Question 1

The method of depletion used to allocate the cost of natural resources to future periods is most similar to the straight-line depreciation method.

Accepted Answer

The depletion method allocates the cost of natural resources based on the quantity extracted, making it more similar to the units-of-production depreciation method rather than the straight-line method, which allocates cost evenly over time.

Question 2

Which of the following includes only tangible assets?

Accepted Answer

Tangible assets are physical assets that can be touched or seen, such as land, buildings, and natural resources. Licenses, operating rights, trademarks, and franchises are intangible assets.

Question 3

Under GAAP,research and development costs are capitalized once a product or process has been developed.

Accepted Answer

Research and development costs are usually expensed as incurred under GAAP unless they meet certain criteria for capitalization, such as having future economic benefits and a determined lifespan. Once a product or process has been developed, any remaining costs associated with it may be capitalized.

Question 4

Natural resource depletion is recognized on the income statement for all resources removed during the period whether they are sold or not.

Accepted Answer

Natural resource depletion is recognized on the income statement only for the portion of resources that are sold during the period, not for all resources removed.

Question 5

Selling a depreciable asset for a gain results in an increase in both net income and assets.

Accepted Answer

When selling a depreciable asset for a gain, the amount of the gain is added to net income and the proceeds from the sale are added to assets.

Question 6

Which of the following transactions would not increase the fixed asset turnover ratio?

Accepted Answer

The answer of Which of the following transactions would not...

Question 7

The first step in recording the disposal of a long-lived asset is to update its book value by recognizing depreciation expense for the period of time since the last depreciation adjustment was made.

Accepted Answer

This statement is true. Before recording the disposal of a long-lived asset, its book value must be updated by recognizing depreciation expense for the period of time since the last depreciation adjustment was made. This is necessary to ensure that the asset is correctly valued on the company's books and to ensure that the correct gain or loss on disposal is recorded.

Question 8

Which of the following would not be classified as property,plant and equipment on a balance sheet?

Accepted Answer

Land held for investment is not considered as property, plant, and equipment because it is not used in the operations of the business. Property, plant, and equipment are tangible assets used in the production or supply of goods and services or for administrative purposes.

Question 9

If a long-lived asset has been impaired,the journal entry will require a debit to a loss account and a credit to the long-lived asset account.

Accepted Answer

This is correct according to generally accepted accounting principles. An impairment occurs when the carrying value of a long-lived asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell or its value in use. When an impairment occurs, the company must record a loss by debiting a loss account and crediting the long-lived asset account for the amount of the impairment. This reduces the carrying value of the asset to its recoverable amount.

Question 10

Which of the following accounts would not be considered a tangible asset?

Accepted Answer

Copyright is an intangible asset as it is a legal right to reproduce, distribute or sell an original work of authorship. Buildings, land, and equipment are all physical assets that can be touched or seen.

Question 11

The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion.

Accepted Answer

This is a correct definition of depletion.

Question 12

If a company has an asset with a book value of $5.0 million and estimates the future cash flows to be received over the asset's remaining life to be $5.5 million,no impairment has occurred and no loss would be recognized.

Accepted Answer

The future cash flows exceed the asset's book value, indicating that the asset is not impaired and no loss should be recognized.

Question 13

The Wilson Company has provided the following information: • Net sales,$200,000
• Net operating income,$40,000
• Net income,$20,000
• Average total assets,$125,000
• Average net fixed assets;$80,000
What is Wilson's fixed asset turnover ratio?

Accepted Answer

Fixed Asset Turnover Ratio = Net Sales / Average Net Fixed Assets
= $200,000 / $80,000
= 2.50

Question 14

Which of the following would not be considered an intangible asset?

Accepted Answer

Research and development costs would not be considered an intangible asset because they are expensed as incurred and do not meet the criteria for recognition as an intangible asset under accounting standards. Goodwill, patents, and trademarks are all examples of intangible assets that are recognized and reported on a company's balance sheet.

Question 15

Which of the following statements regarding the fixed asset turnover ratio is incorrect?

Accepted Answer

The numerator of the fixed asset turnover ratio is typically sales or revenue generated, not net operating income.

Question 16

Which of the following includes only intangible assets?

Accepted Answer

Trademarks, patents, and copyrights are all examples of intangible assets, which are assets that lack physical substance and cannot be touched or felt. Option A includes natural resources, which are tangible assets, while options B and C include some tangible assets such as franchises and land, respectively.

Question 17

Which statement is false?

Accepted Answer

Selling off long-lived, productive assets while maintaining sales will actually lead to a higher fixed asset turnover because the denominator of the turnover ratio (average fixed assets) decreases, assuming sales remain constant. This increases the turnover ratio, contrary to what option D suggests.

Question 18

When determining cash flow from operating activities using the indirect method,depreciation and amortization expense are deducted from net income.

Accepted Answer

When using the indirect method to determine cash flow from operating activities, depreciation and amortization expenses are added back to net income because they are non-cash expenses that were subtracted to calculate net income.

Question 19

Gains and losses on disposal of a long-lived asset are determined by comparing the asset's cost to its book value.

Accepted Answer

Gains and losses on disposal of a long-lived asset are determined by comparing the asset's selling price to its book value, not its cost. The book value is calculated as the asset's cost minus accumulated depreciation.

Question 20

Goodwill is recorded only when an existing company is bought by another company and the purchase price exceeds the fair value of the purchased company's net assets.

Accepted Answer

Goodwill is recorded when the purchase price exceeds the fair value of the net assets acquired in a business combination, whether it is an acquisition of an existing company or not.

Quiz 8: Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources