Deck 9: Long-Lived Tangible and Intangible Assets

Question 1

Depreciation is an allocation method,not a valuation method.

Answer 1

True

Question 2

If a company produces the same number of units per period over an asset's useful life,straight-line depreciation expense per period will be the same as the depreciation expense recorded using the units-of-production method.

Answer 2

True

Question 3

When assets are purchased as a group,the total cost must be divided up and allocated to each asset in proportion to the market value of the assets as a whole.

Answer 3

True

Question 4

Impairment occurs when the estimated future cash flows from a long-lived asset fall below its book value.

Question 5

Companies within the same industry do not always use the same depreciation method,but will use the same expected useful life for the same piece of equipment.

Question 6

The book value of a long-lived asset declines over time,assuming no additions,replacements,or extraordinary repairs.

Question 7

Extraordinary repairs,replacements,and additions are added to the appropriate asset accounts rather than being recorded as expenses.

Question 8

Intangible assets are usually amortized using the straight-line method,with no residual value.

Question 9

The useful life of an asset is always measured in units of time,such as years or months.

Question 10

When an asset is sold and its book value exceeds its selling price,net income will increase.

Question 11

Trademarks and goodwill are intangible assets that are not amortized.

Question 12

Accumulated depreciation is classified as an expense.

Question 13

The calculation for depletion of natural resources is similar to the calculation for units-of-production depreciation.

Question 14

Some analysts compare companies by focusing on earnings before interest,taxes,depreciation,and amortization (EBITDA),rather than net income.

Question 15

If average net fixed assets decrease,then the fixed asset turnover ratio will increase,assuming nothing else changes.

Question 16

When the amount of annual depreciation is revised because of a change in the estimated useful life of an asset,prior years' financial statements should be restated.

Question 17

Long-lived assets found on a company's balance sheet may include some which have no physical substance.

Question 18

There are no differences between GAAP and IFRS rules of accounting for tangible and intangible assets.

Question 19

Tax accounting and financial accounting use the same depreciation calculations and there are no differences in the results between the two accounting systems.

Question 20

A declining fixed asset turnover ratio can actually be caused by acquiring additional assets in the current period in preparation for greater future sales.

Question 21

Which of the following statements regarding straight-line depreciation is correct?

A)Straight-line depreciation is the most common method of depreciation used in the U.S.for financial reporting,but is not commonly used for taxes.
B)When the straight-line method is used to compute depreciation,an asset's carrying value remains constant over the life of the asset.
C)Straight-line depreciation is an approved method to allocate the cost of an asset to expense and it serves as a measure of the physical decline in the asset.
D)The straight line method of depreciation results in a straight-line increase of depreciation expense over the life of an asset.

Question 22

The MegaHit Film Studio owns a production lot and related equipment.How would MegaHit Company classify these assets on its balance sheet?

A)Tangible asset
B)Natural resource
C)Intangible asset
D)Goodwill

Question 23

Which of the following statements is true?

A)Amortization of intangible assets is always recorded in a contra asset account.
B)Items in a company's inventory that are not expected to be sold in the next year are considered long-lived assets.
C)All long-lived intangible assets must be amortized over a period of 40 years or less.
D)Intangible assets with unlimited or indefinite lives are not amortized.

Question 24

If a company capitalizes costs that should be expensed,how is its income statement for the current period impacted?

A)Net income will be lower than it should be.
B)Revenues will be lower than they should be.
C)Expenses will be lower than they should be.
D)Assets will be lower than they should be.

Question 25

The primary difference between ordinary repairs and extraordinary repairs is:

A)ordinary repairs cost less.
B)ordinary repairs are expenditures for routine maintenance and upkeep,whereas extraordinary repairs increase an assets economic usefulness in the future through increased efficiency,capacity,or longer life.
C)extraordinary repairs only maintain the asset for a short time,whereas ordinary repairs increase the usefulness of assets beyond their original condition.
D)extraordinary repairs are expenditures,not expenses.

Question 26

The MegaHit Film Studio has a licensing right (or agreement)to distribute films produced by the Artsy Film Company.How would the MegaHit Company classify this licensing right on its balance sheet?

A)Tangible asset
B)Research and development
C)Intangible asset
D)Fixed asset

Question 27

The right to exclude others from making or using an invention is a

A)patent.
B)copyright.
C)franchise.
D)licensing right.

Question 28

The intangible asset most frequently reported by U.S.businesses is:

A)goodwill.
B)trademarks.
C)patents.
D)licensing rights.

Question 29

Which of the following statements regarding asset impairment is correct?

A)Asset impairment losses appear on a company's income statement every year.
B)When a company records an asset impairment loss,it will increase net income for that period.
C)Impairment occurs when an asset's book value is less than its current value.
D)Asset impairment losses are reported on the income statement as an operating expense.

Question 30

Goodwill may be attributable to all of the following except which one?

A)A large amount of charitable contributions
B)A good reputation
C)A well-trained work force
D)A superior location

Question 31

Which of the following statements regarding capitalization is correct?

A)Capitalizing costs refers to the process of converting assets to expenses.
B)All costs incurred to acquire an asset may be capitalized.
C)Capitalizing a cost means to record it as an asset.
D)Capitalization results in an immediate decrease in net income.

Question 32

Under the cost principle,a company capitalizes:

A)all ordinary repair expenditures incurred in the use of an asset.
B)any interest incurred in borrowing money to help pay for asset acquisitions.
C)all reasonable and necessary costs of acquiring an asset and preparing it for use.
D)the total market value of individual assets acquired in a 'basket purchase'.

Question 33

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system.Your company should record:

A)$3 million in equipment,and $200,000 in expenses.
B)$3.2 million in expenses.
C)$2.8 million in equipment and the rest in expenses.
D)$3.2 million in equipment.

Question 34

Which of the following statements regarding disposal of long-lived assets is not correct?

A)The gain or loss resulting from the disposal of a long-lived asset always appears below the "Income from Operations" line on the income statement.
B)A journal entry is usually needed to update depreciation expense on a long-lived asset at the time of disposal.
C)A company may dispose of long-lived assets by selling them,trading them in on new assets,or by scrapping them.
D)The amount of the gain or loss on disposal of a long-lived asset before the end of its useful life will be influenced by the depreciation method that had been used.

Question 35

Which of the following statements regarding tangible long-lived assets is not correct?

A)Depreciation and maintenance are expenses associated with the use of tangible long-lived assets.
B)Assuming no additions,replacements,or extraordinary repairs,the carrying value of a long-lived asset is never more than its original cost.
C)The cost of a long-lived asset minus the accumulated depreciation is called the carrying value of the asset.
D)All long-lived assets are depreciated as they are used in the business.

Question 36

Which of the following is not a characteristic of tangible long-lived assets?

A)productive
B)used for a year or more
C)not for resale
D)amortized over their useful life

Question 37

The balance sheet category "intangible assets" includes:

A)Patents,trademarks,and franchises.
B)Equipment,land,and buildings.
C)Investments,receivables,and cash.
D)Goodwill,inventory,and vehicles.

Question 38

A real estate management company buys an abandoned apartment complex for $4.5 million.It pays a construction company $500,000 to demolish the entire building.Which of the following is true?

A)The company would record $5 million as the cost of the land.
B)The company would record $4.5 million as the cost of the land.
C)The company would record $4 million as the cost of the land.
D)The company would record $500,000 as demolition expense.

Question 39

Which of McGraw-Hill's intangible assets gives it the legal right to prevent you from borrowing a textbook from a friend and photocopying all of it?

A)Patent
B)Trademark
C)Franchise agreement
D)Copyright

Question 40

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation.One-half of the total cost is paid in cash;the other half is financed.How should the company record this transaction?

A)Debit cash for $250,000,debit notes payable for $250,000 and credit equipment for $500,000.
B)Debit equipment for $500,000,credit cash for $250,000 and credit notes payable for $250,000.
C)Debit cash for $250,000,debit notes payable for $250,000 credit equipment for $450,000,and credit expenses for $50,000.
D)Debit equipment for $450,000,debit expenses for $50,000,credit cash for $250,000 and credit notes payable for $250,000.

Question 41

The book value or carrying value of an asset is equal to:

A)its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date.
B)its acquisition cost plus accumulated depreciation from the acquisition date to the balance sheet date.
C)the amount that could be obtained for the asset on the balance sheet date if it were sold.
D)the annual cost of carrying the asset in inventory.

Question 42

Use the information above to answer the following question.If the units-of-production method is used,the depreciation rate is:

A)$0.95 per unit.
B)$0.19 per unit.
C)$0.05 per unit.
D)$1.00 per unit.

Question 43

Use the information above to answer the following question.If the units-of-production method is used,the depreciation expense for this period is:

A)$80,000.
B)$400,000.
C)$76,000.
D)$380,000.

Question 44

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities.Commercial use of the equipment began on May 1,2014.The estimated residual value of the equipment is $5,000.The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years.The company has an October 31,2014 year-end and had used the equipment a total of 11,200 hours prior to the year-end.Using the units- of- production method,what amount of depreciation expense (to the nearest thousand)would the company report for this equipment in the income statement prepared for the year-ended October 31,2014?

A)$102,000
B)$198,000
C)$204,000
D)$206,000

Question 45

Which of the following is not an amount that is needed to calculate straight-line depreciation?

A)The cost of the asset.
B)An estimate of the asset's useful economic life to the company.
C)The estimated amount that the company will receive when it disposes of the asset.
D)The cost the company will be required to incur to replace the asset.

Question 46

Your company buys a computer server which it expects to use for eight years and then sell when it upgrades to a more powerful model.The server would probably be used by the business that buys it at that time for another three years.The useful life of the server for your company is:

A)eight years.
B)eleven years.
C)five years.
D)three years.

Question 47

Which of the following statements is true when the straight-line method is used to compute depreciation?

A)The carrying value of an asset is a constant amount during the asset's useful life.
B)Accumulated depreciation is a constant amount during the asset's estimated useful life.
C)Depreciation is a constant amount each year.
D)The book value of an asset is an increasing amount during the asset's useful life.

Question 48

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?

A)To indicate how the asset has physically deteriorated.
B)To show that the asset will eventually and gradually become obsolete.
C)To record that the asset's market value declines over time.
D)To match the cost of the asset to the period in which it generates revenue.

Question 49

Ordinary repairs and maintenance:

A)are part of the asset cost of equipment and facilities.
B)are recorded as expenses when the dollar amount is material.
C)are always recorded as liabilities.
D)improve the asset beyond the current accounting period.

Question 50

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated depreciation account for the facility is $258,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The residual value of the facility is:

A)$117,000.
B)$151,000.
C)$268,000.
D)$107,000.

Question 51

A company buys a piece of equipment for $48,000.The equipment has a useful life of ten years.Using the double-declining-balance method,the company's depreciation expense in the first year would be:

A)$9,600.
B)$12,000.
C)$4,800.
D)$24,000.

Question 52

A machine is purchased on January 1,2014,for $90,000.It is expected to have a useful life of five years and a residual value of $5,000.The company closes its books on December 31.Under the double-declining balance method,what is the total amount of depreciation to be expensed during the 2015 fiscal year (year 2 of 5)?

A)$21,600
B)$22,000
C)$22,400
D)$34,000

Question 53

ShadyZ Corporation uses the unit-of-production method to estimate depreciation.A new asset is purchased for $18,000 that will produce an estimated 100,000 units over its useful life.Estimated residual value is $2,000.What is the depreciation rate per unit?

A)$1.60
B)$1.80
C)$0.16
D)$0.18

Question 54

Paul Hauling has a fleet of 10 large trucks that cost a total of $1,410,000.The fleet is expected to provide 1,000,000 miles of transportation during an estimated 10-year life,and be sold for 10% of the original cost at the end of that time.If the fleet traveled 125,000 miles in the current twelve-month period,what would be the depreciation expense under the straight-line (SL)and units-of-production (U-of-P)methods?

A)SL = $158,625 and U-of-P = $141,000.
B)SL = $141,000 and U-of-P = $158,625.
C)SL = $126,900 and U-of-P = $176,250.
D)SL = $126,900 and U-of-P = $158,625.

Question 55

Use the information above to answer the following question.What is the depreciation expense for 2014?

A)$4,000.
B)$3,000.
C)$6,000.
D)$8,000.

Question 56

A company buys equipment for $48,000 and expects to use it for ten years and then sell it for $6,000.Using the straight-line method,the company should report depreciation for the equipment of:

A)$4,200 per year.
B)$8,400 per year.
C)$4,800 per year.
D)$9,600 per year.

Question 57

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated depreciation account for the facility is $258,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The depreciable cost of the facility is:

A)$117,000.
B)$151,000.
C)$268,000.
D)$107,000.

Question 58

When a company records depreciation it debits:

A)liabilities and credits expenses.
B)expenses and credits cash.
C)expenses and credits a contra-asset account.
D)long-lived assets and credits expenses.

Question 59

If the double-declining balance method were used to depreciate a building that has a 10-year useful life and a residual value equal to 10% of the building's original cost,what depreciation rate would be used?

A)9%
B)10%
C)18%
D)20%

Question 60

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated depreciation account of $1.1 million.Which of the following statements is true?

A)The book value of long-lived assets is $2.4 million.
B)The market value of long-lived assets is $3.5 million.
C)The carrying value of long-lived assets is $3.5 million.
D)The resale value of long-lived assets is $2.4 million.

Question 61

How does an asset impairment loss impact a company's financial statements?

A)Raises expenses and lowers both revenue and net income.
B)Lowers assets,stockholders' equity,and net income.
C)Raises expenses and lowers net income with no effect on any other items.
D)Raises liabilities and lowers stockholders' equity.

Question 62

A loss on disposal of an asset would be reported:

A)in the Operating Revenues section of the income statement.
B)in the Operating Expenses section of the income statement.
C)as a direct increase to the asset account on the balance sheet.
D)as a direct decrease to the asset account on the balance sheet.

Question 63

A company sells a long-lived asset that originally cost $200,000 for $50,000 on December 31,2014.The accumulated depreciation account had a balance of $110,000 after the current year's depreciation of $45,000 had been recorded.The company should recognize a:

A)$100,000 loss on sale.
B)$40,000 gain on sale.
C)$40,000 loss on sale.
D)$25,000 loss on sale.

Question 64

A company sells a piece of equipment half-way through the accounting period.The straight-line rate of depreciation on the equipment is $40,000 per year.Before recording the asset sale,the company should debit:

A)depreciation expense for $40,000 and credit accumulated depreciation for $40,000.
B)accumulated depreciation for $40,000 and credit cash for $40,000.
C)depreciation expense for $20,000 and credit accumulated depreciation for $20,000.
D)cash for $20,000 and credit depreciation expense for $20,000.

Question 65

An asset is purchased on January 1 for $40,000.It is expected to have a useful life of five years after which it will have an expected salvage value of $5,000.The company uses the straight-line method.If it is sold for $30,000 exactly two years after it is purchased,the company will record a:

A)gain of $6,000.
B)gain of $4,000.
C)loss of $4,000.
D)loss of $6,000.

Question 66

A company bought a piece of equipment for $40,000,expecting to use it for eight years.The company then plans to sell it for $3,500.The company has already recorded depreciation of $35,995.Using the double-declining-balance method,the company's annual depreciation expense for the upcoming year would be:

A)$1,001.
B)$9,125.
C)$505.
D)$10,000.

Question 67

A company paid $17,000 for a vehicle that had an estimated useful life of 4 years,total capacity of 100,000 miles,and a residual value of $1,000.After 2 full years of using the vehicle (20,000 miles in year 1 and 27,000 miles in year 2),the company sold the vehicle for $6,000 and reported a loss on disposal of $3,480.What method of depreciation did the company use?

A)Units-of-production method.
B)Double-declining-balance method.
C)Straight-line method.
D)Units-of-production method in year 1 and straight-line in year 2.

Question 68

When a company sells a long-lived asset,stockholders' equity will change by the:

A)amount of the sale.
B)amount of the asset's book value.
C)amount of the asset's accumulated depreciation.
D)difference between the sales price and the asset's book value.

Question 69

A trucking company sold its fleet of trucks for $55,000.The trucks had originally cost $1,410,000 and had accumulated depreciation of $1,269,000 through the date of disposal.What gain or loss did the trucking company record when it sold the fleet of trucks?

A)Gain of $86,000.
B)Gain of $55,000.
C)Loss of $55,000.
D)Loss of $86,000.

Question 70

After the early years of an asset's life,accelerated depreciation methods:

A)cause an asset to be carried at a higher book value than the straight-line method.
B)cause an asset to be carried at a lower book value than the straight-line method.
C)cause an asset to be carried at the same book value as the straight-line method.
D)cannot be used if the resulting book value will be significantly different from that which would result from using the straight-line method.

Question 71

When a company sells equipment for cash on a date other than the last day of the accounting period,it must:

A)record depreciation expense for the entire accounting period during which the equipment is sold.
B)record the disposal by reducing equipment and increasing revenue;a gain or loss is reported if the decrease and increase are not equal.
C)first record depreciation expense for the period up to the date of sale,and then record the disposal by decreasing both equipment and accumulated depreciation while increasing cash;a gain or loss is reported if total assets increase or decrease.
D)record accumulated depreciation for the entire current accounting period.

Question 72

A truck costing $12,000,on which $9,000 of accumulated depreciation has been recorded was sold for $2,000 cash.The entry to record this event would include a:

A)gain of $1,000.
B)loss of $1,000.
C)credit to the Truck account for $3,000.
D)credit to Accumulated Depreciation for $9,000.

Question 73

Under what circumstances should a company record an asset impairment loss?

A)When residual value is greater than the repairs and maintenance expenses needed to keep up the asset.
B)When net book value is less than the residual value of the asset.
C)When accumulated depreciation equals the purchase cost of the asset.
D)When net book value is greater than expected future cash flows for the asset.

Question 74

If a fully depreciated asset with no residual value is retired without receiving any cash on retirement:

A)a gain on disposal will be recorded.
B)depreciation must be recorded as though the asset were still on the books.
C)a loss on disposal will be recorded.
D)no gain or loss on disposal will be recorded.

Question 75

A book manufacturing company sells equipment for $450,000 when the book value of the equipment is $400,000.The company would record the extra $50,000 as:

A)a gain,increasing net income and stockholders' equity.
B)revenue,increasing net income and stockholders' equity.
C)expenses,decreasing net income and stockholders' equity.
D)a loss,decreasing net income and stockholders' equity.

Question 76

One difference between the double-declining-balance method and the straight-line method is that the double-declining-balance method:

A)takes book value below residual value.
B)does not consider the useful life of the asset in the calculation of depreciation.
C)cannot be used for tax purposes.
D)uses book value instead of depreciable cost in the calculation of depreciation.

Question 77

Your company rents out computers to local businesses and schools.You have 1,000 computers with a net book value of $160,000.As a result of changing technology,your computers are more difficult to rent so you must severely reduce your rental price,which causes a decrease in estimated future cash flows.The fair value of the computers is estimated to be $125,000 because of their outdated technology.Your company should report an asset impairment loss of:

A)$160,000.
B)$125,000.
C)$35,000.
D)$0

Question 78

The cost of developing a prototype would probably be capitalized by which of the following companies?

A)Lego.
B)Southwest Airlines.
C)Walmart.
D)Cedar Fair.

Question 79

Use the information above to answer the following question.What is the adjusted balance in the Accumulated Depreciation account at the end of 2015?

A)$3,200.
B)$4,800.
C)$9,600.
D)$12,800.

Question 80

A piece of equipment was acquired on January 1,2013,at a cost of $22,000,with an estimated residual value of $2,000 and an estimated useful life of four years.The company uses the double-declining-balance method.What is its book value at December 31,2014?

A)$5,500.
B)$10,000.
C)$11,000.
D)$12,000.