Question 1

All of the following statements are true except:

Accepted Answer

IFRS does not require all research and development costs to be expensed. Under IFRS, development costs can be capitalized if certain criteria are met, unlike research costs which are expensed.

Question 2

The income statement of Hope Market, Inc.reported a gain from the sale of land.How are the cash flow effects of this transaction reported on the statement of cash flows if the direct method is used to prepare the Operating Activities category?

Accepted Answer

The proceeds from the sale of land are considered an investing activity because it involves the sale of a long-term asset. The operating activities section under the direct method includes only cash transactions related to revenue and expense items that affect net income.

Question 3

Use the information presented below for Chambersburg Corp.for 2017 and 2016 to answer the questions that follow.Chambersburg uses the straight-line depreciation method. $\begin{array}{lrr}
&\mathbf{2 0 1 7} & \mathbf{2 0 1 6} \
\text { Property, plant, and equipment }&\$ 250,000 & \$ 190,000 \
\text {Accumulated depreciation }&100,000 & 85,000 \
\text { Depreciation expense }&62,500 & 47,500 \
\text { Net sales }&1,000,000 & 900,000 \
\text { Average Total assets }&625,000 & 475,000\
\end{array}$ ​
-Refer to the information for Chambersburg Corp. ?
Using the 2017 data, what is the average age of Chambersburg's property, plant, and equipment?

Accepted Answer

The average age of property, plant, and equipment is calculated by dividing the accumulated depreciation by the depreciation expense. For 2017, the average age is 100,000 / 62,500 = 1.60 years.

Question 4

Use the information presented below for Chambersburg Corp.for 2017 and 2016 to answer the questions that follow.Chambersburg uses the straight-line depreciation method. $\begin{array}{lrr}
&\mathbf{2 0 1 7} & \mathbf{2 0 1 6} \
\text { Property, plant, and equipment }&\$ 250,000 & \$ 190,000 \
\text {Accumulated depreciation }&100,000 & 85,000 \
\text { Depreciation expense }&62,500 & 47,500 \
\text { Net sales }&1,000,000 & 900,000 \
\text { Average Total assets }&625,000 & 475,000\
\end{array}$ ​
-Refer to the information for Chambersburg Corp. ?
What is the asset turnover ratio for Chambersburg for 2017?

Accepted Answer

The asset turnover ratio is calculated as Net Sales / Average Total Assets. For 2017, it is $1,000,000 / $625,000 = 1.60 times.

Question 5

Mayflower Company had a machine with a cost of $123,000 and accumulated depreciation of $87,000 that was sold at for a gain of $5,000.What amount of cash was received from the sale?

Accepted Answer

The company sold the machine for a gain of $5,000. The cost of the machine was $123,000 and the accumulated depreciation was $87,000. Therefore, the book value of the machine was $36,000 ($123,000 - $87,000 = $36,000). 
Since the company sold the machine for a gain, the selling price must be higher than the book value. 
Selling price - book value = gain 
Selling price - $36,000 = $5,000 
Selling price = $41,000 
Therefore, the amount of cash received from the sale is $41,000. 
The correct choice is C.

Question 6

Waxman Company purchased a patent for $170,000 at the beginning of 2016, and estimated that its expected useful life was 10 years.The patent has a legal life of 17 years.What amount should be recorded as amortization expense for the patent in 2016?

Accepted Answer

The answer of Waxman Company purchased a patent for $170,000...

Question 7

Use the information presented below for Chambersburg Corp.for 2017 and 2016 to answer the questions that follow.Chambersburg uses the straight-line depreciation method. $\begin{array}{lrr}
&\mathbf{2 0 1 7} & \mathbf{2 0 1 6} \
\text { Property, plant, and equipment }&\$ 250,000 & \$ 190,000 \
\text {Accumulated depreciation }&100,000 & 85,000 \
\text { Depreciation expense }&62,500 & 47,500 \
\text { Net sales }&1,000,000 & 900,000 \
\text { Average Total assets }&625,000 & 475,000\
\end{array}$ ​
-Refer to the information for Chambersburg Corp. ?
Using the 2017 data, what is the average life of Chambersburg's property, plant, and equipment (rounded to one decimal place)?

Accepted Answer

The average life of property, plant, and equipment is calculated by dividing the cost of the asset by the annual depreciation expense. In this case, the cost of the asset is $250,000 and the annual depreciation expense is $62,500. Therefore, the average life of the asset is $250,000 / $62,500 = 4.0 years.

Question 8

Ramirez Stores purchased a trademark at the beginning of 2016 for $340,000.Economic benefits were expected for 10 years, but the trademark's legal life was 20 years.Also, during 2016, Ramirez incurred research and development costs of $200,000.The book value of the trademarks at December 31, 2016, is

Accepted Answer

The book value of the trademark at December 31, 2016, would be $306,000. This is calculated by taking the initial cost of the trademark ($340,000) and subtracting one year's worth of amortization. Since the economic benefits are expected for 10 years, the annual amortization expense is $34,000 ($340,000 / 10 years). Thus, $340,000 - $34,000 = $306,000. Research and development costs are expensed as incurred and do not affect the book value of the trademark.

Question 9

Use the information presented below for Chambersburg Corp.for 2017 and 2016 to answer the questions that follow.Chambersburg uses the straight-line depreciation method. $\begin{array}{lrr}
&\mathbf{2 0 1 7} & \mathbf{2 0 1 6} \
\text { Property, plant, and equipment }&\$ 250,000 & \$ 190,000 \
\text {Accumulated depreciation }&100,000 & 85,000 \
\text { Depreciation expense }&62,500 & 47,500 \
\text { Net sales }&1,000,000 & 900,000 \
\text { Average Total assets }&625,000 & 475,000\
\end{array}$ ​
-Refer to the information for Chambersburg Corp. ?
Between 2016 and 2017, Chambersburg sold some equipment that had an original cost of $57,500.Which statement is most likely true concerning transactions that must have occurred during the period?

Accepted Answer

To determine that Chambersburg purchased additional equipment, we can analyze the changes in property, plant, and equipment (PPE) and accumulated depreciation. The PPE increased from $190,000 in 2016 to $250,000 in 2017, an increase of $60,000. However, they also sold equipment with an original cost of $57,500. If they had only sold equipment and not purchased any, the PPE would have decreased. The fact that PPE increased indicates that they must have purchased more equipment than they sold. Additionally, the depreciation expense increased by $15,000 ($62,500 in 2017 minus $47,500 in 2016), which also suggests new equipment was added because it contributed to the higher depreciation expense.

Question 10

The accounting life of intangible assets is determined by

Accepted Answer

The answer of The accounting life of intangible assets is...

Question 11

Select where the following accounts would be reported on Coca-Cola's financial statements.(Select all that apply.)
-Depreciation expense a. Balance Sheet-Property, Plant, and Equipment
b. Balance Sheet-Intangible Assets
c. Balance Sheet-Current Assets
d. Balance Sheet-Other Assets
e. Income Statement-Operating Section
f. Income Statement-Other Revenue and Expense Section
g. Statement of Cash Flows

Accepted Answer

The answer of Select where the following accounts would be...

Question 12

How are the cash flow effects from the purchase and sale of intangible assets reported on a statement of cash flows?

Accepted Answer

The purchase and sale of intangible assets are reported as investing activities on the statement of cash flows. This is because they are considered to be long-term investments for the business.

Question 13

At the end of 2016, Mirror Productions determined that one of its copyrights was worthless.The copyright had a cost of $320,000.The copyright had been amortized for 8 years of its estimated 25-year legal life.Which of the following statements is the justification for removing the remaining cost of the copyright from the accounting records?

Accepted Answer

The justification for removing the remaining cost of the copyright from the accounting records is that it no longer represents a future benefit to the company. Once it has been determined that the copyright is worthless, it cannot generate any future cash flows, so it should be written off. Options B, C, and D do not apply to the situation.

Question 14

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should

Accepted Answer

Goodwill and other intangible assets with an indefinite life should not be amortized according to current accounting standards. Instead, they should be tested for impairment annually or whenever there is an indication of potential impairment.

Question 15

Which of the following items is added to net income to determine cash flows from operating activities when the indirect method is used to prepare the Operating Activities category of the statement of cash flows?

Accepted Answer

Depreciation expense is added back to net income because it is a non-cash expense that reduces net income but does not affect cash flows from operating activities. Choices A, B, and C are not added to net income in the preparation of cash flows from operating activities using the indirect method.

Question 16

Why is depreciation added to net income in the Operating Activities category of the statement of cash flows when the indirect method is used?

Accepted Answer

Depreciation is a non-cash expense which is deducted from net income to arrive at the operating cash flows using the indirect method. As it did not require the use of cash, it must be added back to net income to adjust for the non-cash expense.

Question 17

A machine with a cost of $100,000 and accumulated depreciation of $80,000 was sold at a loss of $6,000.What amount of cash was received from the sale?

Accepted Answer

The answer of A machine with a cost of $100,000...

Question 18

Given the following list of methods of depreciation, select the method that is best for the situation or purpose given.(Select all that apply.)This method is used in situations where technological advances are rapid.

Accepted Answer

The answer of Given the following list of methods of...

Question 19

At the end of 2016, Clock Products, Inc.determined that one of its patents was worthless.The patent had a cost of $300,000.The patent had been amortized for 5 years of its estimated 15-year legal life.Which of the following statements is correct?

Accepted Answer

Since the patent has been determined to be worthless, the remaining unamortized cost should be removed from the accounting records and treated as a loss on the income statement. Option A and B are incorrect because the patent is worthless and has no remaining legal life. Option D is incorrect because there is no reason to correct the financial statements for the past five years as the patent had been properly amortized during that time.

Question 20

If a company's asset turnover ratio decreased from 2016 to 2017, which of the following conclusions can be made?

Accepted Answer

A decrease in the asset turnover ratio indicates that the company was less efficient in using its assets to generate sales revenue in 2017 compared to 2016. This means that the company produced fewer sales in 2017 for each dollar invested in assets. The other answer choices are not supported by the information given.

Quiz 8: Operating Assets: Property, Plant and Equipment, and Intangibles