CH 7 Smart Book

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Select all that apply The two categories for intangible assets are intangibles with infinite lives. intangibles with undefined lives. intangibles with finite lives. intangibles with indefinite lives.

intangibles with finite lives. intangibles with indefinite lives.

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

Blank 1: retirement, retire, retires, or retirements

Which of the following items are expensed? Replacing a major component Costs related to maintaining equipment Successful legal defense of a patent Major repair that increases future benefits

Costs related to maintaining equipment

Units of production or units of output are alternative terms for the _______________ -________________________ depreciation method.

activity based

The rationale for expenditures being capitalized as assets is based on whether the expenditures benefit ______. future periods the current period previous periods

future periods

The initial valuation of purchased intangible assets requires that the intangible asset is recorded at original cost. net present value. net realizable value. lower-of-cost-or-market.

original cost.

Costs of periodically servicing equipment is an example of: a betterment a capital expenditure repair and maintenance an addition

repair and maintenance

The initial valuation of purchased intangible assets requires that the intangible asset is recorded at net present value. net realizable value. original cost. lower-of-cost-or-market.

original cost.

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a copyright. franchise. patent. trademark.

trademark.

Select all that apply Other terms used for an activity-based depreciation method are: units of output method productivity method units of production method base depreciation method

units of output method units of production method

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

Select all that apply The journal entry to retire old equipment that is not fully depreciated includes a: credit to equipment debit to loss credit to loss debit to accumulated depreciation debit to cash

credit to equipment debit to loss debit to accumulated depreciation

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

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. net present net realizable fair book

book

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. . net present net realizable book fair

book

The original cost of an asset minus accumulated depreciation is book value. disposal value. goodwill. residual value.

book value.

The original cost of an asset minus accumulated depreciation is goodwill. residual value. disposal value. book value.

book value.

The original cost of an asset minus accumulated depreciation is residual value. book value. goodwill. disposal value.

book value.

When a company acquires a business in a business acquisition and the purchase price is greater than the fair value of the net assets acquired, the excess is reported as _________________.

goodwill

When a company acquires a business in a business acquisition and the purchase price is greater than the fair value of the net assets acquired, the excess is reported as ______________________

goodwill

The depreciation method that is easiest to apply and results in higher net income in earlier years is sum-of-the-years'-digits straight-line activity-based double-declining-balance

straight-line

The most frequently used depreciation method for financial reporting is the ______ method. activity-based straight-line sum-of-the-years'-digits double-declining-balance

straight-line

Which of the following involves both an acquisition and a disposition of an asset? Exchange of fixed assets Retirement of a fixed asset Purchase of a fixed asset Sale of a fixed asset

Exchange of fixed assets

Match the costs with the appropriate accounting treatment. Recurring costs related to equipment

Expense during the period they are incurred

Match each depreciation method to the explanation. Activity-based

Method that matches usage of the asset with revenues generated from the asset

Select all that apply Which of the following are classified as natural resources? Land and land improvements Building Mineral deposits Timber tracts

Mineral deposits Timber tracts

True or false: Repairs and maintenance expenditures that do not increase the future benefit of the asset are expensed.

True

True or false: The accounting treatment for the cost of copyrights is identical to that of patents.

True

True or false: All long-term assets are subject to impairment rules.

True Reason: all long-term assets must be assessed for potential impairment

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

capitalized

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.

Select all that apply The journal entry to record the amortization of an intangible asset includes credit to amortization expense. debit to accumulated amortization. credit to the intangible asset. debit to amortization expense.

credit to the intangible asset. debit to amortization expense.

The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x ______. current-year activity or production gross profit percentage historical cost total activity or production

current-year activity or production

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

equipment, machinery, or assets

Accounting for land improvements requires that the land improvements are recorded separately from land because the improvements have a ________________________ life.

limited

The accounting for copyrights uses the same accounting rules as goodwill. trademarks. patents. franchises.

patents.

Cash received from selling salvaged materials: is treated as a gain on disposal of the old building reduces the cost of the land increases the cost of the land

reduces the cost of the land

An estimated residual value __________________ the total amount of depreciation recorded over an asset's service life.

reduces, lowers, or decreases

An estimated residual value _______________________ the total amount of depreciation recorded over an asset's service life.

reduces, lowers, or decreases

A basket purchase or lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's ______. depreciable values residual values book values relative fair value

relative fair value

Costs of periodically servicing equipment is an example of: A. a betterment B. a capital expenditure C. an addition D. repair and maintenance

repair and maintenance

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

Blank 1: addition or improvement

Expenditures for repairs and maintenance should be ___________________ in the period incurred.

Blank 1: expensed or expense

Select all that apply Which of the following assets are depreciated? Buildings Equipment Land Land improvements

Buildings Equipment Land improvements

Select all that apply Which of the following items typically are classified as equipment? Computers and printers used in office Office supplies Furniture and fixtures Machinery held for resale Machinery used in manufacturing

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

An accelerated depreciation method is appropriate when the asset will provide greater benefits in the later years of the asset's life. greater benefits in the earlier years of the asset's life. equal benefits each year of the asset's life.

greater benefits in the earlier years of the asset's life.

Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? legal fees to obtain title purchase price utilities for the building interest on the loan realtor commissions

legal fees to obtain title purchase price realtor commissions

Match each depreciation method to the explanation. Declining-balance method

Accelerated method that multiplies a constant percentage rate times the decreasing book value

The formula for calculating declining balance depreciation is the depreciation rate per year times the cost less the residual value less the accumulated depreciation. the book value at the beginning of the year. the cost less the residual value.

the book value at the beginning of the year.

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

Blank 1: retirement, retire, retires, or retirements

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 __________________.

Blank 1: time or lifetime Blank 2: use, usage, or activity

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

Blank 1: trademark or tradename

When a company acquires a business in a business acquisition and the purchase price is greater than the fair value of the net assets acquired, the excess is reported as _______________.

Blank 1: goodwill

Most companies use ____________ - _______________ amortization for intangible assets.

straight line

The depreciation rate we use under the declining-balance method is a multiple of the __________________ - __________________ method

straight line

Copyrights, franchises, and goodwill are examples of ______________ assets.

intangible

Smith Corporation acquired West Company by paying $5 million in cash. The total fair value of West's identifiable assets is $8 million and the total fair value of its liabilities is $4 million. The amount of goodwill reported by Smith Corporation relating to its acquisition of West is: $3 million $8 million $1 million $0

$1 million Reason: $5 mill - ($8 mill - $4 mill)

Kuhn Corporation acquired Salz Company by paying $65 million in cash. The total fair value of Salz's identifiable assets is $90 million and the total fair value of its liabilities is $40 million. The amount of goodwill reported by Kuhn Corporation relating to its acquisition of Salz is: $0 $50 million $15 million $35 million

$15 million Reason: $65 mill - ($90 mill - $40 mill)

On January 1, year 1, Roark Corp. purchased equipment for $120,000. The equipment has a residual value of $20,000, and has a life of 1,000,000 hours. Roark uses the activity-based method of depreciation. In year 1, Roark used the machine 30,000 hours, and in year 2, Roark used the machine 50,000 hours. What is the depreciation expense for year 2? $3,000 $6,000 $8,000 $5,000

$5,000 Reason: The depreciation rate per unit is ($120,000 - $20,000)/1,000,000 hours = $0.10 per machine hour. Year 2 depreciation is 50,000 hours x $0.10 = $5,000.

On January 1, year 1, Mark Corp. purchases equipment for $300,000. The equipment has a 10-year service life and a $50,000 residual value. Mark uses the double-declining-balance method of depreciation. What is depreciation expense for year 1? $30,000 $60,000 $25,000 $50,000

$60,000 Reason: 2 x 1/10 x $300,000 = $60,000 depreciation expense in year 1. Under the double declining balance method, residual value is not included in computing the annual depreciation. However, the asset's book value cannot be depreciated below residual value.

On January 1, 2018, Lennox Corporation purchased equipment for $100,000. Lennox depreciated the equipment straight--line over 10 years with no residual value. What is the book value of the equipment on January 1, 2021? $50,000 $100,000 $70,000 $60,000

$70,000 Reason: $100,000/10 years = $10,000 depreciation per year. Historical cost of $100,000 less $30,000 depreciation (for 2018, 2019, and 2020) = $70,000.

A trademark registered with the U.S. Patent and Trademark Office protects the trademark from use by others for a renewable period of 50 years. 70 years. 10 years. 5 years.

10 years.

A trademark registered with the U.S. Patent and Trademark Office protects the trademark from use by others for a renewable period of 70 years. 50 years. 10 years. 5 years

10 years.

Select all that apply Which of the following items are initially recorded as an expense on the income statement? Advertising costs Research and development costs Purchased intangibles

Advertising costs Research and development costs

Match each depreciation method to the explanation. Straight-line method

Allocates an equal portion of the depreciable base to each year of the asset's service life

Match each term with its definition. Depreciation

Allocation of the cost of a tangible fixed asset

Select all that apply What is the accounting treatment for goodwill acquired in a business acquisition? Amortize over its estimated life Expense goodwill at date of acquisition Capitalize the goodwill Do not amortize Test for impairment

Capitalize the goodwill Do not amortize Test for impairment

Select all that apply What is the accounting treatment for goodwill acquired in a business acquisition? Amortize over its estimated life Capitalize the goodwill Test for impairment Do not amortize Expense goodwill at date of acquisition

Capitalize the goodwill Test for impairment Do not amortize

Select all that apply The service life of an intangible asset may be limited by what types of provisions? Contractual U.S. GAAP Legal Regulatory

Contractual Legal Regulatory

Select all that apply 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 Legal fees to secure title Title insurance Grading the land Current year's property taxes

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

Select all that apply On December 30, 20X1, Rocket Corp. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries? Credit cash $80,000 Credit gain on sale of equipment $50,000 Debit equipment $100,000 Credit accumulated depreciation $70,000 Credit equipment $100,000 Debit cash $80,000 Debit gain on sale of equipment $50,000 Debit accumulated depreciation $70,000

Credit gain on sale of equipment $50,000 Credit equipment $100,000 Debit cash $80,000 Debit accumulated depreciation $70,000

Goodwill is recognized only when one company _______________ another company.

Blank 1: acquires, buys, or purchases

Select all that apply On December 30, 20X1, Brighton Corp. disposed of equipment with a historical cost of $150,000 and accumulated depreciation of $60,000. The equipment was sold for $70,000 cash. The journal entry to record the sale will include which of the following? Credit accumulated depreciation $60,000 Debit accumulated depreciation $60,000 Debit loss on sale of equipment $20,000 Credit equipment $150,000 Debit equipment $90,000 Debit cash $70,000

Debit accumulated depreciation $60,000 Debit loss on sale of equipment $20,000 Credit equipment $150,000 Debit cash $70,000

True or false: Depreciation is a valuation method for property and equipment.

False

True or false: Expenditures that qualify as an addition should be expensed in the period incurred.

False

True or false: Goodwill acquired in a business combination is amortized over its estimated service life.

False

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

False

True or false: Repairs and maintenance expenditures should be capitalized in the period incurred.

False

Select all that apply Which of the following items are capitalized into the cost of a patent? Filing fees Accretion Attorney fees to secure patent Purchase price Depreciation

Filing fees Attorney fees to secure patent Purchase price

Match the costs with the appropriate accounting treatment. Cost of preparing asset for use

Include as part of asset cost

What costs are capitalized as an intangible asset for a franchise? Periodic payments for services by the franchisor. Initial payment for the franchise. Interest on the note payable to purchase the franchise.

Initial payment for the franchise.

Which statement is true about the straight-line method of depreciation? It is the preferred method for companies expecting to use the asset more in its early years of life. It recognizes expense proportionately with the amount of use of the asset. It allocates an equal amount of depreciation to each year the asset is used. It is an accelerated method of depreciation.

It allocates an equal amount of depreciation to each year the asset is used.

Which of the following long-lived assets would not be depreciated? Equipment Building Land improvements Land

Land

Select all that apply Which of the following are tangible assets? Land improvements Building Trademarks Copyrights

Land improvements Building

Select all that apply 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? Total assets are higher. Net income is lower. Total assets are lower. Net income is higher.

Net income is lower. Total assets are lower.

Select all that apply Which of the following are classified as natural resources? Patents Building Equipment Oil deposits Timber forests

Oil deposits Timber forests

Select all that apply Which of the following is an intangible asset? Land Equipment Patent Copyright Trademark

Patent Copyright Trademark

The cost of successfully defending a patent should be added to: Patent account Patent expense Legal expense

Patent account

Correctly match the intangible asset with the description Purchased intangible asset

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

Match the accounting treatment of costs associated with intangible assets with the description. Expensed

Research and development costs

Match the recognition of related costs with the description. Expense when incurred

Research and development costs incurred when developing a new product

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

Residual or Salvage

Match the reporting category with the description. Property, plant and equipment

The asset is not physically used up or depleted

Match the reporting category with the description. Natural resources

The asset is physically used up or depleted

Match the recognition of related costs with the description. Capitalize on the balance sheet

The purchase price of an intangible asset

Select all that apply A retirement or abandonment of an asset is different from a sale of an asset because the residual value is included as a gain. a loss must be recognized for the remaining book value. no cash is received. a gain is recognized for the undepreciated portion of the equipment.

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

Depreciation is a process of cost ________________, and not a process of valuation.

allocation

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: the fair value of the asset less the accumulated depreciation amount received less the book value of asset sold consideration received less the fair value of the asset sold the cost of the asset less the accumulated depreciation

amount received less the book value of asset sold

A new major component that is added to an existing asset is called maintenance. an addition. a rearrangement. an improvement.

an addition.

The term ___________________________ means to record an expenditure as an asset.

capitalize

Select all that apply Gerhard Inc. recognizes goodwill related to the acquisition of another company. Gerhard should: capitalize the goodwill when company is acquired amortize goodwill over its estimated service life periodically test goodwill for impairment expense goodwill when company is acquired

capitalize the goodwill when company is acquired periodically test goodwill for impairment

In accounting, expenditures recorded as assets are said to be _____. accrued expensed recognized capitalized

capitalized

An expenditure that qualifies as an addition should be expensed. capitalized.

capitalized.

Select all that apply Which depreciation methods allocate the cost of long-term assets based on time? declining-balance straight-line valuation method activity methods

declining-balance straight-line

Select all that apply Which depreciation methods allocate the cost of long-term assets based on time? valuation method declining-balance activity methods straight-line

declining-balance straight-line

Which depreciation methods allocate the cost of long-term assets based on time? declining-balance valuation method activity methods straight-line

declining-balance straight-line

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

depreciation

An asset that is traded for another asset is treated as a(n) )____________________ whereas an asset that is sold or retired is treated as a disposition.

exchange

For a patent developed internally, the research and development costs are expensed as incurred. recorded as patent amortization expense. recorded as a contra-asset to the patent. capitalized into the cost of the patent.

expensed as incurred.

If an intangible right is not successfully defended, the legal costs should be capitalized. expensed.

expensed.

True or false: Goodwill acquired in a business combination is amortized over its estimated service life.

false

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

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 restricted intangible assets unidentifiable assets identified intangible assets

goodwill

An intangible asset that is measured as the purchase price less the fair value of the net identifiable assets is called accretion. development. a bargain purchase. goodwill.

goodwill.

An intangible asset that is measured as the purchase price less the fair value of the net identifiable assets is called development. a bargain purchase. goodwill. accretion.

goodwill.

An accelerated depreciation method is appropriate when the asset will provide equal benefits each year of the asset's life. greater benefits in the later years of the asset's life. greater benefits in the earlier years of the asset's life.

greater benefits in the earlier years of the asset's life.

The method of amortization used for intangible assets includes the percentage-of-completion method. is most commonly straight-line. is mandated by GAAP.

is most commonly straight-line.

The FASB requires research and development costs to be expensed because it is difficult to determine whether costs will result in future benefits. research and development costs have no future value. the costs of research are greater than the benefits.

it is difficult to determine whether costs will result in future benefits.

Companies use accelerated depreciation for tax purposes because it is required by the IRS. it does a better job of matching expenses to revenues of the period. it reduces taxable income in the early years of the asset's life and provides better cash flows.

it reduces taxable income in the early years of the asset's life and provides better cash flows.

Which of the following long-lived assets would not be depreciated? Land improvements Equipment Land Building

land

Expenditures subsequent to acquisition may be properly capitalized when they increase the asset's service life or increase its productive capacity. However, most companies set thresholds for capitalizing these expenditures based on relevance. objectivity. materiality. neutrality.

materiality.

Select all that apply A retirement or abandonment of an asset is different from a sale of an asset because no cash is received. a gain is recognized for the undepreciated portion of the equipment. the residual value is included as a gain. a loss must be recognized for the remaining book value.

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

Intangible assets with indefinite useful lives should be expensed in the period acquired. not be acquired. not be amortized. be treated as a contra asset to other intangible assets.

not be amortized.

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset is owned by the company. provides benefits to the company. decreases in value.

provides benefits to the company.

Select all that apply A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include. accretion expense. net present value of future cash flows. purchase price. legal costs to acquire. required filing fees.

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

Select all that apply The types of expenditures that can occur subsequent to an asset's acquisition are goodwill. repairs and maintenance. improvements. additions.

repairs and maintenance. improvements. additions.

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

residual or salvage

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

residual or salvage

The term used to describe the amount the company expects to receive for an asset at the end of its service life is impairment value. lower of cost or market value. residual value. historical cost.

residual value.

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the units-of-output method. straight-line method. MACRS double-declining-balance method.

straight-line method.

The declining balance method of depreciation is a multiple of the MACRS depreciation tax rate. earnings rate of the asset. straight-line rate of depreciation. units-of-output depreciation.

straight-line rate of depreciation.

Land, land improvements, buildings, equipment, and natural resources are examples of ________________ assets

tangible

Long-lived assets are typically classified in two categories: __________________________ and __________________________________.

tangible intangible

Long-term assets are classified as Select all that apply tangible. intangible. current. acquired.

tangible. intangible.

Straight-line deprecation is calculated as the depreciable cost divided by the residual value of the asset. the estimated service life of the asset. the cost of the asset.

the estimated service life of the asset.

The service life or useful life of an asset is determined by MACRS tables. the estimated use that the company expects to obtain from the asset before disposing of it. the time period from the purchase of the asset until it becomes impaired.

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

The service life or useful life of an asset is the estimated use that the company expects to obtain from the asset before disposing of it. the time period from the purchase of the asset until it becomes impaired. determined by MACRS tables.

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

Total depreciation recorded over an asset's service life is: the same regardless of the depreciation method used highest when the double-declining balance method is used lowest when the activity-based method is used lowest when the straight-line method is used

the same regardless of the depreciation method used

Select all that apply Other terms used for an activity-based depreciation method are: productivity method units of production method base depreciation method units of output method

units of production method units of output method

Select all that apply The issues that are important for tangible and intangible assets, include determining: what amounts to include in the cost how to expense the cost of the asset over its life how to record the disposal of the asset on which financial statement to record the asset

what amounts to include in the cost how to expense the cost of the asset over its life how to record the disposal of the asset

The residual value of an intangible asset is usually cost less amortization. cost minus salvage. zero. the fair value at the date acquired.

zero

The residual value of an intangible asset is usually zero. the fair value at the date acquired. cost minus salvage. cost less amortization.

zero

The residual value of an intangible asset is usually cost minus salvage. the fair value at the date acquired. zero. cost less amortization.

zero.

Norbert Inc. purchases a machine for $21,000 with an estimated service life of three years and estimated salvage value of $1,000. The company utilizes the double-declining balance method. Depreciation expense for the last service year is: (Round to the nearest dollar.) $1,555 $2,333 $1,333

$1,333 Reason: $(21,000 - [(21,000 x 2/3) + (7,000 x 2/3) + (1,000)] = $1,333

Smith Company acquires a franchise from West Corp for $200,000. The franchise agreement covers a period of 10 years. Compute amortization expense for the second year. $18,000 $20,000 $22,000 $2,000

$20,000 Reason: $200,000/10 years = $20,000 per year

Cray uses the activity-based depreciation method. Cray purchases equipment for $210,000 and expects to use the equipment for 60,000 machine hours. The machine has a residual value of $30,000. The depreciation rate is $3.00 per machine hour. $7 per machine hour. $0.50 per machine hour. $2.00 per machine hour.

$3.00 per machine hour. Reason: $210,000 - $30,000 = $180,000/60,000 machine hours = $3.00 per machine hour.

The formula to calculate an activity-based depreciation rate is: (cost - residual value)/estimated total production. cost/actual production during the year. cost/estimated total production. (cost - residual value)/actual production during the year.

(cost - residual value)/estimated total production.

The formula to calculate an activity-based depreciation rate is: cost/actual production during the year. (cost - residual value)/estimated total production. (cost - residual value)/actual production during the year. cost/estimated total production.

(cost - residual value)/estimated total production.

Which account is credited in a journal entry to record depreciation on machinery? Depreciation Expense Machinery Accumulated Depreciation Cash

Accumulated Depreciation Reason: Depreciation is recorded with a debit to Depreciation Expense (+E, -SE) and a credit to Accumulated Depreciation (-A).

Select all that apply Which of the following are commonly used depreciation methods? Increasing-balance Activity-based Straight-line Declining-balance Value-based

Activity-based Straight-line Declining-balance

Select all that apply Which of the following are expenditures for assets subsequent to acquisition? Additions Freight charges Improvements Repairs and maintenance

Additions Improvements Repairs and maintenance

Select all that apply Which of the following are expenditures for assets subsequent to acquisition? Freight charges Additions Repairs and maintenance Improvements

Additions Repairs and maintenance Improvements

Match each term with its definition. Amortization

Allocation of the cost of an intangible asset

Select all that apply Which of the following items should be capitalized as land improvements? Cost of sidewalks Cost of land Cost of parking lots Cost of fences

Cost of sidewalks Cost of parking lots Cost of fences

Select all that apply On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $45,000 cash. The journal entry to record the sale will include which of the following entries? Credit to equipment $50,000 Credit to gain on sale of asset $25,000 Debit to gain on sale of asset $25,000 Credit to accumulated depreciation $30,000 Debit to accumulated depreciation $30,000 Credit to cash $45,000 Debit to equipment $20,000 Debit to cash $45,000

Credit to equipment $50,000 Credit to gain on sale of asset $25,000 Debit to accumulated depreciation $30,000 Debit to cash $45,000

Select all that apply Which of these are parts of the journal entry to record depreciation? Debit Depreciation Expense Credit Accumulated Depreciation Credit Depreciation Expense Debit Accumulated Depreciation

Debit Depreciation Expense Credit Accumulated Depreciation Reason: Depreciation is recorded with a debit to Depreciation Expense (+E, -SE) and a credit to Accumulated Depreciation (-A).

Select all that apply 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 loss on equipment $15,000 Debit equipment $35,000 Debit equipment $40,000 Credit equipment $90,000 Credit accumulated depreciation $40,000 Debit accumulated depreciation $40,000 Debit loss on exchange $10,000

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

Select all that apply Which of the following items should be capitalized in the cost of equipment? Freight to deliver the equipment Sales tax Insurance paid in advance for the first year of use Installation and testing of equipment Legal fees to establish title

Freight to deliver the equipment Sales tax Installation and testing of equipment Legal fees to establish title

Select all that apply Which of the following intangible assets are usually considered to have indefinite lives? Patents Copyrights Goodwill Trademarks Franchises

Goodwill Trademarks

Match the cost allocation terms with the type of assets to which they relate. Amortization

Intangible assets

Match the purpose of land with the proper reporting category. Investment

Land is purchased and held until price rises

Match the purpose of land with the proper reporting category. Property, land and Equipment

Land is used in company's operations

Select all that apply The service life of an intangible asset may be limited by what types of provisions? Legal Regulatory U.S. GAAP Contractual

Legal Regulatory Contractual

Select all that apply Which of the following costs are capitalized as an asset for an internally developed patent? Legal fees Filing fees Research and development

Legal fees Filing fees

Select all that apply Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land? Current year's property taxes Legal fees to secure title Costs to remove an old building Commissions

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

Correctly match the intangible asset with the description 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 Copyright Accounts receivable Trademark

Property Equipment

Match the cost allocation terms with the type of assets to which they relate. Depreciation

Property, plant, and equipment

Match the accounting treatment of costs associated with intangible assets with the description. Capitalized

Purchase price plus costs necessary to get asset ready for use

Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? Realtor commissions Insurance on the building Legal fees to obtain title Remodeling building Current year property taxes

Realtor commissions Legal fees to obtain title Remodeling building

Match the accounting standard with the correct treatment of the costs of development-related activities. U.S. GAAP

Recorded as expense during period incurred

Match the accounting standard with the correct treatment of the costs of development-related activities. IFRS

Recorded as intangible asset

Select all that apply Which of the following costs may be capitalized into the cost of a trademark? . Registration fees Advertising costs Fees for a successful legal defense Design costs

Registration fees Fees for a successful legal defense Design costs

Which of the following costs are expensed under both U.S. GAAP and IFRS? Both research and development costs Research costs only Development costs onlyhich of the following costs are expensed under both U.S. GAAP and IFRS? Multiple choice question. Both research and development costs

Research costs only

What depreciation method results in an equal amount of depreciation each year? Declining-balance Straight-line Activity-based

Straight-line

Select all that apply Which of the following are commonly used depreciation methods? Straight-line Increasing-balance Activity-based Value-based Declining-balance

Straight-line Activity-based Declining-balance

Select all that apply Which of the following items are capitalized? Successful legal defense of a patent Replacing a major component Major repair that increases future benefits Repair expense to maintain equipment

Successful legal defense of a patent Replacing a major component Major repair that increases future benefits

Select all that apply 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 higher. Total assets are lower. Total assets are higher. Net income is lower.

Total assets are lower. Net income is lower.

Select all that apply Which of the following intangible assets are usually considered to have indefinite lives? Copyrights Trademarks Franchises Patents Goodwill

Trademarks Goodwill

Attorney fees and other costs necessary to secure a patent should be included in a contra account to the patent. added to the patent account. expensed in the period incurred. recorded as an extraordinary loss.

added to the patent account.

For accounting purposes, depreciation is an allocation of a cost of an asset. a decline in value of an asset. the selling price of an asset.

an allocation of a cost of an asset.

Because the future benefits of research and development costs are uncertain, FASB requires that research and development costs be treated as a contra asset on the balance sheet. a liability on the balance sheet. an asset on the balance sheet. an expense on the income statement.

an expense on the income statement.

If a company replaces a major component of an asset with a new component with the same characteristics of an old component, it is classified as repairs and maintenance. a rearrangement. an addition. an improvement.

an improvement.

Costs incurred to acquire equipment are recognized as a(n) --------------------------, while cost providing a benefit in the current period only are recognized as a(n) _______________________.

asset expense

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides ______________.

benefits

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides ____________________________.

benefits

The original cost of the asset less the accumulated depreciation is the _____________________ __________________ of the asset.

book value

The original cost of the asset less the accumulated depreciation is the _______________________ _______________________ of the asset.

book value

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. historical cost less residual value x 2/estimated service life. book value at beginning of year x 2/estimated service life historical cost x 1/service life.

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

The cost of a major improvement that extends the service life of an asset would be ___________________________ , whereas the cost of maintenance that does not increase the future benefits would be ____________________________________.

capitalized expensed

Mueller installs a new motor in its manufacturing equipment. The new motor is expected to decrease energy use by 25%. The related cost should be: expensed as an operating expense deducted from current period depreciation capitalized in the equipment account

capitalized in the equipment account

If an intangible right is successfully defended, the legal costs should be expensed. capitalized.

capitalized.

Costs that produce future benefits are ______, but costs that produce benefits only in the current period are ______. current assets; noncurrent assets operating activities; investing activities expensed; capitalized capitalized; expensed

capitalized; expensed

Match the type of depreciation method with the reporting basis. Instructions Straight-line

commonly used for financial statement purposes

Match the type of depreciation method with the reporting basis. Instructions MACRS

commonly used for tax reporting

For an asset with an estimated salvage value greater than 0, depreciation during the last service year may be less than the amount calculated based on the carrying value times the depreciation rate in order to avoid higher tax obligations. depreciating part of the salvage value. depreciating more than the asset's original cost.

depreciating part of the salvage value.

An _____________________ 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.

franchise

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 copyright. patent. trademark. franchise.

franchise.

The key factor in classifying items as repairs and maintenance is that the invoice must be less than $1,000 for productive assets. future benefits are not provided beyond those originally anticipated from the asset. the asset must be a current asset used in the normal course of business.

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

Using the declining balance method, depreciation will be higher in earlier years, but lower in later years. lower in earlier years, and lower in later years. higher in earlier years, and higher in later years. lower in earlier years, but higher in later years.

higher in earlier years, but lower in later years.

Goodwill may only be recognized when intangible assets are undervalued. when a company pays less than fair value for an intangible. in a business acquisition. when assets are impaired.

in a business acquisition.

No amortization is recorded for intangible assets with finite lives. intangible assets with indefinite lives. intangible assets used in production. intangible assets valued at fair value.

intangible assets with indefinite lives.

No amortization is recorded for intangible assets with indefinite lives. intangible assets used in production. intangible assets with finite lives. intangible assets valued at fair value.

intangible assets with indefinite lives.

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

intangible or intangable

Select all that apply Long-term assets are classified as current. intangible. acquired. tangible.

intangible. tangible.

Select all that apply Self-constructed buildings include which of the following costs? labor costs incurred for construction of building material costs incurred for construction of building interest costs incurred during construction costs incurred related to company's administrative and support staff

labor costs incurred for construction of building material costs incurred for construction of building interest costs incurred during construction

The distinction between land and land improvements is that: land has a definite life there is no distinction, they are treated the same for accounting purposes land is depreciated and land improvements are not land has an indefinite life

land has an indefinite life

Intangible assets with indefinite useful lives should be treated as a contra asset to other intangible assets. not be amortized. not be acquired. be expensed in the period acquired.

not be amortized.

Land used in a company's ___________________________ is classified as property, plant and equipment, while land held solely for the expected increase in value is classified as an _________________________.

operation investment

The initial valuation of purchased intangible assets requires that the intangible asset is recorded at net present value. net realizable value. lower-of-cost-or-market. original cost.

original cost.

The exclusive legal right to manufacture a product or to use a process is called a(n) _______________________.

patent

An ______________________ is the exclusive right to manufacture a product or use a process granted for a period of ________________ years.

patent 20

Norma installs a new motor in its manufacturing equipment. The new motor is expected to increase output by 20%. The cost of the new motor should be capitalized because it: is a significant expenditure provides a future benefit decreases the expected service life of the equipment

provides a future benefit

Select all that apply A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include. purchase price. legal costs to acquire. required filing fees. accretion expense. net present value of future cash flows.

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

Goodwill is recognized only when one company ____________________another company.

purchases

Otto Inc. retires old equipment with a book value of $2,400. Otto should debit cash for $2,400 not make a journal entry recognize a loss of $2,400 recognize a gain of $2,400

recognize a loss of $2,400

Otto Inc. retires old equipment with a book value of $2,400. Otto should recognize a gain of $2,400 recognize a loss of $2,400 not make a journal entry debit cash for $2,400

recognize a loss of $2,400

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

service

In a basket purchase of assets, the cost must be allocated to the individual assets because the assets have different useful lives. intangible assets must be identified and expensed. some assets must be expensed upon acquisition. goodwill must be expensed immediately.

the assets have different useful lives.

The depreciable cost is the cost of the asset minus the residual value. cost of the asset minus depreciation expense. cost of the asset plus the residual value. historical cost less accumulated depreciation.

the cost of the asset minus the residual value.

In a basket or lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times the relative book value percentages of each asset. the relative fair value percentages of each asset. the estimated percentages allocated to each asset. the residual value percentages of each asset.

the relative fair value percentages of each asset.

Select all that apply Other terms used for an activity-based depreciation method are: base depreciation method productivity method units of production method units of output method

units of production method units of output method

At the beginning of year 1, Valerie Corp. purchases equipment for $10,000. The equipment has a residual value of $4,000 and an expected service life of 4 years. What is straight-line depreciation for year 1? $4,000 $6,000 $1,500 $1,000

$1,500 Reason: ($10,000 - 4,000)/4 years = $1,500 per year

Berner Inc. internally develops a patent, which has an estimated value of $25 million. Related legal, design and registration fees were $155,000. The amount reported on Berner's balance sheet should be: $155,000 $24,845,000 $25,000,000

$155,000

Blake uses the activity-based depreciation method. Blake purchases equipment for $100,000 and expects to use the equipment for 40,000 machine hours. The machine has a residual value of $20,000. The depreciation rate is $3.00 per machine hour. $2.50 per machine hour. $2.00 per machine hour. $5.00 per machine hour.

$2.00 per machine hour. Reason: ($100,000 - 20,000)/40,000 machine hours = $2.00 per machine hour.

Smith Company acquires a franchise from West Corp for $200,000. The franchise agreement covers a period of 10 years. Compute amortization expense for the second year. $20,000 $22,000 $2,000 $18,000

$20,000 Reason: $200,000/10 years = $20,000 per year

On January 1, year 1, London Corp. purchases equipment for $400,000. The equipment has a 5-year service life and a $50,000 residual value. London uses the double-declining-balance method of depreciation. What is the book value at the end of year 1? $240,000 $350,000 $190,000 $200,000

$240,000 Reason: 2 x 1/5 x $400,000 = $160,000 depreciation expense in year 1. Book value is calculated as cost less accumulated depreciation ($400,000 - $160,000 = $240,000) book value at end of year 1.

Cray uses the activity-based depreciation method. Cray purchases equipment for $210,000 and expects to use the equipment for 60,000 machine hours. The machine has a residual value of $30,000. The depreciation rate is $2.00 per machine hour. $0.50 per machine hour. $3.00 per machine hour. $7 per machine hour.

$3.00 per machine hour. Reason: $210,000 - $30,000 = $180,000/60,000 machine hours = $3.00 per machine hour.

Cray uses the activity-based depreciation method. Cray purchases equipment for $210,000 and expects to use the equipment for 60,000 machine hours. The machine has a residual value of $30,000. The depreciation rate is $2.00 per machine hour. $3.00 per machine hour. $0.50 per machine hour. $7 per machine hour.

$3.00 per machine hour. Reason: $210,000 - $30,000 = $180,000/60,000 machine hours = $3.00 per machine hour.

Cray uses the activity-based depreciation method. Cray purchases equipment for $210,000 and expects to use the equipment for 60,000 machine hours. The machine has a residual value of $30,000. The depreciation rate is $3.00 per machine hour. $0.50 per machine hour. $7 per machine hour. $2.00 per machine hour.

$3.00 per machine hour. Reason: $210,000 - $30,000 = $180,000/60,000 machine hours = $3.00 per machine hour.

$5,000 Reason: The depreciation rate per unit is ($120,000 - $20,000)/1,000,000 hours = $0.10 per machine hour. Year 2 depreciation is 50,000 hours x $0.10 = $5,000.

Match each term with its definition. Depletion

Allocation of the cost of natural resources

The residual value of an intangible asset is usually _____________

Blank 1: zero, nothing, 0, none, or indeterminable

Select all that apply Margot Company constructs a new building that will replace its current office building. In addition to construction materials and labor, which of following costs incurred during the construction period should be included in the cost of the new building? Construction related overhead costs Opportunity costs Depreciation on existing office building Interest costs Architect fees

Construction related overhead costs Interest costs Architect fees

Select all that apply Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements? Cost of lawn sprinkler system Cost of driveways Legal fees to acquire land Cost of land Cost of sidewalks

Cost of lawn sprinkler system Cost of driveways Cost of sidewalks

Select all that apply Which of the following items should be capitalized as land improvements? Cost of parking lots Cost of land Cost of sidewalks Cost of fences

Cost of parking lots Cost of sidewalks Cost of fences

Select all that apply 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? Credit gain on exchange of asset $40,000 Debit accumulated depreciation $60,000 Debit equipment $65,000 Debit equipment $80,000 Credit equipment $100,000 Credit equipment $80,000 Credit accumulated depreciation $60,000

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

Select all that apply On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $45,000 cash. The journal entry to record the sale will include which of the following entries? Credit to cash $45,000 Credit to gain on sale of asset $25,000 Debit to equipment $20,000 Debit to accumulated depreciation $30,000 Debit to gain on sale of asset $25,000 Credit to accumulated depreciation $30,000 Credit to equipment $50,000 Debit to cash $45,000

Credit to gain on sale of asset $25,000 Debit to accumulated depreciation $30,000 Credit to equipment $50,000 Debit to cash $45,000

Select all that apply On December 30, 20X1, Brighton Corp. disposed of equipment with a historical cost of $150,000 and accumulated depreciation of $60,000. The equipment was sold for $70,000 cash. The journal entry to record the sale will include which of the following? Debit loss on sale of equipment $20,000 Credit equipment $150,000 Debit cash $70,000 Credit accumulated depreciation $60,000 Debit accumulated depreciation $60,000 Debit equipment $90,000

Debit loss on sale of equipment $20,000 Credit equipment $150,000 Debit cash $70,000 Debit accumulated depreciation $60,000

Select all that apply On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $10,000 cash. The journal entry to record the sale will include which of the following entries? Credit to loss on sale of asset $10,000 Debit to cash $10,000 Debit to loss on sale of asset $10,000 Debit to accumulated depreciation $30,000 Credit to accumulated depreciation $30,000 Debit to equipment $20,000 Credit to equipment $50,000 Credit to cash $10,000

Debit to cash $10,000 Debit to loss on sale of asset $10,000 Debit to accumulated depreciation $30,000 Credit to equipment $50,000

If a company generates its own goodwill through advertising or training, how should these costs be treated? Capitalize the costs and amortize them over the expected life of the goodwill. Record as an extraordinary loss in the current year. Expense the costs as incurred. Capitalize the costs and test for impairment.

Expense the costs as incurred.

If a company generates its own goodwill through advertising or training, how should these costs be treated? Record as an extraordinary loss in the current year. Expense the costs as incurred. Capitalize the costs and amortize them over the expected life of the goodwill. Capitalize the costs and test for impairment.

Expense the costs as incurred.

Select all that apply Under what circumstances are accelerated depreciation methods most appropriate? For an asset used evenly throughout its life and the life is measured in years. For an asset that will provide greater benefits in earlier years of its life. For an asset that is used to produce output and has an estimated life in output. For an asset that will be used less in the later years of its life.

For an asset that will provide greater benefits in earlier years of its life. For an asset that will be used less in the later years of its life.

Select all that apply Which of the following items should be capitalized in the cost of equipment? Installation and testing of equipment Repair costs for first year of operations Insurance on equipment during shipping Purchase price Freight to deliver the equipment to its location

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

Select all that apply Which of the following items are capitalized? Major repair that increases future benefits Replacing a major component Repair expense to maintain equipment Successful legal defense of a patent

Major repair that increases future benefits Replacing a major component Successful legal defense of a patent

______________________ _________________________ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process.

Natural resources

______________________ ______________________________ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process. Fixed assets Operating assets Natural resources Intangible assets

Natural resources

Select all that apply Which of the following items are intangible assets? Trademark Copyright Land Patent Equipment

Trademark Copyright Patent

Select all that apply Which of the following items are intangible assets? Buildings Trademarks Accounts receivable Goodwill Land

Trademarks Goodwill

Costs associated with major equipment improvements should be: recognized as a loss expensed as incurred ignored added to the equipment account

added to the equipment account

When assets are purchased in a group for a single sum, it is referred to as a group asset divestiture. basket purchase. composite purchase. business consolidation.

basket purchase.

The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x ______. historical cost gross profit percentage current-year activity or production total activity or production

current-year activity or production

The formula to calculate the depreciation for the units-of-production method or activity-based depreciation, is ((cost - residual value)/total estimated production) x ______. total activity or production historical cost current-year activity or production gross profit percentage

current-year activity or production

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

equipment

A change in accounting estimate requires a company to account for the change as a prior period adjustment as an error in the previous periods by retroactively restating the financial statements in the current and future years

in the current and future years

A subsequent expenditure for an asset increases the future benefits of the asset if it increases the operating efficiency of the asset. extends the asset's service life. increases the quality of the goods or services produced by the asset. repairs and maintains the asset in working order.

increases the operating efficiency of the asset. extends the asset's service life. increases the quality of the goods or services produced by the asset.

In accounting terminology, the life of a trademark is considered infinite. indefinite. finite. definite.

indefinite.

Amortization refers to the allocation of the cost of ____________ assets to expense.

intangible

Amortization refers to the allocation of the cost of _________________ assets to expense.

intangible

In a business acquisition, goodwill equals the purchase price plus the book value of assets acquired. less the fair value of liabilities of the acquired company. less the fair value of net assets acquired. less the book value of stock acquired.

less the fair value of net assets acquired.

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

limited

Accounting for land improvements requires that the costs of land improvements are recorded as part of the cost of land. expensed in the current period. recorded separately from the land itself. ignored.

recorded separately from the land itself.

Intangible assets are written down when events or changes in circumstances indicate that the asset's ______ amount is less than its _______ amount. recoverable; recorded present value of future cash flows; original cost present value of future cash flows; recorded recoverable; original cost

recoverable; recorded

Intangible assets are written down when events or changes in circumstances indicate that the asset's ______ amount is less than its _______ amount. recoverable; recorded present value of future cash flows; recorded present value of future cash flows; original cost recoverable; original cost

recoverable; recorded

On July 1, year 1, Smith Corp. purchased equipment for $200,000. The equipment has an expected service life of 10 years with no residual value. Smith uses the straight-line method of depreciation. The partial year depreciation for year 1 is $2,500 $10,000 $20,000 $5,000

$10,000 Reason: $200,000/10 years = $20,000 per year x 1/2 year = $10,000 depreciation expense in year 1.

The formula for straight-line depreciation is cost/service life. (cost + residual value)/service life. (cost - residual value)/service life. service life/(cost + residual value).

(cost - residual value)/service life.

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 ________________

Blank 1: time or lifetime Blank 2: use, usage, or activity

The residual value of an intangible asset is usually _________________

Blank 1: zero, nothing, 0, none, or indeterminable

Select all that apply On December 30, 20X1, Rocket Corp. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries? Credit cash $80,000 Debit cash $80,000 Debit gain on sale of equipment $50,000 Debit accumulated depreciation $70,000 Credit gain on sale of equipment $50,000 Credit accumulated depreciation $70,000 Debit equipment $100,000 Credit equipment $100,000

Debit cash $80,000 Debit accumulated depreciation $70,000 Credit gain on sale of equipment $50,000 Credit equipment $100,000

What is the first issue that needs to be addressed in order to properly report tangible and intangible assets? How to recognize additional costs incurred during the assets' service life Determining the amounts to be included in the assets' initial cost How to record the disposal of the assets The method for expensing the cost of the assets

Determining the amounts to be included in the assets' initial cost

Select all that apply What is the accounting treatment for goodwill acquired in a business acquisition? Amortize over its estimated life Do not amortize Expense goodwill at date of acquisition Test for impairment Capitalize the goodwill

Do not amortize Test for impairment Capitalize the goodwill

Select all that apply Which of the following expenditures are classified as repairs and maintenance for a vehicle owned by the company? (Select all that apply.) New engine installation Routine oil change Engine tune-up

Routine oil change Engine tune-up Reason: increase future benefits Reason: maintains the given level of benefits

Which of the following does not differ among the different depreciation methods? Depreciation recognized during the last year of the asset's service life. Total depreciation recognized over the asset's service life. Depreciation recognized during the earlier years.

Total depreciation recognized over the asset's service life.

Jan purchases a piece of land and immediately tears down an old building. The proceeds from selling the salvaged materials should be recognized as: an addition to the cost of the purchased land a reduction in the cost of the purchased land a gain on disposal of the old building a reduction in the cost of a future building

a reduction in the cost of the purchased land

Jan purchases a piece of land and immediately tears down an old building. The proceeds from selling the salvaged materials should be recognized as: an addition to the cost of the purchased land a reduction in the cost of the purchased land a reduction in the cost of a future building a gain on disposal of the old building

a reduction in the cost of the purchased land

Select all that apply Self-constructed buildings include which of the following costs? costs incurred related to company's administrative and support staff interest costs incurred during construction material costs incurred for construction of building labor costs incurred for construction of building

interest costs incurred during construction material costs incurred for construction of building labor costs incurred for construction of building

In a business acquisition, goodwill equals the purchase price plus the book value of assets acquired. less the fair value of liabilities of the acquired company. less the book value of stock acquired. less the fair value of net assets acquired.

less the fair value of net assets acquired.

The amortization of an intangible asset occurs over the period of time that is the ______ of the legal, regulatory, contractual, or service life. . longer shorter

shorter

An asset that has no physical substance is referred to as a(n) finite asset. intangible asset. depreciable asset. current asset.

intangible asset.

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: capitalized as Legal Asset added to the Patent account expensed

added to the Patent account

On January 1, year 1, Paisley Corp. purchases equipment for $200,000. Paisley uses the double-declining-balance method of depreciation. The asset has a 10-year service life and a $10,000 residual value. What is the book value at the end of year 1? $162,000 $120,000 $50,000 $160,000

$160,000 Reason: The depreciation rate is 2 x 1/10 = 20%. $200,000 x 20% = $40,000 depreciation expense in year 1. Book value at the end of year 1 is cost less accumulated depreciation, $200,000 - $40,000 = $160,000.

Select all that apply Which of the following statements describe the accounting rules for a franchise agreement? Capitalize the periodic payments each year. Amortize the cost of the franchise over its life. Capitalize the cost of the franchise. Expense periodic payments as incurred. Expense the cost of the franchise in the year of acquisition.

Amortize the cost of the franchise over its life. Capitalize the cost of the franchise. Expense periodic payments as incurred.

Select all that apply Margot Company constructs a new building that will replace its current office building. In addition to construction materials and labor, which of following costs incurred during the construction period should be included in the cost of the new building? Architect fees Depreciation on existing office building Opportunity costs Interest costs Construction related overhead costs

Architect fees Interest costs Construction related overhead costs

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

Blank 1: activity Blank 2: based

Intangible assets are categorized as those with finite lives and those with ___________ life

Blank 1: indefinite or infinite

Which of the following involves both an acquisition and a disposition of an asset? Purchase of a fixed asset Sale of a fixed asset Exchange of fixed assets Retirement of a fixed asset

Exchange of fixed assets

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 indefinite intangibles. finite intangibles. internally developed intangibles. goodwill.

internally developed intangibles.

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. indefinite intangibles. finite intangibles. goodwill.

internally developed intangibles.

Blake uses the activity-based depreciation method. Blake purchases equipment for $100,000 and expects to use the equipment for 40,000 machine hours. The machine has a residual value of $20,000. The depreciation rate is $2.50 per machine hour. $2.00 per machine hour. $3.00 per machine hour. $5.00 per machine hour.

$2.00 per machine hour. Reason: ($100,000 - 20,000)/40,000 machine hours = $2.00 per machine hour.

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

As an asset for $10,000.

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $10,000 cash. The journal entry to record the sale will include which of the following entries? Debit to equipment $20,000 Debit to loss on sale of asset $10,000 Credit to cash $10,000 Debit to cash $10,000 Credit to equipment $50,000 Credit to accumulated depreciation $30,000 Credit to loss on sale of asset $10,000 Debit to accumulated depreciation $30,000 Need help? Review these concept resources.

Debit to loss on sale of asset $10,000 Debit to cash $10,000 Credit to equipment $50,000 Debit to accumulated depreciation $30,000

Select all that apply The journal entry to retire old equipment that is not fully depreciated includes a: debit to accumulated depreciation debit to cash credit to equipment debit to loss credit to loss

debit to accumulated depreciation credit to equipment debit to loss

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

depreciation

Blake uses the activity-based depreciation method. Blake purchases equipment for $100,000 and expects to use the equipment for 40,000 machine hours. The machine has a residual value of $20,000. The depreciation rate is $3.00 per machine hour. $2.00 per machine hour. $2.50 per machine hour. $5.00 per machine hour.

$2.00 per machine hour. Reason: ($100,000 - 20,000)/40,000 machine hours = $2.00 per machine hour.

West Corp purchased a piece of equipment for $35,000 and depreciated it straight-line over an estimated service life of seven years with a residual value of $7,000. After two years, West estimates that the remaining service life of the equipment is four years and the residual value remains unchanged. Assuming that West continues to apply the straight-line method, depreciation recognized for each of the remaining years will be: $5,000 $6,250 $8,000 $4,000

$5,000 Reason: The asset has been depreciated $8,000 to date. (($35,000 - $7,000)/7) x 2 = $8,000. The new book value is $35,000 - $27,000 = $8,000. (($27,000 - $7,000)/4) = $5,000 per year

At the beginning of year 1, Looby Corp. purchases equipment for $100,000. The equipment has a residual value of $20,000 and an expected service life of 10 years. What is straight-line depreciation for year 1? $8,000 $30,000 $28,000 $10,000

$8,000 Reason: ($100,000 - 20,000)/10 years = $8,000 per year

Where is the account accumulated depreciation on equipment found on the financial statements? As a liability account on the balance sheet As an asset account on the balance sheet As a contra account to equipment on the balance sheet As an expense account on the income statement

As a contra account to equipment on the balance sheet

The journal entry to record the amortization for a patent would include a debit to __________________ __________________ and credit to _________.

Blank 1: amortization Blank 2: expense Blank 3: patent or patents

The journal entry to record the amortization for a patent would include a debit to ___________________ ________________ and credit to ____________________

Blank 1: amortization Blank 2: expense Blank 3: patent or patents

The journal entry to record the amortization for a patent would include a debit to _____________________ ______________________ and credit to _____________________

Blank 1: amortization Blank 2: expense Blank 3: patent or patents

Under IFRS rules for R&D, the costs of research-related activities are recorded as _________________, while the costs of development-related activities are recorded as ____________________________.

Blank 1: expenses or expense Blank 2: intangible Blank 3: assets or asset

The accumulated depreciation account is classified as a(n) asset. expense. liability. contra asset.

contra asset.

Intangible assets are categorized as those with finite lives and those with _____________ lives

Blank 1: indefinite or infinite

Select all that apply Which of the following items should be capitalized in the cost of equipment? Repair costs for first year of operations Purchase price Insurance on equipment during shipping Freight to deliver the equipment to its location Installation and testing of equipment

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

Select all that apply Long-term tangible assets include patents. equipment. buildings. goodwill. land.

equipment. buildings. land

An asset that is traded for another asset is treated as a(n) ____________ whereas an asset that is sold or retired is treated as a disposition.

exchange

Blake uses the activity-based depreciation method. Blake purchases equipment for $100,000 and expects to use the equipment for 40,000 machine hours. The machine has a residual value of $20,000. The depreciation rate is $3.00 per machine hour. $2.00 per machine hour. $5.00 per machine hour. $2.50 per machine hour.

$2.00 per machine hour. Reason: ($100,000 - 20,000)/40,000 machine hours = $2.00 per machine hour.

On January 1, 2018, Pritchett Corporation purchased equipment for $50,000. The equipment had a five-year life with a $10,000 residual value. Pritchett uses the straight-line depreciation method. What is the book value of the equipment on January 1, 2021? $30,000 $34,000 $26,000 $20,000

$26,000 Reason: Depreciation expense is ($50,000 - 10,000)/5 = $8,000 per year. $50,000 less accumulated depreciation of $24,000 = $26,000.

Monet Company purchased a patent with an estimated service life of ten years for $200,000 After three years of amortizing the patent using the straight-line method, Monet estimates that the remaining useful life is only 5 years. Amortization expense for the fourth year is: $25,000 $28,000 $30,000 $20,000

$28,000 Reason: [200K - (200K/10)*3] = 140K; 140K/5 = $28K

$28,000 Reason: [200K = (200K/10)*3] = 140k; 140K/5 = $28K

Lester purchased a new car for $30,000 and depreciated it straight-line over an estimated service life of five years with no residual value. After two years, Lester estimates that the remaining service life of the car is four years. Assuming that Lester continues to apply the straight-line method, depreciation recognized for each of the remaining years will be: $4,500 $6,000 $7,500 $5,000

$4,500 Reason: $ ((30,000 - (12,000))/4)

$4,500 Reason: $ ((30,000- (12,000))/4

$4,500 Reason: The depreciation rate per unit is ($160,000 - $10,000)/100,000 hours = $1.50 per machine hour. Year 2 depreciation is 3,000 hours x $1.50 = $4,500.

On January 1, year 1, LaRose Corp. purchases equipment for $100,000. LaRose uses the double-declining-balance method of depreciation. The asset has a 5-year service life and a $10,000 residual value. What is depreciation expense for year 1? $40,000 $36,000 $50,000 $45,000

$40,000 Reason: The depreciation rate is 2 x 1/5 = 40%. $100,000 x 40% = $40,000 depreciation expense in year 1.

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has an expected service life of 5 years with no residual value. Kirby uses the straight-line method of depreciation. The partial year depreciation for year 1 is $5,000 $2,500 $10,000 $20,000

$5,000 Reason: $100,000/5 years = $20,000 per year x 1/4 year = $5,000 depreciation expense in year 1. October 1 - December 31 is 3 months so 1/4 year.

$5,000 Reason: The asset has been depreciated $8,000 to date. (($35,000 - $7,000)/7) x 2 = $8,000. The new book value is $35,000 - $27,000 = $8,000. (($27,000 - $7,000)/4) = $5,000 per year

The cost allocation for property, plant, and equipment is referred to as ______________________, while the cost allocation for intangible assets is referred to as _________________.

Blank 1: depreciation Blank 2: amortization

Which of the following involves both an acquisition and a disposition of an asset? Sale of a fixed asset Exchange of fixed assets Retirement of a fixed asset Purchase of a fixed asset

Exchange of fixed assets

Which of the following involves both an acquisition and a disposition of an asset? Sale of a fixed asset Purchase of a fixed asset Retirement of a fixed asset Exchange of fixed assets

Exchange of fixed assets

Select the correct accounting treatment for subsequent expenditures relating to long-term assets with the corresponding description. Capitalized as incurred

Expenditure increases future benefits derived from asset

Select the correct accounting treatment for subsequent expenditures relating to long-term assets with the corresponding description. Expensed as incurred

Expenditure yields benefits in current period only.

Select all that apply The journal entry to record the amortization of an intangible asset includes debit to amortization expense. credit to amortization expense. debit to accumulated amortization. credit to the intangible asset.

debit to amortization expense. credit to the intangible asset.

An asset that is traded for another asset is treated as a(n) ______________ whereas an asset that is sold or retired is treated as a disposition.

exchange

The most frequently used depreciation method for financial reporting is the ______ method. . double-declining-balance sum-of-the-years'-digits activity-based straight-line

straight-line

Goodwill and some trademarks are examples of intangible assets that are assumed to a have a(n) ________________________ life

Blank 1: indefinite or unlimited

Goodwill and some trademarks- are examples of intangible assets that are assumed to a have a(n) _________________ life

Blank 1: indefinite or unlimited

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 _______________.

Blank 1: depreciation Blank 2: amortization

In a business combination, goodwill is recognized to the extent that the purchase price of the company is ____________________________ than the ______________________________ value of the acquired company's identifiable net assets.

Blank 1: greater, larger, higher, more, or exceeds Blank 2: fair or market

Expenditures classified as _______________________ involve the replacement of a major component of an asset.

improvements

Select all that apply The two categories for intangible assets are intangibles with indefinite lives. intangibles with undefined lives. intangibles with infinite lives. intangibles with finite lives.

intangibles with indefinite lives. intangibles with finite lives.

Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? legal fees to obtain title utilities for the building purchase price realtor commissions interest on the loan

legal fees to obtain title purchase price realtor commissions

Which of the following statements describe the accounting rules for a franchise agreement? Select all that apply. Expense the cost of the franchise in the year of acquisition. Capitalize the periodic payments each year. Expense periodic payments as incurred. Amortize the cost of the franchise over its life. Capitalize the cost of the franchise.

Expense periodic payments as incurred. Amortize the cost of the franchise over its life. Capitalize the cost of the franchise.

Select all that apply Which of the following costs should be capitalized in the costs of acquiring a building? Remodeling building Current year property taxes Realtor commissions Insurance on the building Legal fees to obtain title

Remodeling building Realtor commissions Legal fees to obtain title

Where is the account accumulated depreciation on equipment found on the financial statements? As an asset account on the balance sheet As an expense account on the income statement As a liability account on the balance sheet As a contra account to equipment on the balance sheet

As a contra account to equipment on the balance sheet

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? The maximum depreciation is the $10,000 residual value. Clem must change to straight-line method in year 3. Clem will depreciate the machine for $160,000 over its service life. Clem will depreciate the machine for $150,000 over its service life.

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

Select all that apply 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 equipment $32,000 Debit loss on exchange $30,000 Debit equipment $50,000 Credit accumulated depreciation $40,000 Debit accumulated depreciation $40,000

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

Select all that apply 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 equipment $35,000 Credit equipment $90,000 Credit accumulated depreciation $40,000 Debit equipment $40,000 Debit loss on equipment $15,000 Debit loss on exchange $10,000 Debit accumulated depreciation $40,000

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

An accelerated depreciation method is appropriate when the asset will provide greater benefits in the earlier years of the asset's life. equal benefits each year of the asset's life. greater benefits in the later years of the asset's life.

greater benefits in the earlier years of the asset's life.

Select all that apply 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? Multiple select question. Credit accumulated depreciation $70,000 Debit equipment $45,000 Credit equipment $90,000 Credit equipment $70,000 Debit equipment $50,000 Credit gain on exchange of asset $30,000 Debit accumulated depreciation $70,000

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

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $10,000 cash. The journal entry to record the sale will include which of the following entries? Credit to equipment $50,000 Debit to loss on sale of asset $10,000 Credit to cash $10,000 Credit to accumulated depreciation $30,000 Credit to loss on sale of asset $10,000 Debit to equipment $20,000 Debit to cash $10,000 Debit to accumulated depreciation $30,000

Credit to equipment $50,000 Debit to loss on sale of asset $10,000 Debit to cash $10,000 Debit to accumulated depreciation $30,000

Select all that apply Under what circumstances are accelerated depreciation methods most appropriate? For an asset that is used to produce output and has an estimated life in output. For an asset used evenly throughout its life and the life is measured in years. For an asset that will provide greater benefits in earlier years of its life. For an asset that will be used less in the later years of its life.

For an asset that will provide greater benefits in earlier years of its life. For an asset that will be used less in the later years of its life.

Select all that apply 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 Forgetting to record depreciation expense in the previous period Incorrectly capitalizing an item when it should be expensed

Change in residual value of an asset Change in service life of an asset

The formula for calculating the double-declining-balance method is book value at beginning of year x 2/estimated service life book value at beginning of the year less residual value x 2/ estimated service life. historical cost x 1/service life. historical cost less residual value x 2/estimated service life.

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

Select all that apply On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $45,000 cash. The journal entry to record the sale will include which of the following entries? Credit to accumulated depreciation $30,000 Credit to gain on sale of asset $25,000 Debit to equipment $20,000 Debit to cash $45,000 Debit to accumulated depreciation $30,000 Debit to gain on sale of asset $25,000 Credit to cash $45,000 Credit to equipment $50,000

Credit to gain on sale of asset $25,000 Debit to cash $45,000 Debit to accumulated depreciation $30,000 Credit to equipment $50,000

The formula to calculate an activity-based depreciation rate is: . (cost - residual value)/estimated total production. (cost - residual value)/actual production during the year. cost/actual production during the year. cost/estimated total production.

(cost - residual value)/estimated total production.

On December 30, 20X1, Rocket Corp. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. The journal entry to record the sale will include which of the following entries? Debit accumulated depreciation $70,000 Debit equipment $100,000 Credit cash $80,000 Debit cash $80,000 Credit equipment $100,000 Credit accumulated depreciation $70,000 Credit gain on sale of equipment $50,000 Debit gain on sale of equipment $50,000

Debit accumulated depreciation $70,000 Debit cash $80,000 Credit equipment $100,000 Credit gain on sale of equipment $50,000

CH 7 Smart Book

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