Question 1

Expenditures for research and development are generally recorded as
A)current operating expenses
B)assets and amortized over their estimated useful life
C)assets and amortized over 40 years
D)current assets

Accepted Answer

Expenditures for research and development are typically recorded as current operating expenses. This is because the future economic benefits of R&D are uncertain, making it difficult to capitalize these costs as assets under most accounting standards.

Question 2

Weber Company purchased a mining site for $1,750,000 on July 1.The company expects to mine ore for the next 10 years and anticipates that a total of 400,000 tons will be recovered.The estimated residual value of the property is $150,000.During the first year,the company extracted 6,500 tons of ore.The depletion expense is
A)$17,500
B)$16,000
C)$26,000
D)$15,000

Accepted Answer

The depletion expense is calculated by first subtracting the estimated residual value from the cost of the mining site to find the depletable base, then dividing by the total estimated recoverable units to find the depletion rate per unit, and finally multiplying by the number of units extracted during the period. Here, ($1,750,000 - $150,000) / 400,000 tons = $4 per ton. For 6,500 tons extracted, the depletion expense is 6,500 tons * $4/ton = $26,000.

Question 3

The name,term,or symbol used to identify a business and its products is called
A)goodwill
B)a patent
C)a trademark
D)a copyright

Accepted Answer

A trademark is a symbol, word, or phrase used to identify a brand or product in the market. It distinguishes the products of one business from those of another and helps consumers identify and build trust in the brand. Goodwill refers to the value of a business's reputation, customer base, and other intangible assets, while a patent and copyright protect inventions and artistic works, respectively.

Question 4

Fixed assets are ordinarily presented on the balance sheet
A)at current market values
B)at replacement costs
C)at cost less accumulated depreciation
D)in a separate section along with intangible assets

Accepted Answer

Fixed assets are typically presented on the balance sheet at cost less accumulated depreciation. This is because the historical cost of the asset is a more reliable and objective measure of its value than its current market value or replacement cost. Additionally, the use of accumulated depreciation allows for the recognition of the reduction in value of the asset over time due to wear and tear, obsolescence, and other factors.

Question 5

The higher the fixed asset turnover,the
A)less efficiently a company is using its fixed assets in generating sales
B)more efficiently a company is using its fixed assets in generating sales
C)more efficiently a company is using its current assets in generating sales
D)more efficiently a company is using its intangible assets in generating sales

Accepted Answer

A higher fixed asset turnover ratio indicates that a company is generating more sales per dollar invested in fixed assets, which means that the company is using its fixed assets more efficiently in generating sales.

Question 6

When a company sells machinery at a price equal to its book value,this transaction would be recorded as a
A)debit to Cash and Accumulated Depreciation and a credit to Machinery
B)debit to Machinery and a credit to Cash and Accumulated Depreciation
C)debit to Cash and Machinery and a credit to Accumulated Depreciation
D)debit to Cash and Depreciation Expense and a credit to Accumulated Depreciation

Accepted Answer

When a company sells machinery at its book value, it means the selling price equals the net book value of the machinery (original cost minus accumulated depreciation). Therefore, the entry involves debiting Cash for the inflow of cash from the sale, debiting Accumulated Depreciation to remove the accumulated depreciation associated with the machinery, and crediting Machinery to remove the machinery's cost from the books. This reflects the disposal of the asset at its book value without realizing a gain or loss.

Question 7

The natural resources of some companies include
A)timber, metal ores, and minerals
B)timber, equipment, and patents
C)minerals, trademarks, and land
D)metal ores, copyrights, and supplies

Accepted Answer

Timber, metal ores, and minerals are all examples of natural resources that companies may possess. Equipment, patents, trademarks, and supplies are not natural resources. Copyrights are also not typically considered natural resources, as they are more related to intellectual property. Land could be considered a natural resource, but it is not included in any of the given answer choices.

Question 8

Which intangible assets are amortized over their useful life?
A)trademarks
B)goodwill
C)patents
D)All of these choices

Accepted Answer

Patents are amortized over their useful life because they have a finite useful life, typically 20 years from the date of application. Trademarks and goodwill are not amortized because they have an indefinite useful life as long as they continue to be used in business.

Question 9

On December 31,Strike Company sold one of its batting cages for $55,000.The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000.Depreciation has been taken up to the end of the year.What is the amount of the gain or loss on this transaction?
A)loss of $55,000
B)loss of $5,000
C)gain of $5,000
D)gain of $55,000

Accepted Answer

The formula for calculating gain/loss on the sale of an asset is:

Sale Price - Book Value

Book value = Initial cost - accumulated depreciation

Book value = $310,000 - $260,000 = $50,000

Sale price - book value = $55,000 - $50,000 = $5,000

Therefore, there is a gain of $5,000 on this transaction.

Question 10

The process of transferring the cost of an asset to an expense account is called all of the following except
A)depletion
B)allocation
C)amortization
D)depreciation

Accepted Answer

The process of transferring the cost of an asset to an expense account is called allocation. Depletion, amortization, and depreciation refer to specific types of allocation depending on the type of asset being expensed.

Question 11

The ratio measuring the number of dollars of sales earned per dollar of fixed assets is the
A)fixed asset turnover ratio
B)days' in assets ratio
C)current asset turnover ratio
D)intangible asset ratio

Accepted Answer

The fixed asset turnover ratio measures how efficiently a company is using its fixed assets to generate sales. This ratio is calculated by dividing the company's sales by its average fixed assets. The higher the ratio, the better, as this indicates that the company is generating more sales per dollar of fixed assets. Therefore, option A, fixed asset turnover ratio, is the best choice. Options B, C, and D measure different aspects of a company's asset management but are not directly related to fixed assets and sales.

Question 12

On December 31,Strike Company sold one of its batting cages for $50,000.The equipment had an original cost of $310,000 and has accumulated depreciation of $260,000.Depreciation has been recorded up to the end of the year.What is the amount of the gain or loss on this transaction?
A)gain of $50,000
B)loss of $50,000
C)no gain or loss
D)cannot be determined

Accepted Answer

The equipment's book value is calculated as its original cost ($310,000) minus accumulated depreciation ($260,000), which equals $50,000. Since the equipment was sold for $50,000, which equals its book value, there is no gain or loss on the transaction.

Question 13

The accumulated depletion account is
A)an expense account
B)an intangible asset account
C)reported on the income statement as other expense
D)reported on the balance sheet as a deduction from the cost of the mineral deposit

Accepted Answer

The accumulated depletion account is a contra-asset account that accumulates the depletion expense of natural resources, such as minerals. It is reported on the balance sheet as a deduction from the cost of the mineral deposit to reflect the decrease in value of the natural resource. Therefore, the correct choice is D.

Question 14

The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called
A)depletion
B)deferral
C)amortization
D)depreciation

Accepted Answer

Depletion is the process of transferring the cost of natural resources such as metal ores and minerals from the balance sheet to an expense account as they are removed from the earth. This is done to more accurately reflect the decrease in the value of these resources over time as they are used up. Deferral, amortization, and depreciation are all methods of accounting for the decline in value of assets over time, but they are not specifically related to natural resources like depletion is.

Question 15

Sands Company purchased mining rights for $500,000.It expects to harvest 1 million tons of ore over the next five years.During the current year,Sands mined 350,000 tons of ore.The entry to record the depletion would include a
A)debit to Depletion Expense for $175,000
B)credit to Depletion Expense for $350,000
C)debit to Accumulated Depletion for $175,000
D)credit to Accumulated Depletion for $350,000

Accepted Answer

Depletion is the systematic allocation of the cost of natural resources over their useful lives. In this case, Sands Company purchased mining rights for $500,000 and expects to harvest 1 million tons of ore over the next five years, indicating a depletion rate of $0.50 per ton of ore ($500,000/1,000,000 tons). During the current year, Sands mined 350,000 tons of ore, so the depletion expense would be $175,000 ($0.50 x 350,000). Therefore, the entry to record the depletion would include a debit to Depletion Expense for $175,000. The other options are incorrect because they either overstate or understate the depletion expense or incorrectly record the depletion in an accumulated depletion account.

Question 16

On December 31,Strike Company sold one of its batting cages for $20,000.The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000.Depreciation has been recorded up to the end of the year.What is the amount of the gain or loss on this transaction?
A)gain of $20,000
B)gain of $30,000
C)loss of $20,000
D)loss of $30,000

Accepted Answer

To calculate the gain or loss on the sale of an asset, we need to subtract the sale price from the asset's book value. The book value of the batting cages would be the initial cost of $310,000 minus the accumulated depreciation of $260,000, which equals $50,000. Therefore, the sale of the batting cages resulted in a loss of $30,000 ($50,000 - $20,000). The correct answer is D, loss of $30,000.

Question 17

The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is
A)amortization
B)depletion
C)depreciation
D)allocation

Accepted Answer

Amortization is the process of transferring the cost of intangible assets over its useful life to expense. This is done to reflect the decline in utility of the asset over time. Choices B, C, and D are applicable to tangible assets.

Question 18

Xtra Company purchased a business from Argus for $96,000 above the fair value of its net assets.Argus had developed the goodwill over 12 years.How much would Xtra amortize the goodwill for its first year?
A)$7,000
B)$8,000
C)Goodwill is not amortized.
D)not enough information to calculate amortization

Accepted Answer

Goodwill is not amortized. According to accounting standards, goodwill is considered to have an indefinite life and is not amortized but is tested annually for impairment.

Question 19

On December 31,Strike Company has decided to discard one of its batting cages.The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000.Depreciation has been recorded up to the end of the year.Which of the following will be included in the entry to record the disposal?
A)Accumulated Depreciation, debit, $310,000
B)Loss on Disposal of Asset, debit, $260,000
C)Equipment, credit, $310,000
D)Gain on Disposal of Asset, credit, $50,000

Accepted Answer

The correct entry to record the disposal includes debiting Accumulated Depreciation for $260,000 to remove it from the books, debiting Loss on Disposal for $50,000 (the difference between the book value of $50,000 and zero proceeds), and crediting Equipment for $310,000 to remove the asset from the books. However, since the question asks which of the provided options will be included, the correct choice is C) Equipment, credit, $310,000, as it directly relates to removing the asset's cost from the books.

Question 20

The accumulated depletion of a natural resource is reported on the
A)balance sheet as depreciation from the cost of the resource
B)income statement as an increase in revenue
C)balance sheet as a deduction from the cost of the resource
D)income statement as a deduction from revenues

Accepted Answer

The accumulated depletion of a natural resource is reported on the balance sheet as a deduction from the cost of the resource. This is because depletion is a reduction in the quantity or quality of a natural resource that occurs as a result of its extraction or use. As such, it is considered a cost of doing business and is deducted from the original cost of the resource on the balance sheet to reflect the reduced value of the asset.

Quiz 10: Long-Term Assets: Fixed and Intangible

Expenditures for research and development are generally recorded as

The name,term,or symbol used to identify a business and its products is called

Fixed assets are ordinarily presented on the balance sheet

The higher the fixed asset turnover,the

When a company sells machinery at a price equal to its book value,this transaction would be recorded as a

The natural resources of some companies include

Which intangible assets are amortized over their useful life?

On December 31,Strike Company sold one of its batting cages for $55,000.The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000.Depreciation has been taken up to the end of the year.What is the amount of the gain or loss on this transaction?

The process of transferring the cost of an asset to an expense account is called all of the following except

The ratio measuring the number of dollars of sales earned per dollar of fixed assets is the

On December 31,Strike Company sold one of its batting cages for $50,000.The equipment had an original cost of $310,000 and has accumulated depreciation of $260,000.Depreciation has been recorded up to the end of the year.What is the amount of the gain or loss on this transaction?

The accumulated depletion account is

The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called

Sands Company purchased mining rights for $500,000.It expects to harvest 1 million tons of ore over the next five years.During the current year,Sands mined 350,000 tons of ore.The entry to record the depletion would include a

On December 31,Strike Company sold one of its batting cages for $20,000.The equipment had an initial cost of $310,000 and has accumulated depreciation of $260,000.Depreciation has been recorded up to the end of the year.What is the amount of the gain or loss on this transaction?

The term applied to the amount of cost to transfer to expense resulting from a decline in the utility of intangible assets is

Xtra Company purchased a business from Argus for $96,000 above the fair value of its net assets.Argus had developed the goodwill over 12 years.How much would Xtra amortize the goodwill for its first year?

The accumulated depletion of a natural resource is reported on the