Deck 9: Long-Lived Tangible and Intangible Assets

Question 1

Capitalizing costs refers to the process of converting assets to expenses.

Answer 1

False

Question 2

When the straight-line method is used to compute depreciation,an asset's carrying value remains constant over the life of the asset.

Answer 2

False

Question 3

Long-lived assets are assets that are intended for resale.

Answer 3

False

Question 4

The purpose of depreciation is to correctly value assets.

Question 5

Depreciation and maintenance are expenses associated with the use of long-lived assets.

Question 6

The useful life of an asset is always measured in years.

Question 7

Assuming no additions,replacements,or extraordinary repairs,the book value of any long-lived asset with a limited life is always less than or equal to its acquisition cost.

Question 8

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.

Question 9

Intangibles with unlimited or indefinite lives (trademarks and goodwill)are amortized using straight line depreciation method.

Question 10

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.

Question 11

A journal entry is usually needed to update depreciation expense on a long-lived asset at the time of disposal.

Question 12

The gain or loss resulting from the disposal of a long-lived asset appears below the "operating income" line on the income statement.

Question 13

Assuming no additions,replacements,or extraordinary repairs,the carrying value of a long-lived asset is never more than its original cost.

Question 14

Expenditures on self-created intangible assets are accounted for in the same way as expenditures on self-constructed tangible assets.

Question 15

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

Question 16

Research and development costs are treated as a capital asset.

Question 17

If a company builds its own facility,only the cost of materials is capitalized.

Question 18

When a company records an asset impairment loss,it will reduce net income for that period.

Question 19

Another name for a tangible long-lived asset is a fixed asset.

Question 20

Asset impairment losses are a regular operating expense of most businesses.

Question 21

At the end of an asset's life,after it has been fully depreciated,the total amount of depreciation will equal the asset's depreciable cost,regardless of the depreciation method used.

Question 22

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)Intellectual property asset
C)Intangible asset
D)Nonreported asset

Question 23

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)Other long-lived asset
C)Intangible asset
D)Nonreported asset

Question 24

The amount of net income will be higher in case of straight line depreciation as compared to double declining method.

Question 25

According to IFRS and ASPE intangible assets cannot be considered long-lived.

Question 26

The declining-balance method applies a depreciation rate to the book value of the asset at the beginning of each accounting period.

Question 27

Under ASPE and IFRS,changes in accounting estimates and depreciation methods should be made only when a new estimate or accounting method "better measures" the periodic income of the business.

Question 28

Purchase cost minus residual value is equivalent to depreciable cost.

Question 29

Some analysts compare companies by focusing on earnings before interest,taxes,and amortization (EBITDA).

Question 30

In accordance with accounting convention,all fixed assets must be capitalized.

Question 31

If a company buys a piece of used equipment and incurs repair costs before it can be used,these additional costs would be capitalized as a cost of the equipment.

Question 32

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 33

All things being equal,if average net fixed assets decrease,then the fixed asset turnover ratio will increase.

Question 34

The amount of depreciation expense over the life of an asset will be the same in all of the different methods of depreciation.

Question 35

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 36

Purchase cost minus residual value is equivalent to depreciation expense under the straight-line method.

Question 37

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 38

Deciding whether a cost is reasonable and necessary to acquire or prepare tangible assets for use can involve a great deal of judgment.

Question 39

Intangible assets are not adjusted for asset impairment losses.

Question 40

Goodwill is a peculiar intangible asset because it represents the value paid for the identifiable assets of another business.

Question 41

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. Book value or carrying value = Asset Cost - Accumulated depreciation.3.5 - 1.1 = 2.4 million.

Question 42

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 43

Which of the following statements is true?

A)Long-lived tangible assets will not be used up within one year,but there is no minimum useful life for long-lived intangible assets.
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 expensed over a period of 40 years or less.
D)Intangible assets with unlimited or indefinite lives are not amortized.

Question 44

When a company records depreciation expense 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 45

A real estate management company buys an apartment complex for $4.8 million.An appraiser values the land at $1.1 million,the building at $3.4 million,and the equipment at $0.3 million.In addition,the company pays a 5% commission to a broker for arranging the sale.Which of the following statements is true?

A)The company would record $3.57 million as the acquisition cost of the building.
B)The company would record $1.1 million as the acquisition cost of the land.
C)The company would record $3.7 million as the acquisition cost of the building.
D)The company would record $0.24 million as an expense and $4.8 million as an asset.

Question 46

Ordinary repairs and maintenance always:

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

Question 47

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 (UoP)methods?

A)SL = $158,625 & UoP = $141,000
B)SL = $141,000 & UoP = $158,625
C)SL = $126,900 & UoP = $176,250
D)SL = $126,900 & UoP = $158,625 Straight line depreciation: Dep.Exp.per year = (Cost - residual value)* (1/useful life)
($1,410,000 - $141,000)* (1/10)= 126,900
Unit of Production: Dep Exp this period = (cost - residual value)* (actual prod this period/est total prod)(1,410,000 - 141,000)* (125,000/1,000,000)= $158,625.

Question 48

The main 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 asset 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 expenses,not expenditures.

Question 49

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. Equipment is debited for the total cost of the asset ($450,000 + $50,000 = $500,000),Cash is credited for one-half of the total cost ($500,000/2 = $250,000),and Notes Payable is credited of the other half of the total cost.

Question 50

The book or carrying value of an asset is:

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 51

If a company capitalizes costs that should be expensed,how is its income statement for 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 52

ABC Co.purchased land and building at a price of $480,000.ABC also incurred a real estate broker's fee of $5,000 and legal fees of $2,000 to complete the purchase.ABC paid $3,000 to obtain a real estate appraisal prior to the purchase.The appraisal indicated that,valued separately,the land was worth $260,000 and the building was worth $240,000.The land should be recorded in the accounting records for:

A)$249,600.
B)$253,240.
C)$254,800.
D)$259,600. $480,000 + $5000 + $2000 + $3000 = $490,000 × .52 = $254,800 (Land's proportion in the total market value of the property is 52%.260,000/240,000 + 260,000 = .52).

Question 53

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. Acquisition cost = Price + Installation costs = $3,000,000 + $200,000 = $3,200,000.

Question 54

The intangible asset most frequently reported by Canadian businesses is:

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

Question 55

Amazon's website is an example of a:

A)patented intangible asset.
B)technology intangible asset.
C)current tangible asset.
D)copyright tangible asset.

Question 56

How will the costs of an intangible asset being develop internally or self-constructed be reported?

A)As capital expenditure
B)As research and development expenses
C)As marketing expenses
D)As a liability

Question 57

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 amount that the company will get when it disposes of the asset.
D)The cost the company will be required to incur to replace the asset.

Question 58

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% Double-declining rate is twice the straight-line rate.DDB depreciation rate = 2/useful life; 2/10 = 20%.

Question 59

Under the cost principle:

A)only reasonable and necessary costs of acquiring an asset should be recorded as a cost of the asset.
B)costs of preparing an asset for use should never be recorded as part of the cost of the asset.
C)all reasonable and necessary costs of acquiring an asset and preparing it for use should be recorded as a cost of the asset.
D)only the actual purchase price of the asset is recorded as the cost of the asset.

Question 60

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 1,2019.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,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 31,2019?

A)$102,000
B)$198,000
C)$204,000
D)$206,000 (Cost - residual value)* (actual production this period/estimated total production)
($15,000 - $5000)* ($11,200/$28,000)= $204,000.

Question 61

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 62

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 expense per period is the depreciable cost divided by the number of periods in the asset's useful life.
D)None of the answers are acceptable.

Question 63

When a company determines that estimated future cash flows from an asset are different from the book value of the asset,it records:

A)an asset impairment gain,if the value of the cash flows exceeds the asset's book value.
B)an asset impairment loss,if the value of the cash flows exceeds the asset's book value.
C)an asset impairment gain,if the asset's book value exceeds the value of the cash flows.
D)an asset impairment loss,if the asset's book value exceeds the value of the cash flows.

Question 64

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. Twice the straight line rate of 1/10 = 2/10 or 20%.$48,000 * .20 = 9,600 or $48,000 * 2/10 = $9,600.

Question 65

A piece of equipment was acquired on January 1,2018,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 31,2019?

A)$5,500
B)$10,000
C)$11,000
D)$12,000 Year 1: ($22,000)* (2/4)= $11,000
Accumulated Depreciation end of year 2 = $16,500
Book Value = Cost - Accumulated Depreciation to date
Book Value = $22,000 - $16,500
Book Value = $5,500.

Question 66

A machine is purchased on January 1,2018,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 2019 fiscal year (year 2 of 5)?

A)$21,600
B)$22,000
C)$22,400
D)$34,000 DDB depreciation rate = 2/5 = 40%.Dep.Exp.per year = (cost - accumulated dep.)* (2/useful life)Year 1: ($90,000 - 0)* (2/5)= $36,000 Year 2: ($90,000 - $36,000)* (2/5)= 21,600.

Question 67

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

A)Raise expenses and lower both revenue and net income.
B)Lower assets,shareholders' equity,and net income.
C)Raise expenses and lower net income with no effect on any other items.
D)Raise liabilities and lower shareholders' equity.

Question 68

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 outmoded technology.Your company should report an asset impairment loss of:

A)$160,000.
B)$125,000.
C)$35,000.
D)none of the answers are acceptable. Impairment Loss = Book Value - Market Value Impairment Loss = $160,000 - $125,000 Impairment Loss = $35,000.

Question 69

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. Depreciation in final year = (Cost - Residual Value)- Accum.Deprec.to date Depreciation in final year = ($40,000 - $3,500)- $35,995 Depreciation in final year = $505 as the carrying value cannot go below the residual value.

Question 70

Which of the following statements most appropriately describes the purpose of depreciation of 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 71

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 ($18,000 - $2000)* (1/100,000)= $0.16.

Question 72

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

A)When residual value is greater than the repairs and maintenance expenses needed to keep 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 73

The Widget Tool and Die Company buys a $400,000 stamping machine that has an estimated residual value of $20,000.The company expects the machine to produce two million units.It makes 400,000 units during the current period.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. ($400,000 - $20,000)* (1/2,000,000)= $0.19.

Question 74

Shaggy Limited purchased a new van on January 1,2018.The van cost $20,000.It has an estimated life of five years and the estimated residual value is $5,000.Shaggy uses the double-declining-balance method to compute depreciation. What is the depreciation expense for 2018?

A)$4,000.
B)$3,000.
C)$6,000.
D)$8,000. $20,000 * (2/5)= $8,000.

Question 75

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 Depreciable Cost = Cost - Residual Value Depreciable Cost = $375,000 - $107,000 Depreciable Cost = $268,000.

Question 76

A company expects to use equipment that cost $48,000 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. Dep Exp per year = ($48,000 - $6000)* (1/10)= $4,200.

Question 77

The Widget Tool and Die Company buys a $400,000 stamping machine that has an estimated residual value of $20,000.The company expects the machine to produce two million units.It makes 400,000 units during the current period.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. ($400,000 - 20,000) (400,000/2,000,000)= $76,000.

Question 78

Shaggy Limited purchased a new van on January 1,2018.The van cost $20,000.It has an estimated life of five years and the estimated residual value is $5,000.Shaggy uses the double-declining-balance method to compute depreciation. What is the adjusted balance in the Accumulated depreciation account at the end of 2019?

A)$3,200
B)$4,800
C)$9,600.
D)$12,800. Year 1: $20,000 * (2/5)= $8,000
Year 2: $4,800 * (2/5)= 4,800
Adjusted Accumulated Depreciation after year 2 (2020)= $8,000 + $4,800 = $12,800.

Question 79

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)8 years; the total length of time the server is used to produce output for your company.
B)eleven years.
C)the total length of time until the server can no longer function.
D)three years.

Question 80

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. The double-declining-balance method ignores residual value and calculates the period's depreciation at twice the straight-line rate applied to the declining book value of the asset.