intermediate financial 1
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 . (Enter one word per blank.)
Blank 1: depreciation Blank 2: amortization
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. (Enter one word per blank.)
Blank 1: reporting Blank 2: unit
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. (Enter only one word.)
Blank 1: service, useful, or depreciable
Accounting for impairment of value of assets with finite lives and those with indefinite lives
differs
Amortization is appropriate for intangible assets with
finite useful lives
An intangible asset that is measured as the consideration paid less the fair value of the net identifiable assets is called
goodwill.
When an asset has a significant decline in value and is written down, this is called ______.
impairment
The measurement of an impairment loss for intangible assets with indefinite useful lives is a(n) ____ process.
one-step
Which of the following are not accelerated methods of depreciation? (Select all that apply.)
straight-line depreciation units-of-output depreciation
The measurement of an impairment loss in step 2 is the difference between
the asset's book value and its fair value.
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.
.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.
The formula for straight-line depreciation is
(cost - residual value)/useful life.
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.
If a company has a commitment from another company to purchase its indefinite life intangible asset at the end of its useful life at a specific price, the company should utilize a residual value equal to
the pre-specified sales price
True or false: A write-down of an asset held and used can provide important information about the future cash flows a company expects to generate from using the asset.
true
Which of the following are characteristics of goodwill? (Select all that apply.)
Subject to impairment testing Indefinite life
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 types of expenditures that can occur subsequent to an asset's acquisition are (Select all that apply.)
improvements. repairs and maintenance. additions. rearrangements.
Which of the following intangible assets are usually considered to have indefinite lives?
Trademarks
The cumulative amount of a tangible asset's cost that has been depreciated in all prior years plus the current year is called
accumulated depreciation.
Allocation of the cost of an intangible asset is called
amortization.
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 a residual value of
$150,000
Which of the following events would require testing for possible impairment? (Select all that apply.)
A significant decrease in market price An adverse change in the business climate A decline in the asset's physical condition
Which of the following would be considered "expenditures subsequent to acquisition" for a building? (Select all that apply.)
Repairing a major roof leak three years after use Cost of installing solar panels after three months of use of the building
True or false: A write-down of an asset held and used can provide important information about the future cash flows a company expects to generate from using the asset.
True
Which of the following is an activity-based depreciation method?
Units-of-production method
An impairment loss for intangible assets with indefinite lives is calculated as the book value less the
fair value.
In accounting, the term impairment refers to
an asset's significant decline in value.
Which statement is true about the straight-line method of depreciation?
It allocates an equal amount of depreciation to each year of the asset's service life.
The journal entry to record an impairment loss on goodwill includes which of the following entries? (Select all that apply.)
A credit to goodwill A debit to loss on impairment of goodwill
Which of the following events would require the investigation of a possible impairment? (Select all that apply.)
A significant adverse change in how the asset is being used. A significant decrease in market price.
Which of the following would be considered "expenditures subsequent to acquisition" for a building? (Select all that apply.)
Cost of installing solar panels after three months of use of the building Repairing a major roof leak three years after use
True or false: Loss on impairment of goodwill is typically reported with amortization expense.
False
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 terms is equivalent to an asset's useful life to a particular company?
Service life
The method of amortization used for intangible assets (Select all that apply.)
The method of amortization used for intangible assets (The method of amortization used for intangible assets (Select all that apply.) Select all that apply.)
What are the issues when accounting for impairments? (Select all that apply.)
When to recognize the impairment. How to measure the impairment loss.
Loss on impairment of goodwill is typically reported as
a separate component of operating expense
The allocation of the cost of an intangible asset over its useful life is called
amortization.
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 gain or loss on disposal of an asset is calculated as
consideration received less the book value of asset sold.
The useful life of an intangible asset may be limited by what type of provisions? (Select all that apply.)
contractual legal regulatory
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 (Select all that apply.)
credit to assets of $52,000. debit to loss on impairment of $12,000. debit to accumulated depreciation of $40,000.
The journal entry to record the amortization of an intangible asset would include (Select all that apply.)
credit to the intangible asset. debit to amortization expense.
Western Company purchased a franchise on January 1, 20X1 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 20X1 includes (Select all that apply.)
debit amortization expense $10,000 credit franchise $10,000
The journal entry to record the amortization of an intangible asset would include a
debit to amortization expense.
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.
The journal entry to recognize a loss on impairment of goodwill would include a
debit to loss on impairment of goodwill.
The portion of a tangible asset's cost that is recognized as an expense in the current year is called
depreciation expense.
A subsequent expenditure for an asset increases the future benefits of the asset if it (Select all that apply.)
increases the operating efficiency of the asset. extends the asset's useful life. increases the quality of the goods or services produced by the asset.
Which assets are required to be tested for impairment annually?
intangible assets with indefinite lives
No amortization is recorded for
intangible assets with indefinite lives.
The two categories for intangible assets are
intangibles with indefinite lives. intangibles with finite lives.
The method of amortization used for intangible assets (Select all that apply.)
is most commonly straight-line. should reflect the pattern of use of the asset.
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
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.
In measuring an impairment loss, the difference between the asset's book value and its fair value is
recognized as an impairment loss.
The method of amortization used for intangible assets (Select all that apply.)
should reflect the pattern of use of the asset. is most commonly straight-line.
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
straight-line
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.
Which of the following are accelerated methods of depreciation? (Select all that apply.)
double-declining-balance method declining balance method sum-of-the-years'-digits method
Which of the following are expenditures on assets subsequent to acquisition? (Select all that apply.)
improvements repairs and maintenance additions
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.
An impairment occurs when the
undiscounted sum of estimated future cash flows is less than the asset's book value.
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
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.
