BUAD Chapter 7 Practice Quiz

If equipment is retired, which of the following accounts would be debited?

Accumulated Depreciation

Which of the following expenditures should be capitalized?

An improvement to a tangible asset.

Which of the following depreciation methods typically results in the highest depreciation expense during the first year of an asset's life?

Double declining balance method

Accumulated depreciation is:

a contra asset

Return on assets is equal to:

net income divided by average total assets

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)? (Do not round intermediate calculations.)

$50,000

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?

$60,000

The book value of an asset is equal to the

Asset's cost less accumulated depreciation.

The asset's cost less accumulated depreciation is called:

Book value

We normally record a long-term asset at the

cost of the asset plus all costs necessary to get the asset ready for use

Research and development costs

should be expensed

The Open Grill incurred the following costs in acquiring a new piece of land: Cost of the land$80,000 Commissions 4,800 Liability insurance for the first year 1,200 Cost of removing existing building 20,000 Sale of salvaged materials (4,000) Total costs$102,000 What is the total recorded cost of the land?

$100,800

Equipment was purchased for $50,000. The equipment is expected to be used 15,000 hours over its useful life and then have a residual value of $10,000. In the first two years of operation, the equipment was used 2,700 hours and 3,300 hours, respectively. What is the equipment's accumulated depreciation at the end of the second year using the activity-based method?

$16,000

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

$180,000

Sandwich Express incurred the following costs related to its purchase of a bread machine. Cost of the equipment$20,000 Sales tax (8%) 1,600 Shipping 2,200 Installation 1,400 Total costs$25,200 At what amount should Sandwich Express record the bread machine?

$25,200

A company has the following three assets with the information provided: ($ in millions)Equipment ; Land ; Building ; Book value$8 $20 $12 Estimated total future cash flows 6 35 14 Fair value 5 30 10 Determine the amount of the impairment loss, if any.

$3 million

The Cheese Factory incurred the following costs related to acquiring a new piece of equipment: Cost of the equipment$50,000 Sales tax (8%) 4,000 Shipping 3,000 Installation 2,000 Depreciation during the first month 1,000 Total costs$60,000 What is the total recorded cost of the equipment?

$59,000

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase?

$700,000

A delivery truck was purchased for $60,000 and is expected to be used for 5 years and 100,000 miles. The truck's residual value is $10,000. By the end of the first year, the truck has been driven 16,000 miles. What is the depreciation expense in the first year using activity-based depreciation?

$8,000

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year?

$8,000

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:

A gain of $5,000.

Equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $30,000, the company should record:

A loss of $10,000.

Depreciation in accounting is the:

Allocation of an asset's cost to an expense over time.

A long-term asset is recorded at the:

Cost of the asset plus all costs necessary to the asset ready for use.

Which of the following expenditures should be recorded as an asset?

Interest costs during the construction period of a new building.

Which of the following expenditures should be recorded as an expense?

Ordinary repairs and maintenance.

An exclusive 20-year right to manufacture a product or to use a process is a:

Patent

Which of the following expenditures should be recorded as an expense?

Repairs and maintenance that maintain current benefits.

Which of the following is not recorded as an intangible asset in the balance sheet?

Research and Development

Which of the following will result in higher depreciation expense in the first year of the asset's life?

Short service life and low residual value.

The amount of the gain on the sale of equipment equals:

The selling price minus the book value of the equipment.

Which of the following is properly recorded as an intangible asset?

A purchased patent

Over the entire service life of an asset, which depreciation method records the highest total depreciation?

All of the methods result in the same total depreciation (straight-line, double declining, and activity-based method)

Which of the following intangible assets are not amortized?

Goodwill

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?

Long service life, high residual value, and straight-line depreciation.

The balance in the Accumulated Depreciation account represents

The amount charged to depreciation expense since the acquisition of the plant asset.

Return on assets is equal to:

profit margin times asset turnover

A company has a profit margin of 10% and reports net sales of $4,000,000 and average total assets of $5,000,000. Calculate the company's return on assets.

8.0%

Which of the following statements is false regarding the amortization of intangible assets?

The service life of an intangible asset is always equal to its legal life.

Which of the following expenditures should be recorded as an asset?

An addition which increases future benefit.

Which of the following correctly describes the nature of depreciation?

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

Which of the following statements is true regarding the amortization of intangible assets?

The expected residual value of most intangible assets is zero.

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record

a loss of $10,000

The company's profitability on each dollar invested in assets is represented by which of the following ratios:

Return on assets

Tasty Inn and Out incurred the following costs related to its purchase of equipment. Cost of the equipment$10,000 Sales tax (7%) 700 Annual property insurance 500 Shipping 200 Initial safety testing 1,000 Total costs$12,400 What is the recorded cost of the equipment?

$11,900