Question 1

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.

Accepted Answer

Straight-line depreciation is commonly used for financial reporting in the U.S., but for tax purposes, accelerated methods like MACRS are often used.

Question 2

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

Accepted Answer

The production lot and equipment are tangible assets as they are physical assets with a definite value that can be measured and used in the company's operations.

Question 3

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.

Accepted Answer

Intangible assets with unlimited or indefinite lives are not subject to amortization.

Question 4

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.

Accepted Answer

When costs that should be expensed are capitalized, expenses are understated, leading to higher net income for the current period.

Question 5

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.

Accepted Answer

Ordinary repairs are routine maintenance expenses that are necessary to keep an asset in its current condition. Extraordinary repairs, on the other hand, increase an asset's economic usefulness in the future by extending its life, increasing efficiency or capacity, and are capital expenditures. They are not considered routine maintenance expenses.

Question 6

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

Accepted Answer

The licensing right is an intangible asset because it is not a physical asset and has no physical substance. It represents a legal agreement that gives the MegaHit Company the right to distribute films produced by the Artsy Film Company.

Question 7

The right to exclude others from making or using an invention is a
A)patent.
B)copyright.
C)franchise.
D)licensing right.

Accepted Answer

The right to exclude others from making or using an invention is a patent. This is a key feature of patent protection granted to inventors to prevent others from making, using, or selling their invention without their permission for a certain period of time. Copyrights, franchises, and licensing rights do not pertain to inventions in the same way as patents do.

Question 8

The intangible asset most frequently reported by U.S.businesses is:
A)goodwill.
B)trademarks.
C)patents.
D)licensing rights.

Accepted Answer

Goodwill is the intangible asset that is most frequently reported by U.S. businesses. This is because it represents the value of the company's reputation, customer base, and brand recognition, which can have a significant impact on its financial performance. Trademarks, patents, and licensing rights are also important intangible assets, but they are typically less common and may not be reported as frequently.

Question 9

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.

Accepted Answer

Asset impairment losses are reported on the income statement as an operating expense because they represent a reduction in the value of an asset, impacting the company's operating results.

Question 10

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

Accepted Answer

Goodwill is typically associated with intangible assets like reputation, workforce, and location, but not directly with charitable contributions.

Question 11

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.

Accepted Answer

Capitalizing a cost means recording it as an asset on the balance sheet rather than an expense on the income statement. This results in an increase in total assets and no immediate impact on net income. Option A is incorrect because capitalizing costs means converting expenses to assets rather than the other way around. Option B is incorrect because only costs directly related to acquiring or improving an asset can be capitalized, not all costs. Option D is incorrect because capitalization does not result in an immediate decrease in net income.

Question 12

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'.

Accepted Answer

Under the cost principle, a company capitalizes all reasonable and necessary costs of acquiring an asset and preparing it for use. This includes the purchase price and any additional costs necessary to get the asset ready for its intended use. A company cannot capitalize ordinary repair expenditures or interest costs incurred in borrowing money. The total market value of assets acquired in a basket purchase is split among the individual assets based on their relative fair market values at the time of acquisition.

Question 13

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.

Accepted Answer

The total cost of the computer system and installation is $3.2 million, therefore the company should record $3.2 million in equipment. The $200,000 paid to IBM for installation should be included in the cost of the equipment.

Question 14

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.

Accepted Answer

The gain or loss resulting from the disposal of a long-lived asset may appear either above or below the "Income from Operations" line on the income statement. The placement depends on whether the disposal is considered part of the company's primary operations or not.

Question 15

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.

Accepted Answer

Not all long-lived assets are depreciated; land, for example, is not depreciated because it does not have a finite useful life.

Question 16

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

Accepted Answer

Tangible long-lived assets are depreciated, not amortized. Amortization is typically used for intangible assets.

Question 17

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.

Accepted Answer

Intangible assets are assets that lack physical existence but have value to the business, such as intellectual property or brand recognition. Therefore, patents, trademarks, and franchises are examples of intangible assets. B, C, and D are all incorrect as they include items that are classified as tangible assets or other balance sheet categories like investments or inventory.

Question 18

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.

Accepted Answer

The cost of land includes all expenditures made to acquire the land and prepare it for its intended use, including the purchase price and demolition costs. Therefore, the total cost recorded for the land would be $5 million ($4.5 million purchase price + $500,000 demolition cost).

Question 19

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

Accepted Answer

Copyright gives McGraw-Hill the legal right to prevent someone from making unauthorized copies of their textbooks.

Question 20

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.

Accepted Answer

The answer of The Gulp convenience store chain buys new...

Quiz 9: Long-Lived Tangible and Intangible Assets

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

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

Which of the following statements is true?

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

The primary difference between ordinary repairs and extraordinary repairs is:

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?

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

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

Which of the following statements regarding asset impairment is correct?

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

Which of the following statements regarding capitalization is correct?

Under the cost principle,a company capitalizes:

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:

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

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

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

The balance sheet category "intangible assets" includes:

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?

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?

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?