ACG2021 Chapter 7

A change in accounting estimate requires a company to account for the change

as an error in the previous periods

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

intangible

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

the estimated service life of the asset.

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

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

Which of the following are long-term tangible assets?

-Equipment -Property

What are the financial statement effects of using the declining balance method of depreciation as compared to the straight-line method in the first year of an asset's life?

-Net income is lower -Total assets are lower

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

-repairs and maintenance -additions -improvements

For accounting purposes, depreciation is

an allocation of a cost of an asset

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

book value at beginning of the year less residual value x 2/ estimated service life.

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

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

the same regardless of the depreciation method used

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

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

cost of -parking lots -sidewalks -fences

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

-purchase price -realtor commissions -legal fees to obtain title

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

-Legal costs to acquire -required filing fees -purchase price

A(n)______ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.

trademark

The original cost of an asset minus accumulated depreciation is

book value

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year

The depreciable cost is

the cost of the asset minus the residual value.

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

definite

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

The distinction between land and land improvements is that:

land has an indefinite life

Using the declining balance method, depreciation will be

lower in earlier years, and lower in later years

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

provides benefits to the company

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the __ life of the asset

useful

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

-Remodeling building -Realtor commissions -Legal fees to obtain title

Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods?

- change in residual value of an asset - change in service life of an asset

Units of production or units of output are alternative terms for the _____ _____ depreciation method

Activity based

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

On January 1, year 1, Clem Corp. purchased equipment for $160,000. The equipment has a residual value of $10,000, and has a life of 100,000 hours. Clem uses the activity-based method of depreciation. In year 1, Clem used the machine 2,000 hours, and in year 2, Clem used the machine 3,000 hours. Which of the following statements is true?

Clem will depreciate the machine for $150,000 over its service life.

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

Cost of -sidewalks -driveways -lawn sprinkler system

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

Expense the costs as incurred.

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

The accumulated depreciation account is classified as an

contra asset

A(n) ______ 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

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

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

The term _____ means to record an expenditure as an asset

capitalize

Straight-line, declining-balance, and activity-based refer to methods commonly used to ____ property, plant, and equipment

depreciate

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

original cost

An asset ___ occurs when an asset is no longer useful, but cannot be sold

retirement

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

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

Which of these are parts of the journal entry to record depreciation?

- Debit depreciation expense - credit accumulated depreciation

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

intangible asset

A(n) ______ is the exclusive right to manufacture a product or use a process granted for a period of ______ years.

patent ; 20

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

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

residual

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

-Advertising costs -Research and development costs