Deck 8: Fixed Assets and Intangible Assets

Question 1

Aggie, Inc.
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.

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Refer to Aggie, Inc.'s information presented above, what method of depreciation will maximize depreciation expense in 2011?

A) Straight-line
B) Double-declining-balance
C) Units-of-activity
D) All methods produce the same expense in 2011.

Answer 1

Double-declining-balance

Question 2

Able Company purchased land and incurred the following costs: Purchase price $~~~~~~~~~~~~~~~\$1,000,000$
Excavation cost $~~~~~~~~~~~~~~~~~~100,000$
Rarzing wild building $~~~~~~~~~~25,000$
Broker fees $~~~~~~~~~~~~~~~~~~~~~~~~20,000$
Cost off property taxas $~~~~~~~~~~50,000$




What is the cost of the land?

A) $1,100,000
B) $1,195,000
C) $1,145,000
D) $1,125,000

Answer 2

$1,145,000

Question 3

Aggie, Inc.
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.

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Refer to Aggie, Inc.'s information presented above, if Aggie uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2012?

A) $4,800
B) $2,880
C) $1,728
D) $2,000

Answer 3

$2,880

Question 4

Which of the following costs related to the purchase of production equipment incurred by ABC Company during 2011 would be considered a revenue expenditure?

A) Installation costs for equipment
B) Purchase price of the equipment less the cash discount
C) Repair and maintenance costs during the equipment's first year of service
D) Transportation charges to deliver the equipment to ABC Company

Question 5

Depreciation is a process by which:

A) replacement funds are accumulated for plant and equipment.
B) the decline in market value of plant and equipment is determined and recorded.
C) the cost of plant and equipment is allocated to expense over its useful life.
D) the difference between current market value and historical cost of plant and equipment is recorded.

Question 6

Which of the following accounts would not be reported in the property, plant, and equipment section of a balance sheet?

A) Accumulated depreciation--buildings
B) Buildings
C) Depreciation Expense--buildings
D) Land

Question 7

Aggie, Inc.
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.

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Refer to Aggie, Inc.'s information presented above, if Aggie uses the straight-line method, what is the book value at December 31, 2013?

A) $ 8,000
B) $ 6,000
C) $10,000
D) $ 4,000

Question 8

On the balance sheet, the cumulative amount of depreciation expense recognized to date on a fixed asset is called:

A) accumulated amortization.
B) accumulated depreciation.
C) amortization expense.
D) depreciation expense.

Question 9

Clear Window Cleaners
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.

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Refer to the information provided for Clear Window Cleaners. Clear Window is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2011?

A) Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings.
B) Straight-line depreciation creates both the larger expense and the larger tax savings.
C) Double-declining-balance depreciation creates both the larger expense and the larger tax savings.
D) Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

Question 10

Plant assets are depreciated because:

A) the accrual basis of accounting requires matching of costs to revenues.
B) cash basis of accounting requires depreciation.
C) the book values equal market values.
D) the replacement cost of plant assets may fluctuate over time.

Question 11

Land is not depreciated because:

A) it appreciates in value.
B) its revenue generating potential is limited by wear and tear.
C) it has a useful life that is limited to the period of time a company is in business.
D) it will provide future benefits for the company for an unlimited period of time.

Question 12

Aggie, Inc.
Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012.

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Refer to Aggie, Inc.'s information presented above, if Aggie uses the units-of-activity method, what is the depreciation rate per hour for the equipment?

A) $1.00
B) $1.10
C) $ .10
D) $ .12

Question 13

Clear Window Cleaners
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.

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Refer to the information provided for Clear Window Cleaners. What is the amount by which double-declining-balance depreciation exceeds straight-line depreciation in the first year of the equipment?

A) $11,200
B) $13,200
C) $21,200
D) $12,720

Question 14

Depreciation is:

A) the process of systematically and rationally allocating the cost of a fixed asset over its useful life.
B) an accumulation of funds to replace the related plant asset.
C) the difference between the replacement cost and salvage value of an asset.
D) the cash allocated each period to maintain a plant asset.

Question 15

Assets classified as property, plant, and equipment are reported at:

A) each asset's estimated market value less depreciation on the balance sheet date.
B) each asset's estimated market value on the balance sheet date.
C) the estimated salvage value on the balance sheet date.
D) each asset's original cost less depreciation since acquisition.

Question 16

Which of the following is included in the cost of constructing a building?

A) Insurance costs during construction
B) Cost of property taxes
C) Cost of repairing vandalism damage during construction
D) Cost of removing the demolished building existing on the land when it was purchased

Question 17

The effect of recording depreciation for the year is a(n):

A) decrease in assets and a decrease in net income.
B) decrease in assets but no change in owners' equity.
C) increase in assets and an increase in net income.
D) decrease in net income and no change to assets.

Question 18

Fisher Apartments purchased an apartment building to rent to university students on December 15, 2011. The tenants moved in on January 1, 2012. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded?

A) It should be recorded as part of the asset account.
B) It should be recorded as repair and maintenance expense.
C) It should not be recorded as the tenants will be charged for the damage.
D) It should not be recorded since this is an immaterial amount to the landlord.

Question 19

Clear Window Cleaners
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.

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Refer to the information provided for Clear Window Cleaners. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the equipment?

A) The salvage value of $3,000.
B) Cost less total depreciation.
C) Cost plus total depreciation.
D) Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

Question 20

Which of the following should be included in the acquisition cost of a piece of equipment?

A) Transportation costs
B) Installation costs
C) Testing costs prior to placing the equipment into production
D) All of the above

Question 21

Wilshire purchased equipment at the beginning of 2011 for $19,000. Wilshire decided to depreciate the equipment over a 6-year period using the straight-line method. Wilshire estimated the equipment's salvage value at $1,000. The estimated fair market value at the end of 2011 was $18,000. Which of the following statements is correct concerning Wilshire's financial statements at December 31, 2011?

A) The book value of the equipment is $15,000.
B) The book value of the equipment is $16,000.
C) The total accumulated depreciation is $3,167.
D) The equipment will be reported on the balance sheet at it fair market value of $18,000.

Question 22

Capitalizing an expenditure rather than recording it as a revenue expenditure:

A) impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.
B) impacts the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period.
C) impacts the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet.
D) has no impact on the book value of plant assets on the balance sheet or the amount of income reported on the income statement.

Question 23

Disc Company purchased equipment at the beginning of 2010 for $200,000. The company decided to depreciate the equipment over an 5-year period using the straight-line method. The company estimated the equipment's salvage value at $20,000. The journal entry to record depreciation expense for 2011 is a debit to:

A) depreciation expense and a credit to accumulated depreciation for $40,000.
B) accumulated depreciation and a credit to equipment for $40,000.
C) depreciation expense and a credit to equipment for $36,000.
D) depreciation expense and a credit to accumulated depreciation for $36,000.

Question 24

If technology changes rapidly, a firm should:

A) depreciate plant assets using the same method used for its tax returns.
B) depreciate plant assets over long periods of time.
C) consider an accelerated rate of depreciation.
D) use the straight-line method of depreciation as it is the easiest.

Question 25

Using the straight-line depreciation method will cause a company to incur ____ tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation.

A) more
B) less
C) equal
D) no

Question 26

Gump Shrimp Company
On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method.

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Refer to the information provided for Gump Shrimp Company. What was the book value of the ship at the end of the third year?

A) $128,000
B) $512,000
C) $200,000
D) Need more information to determine this answer.

Question 27

Clear Window Cleaners
Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000.

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Refer to the information provided for Clear Window Cleaners. Clear Window Cleaners wants to use the depreciation method that will result in the highest net income for 2011. Which method should be used?

A) Straight-line
B) Units-of-activity
C) Double-declining-balance
D) All methods create the same income in 2011.

Question 28

A machine with a cost of $80,000 has an estimated salvage value of $5,000 and an estimated life of 5 years or 15,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the second full year, during which the machine was used for 5,000 hours?

A) $5,000
B) $25,000
C) $15,000
D) $26,667

Question 29

ABC and XYZ Companies purchased identical equipment having an estimated useful life of ten years. ABC uses the straight-line depreciation method and XYZ uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?

A) ABC's depreciation expense will be greater in the second year than XYZ's depreciation expense.
B) XYZ's book value will be greater than ABC's book value at the end of year one.
C) ABC's net income will be greater than XYZ's net income in year nine.
D) XYZ's book value will be less than ABC's book value at the end of year two.

Question 30

All of the following below are needed for the calculation of straight-line depreciation except:

A) cost.
B) salvage value.
C) useful life.
D) units produced.

Question 31

Butler Corporation uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the company's assets?

A) Double-declining-balance method
B) Revenue expenditure method
C) Straight-line method
D) Units-of-activity method

Question 32

The depreciation method that does not use salvage value in calculating the first year's depreciation expense is:

A) straight-line method
B) units-of-activity method
C) double-declining-balance method
D) straight-line method and units-of-activity method

Question 33

A company should choose a depreciation method that:

A) best allocates the original cost of the asset to the periods benefited by the use of the asset.
B) saves the most taxes by generating the highest amount of expense and decreasing the net income.
C) generates the most conservative estimate of the depreciation expense for the period.
D) shows the highest amount of net income.

Question 34

Gump Shrimp Company
On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method.

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Refer to the information provided for Gump Shrimp Company. What would be the book value of the ship after ten years?

A) $200,000
B) $400,000
C) $ 0
D) $100,000

Question 35

Fly High Airlines acquires a new aircraft. It has an estimated life of 10 years and should be used for 20,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses?

A) Double-declining-balance method
B) Revenue expenditure method
C) Straight-line method
D) Units-of-activity method

Question 36

Using different depreciation methods for book purposes versus tax purposes for the same asset is:

A) not allowed since the amount can only be calculated one way or the other, not both.
B) the direct result of the differing goals of financial and tax accounting.
C) contrary to GAAP.
D) against the Internal Revenue Code, and as such, against the law.

Question 37

Gump Shrimp Company
On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method.

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Refer to the information provided for Gump Shrimp Company. What was the depreciation expense for Gump Shrimp for the year ended December 31, 2011?

A) $ 90,000
B) $100,000
C) $180,000
D) $200,000

Question 38

Zero, Inc. purchased equipment at the beginning of 2011 for $200,000. Zero decided to depreciate the equipment over a 5-year period using the double-declining-balance method. Zero estimated the equipment's salvage value at $20,000. Which of the following statements is correct concerning Zero's financial statements at December 31, 2011?

A) The book value of the equipment is $120,000.
B) The book value of the equipment is $80,000.
C) The total accumulated depreciation is $90,000.
D) Depreciation expense for 2011 is $72,000.

Question 39

If the depreciation method is known, which of the following sets of factors is needed to calculate depreciation on plant and equipment?

A) The asset's historical cost, replacement cost, and its estimated salvage value
B) The estimated salvage value of the asset, its replacement cost, and its market value
C) The asset's replacement cost, its estimated life, and its estimated salvage value
D) The useful life of the asset, its historical cost, and its estimated salvage value

Question 40

Gump Shrimp Company
On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method.

-
Refer to the information provided for Gump Shrimp Company. What was the depreciation expense for Gump Shrimp for the year ended December 31, 2012?

A) $ -0-
B) $180,000
C) $160,000
D) $200,000

Question 41

Max's Tire Center Company
Selected data from the financial statements of Max's Tire Center are provided below.
$\begin{array}{lll}&\underline{2012}&\underline{2011}\\\text { Fixed assets } & \$ 150,000 & \$ 138,000 \\\text { Depreciation expense } & 45,000 & 42,000 \\\text { Total assets } & 500,000 & 490,000 \\\text { Cashflow from operations } & 320,000 & 289,000 \\\text { Net sales } & 370,000 & 360,000 \\\text { Capital expenditures } & 15,000 & 13,000\end{array}$

-Refer to the selected data provided for Max's Tire Center. Which of the following would result from a vertical analysis of Max's balance sheet in 2012?

A) Fixed assets increased $12,000 or 7.14% during 2012.
B) Total assets is $500,000 in 2012.
C) Fixed assets is 27.6% of total assets in 2012.
D) Fixed assets is 30% of total assets in 2012.

Question 42

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. Strike found a company that is willing to buy the equipment for $55,000. What is the amount of the gain or loss on this transaction?

A) Cannot be determined
B) No gain or loss
C) Gain of $25,000
D) Gain of $55,000

Question 43

Arnold, Inc. purchased a truck on January 1, 2009, for $40,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. Arnold Inc. used the straight-line method to depreciate the asset. On July 1, 2012, the truck was sold for $7,000 cash. The journal entry to record the sale of the truck in 2012:

A) decreases equity.
B) increases total assets.
C) decreases total expenses.
D) increases net income.

Question 44

Max's Tire Center Company
Selected data from the financial statements of Max's Tire Center are provided below.
$\begin{array}{lll}&\underline{2012}&\underline{2011}\\\text { Fixed assets } & \$ 150,000 & \$ 138,000 \\\text { Depreciation expense } & 45,000 & 42,000 \\\text { Total assets } & 500,000 & 490,000 \\\text { Cashflow from operations } & 320,000 & 289,000 \\\text { Net sales } & 370,000 & 360,000 \\\text { Capital expenditures } & 15,000 & 13,000\end{array}$

-Refer to the selected data provided for Max's Tire Center. Which of the following would result from a vertical analysis of Max's income statement in 2012?

A) Depreciation expense increased $3,000 or 7.14% during 2012.
B) Depreciation expense is $45,000 in 2012.
C) Depreciation expense is 12.16% of total assets in 2012.
D) Depreciation expense is 12.16% of total sales in 2012.

Question 45

Max's Tire Center Company
Selected data from the financial statements of Max's Tire Center are provided below.
$\begin{array}{lll}&\underline{2012}&\underline{2011}\\\text { Fixed assets } & \$ 150,000 & \$ 138,000 \\\text { Depreciation expense } & 45,000 & 42,000 \\\text { Total assets } & 500,000 & 490,000 \\\text { Cashflow from operations } & 320,000 & 289,000 \\\text { Net sales } & 370,000 & 360,000 \\\text { Capital expenditures } & 15,000 & 13,000\end{array}$

-Refer to the selected data provided for Max's Tire Center. What is Max's fixed assets turnover in 2012?

A) The fixed assets turnover is 2.75 in 2012.
B) The fixed assets turnover is 2.68 in 2012.
C) The fixed assets turnover is 2.36 in 2012.
D) The fixed assets turnover is 2.57 in 2012.

Question 46

A capital expenditure results in a debit to:

A) an expense account.
B) a stockholders' equity account.
C) a liability account.
D) an asset account.

Question 47

Lighting Company sold an old machine on December 31, 2011, for $22,000 cash. The following data was available when the truck sold: $\begin{array}{ll}\text { Acquisition cost } & \$ 100,000 \\\text { Estimated salvage value at time of acquisition } & 8,000 \\\text { Accumulated depreciation on December 31. 2011, after acliustment } & 85,000\end{array}$ When this transaction is recorded, it should include:

A) debit of $7,000 to the loss on disposal account.
B) credit of $22,000 to the truck account.
C) credit of $7,000 to the gain on disposal account.
D) credit of $15,000 to the gain on disposal account.

Question 48

Cash paid to purchase significant amounts of fixed assets would be reported in the statement of cash flows in:

A) the cash flows from operating activities section.
B) the cash flows from financing activities section.
C) the cash flows from investing activities section.
D) a separate schedule.

Question 49

On January 1, 2011, James Company sold a machine for $10,000 that it had used for several years. The machine was purchased at $22,000, and had accumulated depreciation of $9,000 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine?

A) Gain of $10,000
B) Loss of $13,000
C) Loss of $3,000
D) Gain of $3,000

Question 50

On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $250,000 with an accumulated depreciation of $210,000. Depreciation has been taken up to the end of the year. Strike found a company that is willing to buy the equipment for $25,000. What is the amount of the gain or loss on this transaction?

A) Gain of $25,000
B) Loss of $15,000
C) Loss of $25,000
D) Cannot be determined

Question 51

Max's Tire Center Company
Selected data from the financial statements of Max's Tire Center are provided below.
$\begin{array}{lll}&\underline{2012}&\underline{2011}\\\text { Fixed assets } & \$ 150,000 & \$ 138,000 \\\text { Depreciation expense } & 45,000 & 42,000 \\\text { Total assets } & 500,000 & 490,000 \\\text { Cashflow from operations } & 320,000 & 289,000 \\\text { Net sales } & 370,000 & 360,000 \\\text { Capital expenditures } & 15,000 & 13,000\end{array}$

- Refer to the selected data provided for Max's Tire Center. Which of the following would result from a horizontal analysis of Max's balance sheet?

A) Fixed assets increased by $12,000 or 8.7% during 2012.
B) Fixed assets increased by $12,000 or 7.8% during 2012.
C) Fixed assets is 30.0% of total assets in 2012.
D) The total assets is $500,000 in 2012.

Question 52

Everett, Inc.
Information for Everett, Inc. for 2011 and 2010 is presented below. Everett uses the straight-line depreciation method.
$\begin{array}{lll}&\underline{2011}&\underline{2010}\\\text { Fixed assets } & \$ 250,000 & \$ 190,000 \\\text { Accumulated depreciation } & 100,000 & 85,000 \\\text { Depreciation expense } & 62,500 & 47,500 \\\text { Total revenues } & 525,000 & 405,000 \\\text { Total assets } & 625,000 & 475,000\end{array}$

- Refer to the information provided for Everett, Inc. Using the data for 2011, determine the average age of Everett's fixed assets.

A) 1.60 years
B) 3.50 years
C) 4.00 years
D) 10.00 years

Question 53

Expenditures that increase the expected useful life or productivity of the asset are:

A) committed expenditures.
B) revenue expenditures.
C) current expenditures.
D) capital expenditures.

Question 54

Stricker Company sold equipment for $4,000. This resulted in a $1,500 loss. What is the impact of this sale on the balance sheet?

A) Reduces total assets
B) Increases total assets
C) Has no effect on total assets
D) Increases total assets and decreases total equity

Question 55

If a company's fixed asset turnover ratio decreased from 2010 to 2011, which of the following conclusions can be made?

A) The company was more efficient during 2011 in using its fixed assets to produce profits
B) The company produced less sales in 2011 for each dollar invested in fixed assets compare to 2010.
C) The company was less profitable in 2010.
D) The company over invested in fixed assets in 2010.

Question 56

Max's Tire Center Company
Selected data from the financial statements of Max's Tire Center are provided below.
$\begin{array}{lll}&\underline{2012}&\underline{2011}\\\text { Fixed assets } & \$ 150,000 & \$ 138,000 \\\text { Depreciation expense } & 45,000 & 42,000 \\\text { Total assets } & 500,000 & 490,000 \\\text { Cashflow from operations } & 320,000 & 289,000 \\\text { Net sales } & 370,000 & 360,000 \\\text { Capital expenditures } & 15,000 & 13,000\end{array}$

-Refer to the selected data provided for Max's Tire Center. Which of the following would result from a horizontal analysis of Max's income statement?

A) Depreciation expense increased by $3,000 or 6.67% during 2012.
B) Depreciation expense increased by $3,000 or 7.14% during 2012.
C) Net sales is $370,000 in 2012.
D) The total assets is $500,000 in 2012.

Question 57

Which of the following is an example of a capital expenditure?

A) Cleaning the carpet in the front room
B) Tune-up for a company truck
C) Replacing an engine in a company car
D) Replacing all burned-out light bulbs in the factory

Question 58

Everett, Inc.
Information for Everett, Inc. for 2011 and 2010 is presented below. Everett uses the straight-line depreciation method.
$\begin{array}{lll}&\underline{2011}&\underline{2010}\\\text { Fixed assets } & \$ 250,000 & \$ 190,000 \\\text { Accumulated depreciation } & 100,000 & 85,000 \\\text { Depreciation expense } & 62,500 & 47,500 \\\text { Total revenues } & 525,000 & 405,000 \\\text { Total assets } & 625,000 & 475,000\end{array}$

- Refer to the information provided for Everett, Inc. Using the data for 2011, determine the average useful life of Everett's fixed assets rounded to one decimal place.

A) 1.60 years
B) 3.50 years
C) 4.00 years
D) 10.00 years

Question 59

On January 1, 2011, XYZ Corporation sold a piece of equipment for $30,000 which it had used for several years. The equipment had cost $45,000, and its accumulated depreciation amounted to $20,000 at the time of the sale. What are the net effects on the accounting equation of selling the equipment?

A) Assets and equity increase $30,000
B) Assets decrease and equity increases $5,000.
C) Assets and equity increase $5,000.
D) Assets and equity decrease $5,000.

Question 60

Everett, Inc.
Information for Everett, Inc. for 2011 and 2010 is presented below. Everett uses the straight-line depreciation method.
$\begin{array}{lll}&\underline{2011}&\underline{2010}\\\text { Fixed assets } & \$ 250,000 & \$ 190,000 \\\text { Accumulated depreciation } & 100,000 & 85,000 \\\text { Depreciation expense } & 62,500 & 47,500 \\\text { Total revenues } & 525,000 & 405,000 \\\text { Total assets } & 625,000 & 475,000\end{array}$

- Refer to the information provided for Everett, Inc. Determine the fixed asset turnover ratio for Everett for 2011.

A) 2.10 times
B) 1.60 times
C) 4.00 times
D) 2.39 times

Question 61

Hit and Miss, Inc. purchased a patent at the beginning of 2011 for $250,000. Economic benefits were expected for 10 years, but the patent's legal life was 20 years. Also during 2011, the company incurred research and development costs of $270,000. Patent amortization expense for 2011 is:

A) $12,500
B) $26,000
C) $52,000
D) $25,000

Question 62

Xtra Company purchased goodwill from Argus for $144,000. Argus had developed the goodwill over 6 years. How much would Xtra amortize the goodwill for its first year?

A) $8,640
B) $24,000
C) Goodwill is not amortized.
D) Not enough information.

Question 63

The accounting life of intangible assets is determined by:

A) only their legal lives.
B) only their useful lives.
C) their legal lives or useful lives, whichever is shorter.
D) the tax life mandated by the IRS.

Question 64

Equipment with a cost of $160,000, an estimated salvage value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the useful life should be shortened by 3 years and the salvage value changed to zero. The depreciation expense for the current and future years is:

A) $11,636.
B) $16,000.
C) $11,000.
D) $8,000.

Question 65

Resources that are used in operations more than one year with no physical substance are called:

A) current assets.
B) intangible assets.
C) plant assets.
D) property, plant, and equipment.

Question 66

The exclusive right to use a certain name or symbol is called as:

A) franchise.
B) patent.
C) trademark.
D) copyright.

Question 67

American Corporation purchased a building for $900,000 at the end of year 2002. The building will be depreciated over 40 years and is estimated to have a $100,000 salvage value. At the end of 2012, when it had a book value of $700,000, it was appraised for $1,100,000. A potential buyer offered $900,000. American rejected the offer. At what amount should the net book value of the building be at the end of 2012.

A) $1,100,000
B) $ 900,000
C) $ 600,000
D) $ 700,000

Question 68

Goodwill can be recorded as an asset when a(n):

A) business has above normal profitability compared to other businesses in its industry.
B) business can determine that it has created customer goodwill and name recognition.
C) offer is received to purchase the business at a price in excess of the value of the assets.
D) business is purchased and payment is made in excess of the value of the net assets.

Question 69

A disposal of a used delivery truck is a transaction shown on the statement of cash flows under:

A) investing activities.
B) financing activities.
C) noncash investing and financing activities.
D) operating activities.

Question 70

According to accounting standards, the costs of intangible assets with an indefinite life, such as goodwill, should:

A) not be amortized, but should be reviewed annually for impairment.
B) be reported on the statement of retained earnings in the year in which it is acquired.
C) be amortized over a reasonable period of time not to exceed 40 years.
D) be debited to an expense account entirely in the year in which acquired.

Question 71

How should intangible assets be disclosed on the balance sheet?

A) As a reduction of stockholders' equity
B) At cost in the current assets section
C) At the estimated market value at the balance sheet date
D) Net of the costs already amortized

Question 72

Which balance sheet section is most affected by investing activities?

A) Current assets and current liabilities.
B) Long-term assets.
C) Long-term liabilities.
D) Stockholders' equity.

Question 73

Upon review of Bert's statement of cash flows, the following was noted: $\begin{array}{lc}\text { Cash flows from operating activities } & \$ 60,000 \\\text { Cash flows from investing activities } & (125,000) \\\text { Cash flows from financing activitiess } & 115,000\end{array}$ From this information, the most likely explanation is that Bert is:

A) using cash from operations and selling long-term assets to pay back debt.
B) using cash from operations and borrowings to purchase long-term assets.
C) using its profits to pay back debt.
D) using cash from investors to provide for operations.

Question 74

Peck Tech. purchased a patent at the beginning of 2011 for $400,000. The patent's legal life was 20 years, but economic benefits were expected for 10 years. Also, during 2011, Peck's incurred research and development costs of $200,000. The book value of the patents at December 31, 2011, is:

A) $400,000
B) $360,000
C) $350,000
D) $560,000

Question 75

Upon review of Mack's statement of cash flows, the following was noted: $\begin{array}{ll}\text { Cash flows from operating activities } & \$ 30,000 \\\text { Cash flows from investing activities } & 45,000 \\\text { Cash flows from financing activaties } & (40,000)\end{array}$ From this information, the most likely explanation is that Mack is:

A) using cash from operations and selling long-term assets to pay back debt.
B) using cash from operations and borrowing to purchase long-term assets.
C) using its profits to expand growth.
D) using cash from investors to provide for operations.

Question 76

Cash flows from acquiring and disposing of long-term assets are classified as:

A) operating activities.
B) investing activities.
C) financing activities.
D) purchasing activities.

Question 77

Victor Company purchased a patent for $250,000 at the beginning of 2011, and estimated that its expected useful life was 10 years. The patent has a legal life of 20 years. What amount should be recorded as amortization expense for the patent in 2011?

A) $ -0-
B) $ 8,333
C) $12,500
D) $25,000

Question 78

A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under:

A) investing activities.
B) financing activities.
C) noncash investing and financing activities.
D) operating activities.

Question 79

Which of the following is not an investing activity?

A) Purchase of investments for cash
B) Purchase of equipment for cash
C) Sale of merchandise for cash
D) Sale of land for cash

Question 80

Which of the following is an intangible asset?

A) Oil
B) Goodwill
C) Retained earnings
D) Land