chapter 8 A-304

On January 1, Year 1, 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. Depreciation expense for the third year of use using double-declining-balance equals Blank______. Multiple choice question. $3,750 $6,000 $1,500

$1,500

Which of the following result in an increase to intangible assets? (Check all that apply,) Multiple select question. $10,000 was spent to purchase a patent. A company increased the number of clients on its customer list. A company purchased another company for $10,000 more than its net assets. $10,000 was spent on research and development. A company purchased a franchise for $100,000.

$10,000 was spent to purchase a patent. A company purchased another company for $10,000 more than its net assets. A company purchased a franchise for $100,000. Why not research and development? Reason: are not capitalized as intangible assets due to uncertainty as to future benefits - costs are recorded and expensed on the IS

The Mane Event, Inc. sold its barber chair for $500. The chair's original cost was $1,200, and its accumulated depreciation was $800. When recording the sale, Mane Event should Blank______. (Check all that apply.) Multiple select question. credit Cash for $500 debit Accumulated Depreciation for $800 credit Accumulated Depreciation for $800 credit Gain of Sale of Assets for $100 debit Cash for $500 credit Furniture for $400 credit Furniture for $1,200

debit Accumulated Depreciation for $800 credit Gain of Sale of Assets for $100 debit Cash for $500 credit Furniture for $1,200

Depreciation and impairment are different in that only Blank______. Multiple choice question. depreciation results in a decrease in net income impairment results in a decrease to total assets impairment represents the decline in the current value of the related asset

impairment represents the decline in the current value of the related asset

The total cost of the purchase of undeveloped land Blank______. Multiple choice question. includes the cost plus all other incidental costs such as title fees includes the cost of the land; all other incidental costs are expensed is expensed because it is undeveloped and thus not able to generate future revenue

includes the cost plus all other incidental costs such as title fees

The total cost of the purchase of undeveloped land Blank______. Multiple choice question. is expensed because it is undeveloped and thus not able to generate future revenue includes the cost of the land; all other incidental costs are expensed includes the cost plus all other incidental costs such as title fees

includes the cost plus all other incidental costs such as title fees

Gains on the sale of fixed assets are recorded with a credit and occur when the book value is ' ' than the sales price.

less

Assuming straight-line depreciation is used, a higher estimated useful life will result in a(n) " " depreciation expense per year and a(n) " " net income. (Enter one word per blank.)

lower higher

A company should depreciate a long-lived tangible asset to Blank______. Multiple choice question. record the decrease in the market value of the asset as it gets older decrease the total value of its assets, so that it can justify buying new ones report less income and pay less income tax 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

Which of the following costs incurred due to the construction of a building would be capitalized as part of the cost of the building? (Select all that apply.) Multiple select question. cost of the land materials interest on construction loan repairs to the building after it is in use labor

materials interest on construction loan labor

If a company were to purchase inexpensive wastebaskets that are expected to be used for 3 years, the company Blank______. Multiple choice question. may choose to expense the wastebaskets in the period purchased must classify the wastebaskets as current assets on the balance sheet must classify the wastebaskets as noncurrent assets on the balance sheet must capitalize and depreciate the wastebaskets over the 3 years

may choose to expense the wastebaskets in the period purchased I think because certain inexpensive assets are treated differently

The amount recorded for the purchase of long-lived tangible assets is the Blank______. (Check all that apply.) Multiple select question. invoice price less shipping costs net cash equivalent amount paid or to be paid acquisition cost cash equivalent price

net cash equivalent amount paid or to be paid acquisition cost cash equivalent price

If a company records an expense as a capital expenditure, then Blank______. Multiple choice question. the amount was immaterial taxes will be understated net income will be overstated the amount was material

net income will be overstated

The costs of a new building that is currently under construction, not for sale but for a company's own use, are Blank______. Multiple choice question. reported on the balance sheet as a noncurrent asset reported on the income statement as Depreciation Expense reported on the balance sheet as a liability, until construction is complete not reported on any financial statement since it is not yet completed

reported on the balance sheet as a noncurrent asset

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 Blank______. Multiple choice question. $200 $2,500 $2,300 $575

$2,300 depreciable cost is different then annual depreciation cost

On January 1, 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, equals Blank______. Multiple choice question. $31,000 $31,500 $283,500 $284,000

$31,000

Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. The journal entry to record this transaction will include a Blank______. (Check all that apply.) Multiple select question. $5,000 debit to Freight-in $320,750 debit to Machinery $315,000 credit to Note Payable $5,750 credit to Cash $750 debit to Installation Expense $315,000 debit to Machinery

$320,750 debit to Machinery $315,000 credit to Note Payable $5,750 credit to Cash

Shenandoah Skies built a new lodge for its ski resort. Which of the following costs should be capitalized? (Check all that apply.) Multiple select question. $1,500 paid for a party to celebrate the grand opening $70,000 cost of lumber to build the lodge $4,200 paid in sales tax on the lumber to build the lodge $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 $7,000 in architect fees

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) Blank______. (Check all that apply.) Multiple select question. $8,000 debit to Impairment Loss $22,000 debit to Impairment Loss $8,000 debit to Depreciation Expense $8,000 credit to Truck $22,000 credit to Truck

$8,000 debit to Impairment Loss $8,000 credit to Truck I don't understand this one

On January 1, Year 1, 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. Depreciation expense for the fourth year of use using double-declining-balance equals Blank______. Multiple choice question. $1,500 $0 $6,000 $3,750

0 HOW?

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) Blank______. (Check all that apply.) Multiple select question. $8,000 debit to Impairment Loss $22,000 credit to Truck $8,000 debit to Depreciation Expense $8,000 credit to Truck $22,000 debit to Impairment Loss

$8,000 debit to Impairment Loss $8,000 credit to Truck how do you have 22000 worth of accumulated depreciation

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. The equipment has $0 salvage value. Which of the following statements is a valid assumption? Multiple choice question. There must be a mistake because depreciation expense is less than accumulated depreciation. 4% of the equipment's economic benefits have been used up so far. 40% of the equipment's economic benefits have been used up so far. At this rate, the equipment will never be fully depreciated.

40% of the equipment's economic benefits have been used up so far.

On January 1, 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. If Ace uses straight-line depreciation, depreciation expense for the year ended December 31, equals Blank______. Multiple choice question. $1,875 $1,925 $575 $625 $2,300 Correct Answer $575

575

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

Asset

he write-down of goodwill for impairment will affect which of the following financial statements? (Check all that apply.) Multiple select question. Balance sheet No financial statements are affected because goodwill is "amortized" and not "written down" in the event of impairment. Income statement No financial statements are affected by impairment of goodwill because goodwill is expensed over its useful life as are all intangible assets.

Balance sheet Income statement

Why would public companies use two sets of accounting records that have different net income? Multiple choice question. They would not use two sets of accounting records because it is illegal. Because GAAP rules differ from the Internal Revenue code, two sets may be needed. Because one set is based on fair market values and is for the owners and another is based on GAAP and is for the external users.

Because GAAP rules differ from the Internal Revenue code, two sets may be needed

True or false: Intangible Assets are reviewed for impairment at least annually. True false question.TrueFalse

True

". " interest is the amount of interest costs that is debited to the asset that is being constructed and credited to Cash when the interest is paid.

Capitalized

Which of the following is true? Multiple choice question. Expenses increase stockholders' equity. Capitalized costs increase long-lived assets. Capitalized costs decrease stockholders' equity. Expenses increase assets.

Capitalized costs increase long-lived assets.

Which of the following will result in the recording of goodwill? Multiple choice question. 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 discovers a new product or production process. 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.

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

Why is the straight-line method of depreciation called "straight-line"? Multiple choice question. The other methods calculate depreciation in a more roundabout fashion. The rules are confining, like a strait (or straight) jacket. Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line. The straight-line method of depreciation has the easiest, most straight forward calculations.

Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.

Which of the following statements is correct? Multiple choice question. Depreciation expense reflects the decrease in the current value of an asset over time. An asset's book value is always less than its selling price. An asset's cost minus its accumulated depreciation is equal to its selling price. Depreciation is not intended to report an asset at its current value.

Depreciation is not intended to report an asset at its current value.

Which of the following statements are true? (Check all that apply.) Multiple select question. Depreciation of a truck equals the decline in the estimated usefulness of the truck. Impairment loss on an asset arises from a precipitous decline in the current value of the asset. The book value of an asset is the same as the current value of the asset. Depreciation of a truck equals the decline in the current value of the truck.

Depreciation of a truck equals the decline in the estimated usefulness of the truck. Impairment loss on an asset arises from a precipitous decline in the current value of the asset.

True or false: Companies are required to use the same depreciation method for both financial accounting and federal income tax reporting. True false question.TrueFalse

False

True or false: A company may record an asset called Goodwill if it has developed a brand new product. True false question.TrueFalse

False Goodwill is only recorded as an asset when one company buys another business

Vango, Inc. sold its van for $10,000 cash. The van's original cost was $40,000, and its accumulated depreciation was $32,000. When recording the sale, Vango should record a Blank______. Multiple choice question. Loss on Disposal of $2,000 Gain on Disposal of $2,000 Loss on Disposal of $8,000 Gain on Disposal of $10,000 Gain on Disposal of $8,000

Gain on Disposal of $2,000

What is the effect of an impairment loss on the accounting equation? (Check all that apply.) Multiple select question. It decreases total assets. It decreases total stockholders' equity. It increases total stockholders' equity. It increases total assets. It increases total liabilities. It has no effect.

It decreases total assets. It decreases total stockholders' equity.

A company may make an exception to the accounting rules and not capitalize a long-lived asset if its cost is...

L0W

Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed. What was the effect of this fraud on WorldCom's financial statements? (Check all that apply.) Multiple select question. Total assets were too low. Net income was too high. Total assets were too high. Net income was too low. Retained earnings were too high. Retained earnings were too low.

Net income was too high. Total assets were too high. Retained earnings were too high.

Which of the following long-term asset costs is expensed? Multiple choice question. Installation costs Purchase price Ordinary maintenance Improvements

Ordinary maintenance

Which of the following long-term asset costs are expensed? (Select all that apply.) Multiple select question. Ordinary repairs and maintenance Installation costs Initial cost of the asset Immaterial repairs and maintenance

Ordinary repairs and maintenance Immaterial repairs and maintenance

An intangible asset may be recorded only if Blank______. Multiple choice question. internally generated it can later be sold paid for in cash purchased

Purchased by why not paid for in cash as well?

Both Spam Am Airlines and TWB Airlines used straight-line depreciation for a $20 million jet. Spam Am used an estimated 35 year useful life and TWB Airlines used an estimated 25 year life for its planes but estimated similar residual values. As a result of the differences in useful lives, which company will appear more profitable? Multiple choice question. Spam Am TWB Neither, the estimated useful lives will not affect their profitability.

Spam Am Because there are less expenses happening each quarter or yr

Miss Hap, the company bookkeeper, recorded the annual repair costs on the company's machinery as an increase to the machinery account. As a result, which of the following is true? (Check all that apply.) Multiple select question. Expenses will be overstated. Stockholders' equity will be overstated. Assets will be overstated. Liabilities will be overstated.

Stockholders' equity will be overstated. Assets will be overstated.

Miss Hap, the company bookkeeper, recorded the annual repair costs on the company's machinery as an increase to the machinery account. As a result, which of the following is true? (Check all that apply.) Multiple select question. Expenses will be overstated. Stockholders' equity will be overstated. Liabilities will be overstated. Assets will be overstated.

Stockholders' equity will be overstated. Assets will be overstated. Why wouldn't expenses be overstated??

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.) Multiple select question. EBITDA Straight-line Lower-of-cost-or-market Double-declining-balance Units-of-production

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.) Multiple select question. The $500 for insurance on the truck for the next 12 months The $2,000 paid to install shelves inside the truck The $50 a week for gas to run the truck The $25,000 cost of the truck

The $2,000 paid to install shelves inside the truck The $25,000 cost of the truck

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

The $500,000 invoice price of the machine The $15,000 freight bill to deliver the machine to Acme's factory The $8,000 cost of tearing down Acme's factory wall to get the machine inside They are all one time costs to acquire the machine?

Why might a company dispose of a long-lived tangible asset? (Check all that apply.) Multiple select question. The asset is fully depreciated, even though the asset is still useful to the company. 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. 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. The company doesn't need the asset anymore.

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? (Check all that apply.) Multiple select question. Total liabilities increase $503,000. Total assets increase $500,000. Total assets increase $503,000. Machinery, an asset, increases $500,000. Machinery, an asset, increases $503,000. Total liabilities increase $500,000.

Total assets increase $500,000. Machinery, an asset, increases $503,000. Total liabilities increase $500,000. Where does that other 3,000 dollars go? The equation is out of balance

Exclusive rights to a special name, image or slogan is a Blank______. Multiple choice question. copyright patent license trademark

Trademark

True or false: Depreciation is not intended to report an asset at its current value. True false question.TrueFalse

True

Identify the amounts required to calculate the depreciation of an asset. (Check all that apply.) Multiple select question. acquisition cost blue book value at the end of each accounting period estimated residual value at the end of the asset's useful life amortized value estimated useful life to the company

acquisition cost estimated residual value at the end of the asset's useful life estimated useful life to the company

When equipment is purchased using noncash assets, the equipment is recorded as Blank______. Multiple choice question. an expense at its acquisition cost $0 since no cash was exchanged a liability at its cash equivalent price an asset at its cash equivalent price

an asset at its cash equivalent price

GAAP require assets be reviewed for impairment Blank______. Multiple choice question. prior to disposal of the assets at least once a year only if the assets are intangible assets daily

at least once a year

An asset's cost minus accumulated depreciation is its Blank______ value. Multiple choice question. market book residual salvage

book

Improvements that increase the productive life, operating efficiency, or capacity of a long-lived asset are Blank______. Multiple choice question. capital expenditures and credited to the respective long-lived asset capital expenditures and debited to an expense account capital expenditures and debited to the respective long-lived asset expensed in the period paid expensed in the period incurred regardless of when paid

capital expenditures and debited to the respective long-lived asset

Improvements that increase the productive life, operating efficiency, or capacity of a long-lived asset are Blank______. Multiple choice question. expensed in the period paid capital expenditures and debited to the respective long-lived asset expensed in the period incurred regardless of when paid capital expenditures and debited to an expense account capital expenditures and credited to the respective long-lived asset

capital expenditures and debited to the respective long-lived asset

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. This impairment will Blank______. Multiple choice question. have no effect on the accounting equation cause an increase in liabilities cause a decrease in stockholders' equity cause a decrease in liabilities

cause a decrease in stockholders' equity

is the exclusive rights to artistic material.

copyright

An asset's book value or carrying value is its Blank______. Multiple choice question. cost minus accumulated depreciation accumulated depreciation cost minus salvage or residual value cost minus salvage or residual value and accumulated depreciation

cost minus accumulated depreciation

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) Blank______. (Check all that apply.) Multiple select question. increase to assets decrease to liabilities decrease to stockholders' equity decrease to assets increase to stockholders' equity

decrease to stockholders' equity decrease to assets

To determine the approximate age of a noncurrent depreciable assets remaining life, Blank______. Multiple choice question. divide the book value by the original cost subtract accumulated depreciation from the original cost divide the original cost by the book value subtract accumulated depreciation from the book value

divide the book value by the original cost

Recording depreciation is an application of the Blank______. Multiple choice question. expense principle separate entity assumption cost principle unit-of-measure assumption

expense principle

Trademarks Blank______. Multiple choice question. are amortized over a maximum of 40 years are depreciated over a maximum of 40 years are amortized over a life not to exceed 50 years have an unlimited life and hence are not amortized

have an unlimited life and hence are not amortized

A company might record an involuntary disposal of an asset Blank______. Multiple choice question. to replace it with a newer, more efficient model because the asset has reached the end of its useful life to record a loss and pay less income tax if the asset was seriously damaged in a fire

if the asset was seriously damaged in a fire

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) Blank______. (Check all that apply.) Multiple select question. increase to Goodwill of $200,000 increase to Gain on Purchase of $200,000 increase to Loss on Purchase of $200,000 decrease to Cash of $1,000,000

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

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 Blank______. (Check all that apply.) Multiple select question. increase to assets increase to stockholders' equity decrease to stockholders' equity decrease to liabilities

increase to assets increase to stockholders' equity

Which of the following costs incurred due to the construction of a building would be capitalized as part of the cost of the building? (Select all that apply.) Multiple select question. cost of the land labor materials interest on construction loan repairs to the building after it is in use

labor materials interest on construction loan

Ace Electronics bought a new cash register for $2,500. Ace originally planned to use the cash register for 4 years and then sell it for $200. After 4 years, Ace had recorded $2,300 of depreciation. If Ace continues to use the cash register, still planning to sell it eventually for $200, then Ace should record Blank______. Multiple choice question. $575 of additional depreciation $200 of additional depreciation the removal of the cash register from its books because it is fully depreciated no additional depreciation

no additional depreciation

Intangible assets with unlimited or indefinite lives are Blank______. Multiple choice question. amortized over a life not to exceed 50 years amortized over a life not to exceed 17 years not amortized, but instead are reviewed for impairment amortized over a life not to exceed 40 years

not amortized, but instead are reviewed for impairment

gives a company exclusive rights to a manufacturing process.

patent

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

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

An impairment loss is a(n) Blank______. Multiple choice question. reduction to net income on the income statement operating expense that appears on the balance sheet deduction from revenues for the year reduction to depreciation expense for the year

reduction to net income on the income statement How is it reducing this but not Net Income

An impairment loss is a(n) Blank______. Multiple choice question. operating expense that appears on the balance sheet reduction to net income on the income statement deduction from revenues for the year reduction to depreciation expense for the year

reduction to net income on the income statement why??

Which of the costs associated with the purchase of undeveloped land would be included in the land value? (Check all that apply.) Multiple select question. the building built on the land sales commissions survey fees title fees

sales commissions survey fees title fees Find out what sales commissions are like real estate agent commissions - people that helped you buy the land

A gain on the disposal of an asset occurs when the Blank______. Multiple choice question. asset's cost is greater than the asset's accumulated depreciation selling price is greater than the asset's book value asset's book value is greater than the selling price accumulated depreciation is greater than the asset's book value

selling price is greater than the asset's book value

WorldCom improperly capitalized costs that should have been expensed. The effect of this fraud on its accounting equation resulted in Blank______. (Check all that apply.) Multiple select question. assets being understated stockholders' equity being understated stockholders' equity being overstated liabilities being overstated liabilities being understated assets being overstated

stockholders' equity being overstated assets being overstated

Land improvements reported on a company's balance sheet might include Blank______. (Check all that apply.) Multiple select question. trees available for sale in a landscaping business the fence around a factory parking lot sidewalks outside the corporate headquarters a backhoe that a contractor uses to dig foundations trees planted to provide shade for the customer parking lot

the fence around a factory parking lot sidewalks outside the corporate headquarters trees planted to provide shade for the customer parking lot

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

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

Which of the following are needed to calculate depreciation expense? (Check all that apply.) Multiple select question. useful life accumulated depreciation depreciation method salvage value

useful life depreciation method salvage value

Depreciation expense is an estimate because it is based on the asset's estimated " " " " and " " value

useful life and salvage

Depreciation expense is an estimate because it is based on the asset's estimated Blank______. (Check all that apply.) Multiple select question. useful life to the company residual value acquisition costs blue book value

useful life to the company residual value

Most types of leases are reported by the lessee Multiple select question. as an expense on the income statement with an operating lease right-of-use asset on the income statement with an operating lease liability on the balance sheet with an operating lease right-of-use asset on the balance sheet

with an operating lease liability on the balance sheet with an operating lease right-of-use asset on the balance sheet