Chapter 7: Long-term Assets

Other terms used for an activity-based depreciation method are:

(1) units of output method (2) units of production method

A __________ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service

trademark

An exclusive right to display a word, slogan, or emblem that distinctively identifies a company, product, or service is referred to as a

trademark

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic area for a specific period of time is called a

franchise

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as __________.

goodwill

U.S. GAAP

impairments are permanent and cannot be reversed

Straight-line and declining balance methods allocate the cost of a long-term asset based on __________, while an activity-based method allocates the cost of an asset based on its __________.

time; use

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

Purchased intangible asset

Patents, copyrights, trademarks, or franchise rights acquired from other companies

Internally developed intangible asset

Product or process created by company personnel for which protective patent is obtained

Capitalized

Purchase price plus costs necessary to get asset ready for use

Depreciation

Allocation of the cost of a tangible fixed asset

List the steps to determine and measure impairment of long-term assets in the correct order.

(1) Compare asset's book value to its estimated future cash flows (2) Compare asset's book value to its fair value

Which of the following expenditures are classified as repairs and maintenance for a vehicle owned by the company?

(1) Engine tune-up (2) Routine oil change

Which of the following items should be capitalized in the cost of equipment?

(1) Installation and testing of equipment (2) Freight to deliver the equipment (3) Legal fees to establish title (4) Sales tax

Which of the following items typically are classified as equipment?

(1) Machinery used in manufacturing (2) Furniture and fixtures (3) Computers and printers used in office

Which of the following is true regarding a nonmentary exchange of assets?

A gain or loss is recognized for the difference between the value of the asset given up and its book value

Capitalized as incurred

Expenditure increases future benefits derived from asset

Expensed as incurred

Expenditures yields benefits in current period only

If a company generates its own goodwill through advertising or training, how should these costs be treated?

Expense the costs as incurred

Recurring costs

Expensed during the period they are incurred

Costs of acquiring assets

Included as part of assets' acquisition costs

Expensed

Research and development costs

__________ value is the amount the company expects to receive for the asset at the end of its service life.

Residual

Property, plant and equipment

The asset is not physically used up or depleted

Natural resources

The asset is physically used up or depleted

Goodwill is recognized only when one company __________ another company.

acquires

A new major component that is added to an existing asset is considered an __________ and should be capitalized.

addition

Allocating the cost of intangible assets to expense is referred to as

amortization

The gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

The formula for calculating the double-declining-balance method is

book value at beginning of year x 2 x 1/service life

When an expenditure is recorded as an asset, we say that we __________ the expenditure.

capitalize

The purchase price and all costs to bring an asset to its desired condition and location for use should be __________.

capitalized

A __________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and self the work for the life of the creator plus 70 years

copyright

The formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is ((cost-residual value)/total estimated production) x

current-year activity or production

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

depreciation

Machines used in manufacturing, computers, printers, vehicles, furniture, and fixtures generally are classified as

equipment

The key factor in classifying items as repairs and maintenance is that

future benefits are not provided beyond those originally anticipated from the asset

The rationale for expenditures being capitalized as assets is based on whether the expenditures benefit __________.

future periods

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

goodwill

An asset that has no physical substance is referred to as an

intangible asset

The distinction between land and land improvements is that:

land has indefinite life

A long-lived asset is assumed to be impaired if its estimated future cash flows are __________ tan its book value.

less

A __________ is the exclusive right to manufacture a product or use a process granted for a period of __________ years.

patent; 20

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

recognized as an impairment loss

Costs of periodically servicing equipment is an example of

repair and maintenance

An asset that is traded for another asset is treated as an exchange, whereas an asset that is sold or retired is treated as an __________.

retirement

The amount of use that the company expects to obtain from an asset before disposing of it is referring to as the __________ life of the asset

service

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

straight-line method

The service life or useful life of an asset is

the amount of use that the company expects to obtain from the asset before disposing of it

In a basket purchase of assets, the cost must be allocated to the individual assets because

the assets have different useful lives

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

the estimated service life of the asset

Total depreciation recorded over an asset's service life is:

the same regardless of the depreciation method used

The residual value of an intangible asset is usually

zero

Clarlon purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

(1) cost of sidewalks (2) cost of driveways (3) cost of lawn sprinkler system

The two approaches for a systematic and rational allocation of the cost of an asset over its service life are

(1) time-based methods (2) activity-based methods

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

impairment

IFRS

impairments are reversed if value recovers

The depreciable cost of an asset is the asset's cost minus its __________ value.

residual

Which of the following are classified as natural resources?

(1) Oil deposits (2) Mineral deposits

Which of the following costs should be capitalized in the costs of acquiring a building?

(1) Remodeling building (2) Legal fees to obtain title (3) Realtor commissions

In an exchange of assets where a loss is indicated, which of the following occurs?

(1) The new asset is recorded at fair value (2) The loss is recognized

The types of expenditures that can occur subsequent to an asset's acquisition are

(1) improvements (2) repairs and maintenance (3) additions

A retirement or abandonment of an asset is different from a sale of an asset because

(1) no consideration is received (2) a loss must be recognized for the remaining book value