ATCG 500 Ch 8 SmartBook

The Black Limo Company (BLC) sold a limo that had been used in it operations. The limo cost $48,000, had accumulated depreciation of $20,000, and was sold for $30,000. The journal entry to record the disposal of the limo includes a ______ account.

$2,000 credit to the gain on the sale of limo

Benson Company paid $180,000 to purchase a competitor's business. The purchased business had assets with a book value of $150,000, liabilities of $20,000 and equity of $130,000. The fair market value of the assets was $160,000. Based on this information, the amount of goodwill purchased was ______.

$40,000. Reason: Purchase price ($180,000 cash + $20,000 liabilities assumed) - fair market value of assets $160,000 = $40,000 goodwill.

Which of the following statements are true?

A patent grants its owner an exclusive legal right to produce and sell a product that has one or more unique features. The legal life of a patent is 20 years.

The recognition of depreciation expense affects the ______.

Balance sheet Statement of changes in stockholders' equity Income statement

The book value of a long-term tangible asset may also be called the

Blank 1: carrying Blank 2: value

Subtracting Accumulated Depreciation from the associated asset account calculates the ______________of a long-term tangible asset.

Blank 1: carrying or book Blank 2: value

The journal entry to recognize depreciation expense includes a_______ to accumulated depreciation and a ____to depreciation expense.

Blank 1: credit Blank 2: debit

The Stroller Company paid $500,000 to purchase a business competitor. The assets purchased had a book value of $390,000 and a fair market value of $450,000. Stroller assumed $15,000 of liabilities. Recording the purchase will include a______(debit/credit) to goodwill for $_________

Blank 1: debit Blank 2: 65,000

The number of years that a company expects to use a depreciable asset is called the _________life.

Blank 1: estimated Blank 2: useful

Property, plant and equipment is a classification of _______ long-term assets.

Blank 1: tangible, plant, or fixed

Property, plant and equipment is a classification of ————long-term assets.

Blank 1: tangible, plant, or fixed

Which of the following statements regarding are true?

Copyrights are granted by the federal government. A copyright is usually expensed early because of uncertain royalties

Which of the following statements is correct?

Depreciation expense is a temporary account and Accumulated depreciation is a permanent account.

Which of the following statements are true?

Different companies may use different depreciation methods for identical assets. Companies are required to disclose not only the amount of depreciation, but also the methods they use to calculate it.

True or false: All intangible assets amortized, regardless of whether they have identifiable or indefinite useful lives. True false question.

False

True or false: Similar sized companies can be expected to have similar amounts of salary expense.

False

Which of the following statements are true?

Franchises may be issued by private businesses. Franchises may be issued by the federal government.

The maximum depreciation currently allowed by tax law is computed using ______ depreciation.

MACRS

The cost of equipment includes ______. Multiple select question.

Purchase price delivery costs ordinary installation cost sales tax paid on the purchase

Which of the following is not a trademark?

Recipe for Kentucky Fried Chicken

True or false: Land has an infinite life.

True

True or false: Regardless of whether a company uses straight-line, double-declining-balance or units-of-production depreciation, the total amount of depreciation expense recognized over the useful life of an asset is the same. The methods simply assign different amounts to accounting periods.

True

True or false: Two companies that experience the exact same accounting events could report different amounts of depreciation expense.

True Reason: Managers of different companies may have honest disagreements over factors such as the useful life or salvage value of an asset. Since these factors affect the amount of depreciation expense, reporting differences are common occurrences.

The term used to recognize expense for property, plant, and equipment is ______.

depreciation

Industry characteristic generally ______ affect financial performance. Multiple choice question.

do

The method of depreciation that produces more expense in early years and less in the later years of an asset's life is ______.

double-declining-balance

The salvage value of an asset is the ______.

expected market value of a fully depreciated asset

Costs are expensed in the period incurred for amounts spent ______

for routine maintenance for minor repairs

Exclusive rights to sell products or perform services in certain geographic areas are granted by a ______.

franchise

The value attributable to favorable factors such as reputation, location, and superior products is called

goodwill

Intangible assets with an indefinite useful life include ______.

goodwill trademarks

A trademark has a(n) ______ useful life.

indefinite

Although they may be represented by physical document, ______________ assets are, in fact, rights or privileges that cannot be seen or touched.

intangible

When it comes to income tax reporting, the matching principle ______ relevant.

is not

The method used to recognize depreciation expense should ______.

match the asset's usage pattern

The depreciable cost of an asset is the cost of the asset ______.

minus the salvage value

Cash paid for revenue expenditures are reported as ______ activities on the statement of cash flow.

operating

Exclusive legal right to produce and sell a product that has one or more unique features is granted by a ______.

patent

Intangible assets with an identifiable useful life include ______.

patents copyrights

Intangible assets with an identifiable useful life include ______. Multiple select question.

patents copyrights

When a company revises the expected life of an asset without changing the salvage value, the revised calculation is based upon the ______.

remaining life of the asset

MACRS ______.

specifies the useful life for designated categories of assets

Assets that have a physical presence that enables them to be seen and touched are called __________assets

tangible

Land is a(n) ______ asset.

tangible nondepreciable

Costs ______ are capitalized.

that extend the life of a long-term asset that improve the quality of a long-term asset

When a company decides to revise an asset's useful life or salvage value, the revised amounts are used for ______.

the full year of the change

The depreciation method that may result in more depreciation expense in Year 3 than was taken in Year 2 is ______.units-of-production

units-of-production

When depreciation is recorded, the asset reduction is reported ______.

using a contra-asset account

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 4 is ______.

$0 Reason: Cash paid for the limo is shown on the Year 1 cash flow statement as an investing activity. There is no cash flow associated with the recognition of depreciation expense.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated salvage value from $8,000 to $4,000. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be ______.

$12,000 Reason: At the beginning of Year 3, the book value of the limo is $28,000 ($48,000 cost - $20,000 accumulated depreciation from Year 1 + Year 2). The remaining useful life is 2 years. Depreciation expense for each of the 2 years, including Year 3, is $12,000 per year ($28,000 book value - $4,000 salvage value) ÷ 2 years = $12,000.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 2 is

$12,000 Reason: ($48,000 cost - zero accumulated depreciation) x 50% = $24,000 Year 1; ($48,000 cost - 24,000 accumulated depreciation) x 50% = $12,000 Year 2.

Kate Company submitted an offer to purchase land listed at $120,000 for 10% below the list price. The offer was accepted. Kate paid $10,000 to remove an old structure in order to make the land ready for use. Title and attorney fees were $3,000. Annual property taxes for the first year will be $5,000. Based on this information, the cost of the land as shown on the balance sheet is ______.

$121,000 Reason: $120,000 List price x 90% = $108,000 purchase price + $10,000 structure removal + $3,000 title and attorney fees = $121,000.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000 and has an $8,000 salvage value. BLC expected to drive the limo a total of 100,000 miles. Actual miles driven were: Year 1: 30,000 milesYear 2: 40,000 miles Year 3: 20,000 miles Year 4: 25,000 miles Based on this information, depreciation expense for Year 2 using units-of-production depreciation is ______.

$16,000 Reason: ($48,000 cost - $8,000 salvage) ÷ 100,000 miles = 0.40 per mile; 40,000 miles x 0.40 = $16,000 Year 2 depreciation expense.

The Black Limo Company (BLC) sold a limo that had been used in it operations. The limo cost $48,000, had accumulated depreciation of $20,000, and was sold for $26,000. The journal entry to record the disposal of the limo includes a ______ account.

$2,000 debit to the loss on sale of limo Reason: $26,000 sales price - $28,000 book value = $2,000 loss. The journal entry to record the asset disposal would include a debit to cash for $26,000, a debit to accumulated depreciation for $20,000, a debit to the loss on sale of limo for $2,000, and a credit to limo for $48,000.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. Assume BLC uses straight-line depreciation. At the beginning of Year 3, the limo was sold for $30,000. As a result of the asset disposal, BLC will recognize a ______.

$2,000 gain Reason: $48,000 cost - $20,000 accumulated depreciation = $28,000 book value; $30,000 sales price - $28,000 book value = $2,000 gain.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. Assuming BLC uses straight-line depreciation, accumulated depreciation shown on the Year 2 balance sheet is ______.

$20,000 Reason: ($48,000 - $8,000) ÷ 4 = $10,000 per year. Accumulated depreciation accumulates from year to year. At the end of Year 2, the balance in the account is $20,000 ($10,000 from Year 1 + $10,000 from Year 2).

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000. It had an expected useful life of 4 years and a $8,000 salvage value. Assuming BLC uses double-declining-balance depreciation, depreciation expense for Year 3 is ______.

$4,000 Reason: ($48,000 cost - $36,000 accumulated depreciation) x 50% = $6,000 Year 3 Depreciation Expense per formula. However, total depreciable cost is $40,000 ($48,000 - $8,000). Since accumulated depreciation from Year 1 + Year 2 is $36,000, only an additional $4,000 of depreciation expense can be recognized.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. BLC uses the straight-line depreciation method. At the beginning of Year 3, BLC changed the estimated useful life from 4 years to 7 years. Based on this information, the amount of depreciation expense shown on the Year 3 income statement will be ______.

$4,000 Reason: At the beginning of Year 3, the book value of the limo is $28,000 ($48,000 cost - $20,000 accumulated depreciation from Year 1 + Year 2). The remaining useful life is 5 years (2 years from the original estimate + 3 additional years due to change in estimate). Depreciation expense for each of the 5 years of useful life, including Year 3, is $4,000 per year ($28,000 book value - $8,000 salvage value) ÷ 5 years = $4,000.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000 and has an $8,000 salvage value. BLC expected to drive the limo a total of 100,000 miles. Actual miles driven were: Year 1: 30,000 milesYear 2: 40,000 miles Year 3: 20,000 miles Year 4: 25,000 miles Based on this information, depreciation expense for Year 4 using units-of-production depreciation is ______.

$4,000. Reason: 25,000 miles x 0.40 = $10,000. However, total depreciable cost is $40,000 ($48,000 - $8,000). Since accumulated depreciation from Year 1 + Year 2 + Year 3 is $36,000, only an additional $4,000 of depreciation expense can be recognized.

The Black Limo Company (BLC) purchased a limo on January 1 of Year 1. The limo cost $48,000, with an expected useful life of 4 years and an $8,000 salvage value. BLC expected to drive the limo for 100,000 miles before disposing of it. Actual miles driven per year was 30,000 miles in Year 1, 40,000 miles in Year 2, 20,000 miles in Year 3, and 25,000 miles in Year 4. Based on this information which of the following statements are true?

The impact on net income will only be constant if the straight-line method is used. The timing of the expense is the only difference between the three methods. The total amount of accumulated depreciation at the end of Year 4 is $40,000, regardless of the method used to depreciate the asset.

The term used when recognizing expense for intangible assets with identifiable useful lives is

amortization

Recognizing depreciation expense is a(n) ______ transaction.

asset use

Goodwill appears on the ______.

balance sheet

Substantial amounts spent to improve the quality or extend the life of an asset are called _________expenditures.

capital

Property, plant, and equipment includes ______.

computers buildings

Writings, musical compositions, works of art, and other intellectual property are protected for the exclusive benefit of the creator or persons assigned the right by the creator by a ______. Multiple choice question.

copyright