Week Four

A company purchased a patent for $100,000 at the beginning of the current year which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in the current year? $0 $5,000 $20,000 $100,000

$20,000

Flag Financial uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value. The CEO points out that the equipment will last much shorter than 10 years, perhaps 5 years. What is the impact on earnings per share and net income of depreciating equipment over 5 years rather than 10 years? Both earnings per share and net income will decrease. Both earnings per share and net income will increase. Earnings per share will decrease and net income will increase. Earnings per share will increase and net income will decrease.

Both earnings per share and net income will decrease.

Depreciation is an effort to achieve proper matching of the cost of operating assets with related revenues. an accumulation of funds to replace the related plant asset. the difference between the original cost and salvage value of an asset. the cash allocated each period to maintain a plant asset.

an effort to achieve proper matching of the cost of operating assets with related revenues.

A company should choose a depreciation method that best allocates the original cost of the asset to the periods benefited by the use of the asset. saves the most taxes. minimizes net income shows the highest amount of net income.

best allocates the original cost of the asset to the periods benefited by the use of the asset.

Goodwill can be recorded as an asset when a(n) business has above normal profitability compared to other businesses in its industry. business can determine that it has created customer goodwill and name recognition. offer is received to purchase the business at a price in excess of the value of the assets. business is purchased and payment is made in excess of the value of the net assets.

business is purchased and payment is made in excess of the value of the net assets.

The effect of recording depreciation for the year is a(n) decrease in assets and a decrease in net income. decrease in assets but no change in owners' equity. increase in assets and an increase in net income. decrease in net income and no change in assets.

decrease in assets and a decrease in net income.

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet? accumulated depreciation--buildings buildings depreciation expense--buildings land

depreciation expense--buildings

Assets classified as property, plant, and equipment are reported at each asset's estimated market value at the balance sheet date less depreciation. each asset's estimated market value at the balance sheet date. the estimated salvage value at the balance sheet date. each asset's original cost less depreciation since acquisition.

each asset's original cost less depreciation since acquisition.

How should intangible assets be disclosed on the balance sheet? as a reduction of stockholders' equity at cost in the current assets section at the estimated market value at the balance sheet date net of the costs already amortized

net of the costs already amortized

Focal Point Engineering purchased a trademark at the beginning of the year for $200,000. Although the trademark's legal life is 20 years, economic benefits were expected for only 10 years. Also, during the year, the company incurred research and development costs of $200,000. The book value of the trademark at the end of the year, is $200,000. $180,000. $175,000. $280,000.

$200,000 − ($200,000 / 10) = $180,000

Which statement is true concerning operating assets? Operating assets have no physical properties. A company's operating assets are important to its short-term liquidity. Operating assets are used over two or more periods to generate revenues. All operating assets are reported on the income statement

Operating assets are used over two or more periods to generate revenues.

Generally accepted accounting principles (GAAP) require that research and development costs to develop a new product be capitalized in the patents account. expensed in the period incurred. capitalized in the research and development costs account. amortized over the expected economic life of the new product.

expensed in the period incurred.

Which of the following is an intangible asset? oil goodwill retained earnings accounts receivable

goodwill

Operating assets with no physical properties are called current assets. intangible assets. plant assets. property, plant, and equipment.

intangible assets.

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should not be amortized, but should be reviewed annually for impairment. be reported on the statement of retained earnings in the year in which acquired. be amortized over a reasonable period of time not to exceed 40 years. be debited to an expense account entirely in the year in which acquired.

not be amortized, but should be reviewed annually for impairment.

Plant assets are depreciated because the accrual basis of accounting requires matching of costs to revenues. cash basis of accounting requires depreciation. the book values equal market values. the replacement cost of plant assets may fluctuate over time.

the accrual basis of accounting requires matching of costs to revenues.

Depreciation is a process by which replacement funds are accumulated for plant and equipment. the decline in market value of plant and equipment is determined and recorded. the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset. the difference between current market value and historical cost of plant and equipment.

the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.

The accounting life of intangible assets is determined by their legal lives. their useful lives. their legal lives or useful lives, whichever is shorter. the tax life mandated by the IRS.

their legal lives or useful lives, whichever is shorter.

Research and development costs are treated as an expense when incurred. capitalized but not amortized. capitalized and amortized over the periods that will probably benefit from the research and development. included with the cost of the patent resulting from the research and development.

treated as an expense when incurred.

Land is not depreciated because it appreciates in value. does not have an established depreciable life. has a useful life that is limited to the period of time a company is in business will provide future benefits for a company for an unlimited period of time.

will provide future benefits for a company for an unlimited period of time.