chapter 9 acct.

Gemini Group ordered motor tune ups and oil changes on their entire fleet of company vehicles in the third quarter. How should this expense be recorded?

As a revenue expenditure

Pat's Garage installed a new parking lot. The paving cost $10,000 and the lights to illuminate the new parking area cost $5,000. These additions require that

Both the $10,000 cost for paving and $5,000 cost for new lights are considered improvements to the purchased parking lot. The two costs can be included in one journal entry and, assuming Pat's Garage paid cash for the transactions, the journal entry should be recorded as a debit (increase) to Land Improvement for $15,000 and a credit (decrease) to Cash for $15,000.

Which of the following companies is operating the most efficiently?

Company 2, with an asset turnover of 1.26 The return on assets ratio is measured by multiplying a company's profit margin by its asset turnover. A higher return on assets means a company's assets are generating more income. A company can increase its return on assets by increasing either its profit margin or its asset turnover. In this example, Company 2 has the highest asset turnover of 1.26, allowing for a more efficient use of its assets.

Balances of the land, buildings, and equipment are presented within

Either the balance sheet or the notes to the financial statement.

How would intangible assets with limited lives compare to those with indefinite lives?

Intangible assets with limited lives would have their cost allocated over the useful life while those with indefinite lives would not.

Compared to other methods of calculating depreciation, how does the declining balance method affect net income in the first year?

It usually results in the lowest net income.

______ will be recorded if a plant asset is retired and is fully depreciated.

No gain or loss on disposal

In 2022, Pickett Industries had a profit margin of 32% and an asset turnover of 1.03. What was their return on assets for 2022?

Return on assets is calculated by multiplying profit margin and asset turnover. Therefore, Pickett's return on assets was 0.32 * 1.03 = 0.3296, or 33 percent.

Crowley Airways had a return on assets of 4.2% and an asset turnover of 0.65 in 2022. What was their profit margin?

Return on assets is calculated by multiplying profit margin and asset turnover. Therefore, profit margin is calculated by return on assets divided by asset turnover. In 2022, Crowley Airways had a profit margin of 0.042/0.65 = 0.0646, or 6.46 percent.

Wright Company uses the report form of the balance sheet. Which is the correct order for the assets section?

The assets section is normally reported in the order of liquidity, beginning with Current Assets; then Property, Plant, and Equipment; and finally Intangible Assets. Current Assets; Property, Plant, and Equipment; Intangible Assets

Which of the following statements is correct?

The cost of a limited-life intangible asset must be amortized over the period of its useful life.

Which of the following statements is correct?

The cost of a patent should be amortized over its legal life or useful life, whichever is shorter. Intangible assets are typically amortized on a straight-line basis, over its useful life or legal life, whichever is shorter.

How does the journal entry for a retired asset differ from the journal entry for an asset that is sold?

The entry for the retired asset does not include a debit to Cash, but the entry for the sold asset does.

Two national companies both sell a variety of soaps and lotions. When looking at the balance sheets, one company lists goodwill as an asset, but the other company does not. What does this tell you about these companies?

The first company purchased an entire business to expand the company, whereas the second company likely has not yet purchased another entire business.

Pine Level Paper has goodwill and trademarks as well as land, equipment and buildings. How should they report these assets?

The land, equipment and buildings would be listed under Property, Plant, and Equipment while goodwill and trademarks would be listed under Intangible Assets.

A sustainability report is used by companies to describe how they are meeting their

corporate social responsibilities. Sustainability reports are a company's report on its response to corporate responsiblity topics such as safety, health, community, and climate change.

Which of the following should be disclosed in the balance sheet or the notes to the financial statements?

depreciation and amortization methods used, balances of major classes of assets, and amount of depreciation and amortization expense for the period.

Which of the following should be disclosed in the balance sheet or the notes to the financial statements?

depreciation and amortization methods used, balances of major classes of assets, and the amount of depreciation and amortization for the period.

Which depreciation method generally results in the lowest net income for the first year a plant asset is utilized?

double declining-balance

Return on assets is used to calculate the amount of ________ generated by each dollar

income; of assets. Return on assets is net income divided by average total assets. It determines if the company is using its assets effectively.

How is the return on assets ratio computed?

profit margin ratio multiplied by the asset turnover ratio

The amount of income generated by each dollar of assets is determined by calculating

return on assets.

If the estimated useful life of equipment changes, then this change requires

that the amount of the periodic depreciation be changed in the current year and in future years

Your friend Pete owns a small business, and he's not sure how he should treat fully depreciated assets on his company's balance sheet. What advice should you offer to Pete?

"Even though the assets are fully depreciated, you need to continue to report both the assets and their accumulated depreciation on the balance sheet to indicate that the assets are still in use. However, you must be careful not to take any additional depreciation on the assets, because in no situation can the accumulated depreciation on an asset exceed its cost."

A computer company has $3,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,400,000. What is the amount of net income or loss after these R & D costs are accounted for?

$600,000 loss

Over the past 10 years, Northwood Pharmaceuticals spent several million dollars related to the research, development, and sale of a specific drug. Which of the following costs associated with the drug should Northwood amortize as an intangible asset?

$718,000 to defend the patent in an infringement suit Research and development costs are expensed in the period they are incurred, rather than amortized over a period. Costs that can be included in the amortization amount are patent application fees and the costs incurred to successfully defend a patent in an infringement suit.

Union Industries purchased equipment for $86,000 on January 1st, 2022. The useful life of the equipment is estimated to be four years or 10,000 hours. If the estimated salvage value is $7,000, what will be the yearly depreciation expense under the straight-line method?

Union must subtract salvage value from the purchase price to arrive at the depreciable cost ($86,000 - $7,000 = $79,000). Dividing the depreciable cost by 4 results in $19,750 in depreciation expense each year.

Wagner Enterprises and Stone Services both disposed of an old asset. When completing the journal entry, Wagner Enterprises included a debit to Cash, but Stone Services did not. Why would the companies have this difference in the journal entry?

Wagner sold their asset, whereas Stone retired their asset.

Mendoza Supplies sold an old delivery truck with a purchase price of $17,680 and accumulated depreciation of $12,240 for $4,800. This would require Mendoza to include which of the following in their journal entry to record the sale?

a debit of $640 to Loss on Disposal of Plant Assets The book value at the time of sale was $17,680 - $12,240 = $5,440. With a sale price of $4,800, they would need to record a loss of $640 ($4,800 - $5,440). This is recorded as a debit.