Chapter 6

Which of the following statements regarding franchises are true? - Franchises may be issued by private businesses. - Brand labels are trademarks that cannot be franchised. - Franchises may be issued by the federal government. - Franchises have a 15 year legal life as defined by federal law.

Franchises may be issued by private businesses. Franchises may be issued by the federal government.

Which of the following is not a tangible asset? Land Truck Pepsi trademark Oil reserves

Pepsi trademark

Regardless of whether a company uses straight-line, double-declining-balance or units-of-production depreciation, the total amount of depreciation expense recognized over the useful life of an asset is the same. True or False

True

Two companies that experience the exact same accounting events could report different amounts of depreciation expense. True or false

True Managers of different companies may have honest disagreements over factors such as the useful life or salvage value of an asset. Since these factors affect the amount of depreciation expense, reporting differences are common occurrences.

Because double-declining balance depreciation recognizes depreciation expense faster than straight-line, it is called a(n) ____ method.

accelerated

The term used when recognizing expense for intangible assets with identifiable useful lives is _____.

amortization

Intangible assets with identifiable useful lives are ______.

amortized over the shorter of their useful or legal lives shown in the asset section of the balance sheet

Intangible assets may have ______. - an identifiable useful life - an indefinite useful life - visible signs of deterioration - a legal useful life

an identifiable useful life an indefinite useful life a legal useful life

When a company incurs costs for minor repairs to keep an asset in good working order, the costs ______.

are expensed in the period incurred

Which of the following is not a trademark?

Recipe for Kentucky Fried Chicken

Writings, musical compositions, works of art, and other intellectual property for the exclusive benefit of the creator or persons assigned the right by the creator are protected by a ______.

copyright

Intangible assets with an *identifiable useful* life include ______. trademarks goodwill copyrights patents

copyrights patents

The salvage value of an asset is the ______.

expected market value of a fully depreciated asset

Amortizing intangible assets with identifiable useful lives affects the ______. - statement of cash flows - income statement - balance sheet

income statement balance sheet

Recognizing an impairment loss affects the ______. income statement balance sheet statement of cash flows

income statement balance sheet

A trademark has a(n) ______ legal life.

indefinite

The depreciable cost of an asset is the cost of the asset ______.

minus the salvage value

The cost of a building includes ______. maintenance purchase price renovation costs fire Insurance realtor commissions

purchase price renovation costs realtor commissions

The cost of a long-term asset includes ______.

realtor's and attorney fee's sales tax installation costs purchase price

Assets that have a physical presence that enables them to be seen and touched are called _____ assets.

tangible

Kate Company submitted an offer to purchase a plot of land that was listed at $120,000. Kate's offer was 10% below the list price and was accepted. Kate paid $10,000 to remove an old structure in order to make the land ready for use as a building site. Title and attorney fees amounted to $3,000. Annual property taxes amounted to $5,000 per year. Based on this information, the cost of the land as shown on the balance sheet equals ______.

$121,000 Reason: $120,000 List price × 90% = $108,000 purchase price + $10,000 structure removal + $3,000 title and attorney fees = $121,000.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. At the start of Year 2, BLC determined the limo will only last for a total of 3 years. Assuming the salvage value did not change, the depreciation expense recorded in Year 2 will be $_____.

$15,000

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1 at a cost of $48,000. The limo had a $8,000 salvage value. BLC expected to drive the limo for 100,000 miles before disposing of it. Actual miles driven per year were as follows: 30,000 in Year 1, 40,000 in Year 2, 20,000 in Year 3, and 25,000 in Year 4. Based on this information, depreciation expense for Year 2 was ______.

$16,000 0.4 x 40,000 = 16,000

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, depreciation expense for Year 2 is ______.

$10,000 ($48,000 cost - $8,000) ÷ 4 = $10,000 per year.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses straight-line depreciation, depreciation expense for Year 1 is $_____.

$10,000 Explanation $48,000 - $8,000 = $40,000 $40,000 / 4 = $10,000 *If it says year 2* you would multiply $10,000 x 2 = $20,000 and so on...

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated salvage value from $8,000 to $4,000. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be ______.

$12,000 $28,000 ($48,000 cost - $20,000 accumulated depreciation). The remaining useful life is 2 years. Depreciation expense for the remaining 2 years is: ($28,000 book value - $4,000 salvage value) ÷ 2 = $12,000.

The Black Limo Company (BLC) purchased a limo on January 1, of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assume BLC uses straight-line depreciation. At the beginning of Year 3, the limo is sold for $30,000. As a result of the asset disposal, BLC will recognize a ______.

$2,000 gain $48,000 cost - $20,000 accumulated depreciation = $28,000 book value; $30,000 sales price - $28,000 book value = $2,000 gain.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. BLC expected to drive the limo for 100,000 miles before disposing of it. The limo had a $8,000 salvage value. Actual miles driven per year turns out to be 30,000 miles in Year 1, 40,000 miles in Year 2, 20,000 miles in Year 3, and 25,000 miles in Year 4. Based on this information, at the end of Year 2, the accumulated depreciation shown the balance sheet was

$28,000 Explanation Year 1 ($48,000 - $8,000) / 100,000miles = 0.4 0.4 x 30,000 = 12,000 Year 2 ($48,000 - $8,000) / 100,000 miles = 0.4 0.4 x 40,000 = $16,000 < Year 2 Combine.... $12,000 + 16,000 = $28,000

Jason Company purchased a newly granted patent for $60,000 cash. The patent is expected to have a useful life of 25 years, a legal life of 20 years and a zero salvage value. Based on this information, the annual amortization charge is ______.

$3,000 $60,000 ÷ 20 years = $3,000 per year.

Chen Company paid $80,000 cash and assumed $50,000 of liabilities to acquire a restaurant that had assets with an appraised market value of $90,000. In Year 3, the military base located close to the restaurant was closed, leading to a significant and permanent decline in the revenue generating capacity. After the closing of the base, the fair value of the goodwill was deemed to be $10,000. As a result, Chen will recognize an impairment loss of ______.

$30,000 Goodwill purchased is $40,000 ($90,000 market value of assets - $80,000 purchase price - $50,000 liability assumption); Impairment loss is $30,000 ($40,000 cost of goodwill -$10,000 fair value of goodwill).

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assume BLC uses straight-line depreciation. At the beginning of Year 3, the limo is sold for $30,000 cash. As a result of the asset disposal BLC will recognize a ______.

$30,000 cash inflow from investing activities.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1 at a cost of $48,000. The limo had a $8,000 salvage value. BLC expected to drive the limo for 100,000 miles before disposing of it. Actual miles driven per year were as follows: 30,000 in Year 1, 40,000 in Year 2, 20,000 in Year 3, and 25,000 in Year 4. Based on this information, depreciation expense for Year 4 was ______.

$4,000 ($48,000 cost - $8,000 salvage) ÷ 100,000 miles = $0.40 per mile; At the end of Year 3, accumulated depreciation is 90,000 miles × $0.40 or $36,000, so only $4,000 of expense is recorded for Year 4.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated useful life from 4 years to 7 years. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be ______.

$4,000 At the beginning of Year 3, the book value of the limo is $28,000 ($48,000 cost - $20,000 accumulated depreciation). The remaining useful life is 5 years (2 years from the original estimate + 3 additional years due to change in estimate). Revised depreciation expense is: ($28,000 book value - $8,000 salvage value) ÷ 5 years = $4,000.

Deep Tunnel Coal paid $2,000,000 cash to purchase a mine with an estimated 8,000,000 tons of coal. Deep tunnel extracted 2,000,000 tons of coal in Year 1 and 3,000,000 tons in Year 2. Based on this information, the amount of depletion expense shown on the Year 2 Income Statement is ______.

$750,000 ($2,000,000 cost ÷ $8,000,000 tons) = $0.25 per ton; 3,000,000 tons × $0.25 = $750,000

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. At the start of Year 2, BLC determined the salvage value should be changed to $11,000. Based on this, the depreciation expense recorded in Year 2 will be $_____.

$9,000

Which of the following statements regarding copyrights are true? - The legal life of a copyright extends for the life of the creator plus 50 years. - Copyrights are granted by the federal government. - A copyright is usually expensed early because of uncertain royalties. - The costs associated with writing a book are normally capitalized in a Copyright account.

Copyrights are granted by the federal government. A copyright is usually expensed early because of uncertain royalties.

Which of the following statements are true? - All companies must assume the same useful life when computing depreciation expense of a specific type of asset. - Different companies may use different depreciation methods for identical assets. - One designated salvage value must be used for identical assets. - Companies are required to disclose not only the amount of depreciation, but also the methods they use to calculate it.

Different companies may use different depreciation methods for identical assets. Companies are required to disclose not only the amount of depreciation, but also the methods they use to calculate it.

True Stories Company sold the rights to a documentary film. They are expecting significant revenue in Year 1. The revenue stream is expected to decrease steadily until it reaches zero in Year 5. Based on this Which depreciation method should be used to most closely match the expense to the revenue stream the asset produces?

Double-declining-balance

Which depreciation methods always recognizes more depreciation in the early years of an asset's useful life and less depreciation in the later years of its useful life?

Double-declining-balance

Which of the following statements regarding patents are true? - Research and development costs incurred to develop patentable products are usually capitalized in the patent account. - The legal life of a patent is 20 years. - Patent rights are normally controlled by state government authorities. - The useful life of a patent may be less than its legal life.

The legal life of a patent is 20 years. The useful life of a patent may be less than its legal life.

Costs related to long-term assets are expensed in the period incurred when they ______ - improve the quality of the asset - are for routine maintenance - are for minor repairs - extend the asset's useful life

are for routine maintenance are for minor repairs

Goodwill appears on the ______.

balance sheet

The recognition of depletion affects the ______.

balance sheet income statement

The gain or loss on the disposal of an asset is equal to the sales price minus ______.

book value

Substantial amounts spent to improve the quality or extend the life of an asset are called _____ expenditures.

capital

The cost of equipment includes ______. - fine for work safety violations during installation - cash discount from the list price - Purchase price - ordinary installation cost - damage caused while unloading

cash discount from the list price Purchase price ordinary installation cost

When an intangible asset with an identifiable useful life is amortized, ______.

cash flow is not affected liabilities are not affected net income decreases

If a company deems it appropriate to change the estimated useful life or salvage value of a long-term asset, changes will be made to ______, - current period financial statements - prior period financial statements - future financial statements - only the statement footnotes

current period financial statements future financial statements

The term used to recognize expense for property, plant, and equipment is ______.

depreciation

When a company expects heavy asset use and high revenues in the early years of an asset's life and lower revenues and use in the later years, the best depreciation method to smooth out the amount of net income reported each year is ______.

double-declining balance

Property, plant and equipment is sometimes called plant assets or _____ assets.

fixed

Exclusive rights to sell products or perform services in certain geographic areas is granted by a ______.

franchise

The value attributable to favorable factors such as reputation, location, and superior products is called _____.

goodwill

Costs related to long-term assets are capitalized when they ______

improve the quality of the asset extend the asset's useful life

When a company changes the estimated useful life or salvage value of an asset, revising prior period reports is ______.

not required

Exclusive legal right to produce and sell a product that has one or more unique features is granted by a ______.

patent

At the end of the useful life of an asset, ______.

total accumulated depreciation will be the same regardless of the depreciation method used

A name or symbol that identifies a company or a product is a ______.

trademark