McGraw Hill Financial Accounting Chapter 11

The measurement of an impairment loss for intangible assets with indefinite useful lives is a(n) ____ process.

one-step

In measuring an impairment loss, the difference between the asset's book value and its fair value is

recognized as an impairment loss.

Which of the following would be considered "expenditures subsequent to acquisition" for a building? (Select all that apply.)

Cost of installing solar panels after three months of use of the building Repairing a major roof leak three years after use

Which of the following are characteristics of goodwill? (Select all that apply.)

Indefinite life Subject to impairment testing

What is the accounting treatment for the discovery of a material error in a previous year?

Previous years' financial statements are restated.

A change in accounting estimate requires a company to account for the change

on a prospective basis in the current year and future years.

If there is a change in an intangible asset's estimated useful life, the change is treated

on a prospective basis.

Which of the following are expenditures on assets subsequent to acquisition? (Select all that apply.)

improvements repairs and maintenance additions

On January 1, year 1, Roark Corp. purchased equipment for $120,000. The equipment has a residual value of $20,000, and has a life of 1,000,000 hours. Roark uses the units-of-production method of depreciation. In year 1, Roark used the machine 30,000 hours, and in year 2, Roark used the machine 50,000 hours. What is the depreciation expense for year 2?

$5,000

The formula for straight-line depreciation is

(cost - residual value)/useful life.

Which of the following would be included in a journal entry to record the allocation of the cost of a natural resource for the period? (Select all that apply.)

Debit depletion expense. Credit the natural resource.

The journal entry to record the amortization of an intangible asset would include a

debit to amortization expense.

A(n) ______ ______ is an operating segment of a company or a component of an operating segment for which discrete financial information is available and management regularly reviews the operating results of that component. (Enter one word per blank.)

reporting unit

The three factors that should be established to measure cost allocation are

service life. allocation method. allocation base.

The journal entry to record an impairment loss on goodwill includes which of the following entries? (Select all that apply.)

A credit to goodwill A debit to loss on impairment of goodwill

At the beginning of Year 1, Mitchell Company purchased office equipment for $15,000. The machine has an estimated residual value of $1,000 and an estimated service life of 5 years. If Mitchell uses straight-line depreciation, it will make which of the following entries related to depreciation at the end of Year 1?

Debit to depreciation expense for $2,800

Which of the following intangible assets are usually considered to have indefinite lives?

Trademarks

True or false: A write-down of an asset held and used can provide important information about the future cash flows a company expects to generate from using the asset.

True

To determine whether an impairment loss should be recorded for goodwill, a company should determine if the fair value of the reporting unit is less than its

book value.

The journal entry to record depreciation expense includes (Select all that apply.)

debit to depreciation expense credit to accumulated depreciation

The useful life of an intangible asset may be limited by what type of provisions? (Select all that apply.)

contractual regulatory legal

An intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called

goodwill

At the beginning of year 1, Valerie Corp. purchases equipment for $10,000. The equipment has a residual value of $4,000 and an expected useful life of 4 years. What is straight-line depreciation expense for year 1?

$1,500

Accounting for impairment of value of assets with finite lives and those with indefinite lives

differs

No amortization is recorded for

intangible assets with indefinite lives.

Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods? (Select all that apply.)

increasing the residual value of an asset change in useful life of an asset

On January 1, year 1, Paisley Corp. purchases equipment for $200,000. Paisley uses the double-declining-balance method of depreciation. The asset has a 10-year useful life and a $10,000 residual value. What is the book value at the end of year 1?

$160,000

In accounting, the term impairment refers to

an asset's significant decline in value.

Straight-line depreciation is calculated as the depreciable base divided by

the estimated useful life of the asset.

An impairment occurs when the

undiscounted sum of estimated future cash flows is less than the asset's book value.

On October 1, year 1, Johnson Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Johnson uses the double-declining-balance method of depreciation. The partial year depreciation for year 1 is

$10,000

On January 1, year 1, Green Tractor Corp. purchased equipment for $100,000. The equipment has a useful life of 4 years, and a residual value of $20,000. Using the sum-of-the-years'-digits method, what is the depreciation expense for year 1?

$32,000

At the beginning of year 1, Kuhn Corp. purchases equipment for $22,000. The equipment has a residual value of $2,000 and an expected useful life of 5 years. What is straight-line depreciation expense for year 3?

$4,000

On January 1, year 1, Clem Corp. purchased equipment for $160,000. The equipment has a residual value of $10,000, and has a life of 100,000 hours. Clem uses the units-of-production method of depreciation. In year 1, Clem used the machine 2,000 hours, and in year 2, Clem used the machine 3,000 hours. What is the depreciation expense for year 2?

$4,500

On January 1, year 1, LaRose Corp. purchases equipment for $100,000. LaRose uses the double-declining-balance method of depreciation. The asset has a 5-year useful life and a $10,000 residual value. What is depreciation expense for year 1?

$40,000

JM Mining has a coal mine with a depletion base of $1,000,000. It is estimated that 500,000 tons will be extracted over the mine's useful life. During year 1, JM extracted 20,000 tons of coal. The depletion expense for year 1 is

$40,000.

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Kirby uses the straight-line method of depreciation. The partial year depreciation for year 1 is

$5,000

On January 1, year 1, Glasser Corp. purchased equipment for $120,000. The equipment has a useful life of 3 years, and a residual value of $20,000. Using the sum-of-the-years'-digits method, what is the depreciation expense for year 1?

$50,000

At the beginning of Year 1, Western Inc. acquired a building for $10.6 million. Depreciation for Year 1 and Year 2 was calculated using the straight-line method, a 25-year useful life, and a $2.6 million residual value. In Year 3, the estimates of useful life and residual value were changed to 20 years (total) and $660,000, respectively. What is depreciation on the building for Year 3?

$516,667

On January 1, year 1, Glasser Corp. purchased equipment for $120,000. The equipment has a useful life of 3 years, and a residual value of $20,000. Using the sum-of-the-years'-digits method, what is the book value at the end of year 1?

$70,000

At the beginning of Year 1, Western Inc. acquired a building for $10.7 million. Depreciation for Year 1 and Year 2 was calculated using the straight-line method, a 20-year useful life, and a $2.7 million residual value. In Year 3, the estimates of useful life and residual value were changed to 15 years (total) and $670,000, respectively. What is depreciation on the building for Year 3?

$710,000

At the beginning of year 1, Looby Corp. purchases equipment for $100,000. The equipment has a residual value of $20,000 and an expected useful life of 10 years. Assuming straight-line depreciation, what is book value at the end of year 2?

$84,000

Which of the following are required when a material error is discovered in a subsequent accounting period that impacts retained earnings? (Select all that apply.)

A disclosure note describing the nature of the error and the impact of the correction on net income and earnings per share. Previous financial statements are retrospectively restated. A prior period adjustment is made to the beginning balance of retained earnings.

True or false: Expenditures that qualify as an addition should be expensed in the period incurred.

False

True or false: Loss on impairment of goodwill is typically reported with amortization expense.

False

True or false: Repairs and maintenance expenditures should be capitalized in the period incurred.

False

True or false: When accounting for impairments, the two categories for recognizing and measuring the loss are tangible and intangible assets.

False

Loss on impairment of goodwill is typically reported as

a separate component of operating expense

The types of expenditures that can occur subsequent to an asset's acquisition are (Select all that apply.)

additions. rearrangements. repairs and maintenance. improvements.

When accounting for impairments, the two categories for recognizing and measuring the loss are

assets to be held and used and assets held for sale.

Western Company purchased a franchise on January 1, 20X1 for $100,000 cash. The franchise agreement is for a period of 10 years. Western uses the straight-line method for intangible assets. The journal entry at the end of 20X1 includes (Select all that apply.)

credit franchise $10,000 debit amortization expense $10,000

On December 30, 20X1, Rocket Corp. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries? (Select all that apply.)

credit to equipment $100,000 debit accumulated depreciation $70,000 credit gain on sale of equipment $50,000 debit cash $80,000

In June of 20X2, Scarlett Company discovered that it incorrectly expensed $12,000 of legal fees to successfully defend a patent infringement suit in January 20X1. At the time it paid the legal fees, the patent had a six-year remaining life of the patent. The entry to correct this error will include a

credit to retained earnings for $10,000

Evans Corp. incorrectly expensed $10,000 in the previous year when it purchased equipment. The entry to correct this error will include a

credit to retained earnings.

The journal entry to record the allocation of the cost of a natural resource will include a

credit to the natural resource.

On December 30, 20X1, Brighton Corp. disposed of equipment with a historical cost of $150,000 and accumulated depreciation of $60,000. The equipment was sold for $70,000 cash. The journal entry to record the sale will include which of the following entries? (Select all that apply.)

debit loss on sale of equipment $20,000 debit accumulated depreciation $60,000 debit cash $70,000 credit equipment $150,000

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $45,000 cash. The journal entry to record the sale will include which of the following entries? (Select all that apply.)

debit to accumulated depreciation $30,000 debit to cash $45,000 credit to equipment $50,000 credit to gain on sale of asset $25,000

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include (Select all that apply.)

debit to accumulated depreciation of $40,000. credit to assets of $52,000. debit to loss on impairment of $12,000.

The journal entry to record the amortization of an intangible asset would include (Select all that apply.)

debit to amortization expense. credit to the intangible asset.

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include a

debit to loss on impairment of $12,000.

The journal entry to recognize a loss on impairment of goodwill would include a

debit to loss on impairment of goodwill.

An expenditure that qualifies as an addition should be

depreciated over the remaining useful life of original asset or its own useful life, whichever is shorter. capitalized.

The allocation of the cost of a tangible fixed asset is referred to as ______, whereas the allocation of the cost of an intangible asset is referred to as ______

depreciation, amortization

The formula to calculate the depletion rate of a natural resource is the depletion base divided by the

estimated extractable amount of natural resource.

Expenditures for repairs and maintenance should be

expensed in the period incurred.

An impairment loss for intangible assets with indefinite lives is calculated as the book value less the

fair value.

When an asset has a significant decline in value and is written down, this is called ______.

impairment

A subsequent expenditure for an asset increases the future benefits of the asset if it (Select all that apply.)

increases the quality of the goods or services produced by the asset. extends the asset's useful life. increases the operating efficiency of the asset.

If obsolescence were expected to limit the longevity of a protected product, the useful life of a patent might be _________ its legal life.

less than

Expenditures subsequent to acquisition may be properly capitalized when they increase the asset's useful life or increase its productive capacity. However, most companies set thresholds for capitalizing these expenditures based on

materiality.

Emil Company expects that its asset will be more useful during early years of its life than during later years. In addition, the company estimates that repair costs will increase over time. Which method(s) may help equalize total expenses recognized over the service life of this asset? (Select all that apply.)

sum-of-the-years digits declining balance

Which of the following are accelerated methods of depreciation? (Select all that apply.)

sum-of-the-years'-digits method declining balance method double-declining-balance method

The measurement of an impairment loss in step 2 is the difference between

the asset's book value and its fair value.

Which of the following are not accelerated methods of depreciation? (Select all that apply.)

units-of-output depreciation straight-line depreciation

Assets held for use that have a significant impairment of value should be

written down