Question 1

The net amount shown on a balance sheet for an intangible asset with an unlimited life should be:
A)the price for which it could be sold.
B)its book value or impaired fair value,whichever is lower.
C)its purchase price minus accumulated amortization.
D)its purchase price adjusted for inflation.

Accepted Answer

An intangible asset with an unlimited life cannot be amortized, so the only way to reflect any decline in value is through impairment testing. The net amount shown on the balance sheet should be the lower of its book value (purchase price minus any accumulated impairment losses) or impaired fair value.

Question 2

Assuming two companies use the same accounting methods,other things being equal,the company with a higher fixed asset turnover ratio:
A)has a greater amount invested in fixed assets than a company with a lower fixed asset turnover ratio.
B)has less invested in fixed assets than a company with a lower fixed asset turnover ratio.
C)generates less sales revenue than a company with a lower fixed asset turnover ratio.
D)makes better use of its fixed assets to generate revenues than a company with a lower fixed asset turnover ratio.

Accepted Answer

A higher fixed asset turnover ratio means that the company is generating more sales revenue per dollar invested in fixed assets. Therefore, it is making better use of its fixed assets to generate revenues than a company with a lower fixed asset turnover ratio.

Question 3

A machine had an estimated useful life of 5 years,but after 3 years,it was decided that the original estimate of useful life should have been 10 years.At that point,the remaining cost to be depreciated should be allocated over the remaining:
A)2 years.
B)5 years.
C)7 years.
D)10 years.

Accepted Answer

Since it was decided that the useful life should have been 10 years, and 3 years have already passed, there are 7 years remaining. Therefore, the remaining cost to be depreciated should be allocated over the remaining 7 years.

Question 4

The company has net sales revenue of $3.6 million during 2014.The company's records also included the following information:  What is the company's fixed asset turnover ratio for 2014?
A)18.00
B)1.33
C)1.00
D)1.50

Accepted Answer

The answer of The company has net sales revenue of...

Question 5

If net sales revenue rises 5% while the average book value of fixed assets falls 5%:
A)the fixed asset turnover ratio will rise.
B)the fixed asset turnover ratio will fall.
C)the fixed asset turnover ratio will stay the same.
D)the impact on the fixed asset turnover ratio cannot be determined since the beginning values are unknown.

Accepted Answer

The fixed asset turnover ratio measures how efficiently a company is using its fixed assets to generate sales revenue. If net sales revenue rises while the average book value of fixed assets falls, it means that the company is generating more revenue with fewer assets, which would result in an increase in the fixed asset turnover ratio.

Question 6

Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things being equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?
A)A smaller fixed asset turnover ratio and a smaller gain on asset disposal.
B)A larger fixed asset turnover ratio and a larger gain on asset disposal.
C)A smaller fixed asset turnover ratio and a larger gain on asset disposal.
D)A larger fixed asset turnover ratio and a smaller gain on asset disposal.

Accepted Answer

The answer of Company A uses an accelerated depreciation method...

Question 7

Your company pays $620,000 for a patent that has 10 years remaining.Each year,your company should:
A)debit amortization expense for $62,000 and credit accumulated depreciation for $62,000.
B)debit intangible assets and credit accumulated amortization for an amount equal to 20% of book value.
C)debit amortization expense for $62,000 and credit patent for $62,000.
D)report no amortization expense because patents are not subject to amortization.

Accepted Answer

Patents are subject to amortization and the straight-line method should be used. Therefore, each year the company should debit amortization expense for $62,000 (total cost/remaining useful life) and credit patent for $62,000. This will reduce the carrying value of the patent on the balance sheet and recognize the expense over the remaining useful life of the asset.

Question 8

Assume that,prior to preparing adjusting entries at the end of the year,Caterpillar Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of $500,000,000.Which of the following year-end adjustments would cause Caterpillar's fixed asset turnover ratio to increase?
A)Caterpillar accrues and capitalizes $50,000 for self-constructed assets.
B)Caterpillar accrues a liability for ordinary repair costs in the amount of $50,000.
C)Caterpillar writes down an impaired piece of equipment by $50,000.
D)Caterpillar increases the sales returns & allowances by $50,000.

Accepted Answer

The answer of Assume that,prior to preparing adjusting entries at...

Question 9

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Other things being equal,which of the following is true?
A)Company A will have higher net income in the early years,but Company B will have higher net income towards the end of the asset's useful life.
B)Company A will consistently have the larger net income until residual value is reached.
C)Company B will have higher net income in the early years,but Company A will have higher net income towards the end of the asset's useful life.
D)Company B will consistently have the larger net income until residual value is reached.

Accepted Answer

With the accelerated depreciation method used by Company A, the depreciation expense is higher in the early years and decreases over time, leading to higher net income in the early years. On the other hand, with the straight-line method used by Company B, the depreciation expense is the same each year, leading to higher net income in the later years when compared to Company A. Therefore, option C is correct.

Question 10

In recording the acquisition cost of an entire business:
A)goodwill is recorded as the excess of cost over the fair value of identifiable net assets.
B)assets are recorded at the seller's book values.
C)goodwill,if it exists,is never recorded.
D)goodwill is recorded as the excess of cost over the book value of identifiable net assets.

Accepted Answer

Goodwill is recorded as the excess of cost over the fair value of identifiable net assets. This means that if the cost of acquiring the business is higher than the fair value of the identifiable assets of the business, the excess is recorded as goodwill. This recognizes that the business has value beyond its physical assets, such as customer relationships, brand recognition, and other intangible assets.

Question 11

Which of the following statements is true?
A)Depreciation allocates the cost of tangible assets over their useful lives.
B)Depreciation allocates the cost of intangible assets over their useful lives.
C)Amortization allocates the cost of tangible assets over their useful lives.
D)The term "depreciation" relates to all long-lived assets whereas "amortization" relates only to intangible assets.

Accepted Answer

Depreciation is the method used to allocate the cost of tangible assets over their useful lives. Amortization, on the other hand, is the method used to allocate the cost of intangible assets over their useful lives. Therefore, options B, C, and D are incorrect.

Question 12

Once the depreciation expense for a long-lived asset is calculated:
A)it cannot be changed because of the cost principle.
B)it may be revised based on new information.
C)any changes are not recognized until the date the asset is sold.
D)it cannot be changed due to the consistency principle.

Accepted Answer

The depreciation expense may be revised based on new information such as changes in estimated useful life or salvage value. This is known as a change in accounting estimate which is allowed under accounting principles.

Question 13

When estimated useful life of an asset is revised:
A)depreciation will continue at the current rate.
B)depreciation expense reported in previous years would be changed retroactively.
C)the depreciation expense in subsequent years will be changed but previous calculations will not be changed.
D)generally accepted accounting principles have been violated.

Accepted Answer

When estimated useful life of an asset is revised, the depreciation expense in subsequent years will be changed but previous calculations will not be changed. This is because the change in estimated useful life represents a change in estimate, not an error correction, and therefore only affects future periods. It does not affect the historical financial statements that have already been reported.

Question 14

Goodwill:
A)should be treated like most other intangible assets and amortized over a useful life of not more than 40 years.
B)is an accounting measurement of how well a company's employees behave towards the company's customers.
C)should be recorded as a negative value if a company is purchased for less than the net carrying value of its assets.
D)is recorded when the purchasers of a business pay more than the fair value of the assets purchased.

Accepted Answer

Goodwill is recorded when the purchasers of a business pay more than the fair value of the assets purchased. It represents the excess value paid for the business beyond its tangible assets and is considered an intangible asset on the balance sheet. Goodwill is not amortized, but instead, tested for impairment annually. Option A is incorrect as goodwill is not amortized over a limited time period. Option B is incorrect as goodwill has nothing to do with the behavior of a company's employees towards its customers. Option C is incorrect as goodwill is not recorded as a negative value.

Question 15

A declining fixed asset turnover ratio suggests that a:
A)company is not as efficient in using its fixed assets as it was in previous periods.
B)company's net sales must be increasing.
C)company must have purchased some intangible assets.
D)company's beginning fixed asset balance must be greater than its ending fixed asset balance.

Accepted Answer

A declining fixed asset turnover ratio means that a company is generating less revenue from its fixed assets, indicating that it is not using them as efficiently as before. The other options do not necessarily have a direct impact on the fixed asset turnover ratio.

Question 16

Your company has net sales revenue of $36 million during the year.At the beginning of the year,fixed assets are $8 million.At the end of the year,fixed assets are $10 million.What is the fixed asset turnover ratio?
A)4.5
B)4.0
C)2.0
D)3.6

Accepted Answer

The answer of Your company has net sales revenue of...

Question 17

If net sales revenue and the average book value of fixed assets both rise 5%:
A)the fixed asset turnover ratio will rise.
B)the fixed asset turnover ratio will fall.
C)the fixed asset turnover ratio will stay the same.
D)the impact on the fixed asset turnover ratio cannot be determined since the beginning values are unknown.

Accepted Answer

The answer of If net sales revenue and the average...

Question 18

The fixed asset turnover ratio measures the:
A)useful life of long-lived assets.
B)the average difference between book value and disposal value of fixed assets.
C)useful life of intangible assets.
D)efficiency with which the investment in fixed assets produces revenue.

Accepted Answer

The fixed asset turnover ratio measures how efficiently a company uses its investment in fixed assets to generate revenue. It is calculated by dividing sales by the net fixed assets (i.e. total fixed assets minus accumulated depreciation). A high fixed asset turnover ratio indicates that the company is generating a lot of revenue with its investment in fixed assets, while a low ratio suggests that the company may be holding onto excess or unproductive assets. Therefore, option D is the correct option.

Question 19

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Which of the following statements is true?
A)Company A will have higher depreciation expense in the early years,but Company B will have the higher expense towards the end of the asset's useful life.
B)Company A will consistently have higher depreciation expense until residual value is reached.
C)Company B will have higher depreciation expense in the early years,but Company A will have the higher expense towards the end of the asset's useful life.
D)Company B will consistently have higher depreciation expense until residual value is reached.

Accepted Answer

Accelerated depreciation methods (such as double-declining balance or sum-of-the-years'-digits) allocate a greater proportion of the asset's depreciable cost to the earlier years of its useful life. As a result, Company A will have higher depreciation expense in the early years compared to Company B, which uses the straight-line method (allocates an equal amount of the asset's depreciable cost to each year of its useful life). However, towards the end of the asset's useful life, Company B will have a higher expense since there is less depreciable cost left to allocate. Therefore, option A is the correct choice.

Question 20

On January 1,2014,Horton Inc.sells a machine for $23,000.The machine was originally purchased on January 1,2012 for $40,000.The machine was estimated to have a useful life of 5 years and a salvage value of $0.Horton uses straight-line depreciation.In recording this transaction:
A)a loss of $1,000 would be recorded.
B)a gain of $1,000 would be recorded.
C)a loss of $17,000 would be recorded.
D)a gain of $23,000 would be recordeD.

Accepted Answer

The answer of On January 1,2014,Horton Inc.sells a machine for...

Quiz 9: Long-Lived Tangible and Intangible Assets

The net amount shown on a balance sheet for an intangible asset with an unlimited life should be:

Assuming two companies use the same accounting methods,other things being equal,the company with a higher fixed asset turnover ratio:

A machine had an estimated useful life of 5 years,but after 3 years,it was decided that the original estimate of useful life should have been 10 years.At that point,the remaining cost to be depreciated should be allocated over the remaining:

The company has net sales revenue of $3.6 million during 2014.The company's records also included the following information: What is the company's fixed asset turnover ratio for 2014?

If net sales revenue rises 5% while the average book value of fixed assets falls 5%:

Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things being equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?

Your company pays $620,000 for a patent that has 10 years remaining.Each year,your company should:

Assume that,prior to preparing adjusting entries at the end of the year,Caterpillar Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of $500,000,000.Which of the following year-end adjustments would cause Caterpillar's fixed asset turnover ratio to increase?

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Other things being equal,which of the following is true?

In recording the acquisition cost of an entire business:

Which of the following statements is true?

Once the depreciation expense for a long-lived asset is calculated:

When estimated useful life of an asset is revised:

Goodwill:

A declining fixed asset turnover ratio suggests that a:

Your company has net sales revenue of $36 million during the year.At the beginning of the year,fixed assets are $8 million.At the end of the year,fixed assets are $10 million.What is the fixed asset turnover ratio?

If net sales revenue and the average book value of fixed assets both rise 5%:

The fixed asset turnover ratio measures the:

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Which of the following statements is true?

On January 1,2014,Horton Inc.sells a machine for $23,000.The machine was originally purchased on January 1,2012 for $40,000.The machine was estimated to have a useful life of 5 years and a salvage value of $0.Horton uses straight-line depreciation.In recording this transaction: