Accounting 101AF Chapter 9

Which of the following will be classified as a fixed asset for a movie theater? a. A popcorn machine b. Trademark c. The latest movie d. Land for sale

a. A popcorn machine

An asset with a net book value of $1,225 was discarded, having no market value. How much will be recorded as a loss or gain on disposal? a. Loss of $1,225 b. Gain of $1,225 c. No loss or gain d. Cannot be determined with the information given.

a. Loss of $1,225

An asset with a book value of $4,725 was discarded, having no market value. How much will be recorded as a loss or gain on disposal? a. Loss of $4,725 b. Gain of $4,725 c. No loss or gain d. Cannot be determined. Feedback

a. Loss of $4,725

Depletion can be compared to which of the following depreciation methods? a. Units-of-activity b. Straight-line c. Double-declining-balance d. None of these choices are correct.

a. Units-of-activity

All of the following assets will be included as intangible assets on the balance sheet except a. buildings. b. goodwill. c. patents. d. copyrights.

a. buildings.

The expensing of a natural resource is called a. depletion. b. replenishing. c. amortization. d. depreciation.

a. depletion.

Intangible assets are reported on the balance sheet a. immediately after the property, plant, and equipment. b. before property, plant, and equipment. c. immediately after the current assets. d. before the current assets.

a. immediately after the property, plant, and equipment.

Coal Miner Co. acquired coal rights for $100,000,000. It is estimated that there are 2,500,000 tons of the resource; during the current year, 500,000 tons were mined and sold. What is the amount of depletion for the current year? a. $2,000,000 b. $20,000,000 c. $2,500,000 d. $10,000,000

b. $20,000,000 $100,000,000/2,500,000 tons = $40 per ton; $40 × 500,000 tons = $20,000,000

The depletion rate is calculated as a. Cost of Resource/Estimated Useful Life of Resource. b. Cost of Resource/Estimated Total Units of Resource. c. Estimated Useful Life of Resource/Cost of Resource. d. Estimated Total Units of Resource/Cost of Resource.

b. Cost of Resource/Estimated Total Units of Resource.

Equipment was purchased at a cost of $52,000. It had an estimated useful life of seven years and a residual value of $3,000. Assuming the equipment was sold at the end of Year 6 for $14,000, which of the following will be included in the journal entry? (Assume the straight-line depreciation method.) a. Credit to Loss on Sale of Asset for $4,000 b. Debit to Accumulated Depreciation for $42,000 c. Debit to Gain on Sale of Asset for $4,000 d. Credit to Cash for $14,000

b. Debit to Accumulated Depreciation for $42,000 Correct. ($52,000 − $3,000)/7 = $7,000; $7,000 × 6 = $42,000; $52,000 − $42,000 = $10,000;$14,000 − $10,000 = $4,000 gain.

Which of the following is not classified as an intangible asset? a. Goodwill b. Investment c. Patent d. Trademark Feedback

b. Investment

Which of the following fixed assets is not depreciated? a. Equipment b. Land c. Building d. None of these choices are correct.

b. Land

On December 31, Slugger Batting Cages Company decides to trade in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to give a trade-in allowance of $12,000. The initial cost of the old equipment was $225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction? a. Loss of $12,000 b. Loss of $18,000 c. Gain of $12,000 d. No loss or gain

b. Loss of $18,000 The book value of the equipment is equal to $30,000 ($225,000 original cost less the accumulated depreciation of $195,000). The trade-in allowance of $12,000 is subtracted from the $30,000 book value resulting in an $18,000 loss.

Which of the following is not one of the most common depreciation methods? a. Units-of-activity method b. Sum-of-the-years-digits method c. Straight-line method d. Double-declining-balance method

b. Sum-of-the-years-digits method

Depletion can be compared to which of the following depreciation methods? a. Double-declining-balance b. Units-of-activity c. Straight-line d. None of these choices are correct.

b. Units-of-activity

An increase in the fixed asset turnover ratio from 2.0 to 2.7 indicates a. an unfavorable change in the efficiency of using fixed assets to pay down debt. b. a favorable change in the efficiency of using fixed assets to generate sales. c. an unfavorable change in the efficiency of using fixed assets to generate sales. d. None of these choices are correct.

b. a favorable change in the efficiency of using fixed assets to generate sales.

The best definition of a trademark is a. the exclusive right to publish and sell literary, artistic, or musical compositions. b. a name, term, or symbol used to identify a business or its product. c. the exclusive right to produce and sell goods with one or more unique features. d. an asset created from favorable factors such as location, product quality, reputation, and managerial skills.

b. a name, term, or symbol used to identify a business or its product.

If the asset is long-lived but not used in the normal operations of the business, it will be classified as a(n) a. intangible asset. b. investment. c. expense. d. fixed asset.

b. investment.

In a lease contract, the party to whom the rights to use the asset are granted is called the a. payee. b. lessee. c. grantee. d. lessor.

b. lessee.

Cardinal Industries purchased a generator that cost $11,000. It has an estimated life of five years and a residual value of $1,000. It is estimated that it will be good for 5,000 hours. Compute the depreciation expense for the second year using the double-declining-balance method of depreciation. a. $4,400 b. $1,000 c. $2,640 d. $2,000

c. $2,640 (100%/5 years) × 2 = 40%. Depreciation for Year 1 = $11,000 × 40% = $4,400. Depreciation for Year 2 = ($11,000 − $4,400) × 40% = $2,640.

Shale Miner Co. acquired mineral rights for $60,000,000. It is estimated that there are 80,000 tons of the resource; during the current year, 10,750 tons were mined and sold. What is the amount of depletion for the current year? a. $8,000,000 b. $60,000,000 c. $8,062,500 d. $100,750

c. $8,062,500 The depletion rate is calculated as the cost of the resource divided by the estimated total units of the resource. This rate is then multiplied by the quantity extracted during the period.

A copy machine was purchased for $35,000. It is estimated that the machine will have a useful life of four years and a residual value of $3,000. It is estimated that the machine will make 2,000,000 copies. Using the units-of-activity method to depreciate the copy machine, how much will be depreciated if during the first year 550,000 copies were made? a. $32,000 b. $8,000 c. $8,800 d. $8,750

c. $8,800

Equipment was purchased at a cost of $70,000. It had an estimated useful life of eight years and a residual value of $6,000. Assuming the equipment was sold at the end of Year 6 for $14,000, determine the gain or loss on the sale of the equipment. (Assume the straight-line depreciation method.) a. A loss of $14,000 b. A gain of $8,000 c. A loss of $8,000 d. A gain of $14,000

c. A loss of $8,000 ($70,000 − $6,000)/8 = $8,000; $8,000 × 6 = $48,000; $70,000 − $48,000 = $22,000;$22,000 − $14,000 = $8,000 loss

The denominator in the fixed asset turnover ratio is the a. Average Net Realizable Value of Fixed Assets. b. Dollar Amount of Fixed Assets at the End of the Year. c. Average Book Value of Fixed Assets. d. Dollar Amount of Fixed Assets at the Beginning of the Year.

c. Average Book Value of Fixed Assets.

The calculation of depletion expense is a. Quantity Extracted × Estimated Useful Life. b. Depletion Rate × Estimated Useful Life. c. Depletion Rate × Quantity Extracted. d. None of these choices are correct.

c. Depletion Rate × Quantity Extracted.

In regard to discarding fixed assets, which of the following is not true? a. Recorded depreciation should be brought up to date before removing the asset from the accounting records. b. If a fixed asset is no longer used and has no residual value, it is discarded. c. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. d. If a fixed asset is no longer used and has no residual value, it should be written off.

c. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold.

The numerator in the fixed asset turnover ratio is a. Ending Book Value of Fixed Assets. b. Average Book Value of Fixed Assets. c. Sales. d. Net Cash Flows from Operating Activities.

c. Sales.

How are tangible and intangible assets normally presented on the balance sheet? a. Neither are presented on the balance sheet. b. They are listed separately as tangible assets and intangible assets. c. They are listed separately as property, plant, and equipment and intangible assets. d. Both are presented as property, plant, and equipment.

c. They are listed separately as property, plant, and equipment and intangible assets.

A decrease in the fixed asset turnover ratio from 3.0 to 2.2 indicates a. an unfavorable change in the efficiency of using fixed assets to pay down debt. b. a favorable change in the efficiency of using fixed assets to generate sales. c. an unfavorable change in the efficiency of using fixed assets to generate sales. d. None of these choices are correct.

c. an unfavorable change in the efficiency of using fixed assets to generate sales.

The estimated value of an asset at the end of its useful life is called all of the following except a. salvage value. b. scrap value. c. book value. d. residual value.

c. book value.

The journal entry to record depletion includes a a. credit to Accumulated Depreciation. b. credit to Depletion Expense. c. debit to Depletion Expense. d. debit to Accumulated Depletion.

c. debit to Depletion Expense.

The best definition of a patent is a. the exclusive right to publish and sell literary, artistic, or musical compositions. b. a name, term, or symbol used to identify a business or its product. c. the exclusive right to produce and sell goods with one or more unique features. d. an asset created from favorable factors such as location, product quality, reputation, and managerial skills.

c. the exclusive right to produce and sell goods with one or more unique features. d.

The more efficiently a company is using its assets a. the lower the fixed asset turnover. b. efficiency does not affect the fixed asset turnover. c. the higher the fixed asset turnover. d. None of these choices are correct.

c. the higher the fixed asset turnover.

All of the following will be found under the caption of "property, plant, and equipment" in the balance sheet except a. land improvements. b. computer equipment. c. trademark. d. parking lot costs.

c. trademark.

A fixed asset should be removed from the accounts except a. when it is sold. b. when it is given away. c. when it is fully depreciated. d. when it is discarded.

c. when it is fully depreciated.

Financial statement data for the year ending December 31 for Sharp Company are as follows: Sales $787,500 Fixed assets: Beginning of year 200,000 End of year 250,000 Determine the fixed asset turnover ratio for the year. a. 3.2 b. 3.9 c. 0.28 d. 3.5

d. 3.5

All of the following are factors used in determining depreciation expense with the straight-line method except a. the asset's estimated residual value. b. the asset's expected useful life. c. the asset's initial cost. d. None of these choices are correct.

d. None of these choices are correct.

The expensing of intangible assets is called a. depletion. b. depreciation. c. replenishing. d. amortization.

d. amortization.

A gain or loss on the exchange of similar assets will be recorded if the transaction has a. a trade-in allowance. b. boot. c. a high value. d. commercial substance.

d. commercial substance.

The best definition of a copyright is a. a name, term, or symbol used to identify a business or its product. b. an asset created from favorable factors such as location, product quality, reputation, and managerial skills. c. the exclusive right to produce and sell goods with one or more unique features. d. the exclusive right to publish and sell literary, artistic, or musical compositions.

d. the exclusive right to publish and sell literary, artistic, or musical compositions. Feedback