Intermediate Ch 11

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

the same regardless of the depreciation method used

Which of the following are characteristics of goodwill?

-indefinite life -subject to impairment testing

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

attorney fees to secure patent purchase price filling fees

For a manufacturing company, what type of a cost is factory depreciation expense? -product cost -period cost -direct cost

product cost

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

Additions Imprrovements Repairs 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 a:

disposition

When an asset has a significant decline in value and is written down, this is called ________.

impairment

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

legal costs to acquire required filing fees purchase price

In accounting terminology, the life of a trademark is considered

indefinite

What is true regarding property, plant, and equipment or intangibles held for sale?

- if the fair value less costs to sell is below book value, an impairment loss is recognized -the assets held for sale are not depreciated or amortized

accumulated expenditure

The average debt necessary to self-construct as asset is referred as the average

accretion

The difference between an asset retirement liability and the probability weighted expected cash flows is recognized as _____________ expense each period.

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the consideration received and the ______ value of the asset sold.

book

Straight-line, declining-balance, and activity-based refer to accouting methods commonly used to ___________ property, palnt, and equipment.

depreciate

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

depreciation - property,plant, and equipment amortization - intangible assets

The portion of a tangible asset's cost that is recognized as an expense in the current year is called -accumulated depreciation -depreciation expense -amortization expense -accumulated amortization

depreciation expense

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

intangible

Intangible assets are written down when events or changes in circumstances indicate that the asset's _ amount is less than its _ amount.

recoverable;recorded

Group and composite depreciation commonly is used to

reduce costs of record-keeping

Group and composite depreciation commonly is used to

reduce costs of record-keeping.

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 the company expects to obtain before disposing of the asset.

legal fees to establish title, installation and testing of equipment, freight to deliver the equipment, and sales tax

What items should be capitalized in the cost of equipment?

Allocation of the cost of a natural resource is called _________.

depletion

When an asset has a significant decline in value and is written down, this is called ______.

impairment

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

improvements

Long-term tangible assets

plant, property, equipment

The useful life of an intangible asset may be limited by what type of provisions?

contractual, regulatory, legal

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

expensed

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

expensed

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

Smith Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $6. The normal gross profit ratio is 20% of selling price. The replacement cost of the inventory is $102. Smith Company uses the LIFO inventory method so must use the lower of cost or market approach and this inventory item should be valued at -$100 -$110 -$102 -$104

$100, ceiling is NRV=$110-6=$104. Floor is NRV less normal profit of 20% so $104-22=$82. Replacement cost is $102. Market is the middle of these three value so =$102 compared to cost of $100. Cost is lower so record at cost

Trademark regusters with the U.S. Patent and Trademark Office protects the trademark from use by others for a period of

10 years

Which of the following are estimated when using the gross profit method? -purchases -beginning inventory -ending inventory -cost of goods sold

-ending inventory -cost of goods sold

Under what circumstances are accelerated depreciation methods most appropriate?

-for an asset that has high repair and maintenance costs later in life -for an asset that will be used extensively in the earlier years of its life

copyright

Elusive right of protection given to a creator of a published work

The three factors that should be established to measure cost allocation are:

allocation method, service life, and allocation base.

Amortization

allocation of the cost of an intagible asset

The original cost of an asset minus accumulated depreciation is:

book value

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

Accounting for land improvements require that the land improvements are __________ and then ____________ over periods benefited by their use.

capitalized; depreciated

MARCS

commonly used for tax reporting

The practice of recognizing decreases in inventory but not increases is consistent with what? -full disclosure -going concern -conservatism -matching

conservatism

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

consideration received less the book value of asset sold.

franchise

contractual agreement in which an entity may use a company's name, products, and formulas.

The cost of natural resources less its anticipated residual value is called the __________ __________.

depletion base

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

depreciation

The allocation of the cost of tangible asset over its service life is referred to as:

depreciation

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

depreciation

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_____

depreciation, amortization

Recurring cost

expensed during the period they are incurred

Recurring costs

expensed during the period they are incurred

If equipment is purchased specifically for one research and development project, the cost of the equipment is -capitalized and expensed over its useful life -expensed in the year the equipment is retired -never expensed -expensed immediately

expensed immediately

Expenditures for repairs and maintenance should be -expensed over the useful life of the asset -expensed in the period incurred -capitalized

expensed in the period incurred

Loss on impairment of goodwill is typically reported as

a separate component of operating expense

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

exprese the cost as incurred.

An impairment loss for intangible assets with indefinite lives is calculated as the book value less the

fair value

For assets using the group or composite method of depreciation, the assets will be depreciated over

the average service life of assets in the group

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

the book value at the beginning of the year

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the (blank) value of the asset sold

book

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

addition

The allocation of the cost of an intangible asset over its useful life is called

amortization

A new major component that is added to an existing asset is called

an addition

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

legal feast obtain tittle, purchase price, delinquent property taxes, remodeling building

prior period adjustment

The correction of an error in previously issued financial statements.

exploration costs before production begins, acquisition for the use of land, and restoration costs at the end of the extraction

The cost of natural resources include

restoration

The costs to return land or other property to its original condition after extracting natural resources are referred to as ____________ costs.

As a separate line item on the income statement or in a disclosure note

What are the acceptable disclosures for research and development expenses?

When sellinf a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the value of the ___________ asset sold

book

Using the declining balance method, depreciation will be _________ during the earlier years, but ___________ in later years

higher; lower

The measurement of an impairment loss for intangible assets with indefinite useful lives is a(n) __________ process.

one step

The measurement of an impairment loss for intangible assets with indefinite useful lives is a(n) ____ process.

one-step

A company discovers a material error in a previous year's financial statements. If retained earnings requires correction, it is reported as a _____ _____ adjustment.

prior period

credit-adjusted risk-free rate

When calculating the fair value of an asset retirement obligation, what rate is used to calculate the expected cash flows?

Property to be held and used matches

When events or circumstances indicate book value may not be recoverable

book

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the consideration received and the _______ value of the asset sold

The group and composite methods of depreciation are similar because they both

apply straight-line depreciation to the assets based on average service lives of the assets

Where is the account accumulated depreciation on the equipment found on the financial statements?

as a contra asset account to equipment on the balance sheet

appraisal

When a company receives an asset from an unrelated party by s donation, the assets are valued at ______________ value.

Under IFRS, when a company chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct?

When an asset is revalued, the entire class of property, plant, and equipment to which the asset belongs must be revalued.

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

Cost of acquiring assets

included as part of assets' acquisition costs

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

rearrangements, improvements, additions, repairs and maintenance.

IFRS

recorded as intagible asset

what are the 2 steps in the two-step process of measuring impairments?

recoverability test, measurement of the impairment loss

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

repairs and maintenance additions improvements

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

repairs and maintenance improvements rearrangements additions

The matching concept requires that cost of an asset should be allocated to the periods in which:

revenue is produced.

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the ______ life of the asset.

service

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the __________________ life of the asset.

service

Which of the following terms is equivalent to an asset's useful life to a particular company?

service life

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

the assets have different useful lives.

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

the book value at the beginning of the year

Measure each type of impairment: assets to be sold

the excess of book value over fair value less costs to sell.

Which of the following intangible assets are usually considered to have indefinite lives?

trademarks

What events would require the investigation of a possible impairment?

-a significant adverse change in how the asset is being used -a significant decrease in market price

What should be considered when choosing an allocation method for a long-term asset?

-a systematic and rational allocation method -a pattern in which the services are obtained from its use

Which of the following accounting changes must be justified in the notes to the financial statements?

Changes in depreciation methods

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

Credit Accumulated Depreciation; Debit Depreciation Expense

Which of the following costs may be capitalized into the cost of a trademark?

Design costs Fees for a successful legal defense Registration fees

What is the first issue that needs to be addressed in order to properly report tangible and intangible assets?

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

contract term

Franchise useful life

An expenditure that qualifies as an addition should be:

capitalized.

Which of the following irems typically are classifies as equipment?

computerm and printers used in office, furniture and fixtures, machinery used in manufactoring

True or false: Companies must use the same depreciation method for all assets

false

When a company acquires a business in a business acquisition and the consideration paid is greater than the fair value of the net assets acquired, the excess is reported as:

goodwill

When a company purchases another company and the purchse price is greater than the fair value of the net assets acquired, this excess is reffered to as ___________.

goodwill

The declining balance method of depreciation is a multiple of the:

straight-line rate of depreciation

Which of the following are expenditures for assets subsequent to acquisition? Freight Additions Imprrovements Repairs and maintenance

Additions Imprrovements Repairs and maintenance

Straight-line method

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

The value of the usefulness that is expected to be consumed?

Allocation base.

The three factors that should be established to measure cost allocation are

Allocation method Allocation base. Service life.

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

Allocation of the cost of an intangible asset

Amortization

Match each inventory at retail component with the correct cost-to-retail percentage assuming that the LIFO retail method is used Begging inventory Current period layer

Beginning inventory-beginning inventory cost-to-retail percentage Current period layer- current-period purchases cost-to-retail percentage

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

Costs to remove an old building, Legal fees to secure title, commissions

depletion

Depreciation expense is recorded for tangible fixed assets, where as _________ expense is recorded for natural resources.

When there is a net increase in the physical quantity of inventory during a period, the use of _____ results in an additional layer of inventory -FIFO -LIFO -average cost

LIFO

Which of the following long-lived assets would not be depreciated?

Land

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

Legal fees to obtain title, remoding building, realtor commissions

In a business acquisition, goodwill equals the purchase price

Less the fair value of net assets acquired

Copyright

Life of creator plus 70

Which of the following are accelerated methods of depreciation?

MACRS Declining-balance method Double-declining balance method

lump-sum

Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchase as a ___________ purchase.

Units-of-output method

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

Correctly match the intangible asset with the description

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.

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

Sale tax, installation and testing of equipment, freight to deliver the equipment, legal feed to establish title

Match each factor to its definition.

Service life - The estimated use that the company expects to receive from the asset Allocation method - The pattern in which the usefulness is expected to be consumed Allocation base - The value of the usefulness that is expected to be consumed

The estimated use that the company expects to receive from the asset?

Service life.

The amortization of an intangible asset occurs over the period of time that is (blank) of the legs., regulatory, contractual, or service life

Shorter

Profit margin mulitplies by assets turn overs equals return on ___________.

assets

Profit margin multiple by asset turnover equals return on:

assets

When accounting for impairments, the two categories for recognizing and measuring the loss are

assets to be held and used and assets held for sale

Asset turnover ratio is net sales divided by

average total assets

The cost of a major improvement that extends the service life of an asset would be (blank), whereas the cost of maintenance that does not increase the future benefits would be (blank)

capitalized; expensed

The retirement of a long-lived asset differs from a sale in that upon retirement, no (blank) is received

cash

The cost allocation methods used for noncurrent assets are

depreciation,depletion, and amortization

The allocation of the cost of a tangible fixed asset is referred to as I ____________________ , whereas the allocation of the cost of an intangible asset is referred to as ________________

depreciation/ amortization

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 __________

depreciation; amortization

Which of the following statements describe the accouting rules for a franchise agreement?

expense periodic payment as incurred amortize the cost of the franchise over its life capitalize the cost of the franchise

Accounting for land improvements requires that the land improvements are recorded separately from land because the improvements have a (blank) life

limited

The cost of land improvement are capitalized separately from land because land improvements tent to have a __________ life.

limited

The ______ principle requires that the cost of an asset should be allocated to the periods in which revenue is produced.

matching

The _____________ principle requires that the cost of an asset should be allocated to the periods in which revenue is produced.

matching

The allocation of the cost of an asset through depreciation, depletion, or amortization is an example of the ________ principle.

matching

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

materiality

What are the two steps in the two-step process of measuring impairments?

measurement of the impairment loss recoverability test

The acronym MACRS stands for

modified accelerated cost recovery system.

Under the new ASU, step one of the goodwill impairment test is required if relevant events and circumstances indicate that it is -probable that the fair value of the reporting unite is less than its book value -more likely than not that the fair value of the reporting unit is less than its book value -possible that the fair value of the reporting unit is less than its book value

more likely than not that the fair value of the reporting unit is less than its book value

Group depreciation is calculated by

multiplying the group depreciation rate by the total cost of assets in the group for that period

Which of the following are commonly used depreciation methods?

straight-line, declining-balance, and activity-based

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include a

credit to assets of $52,000 Debit to accumulated depreciation of $40,000 Debit to loss on impairment of $12,000

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the consideration received and the __________ value of the asset sold.

book

The original cost of an asset minus accumulated depreciation is

book value

An asset impairment for assets to be held for sale is measured as the excess of the

book value over the fair value less costs to sell

A(n) ______ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book

copyright

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

cost of sidewalks, cost of driveways, cost of lawn sprinkler systems

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

credit accumulated depreciation debit depreciation expense

The journal entry to record the allocation of the cost of a natural resource will include a -credit to the natural resource -debit to accumulated depletion -credit to depreciation expense -debit to amortization expense

credit to the natural resource

Accounting for land improvements requires that the land improvements are capitalized and then _____ over periods benefited by their use

depreciated

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

internally developed intangibles

The method of the amortization used for intangible assets:

is most commonly straight-line

Which statement is true about the straight-line method of depreciation?

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

True or false: When accounting for impairments, the two categories for recognizing and measuring the loss are tangible and intangible assets.

false

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

realtor commissions, legal fees obtained title, remodeling building

A basket purchase or lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's:

relative fair value

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

remodeling building, realtor commissions, legal fees to obtain title

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

shorter

The pattern in which usefulness is expected to be consumed?

Allocation method.

intangible

An asset that has no physical substance is called an ______________ asset.

disposition

An asset that is traded for another asset is treated as an exchange, whereas as asset that is sold or retired is treated as a ______________.

Under IFRS, the initial revaluation of equipment when book value exceeds fair value results in

A decrease in net income.

Under what circumstances are accelerated depreciation methods most appropriate?

For an asset that will be used extensively in earlier years of its life, or for an asset that will be used less in the later years of its life.

Under what circumstances are accelerated depreciation methods most appropriate?

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

Which assets are required to be tested for impairment annually? Intangible assets with finite lives Property,plant, and equipment Goodwill Intangible assets with indefinite lives

Goodwill Intangible assets with indefinite lives

expense the costs as incurred

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

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

True or false: Under U.S. GAAP, if an impairment loss is recognized for an intangible asset with a finite life, recovery of the impairment loss is prohibited.

True

the lower of its book value or fair value less costs to sell

Under US GAAP, when property, plant, and equipment are held for sale, the assets are reported at

A gain or loss is recognized for the difference between the value of the asset given up and its book value

What is true regarding a non-monetary exchange of assets?

What are the accelerated methods of depreciation?

-declining balance method -sum of the years digits method -double declining balance method

An asset that has no physical substance is calledn a(n) _______________ asset

intangible

Theoretically, which depreciation method provides the best estimate of expense to correspond with the usage of the asset?

units of production depreciation

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

equipment

Manchines used in manufacturing, computers, printers, vehicles, furniture, and fixutres generally are classified as

equipment

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

expensed as incurred

Woodruff Corp. incorrectly capitalized an expenditure instead of treating it as an expense. What is the financial statement effect of this error in the year the error was made?

net income is overstated

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

patent

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

patent

Which of the following is an intangible asset?

patent copyright trademark

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

patent, 20

A basket purchase or lump-sum acquisition of assets required that an allocation is made to each individual asset based on the assent's _________.

relative fair value

Smith Company calculates annual depreciation of equipment by using the following formula: [(cost-residual value)/useful life]. Smith is applying the depreciation method referred to as -sum-of-the-years digits -declining balance -straight-line

straight-line

The formula for straight line depreciation is

(cost-residual value)/useful life

The formula for straight-line depreciation is

(cost-residual value)/useful life

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:

$1,333

Allocation of the cost of a tangible fixed asset

Depreciation

Intangible asset

Amortization.

Depletion

alloation of the cost of natural resources

WHich of the following are classificed as natural resources?

mineral deposits, oil deposits

Which of the following is an activity based depreciation method?

units-of-production method.

On January 1, year 1, Glasser Corp. purchased equipment for $120,000. the equipment has a useful life of 3 years, and a residual value of $20,000. Using the sum-of-the-years'-digits method, what is the depreciation expense for year 1? -$40,000 -$20,000 -$60,000 -$50,000

$50,000

Patent

20 years

Under IFRS, a company that acquires an intangible asset may use the revaluation model for subsequent measurement only if

An active market exists for the intangible asset.

present value of the note payable discounted at the market rate

An asset is acquired by signing a note payable. The note does not indicate an interest rate, and the fair value of the asset cannot be reliably determined. At what amount should the asset be recorded?

goodwill

An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized is _____________.

fair

An asset requirement obligation is measured at ________ value.

tested for impairment and recorded at cost

An intangible asset with an indefinite life is

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

Commissions, Legal feed to secure title, Costs to remove an old building

fair

Consistent with US GAAP and IFRS, donated assets generally are valued at ________ value.

Margot Company constructs a new building that will replace its current office building. In addition to construction materials and labor, which of the following costs incurred during the construction period should be included in the cost of the new building?

Construction related overhead costs, Interest Costs, Architect fees

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, cost of sidewalks

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?

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

The journal entry to record the amortization of an intangible asset would include

Credit to the intangible asset, debit to amortization expense

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, Credit to equipment $100,000

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 entries?

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

Allocation of the cost of natural resources

Depletion

Natural Resources

Depletion.

Define Depreciation, Depletion, and Amortization

Depreciation-allocation of the cost of a tangible fixed asset Depletion-allocation of the cost of natural resources Amortization-allocation of the cost of an intangible asset

Plant and Equipment

Depreciation.

revenue producing and long-lived

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit what characteristics:

Which of the following are classified as natural resources?

Timber tracts, mineral deposits

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

added to the patent account

A new major component that is added to an existing asset is considered a ________ and should be capitalized

addition

Which of the following are characteristics of goodwill? a) Amortized periodically b) Subject to impairment testing c) Indefinite life d) Finite life

b) Subject to impairment testing c) Indefinite life

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

basket purchase

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

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

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

change in useful life of an asset increasing the residual value of an asset

A nonmonetary exchange is considered to have _____ substance if the future cash flows will change as a result of the exchange

commercial

Straight-Line Method

commonly used for financial statement purposes; allocates an equal portion of the depreciable base to each year of the asset's service life

Western Company purchased a franchise on January 1, 2018 for $100,000 cash. The franchise agreement is for a period of 10 years. Western uses the straight-line method for intangible assets. The journal entry at the end of 2018 includes

credit franchise $10,000 debit amortization expense $10,000

Evans Corp. incorrectly expensed $10,000 in the previous year when it purchased equipment. The entry to correct this error will include a

credit to retained earnings

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include a

debit to loss on impairment of $12,000. debit to accumulated depreciation of $40,000. credit to assets of $52,000.

The journal entry to recognize a loss on impairment of goodwill would include a

debit to loss on impairment of goodwill

A company acquires a mine and incurs costs such as expenditures to build tunnels and shafts before production may begin. These expenditures are classified as -restoration costs -development costs -exploration costs -acquisition costs

development costs

Accounting for impairment of value of assets with finite lives and those with indefinite lives

differs

An asset that is traded for another asset is treated as an exchange, whereas an asset that is sold or retired is treated as a(n) _______________.

disposition

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time is called a -patent -franchise -trademark -copyright

franchise

A contractual arrangmenet in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographic are for a specific period of time is called a

franchise

A(n) _ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and products rights within a specific geographic area for a specific period of time.

franchise

Goodwill

indefinite

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

intangible assets with indefinite lives

Which assets are required to be tested for impairment annually?

intangible assets with indefinite lives

Which assets are required to be tested for impairment annually? -intangible assets with finite lives -property, plant, and equipment -intangible assets with indefinite lives

intangible assets with indefinite lives

No amortization is recorded for

intangible assets with indefinite lives.

Which of the following long-lived assets would not be depreciated?

land

The distinction between land and land improvements is that

land has an indefinite life

Under U.S. GAAP, if a company recognizes an impairment loss,

later recovery of the impairment loss is prohibited

Units-of-output method

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

For plant, property, and equipment, U.S. GAAP requires the investigation of possible impairment -annually if the group or composite depreciation method is used -at the end of each reporting period -every 3 years from the date of acquisition of the asset -only if events or changes in circumstances indicate that the asset may not be recoverable

only if events or changes in circumstances indicate that the asset may not be recoverable

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

purchase price, legal feeds to obtain title, deliquent property taxes

Consistent with the new ASU on goodwill impairment testing, a company may omit annual testing for impairment based on its assessment of

qualitative factors

Ther term used to describe the amount the compnay expects to reveive for an asset at the end of its service life is

residual value

Emil Company expects that its asset will be more useful during early years of its life than during later years. In addition, the company estimates that repair costs will increase over time. Which methods may help equalize total expenses recognized over the service life of this asset?

sum of the years digits declining balance

Long-lived assets are typically classified in two categories:

tangible and intangible

Intangible assets with indefinite useful lives should be....

tested for impairment

Intangible assets with indefinite useful lived should be

tested for impaitment

Amortization

the allocation of the cost of an intangible asset over its useful life

In accounting, the term impairment refers to

an asset's significant decline in value.

Gerhard Inc. recognizes goodwill related to the acquisition of another company. Gerhard should:

Periodically test goodwill for impairment, capitalize the goodwill when company is acquired

direct labor, direct material, and manufacturing overhead

What are the cost components for self-constructed assets?

For accounting purposes, depreciation is

an allocation of a cost of an asset.

Deprciation is a process of cost ___________, and not a process of valuation.

allocation

Goodwill

The excess of book value over implied fair value

The profit margin ratio is defined as (blank blank) divided by net sales

net income

The accounting for copyright uses the same accounting rules are

patents

Linden has the following information. Assuming that the company has no interest or tax expense, what is Linden's profit margin?

30%

copyright

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

present value of the note payable, which is the face amount of the note

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the

Indefinite life intangible assets other than goodwill matches

At least annually, or more frequently if indicated

Timing of when to test for impairment with the type of asset: Indefinite life intnagible assets other than goodwill. Assets to be sold. Property to be held and used.

At least annually, or more frequently if indicated. When considered held for sale. When events or circumstances indicate book value may not be recoverable.

A subsequent expenditure for an asset increases the future benefits of the asset if it

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

The original amount a company adds to cost to determine the selling price is known as _____ _____

Initial markup

Assets to be sold

The excess of book value over fair value less costs to sell

Declining-Balance Method

accelerated method that multiplies a constant percentage

No amortization is recorded for

intangible assets with indefinite lives

Which of the following are not accelerated methods of depreciation? Sum-of-the-years-digits method Striaght-line depreciation Declining balance method Units-of-output depreciation

straight-line depreciation units-of-output depreciation

The ________ life of a long-lived asset cannot exceed the physical life.

useful

10 years, renewable indefinitely

Trademark useful life

Declining-balace method

accelerated method that multiploes a constant percentage rate times the decreasing book value

The term _________ means to record the expenditure as an asset.

capitalize

The profit margin ratio is defined as _____________ ___________ devided by net sales.

net income

What depreciation methods are not accelerated methods of depreciation?

units of output method straight line method

Smith Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $6. Consistent with the lower of cost and net realizable value approach, this inventory item should be valued at -$104 -$96 -$100 -$110

$100, lower of cost and net realizable value is required. The NRV is $104, but the cost of $100 is lower

Polly Corporation purchases land for $200,000. Polly incurs the following costs associated with the land acquisition:

$224,000

Which of the following items are expensed?

Costs related to maintaining equipment

In a basket or lump-sum purchase of assers. the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times

the relative fair value percentage of each asset

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 units-of-production method of depreciation. In year 1, Roark used the machine 30,000 hours and 50,000 hours in year 2. What is the depreciation expense for year 2?

$5,000

The formula to calculate the units-of-production depreciation rate is:

(cost-residual value)/estimated total production.

Intangible assets with _____ useful lives should be tested for impairment annually.

indefinite

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset generates __________

benefits

Which of the following are characteristics of goodwill?

indefinite life and subject to impairment testing.

Which of the following items are intangible assets? -trademark -land -equipment -patent -copyright

-trademark -patent -copyright

goodwill

A company's reputation and clientele, its trained employees, and favorable business location may give rive to ___________.

development stage

A new business that has either not commenced its principal operations or has not yet generated significant revenue is referred to as ____________________ enterprise.

commercial substance

A nonmonetary exchange is considered to have _______________ if the future cash flows will change as a result of the exchange.

If an impairment loss is recognized for an intangible asset with a finite life, which of the following occurs? A recovery can be recognized up to the initial amount of the impairment. Future impairment losses are prohibited. The written-down book value is the new cost basis for future amortization. Recovery of the impairment is prohibited.

The written-down book value is the new cost basis for future amortization. Recovery of the impairment is prohibited.

The journal entry to record the amortization of an intangible asset would include a a) credit to the intangible asset b) credit to amortization expense c) debit to amortization expense d) debit to accumulated amortization

a) credit to the intangible asset c) debit to amortization expense

The formula to calculate the depletion rate of a natural resource is the _____ divided by the estimated extractable amount of natural resources. a) depletion base b) costs to extract in the current year c) historical cost d) amount extracted

a) depletion base

Depreciation

allocation of the cost of a tanggible fixed asset

The formula to calculate the depletion rate of a natural resource is the depletion base divided by the -total cost of the natural resource -amount extracted in the current year -estimated extractable amount of natural resource -estimated cost per ton of the natural resource

estimated extractable amount of natural resource

The costs of restructuring an asset so that it has new capabilities, but where it is uncertain if the restructuring will provide future benefits, should be

expensed

Companies use accelerated depreciation for tax purposes because -it reduces taxable income in the early years of the asset's life -it does a better job of matching expenses to revenues of the period -it increases taxable income in the early years of the asset's life

it reduces taxable income in the early years of the asset's life

Companies use accelerated depreciation for tax purposes because:

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

Under U.S. GAAP, if a company recognizes an impairment loss, -the asset is revalued at fair value at the end of each period -recovery of the loss can be made within the next accounting period -recovery of the loss is limited to the actual amount of the loss -later recovery of the impairment loss is prohibited

later recovery of the impairment loss is prohibited

Under U.S. GAAP if a company recognizes an impairment loss,

later recovery of the impairment loss is prohibited.

The sum-of-the-years'-digits(SYD) method of depreciation is an accelerated method in which depreciation expense decreases each year by -decreasing the denominator each year in the depreciation rate -increasing the depreciable base each year -decreasing the numerator each year in the depreciation rate -reducing the residual value each year in the depreciation formula

decreasing the numerator each year in the depreciation rate

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

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

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

on a prospective basis in the current year and future years.

When the retail inventory method is used to approximate average cost, the cost-to-retail percentage is calculated by dividing _____ by _____ -the total cost of goods available for sale; total goods available for sale at retail -cost of goods purchased; total goods available for sale at retail -retail amounts of goods purchased; total cost of goods available for sale

total cost of goods available for sale; total goods available for sale at retail

Declining-balance method

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

capitalized / depreciated

Accounting for land improvements requires that the land improvements are ______________ and then ______________ over periods benefited by their use.

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

intangible

When the two-step process is used for impairment losses, the ______ estimates of cash flows are used in the step 1 to determine wether an impairment loss is indicated, but the ______ estimates of cash flows are used to determine the amount of the loss.

undiscounted; disconted

The method of amortization used for intangible assets

-is most commonly straight line -should reflect the pattern of use of the asset

Feather Company's inventory is recorded at its historical cost of $100,000. The replacement cost currently is $95,000; estimated selling price $102,000; estimated selling cost is $5,000; normal profit is $10,000. The estimated net realizable value of the inventory is -$100,000 -$97,000 -$87,000 -$102,000

$97,000

Addition

a new major component that is added to an existing asset

filing fees and legal fees

What costs are capitalized as an internally developed patent?

assets built for a company's own use and assets built as discrete projects for sale or lease

What items qualify for interest capitalization?

full-cost

The approach used for accounting for self-constructed assets where all overhead costs are allocated to production and to self-constructed assets is called the __________ approach.

equipment

The broad term encompasses machinery used in manufacturing, computers and other office equipment, vehicles, furniture, and fixtures is _______________.

sales

The fixed-asset turnover ratio indicates the level of ________ generated by each dollar of fixed assets

The accumulated depreciation account is classified as a

contra account

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?

$1,500

What is the formula for the profit margin ratio?

Net income divided by net sales

patent

Elusive right to produce a product or use a process

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

expensed

The depreciable cost is

the cost of the asset minus the residual value.

When group depreciation is used, and an asset is old, what occurs?

-no gain or loss is recorded -the assets cost is removed from the books

Amortization is appropriate for intangible assets with

finite useful lives

The formula to calculate the units-or-production depreciation rate is

(cost-resicual value)/estimate total production

interest charges and allocation of overhead

The two important accounting issues related to self-constructed assets are

Unit of production or units of output are alternative terms for the _. _ depreciation method.

activity, based

A product purchased for $10 is listed with a $15 sales price. Later, the selling price is increased to $17. When the product does not sell, the sales price is decreased to $16. What is the net markup amount? -$5 -$6 -$1 -$2

$1, the sales price is $15 and the initial markup is $2. When the price is decreased from $17 to $16, the markup is reduced to $1

A product purchased for $20 is marked up to a $25 sales price. Later, the selling price is decreased to $22. Eventually, the sales price is increased to $24. What is the net markdown amount? -$2 -$3 -$1 -$4

$1, the sales price is $25 and the initial markdown is $3. When the price is increased form $22 to $24, the markdown is reduced to $1

Smith Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $6. The normal gross profit ratio is 20% of selling price. The replacement cost of the inventory is $106. Smith Company uses the LIFO inventory method so must use the lower of cost or market approach and this inventory item should be valued at -$102 -$106 -$104 -$110

$100, ceiling is NRV=$110-6=$104. Floor is NRV less normal profit of 20% so $104-22=$82. Replacement cost is $106. Market is the middle of these three value so =$104 compared to cost of $100. Cost is lower so record at cost

Western Company incurred the following costs during the year related to the creation of a new product: salaries of researchers:$100,000 depreciation on R&D equipment:$30,000 utilities at R&D facility:$5,000 patent filing and legal costs:$8,000 payment for services in connection with R&D activities:$10,000 adaptation costs for specific needs of a customer:$2,000 What amount should Western report as research and development expense in its income statement? -$145,000 -$155,000 -$153,000 -$147,000 -$115,000

$145,000, the patent filing and legal costs and the adaption costs are excluded.

Golden Company has a binding commitment from another company to purchase its copyright at the end of the asset's useful life. The agreed upon amount is $150,000. When calculating copyright amortization, Golden Company should utilize the residual value of

$150,000

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

$155,000

At the beginning of year 1, Looby Corp. purchased equipment for $100,000. The equipment has a residual value of $20,000 and an expected useful life of 10 years. What is accumulated depreciation at the end of year 2 using straight-line depreciation?

$16,000

On Jan 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 useful life and a $10,000 residual value. What is the book value at the end of year 1?

$160,000 200,000/10 = 20,000 20,000 * 2 = 40,000 $200,000- 40,000 = $160,000

A product purchased for $20 is listed with a $25 sales price. Later, the selling price is marked up to $30. When the product does not sell, the sales price is decreased to $27. What is the net markup amount? -$7 -$2 -$10 -$5

$2, net markup is the difference between the original sales price and any mark up or down, but not below the original selling price. $5 markup - $3 markup cancellation = $2 net markup

Linden Company has three inventory items. Utilizing the lower of cost and net realizable value rule, Linden determines the following: Item A:cost exceeds net realizable value by $20 Item B: cost is $10 lower than net realizable value Item C: cost is $5 lower than net realizable value If Linden applies the rule to individual items, it should recognize a loss of -$5 -$20 -$15

$20, when applying the rule to individual items, only item A has a market value below cost so a $20 loss is recorded

On January 1, 2017, Sonic Corp. begins construction on a new warehouse. The construction project qualifies as a self-constructed asset. Sonic had the following expenditures on the project during 2017: January 1, 2017-$100,000 April 1, 2017-$100,000 November 1, 2017-$150,000 What are the average accumulated expenditures used to calculate capitalized interest on the project in 2017? -$350,000 -$175,000 -$200,000 -$116,667

$200,000 Jan. 1, 2017-$100,000 x 12/12=$100,000 April 1, 2017-$100,000 x 9/12=$75,000 Nov 1, 2017-$150,000 x 2/12=$25,000 wtd avd exp=$200,000

Western Company recently lost its entire inventory in an earthquake. The following information is available from its accounting records: Beginning inventory: $5,000; purchases: $18,000; net sales: $40,000. The company's average gross profit percentage is 40%. Using the gross profit method, a reasonable estimate of cost of goods for this past period would be -$23,000 -$24,000 -$18,000 -$16,000

$24,000 $40,000 x(1-40%)=$24,000

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?

$26,000

Northern Company incurred the following costs during the year related to the creation of a new product: salaries:$200,000 depreciation on R&D equipment:$50,000 quality control during commercial production:$10,000 patent filing and legal costs:$8,000 payment for services in connection with R&D activities:$20,000 testing of preproduction prototypes and models:$5,000 What amount should Northern report as research and development expense in its income statement? -$273,000 -$293,000 -$275,000 -$260,000 -$285,000

$275,000, the patent filing legal costs and the quality control during commercial production are excluded

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. Depreciation expense for the fourth year is:

$28,000

A product purchased for $40 is marked up to a $50 sales price. Later, the selling price is decreased to $45. Eventually, the sales price is increased to $47. What is the net markdown amount? -$7 -$5 -$3 -$10

$3

On January 1, year 1, Green Tractor Corp. purchased equipment for $100,000. The equipment has a useful life of 4 years, and the residual value of $20,000. Using the sum-of-the-years-digits method, what is the depreciation expense for year 1?

$32,000

On Jan 1, year 1, Green Tractor corp. purchased equipment for $100,000. The equipment has a useful life of 4 years, and a residual value of $20,000. Using the sum-of-the-years-digits method, what is the depreciation expense for year 1?

$32,000 ($100,000-20,000)/(4/10) = $32,000 The denominator in SYD is 1 + 2 + 3 + 4 = 10

JM Mining has a coal mine with a depletion base of $1,000,000. It is estimated that 500,000 tons will be extracted over the mine's useful life. During year 1, JM extracted 20,000 tons of coal. The depletion expense for year 1 is

$40,000

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 useful life and a $10,000 residual value. What is depreciation expense for year 1? -$36,000 -$40,000 -$50,000 -$45,000

$40,000

On Jan 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 units-of-production 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?

$5,000 $120,000-20,000 50000/1,000,000 = .05 $100,000 * .05 = $5,000

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has a useful 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 Rationale: $100,000/5 years = $20,000 per year x 1/4 year = $5,000 depreciation expense in year 1.

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. What is the gain or loss on disposal of the equipment?

$50,000 gain

On January 1, 2017, Plaid Corporation begins construction on a new warehouse. The construction project qualifies as a self-constructed asset. Plaid had the following expenditures on the project during 2017: January 1, 2017-$200,000 July 1, 2017-$600,000 December 1, 2017-$120,000 What are the average accumulated expenditures used to calculate capitalized interest on the project in 2017? -$460,000 -$310,000 -$420,000 -$510,000

$510,000 Jan. 1, 2017-$200,000 x 12/12=$200,000 July 1, 2017-$600,000 x 6/12=$300,000 Dec 1, 2017-$120,000 x 1/12=$510,000 wtd avd exp=$510,000

At the beginning of 2017, Western Inc. acquired a building for $10.6 million. Depreciation for 2017 and 2018 was calculated using the straight line method, a 25-year useful life, and a $2.6 million residual value. In 2019, the estimates of useful life and residual value were changed to 20 years (total) and $660,000, respectively. What is the depreciation on the building for 2019?

$516,667

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 the depreciation expense for year 1?

$60,000

Warren Company's records reveal the following information regarding its inventory: Beginning inventory was $100,000 at cost and 160,000 at retail. Purchases during the year were $300,000 at cost and $500,000 at retail. Net markups were $10,000 and net markdowns, $20,000. Assuming the retail inventory method is used to approximate average costs, what is the amount of goods available for sale at retail? -$400,000 -$670,000 -$650,000 -$660,000

$650,000 $160,000+$500,000+$10,000-$20,000=$650,000

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?

$70,000

On January 1, year 1, Glasser Crop. purchased equipment for $120,000. The equipment has a useful life of 3 years, and a residual value of $20,000. Using the sum-of-the-years'-digits method, what is the book value at the end of year 1? -$50,000 -$100,000 -$70,000 -$110,000

$70,000 (120,000-20,000)x(3/6)=50,000. The denominator in SYD is 1+2+3=6. Book value is cost-accumulated depreciation so 120,000-50,000

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 the straight-line depreciation for year 1?

$8,000

Smith Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $6. The normal gross profit ratio is 20% of selling price. The replacement cost of the inventory is $95. Smith Company uses the LIFO inventory method so must use the lower of cost or market approach and this inventory item should be valued at -$104 -$95 -$100 -$110

$95, ceiling is NRV=$110-6=$104. Floor is NRV less normal profit of 20% so $104-22=$82. Replacement cost is $95. Market is the middle of these three value so =$95 compared to cost of $100. Cost is lower so record at cost

Jones Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $12. Consistent with the lower of cost and net realizable value approach, this inventory item should be valued at -$100 -$98 -$88 -$110

$98

Jones Company's inventory cost is $100. The expected sales price is $110. The company estimates sales cost as 10% of the sales price. Consistent with the lower of cost and net realizable value approach, this inventory item should be valued at -$121 -$99 -$110 -$90 -$100

$99, lower of cost and net realizable value is required. The NRV is $110-11=99 and is lower than cost

The formula to calculate the units-of-production depreciation rate is:

(cost-residual value)/estimated total production

The formula for straight-line depreciation is

(cost-residual value)/service life

Depreciation method definition: Declining balance method Sum-of-the-years-digits method Straight-line method

-Accelerated method that multiplies a constant percentage rate by the decreasing book value. -Accelerated method that multiplies the depreciable base by a fraction that declines each year. -Method that allocates an equal portion of the depreciable base to each year of the assets service life.

Expenditure Definitions: Improvements Repairs and maintenance Additions Rearrangements

-Expenditures to replace a major component of an asset. -Expenditures to maintain a given level of benefit. -Expenditures to acquire a new major component to an existing asset. -Expenditures to restructure an asset without making any improvements to the asset.

Smith Company has several current product lines. In the past, the company applied the lower of cost and net realizable value method to individual inventory items. The company wants to make the process less time consuming and is exploring alternatives. What alternatives does the company have? -Smith could choose not to apply the lower of cost and net realizable value rule and report inventory at historical cost -Smith could apply the lower of cost and net realizable value rule to each product line -Smith could apply the lower of cost and net realizable rule to its entire inventory

-Smith could apply the lower of cost and net realizable value rule to each product line -Smith could apply the lower of cost and net realizable rule to its entire inventory

What is required when a material error is discovered in a subsequent accounting period that impacts retained earnings?

-a disclosure note describing the nature of the error and the impact of the correct on net income and earnings per share -previous financial statements are retrospectively restated -a prior period adjustment is made to the beginning balance of retained earnings

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

-a loss must be recognized for the remaining book value -no consideration is received

Which of the following items should be considered when choosing an allocation method for a long-term asset? -a pattern in which the services are obtained from its use -a systematic and rational allocation method -the probability for an impairment loss -the cost of the asset compared to its residual value

-a pattern in which the services are obtained from its use -a systematic and rational allocation method

The two approaches for a systematic and rational allocation of the cost of an asset over its useful life are

-activity based methods -time based methods

The types of expenditures that can occur subsequent to an asset's acquisition are -additions -improvements -goodwill -intangibles -rearrangements -repairs and maintenance

-additions -improvements -rearrangements -repairs and maintenance

The two important accounting issues related to self-constructed assets are -date placed in service -allocation of overhead -treatment of interest charges -residual value

-allocation of overhead -treatment of interest charges

Which of the following are included in research and development costs? -allocation of overhead for lab facilities -equipment in the lab -sales commissions -labor costs of research personnel -administrative expenses

-allocation of overhead for lab facilities -equipment in the lab -labor costs of research personnel

Raphael Corp. incorrectly expensed a major addition to equipment when the company should have capitalized the expenditure. What are the financial statement effects in the year the error was made?

-assets are understated -net income in understated

Advantages of the retail inventory method include that it can -be adjusted to approximate the different cost flow assumptions -eliminate the need for an annual physical inventory at the end of the year -be used to estimate inventory lost, stolen, or destroyed

-be adjusted to approximate the different cost flow assumption -be used to estimate inventory lost, stolen, or destroyed

What is considered a change in estimate that would be treated on a prospective basis in the current and future periods?

-change in the useful life of an asset -increasing the residual value of an asset

Mining Ventures purchases land and the rights to explore for $100,000. Exploration costs are $20,000, and development costs are $30,000. The estimated cost of restoration, calculated as the present value of expected cash outflows, is $50,000. The journal entry to record the acquisition of the mine will include which of the following entries? -credit to cash $200,000 -credit to asset retirement liability of $50,000 -debit to mining assets of $200,000 -credit to cash $150,000 -debit to asset retirement obligation of $150,000

-credit to cash $200,000 -credit to asset retirement liability of $50,000 -debit to mining assets of $200,000 -credit to cash $150,000

The retail inventory method tends to be more accurate than the gross profit method because it relies on the -current gross profit ratio -historic gross profit ratio -current relationship between cost and selling prices -historic relationship between cost and selling prices

-current relationship between cost and selling prices

Western Company determines the cost of its inventory is $410,000 and net realizable value is $400,000. Western Company should -credit cost of goods sold $10,000 -debit cost of goods sold $10,000 -not record a journal entry -credit inventory $10,000 -debit inventory $10,000

-debit cost of goods sold $10,000 -credit inventory $10,000

A company acquires equipment by signing an interest-bearing not payable for $20,000. The interest rate is realistic so the company will record -debit machine for an amount less than $20,000 -debit machine $20,000 -debit discount on note payable -credit note payable $20,000

-debit machine $20,000 -credit note payable $20,000

On December 30, 2017, 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. The journal entry to record the sale would include

-debit to accumulated depreciation of 30,000 -debit to cash of 45,000 -credit to gain on sale of asset of 25,000 -credit to equipment of 50,000

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include

-debit to loss on impairment of 12,000 -debit to accumulated depreciation of 40,000 -credit to assets of 52,000

What are the cost components for self-constructed assets? -direct material -operating expenses -direct labor -manufacturing overhead

-direct material -direct labor -manufacturing overhead

The retail inventory method can be modified to estimate which of the following using FIFO, LIFO, or average cost? -net income -operating income -ending inventory -cost of goods cold

-ending inventory -cost of goods cold

Under what circumstances are accelerated depreciation methods most appropriate? -for an asset that has high repair and maintenance costs early in life -for an asset that will be used extensively in earlier years of its life -for an asset used evenly throughout its life and the life is measured in years -for an asset that has high repair and maintenance costs later in life

-for an asset that will be used extensively in earlier years of its life -for an asset that has high repair and maintenance costs later in life

For financial reporting, the lower of cost or net realizable value approach can be applied to -groups of inventory items -only to inventory purchased during the current year -individual inventory items -the entire inventory

-groups of inventory items -individual inventory items -the entire inventory

For financial reporting of companies using LIFO, the lower of cost or market approach can be applied to -groups of inventory items -only to inventory purchased during the current year -the entire inventory -individual inventory items

-groups of inventory items -the entire inventory -individual inventory items

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

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

Long-term assets are typically classified in one of these two categories: -leasehold improvements -intangible assets -investments -property, plant, and equipment -construction in progress

-intangible assets -property, plant, and equipment

The retail inventory method -is used to test the overall reasonableness of physical counts -is used in budgeting and forecasting -is used to avoid an annual physical count of inventory -is used to generate information for interim financial statement

-is used to test the overall reasonableness of physical counts -is used in budgeting and forecasting -is used to generate information for interim financial statement

Which method can be applied to individual inventory items, categories of inventory, or the entire inventory? -lower of cost or market only -lower of cost and net realizable value only -lower of cost or market and lower of cost and net realizable value

-lower of cost or market and lower of cost and net realizable value

Property, plant, and equipment typically include -machinery -patents -goodwill -cars and trucks -furniture

-machinery -cars and trucks -furniture

Which of the following are included in research and development costs? -materials used in the lab -general administrative expenses for the company -allocation of indirect costs related to research -salaries of researchers

-materials used in the lab -allocation of indirect costs related to research -salaries of researchers

Which of the following information is needed to utilize the gross profit method? -net sales -beginning inventory -estimated gross profit ratio -purchases -cost of goods sold

-net sales -beginning inventory -estimated gross profit ratio -purchases

Omar Company uses a periodic inventory system and erroneously overstates ending inventory by $10,000 for the year ended December 31, 2017. Ignoring the tax effect, the effect on the 2017 financial statement includes an -understatement of net income by $10,000 -overstatement of net income by $10,000 -understatement of cost of goods sold by $10,000 -overstatement of cost of goods sold by $10,000

-overstatement of net income by $10,000 -understatement of cost of goods sold by $10,000

Which of the following items should be capitalized in the cost of equipment? -purchase price -repair costs for first year of operations -installation and testing of equipment -insurance on equipment during shipping -freight to deliver the equipment to its location

-purchase price -installation and testing of equipment -insurance on equipment during shipping -freight to deliver the equipment to its location

The useful life of an intangible asset may be limited by what provisions?

-regulatory -legal -contractual

In applying the lower of cost or market rule, market value -should not be less than net realizable value less normal profit margin -must be greater than the inventory's current replacement cost -must be less than the inventory's current replacement cost -should not be greater than net realizable value

-should not be less than net realizable value less normal profit margin -should not be greater than net realizable value

Which of the following are characteristics of goodwill? -amortized periodically -subject to impairment testing -indefinite life -finite life

-subject to impairment testing -indefinite life

Emil Company expects that its asset will be more useful during early years of its life than during later years. In addition, the company estimates that repair costs will increase over time. Which method(s) may help equalize total expenses recognized over the service life of this asset? -straight-line -sum-of-the-years digits -retirement -declining balance

-sum-of-the-years digits -declining balance

Emil Company expects that its assets will be more useful during early years of its life than during late years. In addition, the company estimates that repair costs will increase over time. Which method(s) may help equalize total expenses recognized over the service life of this asset? -straight-line -sum-of-the-years digits -retirement -declining balance

-sum-of-the-years digits -declining balance

The two approaches for a systematic and rational allocation of the cost of an asset over its useful life are -cost recovery methods -time-based methods -percentage-of-completion methods -activity-based methods

-time-based methods -activity-based methods

Larry purchases land to be used for a new corporate headquarters. Which of the following are capitalized in the cost of land? -title insurance -grading the land -current year's property taxes -legal fees to secure title -costs to remove an old building

-title insurance -grading the land -legal fees to secure title -costs to remove an old building

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

If an impairment loss is recognized for an intangible asset with a finite life, which of the following occurs? -later recovery of the impairment is prohibited -a recovery can be recognized up to the initial amount of the impairment -the written-down book value is the new cost basis for future amoritzation -future impairment losses are prohibited

-later recovery of the impairment is prohibited -the written-down book value is the new cost basis for future amortization

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

Cost of fences, cost of parking lots, cost of sidealks

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

Cost to remove an old building, Title insurance, Legal fees to secure title, grading the land

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

Freight to deliver the equipment to its location, Insurance on equipment during shipping, purchase price, installation and testing of equipment

Indefinite

Goodwill useful life

Gosling Corporation had a return on asset ratio of 4% in 2017 and 9% in 2018. This change in return on assets can be interpreted as

Gosling is using its assets more effectively to earn income

20 years

Patents useful life

_____ value is the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs.

Residual / Salvage

Development

________________ costs are incurred after a natural resource has been discovered but before production begins.

The profit margin ratio is defined as (blank) divided by net sales.

net income

An impairment occurs when the -fair value of the asset is less than the book value of the asset -book value of the asset is less than the fair value of the asset -undiscounted sum of estimated future cash flows is less than the asset's book value -discounted sum of past cash flows is more than the asset's book value

undiscounted sum of estimated future cash flows is less than the asset's book value

An impairment occurs when the

undiscounted sum of estimated future cash flows is less than the assets books value

When the two-step process is used for impairment losses, the _____ estimates of cash flows are used in step 1 to determine whether an impairment loss is indicated, but the _____ estimates of cash flows are used to determine the amount of the loss.

undiscounted, discounted

If a company bases depreciation expense on the life of a machine in hours, and depreciated the machine for the number of hours used during the year, it is using the __________ method of depreciation.

units of production

If a company bases depreciation expense on the life of a machine in hours, and depreciates the machine for the number of hours used during the year, it is using the______ method of depreciation -sum-of-the-years'-digits -double-declining-balance -straight-line -units-of-production

units of production

Which of the following are not accelerated methods of depreciation?

units-of-output depreciation straight-line depreciation

If a company bases depreciation expense on the life of a machine in hours, and depreciates the machine for the number of hours used during the year, it is using the ______ method of depreciation.

units-of-production

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the _________ life of an asset.

useful

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the _____ life of the asset.

useful / service

When calculating the amount of interest to capitalize on a self-constructed asset, the critical inputs used are an interest rate and -total amount paid to construct the asset -long-term debt outstanding at year-end -weighted average accumulated expenditures -historical cost of the building

weighted average accumulated expenditures

Assets to be sold

when classified as held for sale

The residual value of an intagible asset is usually _____________.

zero

On September 3, 2021, the Robers Company exchanged equipment with Phifer Corporation. The facts of the exchange are as follows: Robers' Asset Phifer's Asset Original cost $ 205,000 $ 225,000 Accumulated depreciation 123,000 131,000 Fair value 100,500 78,500 To equalize the exchange, Phifer paid Robers $22,000 in cash. Required: Record the exchange for both Robers and Phifer. The exchange has commercial substance for both companies.

1 1 Cash D22,000 Equipment-new D78,500 Accumulated depreciation D123,000 Equipment-old C205,000 Gain on exchange of assets C18,500 2 2 Equipment-new D100,500 Accumulated depreciation D131,000 Loss on exchange of assets D15,500 Cash C22,000 Equipment-old C225,000 Explanation Robers Company: Equipment―new ($100,500 FV given − $22,000 cash received) = $78,500 Gain on exchange of assets ($100,500 FV − $82,000 BV) = $18,500 Phifer Company: Equipment―new ($78,500 FV given + $22,000 cash paid) = $100,500 Loss on exchange of assets ($78,500 FV − $94,000 BV) = $15,500

Oaktree Company purchased new equipment and made the following expenditures: Purchase price $ 55,000 Sales tax 3,200 Freight charges for shipment of equipment 800 Insurance on the equipment for the first year 1,000 Installation of equipment 2,000 The equipment, including sales tax, was purchased on open account, with payment due in 30 days. The other expenditures listed above were paid in cash. Required: Prepare the necessary journal entries to record the above expenditures

1 1 Equipment D61,000 Accounts payable C58,200 Cash 2,800 2 2 Prepaid insuranceD 1,000 Cash C1,000 Explanation Equipment ($55,000 + $3,200 + $800 + $2,000) = $61,000

Consider each of the transactions below. All of the expenditures were made in cash. The Edison Company spent $26,000 during the year for experimental purposes in connection with the development of a new product. In April, the Marshall Company lost a patent infringement suit and paid the plaintiff $9,000. In March, the Cleanway Laundromat bought equipment. Cleanway paid $20,000 down and signed a noninterest-bearing note requiring the payment of $25,000 in nine months. The cash price for this equipment was $39,000. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $42,000. The Mayer Company, plaintiff, paid $26,000 in legal fees in November, in connection with a successful infringement suit on its patent. The Johnson Company traded its old equipment for new equipment. The new equipment has a fair value of $14,200. The old equipment had an original cost of $14,400 and a book value of $7,200 at the time of the trade. Johnson also paid cash of $10,800 as part of the trade. The exchange has commercial substance. Required: Prepare journal entries to record each of the above transactions.

1 1 Research and development expense D26,000 Cash 2C6,000 2 2 Legal fees expenseD 9,000 Cash C9,000 3 3 Equipment D39,000 Discount on notes payable D6,000 Cash C20,000 Notes payable C25,000 4 4 Building (sprinkler system) D42,000 Cash C42,000 5 5 Patent D26,000 Cash C26,000 Equipment-new 14,200 Accumulated depreciation 7,200 Loss on exchange of assets 3,800 Equipment-old 14,400 Cash 10,800 Explanation 6. Equipment-new ($3,400 FV given* + $10,800 cash paid) = $14,200 Accumulated depreciation-machine ($14,400 cost - $7,200 BV) = $7,200 Loss on exchange of assets ($3,400 FV* - $7,200 BV) = $3,800 Equipment—old (remove account balance) = $14,400 *Fair value of old equipment (Fair value of new equipment - Cash given): $14,200 - $10,800 = $3,400

Tristar Production Company began operations on September 1, 2021. Listed below are a number of transactions that occurred during its first four months of operations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) On September 1, the company acquired five acres of land with a building that will be used as a warehouse. Tristar paid $270,000 in cash for the property. According to appraisals, the land had a fair value of $185,600 and the building had a fair value of $104,400. On September 1, Tristar signed a $57,000 noninterest-bearing note to purchase equipment. The $57,000 payment is due on September 1, 2022. Assume that 9% is a reasonable interest rate. On September 15, a truck was donated to the corporation. Similar trucks were selling for $4,200. On September 18, the company paid its lawyer $6,000 for organizing the corporation. On October 10, Tristar purchased maintenance equipment for cash. The purchase price was $32,000 and $1,350 in freight charges also were paid. On December 2, Tristar acquired various items of office equipment. The company was short of cash and could not pay the $7,200 normal cash price. The supplier agreed to accept 200 shares of the company's no-par common stock in exchange for the equipment. The fair value of the stock is not readily determinable. On December 10, the company acquired a tract of land at a cost of $37,000. It paid $6,000 down and signed a 11% note with both principal and interest due in one year. Eleven percent is an appropriate rate of interest for this note.

1 September 01 Land D172,800 Building D97,200 Cash 2C70,000 2 September 01 Equipment +/-D 52,294 Discount on notes payable +/-D 24,706 Notes payable C57,000 3 September 15 Truck D4,200 Revenue-donation of asset C4,200 4 September 18 Organization cost expense D6,000 Cash C6,000 5 October 10 Maintenance equipment D33,350 Cash C33,350 6 December 02 Office equipment D7,200 Common stock C7,200 7 December 10 Land D37,000 Cash D6,000 Notes payable C31,000 Explanation 1. Asset Fair Value Percent of Total Fair Value Initial Valuation (Percent × $270,000) Land $ 185,600 64.00 % $ 172,800 Building 104,400 36.00 97,200 Totals $ 290,000 100.00 % $ 270,000 2. Present value of note payments: PV = $57,000 (0.91743*) = $52,294 *Present value of $1: n = 1, i = 9% (from PV of $1) 5. Equipment = $32,000 + $1,350 = $33,350

The two categories for intagible assets are

1) Intagibles with finite lives 2) Intagibles with indefinite lives

What are the issues when accounting for impairments

1. When to recognize the impairment 2. How to measure the impairment loss

The three factors that should be established to measure cost allocation are

1. allocation base 2. service life 3. allocation method

Trademark

10 years renewable, possibly indefinite

On October 1, year 1, Johnson Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Johnson uses the double-declining-balance method of depreciation. The partial year depreciation for year 1 is

10,000 Rationale: The depreciation rate is 1/5 x 2 = 40%. $100,000 x 40% x 1/4 = $10,000 depreciation expense in year 1.

Gordon Company has the following information for year 2: What is Gordon's return on assets for year 2?

11.4%

Sherman Corporation purchases land for $100,000. Sherman incurs the following costs associated with the land acquisition:

114,000

On January 1, 2021, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2022. Expenditures on the project were as follows: January 1, 2021 $ 1,200,000 March 1, 2021 900,000 June 30, 2021 1,100,000 October 1, 2021 900,000 January 31, 2022 315,000 April 30, 2022 648,000 August 31, 2022 945,000 On January 1, 2021, the company obtained a $3,500,000 construction loan with a 12% interest rate. The loan was outstanding all of 2021 and 2022. The company's other interest-bearing debt included two long-term notes of $3,000,000 and $7,000,000 with interest rates of 8% and 10%, respectively. Both notes were outstanding during all of 2021 and 2022. Interest is paid annually on all debt. The company's fiscal year-end is December 31. Required: 1. Calculate the amount of interest that Mason should capitalize in 2021 and 2022 using the specific interest method. 2. What is the total cost of the building? 3. Calculate the amount of interest expense that will appear in the 2021 and 2022 income statements.

2021 2022 Interest capitalized $327,000 $432,876 Interest expense $1,033,000 $927,124 Total cost of building $6,767,876 Explanation 1. 2021: Expenditures for 2021: January 1, 2021 $ 1,200,000 × 12/12 = $ 1,200,000 March 1, 2021 900,000 × 10/12 = 750,000 June 30, 2021 1,100,000 × 6/12 = 550,000 October 1, 2021 900,000 × 3/12 = 225,000 Accumulated expenditures (before interest) $ 4,100,000 Average accumulated expenditures − $ 2,725,000 Interest capitalized: $2,725,000 × 12% = $327,000 = Interest capitalized in 2021 2022: January 1, 2022 ($4,100,000 + $327,000) $ 4,427,000 × 9/9 = $ 4,427,000 January 31, 2022 315,000 × 8/9 = 280,000 April 30, 2022 648,000 × 5/9 = 360,000 August 31, 2022 945,000 × 1/9 = 105,000 Accumulated expenditures (before interest) $ 6,335,000 Average accumulated expenditures − $ 5,172,000 Interest capitalized: $ 5,172,000 - 3,500,000 (construction loan) × 12.00 % × 9/12 = $ 315,000 1,672,000 × 9.40 %* × 9/12 = 117,876 Interest capitalized in 2022 $ 432,876 *Weighted-average rate of all other debt: $ 3,000,000 × 8 % = $ 240,000 7,000,000 × 10 % = 700,000 $ 10,000,000 $ 940,000 $940,000 = 9.40% $10,000,000 2. Accumulated expenditures 9/30/2022 before interest capitalization (above) $ 6,335,000 2022 interest capitalized (above) 432,876 Total cost of building $ 6,767,876 3. 2021 $ 3,500,000 × 12 % = $ 420,000 3,000,000 × 8 % = 240,000 7,000,000 × 10 % = 700,000 Total interest incurred 1,360,000 Less: Interest capitalized (327,000 ) 2021 interest expense $ 1,033,000 2022 Total interest incurred $ 1,360,000 Less: Interest capitalized (432,876 ) 2022 interest expense $ 927,124

self-constructed asset

A company decided to build a new store rather than purchase an existing building. This type of asset is referred to as a

appraised value of the land

A company issues its equity securities to purchase land. The common stock is not publicly traded. The best indicator of fair value is the

Which of the following items should be considered when choosing an allocation method for a long-term asset? A pattern in which the services are obtained from its use. The probability for an impairment loss The cost of the asset compared to its residual value. A systematic and rational allocation method.

A pattern in which the services are obtained from its use. A systematic and rational allocation method.

purchase price, legal costs to acquire, and required filing fees

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

Jan purchases a piece of land and immediately tears down an old building. The proceeds from selling the salvaged materials should be recognized as:

A reduction in the cost of the purchased land

A subsequent expenditure for an asset increases the future benefits of the asset if it

A subsequent expenditure for an asset increases the future benefits of the asset if it

Added to the cost column Deducted in both the cost and retail columns Deducted in the cost column

Added to the cost column: Freight-In Deducted in both the cost and retail columns: purchase returns, abnormal shrinkage Deducted in the cost column: purchase discounts taken(gross method)

Which item qualifies as an addition and should be capitalized?

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

finite / indefinite

An intangible asset with a ___________ life is amortized, whereas an intangible asset with an _____________ life is tested for impairment.

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

As an expense in the period

Samtech Manufacturing purchased land and building for $3 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance $ 30,000 Legal fees for drawing the contract 7,000 Pro-rated property taxes for the period after acquisition 50,000 State transfer fees 5,400 An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3 and $1 million, respectively. Shortly after acquisition, Samtech spent $96,000 to construct a parking lot and $54,000 for landscaping. Required: 1. Determine the initial valuation of each asset Samtech acquired in these transactions. 2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $390,000 and the salvaged materials were sold for $8,000. In addition, Samtech spent $93,000 clearing and grading the land in preparation for the construction of a new building.

Assets Initial Valuation Land $2,281,800 Building $760,600 Land improvements $150,000 Assets Initial Valuation Land $3,517,400 Building Land improvements $150,000 Explanation 1. Cost of land and building: Purchase price $ 3,000,000 Title insurance 30,000 Legal fees 7,000 State transfer fees 5,400 Total cost $ 3,042,400 Note: The pro-rated property taxes for the period after acquisition are not included in the initial valuation of the land and building. They are recorded instead as prepaid taxes and expensed over the related period. The total is allocated to the land and building based on their relative fair values: Asset Fair Value Percent of Total Fair Value Initial Valuation (% × $3,042,400) Land $ 3,000,000 75 % $ 2,281,800 Building 1,000,000 25 % 760,600 $ 4,000,000 100 % $ 3,042,400 Assets: Land $ 2,281,800 Building $ 760,600 Land improvements: Parking lot $ 96,000 Landscaping 54,000 $ 150,000 2. Cost of land: Purchase price $ 3,000,000 Title insurance 30,000 Legal fees 7,000 State transfer fees 5,400 Demolition of old building $ 390,000 Less: Sale of materials (8,000 ) 382,000 Clearing and grading costs 93,000 Total cost of land $ 3,517,400 Land improvements: Parking lot 96,000 Landscaping $ 54,000 $ 150,000

Match the measurement to each type of impairment.

Assets to be held and used - The excess of book value over the fair value Goodwill - The excess of book value over implied fair value Assets to be sold - The excess of book value over fair value less costs to sell

Fullerton Waste Management purchased land and a warehouse for $800,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker's commission, $50,000; title insurance, $13,000; miscellaneous closing costs, $16,000. The warehouse was immediately demolished at a cost of $38,000 in anticipation of the building of a new warehouse. Determine the amounts Fullerton should capitalize as the cost of the land and the building.

Capitalized cost of land $917,000 Capitalized cost of building (blank) Explanation Capitalized cost of land: Purchase price $ 800,000 Broker's commission 50,000 Title insurance 13,000 Miscellaneous closing costs 16,000 Demolition of old building 38,000 Total capitalized cost $ 917,000 All of the expenditures, including the costs to demolish the old building, are included in the initial cost of the land.

On March 1, 2021, Beldon Corporation purchased land as a factory site for $77,000. An old building on the property was demolished, and construction began on a new building that was completed on December 15, 2021. Costs incurred during this period are listed below: Demolition of old building $ 7,500 Architect's fees (for new building) 16,000 Legal fees for title investigation of land 4,000 Property taxes on land (for period beginning March 1, 2021) 4,700 Construction costs 670,000 Interest on construction loan 8,500 Salvaged materials resulting from the demolition of the old building were sold for $3,700. Required: Determine the amounts that Beldon should capitalize as the cost of the land and the new building.

Capitalized cost of land: Purchase price $77,000 Demolition of old building $7,500 Sale of materials (3,700) Legal fees for title investigation 4,000 Total cost of land $84,800 Capitalized cost of building: Construction costs $670,000 Architect's fees 16,000 Interest on construction loan 8,500 Total cost of building $694,50 Explanation Note: Property taxes on the land for the period after acquisition are not part of acquisition cost. They are expensed in the period incurred.

A company constructs a building for its own use. Construction began on January 1 and ended on December 30. The expenditures for construction were as follows: January 1, $580,000; March 31, $680,000; June 30, $480,000; October 30, $840,000. To help finance construction, the company arranged a 7% construction loan on January 1 for $860,000. The company's other borrowings, outstanding for the whole year, consisted of a $4 million loan and a $6 million note with interest rates of 8% and 6%, respectively. Assuming the company uses the specific interest method, calculate the amount of interest capitalized for the year.

Date Expenditure Weight Average January 1 $580,000 × 12/12 = $580,000 March 31 680,000 × 9/12 = 510,000 June 30 480,000 × 6/12 = 240,000 October 30 840,000 × 2/12 = 140,000 Accumulated expenditures $2,580,000 $1,470,000 Average Interest Rate Capitalized Interest Average accumulated expenditures $1,470,000 Construction loan 860,000 7.00 % = $60,200 Other loans (not construction) 610,000 6.80 % = 41,480=MULTIPLY(B11,D11/100) $101,680 Explanation Weighted-average rate of all other debt: $ 4,000,000 × 8 % = $ 320,000 6,000,000 × 6 % = 360,000 $ 10,000,000 $ 680,000 $680,000 = 6.80 % weighted average $10,000,000

On January 1, 2021, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2022. The company borrowed $1,700,000 at 9% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2021: $6,000,000, 14% bonds $4,000,000, 9% long-term note Construction expenditures incurred during 2021 were as follows: January 1 $ 620,000 March 31 1,220,000 June 30 824,000 September 30 620,000 December 31 420,000 Required: Calculate the amount of interest capitalized for 2021 using the specific interest method

Date Expenditure Weight Average January 1 $620,000 x 12/12 = $620,000 March 31 1,220,000 x 9/12 = 915,000 June 30 824,000 x 6/12 = 412,000 September 30 620,000 x 3/12 = 155,000 December 31 420,000 x 0/12 = Accumulated expenditure $3,704,000 $2,102,000 Average Interest Rate Capitalized Interest Average accumulated expenditures $2,102,000 Construction loan 1,700,000 x 9.0 % = $153,000 Other loans (not construction) $402,000 x 12.0 % = 48,240 $201,240=SUM(G11,G12) Explanation Weighted-average rate of all other debt: $ 6,000,000 × 14 % = $ 840,000 4,000,000 × 9 % = 360,000 $ 10,000,000 $ 1,200,000 $1,200,000 = 12.00% $10,000,000

Cost allocation method: Plant and equipment Natural Resources Intangible asset

Depreciation Depletion Amortization

trademark

Elusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company

Cedric Company recently traded in an older model of equipment for a new model. The old model's book value was $333,000 (original cost of $723,000 less $390,000 in accumulated depreciation) and its fair value was $370,000. Cedric paid $77,000 to complete the exchange which has commercial substance. Required: Prepare the journal entry to record the exchange

Equipment - new D447,000 Accumulated depreciation D390,000 Equipment - old C723,000 Cash C77,000 Gain on exchange of assets C37,000 Explanation Equipment - new ($370,000 + $77,000) = $447,000 Gain on exchange of assets ($370,000 − $333,000) = $37,000

capitalized as part of the cost of land

Expenditures needed to get land ready for its intended use should be:

exploration

Expenditures relating to a search for natural resources are referred to as ______________ costs.

Recurring costs

Expensed during the period they are incurred

Match the recognition of related cots incurrent during the year with the description of the intangible asset.

Expensed when incurred - mueller's industrial engineers develop a new process for which the compny was granted a patent. Capitalized as an intangible asset - mueller's purchases the right to manufacture a new product for which patton inc. holds the patent.

On March 31, 2021, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for $17,200,000 in cash. The book values and fair values of Barney's assets and liabilities were as follows: Book Value Fair Value Current assets $ 6,200,000 $ 7,700,000 Property, plant, and equipment 11,200,000 14,200,000 Other assets 1,020,000 1,520,000 Current liabilities 4,200,000 4,200,000 Long-term liabilities 6,200,000 5,700,000 Required: Calculate the amount paid for goodwill.

Explanation Calculation of goodwill: Fair value of consideration given $ 17,200,000 Less: Fair value of identifiable net assets acquired: Fair value of identifiable assets acquired $ 23,420,000 Less: Fair value of liabilities assumed (9,900,000 ) (13,520,000 ) Goodwill $ 3,680,000

The retirement depreciation method assumes a _____ cost approach in determining depreciation expense at the time the assets are disposed

FIFO

True or fals: The total amount of cost to be allocated over an assets service life is called its residual value.

False

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

False

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

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

True or false: When accounting for impairments, the two categories for recognizing and measuring the loss are tangible and intangible assets.

False *The categories for accounting for impairments are assets to be held and used and assets held for sale.

Which of the following costs may be capitalized into the cost of a trademark?

Fees for a successful legal defense, design costs, registration fees

commercial substance

For nonmonetary exchanges, the assets are measured at fair value except when the transaction lacks ________________________.

Measurement of: Goodwill, Assets to be sold, Assets to be held and used

Goodwill: The excess of BV over implied FV Assets to be sold: The excess of BV over FV less costs to sell Assets to be held and used: The excess of BV over the FV

Assume that the value of indefinite-life intangible assets for which an impairment loss was recognized during the prior year has been recovered. Match the appropriate accounting treatment with the correct accounting standard.

IFRS - impairment losses must be reversed U.S. GAAP - impairment losses cannot be reversed

expensed immediately

If equipment is purchased specifically for one research and development project, the cost of the equipment is

acquisition cost, development costs, and exploration costs.

If natural resources are developed by a company, the initial valuation should include

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

Improvements

Under what circumstances is depreciation included in inventory?

In a manufacturing environment When manufactured goods are not sold at the end of the period.

gain / loss

In an exchange of nonmonetary assets, if the transaction lacks commercial substance, any _________ is deferred, but a ________ is recognized immediately.

Costs of acquiring assets

Included as part of assets acquisition costs

Cost of acquiring assets

Including as part of assets' acquisition costs

What costs are capitalized as an intangible asset for a franchise?

Initial payment for the franchise

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

Insurance of equipment during shipping, purchase price, freight to deliver the equipment to its location, installation and testing of equipment

Match each asset with its cost allocation method.

Intangible asset - Amortization Natural resources - Depletion Plant and equipment - Depreciation

Amortization

Intangible assets

The two categories for intangible assets are:

Intangibles with indefinite lives; intangibles with finite lives

Self-constructed buildings include which of the following costs?

Interest costs incurred during construction, material costs incurred for construction of building, labor costs incurred for construction of building

Whcih statement is true about the straight-line method of depreciation?

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

Which statement is true about the straight-line method of deprecation? 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 the preferred method for companies expecting to use the asset more in its early years of life. It is an accelerated method of depreciation.

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

Costs that are capitalized with regard to a patent include:

Legal fees of obtaining the patent, incidental costs of obtaining the patent, and costs of successful patent infringement suits.

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

Materiality

Units-of-output Method

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

Which of the following are classified as natural resources?

Mineral deposits Oil deposits

What is the formula ro compute the return on assets?

Net income divided by average total assets

trademark

Norbert Company has an exclusive right to display a specific symbol and routinely uses it on its promotional materials, company letterhead, and other media to distinguish its company from other firms. This right is referred to as a

asset retirement

Obligations associated with the disposition of property, plant, equipment, and natural resources are called ___________________ obligations.

Match each intangible with its estimated service life.

Patient; 20 years Copyright; Life of creator plus 70 years Trademark; 10 years renewable, possibly indefinite Frenchise; contract term Goodwill; indefinite

Which of the following are required when a material error is discovered in a subsequent accounting period that impacts retained earnings?

Previous financial statements are retrospectively restated. A prior period adjustment is made to the beginning balance of retained earnings. A disclosure note describing the nature of the error and the impact of the correction on net income and earnings per share.

What is the accounting treatment for the discovery of a material error in a previous year

Previous years' financial statements are restated.

Depreciation

Property Plant Equipment

Impairment Test, Timing

Property to be held and used ^When events or circumstances indicate book value may not be recoverable Indefinite life ^At least annually, or more frequently if indicated Asset to be sold ^ When considered held for sale

furniture, machinery, cars and trucks

Property, plant, and equipment typically include

Indicate whether each item is a research and development cost or a non-R&D item

R&D:-modification of a formula or design -searching for application of new research findings -design, construction and testing of prototype or model Non-R&D cost:-adaptation of an existing capability for a customer -routine efforts to improve an existing product -engineering follow-through in early phases of commercial production

U.S. GAAP

Recorded as expense during period incurred

IFRS

Recorded as intangible asset

Which methods are acceptable for recording the cost of improvements to an asset? Reduce the asset for the cost of the improvement and expense the improvement. Reduce the accumulated depreciation account. Capitalize the cost of the new component and remove the old component and its related accumulated depreciation. Record as a disposition of the old and an acquisition of the new component.

Reduce the accumulated depreciation account. Capitalize the cost of the new component and remove the old component and its related accumulated depreciation. Record as a disposition of the old and an acquisition of the new component.

The service life of an intangible asset may be limited by what types of provisions?

Regulatory, Contractual, Legal

Match each type of expenditure with its definition.

Repairs and maintenance - Expenditures to maintain a given level of benefit Additions - Expenditures to acquire a new major component to an existing asset Improvements - Expenditures to replace a major component of an asset Rearrangements - Expenditures to restructure an asset without making any improvements to the asset

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

Repairs and maintenance, Improvements, additions

Which of the following items are capitalized?

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

Which of the following costs are expensed under both U.S. GAAP and IFRS?

Research costs only

(Blank) value is the amount the company expects to receive for the asset at the end of its service life

Residual

______ value is the amount the company expects to receive for the asset at the end of its service life less any anticipated diposal costs.

Residual

Which of the following expenditures are classified as repairs and maintenance for a vehicle owned by the company?

Routine oil change engine tune-up

Smart Company rarely had to write down inventory. In the past, when inventory write-downs were necessary, the company debited cost of goods sold. Recently, write-downs have become more common and Smart is concerned about the distortion of its gross profit percentage. What alternative is available under GAAP? -Smart Company could record a non-operating loss -Smart Company could debit a separate loss account and include it as an operating expense -Smart Company could record the loss as extraordinary because its rarely occurred

Smart Company could debit a separate loss account and include it as an operating expense

Place the two step of measuring impairments in the correct order.

Step 1: recoverability test Step 2: measurement of the impairment loss

Which of the following are not accelerated methods of depreciation?

Straight-line depreciation, units-of-output depreciation

it is difficult to objectively determine the future benefits

The FASB requires research and development costs to be expensed because

specific

The ___________ interest method uses the interest rate from the actual construction loan on a self-constructed asset, whereas the weighted-average method uses a weighted-average rate on all construction loans outstanding.

indefinite

The accounting literature provides that intangible assets with _________ useful lives are not amortized.

depletion expense

The allocation of a natural resource to the periods extracted is referred to as

When group depreciation is used, and an asset is sold, which of the following occurs? A loss is recorded for the difference between the cost of the asset and the proceeds. The asset's cost is removed from the books. No gain or loss is recorded. Accumulated depreciation is reduced for the proceeds of the sale.

The asset's cost is removed from the books. No gain or loss is recorded.

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

The book value at the beginning of the year

capitalized / expensed

The cost of a major improvement that extends the useful life of an asset would be ___________. whereas the cost of maintenance that does not increase the future benefits would be __________.

Assets to be held and used

The excess of book value over the fair value

Measurement for each type of impairment. Assets to be held and used. Goodwill Assets to be sold

The excess of the book value over the fair value. The excess of the book value over the implied fair value. the excess of book value over fair value less costs to sell.

net sales

The fixed asset turnover ratio is calculated as __________ divided by average fixed assets.

the asset is substantially complete and ready for use or when interest costs are no longer being incurred

The interest capitalization period begins with the first expenditure and ends when

full-cost method and successful efforts method

The two generally accepted methods for oil and gas accounting for US GAAP are the

Definitions Allocation Base Allocation Method Service Life

The value of the usefulness that is expected to be consumed. The pattern in which the usefulness is expected to be comsumed. The estimated use that the company expects to recieve from the asset.

If an impairment loss is recognized for an intangible asset with a finite life, which of the following occurs?

The written-down book value is the new cost basis for future amortization. Later recovery of the impairment is prohibited.

What is the purpose of group or composite depreciation?

To reduce the record-keeping costs of determining depreciation.

True or false: If an impairment loss is recognized, later recovery of the loss is prohibited.

True

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

True

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

Units-of-production method

Which of the following is an activity-based depreciation method?

Units-of-production method

The issues that are important for tangible and intangible assets, include determining:

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

allocation of indirect cost related to research, materials used in the lab, and salaries of researchers.

What is included in research and development costs?

real estate commissions relating to purchase of building

What should be included in the

self-constructed

When a company decides to build its own asset rater than purchase it outright, this is referred to as a __________ asset.

the related asset

When an asset retirement obligation is recorded as a liability, the offsetting journal entry is a debit to

What are the issues when accounting for impairments?

When to recognize the impairment. How to measure the impairment loss.

What are the issues when accounting for impairments?

When to recognize the impairment. How to measure the impairment loss.

implicit interest

Zwerg Company purchases equipment costing $45,500 and signs a non-interest bearing note for $52,000. The difference between the cost of the equipment and the amount of the note represents:

Research / development

_____________ is planned search or critical investigation aimed at discovery of new knowledge, whereas ____________ is the translation of new findings into a plan or design for a new product or process.

On January 1, year 1, Green Tractor Corp. purchased equipment for $100,000. The equipment has a useful life of 4 years, and a residual value of $20,000. Using the sum-of-the-years'-digits method, what is the depreciation expense for year 1? a) $32,000 b) $20,000 c) $40,000 d) $25,000

a) $32,000 1+2+3+4 = 10 100,000 - 20,000 = 80,000 * 4/10 = $32,000

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 units-of-production 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? a) $5,000 b) $8,000 c) $6,000 d) $3,000

a) $5,000 $100,000 - 20,000 = 100,000 $100,000 * 50,000hrs / 1,000,000hrs = $5,000

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

a) $5,000 $100,000/5 years = 20,000 * 3/12 = 5,000

Raphael Corp. incorrectly expensed a major addition to equipment when the company should have capitalized the expenditure. What are the financial statement effects of this error? a) Assets are understated. b) Expenses are understated. c) Net Income is understated. d) Liabilities are overstated

a) Assets are understated. c) Net Income is understated.

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

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

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

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

Which of the following are accelerated methods of depreciation? a) sum-of-the-years'-digits method b) declining balance method c) double-declining-balance method d) straight-line depreciation

a) sum-of-the-years'-digits method b) declining balance method c) double-declining-balance method

Straight-line depreciation is calculated as the depreciable base divided by a) the estimated useful life of the asset b) the residual value of the asset c) the cost of the asset

a) the estimated useful life of the asset

The cumulative amount of a tangible asset's cost that has been depreciated in all prior year plus the current year is called -amortization expense -accumulated depreciation -accumulated amortization -depreciation expense

accumulated depreciation

Goodwill is recognized only when one company __________ another company

acquires

Units of production or units of output are alternative terms for the ________ _______ depreciation

activity-based

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

added to the Patent account

Which item qualifies as an additional and should be capitalized? -adding a new computer-aided cutting device to an existing machine -replacing the cutting blades on a machine -performing tasks such as oiling and calibrating to an existing machine

adding a new computer-aided cutting device to an existing machine

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

addition

A new major component that is added to an existing asset is considered an _______ and should be capitalized.

addition

straight-line method

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

Depreciation is a process of cost (blank), and not a process of valuation

allocation

Depreciation is a process of cost _____ and not a process of valuation.

allocation

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

allocation

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

Allocation of the cost of an intangible asset is called

amortization

The journal entry to record the amortization for a patent would include a debit to (blank) and credit to (patent)

amortization expense; patent

For acouting purposes, depreciation is

an allocation of a cost of an asset

Start-up costs such as legal fees and state filings to incorporate should be treated as -an asset and amortized over 5 years -an expense in the period incurred -an extraordinary loss of the period -accumulated other comprehensive income

an expense in the period incurred

Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as

an expense on the income statement

Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as -an expense on the income statement -a contra asset on the balance sheet -an asset on the balance sheet -a liability on the balance sheet

an expense on the income statement

Because it is difficult to estimate the future values of research and development, FASB requires that research and development costs be treated as

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

an improvement

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 -an addition -repairs and maintenance -an improvement -a rearrangement

an improvement

Intangible assets with indefinite useful lives should be tested for impairment

annually or more frequently if events or changes in circumstances indicate possible impairment

Intangible assets with indefinite useful lives should be tested for impairment -on the last day of the fiscal year-end -annually or more frequently if events or changes in circumstances indicate possible impairment -only if events or changes in circumstances indicate possible impairment

annually or more frequently if events or changes in circumstances indicate possible impairment

Intangible assets with indefinite useful lives should be tested for impairment

annually or more frequently if events or changes in circumstances indicate possible impairment.

The composite depreciation method is used is used when assets:

are dissimilar and have different service lives.

The composite depreciation method is used when assets

are dissimilar and have different services lives

Obligations associated with disposition of property, plant, equipment, or natural resources are called -accumulated depreciation -nonrecurring fixed assets -asset retirement obligations -contra-asset-liabilities

asset retirement obligations

When accounting for impairments, the two categories for recognizing and measuring the loss are

assets to be held and used and assets held for sale.

Return on assets is calculated as net income divided by

average total assets

Which of the following would be included in a journal entry to record the allocation of the cost of a natural resource for the period? a) Debit accumulated depletion. b) Credit the natural resource. c) Debit depletion expense. d) Credit depletion expense.

b) Credit the natural resource. c) Debit depletion expense.

Which of the following would be considered "expenditures subsequent to acquisition" for a building? a) Real estate fees paid six months after acquisition b) Repairing a major roof leak three years after use c) Payment of appraisals fees related to purchase of building d) Cost of installing solar panels after three months of use of the building

b) Repairing a major roof leak three years after use d) Cost of installing solar panels after three months of use of the building

Intangible assets with indefinite useful lives should be tested for impairment a) on the last day of the fiscal year-end. b) annually or more frequently if events or changes in circumstances indicate possible impairment. c) only if events or changes in circumstances indicate possible impairment.

b) annually or more frequently if events or changes in circumstances indicate possible impairment.

Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods? a) forgetting to record depreciation expense in the previous period b) change in residual value of an asset c) change in useful life of an asset d) incorrectly capitalizing an item when it should be expensed

b) change in residual value of an asset c) change in useful life of an asset

Which assets are not required to be tested for impairment annually, but only if events and circumstances indicate the book value may not be recoverable? a) goodwill b) intangible assets with finite lives c) intangible assets with indefinite lives d) property, plant, and equipment

b) intangible assets with finite lives d) property, plant, and equipment

The two categories for intangible assets are a) intangibles with infinite lives. b) intangibles with finite lives. c) intangibles with undefined lives. d) intangibles with indefinite lives.

b) intangibles with finite lives. d) intangibles with indefinite lives.

The total amount of cost to be allocated over an asset's service life is called its allocation

base

The total amount of cost to be allocated over an asset's service life is called its allocation -residual -time -method -base

base

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

basket purchase

Using the LIFO retail method, a new layer at retail is determined by subtracting what from ending inventory at retail? -goods available for sale at retail -beginning inventory at cost -net sales at retail -beginning inventory at retail

beginning inventory at retail

The objective in choosing an appropriate depreciation method is to properly allocate the cost of the asset to the _____ provided by the asset during its life.

benefits

The original cost of the asset less the accumulated depreciation is the (blank) of the asset

book value

The formula for calculating the double-declining balance method is

book value at beginning of year x 2 x 1/service life

An asset impairment for assets to be held for sale is measured as the excess of the -historical cost less fair value -accumulated depreciation less fair value -book value over the fair value less costs to sell

book value over the fair value less costs to sell

An asset impairment for assets to be held for sale is measured as the excess of the

book value over the fair value less costs to sell.

To determine whether an impairment loss should be recorded for goodwill, a company should determine if the fair value of the reporting unit is less than its

book value.

If an impairment loss is recognized for an intangible asset with a finite life, which of the following occurs? a) Future impairment losses are prohibited. b) A recovery can be recognized up to the initial amount of the impairment. c) Recovery of the impairment is prohibited. d) The written-down book value is the new cost basis for future amortization.

c) Recovery of the impairment is prohibited. d) The written-down book value is the new cost basis for future amortization.

Which of the following items should be considered when choosing an allocation method for a long-term asset? a) the probability for an impairment loss b) the cost of the asset compared to its residual value c) a systematic and rational allocation method d) a pattern in which the services are obtained from its use

c) a systematic and rational allocation method d) a pattern in which the services are obtained from its use

The total cost of an asset's recorded amount to be expensed over its service life is referred to as its a) fair value b) cost basis c) allocation base d) valuation base

c) allocation base

The term (blank) means to record the expenditure as an asset

capitalize

When an expenditure is recorded as an asset, we say that we (blank) the expenditure

capitalize

An expenditure that qualifies as an addition should be

capitalized

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

capitalized

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

capitalized

Computer software purchased for internal use should be -expensed immediately -capitalized as part of the computer hardware -capitalized and amortized over its useful life

capitalized and amortized over its useful life

If equipment is purchased for research and development, but has an alternative future use, the cost of the equipment is -expensed in the year the equipment is retired -capitalized and not expensed to research and development -expensed immediately -capitalized and depreciated as R&D expense in the current and future periods

capitalized and depreciated as R&D expense in the current and future periods

Costs incurred after technological feasibility is established but before the software is available is customers should be -expensed in the period incurred -capitalized as an intangible asset -treated as research and development expenses -treated as an ordinary loss in the period incurred

capitalized as an intangible asset

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 expensed as incurred - expenditure yields benefits in current period only.

Expenditures needed to get land ready for its intended use should be: -capitalized as part of the cost of a related building -capitalized as part of the cost of land -expensed as incurred

capitalized as part of the cost of land

The cost of major improvement that extends the service life of an asset would be ___________ , whereas the cost of maintenance that increase the future benefits would be __________.

capitalized, expensed

Frenchise

contract term

The service life of an intangible asset may be limited by what types of provisions?

contractual, legal, regulatory

The lower of average cost and net realizable value retail inventory method is also referred to as the ______ retail method

conventional

A(n) _ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

copyright

A(n) ___________ is protected by law and gives the creator of a published work the exclusive right to reproduce and sell the work for the life of the creator plus 70 years.

copyright

Declining balance depreciation methods multiply _________ by an annual rate that is a multiple of the straight line method.

cost less accumulated depreciation

For natural resources the depletion base is

cost less ant anticipated residual value

For natural resources the depletion base is

cost less any anticipated residual value.

In the sum-of-the-years-digits method of depreciation, the depreciation rate is multiplied by the depreciable base. the depreciable base is the

cost less residual value

What would be included in the journal entry to record the allocation of the cost of a natural resource for the period?

credit natural resource debit depletion expense

Under the LIFO retail inventory method, the cost of a new layer added during the period is determined by multiplying the retail value of the layer by the -cost-to-retail percentage based on the goods available for sale -beginning-inventory cost-to-retail percentage -current-period cost-to-retail percentage

current-period cost-to-retail

The formula to calculate the depreciation for the units-of production method is ((cost-residual value)/total estimated production) X ________).

current-year activity or production

The formula to calculate the depreciation for the units-of-production method is (cost-residual value)/total estimated production x ________.

current-year activity or production

A company can manipulate income by overstating an impairment loss. The financial statement effects of this are

current-year income is low future income is unrealistically high future depreciation, depletion, or amortization is unrealistically low.

On January 1, year 1, London Corp. purchases equipment for $400,000. The equipment has a 5-year 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? a) $350,000 b) $200,000 c) $190,000 d) $240,000

d) $240,000

What is the purpose of group or composite depreciation? a) To eliminate the need for impairment testing. b) To classify assets by type as required by GAAP. c) To eliminate the accounting entries when disposing of assets. d) To reduce the record-keeping costs of determining depreciation.

d) To reduce the record-keeping costs of determining depreciation.

The allocation of the cost of an intangible asset over its useful life is called a) accretion b) depletion c) depreciation d) amortization

d) amortization

Allocation of the cost of a natural resource is called a) amortization b) accretion c) depreciation d) depletion

d) depletion

The journal entry to record the amortization of an intagible asset would include

debit to amortization credit to the intangible asset

A journal entry to record the amortization of an intangible asset would include a

debit to amortization expense credit to the intangible asset

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

debit to loss, credit to equipment, debit to accumulated depreciation

Which depreciation method allocate the cost of long-term assets based on time?

declining-balance straight-line

Merger Company applies the lower of cost and net realizable value rule to individual inventory items. If the company were to apply the rule to the entire inventory balance, the chance of recording an inventory loss would -increase -be the same -decrease

decrease

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

delinquent property taxes, purchase price, legal fees to obtain title

The cost of a natural resource less its anticipated residual value is called the

depletion base

The cost of a natural resource less its anticipated residual value is called the _____ _____.

depletion base

For an asset with an estimated salvage value treated than 0, depreciation during the last service year may be less than the amount calculated based on the carrying value times the depreciating rate in order to avoid:

depreciating part of the salvage value

The allocation of the cost of a tangible asset over its life is referred to as ________

depreciation

The portion of a tangible asset's cost that is recognized as an expense in the current year is called -amortization expense -depreciation expense -accumulated depreciation -accumulated amortization

depreciation expense

The portion of a tangible asset's cost that is recognized as an expense is the current year is called

depreciation expense

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 _.

depreciation, amortization

The acronym "MACRS" refers to a(n) _____ method that may be used for ______ purposes.

depreciation; tax

An asset that is traded for another asset is treated as an exchange, whereas an asset that is sold ot retired is treated as a(n) _____________.

disposition

The profit margin ratio indicates the amount of net income achieved for

each dollar of sales

A change in depreciation method is considered a change in accounting ______ that is achieved by a change in accounting principle

estimate

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

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

expensed

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

expensed - research and development costs Capitalized - Purchase price plus costs necessary to get asset ready for use

If an intangible right is not successful to defend, the legal cost should be:

expensed.

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

expenses the costs as incurred

Consistent with IFRS rules for R&D, the costs of research-related activities are recorded as _,while the costs of development-related activities are recorded as _ _.

expenses, intangible, assets

Consistent with IFRS rules for R&D, the costs of research-related activities are recorded as (blank), while the costs of development-related actives are recorded as (blank)(blank)

expenses; intangible assets

An impairment loss for intangible assets with indefinite lives is calculated as the book value less the -replacement cost -net realizable value -net present value -fair value

fair value

Donated assets should be recorded on the balance sheet at what amount? -fair value -zero -net realizable value -book value of the donor

fair value

The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at -fair value -book value of the asset received plus cash received -book value of the asset given up -book value plus the cash given

fair value

An impairment loss for intangible assets with indefinite lives is calculated as the book value less the

fair value.

An exchange of assets that has commercial substance is valued at the _____ value of the assets given or received, whichever is more clearly evident, but an exchange that lacks commercial substance is valued at the _____ value of the assets given

fair, book

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

false, additions that involve adding a new major component to an existing asset should be capitalized because future benefits are increased

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

false, repairs and maintenance expenditures should be expensed in the period incurred

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

filing fees legal fees

Under what circumstances are accelerated depreciation methods most appropriate

for an asset that will be used extensively in earlier years of its life & less in the later years of its life

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

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

freight deliver the equipment, installation and testing of equipment, legal fees to establish tittle, and sales tax

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

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 key factor in classifying items as repairs and maintenance is that

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

The rationale for expenditures being capitalized as assets is based on whether the expenditures benefit _________

future periods

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 intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called -accretion -development -goodwill -a bargain purchase

goodwill

An intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called ...

goodwill

The future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized are referred to as -restricted intangible assets -unidentifiable assets -identified intangible assets -goodwill

goodwill

When a company acquires a business in a buiness acquisition and the consideration paid is greater than the fair value of the net assets acquire, the excess is reported as

goodwill

When a company acquires a business in a business acquisition and the consideration paid is greater than the fair value of the net assets acquired, the excess is reported as _.

goodwill

Which asset cannot be directly associated with any specific identifiable right and is not separable from the company as a whole?

goodwill

The _______ depreciation method is used when assets have similar service lives and other attributes, whereas the ________ depreciation method is used for dissimilar assets.

group; composite

When an asset has a significant decline in value and is written down, this is called _____.

impairment

When an asset has a significant decline in value and is written down, this is called ___________.

impairment

If goodwill impairment is indicated, it is measured as the excess of the book value over its

implied fair value

If goodwill impairment is indicated, it is measured as the excess of the book value over its -total assets of the reporting unit -residual value -fair value less costs to sell -implied fair value

implied fair value

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

improvements

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

improvements, repairs and maintenance, additions

Goodwill may only be recognized ...

in a business acquisition

Goodwill may only be recognized

in a business acquistition

Under what circumstance is depreciation included in inventory?

in a manufacturing environment

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

in the current and future years

A subsequent expenditure for an asset increases the future benefits of the asset if it

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

The _____ approach for self-constructed assets advocates including only the additional overhead costs incurred in the construction of the asset, whereas the full-cost approach requires the allocation of overhead to self-constructed assets

incremental

Goodwill and some trademarks are examples of intangible assets that are assumed to have an (blank) life

indefinite

Intangible assets are categorized as thoes with finite lives and thoes with __________ lives.

indefinite

Intangible assets are categorized as those with finite lives and those with (blank) lives

indefinite

Intangible assets are categorized as those with finite lives and those with __________ lives.

indefinite

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

intangible

Which assets are not required to be tested for impairment annually, but only if events and circumstances indicate the book value may not be recoverable?

intangible assets with finite lives and property, plant, and equipment.

The two categories for intangible assets are:

intangible with finite lives and intangibles with indefinite lives.

Long-term assets are classified as

intangible, tangible

No amortization is recorded for

intangibles assets with indefinite lives

The two categories for intangible assets are

intangibles with indefinite lives. intangibles with finite lives.

Which of the following is an important limitation of the gross profit method? -it does not consider units that are currently in transit -it does not use a reliable estimate of gross profit -it dose not explicitly consider possible theft or spoilage of inventory

it does not explicitly consider possible theft or spoilage of inventory

The FASB requires research and development costs to be expensed because

it is difficult to objectively determine the future benefits

The FASB requires research and development costs to be expensed because

it is difficult to objectively determined the future benefits

Companies use accelerated depreciation for tax purposes because

it reduced taxable income in the early years of an assets life

Under U.S. GAAP, if a company recognizes an impairment loss,

later recovery of the impairment loss is prohibited.

The useful life of an intangible asset may be limited by what type of provisions?

legal regulatory contractual

What costs are capitalized as intangible asset for a franchise?

legal costs for the franchise agreement initial payment for the franchise

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

legal costs to acquire required filing fees purchase price

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

legal feed to establish title, installation and testing of equipment, freight to deliver the equipment, sales tax

Which of the following costs are capitablized as an internally developed patent?

legal fees filing fees

If obsolescence were expected to limit the longevity of a protected product, the useful life of a patent might be _________ its legal life.

less than

The cost of land improvements are capitalized separately from land because land improvements tend to have a (blank) useful life

limited

Which of the following represents a criticism of the lower of cost and net realizable value rule? -application of the rule results in lower than expected income -the rule violates the matching principle -losses that have not actually occurred are recognized

losses that have not actually occurred are recognized

Which method can be applied to individual inventory items, categories of inventory, or the enitre inventory? -lower of cost or market only -lower of cost and net realizable only -lower of cost or market and lower of cost and net realizable value

lower of cost or market and lower of cost and net realizable value

Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchases as a _____ purchase -lump-sum -single-sum -bargain

lump-sum

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

materiality

Group depreciation is calculated by:

multiplying the group depreciation rate by the total cost of assets in the group for that period.

Superior mining Inc. purchases a large piece of land with rich mineral deposits and plans to start extracting the mineral-rich ore immediately. The cost of the piece of land should be reported in this category: -natural resources -land -intangible asset-mineral rights

natural resources

_ _ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process, whereas equipment, land, and buildings have physical characteristics that remain unchanged.

natural resources

incorrect expense of major addition to equipment when the company should have capitalized, What are the financial statement effects of this error?

net income is understated assets are understated.

Which of the following must be included in the determination of ending inventory at retail when applying the retail inventory method? -net markups only -net markdowns only -net markups and net markdowns

net markups and net markdowns

If inventory values recover after a lower of cost and net realizable value write-down, the write-down must -be reversed for any moment -be reversed if it is a material amount -not be reversed

not be reversed

For capitalized interest on self-constructed assets, weighted-average expenditures is determined by weighting the individual expenditures by the -number of months from incurrence to the end of the construction period -weighted-average amount borrowed during the period -average risk-free rate for the period -average interest rate for the period

number of months from incurrence to the end of the construction period

If there is a change in an intangible asset's estimated useful life, the change is treated

on a prospective basis.

The new ASU on goodwill impairment provides the option to decide whether step _____ is necessary based on qualitative factors.

one

For property, plant, and equipment, U.S. GAAP requires the investigation of possible impairment

only if events or changes in circumstances indicate that the asset may not be recoverable

For plant, property, and equipment, U.S. GAAP requires the investigation of possible impairment

only if events or changes in circumstances indicate that the asset may not be recoverable.

When using the retail method to approximate average cost, the cost-to-retail percentage is applied to which goods? -only the ending inventory -all goods available for sale -all goods sold during the period -only the beginning inventory

only the ending inventory

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

original cost

The exclusive legal right to manufactore a product or to use a process is called is called a _____________.

patent

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

patent

Which of the following iterms are intagible assets?

patent, trademark, copyright

Match each intangible asset with its definition.

patent- exclusive right to produce a product or use a process Copyright-Exclusive right of protection given to a creator of a published work Trademark-Exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company Franchise- Contractual agreement in which an entity may use a company's name, products, and formulas

The amount of time an asset will last is its _____ life, whereas the amount of time the company expects to use the asset to generate revenues is referred to as its _____ life.

physical, useful/service

The amount of time an asset will last is its ______ life, whereas the amount of time the company expects to use the asset to generate revenues is referred to as its ______ life.

physical; useful

Noncurrent tangible assets include

plant, equipment, propety

A change in depreciation method is treated as a change in estimate that i achieved by a change in accounting principle, and is accounted for

prospectively in the current and future periods

A change in depreciation method is treated as a change in estimate that is achieved by a change in accounting principle, and is accounted for

prospectively in the current and future periods.

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:

provides a future benefit

Which of the following should be included in the cost of building? -fire insurance premiums relating to building -real estate commissions relating to purchase of building -cost paving parking lot in front of building -cost of clearing and adjacent to building

real estate commissions relating to purchase of building

In measuring an impairment loss, the difference between the asset's book value and its fair value is

recognized as a impairment loss

In measuring an impairment loss, the difference between the asset's book value and its fair value is -recognized as an extraordinary loss -recognized as a gain -recorded in a revaluation account in OCI -recognized as an impairment loss

recognized as an impairment loss

In measuring an impairment loss, the difference between the asset's book value and its fair value is

recognized as an impairment loss.

U.S. GAAP

recorded as expense during period incurred

The two-step process for determining wether to record an impairment loss are the ______ test and the measurement of the impairment loss.

recoverability

Intangible assets are written down when events or changes in circumstances indicate that the asset's (blank) amount is less than its (blank) amount

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

An estimated residual value (blank) the total amount of depreciated recorded over an asset's service life

reduces

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

reduces

A basket purchase or lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's _.

relative fair value

A __________ __________ is an operating segment of a company or a component of an operating segment for which discrete financial information is available and management regularly reviews the operating results of that component.

reporting unit

A(n) _____ is an operating segment of a company or a component of an operating segment for which discrete financial information is available and management regularly reviews the operating results of that component

reporting unit

The lower of cost or market approach is______ for companies that use_____ -required under GAAP; any method of inventory valuation -optional under GAAP; any method of inventory valuation -optional under GAAP; LIFO or the retail inventory -required under GAAP; LIFO or the retail inventory

required under GAAP; LIFO or the retail inventory

The depreciable cost of an asset in the asset's cost minus its ___________ value.

residual

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

residual

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

residual

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

residual

The term used to describe the amount the company expects to receive for an asset at the end of its service life less any anticipated disposal costs is the

residual value

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

residual value

Berner Mining Company estimates that after it completes extraction of valuable metals from a tract of land, $245,000 will be necessary to return the land to its original condition. This cost is considered a(n) -overhead cost -residual cost -operating expense -restoration cost

restoration cost

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset generates:

revenue

Which of the following terms is equivalent to an asset's useful life to a particular company? -physical life -service life -base life -life expectency

service life

The amortization of an intangible asset occurs over the period of time that is the (blank) of the legal, regulatory, contractual, or service life

shorter

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

shorter

A company issues its equity securities to purchase land. The common stock is publicly traded, and both the value of the stock and the land is known. The best indicator of fair value is the value of the -stock -land

stock

Most companies use _-_ amortization for intangible assets.

straight, line

When a company uses accelerated depreciation, it is common practice to change to which depreciation method approximately halfway through the asset's life? -Sum-of-the years'-digits -units-of-output -straight-line

straight-line

Match the type of depreciation method with the reporting basis.

straight-line commonly used for financial statement purposes MACRS commonly used for tax reporting

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 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 -MACRS -double-declining-balance method -units-of-output method

straight-line method

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

Which of the following are not accelerated methods of depreciation?

straight-line method and units-of-output depreciation.

the service life or useful life of an asset is

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

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

Ther service life of useful life of an asset is

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

Residual Value

the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs

The measurement of an impairment loss in step 2 is the difference between

the assets book value and its fair value

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

the assets have different useful lives

What is an allocation base?

the cost of an asset that is expected to be consumed

Measure each type of impairment: goodwill

the excess of book value over implied fair value.

Measure each type of impairment: asset to be held and used?

the excess of book value over the fair value.

goodwill

the excess when a company acquires a business in a business acquisition and the consideration paid is greater than the fair value of the net assets acquired

In determining whether an impairment loss should be recognized for goodwill, a company compares the book value of the reporting unit with

the fair value of the reporting unit.

Which of the following statements is correct regarding the accuracy of the estimates derived under the gross profit method? -a physical count is necessary to enhance reliability -the company's cost flow assumption is irrelevant -the gross profit ratio must be reliable

the gross profit ratio must be reliable

The lower of cost and net realizable value rule causes income to be reduced in the period when -the inventory is sold -the inventory is purchased -the inventory value declines below cost

the inventory value declines below cost

What is an allocation method?

the patters in which the usefulness of an asset is expected to be consumed

In determining wether an impairment loss should be recognized, the first step in the two-step process compares the asset's book value with

the undiscounted sum of estimated future cash flows from the asset.

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

The two approaches for a systematic and rational allocation of the cost of an asset over its useful life are:

time-based methods and activity-based methods.

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 assets life?

total assets are higher and net income is lower

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

trademark

A(n) ____________ 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, symbol, or emblem that distinctively identifies a company, product, or serivce is referred to as a _____________________.

trademark

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

trademark

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

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

true

True or false: Assets held for sale are not depreciated or amortized while classified as held for sale.

true

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

true

True or false: The sum-of-the-years'-digits(SYD) method of depreciation is an accelerated method in which depreciation expense decreases each year

true, the SYD method has no logical foundation other than it is an accelerated method

For capitalization of interest on self-constructed assets, the average accumulated expenditures is the -weighted-average expenditures during the construction period -average total assets during the period -the weighted average of all assets purchased during the period -the total expected cost of the construction project

weighted-average expenditures during the construction period

The retirement method for recording depreciation expense records depreciation

when the assets are disposed of.

Assets held for use that have a significant impairment of value should be

written down

The residual value of an intangible asset is usually

zero

The residual value of an intangible asset is usually _____.

zero

The residual value of an intangible asset is usually...

zero

The residual value of an intangible asset is normally:

zero.