Chapter 7: Long-term Assets
Other terms used for an activity-based depreciation method are:
(1) units of output method (2) units of production method
A __________ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service
trademark
An exclusive right to display a word, slogan, or emblem that distinctively identifies a company, product, or service is referred to as a
trademark
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
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
U.S. GAAP
impairments are permanent and cannot be reversed
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
Amortization
Allocation of the cost of an intangible asset
Depletion
Allocation of the cost of natural resources
Purchased intangible asset
Patents, copyrights, trademarks, or franchise rights acquired from other companies
Internally developed intangible asset
Product or process created by company personnel for which protective patent is obtained
Capitalized
Purchase price plus costs necessary to get asset ready for use
Depreciation
Allocation of the cost of a tangible fixed asset
List the steps to determine and measure impairment of long-term assets in the correct order.
(1) Compare asset's book value to its estimated future cash flows (2) Compare asset's book value to its fair value
Which of the following expenditures are classified as repairs and maintenance for a vehicle owned by the company?
(1) Engine tune-up (2) Routine oil change
Which of the following items should be capitalized in the cost of equipment?
(1) Installation and testing of equipment (2) Freight to deliver the equipment (3) Legal fees to establish title (4) Sales tax
Which of the following items typically are classified as equipment?
(1) Machinery used in manufacturing (2) Furniture and fixtures (3) Computers and printers used in office
Which of the following is true regarding a nonmentary exchange of assets?
A gain or loss is recognized for the difference between the value of the asset given up and its book value
Capitalized as incurred
Expenditure increases future benefits derived from asset
Expensed as incurred
Expenditures yields benefits in current period only
If a company generates its own goodwill through advertising or training, how should these costs be treated?
Expense the costs as incurred
Recurring costs
Expensed during the period they are incurred
Costs of acquiring assets
Included as part of assets' acquisition costs
Expensed
Research and development costs
__________ value is the amount the company expects to receive for the asset at the end of its service life.
Residual
Property, plant and equipment
The asset is not physically used up or depleted
Natural resources
The asset is physically used up or depleted
Goodwill is recognized only when one company __________ another company.
acquires
A new major component that is added to an existing asset is considered an __________ and should be capitalized.
addition
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:
amount received less the book value of asset sold
The formula for calculating the double-declining-balance method is
book value at beginning of year x 2 x 1/service life
When an expenditure is recorded as an asset, we say that we __________ the expenditure.
capitalize
The purchase price and all costs to bring an asset to its desired condition and location for use should be __________.
capitalized
A __________ is protected by law and gives the creator of a published work the exclusive rights to reproduce and self the work for the life of the creator plus 70 years
copyright
The formula to calculate the depreciation for the units-of-production method (activity-based depreciation) is ((cost-residual value)/total estimated production) x
current-year activity or production
The allocation of the cost of a tangible asset over its service life is referred to as __________.
depreciation
Machines used in manufacturing, computers, printers, vehicles, furniture, and fixtures generally are classified as
equipment
The key factor in classifying items as repairs and maintenance is that
future benefits are not provided beyond those originally anticipated from the asset
The rationale for expenditures being capitalized as assets is based on whether the expenditures benefit __________.
future periods
An intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called
goodwill
An asset that has no physical substance is referred to as an
intangible asset
The distinction between land and land improvements is that:
land has indefinite life
A long-lived asset is assumed to be impaired if its estimated future cash flows are __________ tan its book value.
less
A __________ is the exclusive right to manufacture a product or use a process granted for a period of __________ years.
patent; 20
In measuring an impairment loss, the difference between the asset's book value and its fair value is
recognized as an impairment loss
Costs of periodically servicing equipment is an example of
repair and maintenance
An asset that is traded for another asset is treated as an exchange, whereas an asset that is sold or retired is treated as an __________.
retirement
The amount of use that the company expects to obtain from an asset before disposing of it is referring to as the __________ life of the asset
service
The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the
straight-line method
The service life or useful life of an asset is
the amount of use that the company expects to obtain from the asset before disposing of it
In a basket purchase of assets, the cost must be allocated to the individual assets because
the assets have different useful lives
Straight-line depreciation is calculated as the depreciable cost divided by
the estimated service life of the asset
Total depreciation recorded over an asset's service life is:
the same regardless of the depreciation method used
The residual value of an intangible asset is usually
zero
Clarlon purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?
(1) cost of sidewalks (2) cost of driveways (3) cost of lawn sprinkler system
The two approaches for a systematic and rational allocation of the cost of an asset over its service life are
(1) time-based methods (2) activity-based methods
When an asset has a significant decline in value and is written down, this is called __________.
impairment
IFRS
impairments are reversed if value recovers
The depreciable cost of an asset is the asset's cost minus its __________ value.
residual
Which of the following are classified as natural resources?
(1) Oil deposits (2) Mineral deposits
Which of the following costs should be capitalized in the costs of acquiring a building?
(1) Remodeling building (2) Legal fees to obtain title (3) Realtor commissions
In an exchange of assets where a loss is indicated, which of the following occurs?
(1) The new asset is recorded at fair value (2) The loss is recognized
The types of expenditures that can occur subsequent to an asset's acquisition are
(1) improvements (2) repairs and maintenance (3) additions
A retirement or abandonment of an asset is different from a sale of an asset because
(1) no consideration is received (2) a loss must be recognized for the remaining book value