Accounting Chapter 7

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

intangible asset.

Intangible assets that are acquired from other entities are referred to as purchased intangibles, whereas intangibles that are created by a company are referred to as

internally developed intangibles.

Costs of periodically servicing equipment is an example of:

repair and maintenance

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

retirement

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

trademark

A_________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

The journal entry to retire old equipment that is not fully depreciated includes a:

credit to equipment debit to accumulated depreciation debit to loss

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

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

Goodwill may only be recognized

in a business acquisition.

An asset that has no physical substance is called a(n) _____ asset.

intangible

On January 1, 20X1, Claire Corp. purchases a patent. One month after acquiring the patent, Claire paid $3,000 in legal fees to successfully defend its right to the patent. The $3,000 should be:

added to the Patent account

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

Which item qualifies as an addition and should be capitalized?

Adding a new computer-aided cutting device to an existing machine.

Linx purchases an intangible asset for $10,000. How should the $10,000 be reported in the financial statements?

As an asset for $10,000.

Linx Corporation internally develops an intangible asset with research and development costs of $10,000. How should Linx report this $10,000?

As an expense on the income statement.

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

Commissions Legal fees to secure title Costs to remove an old building

Which of the following items should be capitalized as land improvements?

Cost of sidewalks Cost of fences Cost of parking lots

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

Cost of sidewalks Cost of lawn sprinkler system Cost of driveways

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?

Credit equipment $120,000 Debit accumulated depreciation $40,000 Debit equipment $50,000 Debit loss on exchange $30,000

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?

Debit accumulated depreciation $40,000 Credit equipment $90,000 Debit equipment $40,000 Debit loss on exchange $10,000

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?

Debit accumulated depreciation $60,000 Credit equipment $100,000 Credit gain on exchange of asset $40,000 Debit equipment $80,000

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?

Debit equipment $50,000 Credit gain on exchange of asset $30,000 Debit accumulated depreciation $70,000 Credit equipment $90,000

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

Expense the costs as incurred.

Which of the following items are capitalized into the cost of a patent?

Filing fees Purchase price Attorney fees to secure patent

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

Freight to deliver the equipment to its location Installation and testing of equipment Insurance on equipment during shipping Purchase price Sales tax

Which of the following costs are capitalized as an asset for an internally developed patent?

Legal fees Filing fees

Which of the following items typically are classified as equipment?

Machinery used in manufacturing Furniture and fixtures Computers and printers used in office

The profit margin ratio is defined as ___ _____ divided by net sales.

Net Income

Purchased intangible asset

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

Internally developed intangible asset

Product or process created internally for which patent may be obtained.

Which of the following are long-term tangible assets?

Property Equipment

Capitalized

Purchase price plus costs necessary to get asset ready for use

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

Realtor commissions Legal fees to obtain title Remodeling building

Which of the following are expenditures for assets subsequent to acquisition?

Repairs and maintenance Additions Improvements

Expensed

Research and development costs

Which of the following items are initially recorded as an expense on the income statement?

Research and development costs Advertising costs

Which of the following are classified as natural resources?

Timber tracts Mineral deposits Oil deposits Timber forests

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?

Title insurance Costs to remove an old building Legal fees to secure title Grading the land

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

True

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

A new major component that is added to an existing asset is considered a(n) ______ and should be capitalized.

addition

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

amount received less the book value of asset sold

Goodwill is recognized only when one company _______ another company.

aquires

When assets are purchased in a group for a single sum, it is referred to as a

basket purchase

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 term ______ means to record the expenditure as an asset.

capitalize

In accounting, expenditures recorded as assets are said to be _____.

capitalized

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

capitalized

A _______ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

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 _______

deprication, amortization

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

equipment

Long-term tangible assets include

equipment. land. buildings.

For a patent developed internally, the research and development costs are

expensed as incurred.

True or false: Goodwill is the intangible value of a company's employees, management team, and business location that is recorded by the company.

false

True or false: Internally developed goodwill should be capitalized as an asset.

false

A(n) _______ is 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. (Enter one word per blank)

franchise

The distinction between land and land improvements is that:

land has an indefinite life

Long-term tangible assets include

land, land improvements, buildings, equipment, natural resources

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include.

legal costs to acquire. purchase price. required filing fees.

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

no cash is received. a loss must be recognized for the remaining book value.

The initial valuation of purchased intangible assets requires that the intangible asset is recorded at

original cost

The exclusive legal right to manufacture a product or to use a process is called a _______

patent

The cost of successfully defending a patent should be added to:

patent account

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

patent, 20

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

purchase price realtor commissions legal fees to obtain title

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

The cost of land improvements are capitalized separately from land because land improvements tend to have a _____useful life.

shorter

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

the assets have different useful lives.

Attorney fees and other costs necessary to secure a patent should be

added to the patent account.