ACCT CH 7

rights to sell branded products through authorization and licenses

franchise

nobody can reproduce your product as shown through a document

patent

Which of the following are expenditures for assets subsequent(coming after) to acquisition? A. Improvements B. Repairs and maintenance C. Additions D. Freight charges

A,B,C

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides _____________

REVENUE

accumulated depreciation has a normal _____ balance

credit

Which of the following items are capitalized? A. Successful legal defense of a patent B. Major repair that increases future benefits C. Replacing a major component D. Repair expense to maintain equipment

A,B,C

Which of the following are long-term tangible assets? A. Property B. Accounts receivable C. Equipment D. Trademark E. Copyright

A,C

Which of the following items are intangible assets? A. Trademarks B. Buildings C. Accounts receivable D. Land E. Goodwill

A,E

Allocation of the cost of an intangible asset

AMORTIZATION

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset A. decreases in value. B. is owned by the company. C. provides benefits to the company.

C

Which of the following items are intangible assets? A. Equipment B. Land C. Trademark D. Copyright E. Patent

C,D,E

Because the future benefits of research and development costs are uncertain, FASB requires that research and development costs be treated as A. an asset on the balance sheet. B. a contra asset on the balance sheet. C. a liability on the balance sheet. D. an expense on the income statement.

D

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

An accelerated depreciation method is appropriate when the asset will provide a. greater benefits in the earlier years of the asset's life. b. equal benefits each year of the asset's life. c. greater benefits in the later years of the asset's life.

a

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 service life and a $10,000 residual value. What is the book value at the end of year 1? a. $160,000 b. $162,000 c. $50,000 d. $120,000

a

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the a. straight-line method. b. double-declining-balance method. c. units-of-output method. d. MACRS

a

The formula for calculating declining balance depreciation is the depreciation rate per year times a. the book value at the beginning of the year. b. the cost less the residual value less the accumulated depreciation. c. the cost less the residual value.

a

The formula for calculating the double-declining-balance method is a. book value at beginning of year x 2/estimated service life b. historical cost x 1/service life. c. historical cost less residual value x 2/estimated service life. d. book value at beginning of the year less residual value x 2/ estimated service life.

a

The formula to calculate an activity-based depreciation rate is: a. (cost - residual value)/estimated total production. b. cost/actual production during the year. c. (cost - residual value)/actual production during the year. d. cost/estimated total production.

a

The service life or useful life of an asset is a. the estimated use that the company expects to obtain from the asset before disposing of it. b. determined by MACRS tables. c. the time period from the purchase of the asset until it becomes impaired.

a

Under what circumstances are accelerated depreciation methods most appropriate? a. For an asset that will provide greater benefits in earlier years of its life. b. For an asset used evenly throughout its life and the life is measured in years. c. For an asset that will be used less in the later years of its life. d. For an asset that is used to produce output and has an estimated life in output.

a,c

The journal entry to retire old equipment that is not fully depreciated includes a: a. credit to equipment b. debit to cash c. debit to accumulated depreciation d. debit to loss e. credit to loss

a,c,d

When recording the acquisition of an existing company (goodwill), you record all ____ as a debit and all ____ as a credit and you also will record cash in the credit for the ___ ___

assets;liabilities;purchase price

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 service life and a $10,000 residual value. What is depreciation expense for year 1? a. $36,000 b. $40,000 c. $50,000 d. $45,000

b

On January 1, year 1, London Corp. purchases equipment for $400,000. The equipment has a 5-year service life and a $50,000 residual value. London uses the double-declining-balance method of depreciation. What is the book value at the end of year 1? a. $200,000 b. $240,000 c. $190,000 d. $350,000

b

The formula for straight-line depreciation is a. cost/service life. b. (cost - residual value)/service life. c. service life/(cost + residual value). d. (cost + residual value)/service life.

b

Total depreciation recorded over an asset's service life is: a. highest when the double-declining balance method is used b. the same regardless of the depreciation method used c. lowest when the straight-line method is used d. lowest when the activity-based method is used

b

Which of the following does not differ among the different depreciation methods? a. Depreciation recognized during the last year of the asset's service life. b. Total depreciation recognized over the asset's service life. c. Depreciation recognized during the earlier years.

b

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries? a. Credit accumulated depreciation $40,000 b, Debit accumulated depreciation $40,000 c. Debit loss on exchange $10,000 d. Debit loss on equipment $15,000 e. Debit equipment $40,000 f. Credit equipment $90,000 g. Debit equipment $35,000

b,c,e,f

A retirement or abandonment of an asset is different from a sale of an asset because (Select all that apply) a. a gain is recognized for the undepreciated portion of the equipment. b. no cash is received. c. the residual value is included as a gain. d. a loss must be recognized for the remaining book value.

b,d

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries? a. Debit equipment $32,000 b. Debit loss on exchange $30,000 c. Credit accumulated depreciation $40,000 d. Debit equipment $50,000 e. Debit accumulated depreciation $40,000 f. Credit equipment $120,000

b,d,e,f

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ______ value of the asset sold.

book

The gain or loss on disposal of an asset is calculated as: a. the cost of the asset less the accumulated depreciation b. consideration received less the fair value of the asset sold c. amount received less the book value of asset sold d. the fair value of the asset less the accumulated depreciation

c

when you _____ a good, the cost of the expenditures roll into the value of the asset

capitalize

On January 1, year 1, Mark Corp. purchases equipment for $300,000. The equipment has a 10-year service life and a $50,000 residual value. Mark uses the double-declining-balance method of depreciation. What is depreciation expense for year 1? a. $30,000 b. $25,000 c. $50,000 d. $60,000

d

The formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is ((cost - residual value)/total estimated production) x ______. a. gross profit percentage b. total activity or production c. historical cost d. current-year activity or production

d

the balance in the accumulated depreciation account represents a. amount charged to expense the current period b. contra-expense account c. a cash fund to be used to replace plant assets d. the amount charged to depreciation expense since the acquisition of the plant asset

d

Straight-line, declining-balance, and activity-based refer to methods commonly used to __________ property, plant, and equipment.

depreciate

double declining depreciation balance will be higher than straight line in ____ years, but lower in ____ years

earlier;later

an ____ _____ ____ (___) is a method of an automatic payment that the bank sees first

electronic funds transfer (EFT)

the equation for total fair value of asset is the ____ ____ of _____ MINUS the ____ ____ of ____

fair value assets; fair value liabilities

when selling/retiring/exchanging your asset for a value that would be making money for you, that is a ______ and is recorded as a ____

gain;credit

the intangible assets that DO NOT amortize are _____ and _____

goodwill;trademarks

An asset that has no physical substance is referred to as a(n) _________ __________

intangible asset

when selling your asset for a value that would be losing money for you, that is a ______ and is recorded as a ____

loss;debit

_____________ value is the amount the company expects to receive for the asset at the end of its service life. (Enter one word per blank)

residual

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the __________ life of the asset

service

________ - _______ is commonly used for financial statement purposes where ________ is commonly used for tax reporting

straight line;MACRS

nobody can steal your logo, sign, logo

trademark

which of the following is true regarding amortization of intangible assets? a. intangible assets with a limited useful life are not amortized b. the service life of an intangible asset is always equal to its legal life c. the expected residual of most intangible assets is zero d. in recording amortization, Accumulated amortization is always credited

c

The FASB requires research and development costs to be expensed because A. the costs of research are greater than the benefits. B. It is difficult to determine whether costs will result in future benefits. C. research and development costs have no future value.

B

purchase price + fair value of assets - fair value of liabilities =

Goodwill

purchase price - total fair value of acquisition =

Goodwill

The types of expenditures that can occur subsequent to an asset's acquisition are A. goodwill. B. repairs and maintenance. C. improvements. D. additions.

B,C,D

if the depreciation expense will make the book value less than what It should be at the end of Its life (residual) then you _____ record that amount, instead, find the value that would make the book value equal the residual value

cannot

What is the first issue that needs to be addressed in order to properly report tangible and intangible assets? A. Determining the amounts to be included in the assets' initial cost B. How to record the disposal of the assets C. The method for expensing the cost of the assets D. How to recognize additional costs incurred during the assets' service life

A

Which of the following expenditures are classified as repairs and maintenance for a vehicle owned by the company? (Select all that apply.) A. Engine tune-up B. Routine oil change C. New engine installation

A,B

Long-term tangible assets include A. buildings. B. patents. C. goodwill. D. land. E. equipment.

A,D,E

For accounting purposes, depreciation is A. the selling price of an asset. B. a decline in value of an asset. C. an allocation of a cost of an asset.

C

The key factor in classifying items as repairs and maintenance is that A. the invoice must be less than $1,000 for productive assets. B. the asset must be a current asset used in the normal course of business. C. future benefits are not provided beyond those originally anticipated from the asset.

C

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______. A. expensed B. accrued C. capitalized

C

Allocation of the cost of natural resources

DEPLETION

True or false: Repairs and maintenance expenditures related to an asset do not increase future benefits

TRUE

when you acquire an existing business; good name or good reputation

goodwill

When an asset is no longer useful, but cannot be sold, we have a _____________

retirement

Costs of periodically servicing equipment is an example of: A. a betterment B. a capital expenditure C. an addition D. repair and maintenance

D

The original cost of an asset minus accumulated depreciation is A. disposal value. B. goodwill. C. residual value. D. book value.

D

Which of the following items are expensed? A. Major repair that increases future benefits B. Replacing a major component C. Successful legal defense of a patent D. Costs related to maintaining equipment

D

The allocation of the cost of a tangible asset over its service life is referred to as ______________

DEPRECIATION

Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries? a. Credit equipment $70,000 b. Credit equipment $90,000 c. Debit accumulated depreciation $70,000 d. Credit accumulated depreciation $70,000 e. Debit equipment $45,000 f. Debit equipment $50,000 g. Credit gain on exchange of asset $30,000

b,c,f,g

The original cost of the asset less the accumulated depreciation is the ________ _________ of the asset

book value

Otto Inc. retires old equipment with a book value of $2,400. Otto should a. recognize a gain of $2,400 b. not make a journal entry c. recognize a loss of $2,400 d. debit cash for $2,400

c

Which of the following will maximize net income by minimizing depreciation expense in the first year of the assets life? a. short service life; high residual, straight line b. long service life, high residual, straight line c. short service life; low residual, double declining d. long service life, high residual, double declining

b

The term used to describe the amount the company expects to receive for an asset at the end of its service life is a. lower of cost or market value. b. impairment value. c. residual value. d. historical cost.

c

The issues that are important for tangible and intangible assets, include determining: *select all that apply* A. on which financial statement to record the asset B. how to record the disposal of the asset C. what amounts to include in the cost D. how to expense the cost of the asset over its life

B,C,D

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

TRUE

Straight-line deprecation is calculated as the depreciable cost divided by a. the estimated service life of the asset. b. the residual value of the asset. c. the cost of the asset.

a

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries? a. Credit equipment $100,000 b. Debit accumulated depreciation $60,000 c. Debit equipment $80,000 d. Credit gain on exchange of asset $40,000 e. Credit equipment $80,000 f. Debit equipment $65,000 g. Credit accumulated depreciation $60,000

a,b,c,d

Which of the following are commonly used depreciation methods? a. Activity-based b. Value-based c. Straight-line d. Increasing-balance e. Declining-balance

a,c,e

Companies use accelerated depreciation for tax purposes because a. It is required by the IRS. b. It does a better job of matching expenses to revenues of the period. c. It reduces taxable income in the early years of the asset's life and provides better cash flows.

c

_____ ____ are often based on a legal contract

intangible assets

Which statement is true about the straight-line method of depreciation? a. It allocates an equal amount of depreciation to each year the asset is used. b. It recognizes expense proportionately with the amount of use of the asset. c. It is an accelerated method of depreciation. d. It is the preferred method for companies expecting to use the asset more in its early years of life.

a

when you _____ a good, the cost of the expenditures will be expenses and not roll into the value of the asset

expense