Acct 5312 McGraw Ch6
Accumulated depreciation is: an expense account. a liability account. a contra asset account. a revenue account.
a contra asset account.
Assume that land, buildings, and equipment were acquired for a lump-sum purchase price of $100,000. Appraised values were as follows: land, $40,000; buildings, $100,000; and equipment, $20,000. Buildings would be recorded for: Multiple choice question. $60,000. $50,000. $62,500. $100,000.
$62,500.
Which of the following accounts are examples of intangible assets? Franchises Patents Prepaid insurance Accounts receivable Brand names Trademarks
Franchises Patents Brand names Trademarks
12. Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method. What is the firm's gain or loss if the machinery is sold for $11,000 on December 31, 2015? A. Gain of $4,000 B. Gain of $3,080 C. Loss of $600 D. Loss of $4,000
Gain of $3,080
16. The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for buildings? A. 150% declining-balance. B. Double-declining-balance. C. Straight line. D. Buildings are not depreciable assets.
Straight line.
When calculating depreciation expense for the first year of an asset's use, under which of the following methods would the asset's estimated salvage value be subtracted from the cost of the asset? LIFO Straight-line Units-of-production Double-declining-balance Sum-of-the-years'-digits
Straight-line Units-of-production Sum-of-the-years'-digits
In the depreciation process, when is the cost of an asset allocated? Any time an asset incurs additional expenses associated with ownership The moment an asset is sold or loses all of its practical value In the fiscal year in which an asset is purchased Over the span of years in which the benefits of an asset are expected to be received
Over the span of years in which the benefits of an asset are expected to be received
One of the effects of a goodwill impairment loss on the financial statements is that: total assets increase as the fair value of goodwill appreciates. a loss is recognized, which decreases net income. the net book value of intangible assets remains the same with offsetting debits and credits. a liability is recorded for the amount of the goodwill impairment.
a loss is recognized, which decreases net income.
27. Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights are all subject to: A. depreciation. B. amortization. C. depletion. D. consolidation.
amortization.
Under IFRS, noncurrent assets must be revalued on a regular basis. This often results in: an increase (credit) to the noncurrent asset's carrying value. a decrease (debit) to the noncurrent asset's carrying value. an increase (credit) in "Accumulated other comprehensive income (loss)" on the income statement. an increase (credit) in "Accumulated other comprehensive income (loss)" within stockholders' equity.
an increase (credit) in "Accumulated other comprehensive income (loss)" within stockholders' equity.
Towns Co. purchased Timber Inc. for $4,200,000 in cash. The fair value of the net acquired assets were as follows: Inventory = $700,000; Land = $1,000,000; Buildings = $2,000,000; and Notes Payable = $400,000 (Towns Co. assumed the note in full). As a result of this transaction, Towns Co. would: debit Goodwill for $900,000 debit Goodwill for $100,000 debit Goodwill for $500,000 credit Goodwill for $900,000
debit Goodwill for $900,000
Maintenance expenditures should be capitalized if they: are recorded as an expense rather than as an asset. are required by the regularity authority to do so. form the part of routine expenses for the concerned firm. extend the useful life and/or increase the salvage value of an asset.
extend the useful life and/or increase the salvage value of an asset.
Without considering the other factors, a maintenance expenditure should be capitalized if the expenditure does which of the following? is material in amount. extends the useful life of the asset. increases the salvage value of the asset. is required by law or regulation.
extends the useful life of the asset. increases the salvage value of the asset.
Quiz: If there is a loss on the disposal of a depreciable asset: no cash was received in the disposal transaction. the net book value of the asset was negative. in retrospect, the life over which the asset was depreciated was too short. in retrospect, the depreciation expense recognized over the asset's life was too low.
in retrospect, the depreciation expense recognized over the asset's life was too low.
18. If an organization has an obligation to pay $5,000 to a supplier two years from now, the present value of the obligation: A. is less than $5,000. B. is $5,000. C. is more than $5,000. D. could be calculated using an annuity factor from the present value tables.
is less than $5,000.
If the book value of goodwill does not exceed its fair value, goodwill Blank______. is tested for impairment losses is recorded in the income statement instead of the balance sheet is not considered impaired is amortized on a double-declining balance basis for 10 years or more
is not considered impaired
11. Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method. What is the accumulated depreciation for this asset on December 31, 2015? A. $4,400 B. $5,280 C. $8,800 D. $14,080
$14,080
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. Depreciation expense for Year 2 (the second year of the asset's life) under the double-declining-balance method would be: $38,400 $24,000 $14,400 $16,000
$14,400
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. The balance of the Accumulated Depreciation account at the end of Year 2 (the second year of the asset's life) under the double-declining-balance method would be:
$38,000 Reason:20% × 2 = 40% × $60,000 = $24,000 in Year 1. $60,000 - $24,000 = $36,000 × 40% rate = $14,400 in Year 2 = $38,400 in total
Quiz: Lightfoot Corporation incurred the following expenditures: $8,000 cost of annual property insurance on the company's warehouse; $12,000 cost to develop and register a trademark; $30,000 cost to pave the parking lot for the company's distribution center; $2,000 cost of repairs and maintenance on the company's lawn service equipment. The total amount of these expenditures that Lightfoot Corporation should be capitalized are? $42,000 $38,000 $50,000 $44,000
1. Amount to be capitalized = 12,000+30,000 = 42,000 Option C . Double declining rate = 200/useful life = 200/5 = 40% = 44,000*40% = 17,600 Option A
4. Which of the following statements best describes the process of accounting for depreciation? A. A process that attempts to recognize loss in economic value over a period of time. B. A process for setting aside cash so funds will be available to replace the asset. C. A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset. D. A process for recognizing all of the cost associated with using an asset in a revenue generating activity.
A process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset.
Which are considered general categories of methods used to calculate depreciation? Accelerated methods Salvage methods Straight-line methods Estimated-cost methods
Accelerated methods Straight-line methods
32. Which of the following is not a term that describes part of the accounting for noncurrent assets? A. Accumulation. B. Depletion. C. Amortization. D. Depreciation.
Accumulation.
Which of the following best characterizes how a long-term operating lease expense is recognized on a balance sheet? As a straight-line representing total annual rental payments As a decreasing line representing asset depreciation over time As a single line item recorded at the termination of the lease As an increasing line representing the aggregate total of all payments made
As a straight-line representing total annual rental payments
Which of the following require educated guesses on the part of accountants in order to determine depreciation? Useful life Salvage value Loan interest Original cost
Useful life Salvage value
When are noncurrent assets moved to the current asset section of the balance sheet? When they become receivable within one year When their value drops below zero When they become liabilities When they become intangible assets
When they become receivable within one year
28. When a depreciable asset is sold: A. a gain arises if the sales proceeds exceed the net book value. B. a loss arises if the sales proceeds exceed the net book value. C. any cash received results in a gain. D. depreciation expense is adjusted so there is no gain or loss.
a gain arises if the sales proceeds exceed the net book value.
2. Expenditures capitalized as long-lived assets generally include those expenditures that: A. are made for normal repairs to maintain the usefulness of the asset over a number of years. B. are for items that have a physical life of more than a year, regardless of their cost. C. are material in amount and that have an economic benefit to the entity only in the current year. D. are material in amount and that have an economic benefit to the entity that extends beyond the current year.
are material in amount and that have an economic benefit to the entity that extends beyond the current year.
Leasehold improvements made with respect to leased assets are recorded as: liabilities by the lessor for the cost of expenditures properly capitalized. liabilities by the lessee for the cost of expenditures properly capitalized. assets by the lessor for the cost of expenditures properly capitalized. assets by the lessee for the cost of expenditures properly capitalized.
assets by the lessee for the cost of expenditures properly capitalized.
The gain or loss on the sale of a depreciable asset is, in effect, a Blank______. correction of the total depreciation expense that has been recorded over the life of the asset. measure of the asset's worth to the entity during its period of ownership. correction of the difference between the book depreciation (expense) and tax depreciation (deductions) recorded over the life of the asset. reward (gain) or punishment (loss) to the entity for selling an overperforming (gain) or an underperforming (loss) asset.
correction of the total depreciation expense that has been recorded over the life of the asset.
A machine that cost $7,000 when new and had a net book value of $2,000 was sold for $1,400. The journal entry to record the sale of the machine would include a: debit to Loss on Sale of Machine for $1,400. credit to Machine for $7,000. credit to Cash for $3,000. debit to Accumulated Depreciation for $2,000.
credit to Machine for $7,000.
Speedbag, Incorporated purchased equipment at a cost of $60,000 on July 1, 2023. The expected useful life is 4 years and the asset is expected to have salvage value of $10,000. Speedbag depreciates its assets using the straight-line method. What is the accumulated depreciation for this asset on December 31, 2024? $12,500 $18,750 $30,000 $25,000
Depreciation expense ( per year) = ( Cost of equipment - Salvage Value) / Useful life
Quiz: Newman Company purchased CNC router cutting and engraving machinery at a cost of $320,000 in January 2022. The company's estimated useful life of this high-tech equipment is 5 years, and the estimated salvage value is $48,000. Using declining-balance depreciation at twice the straight-line rate, the depreciation expense to be recognized for 2023, the second year of the machinery's life, would be: $51,200. $43,520. $84,480. $76,800.
Double decling balance depreciation = Book value * 2 * (1 / Useful life) Depreciation for Year 1 = 320000 * 2 * (1/5) = 128000 Book value at the end of Year 1 = 320000 - 128000 = 192000 Depreciation for Year 2 = 192000 * 2 * (1 /5) = $76800 Correct choice C
Under which depreciation method is the estimated salvage value ignored when making the depreciation expense calculation for the first year of an asset's use? Double-declining-balance Sum-of-the-years'-digits Straight-line Units-of-production
Double-declining-balance
Stills Inc. leases a machine and agrees to make annual lease payments of $14,000 for 3 years. The present value of all of the lease payments is $38,000. The entry to record this transaction is: Dr. Equipment 42,000 Cr. Capital Lease Liability 42,000 Dr. Equipment 38,000 Cr. Notes Payable 38,000 Dr Equipment 38,000 Cr Lease Liability 38,000 Dr. Equipment 42,000 Cr. Notes Payable 42,000
Dr Equipment 38,000 Cr Lease Liability 38,000
Crosby Co. leases a machine and agrees to make annual lease payments of $11,000 for 5 years. The present value of all of the lease payments is $40,000. The entry to record this transaction is: Dr. Equipment 40,000 Cr. Notes Payable 40,000 Dr. Equipment 40,000 Cr. Lease Liability 40,000 Dr. Equipment 55,000 Cr. Notes Payable 55,000 Dr. Equipment 55,000 Cr. Lease Liability 55,000
Dr. Equipment 40,000 Cr. Lease Liability 40,000
The entry made to record the impairment of goodwill is: Dr. Goodwill Cr. Goodwill Impairment Loss Dr. Accumulated Amortization Cr. Goodwill Dr. Goodwill Impairment Loss Cr. Accumulated Amortization Dr. Goodwill Impairment Loss Cr. Goodwill
Dr. Goodwill Impairment Loss Cr. Goodwill
At the inception of a financing lease, the financial statements effects are: Dr. Noncurrent asset Cr. Current liability Dr. Current asset Cr. Current liability Dr. Noncurrent asset Cr. Noncurrent liability Dr. Current asset Cr. Noncurrent liability
Dr. Noncurrent asset Cr. Noncurrent liability
How often is a depreciation expense recorded? Once, when a noncurrent asset is sold or disposed of When an asset loses more than 50 percent of its value In each fiscal accounting period When preparing for an external audit
In each fiscal accounting period
With regard to a financial lease, when is the greatest amount of total expense recognized on a balance sheet? At the midpoint of the lease term In the early part of the lease term Equally throughout the lease term Near the end of the lease term
In the early part of the lease term
Which of the following appear under the noncurrent asset category? Income tax assets deferred more than a year Short-term receivables Long-term investments Operational leases
Income tax assets deferred more than a year Long-term investments
25. Leasehold is an example of which of the following types of assets? A. Current asset. B. Property, plant and equipment. C. Goodwill. D. Intangible asset.
Intangible asset.
Which of the following are true of intangible assets? Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter. The cost of obtaining intangible assets should be capitalized. Intangible assets are amortized over their remaining useful life or their statutory life, whichever is longer.
Intangible assets are amortized over their remaining useful life or their statutory life, whichever is shorter. The cost of obtaining intangible assets should be capitalized.
17. The Modified Accelerated Cost Recovery System (MACRS) specifies which of the following depreciation methods for land? A. 150% declining-balance. B. Double-declining-balance. C. Straight line. D. Land is not a depreciable asset.
Land is not a depreciable asset.
Which of the following items are capitalized as part of the cost of land acquired? Depreciation of the land Cost of architectural drawings for the construction of a building on the land Legal fees Title fees Cost of razing an old building on the land, net of salvage proceeds Purchase price of the land
Legal fees Title fees Cost of razing an old building on the land, net of salvage proceeds Purchase price of the land
Which of the following statements is true about goodwill once it is considered to be partially impaired and has been written down to its partially impaired value? This becomes the new market value of goodwill and is amortized on a straight-line basis for five years or less. This becomes the new fair value of goodwill, and no further impairment testing is done in subsequent years. No subsequent upward adjustments are permitted for recoveries of fair value. Subsequent upward adjustments for recoveries of fair value can increase goodwill up to the originally reported amount.
No subsequent upward adjustments are permitted for recoveries of fair value.
Where is the expense for a short-term operating lease recorded? On the balance sheet On the income statement On the residual value statement On the capital lease sheet
On the income statement
What kind of lease does not involve any significant aspects of ownership? Financing Long-term Balance-sheet Operating
Operating
Quiz: Azubuike Limited purchased inventory, land, and a building for a lump-sum purchase price of $1,500,000 from a bankrupt competitor. Appraised values were as follows: inventory, $200,000; land $600,000; building, $1,200,000. The land should recorded as an asset on Azubuike's books for: $550,000. $450,000. $600,000. $500,000.
Total appraisal value = 200,000 + 600,000 + 1,200,000 = 2,000,000 Amount to be recorded for land = (600,000/2,000,000) * 1,500,000 = 450,000
Depletion is usually recognized: using the double-declining-balance method. on a straight-line basis. on a FIFO basis. using the MACRS rates.
on a straight-line basis.
19. Depreciation, in accounting, is a process that results in: A. depreciable assets being reported in the balance sheet at their fair value. B. accumulating cash for the replacement of the asset. C. an accurate measurement of the economic usefulness of an asset. D. spreading the cost of an asset over its useful life to the entity.
spreading the cost of an asset over its useful life to the entity.
Quiz: Depreciation, in accounting, is a process that results in: depreciable assets being reported in the balance sheet at their fair value. accumulating cash for the replacement of the asset. spreading the cost of an asset over its useful life to the entity. an accurate measurement of the economic usefulness of an asset.
spreading the cost of an asset over its useful life to the entity.
7. It is not unusual for a company to use different depreciation methods for book and tax purposes. When this happens, the firm usually: A. uses an accelerated depreciation method for book purposes. B. uses an accelerated depreciation method for tax purposes. C. is trying to maximize its taxable income. D. is trying to minimize its book income.
uses an accelerated depreciation method for tax purposes.
13. When a machine having a net book value of $5,000 is sold for $4,000: A. current assets decrease, equipment (net) increases, and net income increases. B. current assets increase, equipment (net) decreases, and net income increases. C. current assets increase, equipment (net) decreases, and net income decreases. D. current assets increase, equipment (net) increases, and net income decreases.
current assets increase, equipment (net) decreases, and net income decreases.
In practice, most accountants decide in favor of expensing rather than capitalizing for several reasons, including: capitalizing an expenditure increases reported net income. expensing an item avoids the need of keeping depreciation records. expensing an item yields an immediate deduction for income tax purposes. capitalizing an expenditure increases reported asset values. capitalizing requires a revision of estimates for useful life and salvage value.
expensing an item avoids the need of keeping depreciation records. expensing an item yields an immediate deduction for income tax purposes. capitalizing requires a revision of estimates for useful life and salvage value.
Goodwill results from the purchase of one firm by another: for a price that is greater than the fair value of the total assets acquired. for a price that is greater than the fair value of the net assets acquired. for a price that is greater than the fair value of the tangible assets acquired. for a price that is less than the fair value of the net assets acquired.
for a price that is greater than the fair value of the net assets acquired.
A truck that cost $43,000 was sold for $25,000 at a time when its net book value was $14,000. As a result of this transaction, the company would have recorded a: loss on sale of truck for $11,000. gain on sale of truck for $18,000. gain on sale of truck for $19,000. gain on sale of truck for $11,000.
gain on sale of truck for $11,000.
Relative to the straight-line method, the effects of using an accelerated depreciation method during inflationary times are: greater amounts reported as depreciation expense and lower amounts reported as net income. lower amounts reported as depreciation expense and lower amounts reported as net income. greater amounts reported as depreciation expense and higher amounts reported as net income. lower amounts reported as depreciation expense and higher amounts reported as net income.
greater amounts reported as depreciation expense and lower amounts reported as net income.
14. If there is a loss on the disposal of a depreciable asset: A. no cash was received in the disposal transaction. B. the net book value of the asset was negative. C. in retrospect, the life over which the asset was depreciated was too short. D. in retrospect, the depreciation expense recognized over the asset's life was too low.
in retrospect, the depreciation expense recognized over the asset's life was too low.
5. The entry to record depreciation expense: A. increases a contra asset and decreases net income. B. decreases a contra asset and decreases net income. C. decreases working capital and decreases net income. D. decreases an asset and increases a contra asset.
increases a contra asset and decreases net income.
31. Accounting for natural resources: A. involves using the accumulated depreciation account. B. involves estimating the quantity of the natural resource to be recovered. C. involves an exception to the matching concept. D. involves a sum-of-the-year's-digits depletion calculation.
involves estimating the quantity of the natural resource to be recovered.
Quiz: The intangible asset goodwill: represents management's assessment of the value of the superior customer service provided by the company. may arise when one company purchases another company. arises because the fair value of a company's inventory is greater than its cost. is recorded on the parent company books at the time a subsidiary company is sold or otherwise disposed of
may arise when one company purchases another company.
8. The present value concept is widely applied in business because: A. inflation erodes the purchasing power of money. B. money has value over time. C. accounting for operating leases requires its use. D. most obligations are settled within a year.
money has value over time.
Quiz: The present value concept is widely applied in business because: money has value over time. long-term operating assets depreciate over time. inflation erodes the purchasing power of money. most obligations are settled within a year.
money has value over time.
Under U.S. GAAP, goodwill is: not amortized, but tested annually for impairment. amortized over a period of 5 years or less on the straight-line method. amortized over a period of 20 years or less on the straight-line method. amortized over a period of 40 years or less on the straight-line method.
not amortized, but tested annually for impairment.
Wiggs Co. purchased Wolves Inc. for $6,000,000 in cash. The fair value of the net acquired assets were as follows: Inventory = $1,500,000; Land = $1,000,000; Buildings = $2,000,000; and Mortgage Payable = $600,000 (Wiggs Co. assumed the mortgage in full). As a result of this transaction, Wiggs Co. would report goodwill for: $2,100,000 $1,500,000 $900,000 Indeterminable.
$2,100,000 Reason: ($6.0 million - ($1.5 + $1.0 + $2.0 - $0.6) million = $6.0 - $3.9 million = $2,100,000)
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. Depreciation expense for Year 1 (the first year of the asset's life) under the double-declining-balance method would be: $10,000 $24,000 $12,000 $20,000
$24,000 Reason:5-year life = 20% per year × 2 = 40% rate × $60,000 = $24,000
A boat was sold for $160,000, which resulted in a loss of $20,000. Accumulated depreciation on the boat (updated to the date of sale) was $105,000. The original cost of the boat was: $245,000 $285,000 $265,000 $160,000
$285,000
f a parcel of land was acquired for $50,000 in Year 1 and sold for $120,000 in Year 10, a Blank______. $70,000 gain would be recognized gradually between Year 1 and Year 10 as the land appreciated, based on appraisal values. $70,000 gain on the sale of land would be recognized in Year 10. gain on the sale of land would be recognized in Year 10 for $70,000 less any depreciation recorded between Year 1 and Year 10. gain on the sale of land would be recognized in Year 10 for $120,000 less the most recent appraisal value of the land.
$70,000 gain on the sale of land would be recognized in Year 10.
10. Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2014. The expected useful life is 5 years and the asset is expected to have salvage value of $2,000. Moped depreciates its assets using the double-declining balance method. What is the firm's depreciation expense for the year ended December 31, 2014? A. $2,000 B. $4,400 C. $6,000 D. $8,800
$8,800
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of Year 1 (the first year of the asset's life) under the units-of-production method would be: ($0.50 per mile × total miles driven during Year 1) ($0.60 per mile × total miles driven during Year 1) $12,000 $10,000
($0.50 per mile × total miles driven during Year 1)
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life of 5 years to Velco and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. Depreciation expense for Year 3 (the third year of the asset's life) under the units-of-production method would be: ($0.50 per mile × total miles driven during Year 3) $10,000 ($0.50 per mile × total miles driven from Year 1-Year 3) ($0.60 per mile × total miles driven during Year 3)
($0.50 per mile × total miles driven during Year 3) Reason:($60,000 - $10,000) / 100,000 = $0.50 per mile × total miles driven during Year 3.
Which of the following factors are normally considered in determining whether to capitalize or to expense an expenditure? Whether the purchased item will provide economic benefits to the entity that extend beyond the current year Whether the purchased item represents a material expenditure to the company The potential income tax reduction in the current year that results from expensing the item Whether the expenditure helps to fulfill the company's social responsibilities
-Whether the purchased item will provide economic benefits to the entity that extend beyond the current year -The potential income tax reduction in the current year that results from expensing the item -Whether the purchased item represents a material expenditure to the company
Buildings and equipment are recorded at their original cost, which includes the purchase price plus: interest costs incurred during the construction phase of a building. material, labor, and overhead costs for equipment made by a firm's own employees. the cost of the land that is being used for the building's construction site. installation and shakedown costs. the cost of paving a parking lot next to the building and lighting for the parking lot.
-material, labor, and overhead costs for equipment made by a firm's own employees. -installation and shakedown costs. -interest costs incurred during the construction phase of a building.
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. Depreciation expense for Year 1 (the first year of the asset's life) under the straight-line method would be: $10,000 $12,000 ($0.50 per mile × total miles driven during Year 1) ($0.60 per mile × total miles driven during Year 1)
=$10,000 Reason:($60,000 - $10,000) / 5 = $10,000
Assume that land, buildings, and equipment were acquired for a lump-sum purchase price of $100,000. Appraised values were as follows: land, $40,000; buildings, $100,000; and equipment, $20,000. Equipment would be recorded for: $12,500. $20,000. $10,000. $15,000.
=$12,500 Reason:$12,500 = ($20,000 / ($40,000 + $100,000 + $20,000)) = 12.5% × $100,000
Quiz: Which of the following statements concerning the accounting for leases is not true? Assets rented under a short-term operating lease are not reflected on the lessee's balance sheet, and the rent expense (or lease expense) involved is reported in the income statement as an operating expense. The economic impact of a financing lease isn't really any different from buying the asset outright and signing a note payable that will be paid off, with interest, over the life of the asset. At the inception of a financing lease, the lessee's total assets and total stockholders' equity are both increased for the present value of the lease payments to be made over the life of the lease. A financing lease results in the lessee assuming virtually all the benefits and risks of ownership of the leased asset.
At the inception of a financing lease, the lessee's total assets and total stockholders' equity are both increased for the present value of the lease payments to be made over the life of the lease.
15. Which of the following could be a correct journal entry to record the disposition of equipment? A. Option A B. Option B C. Option C D. Option D
Debit Cash, Loss on sale of equipment, accumulated depreciation, credit equipment
Which of the following are correct statements about accounting for depletion of natural resources? Depletion expense is very easy to estimate in practice. Depletion expense is recorded in the statement of cash flows along with the related natural resources. Depletion expense allowed for federal income tax purposes frequently differs from that recognized for financial accounting purposes. Depletion expense is recorded in the income statement for the related natural resources.
Depletion expense allowed for federal income tax purposes frequently differs from that recognized for financial accounting purposes. Depletion expense is recorded in the income statement for the related natural resources.
Which of the following accounts are examples of intangible assets? Multiple select question. Goodwill Leaseholds Customer lists Copyrights Merchandise inventory Current maturities of long-term debt
Goodwill Leaseholds Customer lists Copyrights
Accelerated depreciation methods result in (greater/lower) depreciation expense and (higher/lower) net income than the straight-line depreciation method during the early years of an asset's life.
Higher Lower
Over the life of a financing lease, which of the following effects occur on the income statement of the lessee? Interest income is credited (increased) on an annual basis. Rent expense is debited (increased) on an annual basis. Interest expense is debited (increased) on an annual basis. Accumulated depreciation is credited (increased) on an annual basis. Depreciation expense is debited (increased) on an annual basis.
Interest expense is debited (increased) on an annual basis. Depreciation expense is debited (increased) on an annual basis.
3. Which of the following accounting concepts/principles is most significant in the development of a capitalization policy? A. Matching of revenue and expense. B. Materiality. C. Original Cost. D. Consistency.
Materiality.
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. Depreciation expense for Year 3 (the third year of the asset's life) under the straight-line method would be: ($0.60 per mile × total miles driven during Year 3) $12,000 $10,000 ($0.50 per mile × total miles driven during Year 3)
Reason:($60,000 - $10,000) / 5 = $10,000
Velco purchased a delivery truck at the beginning of Year 1 at a cost of $60,000. The truck is estimated to have a useful life to Velco of 5 years and an estimated salvage value of $10,000. It is estimated that the truck will be driven 100,000 miles during Velco's ownership period. The balance of the Accumulated Depreciation account at the end of Year 3 (the third year of the asset's life) under the straight-line method would be: ($0.50 per mile × total miles driven during Year 1) ($0.50 per mile × total miles driven from Year 1 to Year 3) $30,000 ($0.60 per mile × total miles driven from Year 1 to Year 3)
Reason:($60,000 - $10,000) / 5 = $10,000 × 3 = $30,000
Which of the following aspect of depreciation is ignored for the purposes of income tax preparation? Original cost Loan interest Salvage value Useful life
Salvage value
Regarding the MACRS rules of calculating depreciation for income tax purposes, which of the following statements are true? The MACRS rules simplify the calculation of the useful life of assets relative to the straight-line alternative. The MACRS rules must also be used for financial statement purposes if they are used for income tax purposes. The MACRS rules are based on the units-of-production method. The MACRS rules provide accelerated deductions relative to the straight-line alternative. The MACRS rules eliminate the need to estimate an asset's salvage value.
The MACRS rules simplify the calculation of the useful life of assets relative to the straight-line alternative. The MACRS rules provide accelerated deductions relative to the straight-line alternative. The MACRS rules eliminate the need to estimate an asset's salvage value.
Identify a reason for a firm being ready to pay more for a business than the fair value of its net assets. The business being purchased has been able to earn a less than average rate of return on its invested net assets. The book value of the business being purchased is equal to its market value. The business being purchased has been able to earn a greater than average rate of return on its invested net assets. The business being purchased has been able to earn an average rate of return on its invested net assets.
The business being purchased has been able to earn a greater than average rate of return on its invested net assets.
Identify a true statement about goodwill that is considered to be impaired and has been written down to its impaired fair value. Any subsequent impairment of goodwill should not bring the book value of goodwill below the total stockholders' equity. There will be no further impairment testing permitted in the future unless the concerned company's annual profit exceeds $5 million. The impaired fair value is required to be fully written off over three years following the year of impairment. The impaired fair value would become the new book value that would be used as the reference to determine further impairment in future years.
The impaired fair value would become the new book value that would be used as the reference to determine further impairment in future years.
30. The intangible asset goodwill: A. represents the management team's assessment of its value to the company. B. may arise when one company purchases another company. C. arises because the fair value of a company's assets is greater than cost. D. all of these are correct.
may arise when one company purchases another company.
What do alternative methods of calculating depreciation have in common? They have a direct effect on the total depreciation expense to be recognized. They add the purchase price of an asset to its estimated salvage value to determine depreciation. They spread the depreciation amount across an asset's estimated useful life. They have the same patterns of depreciation expense by fiscal period.
They spread the depreciation amount across an asset's estimated useful life.
29. Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI: A. is less than the fair value of the net assets of the acquired company. B. is more than the fair value of the net assets of the acquired company. C. is more than the fair value of the net assets of the acquiring company. D. is less than the fair value of the net assets of the acquiring company.
is more than the fair value of the net assets of the acquired company.
The net book value (carrying value) of a noncurrent asset: is the difference between the cost of the asset and the fair value of the asset. is the difference between the cost of the asset and the accumulated depreciation on that asset. is the difference between the fair value of the asset and the accumulated depreciation on that asset. is the sum of the cost of the asset and the accumulated depreciation on that asset.
is the difference between the cost of the asset and the accumulated depreciation on that asset.
33. Many companies use accelerated depreciation for tax purposes because: A. it is easier to calculate than straight-line depreciation. B. it reflects the amount of cash used in depreciation. C. it results in lower taxable income than straight-line depreciation. D. it is used for determining net income reported to stockholders.
it results in lower taxable income than straight-line depreciation.
A basket purchase transaction results when two or more noncurrent assets are purchased for a lump-sum purchase price that is: greater than the total appraisal fair value of the individual assets acquired. less than the total book value of the individual assets acquired. greater than the total book value of the individual assets acquired. less than the total appraised fair value of the individual assets acquired.
less than the total appraised fair value of the individual assets acquired.
A machine that cost $32,000 was sold for $24,000 at a time when its net book value was $29,000. As a result of this transaction, the company would have recorded a: loss on sale of machine for $5,000. loss on sale of machine for $3,000. gain on sale of machine for $5,000. gain on sale of machine for $3,000.
loss on sale of machine for $5,000.
If a parcel of land that cost $130,000 last year was sold for $110,000 this year, a Blank______. loss on the sale of the land of $20,000 would be recognized this year. loss on the sale of the land of $20,000 in total would be recognized, partially last year and partially this year. gain on the sale of the land of $20,000 would be recognized this year. loss on the sale of the land of $20,000 would be recognized last year.
loss on the sale of the land of $20,000 would be recognized this year.
The primary difference between U.S. GAAP and IFRS with respect to noncurrent assets is that noncurrent assets are recorded at: original cost under U.S. GAAP and on a fair value basis less accumulated depreciation under IFRS. original cost less accumulated depreciation under U.S. GAAP and on a fair value basis with regular revaluations under IFRS. original cost less accumulated depreciation under U.S. GAAP and on an inflation indexed basis under IFRS. original cost less accumulated depreciation under IFRS and on a fair value basis with regular revaluations under U.S. GAAP.
original cost less accumulated depreciation under U.S. GAAP and on a fair value basis with regular revaluations under IFRS.
Land that is owned and used in the operations of a firm is shown on the balance sheet at its: original cost less accumulated depreciation. replacement cost. original cost. current market value.
original cost.
An expenditure should be capitalized if the acquired item will have an economic benefit to the entity that extends beyond the current fiscal year. An example of this is: rent of an office building. purchase of machinery. research and development costs. preventive maintenance costs.
purchase of machinery.
Intangible assets are amortized over their: remaining useful life or their statutory life, whichever is shorter. remaining useful life or their statutory life, whichever is longer. remaining useful life. their statutory life.
remaining useful life or their statutory life, whichever is shorter.
For income tax purposes, most firms use the MACRS rates for determining depreciation deductions because: units-of-production rates are not as accelerated as the MACRS rates. sum-of-the-years'-digits rates are not as accelerated as the MACRS rates. the MACRS rates provide accelerated deductions relative to the straight-line alternative. the MACRS rates are easier to calculate than the straight-line alternative.
the MACRS rates provide accelerated deductions relative to the straight-line alternative.
6. The net book value of a depreciable asset is: A. the fair value of the asset. B. the amount for which the asset should be insured. C. the difference between the asset's cost and accumulated depreciation. D. the difference between the asset's cost and depreciation expense.
the difference between the asset's cost and accumulated depreciation.
9. When an accelerated depreciation method is used to calculate depreciation expense: A. the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used. B. the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is used. C. depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used. D. the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's life than if straight-line depreciation is used.
the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is used.
The gain or loss on the disposal of a depreciable asset is, in effect, a correction of the missed depreciation estimates because if the salvage value and useful life estimates had been correct, Blank______. the net book value of the asset would be equal to the proceeds received from its sale or disposal the impaired value of the asset would be more than the proceeds received from its sale or disposal the net book value of the asset would be less than the proceeds received from its sale or disposal the impaired value of the asset would be less than the proceeds received from its sale or disposal
the net book value of the asset would be equal to the proceeds received from its sale or disposal
26. The principal challenge to calculating depletion is estimating: A. the cost of the asset. B. the salvage value of the exploration equipment. C. the demand for the product. D. the quantity of material to be recovered.
the quantity of material to be recovered.
1. When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land: A. any of the purchase cost allocated to the old building is reported as a loss. B. the cost assigned to the land excludes the cost of the old building. C. the total cost of the land and old building are capitalized as land cost. D. any of the purchase cost allocated to the old building is capitalized as part of the cost of the new building.
the total cost of the land and old building are capitalized as land cost.
Buildings and equipment are recorded at their original cost, which includes the purchase price plus all ordinary and necessary costs incurred: to obtain legal title to the building or equipment. to use the building or equipment in a manner that will enhance the firm's profitability. to get the building or equipment ready for sale in the ordinary course of business. to get the building or equipment ready for its use in the operations of the firm.
to get the building or equipment ready for its use in the operations of the firm.
When the tenant of an office building makes modifications to the office space, the cost of these modifications is a capital expenditure to be amortized over their useful life Blank______. to the owner or over the life of the lease, whichever is longer to the tenant or over the life of the lease, whichever is longer to the owner or over the life of the lease, whichever is shorter to the tenant or over the life of the lease, whichever is shorter
to the tenant or over the life of the lease, whichever is shorter
True or false: Because depreciation involves estimates of useful life and salvage value to begin with, revising those estimates without overwhelming evidence that they are significantly in error is an exercise of questionable value. True or False
true
