Question 1

Which of the following is a CORRECT statement about asset impairment?

Accepted Answer

If an asset is impaired, the impairment loss is calculated as the difference between the net book value and the fair value of the asset. This is the correct method for recognizing impairment under accounting standards.

Question 2

What is the impairment test for long-term plant assets?

Accepted Answer

The impairment test for long-term plant assets involves comparing the book value of the asset to its expected future cash flows. If the book value is greater than the expected future cash flows, the asset is impaired and its carrying value should be written down to fair value. Therefore, option C is the correct choice. Options A and B are incorrect because they only consider the comparison between book value and fair value, but not future cash flows. Option D is incorrect because it reverses the comparison and does not address the issue of impairment.

Question 3

1.On June 1,2015,Fox Company purchased Wolf Corporation for $26,000,000 cash.At the time of the purchase,the market value of Wolf Corporation's assets and liabilities were $30,000,000 and $5,000,000,respectively.The book value of Wolf Corporation's assets and liabilities were $10,000,000 and $6,000,000,respectively.Record the journal entry for the acquisition by Fox Company.
2.By December 31,2015,Fox Company discovered that the goodwill associated with Wolf Corporation is impaired and is worthless.Wolf Corporation is on the brink of bankruptcy.Record the journal entry needed by Fox Company.

Accepted Answer

The answer of 1.On June 1,2015,Fox Company purchased Wolf Corporation...

Question 4

Sylvia Company has a long-term plant asset with the following information as of the end of the year:  The amount of the impairment loss is:

Accepted Answer

The answer of Sylvia Company has a long-term plant asset...

Question 5

Calculate Company Y's total asset turnover based on the following information for the current year:

Accepted Answer

The answer of Calculate Company Y's total asset turnover based...

Question 6

When determining the rate of return on assets:

Accepted Answer

The DuPont model calculates the rate of return on assets as the net profit margin ratio times total asset turnover ratio.

Question 7

The disposal of a plant asset will be reported on the statement of cash flows as a financing activity.

Accepted Answer

The disposal of a plant asset will be reported on the statement of cash flows as an investing activity, not a financing activity.

Question 8

The Best Diamond Company purchased mineral rights on a diamond mine in 2014 for a price of $7,000,000.In addition to the purchase price,the Best Diamond Company paid $100,000 for a geological survey and $20,000 for a license fee to the country where the mine is located.It is estimated that there will be no residual value when fully depleted.During the first year of mining,Best Diamond extracted 50,000 carats of diamonds and in 2015,the company extracted 250,000 carats of diamonds.It is estimated that the mine contains 1,000,000 carats of diamonds.Assume the diamonds were not sold after they were extracted.
Required:
Prepare the journal entry without explanations to:
1.Record the purchase of the mineral rights with a note payable.
2.Record depletion for 2014.
3.Record depletion for 2015.

Accepted Answer

The answer of The Best Diamond Company purchased mineral rights...

Question 9

Return on assets measures how profitably management has used its assets.

Accepted Answer

Return on assets (ROA) is a financial ratio that measures how efficiently a company uses its assets to generate profit. It is calculated by dividing net income by total assets. Therefore, it can be said that ROA measures how profitably management has used its assets.

Question 10

The impairment loss on long-term plant assets equals:

Accepted Answer

The impairment loss on long-term plant assets equals book value minus fair value.

Question 11

Samson Company has a machine with the following data:  Is the machine impaired?

Accepted Answer

The answer of Samson Company has a machine with the...

Question 12

Several intangible assets are listed.Match the intangible asset with the correct definition.

Accepted Answer

The answer of Several intangible assets are listed.Match the intangible...

Question 13

New Tech Company acquired a patent on January 1,2015 for $35,000.The residual value of the patent is $0.The patent is expected to be of benefit to New Tech Company for 5 years.After using the patent one year,it was discovered that the patent would only be useful for 3 more years.
Required:
1.Prepare the journal entry to record the acquisition of the patent.Omit explanation.
2.Prepare the adjusting journal entry at December 31,2015.Omit explanation.
3.Prepare the adjusting journal entry at December 31,2016.Omit explanation.

Accepted Answer

The answer of New Tech Company acquired a patent on...

Question 14

Return on assets measures:

Accepted Answer

Return on assets measures how much the entity earned for each dollar of assets invested (A) and return on sales times total asset turnover (B).

Question 15

In 2014,David Company paid $250,000 for an oil field that contains an estimated 20,000 barrels of oil.The oil field has no residual value.5,000 barrels are extracted and sold in 2014 and 6,500 barrels are extracted and sold in 2015.
Required:
Prepare all journal entries.Explanations are not required.

Accepted Answer

The answer of In 2014,David Company paid $250,000 for an...

Question 16

The records of Milwaukee Sprinkler Systems report net sales of $500,000,net income of $150,000 and average total assets of $330,000.Using DuPont analysis,calculate the two ratios used for return on assets.

Accepted Answer

Net profit margin ratio is calculated as Net Income / Net Sales = $150,000 / $500,000 = 30%. Total asset turnover is calculated as Net Sales / Average Total Assets = $500,000 / $330,000 = 1.52.

Question 17

Equipment is acquired by issuing a note payable for $57,000 and a down payment of $30,000.The statement of cash flows will report a:

Accepted Answer

The down payment of $30,000 is a cash outflow in the investing activities section because it represents a payment for the acquisition of equipment. The note payable for $57,000 is a financing activity and does not affect the statement of cash flows.

Question 18

U.S.Generally Accepted Accounting Principles differ from IFRS in the accounting treatment of:

Accepted Answer

U.S. Generally Accepted Accounting Principles differ from IFRS in the accounting treatment of all three options. 
A) R&D costs: Under U.S. GAAP, research costs are expensed when incurred, whereas under IFRS, research costs can be capitalized if certain criteria are met. Development costs can be capitalized under both U.S. GAAP and IFRS, but the criteria for capitalization differ between the two frameworks. 
B) Capitalization of internally generated intangible assets: Under U.S. GAAP, internally generated intangible assets are usually expensed, whereas under IFRS, certain internally generated intangible assets can be capitalized if certain criteria are met. 
C) Reversals of write-downs due to impairment of plant assets: Under U.S. GAAP, write-downs can be reversed only if there is a change in the facts and circumstances that led to the impairment, whereas under IFRS, write-downs can be reversed if there is an increase in the asset's recoverable amount.

Question 19

The impairment test for long-term assets applies to:

Accepted Answer

The impairment test is applicable to tangible long-term assets such as property, plant, and equipment. Long-term liabilities, current assets, and prepaid assets are not subject to impairment testing.

Question 20

If a long-term plant asset is impaired,the owner is required to adjust the carrying value downward to its fair value.

Accepted Answer

This statement is true according to generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). When a long-term plant asset is impaired, the owner must recognize the impairment loss by adjusting the asset's carrying value downward to its fair value. This is done to ensure that the asset is reported at its true economic value and to prevent the overstatement of its value on the company's balance sheet.

Quiz 7: Plant Assets,natural Resources, Intangibles