Chapter 7

Which account is credited in a journal entry to record depreciation on machinery?

Accumulated Depreciation

Which of the following are expenditures for assets subsequent to acquisition?

Additions Repairs and maintenance Improvements

Which of the following items are initially recorded as an expense on the income statement?

Advertising costs Research and development costs

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time is called a

franchise

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______.

goodwill

Goodwill may only be recognized

in a business acquisition.

An asset that has no physical substance is called a(n)

intangible asset

Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as

internally developed intangibles

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

provides benefits to the company.

The depreciable cost of an asset is the asset's cost minus its estimated Blank 1Blank 1 depreciation, Incorrect Unavailable value

residual

The term used to describe the amount the company expects to receive for an asset at the end of its service life is

residual value

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

straight-line method.

Where is the account accumulated depreciation on equipment found on the financial statements?

As a contra account to equipment on the balance sheet

Linx purchases an intangible asset for $10,000. How should the $10,000 be reported in the financial statements?

As an asset for $10,000.

Which of the following costs should be capitalized in the costs of acquiring a building?

legal fees to obtain title purchase price realtor commissions Remodeling building

The cost of land improvements are capitalized separately from land because land improvements tend to have a__useful life.

limited, short

The exclusive legal right to manufacture a product or to use a process is called a(n)

patent

A__ is the exclusive right to manufacture a product or use a process granted for a period of__ years.

patent 20

On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021?

$26,000

On January 1, 2018, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2021?

$70,000

Linx Corporation internally develops an intangible asset with research and development costs of $10,000. How should Linx report this $10,000?

As an expense on the income statement.

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

Cost of Lawn Sprinkler System Cost of driveways Cost of sidewalks

Which of the following items should be capitalized as land improvements?

Cost of sidewalks Cost of fences Cost of parking lots

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Costs to remove an old building Legal fees to secure title Commissions

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?

Costs to remove an old building Title insurance Grading the land Legal fees to secure title

Which of these are parts of the journal entry to record depreciation?

Debit Depreciation Expense Credit Accumulated Depreciation

Which of the following are commonly used depreciation methods?

Declining-balance Activity-based Straight-lin

If a company generates its own goodwill through advertising or training, how should these costs be treated?

Expense the costs as incurred.

True or false: Depreciation is a valuation method for property and equipment.

False

True or false: Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.

False

True or false: Internally developed goodwill should be capitalized as an asset.

False

Purchased intangible asset

Patents, copyrights, trademarks, or franchise rights acquired from other companies

Internally developed intangible asset

Product or process created internally for which patent may be obtained.

Expense when incurred

Research and development costs incurred when developing a new product

Capitalize on the balance sheet

The purchase price of an intangible asset

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

The types of expenditures that can occur subsequent to an asset's acquisition are

additions. repairs and maintenance. improvements.

Depreciation is a process of cost__and not a process of valuation.

allocation

For accounting purposes, depreciation is

an allocation of a cost of an asset.

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides

benefits

The original cost of an asset minus accumulated depreciation is

book value

Goodwill is recognized only when one company__another company

buys

The term__means to record the expenditure as an asset.

capitalize

In accounting, expenditures recorded as assets are said to be _____.

capitalized

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

The accumulated depreciation account is classified as a(n)

contra asset

A__is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

A__is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

Straight-line, declining-balance, and activity-based refer to methods commonly used to__property, plant, and equipment.

depreciate

The allocation of the cost of a tangible asset over its service life is referred to as

depreciation

Long-term tangible assets include

equipment. buildings. land. Property

intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as

internally developed intangibles.

The distinction between land and land improvements is that

land has an indefinite life

The service life or useful life of an asset is

the estimated use that the company expects to obtain from the asset before disposing of it.

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a

trademark.

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the__ life of the asset.

useful