Deck 7: Long-Term Assets

Question 1

Research and development costs incurred in developing a patent internally are not recorded as an intangible asset in the balance sheet,but rather are expensed directly in the income statement.

Answer 1

True

Question 2

We allocate natural resources to expense through a process known as "depletion."

Answer 2

True

Question 3

A basket purchase is the purchase of more than one asset at the same time for one purchase price.

Answer 3

True

Question 4

When a firm develops a trademark internally through advertising,it does not record the advertising costs as an intangible asset,but rather expenses them in the income statement.

Question 5

We use the term capitalize to describe recording an expenditure as an expense.We use the term capitalize to describe recording an expenditure as an asset.

Question 6

The CEO,as head of the company,is ultimately responsible for the firm's accounting.

Question 7

Many intangible assets are not recorded on the balance sheet at their estimated market values.

Question 8

The franchisee's initial fee is recorded as an expense on the income statement.The franchisee's initial fee is recorded as an intangible asset and then expensed over the life of the franchise agreement.

Question 9

Land improvements are recorded separately from the land itself because,unlike land,these assets are subject to depreciation.

Question 10

Cash received from the sale of salvaged materials increases the total cost of land.Cash received from the sale of salvaged materials decreases the total cost of land.

Question 11

Most of the costs associated with internally developed intangible assets are recorded as intangible assets on the balance sheet.We expense most of the costs for internally developed intangible assets to the income statement as we incur them.

Question 12

We record a long-term asset at its cost less all expenditures necessary to get the asset ready for use.We record a long-term asset at its cost plus all expenditures necessary to get the asset ready for use.

Question 13

A trademark is a word,slogan,or symbol that distinctively identifies a company,product,or service.

Question 14

A copyright is an exclusive right of protection given to the creator of a published work such as a song,film,painting,photograph,book,or computer software.

Question 15

We record goodwill as an intangible asset in the balance sheet only when we purchase it as part of the acquisition of another company.

Question 16

Advertising costs that increase the value of trademarks are recorded to the asset account entitled Trademarks.Advertising costs are recorded as expenses in the income statement.

Question 17

We record purchased intangible assets at their original cost plus all other costs necessary to get the asset ready for use.

Question 18

We expense internally generated intangible assets,such as research and development and advertising costs,as we incur them.

Question 19

International accounting standards allow firms to record development costs that benefit future periods as an intangible asset.

Question 20

A patent is an exclusive right to a published work such as a song,film,or painting.A patent is an exclusive right to manufacture a product or to use a process.A copyright is an exclusive right of protection given to the creator of a published work such as a song,film,painting,photograph,book,or computer software.

Question 21

Straight-line,declining-balance,and activity-based depreciation all are acceptable depreciation methods for both financial reporting and tax reporting.These are acceptable methods for financial reporting,not tax reporting.Most companies use MACRS for income tax depreciation.

Question 22

Residual value,also referred to as salvage value,is the amount the company expects to receive from selling the asset at the end of its service life.

Question 23

Declining-balance depreciation will be lower than straight-line depreciation in earlier years,but higher in later years.Declining-balance depreciation will be higher than straight-line depreciation in earlier years,but lower in later years.

Question 24

Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.

Question 25

Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life.

Question 26

Straight-line produces a lower net income than accelerated methods in the earlier years of an asset's life.Straight-line produces a higher net income than accelerated methods in the earlier years of an asset's life.

Question 27

If the defense of an intangible right is unsuccessful,then the firm should expense the litigation costs as incurred because they provide no future benefit.

Question 28

The service life of an asset is always equal to the full life of the asset.The service life is how long the company expects to receive benefits from the asset before disposing of it.

Question 29

When a change in estimate is required,the company changes depreciation in prior,current and future years.When a change in estimate is required,the company changes depreciation in current and future years,but not in prior periods.

Question 30

In an activity-based depreciation method,we allocate an asset's cost based on its use.

Question 31

With the straight-line depreciation method,we allocate an equal amount of the depreciable cost to each year of the asset's service life.

Question 32

If a firm successfully defends an intangible right,it should expense the litigation costs as incurred.If a firm successfully defends an intangible right,it should capitalize the litigation costs and amortize them over the remaining useful life of the related intangible.

Question 33

Goodwill is amortized over its estimated useful life.Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

Question 34

Most companies use straight-line amortization for intangibles and credit the amount of amortization to the intangible asset account itself rather than to Accumulated Amortization.

Question 35

The acquiring company records goodwill equal to the purchase price less the book value of the net assets acquired.The acquiring company records goodwill equal to the purchase price less the fair value of the net assets acquired.

Question 36

Accumulated Depreciation is a liability account that is increased by credits.Accumulated Depreciation is a contra-asset account;it reduces an asset account.

Question 37

Straight-line depreciation assumes that the benefits we derive from the use of an asset are the same each year.

Question 38

The Accumulated Depreciation account allows us to reduce the carrying value of assets through depreciation,while maintaining the original cost of each asset in the accounting records.

Question 39

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits.We expense repairs and maintenance expenditures in the period incurred because they maintain a given level of benefits.

Question 40

Depreciation in accounting records the decrease in value of an asset.Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life.

Question 41

Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash.They also incurred a shipping cost of $400 to get the equipment to its factory.The fair value of this equipment is $7,000.For what amount should Bad Brads BBQ record the equipment?

A)$5,000.
B)$5,400.
C)$7,000.

Question 42

Capital Construction purchased a 3-acre tract of land for a building site for $350,000.The company demolished the old building at a cost of $12,000,but was able to sell scrap from the building for $1,500.The cost of title insurance was $900 and attorney fees for reviewing the contract was $500.Property taxes paid were $3,000,of which $250 covered the period after the purchase date.The capitalized cost of the land is:

A)$366,400.
B)$366,150.
C)$364,650.

Question 43

Wiley Company purchased new equipment for $60,000.Wiley paid cash for the equipment.Other costs associated with the equipment were: transportation costs,$1,000;sales tax paid $3,000;and installation cost,$2,500.The cost recorded for the equipment was:

A)$60,000.
B)$61,000.
C)$64,000.
D)$66,500.

Question 44

A more comparable measure of profitability than income is return on assets,which equals net income divided by average total assets.

Question 45

We record a loss if we sell an asset for less than book value.

Question 46

Which of the following would be recorded as land improvements?

A)Property taxes.
B)Title insurance.
C)Real estate commissions.
D)Adding a parking lot.

Question 47

The following financial information is from Cook Company: What is the total amount of property,plant,and equipment assuming the accounts above reflect normal activity?
$$\begin{array} { | l | r | } \hline \text { Accounts Payable } & \$ 55,000 \\\hline \text { Land } & \$ 90,000 \\\hline \text { Inventory } & \$ 10,500 \\\hline \text { Accounts Receivable } & \$ 7,500 \\\hline \text { Equipment } & \$ 8,000 \\\hline \text { Deferred Revenue } & \$ 58,500 \\\hline \text { Short-term Investments } & \$ 20,000 \\\hline \text { Notes Receivable (due in 8 months) } & \$ 45,500 \\\hline \text { Interest Payable } & \$ 2,000 \\\hline \text { Patents } & \$ 75,000 \\\hline\end{array}$$

A)$90,000.
B)$98,000.
C)$165,000.

Question 48

Impairment occurs when the future cash flows generated for a long-term asset fall below its fair value.Impairment occurs when the future cash flows generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

Question 49

Profit margin is net income divided by net sales.

Question 50

Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

Question 51

Management must review long-term assets for impairment when events or changes in circumstances indicate that book value might not be recoverable.

Question 52

Which of the following would not be recorded as land improvements?

A)Adding a parking lot.
B)Landscaping.
C)Sidewalks.
D)Closing costs on purchasing the land.

Question 53

An impairment loss is equal to the amount by which book value exceeds the fair value of a long-term asset.

Question 54

Real Angus Steakhouse purchased land for $75,000 cash.They also incurred commissions of $4,500,property taxes of $5,000,and title insurance of $800.The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date.For what amount should Real Angus Steakhouse record the land?

A)$83,500.
B)$84,300.
C)$85,300.

Question 55

Cowboy Development incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building: What amount should be recorded for the purchase of the land?
$$\begin{array} { | l | r | } \hline \text { Sale price of the land } & \$ 400,000 \\\hline \text { Sale of salwaged parts already on land } & \$ 20,000 \\\hline \text { Demolition of the old building } & \$ 30,000 \\\hline \text { Ground breaking ceremony (food and supplies) } & \$ 1,500 \\\hline \text { Land preparation and leveling } & \$ 7,500 \\\hline\end{array}$$

A)$437,500.
B)$417,500.
C)$439,000.

Question 56

We record a gain if we sell an asset for less than book value.We record a gain if we sell an asset for more than book value.

Question 57

Bahama Catering purchased a commercial dishwasher by paying cash of $5,000.The dishwasher's fair value on the date of the purchase was $5,600.The company incurred $400 in transportation costs,$300 installation fees,and paid a $200 fine for illegal parking while the dishwasher was being delivered.For what amount will Bahama record the dishwasher?

A)$5,600.
B)$5,700.
C)$5,900.

Question 58

Asset turnover is net sales divided by ending total assets.Asset turnover is net sales divided by average total assets.

Question 59

Taking a "big bath" is recording all losses in one year to make a bad year even worse.

Question 60

Bahama Catering purchased a commercial dishwasher by paying cash of $8,000.The dishwasher's fair value on the date of the purchase was $10,000.The company incurred $600 in transportation costs,$500 installation fees,and paid $300 annual insurance of the equipment.For what amount will Bahama record the dishwasher?

A)$10,000.
B)$9,100.
C)$8,000.

Question 61

Landon Co.purchased a $500,000 tract of land that is intended to be the site of a new office complex.Landon incurred additional costs and realized salvage proceeds as follows: What would be the capitalized cost of the land?
$$\begin{array} { | l | c | } \hline \text { Demolition of existing building on site } & \$ 75,000 \\\hline \text { Legal and other fees to close esc row } & 15,000 \\ \text { Proceeds from sale of demolition scrap } & 10,000 \\\hline\end{array}$$

A)$500,000.
B)$575,000.
C)$580,000.

Question 62

Research and development costs should be capitalized when the:

A)Future benefit is probable and the amount can be reasonably estimated.
B)Future benefit is reasonably possible and the amount can be reasonably estimated.
C)Future benefit is probable and the amount cannot be reasonably estimated.
D)None of these.

Question 63

Productive assets that are physically used up or depleted are:

A)Equipment.
B)Land.
C)Land improvements.
D)Natural resources.

Question 64

A word,slogan,or symbol that distinctively identifies a company,product,or service is a:

A)Patent.
B)Copyright.
C)Trademark.

Question 65

Bio-Lab Pharmaceuticals carried on a project to develop a new drug that dramatically shortened the recovery period for flu infection.The project cost the company $150,000 before Bio-Lab abandoned the project due to the slim possibility to gain FDA approval.Bio-Lab then spent $300,000 on another project developing a kind of shot that achieves the same goal for flu recovery,and the company is confident in gaining FDA approval for the new shot and in making profits out of the shot.What amount would be expensed?

A)$0.
B)$150,000.
C)$300,000.
D)$450,000.

Question 66

In accounting,goodwill

A)May be recorded whenever a company achieves a level of net income that exceeds the industry average.
B)Is amortized over its useful life.
C)May be recorded when a company purchases another business.

Question 67

Goodwill is:

A)Amortized over the greater of its estimated life or forty years.
B)Only recorded by the seller of a business.
C)The value of a business as a whole,over and above the value of its net identifiable assets.

Question 68

Research and development costs should be:

A)Expensed in the period incurred.
B)Expensed in the period they are determined to be unsuccessful.
C)Deferred pending determination of success.

Question 69

Aspen,Inc.developed a new horse transport device and incurred research and development costs of $250,000.Rather than continue with their own research,Aspen decided to purchase a patent for a similar design from Vail,Inc.for $350,000.What are the total assets and expenses for these developments?

A)Assets $600,000;Expenses $0.
B)Assets $250,000;Expenses $350,000.
C)Assets $350,000;Expenses $250,000.

Question 70

The legal life of a patent is:

A)Forty years.
B)Twenty years.
C)Life of the inventor plus fifty years.

Question 71

Northern purchased the entire business of Southern including all its assets and liabilities for $600,000.Below is information related to the two companies: How much goodwill did Northern pay for acquiring Southern?
$$\begin{array} { | l | r | r | } \hline & \text { Northem } & \text { Southem } \\\hline \text { Fair value of assets } & \$ 1,050,000 & \$ 800,000 \\\hline \text { Fair value of liabilities } & 575,000 & 300,000 \\\hline \text { Reported ass ets } & 800,000 & 650,000 \\\hline \text { Reported liabilities } & 500,000 & 250,000 \\\hline \text { Net Income for the year } & 60,000 & 50,000 \\\hline\end{array}$$

A)$100,000.
B)$300,000.
C)$200,000.

Question 72

Morgan Pharmaceutical spends $50,000 this year in research and development for a new drug to cure liver damage.By the end of the year,management feels confident that the new drug will gain FDA approval and lead to higher future sales.What impact will the $50,000 spending have on this year's financial statements?

A)Increase Assets.
B)Decrease Revenues.
C)Increase Expenses.

Question 73

In accounting,goodwill

A)Is never recorded.
B)May be recorded when a company's level of net income exceeds the industry average.
C)Must be expensed in the period when it is acquired.
D)May be recorded when the company purchases another business.

Question 74

The following financial information is from Cook Company: What is the amount of long-term assets assuming the accounts above reflect normal activity?
$$\begin{array} { | l | r | } \hline \text { Accounts Payable } & \$ 55,000 \\\hline \text { Land } & \$ 90,000 \\\hline \text { Inventory } & \$ 10,500 \\\hline \text { Accounts Receivable } & \$ 7,500 \\\hline \text { Equipment } & \$ 8,000 \\\hline \text { Deferred Revenue } & \$ 58,500 \\\hline \text { Short-term Investments } & \$ 20,000 \\\hline \text { Notes Receivable (due in 8 months) } & \$ 45,500 \\\hline \text { Interest P ayable } & \$ 2,000 \\\hline \text { Patents } & \$ 75,000 \\\hline\end{array}$$

A)$342,500.
B)$173,000.
C)$273,500.

Question 75

Lake Incorporated purchased all of the outstanding stock of Huron Company paying $850,000 cash.Lake assumed all of the liabilities.Book values and fair values of acquired assets and liabilities were: Lake would record goodwill of:
$$\begin{array} { | l | r | r | } \hline & \text { Book Value } & \text { Far Value } \\\hline \text { Current assets (net) } & \$ 130,000 & \$ 125,000 \\\hline \text { Property, plant, equip. (net) } & 600,000 & 750,000 \\\hline \text { Liabilities } & 175,000 & 176,000 \\\hline\end{array}$$

A)$0.
B)$150,000.
C)$345,000.

Question 76

Fruitasia purchased land,a building,and equipment for $800,000.The estimated fair values of the land,building,and equipment are $100,000,$700,000,and $200,000,respectively.At what amount would the company record the land?

A)$80,000.
B)$90,000.
C)$100,000.

Question 77

The exclusive right to benefit from a creative work,such as a film,is a:

A)Patent.
B)Copyright.
C)Trademark.

Question 78

An exclusive 20-year right to manufacture a product or to use a process is a:

A)Patent.
B)Copyright.
C)Trademark.

Question 79

The following financial information is from Cook Company: What is the amount of intangible assets assuming the accounts above reflect normal activity?
$$\begin{array} { | l | r | } \hline \text { Accounts Payable } & \$ 55,000 \\\hline \text { Land } & \$ 90,000 \\\hline \text { Inventory } & \$ 10,500 \\\hline \text { Accounts Receivable } & \$ 7,500 \\\hline \text { Equipment } & \$ 8,000 \\\hline \text { Deferred Revenue } & \$ 58,500 \\\hline \text { Short-term Investments } & \$ 20,000 \\\hline \text { Notes Receivable (due in 8 months) } & \$ 45,500 \\\hline \text { Interest Payable } & \$ 2,000 \\\hline \text { Patents } & \$ 75,000 \\\hline\end{array}$$

A)$95,000.
B)$75,000.
C)$120,500.

Question 80

The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000.The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000.Longhorn paid Cattleman's $95,000 to acquire it.Longhorn should record goodwill on this purchase of:

A)$3,600.
B)$5,000.
C)$20,000.