AC Learnsmart Ch. 9
Amortization _____.
Is calculated using the straight-line method Spreads the cost of intangible assets to expense over their useful lives Is in accordance with the expense recognition (matching) principle
An asset's useful life ___.
Is the assets expected economic life to its owner; can be expressed in either years or units
The entry to record annual straight-line depreciation will decrease a company's ____, ____, and ____.
Net income, asset book value, total assets
in the case of a basket purchase, the cost of the land and building is ____.
Split among the assets purchased in proportion to the market value of the assets as a whole
Which of the following entries result in a decrease in total assets and stockholders' equity?
The adjusting entry to record the depreciation of long-live assets
Why can depreciation expense be a different amount each year using the units-of-production method?
The method calculates expense based on the relationship between each year's output and total estimated output.
_____ repairs to long-lived assets are capitalized because they are large expenditures and increase the useful life of the asset.
Extraordinary
Deferred Income Tax is recorded when ____.
a company reports more depreciation (and less income tax) on its tax return than it reports on its income statement prepared under GAAP
Deferred Income Tax is recorded when _____.
a company reports more depreciation (and less income tax) on its tax return than it reports on its income statement prepared under GAAP
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 _____.
assets to be overstated net income to be overstated
Amortizing intangible assets affects the accounting equation by causing ____.
assets to decrease stockholders' equity to decrease
Which of these assets are not depreciated?
cash inventory land
EBITDA is a _____.
measure of earnings without the effects of depreciation, amortization, interest, and taxes
The write-down of equipment due to impairment will cause ___.
net income to decrease total assets to decrease
The write-down of equipment due to impairment will cause ____.
net income to decrease total assets to decrease
The primary objective of income taxes is to _____.
raise enough revenue to pay for expenditures and to encourage certain social and economic behaviors
The reason analysts use EBITDA is to ____.
remove the effects of depreciation and amortization estimates
The formula for fixed asset turnover ratio equals net _____ divided by average net fixed assets
sales
The formula for the fixed asset turnover ratio equals net ___ divided by average net fixed asset.
sales
The formula for the fixed asset turnover ratio equals net ____ divided by average net fixed assets.
sales
Another term for residual value is ___ value.
salvage
In the case of a basket purchase, the cost of the land and building is _____.
split among the assets purchased in proportion to the market value of the assets as a whole
Deferred Income Tax reports the amount of taxes _____.
that will eventually be paid
IFRS _____.
divides the cost of an asset among its significant component parts and depreciates the components separately over their useful lives
The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash is recorded with a ____.
$10,000 debit to Equipment and $8,000 credit to Notes Payable and $2,000 credit to Cash
On October 1, 2018, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. What is depreciation expense for the year ended December 31, 2018 using double-declining-balance?
$3,750
Shenandoah Skies build a new lodge for its ski report. Which of the following costs should be capitalized?
$7,000 in architect fees $70,000 cost of lumber to build the lodge $4,200 paid sales tax on the lumber to build the lodge
Bitter, Inc.'s income statement included $100,000 of revenues; $60,000 of cost of goods sold; $20,000 of other operating expenses (which includes $10,000 of depreciation); $1,000 of interest expense; and $6,000 of income tax expense. EBITDA equals $____.
30,000
X-it Company bought a new delivery truck. The manufacturer says that the truck should last for ten years and 120,000 miles. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. What is the useful life of the truck for depreciation purposes?
4 years and 50,000 miles.
Once the construction of a new building is completed it is moved out of the _____ and into the ____ account.
Construction in Progress; Building
_____ is the allocation of the cost of a long-lived, tangible asset over its useful life creating an expense on the income statement that is matched against the revenue generated by using the asset.
Depreciation
Which of the following costs associated with long-lived assets are expensed, not capitalized?
Immaterial repairs and maintenance Ordinary repairs and maintenance
On January 11, 2018, Ace Electronics bought a new cash register for $2,500. In calculating depreciation expense for the year ended December 31, 2018, Ace's accountant will assume that the cash register was purchased on ____.
January 1, 2018
A company bought land and a building for $128,000. The building has a useful life of 20 years. Why should the company split the $128,000 cost between the land and the building?
Land is not depreciated, while the building will be depreciated over its 20-year useful life.
Permission to use something in accordance with specific terms and conditions are called _____.
Licensing rights
On October 21, 2018, X-it Company bought a new delivery truck for $30,000. In calculating depreciation expense for the year ended December 31, 2018, X-it's accountant will assume that the truck was purchased on ____.
November 1, 2018
Which of these are intangible assets?
Patents Brand names Trademarks
Morris Lest, Inc. sold its delivery truck for $4000 cash. The truck's book value was $3,000. Which financial statements will be affected by this sale?
Statement of retained Earnings Statement of cash flows Balance sheet Income Statement
(Cost - residual value) x (1/useful life) is the formula for calculating the ____. ____ method of depreciation.
Straight-line
Ice Queen bought a new refrigerated delivery truck. The engine has a useful life of 3 years, the refrigeration unit has a useful life of 2 years, and the body of the truck has a useful life of 10 years. Under IFRS, how many assets should Ice Queen record?
Three
Which of these are natural resources that are depleted over time?
Timber and Natural gas wells
What is the effect of recording depreciation expense on the accounting equation?
Total assets decrease Total stockholders' equity decreases
Which of the following financial statement totals are reduced by the adjusting entry to record amortization?
Total assets on the balance sheet Net Income on the income statement Total stockholders' equity on the balance sheet
What is the effect of an impairment loss on the accounting equation?
Total decreases total assets It decreases total stockholders' equity
Land is not depreciated
True
Which of these depreciation methods are allowed by GAAP.
Units-of-production Declining-balance Straight-line
When does impairment occur?
When circumstances interfere with the ability to recover the value of the asset through future operations
Net assets is the term used to describe ____.
assets minus liabilities
Tangible assets are first recorded at ____.
all costs to acquire them and prepare them for use
Similar to depreciation, ___ is the expensing of intangible asset's usefulness used during the accounting period.
amortization
Assuming straight-line depreciation, a long-lived asset's useful life ____.
affects the amount of Depreciation Expense will cause Depreciation Expense to be higher if a shorter life is estimated
The cost of a new building that is currently under construction, not for sale but for a company's own use, is reported on the balance sheet _____.
as an asset, Construction In Progress
If a cost is capitalized it is recorded as an _________, not an expense
asset
Sony, Inc. spent $1,000,000 of development cost for commercially feasible prototypes. If Sony follows IFRS, then the $1,000,000 would ____.
be recorded as an asset
Sony, Inc. spent $1,000,000 of development cost for commercially feasible prototypes. If Sony follows IFRS, then the $1,000,000 would ______.
be recorded as an asset
The difference between the Equipment account its Accumulated Depreciation is called the _____ value.
book
Which of the following statements are true? At the end of the asset's useful life, its _____.
book (or carrying) value will equal the asset's residual value Accumulated Depreciation will equal the asset's depreciable cost
Depreciation Expense of a long-lived asset calculated using the straight-line depreciation method will be a ____ amount each year.
constant
The notes in the annual report, which follow the financial statements should be reviewed to determine whether a company that follows IFRS chose to record its tangible and intangible assets at historical ___ or ___ value
cost and fair
Potients, Inc. amortizes its patents over ten years. The entry to record the amortization of its patent may include a ____.
credit to Accumulated Amortization debit to Amortization Expense
The entry to record an equipment's impairment includes ____.
credit to Equipment debit to Impairment loss
The declining-balance depreciation method assigns ____ depreciation expense to the early years of asset ownership.
higher
The declining-balance depreciation method assigns _____ depreciation expense to the early years of asset ownership.
higher
The units-of-production depreciation method will result in ____ Depreciation Expense when the actual production is higher.
higher
The fixed asset turnover is used to evaluate?
how well management uses long-lived tangible assets to generate revenues
A productive asset ____.
is used to produce goods or services that will be sold to customers
A productive asset _____.
is used to produce goods or services that will be sold to customers
The Accumulated Depreciation balance will be ____.
large relative to the asset's cost in the latter years of the asset's life
Loss on impairment is a(n) ____.
operating expense that appears on the income statement
If a company wants to receive exclusive rights to a manufacturing process, it should purchase a ____.
patent
Land is not depreciated.
true
(Cost-residual value) x (actual production this period/estimated total production) is the formula for calculating ___ depreciation.
units-of production
Acme, Inc., bought land and a building for $150,000. Acme plans to use the building for 20 years and then sell it. What is the useful life of the land?
unlimited
Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $200. The cash register's depreciable cost equals ____.
$2,300
Acme, Inc.'s balance sheet shows equipment at a cost of $5,000,000. Accumulated Depreciation is $2,000,000. Acme's income statement shows Depreciation Expense of $200,000 for the year. Which of the following statements is true?
4% of the equipment's economic benefit was used up this year
Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should?
Capitalizing costs that should be expensed
Daily Kneads, Inc. spent $400,000 researching and developing new production processes. The entry to record the $400,000 expenditure will cause _____.
Stockholders' equity to decrease assets to decrease
If a company wants exclusive rights to artistic material, it should purchase ____.
a copyright
Quiche & Tell, Inc. has discovered that its goodwill has been impaired because the secret recipe it received when it purchased its competitor is no longer a secret. Recording this impairment will _____.
cause a decrease in stockholders' equity
Morris Lest, Inc. sold its truck and received less cash than the truck's book value. The net effect of this sale on the accounting equation is a(n) ____.
decrease to assets decrease to stockholders' equity
On-a-Roll, inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) _____.
decrease to assets on the balance sheet decrease to net income on the income statement
Ordinary Repairs and Maintenance costs should be ____.
expensed as incurred
Acme, Inc. bought land and a factory building for $80,000. The land was appraised at $25,000 and the building at $75,000. Using the basket purchase allocation, Acme would record the ____.
land at $20,000 and building at $60,000
Acme, Inc. bought land and a factory building for $80,000. The land was appraised at $25,000 and the building at $75,000. Using the basket purchase allocation, Acme would record the _____.
land at $20,000 and the building at $60,000
An asset's useful life ____.
may be expressed in terms of time or units of capacity
On January 1, 2018, We-Haul sold its truck for $40,000. The truck's cost was $110,000 and its Accumulated Depreciation was $60,000. The effect the sale of the truck on the accounting equation includes a ____.
$10,000 decrease to stockholders' equity $10,000 decrease to total assets
Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance?
$100 oil change on van $900 for cleaning the van during the year
X Circle Company purchased a computer system Black Box, Inc. with a list price of $100,000 plus 5% sales tax. The cost to deliver and install the computer was $10,000. The debit to Equipment equals
$115,000
Shenanodoah Skies built a new lodge for its ski resort. Which of the following costs should be capitalized?
$7,000 in architect fees $70,000 cost of lumber to build the lodge $4,200 paid in sales tax on the lumber to build the lodge
The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be _____.
$80,000
On June 22, 2018, Ace Electronics sold an office building, which was not yet fully depreciated. How many months of depreciation expense should Ace record on the building for 2018?
6
The formula for calculating double-declining-balance depreciation equals (Cost-____)x 2/useful life)
Accumulated Depreciation
Which of the following statements are true?
Accumulated Depreciation will equal the asset's depreciable cost Book (or carrying) value will equal the asset's residual value
Recording an asset impairment requires netting the ____.
Asset with its Accumulated Depreciation and then reducing the asset's carrying value to its lower fair market value.
Potients, Inc. amortizes its patents over ten years. The entry to record the amortization of its patents may include a ______.
Debit to Amortization Expense Credit to Accumulated Amortization
Which depreciation method does not include the residual value in its formula and thus must be reviewed to be sure the asset's net book value does not fall below the residual value?
Declining-balance
The adjusting entry to record depreciation debits ____ and credits ____.
Depreciation Expense and Accumulated Depreciation
What effect will the units-of-production depreciation method have when the actual production is higher than in other periods?
Depreciation Expense will be higher
Why is the straight-line method of depreciation called "straight-line"?
Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.
Depreciation allocates the cost of a long-lived asset to ___.
Depreciation expense over the periods the asset is used to generate revenue
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
Straight-line Units-of-production depreciation Declining-balance depreciation
Does the best job of matching the expense with the related revenue when an asset is used evenly over its useful life Is the best method to use when the amount of an asset's use varies significantly from one accounting period to another Is the best method to use when an asset is productive in its earliest years but quickly loses its usefulness
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?
Double-declining-balance Straight-line Units-of-production
Company A and Company B both purchased a $100,000 machine with an estimated useful life of 10 years. Company A uses straight-line and Company B uses double-declining balance. At the end of the 3rd year, both sell the machines for the exact same amount. Since different depreciation methods were used, the entry to record the disposal will result in different amounts of _____.
Gains or losses debits to the Accumulated Depreciation accounts
Which of the following statements are true?
Impairment loss on an asset arises from a precipitous decline in the current value of the asset Depreciation of a truck equals the decline in the estimated usefulness of the truck
The write-down of goodwill for impairment will affect which of the following financial statements?
Income Statement and Balance sheet
The expenditure incurred for changing the oil in the company's fleet of trucks is debited to ____.
Repairs and Maintenance Expense
If an intangible asset is being self-constructed or internally developed its costs are generally debited to ______ and ____ expense.
Research and Development
Why might a company dispose of a long-lived intangible asset?
The asset was seriously damaged. The company doesn't need the asset anymore. The asset has reached the end of its useful life. The asset is replaced with a newer, more efficient model.
Why might a company dispose of a long-lived tangible asset?
The company doesn't need the asset anymore. The asset has reached the end of its useful life. The asset was seriously damaged. The asset is replaced with a newer, more efficient model.
Land improvements reported on a company's balance sheet might include _____.
The fence around a factory parking lot sidewalks outside the corporate headquarters trees planted to provide shade for the customer parking lot
An asset's residual value is _____.
The same as its salvage value The estimated amount it can be sold for at the end of its useful life
An asset's residual value is ____.
The same as its salvage value The estimated amount it can be sold for at the end of its useful life
The entry to record annual straight-line depreciation will increase a company's ____ and ____.
Total expense and Accumulated Depreciation
Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new $315,000 industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. What is the overall effect of this transaction on the accounting equation?
Total liabilities increase $315,000 Machinery, an asset, increases $320,750 Total assets increase $315,000
X-it Company signed a $500,000, 5-year note payable to buy a new machine. The company paid $2,000 cash for transporting and $1,000 cash for installing the machine. What is the effect of this transaction on the accounting equation?
Total liabilities increase $500,000 Machinery, an asset, increases $503,000 Total assets increase $500,000
Similar to depreciation, _____ is the expensing of intangible asset's usefulness used during the accounting period.
amortization
If a cost is capitalized, it is recorded as a(n) ____, not an expense.
asset
If a cost is capitalized, it is recorded as a(n) _____; not an expense.
asset
Extraordinary repairs to long-lived assets are ____ because they are large expenditures and increase the useful life of the asset.
capitalized
Which of these assets are depreciated?
cash inventory land
When recording losses on the sale of fixed assets, the account, Loss on Disposal, is increased with a ____.
debit
The journal entry to record the amortization of an intangible asset includes a ___.
debit to Amortization Expense
Lox, Stock and Bagel, Inc. buys Cream Cheesery, Inc. for $1,000,000 cash. Cream Cheesery's net assets are valued at $800,000 at the time of the sale. Lox, Stock, Bagel, Inc. should record a(n) _____.
decrease to Cash of $1,000,000 increase to Goodwill of $200,000
The accountant recorded the adjusting entry for the depreciation of its long-lived assets with a debit to Depreciation Expense and a credit to Accumulated Depreciation. As a result of this entry, assets and stockholders' equity will be ____.
decreased
Matching part of the cost of a long-lived asset with the revenues generated by the asset is ____.
depreciation
Straight-line, units-of-production, and declining-balance are commonly used ____ methods.
depreciation
Another term for long-lived tangible assets is ____ assets and is found on the financial statement called the ____.
fixed and balance sheet
The fixed asset turnover ratio is used to evaluate ____.
how well management uses long-lived tangible assets to generate revenues
A company may make an exception to the accounting rules and not capitalize a long-lived asset if it's cost is ______
immaterial
The estimated useful lives utilized by a company may be found _____.
in the notes
Accelerated methods of depreciation ____.
include double-declining balance methods result in high depreciation expense in the earlier years of the life of the asset result in lower book values in the earlier years of the life of the asset
Anudu, Inc. sold equipment and received more cash than the equipment's book value. The effect of this sale on the accounting equation includes a(n)____.
increase to stockholders' equity increase to assets
Research and development costs are _____.
incurred to construct or internally develop intangible resources not capitalized because of uncertainty expensed when incurred
There are two major types of long-lived assets: tangible and ____.
intangible
Intangible assets are ___.
long-lived assets with no physical substance
Intangible assets are ____.
long-lived assets with no physical substance
Fixed assets are ____ and are found on the ____.
long-lived tangible assets; balance sheet
Gains on the disposal of fixed assets are recorded with a credit and occur on when the book value is __________ than the sales price.
lower
Gains on the disposal of fixed assets are recorded with a credit and occur when the book value is ____ than the sales price.
lower
A higher residual value will result in a(n) _____ depreciation expense per year and a(n) _____ net income.
lower and higher
Assuming straight-line depreciation is used, a higher estimated useful life will result in a _____ depreciation expense per year and a _____ net income
lower and higher
If a company wants to receive exclusive rights to a manufacturing process, it should purchase a _____.
patent
An intangible asset may be recorded when a company ___.
pays more than the net assets of the company purchased purchases a trademark
The primary objective of income taxes is to ____.
raise enough revenue to pay for expenditures and to encourage certain social and economic behaviors
The expenditure incurred for changing the oil in the company's fleet of trucks is debited to _____.
repairs and maintenance expense
The straight-line depreciation method ____.
reports an equal amount of depreciation expense each year
The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the ____ value.
residual
At the end of a depreciation asset's useful life, its book value equals its ____.
residual value
Another term for residual value is _____ value.
salvage