Chapter 7 test questions

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? $102,000. $100,800. $106,000. $80,000.

$100,800 ( add sale of salvaged materials)

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.) $0. $50,000. $200,000. $100,000.

$50,000 (2,000,000 / 10 years x 3/12)

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? $60,000. $50,000. $57,000. $59,000.

$59,000 (minus depreciation)

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? $100,000. $82,000. $80,000. $60,000.

$60,000 ($100,000 - 2x$20,000)

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? $800,000. $500,000. $700,000. $0.

$700,000 (1,200,000 - (2,000,000 - 1,500,000))

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. 12.5%. 8.0%. 4.5%. 5.0%.

8% (10% x 4,000,000 / 5,000,000)

Accumulated depreciation is: An expense account. An asset. A contra-asset. A liability.

A contra-asset

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record: A loss of $5,000. A gain of $5,000. A loss of $70,000. A gain of $70,000.

A gain of $5,000 (40,000 - (100,000 - 65,000))

If equipment is retired, which of the following accounts would be debited? Accumulated depreciation. Depreciation expense. Equipment. Cash.

Accumulated depreciation

Over the entire service life of an asset, which depreciation method records the highest total depreciation? The straight-line method. The double declining method. The activity-based method. All the methods result in the same total depreciation.

All the methods result in the same total depreciation

Which of the following expenditures should be recorded as an asset? An addition which increases future benefit. Repairs that maintain current benefits. Maintenance that maintain current benefits. Unsuccessful legal defense of an intangible asset.

An addition which increases future benefit

The asset's cost less accumulated depreciation is called: Replacement cost. Book value. Net fair value. Residual value.

Book value

A long-term asset is recorded at the: Cost of the asset. Additional costs to get the asset ready for use. Cost of the asset plus all costs necessary to the asset ready for use. Cost of the asset less all costs necessary to the asset ready for use.

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

Which of the following depreciation methods typically results in the highest depreciation expense during the first year of an asset's life? Straight-line method. Activity-based method. Double declining balance method. Each method will result in the same depreciation during the first year.

Double declining balance method

Which of the following intangible assets are not amortized? Goodwill. Patents. Copyrights. Franchises.

Goodwill ( and trademarks)

Return on assets is equal to: Net income divided by long-term assets. Net income divided by average long-term assets. Average total assets divided by net income. Net income divided by average total assets.

Net income divided by average total assets

Which of the following expenditures should be recorded as an expense? An addition which increases future benefit. An improvement. Ordinary repairs and maintenance. Successful legal defense of an intangible asset.

Ordinary repairs and maintenance

An exclusive 20-year right to manufacture a product or to use a process is a: Patent. Copyright. Trademark. Franchise.

Patent

Which of the following is not recorded as an intangible asset in the balance sheet? Patents. Research and development. Trademarks. Goodwill.

Research and Development

The balance in the Accumulated Depreciation account represents The amount charged to expense in the current period. A contra expense account. A cash fund to be used to replace plant assets. The amount charged to depreciation expense since the acquisition of the plant asset.

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

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? $900,000. $200,000. $180,000. $220,000.

$180,000 (fair value land / fair value total x total purchase amount)

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? $9,600. $12,000. $8,000. $10,000.

$8,000 ((purchase price - residual value)/expected units) x units used

Which of the following correctly describes the nature of depreciation? Depreciation represents the valuation of property, plant, and equipment over its service life. Depreciation represents the valuation of an intangible asset over its service life. Depreciation represents the allocation of the cost of property, plant, and equipment over its service life. Depreciation represents the allocation of the cost of an intangible asset over its service life.

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

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life? Short service life, high residual value, and straight-line depreciation. Long service life, high residual value, and straight-line depreciation. Short service life, low residual value, and double-declining-balance depreciation. Long service life, high residual value, and double-declining-balance depreciation.

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