Quiz 5 Study Set (Wiley Questions)

An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year.

False

Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets.`

False

If a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs.

False

Internally generated intangible assets are initially recorded at fair value.

False

An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future net cash flows from the use of that asset.

False. Impairment loss= Carrying value-fair value

The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment.

False

The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

False

Normally, companies compute depletion on a straight-line basis.

False. Usually use units-of-production approach.

The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles

True

Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.

False

Research and development costs are recorded as intangible assets if they will provide economic benefits in future years.

False

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

False

A principal objection to the straight-line method of depreciation is that it

Ignores variations in the rate of asset use.

Torque Co. has equipment with a carrying amount of $2400000. The expected future net cash flows from the equipment are $2445000, and its fair value is $2040000. The equipment is expected to be used in operations in the future. What amount (if any) should Torque report as an impairment to its equipment?

No impairment should be reported

The major difference between the service life of an asset and its physical life is that

service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.

Which of the following is true of depreciation accounting?

It is not a matter of valuation, It is part of the matching of revenues and expenses, It is the process of cost allocation.

Depreciation is a means of cost allocation, not a matter of valuation.

True

Regis Inc. bought a machine on January 1, 2008 for $800000. The machine had an expected life of 20 years and was expected to have a salvage value of $80000. On July 1, 2018, the company reviewed the potential of the machine and determined that its future net cash flows totaled $400000 and its fair value was $280000. If the company does not plan to dispose of it, what should Regis record as an impairment loss on July 1, 2018?

$142,000

Slotkin Products purchased a machine for $65000 on July 1, 2017. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $5000. Depreciation for 2017 is

1/8= 12.5% -straight line rate 12.5% * 2= 25% -double declining rate $65,000 * 25% = $16,250 depreciation for year 1 $16,250 * (6mo/12mo) = $8,125 depreciation for 2017

Song Company purchased a depreciable asset for $700000 on April 1, 2015. The estimated salvage value is $70000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2018 when the asset is sold?

388,500

Which of the following is a realistic assumption of the straight-line method of depreciation?

Depreciation is a function of time rather than a function of usage.

Which of the following most accurately reflects the concept of depreciation as used in accounting?

The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset.

After an impairment loss is recorded for a limited-life intangible asset, the fair value becomes the basis for the impaired asset and is used to calculate amortization in future periods.

True

If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized.

True

In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible net assets, with the remainder recorded as goodwill.

True

Internally generated goodwill should not be capitalized in the accounts.

True

Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.

True

The cost of acquiring a customer list from another company is recorded as an intangible asset.

True

The cost of an asset less its salvage value is its depreciation base.

True

The major objection to the straight-line method is that it assumes the asset's economic usefulness and maintenance repair expense are the same each year.

True

Some intangible assets are not required to be amortized.

True- Assets with an indefinite life

Lamar Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should a. include a credit to the equipment account. b. include a credit to the equipment accumulated depreciation account. c. recognize an extraordinary loss for the period. d. not be made if the equipment is still being used.

b. credit accumulated depreciation

Use of the double-declining balance method a. results in a decreasing charge to depreciation expense. b. means salvage value is not deducted in computing the depreciation base. c. means the book value should not be reduced below salvage value. d. all of these.

d. all of these

Depletion expense a. excludes intangible development costs from the depletion base. b. includes tangible equipment costs in the depletion base. c. excludes restoration costs from the depletion base. d. is usually part of cost of goods sold.

d. is usually part of cost of goods sold

An impairment of property, plant, or equipment has occurred if a. the estimated salvage value is less than the actual proceeds received on disposal. b. the expected future cash outflows exceeds the asset's carrying value. c. the revised estimated useful life is less than the original estimated useful life. d. the sum of the expected future net cash flows is less than the asset's carrying value.

d. the sum of the expected future net cash flows is less than the asset's carrying value.

The term "depreciable base," or "depreciation base," as it is used in accounting, refers to

e total amount to be charged (debited) to expense over an asset's useful life.