at a cost of $500,000.The equipment had an estimated salvage value of $100,000, an estimated 8-year useful life, and was being depreciated by the straight-line method. Two years later, it became apparent to Winn that this equipment suffered a permanent impairment of value.In January 2014, management of Winn Corp. determines the expected future net cash flows (undiscounted) from the use of the equipment and its eventual disposal to be $250,000 and a fair value of $225,000. Amount of an impairment loss for the equipment: $350,000 $175,000 $150,000 $100,000

$175,000 This amount is the carrying value at the beginning of 2014. The ending carrying value will be less by one year's depreciation using the new book value and salvage value.

On April 1, 2014, Kew Co. purchased new machinery for $300,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method.The accumulated depreciation on this machinery at March 31, 2016 should be: $192,000 $180,000 $120,000 $100,000

$180,000, the correct answer, equals $300,000[(5 + 4)/(5 + 4 + 3 + 2 + 1)].Two full years of depreciation have been recorded, and the SYD method uses the number of years left at the beginning of each year as the numerator of the fraction used in depreciation. At the beginning of the first and second years, five and four years of the asset's life remained, respectively. The denominator is the sum of the digits up to the asset's useful life (5).

Bend Company's December 31, 2020 balance sheet reports assets of $13,210,000 and liabilities of $4,275,000. The book values of Bend's assets approximate their fair values, except for land, which has a fair value $600,000 greater than its book value. On December 31, 2020, Blue Corporation paid $11,775,000 to acquire Bend. What amount of goodwill should Blue record as a result of this purchase? $0 $1,640,000 $2,240,000 $2,840,000

$2,240,000

Four years ago on January 2, Randall Co. purchased a long-lived asset. The purchase price of the asset was $250,000, with no salvage value. The estimated useful life of the asset was 10 years. Randall used the straight-line method to calculate depreciation expense. An impairment loss on the asset of $30,000 was recognized on December 31 of the current year. The estimated useful life of the asset at December 31 of the current year did not change. What amount should Randall report as depreciation expense in its income statement for the next year? $20,000. $22,000. $25,000. $30,000.

$20,000 The net book value of the asset at the time of impairment was $150,000: $250,000 cost less $100,000 accumulated depreciation (4 years of depreciation at $25,000 a year). After the impairment of $30,000, the net book value is $120,000 ($150,000 − 30,000). The remaining life is 6 years and annual depreciation is $20,000.

An asset group is being evaluated for an impairment loss. The following financial information is available for the asset group: Carrying value$100,000,000Sum of the undiscounted cash flows$95,000,000Fair value$80,000,000 What amount of impairment loss, if any, should be recognized? $0 $5,000,000 $15,000,000 $20,000,000

$20,000,000 CORRECT! Determination of impairment for an asset held in use is a two-step process. First the carrying value (CV) is compared to the recoverable cost (undiscounted cash flows). Since the CV is more than the recoverable cost, the second step must measure the impairment loss. The impairment loss is measured as the difference between CV and fair value (FV). The CV is $100 million and the FV is $80 million so the impairment loss is $20 million.

Zahn Corp.'s comprehensive Balance Sheet at December 31, 2005 and 2004 reported accumulated depreciation balances of $800,000 and $600,000, respectively. Property with a cost of $50,000 and a carrying amount of $40,000 was the only property sold in 2005.Depreciation charged to operations in 2005 was: $190,000 $200,000 $210,000 $220,000

$210,000 Correct answer iconThe accumulated depreciation on the property sold was $10,000 ($50,000 cost less $40,000 carrying value). The sale of property requires that the accumulated depreciation on the property be removed from the accounts.Thus, the $10,000 amount is a decrease in accumulated depreciation. With an overall increase of $200,000 in accumulated depreciation during the period ($800,000-$600,000), depreciation must have been $210,000 ($200,000 + $10,000).

Spiro Corp. uses the sum-of-the-years' digits method to depreciate equipment purchased in January year 1 for $20,000. The estimated salvage value of the equipment is $2,000 and the estimated useful life is four years. What should Spiro report as the asset's carrying amount as of December 31, year 3? $1,800 $2,800 $3,800 $4,500

$3,800 Sum-of-the-years' digits (SYD) depreciation = (Cost less Salvage value) × Applicable fraction. Where applicable fraction =Number of years of estimated life remaining as of the beginning of the year and SYD =N (n + 1)Where n = estimated useful life2 Calculated as Year 1=$18,000*×4/10=$7,200Year 2=$18,000*×3/10=$5,400Year 3=$18,000*×2/10=$3,600 *($20,000 − $2,000)On December 31, year 3, the carrying amount of Spiro's asset equals $3,800 (the asset's cost of $20,000 minus accumulated depreciation of $16,200**).**($7,200 + $5,400 + $3,600)

Cantor Co. purchased a coal mine for $2,000,000. It cost $500,000 to prepare the coal mine for extraction of the coal. It was estimated that 750,000 tons of coal would be extracted from the mine during its useful life. Cantor planned to sell the property for $100,000 at the end of its useful life. During the current year, 15,000 tons of coal were extracted and sold. What would be Cantor's depletion amount per ton for the current year? $2.50 $2.60 $3.20 $3.30

$3.20 This answer is correct. Cantor should capitalize all costs to prepare the mine for extraction. Cantor would then calculate the depletion rate as the cost minus residual value divided by the estimated units of output. Therefore, the depletion amount per ton would be ($2,000,000 + $500,000 - $100,000)/$750,000 tons = $3.20 per ton.

Vaughn Manufacturing acquired a tract of land containing an extractable natural resource. Vaughn is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2440000 tons, and that the land will have a value of $940000 after restoration. Relevant cost information follows: Land $7520000 Estimated restoration costs 1420000 If Vaughn maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? $2.70 $3.08 $3.28 $3.66

$3.28

Large purchased all of Small's voting stock for $11 million when Small's total owners' equity was $4 million. The book value and market value of Small's liabilities equal $3 million. However, the market value of Small's total assets equals $9 million. What amount of goodwill is recorded by Large (in millions)? $7 $2 $5 $6

$5 Correct. The market value of Small's net assets is $6 ($9 − $3). Goodwill ($5) is the difference between the purchase price of $11 and the market value of Small's net assets of $6. Goodwill is the portion of the purchase price not attributable to identifiable assets.

Lumberyard Inc. incurred the following costs during the year ended December 31, 2020: Laboratory research aimed at discovery of new knowledge$ 4,295,000Costs of testing prototype and design modifications712,500Quality control during commercial production, including routine testing of products485,000On December 31, 2020, purchase of research facilities having an estimated useful life of 20 years with alternative future use in other research & development projects7,360,000 The total amount to be classified and expensed as research and development in 2020 is $5,007,500. $4,780,000. $5,492,500. $12,367,500.

$5,007,500. Correct! Laboratory research aimed at discovery of new knowledge of $4,295,000 plus costs of testing prototype and design modifications of $712,500 totals $5,007,500. Quality control during commercial production, including routine testing of products is not an R&D activity and the purchase of research facilities having an estimated useful life of 20 years with alternative future use in other R&D projects would be capitalized. The company won't account for depreciation expense as R&D in 2020.

Morrow Company purchased a depreciable asset for $38,000 on January 1, 2015. The estimated salvage value is $6,000, and the estimated useful life is 4 years. The sum-of-the-years' digits method is used for depreciation. What is depreciation expense for the year 2017? $8,000. $6,400. $11,400. $12,800.

$6,400. Correct! Depreciation expense of $6,400 for the third year, 2017, is calculated as follows: [2/(4+3+2+1) x (Asset cost, $38,000 - Salvage value, $6,000)].

Dixon Company purchased a depreciable asset for $32,000. The estimated salvage value is $4,000, and the estimated useful life is 4 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? $6,400 $7,000 $8,000 $16,000

$8,000. Correct! The double-declining balance rate is 100%/4 x 2 = 50%. The first year's depreciation is (50% of book value of asset first of year - Year 1, $32,000) $16,000. The second year's depreciation is [50% of book value of asset first of year - Year 2, ($32,000 - $16,000)] or $8,000.

A purchased limited-life intangible asset ______ amortized and is impairment tested using _______________. - is; the recoverability test and then the fair value test - is not; the fair value test only - is not; the recoverability test and then the fair value test - is; the fair value test only

- is; the recoverability test and then the fair value test Correct! A purchased limited-life intangible asset is amortized and is impairment tested using the recoverability test and then the fair value test.

Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year? $0 $15,000 $40,000 $120,000

0 Correct. When the intangible asset can be renewed indefinitely, and the company has the positive ability and intent to continuously renew, then the intangible asset is an indefinite life intangible. Indefinite life intangibles are not amortized, but are tested for impairment on an annual basis.

A schedule of machinery owned by Lester Manufacturing Company is presented below. Total cost Estimated salvage value Estimated life in years Machine A $550,000$50,00020Machine B$200,000$20,00015Machine C$40,000—5 Lester computes depreciation on the straight-line method. Based upon the information presented, the composite life of these assets (in years) should be 13.3 16 18 19.8

16 Correct answer iconThis answer is correct. The solutions approach is to determine the annual SL depreciation and divide the annual depreciation into the total amount to be depreciated. The annual depreciation is $45,000, which when divided into the total depreciation base of $720,000, indicates a composite life of 16 years. Machine A$500,000 depr. base/20 yrs=$25,000 depr.Machine B$180,000 depr. base/15 yrs=$12,000 depr.Machine C$40,000 depr. base/ 5 yrs.=$8,000 depr.$720,000 total depr. Base=$45,000 total depr.$720,000/$45,000=16 years Assets can be grouped for composite depreciation purposes. Under this method, major repair/replacement expenditures are charged to an accumulated depreciation account. Related gains (losses) on disposal of individual assets are usually not recognized. The difference between the proceeds received and the asset's cost is debited to accumulated depreciation.

Concord Company purchased for $3,801,000 a mine estimated to contain 2.30 million tons of ore. When the ore is completely extracted, it was expected that the land would be worth $213,000. A building and equipment costing $1,817,000 were constructed on the mine site, and they will be completely used up and have no salvage value when the ore is exhausted. During the first year, 764,000 tons of ore were mined, and $328,520 was spent for labor and other operating costs.

2.78 ((3801000-213000)+1817000)/2300000= 2.35 328520/764000=0.43 2.35+0.43= 2.78

Cullumber Corporation purchases a patent from Ivanhoe Company on January 1, 2020, for $89,040. The patent has a remaining legal of 16 years. Cullumber feels the patent will be useful for 10 years. Assume that at January 1, 2022, the carrying amount of the patent on Cullumber's books is $71,232. In January, Cullumber spends $21,200 successfully defending a patent suit. Cullumber still feels the patent will be useful until the end of 2029.

2020 Amortization Expense 8904 Patents 8904 2022 Amortization Expense 11554 Patents 11554 11554= (71232+21200)/8

Which of the following costs have characteristics which are similar to Research & Development(R & D) costs? - Advertising costs. - Start-up costs for a new operation. - Computer software costs. - All of these answer choices are correct.

All of these answer choices are correct.

Under MACRS, which of the following must be considered in determining depreciation? - Cost of asset - Property recovery class - Half-year convention - All of these answers are correct

All of these answers are correct Correct answer iconCorrect! Under MACRS, the cost of asset, property recovery class, and half-year convention are considered in determining depreciation. This is the best answer.

In which of the following situations is the units-of-production method of depreciation most appropriate? - An asset's service potential declines with use. - An asset's service potential declines with the passage of time. - An asset is subject to rapid obsolescence. - An asset incurs increasing repairs and maintenance with use.

An asset's service potential declines with use. Depreciation is a method of allocating the cost of an asset in a systematic and rational manner. Since the units-of-production method of depreciation is most appropriate when depreciation is a function of activity, this situation is correct.

Which of the following is not an example of a contract-related intangible asset? - Broadcast rights. - Franchise. - Construction permits. - Copyright.

Copyright Correct! Contract-related intangible assets include franchises, construction permits, and broadcast rights. A copyright is an artistic-related intangible asset.

Which of the following represents a federally granted right? - Copyrights. - Goodwill. - Franchise. - Internet domain names.

Copyrights Correct! A copyright is a federally granted right; the other intangible assets listed do not result from federally granted rights.

A general description of the depreciation methods applicable to major classes of depreciable assets is not a current practice in financial reporting. is not essential to a fair presentation of financial position. is needed in financial reporting when company policy differs from income tax policy. should be included in corporate financial statements or notes thereto.

Correct! A general description of the depreciation methods applicable to major classes of depreciable assets should be included in corporate financial statements or notes thereto.

A principal objection to the straight-line method of depreciation is that it provides for the declining productivity of an aging asset. assumes that the asset's economic usefulness is the same each year. tends to result in a constant rate of return on a diminishing investment base. gives smaller periodic write-offs than decreasing charge methods.

Correct! A principal objection to the straight-line method of depreciation is that it assumes that the asset's economic usefulness is the same each year.

Construction permits are - not considered to be intangible assets. - contract-related intangible assets. - customer-related intangible assets. - marketing-related intangible assets.

Correct! Construction permits are a type of contract-related intangible asset.

On January 1, 2020, Bumper Corp. acquires a customer list for $400,000. Bumper estimates that this customer list will generate value for at least 5 years. At the end of 3 years, Bumper plans to sell the customer list to another company for $62,500. On Bumper's income statement for the year ended December 31, 2020, how much amortization expense should it report? $67,500 $133,333 $80,000 $112,500

Correct! Customer lists should be amortized over their useful life (lesser of useful life or legal/economic life): Annual Amortization Expense = Cost less residual value / useful life: ($400,000 - 62,500)/ 3 years = $112,500 annual amortization expense.

Which of the following is not a way in which MACRS differs from GAAP depreciation? Assigned salvage value of zero. Estimated life is mandated by tax law. Cost recovery is accelerated. Useful life must be shorter than legal life.

Correct! MACRs differs from GAAP in that it assigns a salvage value of zero, mandates the estimated useful life and allows for accelerated cost recovery.

Marketing-related intangibles would include a customer list. a trade name. a copyright. a franchise.

Correct! Marketing-related intangibles include a trade name.

Production backlogs fall under which category of intangible assets? - Technology-related. - Customer-related. - Marketing-related. - Artistic-related.

Correct! Production backlogs are an example of customer-related intangible assets.

On July 1, 2020, Adele Company bought a trademark from Robert, Inc. for $2,750,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Robert's books was $1,600,000. In Adele's 2020 income statement, what amount should be reported as amortization expense? $80,000. $137,500. $160,000. $275,000.

Correct! Straight-line amortization, $2,750,000 (cost) / 10 years (useful life) X 6/12 (July 1 - December 31, 2020) results in an amortization expense of $137,500.

Ignoring income tax effects, accelerated depreciation methods can generate funds for the earlier replacement of fixed assets. decrease funds provided by operations. offset the effect of increasing repair and maintenance costs as the asset ages. decrease the fixed asset turnover ratio.

Correct! The accelerated methods provide a constant cost because the depreciation charge is lower in the later periods at the time when repair and maintenance are often higher.

A depreciation method that is used when a collection of assets is heterogeneous and the assets have different useful lives is the: - combination method. - composite method. - group method. - hybrid method.

Correct! The composite method is used when a collection of assets is heterogeneous and includes assets which have different lives.

Which of the following is not one of the major categories of intangibles? - Contract-related. - Financing-related. - Artistic-related. - Marketing-related.

Correct! There is no category of financing-related intangibles.

Flannery Corporation owns machinery with a book value of $520,000. It is estimated that the machinery will generate future cash flows of $465,000. The machinery has a fair value of $415,000. Florence should recognize a loss on impairment of $0. $50,000. $55,000. $105,000.

Correct! To determine if an impairment has occurred, the first step is to apply the recoverability test. If the sum of the expected future net cash flows of the long-lived asset is less than the carrying amount of the asset, then an impairment has occurred. Assuming an impairment, the impairment loss is the amount by which the carrying amount (book value) of the asset exceeds the fair value of the asset. The future cash flows, $465,000, are less than book value, $520,000, thus an impairment has occurred. Book value, $520,000, less fair value, $415,000, results in a loss of $105,000 to be recognized.

Erie Corporation owns machinery with a book value of $2,200,000. It is estimated that the machinery will generate future cash flows of $1,995,000. The machinery has a fair value of $1,915,000. The journal entry to record the impairment loss will - record an extraordinary loss of $80,000. - increase the asset's Accumulated Depreciation account by $285,000. - reduce income from continuing operations by $205,000. - include a $285,000 credit to the asset account.

Correct! To determine if an impairment has occurred, the first step is to apply the recoverability test. If the sum of the expected future net cash flows of the long-lived asset is less than the carrying amount of the asset, then an impairment has occurred. Assuming an impairment, the impairment loss is the amount by which the carrying amount (book value) of the asset exceeds the fair value of the asset. The impairment loss of $285,000 (book value of $2,200,000 less the fair value of $1,915,000) is recorded with a debit to an ordinary loss account and a credit to Accumulated Depreciation. This entry would increase the asset's Accumulated Depreciation account by $285,000.

Mains Corporation owns equipment with a cost of $290,000 and accumulated depreciation at December 31, 2017 of $150,000. It is estimated that he machinery will generate future cash flows of $165,000. The machinery has a fair value of $115,000. Mains should recognize a loss on impairment of $0. $15,000. $25,000. $35,000.

Correct! To determine if an impairment has occurred, the first step is to apply the recoverability test. If the sum of the expected future net cash flows of the long-lived asset is less than the carrying amount of the asset, then an impairment has occurred. No impairment loss is recognized because the asset does not fail the recoverability test: expected future cash flows of $165,000 exceed the $140,000 ($290,000 - $150,000) book value of the asset by $25,000.

Coral Corporation began operating as a business in 2020. During January 2020, the company paid $300,000 in design costs to develop its trademark and $250,000 in legal and registration fees to secure the trademark. During October 2020, the company successfully defended its trademark, paying an additional $150,000 in legal fees during the process. At what amount should Coral Corporation report its trademark on its December 31, 2020 balance sheet? $150,000 $400,000 $550,000 $700,000

Correct! When a company develops a trademark, it capitalizes the costs related to securing it including legal fees, registration fees, design costs, and successful defense costs. In this case, $300,000 + 250,000 + 150,000 = $700,000.

Cody Corp. incurred the following costs during 2006: Design of tools, jigs, molds, and dies involving new technology$125,000Modification of the formulation of a process160,000Troubleshooting in connection with breakdowns during commercial production100,000Adaption of an existing capability to a particular customer's need as part of a continuing commercial activity110,000 In its 2006 income statement, Cody should report research and development expense of $125,000 $160,000 $235,000 $285,000

Correct. Only the first two costs are research and development costs. R & D involves the search for new knowledge and translation of that knowledge toward new products and processes and improvements in existing products and processes.The first two items are listed in ASC 730 as being included in R & D.The last two are listed as specifically being excluded from R & D because they are routine activities or do not involve essentially new products and processes. The total R & D expense is therefore $285,000 ($125,000 + $160,000).

Which of the following is considered a research activity? - Construction of a prototype. - Operation of a pilot plant. - Critical investigation aimed at discovery of new knowledge. - All of these answer choices are correct.

Critical investigation aimed at discovery of new knowledge. Correct! Critical investigation aimed at discovery of new knowledge is considered a research activity.

Crane Corp. obtained a trade name in January 2019, incurring legal costs of $73,440. The company amortizes the trade name over 8 years. Crane successfully defended its trade name in January 2020, incurring $19,992 in legal fees. At the beginning of 2021, based on new marketing research, Crane determines that the fair value of the trade name is $61,200. Estimated future net cash flows from the trade name are $65,280 on January 4, 2021. Prepare the necessary journal entries for the years ending December 31, 2019, 2020, and 2021.

Dec. 31, 2019 Amortization Expense 9180 Trade Names 9180 Dec. 31, 2020 Amortization Expense 12036 Trade Names 12036 Dec. 31, 2021 Loss on Impairment 11016 Trade Names 11016 (To record impairment loss) Dec. 31, 2021 Amortization Expense 10200 Trade Names 10200

Which of the following depreciation methods uses book value to determine annual depreciation? - Straight-line. - Sum-of-the-years' digits. - Units of production. - Declining-balance.

Declining-balance. Correct! Annual depreciation under the declining-balance method is based on the asset's book value at the beginning of each year times the declining balance rate.

Accounting depreciation is computed by determining the change in the market value of a company's plant assets during the period under review.

False

Plant assets should be written down (below cost) when their market value has declined temporarily.

False

The accounting profession has developed specifically recommended procedures for recording appraisal increases with respect to plant assets.

False

The revision of prior periods' depreciation estimates would be disclosed on the retained earnings statement.

False

The sum-of-the-years'-digits method of depreciation ignores salvage value in the computation of an asset's depreciable base.

False

When using the double-declining balance method of determining depreciation, a declining percentage is applied to a constant book value.

False

Fern Company is a U.S.-based company that designs and builds compressors for large HVAC units. Fern decides to build a new plant in China, its first attempt at doing business internationally. During its start-up phase, Fern incurs $2,000,000 of start-up costs including $1,000,000 in legal fees, $700,000 to introduce its product, and another $300,000 in state fees to the Chinese government to organize the new business entity. Fern Company's CEO fully expects the company to become profitable during its 3rd year of operations. How should Fern Company account for these costs? - Fern can capitalize $1,000,000 in legal fees, but the other costs must be expensed as incurred. - Fern can capitalize $700,000 related to introducing its product, but the other costs must be expensed as incurred. - Fern can capitalize $1,300,000 related to legal and state fees, but the other costs must be expensed as incurred. - Fern must expense all $2,000,000 start-up costs as incurred.

Fern must expense all $2,000,000 start-up costs as incurred.

Which intangible asset should be disclosed separately on the balance sheet? - Patents. - Customer lists. - Goodwill. - Copyrights.

Goodwill

On September 1, 2021, Sheridan Corporation acquired Sunland Enterprises for a cash payment of $934,800. At the time of purchases, Sunland's balance sheet showed assets of $695,400, liabilities of $273,600, and owner's equity of $478,800. The fair value of Sunland's assets is estimated to be $1,105,800.Compute the amount of goodwill acquired by Sheridan.

Goodwill= cash payment - net asset acquired( fair value of assets - liabilities)

Grayson Co. incurred significant costs in defending its patent rights. Which of the following is the appropriate treatment of the related litigation costs? - Litigation costs would be capitalized regardless of the outcome of the litigation. - Litigation costs would be expensed regardless of the outcome of the litigation. - Litigation costs would be capitalized if the patent right is successfully defended. - Litigation costs would be capitalized only if the patent was purchased rather than internally developed.

Litigation costs would be capitalized if the patent right is successfully defended. Correct. Litigation costs can be capitalized only if the defense of the patent was successful.

Bramble Corp. purchased equipment in 2019 at a cost of $915000. Two years later it became apparent to Bramble Corp. that this equipment had suffered an impairment of value. In early 2021, the book value of the asset is $581000 and it is estimated that the fair value is now only $361000. The entry to record the impairment is No entry is necessary as a write-off violates the historical cost principle. Retained Earnings 220000 Accumulated Depreciation—Equipment 220000 Loss on Impairment of Equipment 220000 Accumulated Depreciation—Equipment 220000 Retained Earnings 220000 Reserve for Loss on Impairment of Equipment 220000

Loss on Impairment of Equipment 220000 Accumulated Depreciation—Equipment 220000

Sunland Corporation owns a patent that has a carrying amount of $582,000. Sunland expects future net cash flows from this patent to total $363,750. The fair value of the patent is $451,050.Prepare journal entry, if necessary, to record the loss on impairment.

Loss on impairment 130950 Patents 130950

A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January 1, year 1. The increase in accumulated depreciation for year 2 using the double-declining balance method would be Original cost × 85% × 50%. Original cost × 50%. Original cost × 85% × 50% × 50%. Original cost × 50% × 50%.

Original cost × 50% × 50%. This answer is correct. The increase in accumulated depreciation for year 2 is the depreciation expense recorded in year 2. The equation for calculating DDB depreciation is Book value×200%Useful life The percentage used for DDB is always twice the straight-line rate. Note that salvage value is not used in determining depreciation expense under this method. In year 1:Original cost × 50%(200%/4 = 50%)In year 2:(Original cost × 50%) × 50%

Which of the following is a characteristic of intangible assets? - They have physical existence. - They are financial instruments. - They are long-term in nature. - They are all subject to amortization.

They are long-term in nature.

Which of the following would not be amortized? - Copyright. - Patent. - Trade name. - Customer List.

Trade name Correct! Trade names have legal protection for an indefinite number of renewals for 10 years each; therefore, a company that uses an established trade name may properly consider it to have an indefinite life and does not amortize its cost.

An asset's cost minus its accumulated depreciation equals its book value.

True

The book value of plant assets initially declines more rapidly under decreasing-charge methods than under the straight-line method.

True

The methods of depreciation based upon output assume that obsolescence will not significantly affect the usefulness of the asset.

True

The straight-line method of depreciation is based on the assumption that depreciation expense can be regarded as a constant function of time.

True

When the purchaser in a business combination pays less than the fair value of the identifiable net assets, ________ is recorded by the purchaser. - goodwill. - a gain. - a liability. - R&D expense.

a gain.

St. Sebastian Company and A. Jamison Company were combined in a purchase transaction. St. Sebastian was able to acquire Jamison at a bargain price. The fair market value of Jamison's net assets exceeded the price paid by St. Sebastian to acquire the company. Proper accounting treatment by St. Sebastian is to report the excess fair value over purchase price as - a gain. - a loss. - a liability. - paid-in capital.

a gain. Correct! In a situation where the purchase price is less than the value of the net identifiable assets, the excess amount is recorded as a gain by the purchaser.

The excess cost of the purchase over the fair market value of a company's identifiable net assets is sometimes referred to as - a master valuation account. - goodwill. - a gap filler. - all of these answer choices are correct.

all of these answer choices are correct. Correct! Goodwill is measured as the excess of the cost of the purchase over the fair value of the identifiable net assets (assets - liabilities) purchased. Goodwill is therefore measured as a residual rather than measured directly. This is why goodwill is sometimes referred to as a plug, a gap filler, or a master valuation account.

For indefinite-life intangibles other than goodwill, an impairment test should be conducted at least: - quarterly. - monthly. - annually. - once during its useful life.

annually

In 2013, Sunland Company purchased a tract of land as a possible future plant site. In January, 2021, valuable sulphur deposits were discovered on adjoining property and Sunland Company immediately began explorations on its property. In December, 2021, after incurring $477000 in exploration costs, which were accumulated in an expense account, Sunland discovered sulphur deposits appraised at $2730000 more than the value of the land. To record the discovery of the deposits, Sunland should - make no entry. - debit $477000 to an asset account. - debit $2730000 to an asset account. - debit $3207000 to an asset account.

debit $477000 to an asset account.

These methods always allocate larger shares of the cost of a plant asset to expense during the earlier years of its life.

declining balance, sum of the years digits

Capitalizing goodwill only when it is purchased in an arm's-length transaction, and not capitalizing any goodwill generated internally, is an example of - accrual accounting winning out over cash-basis accounting. - GAAP winning out over IFRS. - faithful representation winning out over relevance. - financial accounting winning out over managerial accounting.

faithful representation winning out over relevance. Correct! Capitalizing goodwill only when it is purchased in an arm's-length transaction, and not capitalizing any goodwill generated internally, is an example of faithful representation winning out over relevance.

These methods are used for depreciating multiple-asset accounts.

group composite

Natural resources include all of the following except: - petroleum. - land improvements. - minerals. - timber.

land improvements Correct! Natural resources include petroleum, minerals and timber. Land improvements are not natural resources.

The depreciable base (cost) of an asset is its original cost: - less accumulated depreciation. - plus accumulated depreciation. - less salvage value. - plus salvage value.

less salvage value. Correct! The depreciable base (cost) is an asset's cost less salvage value.

For the composite method, the composite - rate is the total cost divided by the total annual depreciation. - rate is the total annual depreciation divided by the total depreciable cost. - life is the total cost divided by the total annual depreciation. - life is the total depreciable cost divided by the total annual depreciation.

life is the total depreciable cost divided by the total annual depreciation. Correct! For the composite method, the composite life is the total depreciable cost divided by the total annual depreciation.

Cullumber Corporation purchased Blossom Company 3 years ago and at that time recorded goodwill of $828,000. The Division's net identifiable assets, including the goodwill, have a carrying amount of $1,380,000. The fair value of the division is estimated to be $1,265,000.Prepare Cullumber's journal entry, if necessary, to record impairment of the goodwill.

loss on impairment 115000 goodwill 115000

The return on assets is computed by dividing: - net income by average total assets. - net income by ending total assets. - net sales by average total assets. - net sales by ending total assets.

net income by average total assets.

The asset turnover ratio is computed by dividing: - net income by average total assets. - net income by ending total assets. - net sales by average total assets. - net sales by ending total assets.

net sales by average total assets. Correct! The asset turnover ratio is determined by dividing net sales by average total assets.

Research and development costs do not include: - routine ongoing efforts to improve the qualities of an existing product. - critical investigation aimed at discovering new knowledge. - construction of prototypes. - searching for applications of new research findings.

routine ongoing efforts to improve the qualities of an existing product.

Once the depreciable base, scrap value, and life of a plant asset are determined, the annual charges to operations under this method will be the same.

straight line

The depreciation charged by this method decreases by the same amount each year.

sum of the years digits

.Crane incurred $66,500 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 2020. Legal fees associated with registration of the patent totaled $25,600. Crane estimates that the useful life of the patent will be 10 years; the legal life of the patent is 20 years.2.On January 1 2020, Crane signed an agreement to operate as a franchisee of Dairy King, Inc. for an initial franchise fee of $186,000. The agreement provides that the fee is not refundable and no future services are required of the franchisor. Crane estimates the useful life of the franchise to be 15 years.3.A trade name was purchase from Stine Company for $75,200 on May 1, 2018. Expenditures for successful litigation in defense of the trade name totaling $20,700 were paid on June 1, 2020. Crane estimates that the trade name will have an indefinite life.

trade name : 95900 franchise, net of accumulated amortization : 173600 patent, net of accumulated amortization : 23040 total intangible asset: 292540

These methods allocate larger shares of the cost of a plant asset to expense during the years in which the greatest use is made of the asset.

units of output, working hours