financial accounting ch 8

Long-lived assets are ______. (Check all that apply.) assets acquired for use over 1 or more years used by the business intended for immediate resale assets that will be used or converted to cash within 1 year always tangible

assets acquired for use over 1 or more years used by the business

Net assets is the term used to describe ______.

assets minus liabilities

net assets

assets minus liabilities

Potients, Inc. amortizes its patents over ten years. The entry to record the amortization of its patents may include a ______.

credit to patents (or accumulated amortization) debit to amortization expense

The journal entry to record amortization expense includes a ______ to Amortization Expense.

debit

Vango, Inc. sold its van for $6,000 cash. The van's original cost was $40,000, and its Accumulated depreciation was $32,000. When recording the sale, Vango should record a ______. gain of $6,000 loss of $8,000 gain of $8,000 gain of $2,000 loss of $2,000

loss of 2,000

A company should depreciate a long-lived tangible asset to ______. decrease the total value of its assets, so that it can justify buying new ones report less income and pay less income tax record the decrease in the market value of the asset as it gets older match part of the cost of the asset with the revenues generated by the asset

match part of the cost of the asset with the revenues generated by the asset

A category of long-lived assets that are depleted over time is ______.

natural resources

Goodwill equals the purchase price minus the fair market value of the purchased company's ______.

net assets which is its assets minus liabilities

On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______.

net income + assets to be overstated

Thermal, Inc. bought a new computer system for $50,000 cash. What is the effect of this purchase on the company's total assets? Total assets ______.

remain the same One asset increases (computer), while another asset decreases (cash).

On January 1, 2018, Busy Beaver, Inc., signed a $315,000, 5-year note payable to buy a new industrial veneer cutter. Busy Beaver plans to use the machine for 10 years and then sell it for its scrap value of $5,000. Using straight-line depreciation, Depreciation Expense for the year ended December 31, 2018 equals ______.

$31,000 (315,000-5,000)/10

Four years ago, on January 1, California Creamery bought a new delivery truck for $30,000. The company planned to use the truck for 7 years, and then sell it for $2,000. The company used the truck for 4 years and properly recorded straight-line depreciation each year. At the beginning of the 5th year, a change in emissions standards made the truck illegal in California. The company expects to sell the truck outside of California later this year for $6,000. The company should record a journal entry that includes a(n) ______. (Check all that apply.)

$8,000 debit to Impairment Loss $8,000 credit to Truck The truck's net book value equals $14,000 (= cost of $30,000 - accumulated depreciation of $16,000). GAAP require the truck to be written down because it has been impaired. Since it thinks it can sell it for $6,000, it needs to reduce the net book value by $8,000 (=$14,000 - 6,000) by debiting Impairment Loss and crediting the Truck account.

The formula for calculating straight-line depreciation is ______.

(cost - residual value) x (1/useful life)

On January 1, 2019, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. The truck will be worthless at the end of the 4 years. If the truck was driven 15,000 miles in 2019, Depreciation Expense for the year using units-of-production is ______.

9,000 [30,000/50,000]*15,000

Which of the following will result in the recording of goodwill? Company A discovers a new product or production process. Company A purchases Company B and pays more than the fair value of Company B's assets and liabilities. Company A purchases Company B and pays less than the fair value of the net of the assets minus liabilities of Company B. Company A sells its patents at a gain.

Company A purchases Company B and pays more than the fair value of Company B's assets and liabilities.

Depreciable cost equals an asset's _______.

cost minus its residual (or salvage) value

In accordance with US Generally Accepted Accounting Principles, which of the following costs associated with long-lived assets are expensed, not capitalized? (Check all that apply.) Immaterial repairs and maintenance Interest on loans to purchase the assets Ordinary repairs and maintenance Delivery costs Installation costs

Immaterial repairs and maintenance Interest on loans to purchase the assets Ordinary repairs and maintenance

Why don't all companies use the same depreciation method?

Different depreciation methods might better reflect the pattern in which assets' economic benefits are used.

True or false: In accordance with US Generally Accepted Accounting Principles, a company will always capitalize the cost of a long-lived asset.

F - A company will not capitalize the cost of a long-lived asset if its cost is an immaterial amount.

True or false: GAAP require management to select an accelerated depreciation method if the long-lived asset produces more revenue in its early years than in its later years.

F - Although management should select the method that provides the best matching of revenues with expenses, GAAP allow management to choose any one of the methods.

Which of these are long-lived productive assets? (Check all that apply.) Machinery Retained earnings Inventory Delivery equipment Cash

Machinery Delivery equipment

Sunny Sky paid $30,000 cash for piece of land to be used for a new corporate headquarters building. What is the effect of this transaction on the accounting equation? Total assets increase and total stockholders' equity increases. Total assets increase and total liabilities increase. Total assets decrease and total liabilities decrease. One asset increases, while another asset decreases.

One asset increases, while another asset decreases.

The asset's book value (or cost minus accumulated depreciation) must equal its residual (salvage) value at the end of its useful life using which depreciation method? (Select all that apply.) Straight-line Double-declining-balance Units-of-production EBITDA Lower-of-cost-or-market

Straight-line Double-declining-balance Units-of-production

Ace, Inc. just bought a new delivery truck. Which of these costs should be capitalized? (Check all that apply.) The $2,000 paid to install shelves inside the truck The $50 a week for gas to run the truck The $500 for insurance on the truck for the next 12 months The $25,000 cost of the truck

The $2,000 paid to install shelves inside the truck The $2,000 paid to install shelves inside the truck

Acme Enterprises just bought a new manufacturing machine. Which of these costs should be capitalized? (Check all that apply.) The $500,000 invoice price of the machine The $200 annual increase in personal property taxes, based on the cost of the machine The $8,000 cost of tearing down Acme's factory wall to get the machine inside The $500 annual increase in insurance premiums, based on the cost of the machine The $15,000 freight bill to deliver the machine to Acme's factory The $100 increase in monthly utility bills to operate the machine

The $500,000 invoice price of the machine The $8,000 cost of tearing down Acme's factory wall to get the machine inside The $15,000 freight bill to deliver the machine to Acme's factory

Which of these are natural resources that are depleted over time? (Check all that apply.) Cash Timber Inventory Natural gas wells

Timber Natural gas wells

Which of the following financial statement totals are reduced by the adjusting entry to record amortization? (Check all that apply.) Total liabilities on the balance sheet Total assets on the balance sheet Cash from operating activities on the statement of cash flows Net income on the income statement Total stockholders' equity on the balance sheet

Total assets on the balance sheet Net income on the income statement Total stockholders' equity on the balance sheet

Tangible assets are first recorded at ______.

all costs to acquire them and prepare them for use

If a cost is capitalized, it is recorded as a(n) ________ not an expense

asset

GAAP require assets be reviewed for impairment ______.

at least once a year

The old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be ______. ignored, since it is not part of the original purchase price expensed in the accounting period(s) when the renovation took place capitalized as part of the cost of the theater

capitalized as part of the cost of the theater

Thermal, Inc. bought a new office computer for $5,000 cash. The journal entry to record this transaction will include a $5,000 ______. (Check all that apply.) debit to Cash debit to Equipment Expense credit to Equipment debit to Equipment credit to Cash

debit to Equipment credit to Cash

Lox, Stock and Bagel, Inc. buys Cream Cheesery, Inc. for $1,000,000. Cream Cheesery's net assets are valued at $800,000 at the time of the cash sale. Lox, Stock and Bagel, Inc. should record a(n) ______. (Check all that apply.) increase to Loss on Purchase of $200,000 decrease to Cash of $1,000,000 increase to Goodwill of $200,000 increase to Gain on Purchase of $200,000

decrease to Cash of $1,000,000 increase to Goodwill of $200,000

On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______. (Check all that apply.) increase to net income on the income statement decrease to assets on the balance sheet increase to assets on the balance sheet increase to liabilities on the balance sheet decrease to net income on the income statement

decrease to assets on the balance sheet decrease to net income on the income statement

On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______. (Check all that apply.) decrease to assets on the balance sheet increase to assets on the balance sheet increase to net income on the income statement decrease to net income on the income statement increase to liabilities on the balance sheet

decrease to assets on the balance sheet decrease to net income on the income statement

Matching part of the cost of a long-lived asset with the revenues generated by the asset is ______.

depreciation

If a company buys another company and pays more than the fair market value of the other company's net assets, then it will debit ______.

goodwill

Trademarks ______.

have an unlimited life and hence are not amortized

goodwill may only be recorded.....

if the company buys another company

The write-down of goodwill for impairment will affect which of the following financial statements? (Check all that apply.)

income statement, balance sheet Impairment loss is recorded with a debit to Loss on Impairment (+E, -SE) and a credit to the impaired Goodwill (-A). The loss is on the income statement and goodwill is on the balance sheet.

Capitalized costs differ from expenses in that only capitalized costs result in a(n) ______.

increase to long-lived assets

An impairment loss is a(n) ______.

is a reduction to net income on the income statement

Intangible assets with unlimited or indefinite lives are ______.

not amortized, but instead are reviewed for impairment

An intangible asset may be recorded when a company ______. (Check all that apply.) trains its employees pays more than the net assets of the company purchased purchases a trademark internally creates an asset with no physical properties, such as outstanding customer loyalty

pays more than the net assets of the company purchased purchases a trademark

An intangible asset may be recorded only if ______.

purchased

A gain on the disposal of an asset occurs when the ______.

selling price is greater than the asset's book value

If a depreciable asset is expected to be used evenly over its useful life, then management should choose which method?

straight-line

what depreciation methods are allowed by GAAP?

straight-line units-of-production declining-balance

Exclusive rights to a special name, image or slogan is a ______.

trademark

((Cost-residual value)/estimated total production) x actual production this period is the formula for calculating ______ depreciation.

units-of-production