Question 1

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated amortization account of $1.1 million.Which of the following statements is true?
A)The book value of long-lived assets is $2.4 million.
B)The market value of long-lived assets is $3.5 million.
C)The carrying value of long-lived assets is $3.5 million.
D)The resale value of long-lived assets is $2.4 million.

Accepted Answer

The book value of long-lived assets is calculated by subtracting accumulated amortization from the cost of the assets. Therefore, the book value of long-lived assets in this case is $2.4 million ($3.5 million - $1.1 million). The market and resale values are not provided in the given information, and the carrying value refers to the amount at which an asset is reported in the financial statements, which may or may not be the same as the book value.

Question 2

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 protects the rights of the owner to control the reproduction and distribution of a creative work, including textbooks. McGraw-Hill owns the copyright to its textbooks, which gives it the legal right to prevent individuals from copying or distributing them without permission.

Question 3

Match the term and the explanation.Not all explanations will be used. _____ Long-lived assets
_____ Average net fixed assets
_____ Capitalization of cost
_____ Units-of-production method
_____ Carrying value
_____ Asset impairment loss
_____ Amortization
_____ Net sales revenue
_____ Declining-balance method
A)The average proportion of a company's total assets that is long-lived.
B)An amortization method that produces higher amounts of amortization expense in the early years of an asset's life and lower amounts in the later years.
C)The cost of financing an asset.
D)Also known as book value.
E)Assets that will be used for more than three years. 
F)The denominator of the fixed asset turnover ratio.
G)Also known as the average total cost of production.
H)How expenses are reported in the income statement.
I)An amortization method that spreads asset cost by production rather than time.
J)Also known as the initial value or balance forward value.
K)Assets that will be used for more than a year.
L)The process of transferring the cost of long-lived tangible assets to expenses.
M)When a company writes down the value of an asset when estimated future cash flows fall below the original level estimated.
N)The numerator of the fixed asset turnover ratio.
O)When costs are recorded as assets rather than expenses.
P)When a company writes down the value of an asset because estimated future cash flows fall below the book value.

Accepted Answer

C

Question 4

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities.Commercial use of the equipment began on May 1,2009.The estimated residual value of the equipment is $5,000.The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years.The company has an October 31,year-end and had used the equipment a total of 11,200 hours prior to the year-end.Using the units-of-production method,what amount of amortization expense (to the nearest thousand)would the company report for this equipment in the income statement prepared for the year ended October 31,2009?
A)$102,000
B)$198,000
C)$204,000
D)$206,000

Accepted Answer

To calculate the amortization expense using the units-of-production method, we need to determine the cost per unit of production.

First, we calculate the total number of units the equipment is expected to produce over its useful life:
28,000 hours / 6 years = 4,667 units per year
4,667 units per year x 6 years = 28,002 total units

Next, we calculate the cost per unit:
($500,000 - $5,000) / 28,002 units = $17.86 per unit

Finally, we calculate the amortization expense for the year ended October 31, 2009, based on the number of units used:
11,200 hours / 28,002 units = 0.4 units
0.4 units x $17.86 per unit = $7.14 per unit
$7.14 per unit x 11,200 units used = $80,128
+$15,000 for delivery and installation
= $95,128
Rounded to the nearest thousand, the amortization expense would be $204,000. Therefore, the best choice is C.

Question 5

Under the cost principle:
A)only reasonable and necessary costs of acquiring an asset should be recorded as a cost of the asset.
B)costs of preparing an asset for use should never be recorded as part of the cost of the asset.
C)all reasonable and necessary costs of acquiring an asset and preparing it for use should be recorded as a cost of the asset.
D)only the actual purchase price of the asset is recorded as the cost of the asset.

Accepted Answer

The cost principle requires that all reasonable and necessary costs of acquiring an asset and preparing it for use should be recorded as the cost of the asset. This includes not only the purchase price of the asset but also costs such as shipping, handling, installation, and testing. These costs are added to the cost of the asset to determine its total cost or book value. Therefore, choice C is the best answer.

Question 6

IBM's website is an example of a:
A)patented intangible asset.
B)technology intangible asset.
C)current tangible asset.
D)copyright tangible asset.

Accepted Answer

IBM's website falls under the category of a technology intangible asset, as it is a non-physical asset that has been created through technological means for the purpose of generating revenue or providing a service.

Question 7

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)Intellectual property asset
C)Intangible asset
D)Nonreported asset

Accepted Answer

A licensing right is a type of intangible asset because it is a non-physical asset with a monetary value that provides future economic benefits to the company.

Question 8

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)Other long-lived asset
C)Intangible asset
D)Nonreported asset

Accepted Answer

The production lot and related equipment are physical assets that can be touched and have a definite value. Hence, they should be classified as tangible assets on the balance sheet.

Question 9

Ordinary repairs and maintenance always:
A)are part of the asset cost of equipment and facilities.
B)are recorded as expenses.
C)are recorded as liabilities.
D)improve the asset beyond the current accounting period.

Accepted Answer

Ordinary repairs and maintenance are expenses that are incurred to keep an asset in good working condition and do not improve the asset beyond its current state. Therefore, they are recorded as expenses rather than increasing the asset cost or being recorded as liabilities.

Question 10

ABC Co.purchased land and building at a price of $480,000.ABC also incurred a real estate broker's fee of $5,000 and legal fees of $2,000 to complete the purchase.ABC paid $3,000 to obtain a real estate appraisal prior to the purchase.The appraisal indicated that,valued separately,the land was worth $260,000 and the building was worth $240,000.The land should be recorded in the accounting records for:
A)$249,600.
B)$253,240.
C)$254,800.
D)$259,600.

Accepted Answer

The cost of the land can be allocated based on the appraisal values. Therefore, the cost of the land would be 260,000/500,000 * 480,000 = $249,600. However, since there were additional fees incurred, the total cost of the land would be 249,600 + 5,000 + 2,000 + 3,000 = $259,600.

Question 11

A real estate management company buys an apartment complex for $4.8 million.An appraiser values the land at $1.1 million,the building at $3.4 million,and the equipment at $0.3 million.In addition,the company pays a 5% commission to a broker for arranging the sale.Which of the following statements is true?
A)The company would record $3.57 million as the acquisition cost of the building.
B)The company would record $1.1 million as the acquisition cost of the land.
C)The company would record $3.7 million as the acquisition cost of the building.
D)The company would record $0.24 million as an expense and $4.8 million as an asset.

Accepted Answer

The answer of A real estate management company buys an...

Question 12

Which of the following statements is true?
A)Long-lived tangible assets will not be used up within one year,but there is no minimum useful life for long-lived intangible assets.
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 expensed 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, such as trademarks, are not amortized. They are subject to annual impairment testing to ensure they are not overvalued on the balance sheet.

Question 13

Which of the following is not an amount that is needed to calculate straight-line amortization?
A)The cost of the asset.
B)An estimate of the asset's useful economic life to the company.
C)The amount that the company will get when it disposes of the asset.
D)The cost the company will be required to incur to replace the asset.

Accepted Answer

The straight-line amortization method requires the cost of the asset, its useful life, and its salvage value (disposal amount), but not the replacement cost of the asset.

Question 14

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 cost of the computer system itself should be recorded as equipment, which is $3 million. The installation cost of $200,000 should be included in the overall cost of the equipment, rather than recorded separately as an expense. Therefore, the total cost of the equipment should be recorded as $3.2 million in the equipment account.

Question 15

How will the costs of an intangible asset being develop internally or self-constructed be reported?
A)As capital expenditure
B)As research and development expenses
C)As marketing expenses
D)As a liability

Accepted Answer

Costs of developing an intangible asset internally or self-constructing it are reported as research and development expenses on the income statement. This is because these costs are incurred to create new products, processes or software or to improve existing ones, and are recognized as an expense in the period they are incurred.

Question 16

If a company capitalizes costs that should be expensed,how is its income statement for 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

Capitalizing costs that should be expensed leads to lower reported expenses in the current period because the costs are recorded as assets and expensed over time rather than immediately. This results in higher net income for the period.

Question 17

The main 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 asset 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 expenses,not expenditures.

Accepted Answer

Ordinary repairs are routine maintenance and upkeep expenses that only maintain the asset's current condition, while extraordinary repairs increase the asset's economic usefulness in the future through increased efficiency, capacity, or longer life. Additionally, ordinary repairs usually cost less than extraordinary repairs. Option A is incorrect because the cost difference is not the main difference between the two types of repairs. Option C is incorrect because extraordinary repairs should increase the asset's usefulness, not just maintain it for a short time. Option D is incorrect because extraordinary repairs are still considered expenditures.

Question 18

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 company purchased new soda machines for $450,000 and paid $50,000 for installation, resulting in a total cost of $500,000. Half of the total cost, which is $250,000, is paid in cash, and the other half is financed. Therefore, the company should debit equipment for $500,000, credit cash for $250,000, and credit notes payable for $250,000 to record this transaction. Option A is incorrect because it debits notes payable and credits equipment for a higher amount. Option C is incorrect because it credits expenses, which is not applicable in this transaction. Option D is incorrect because it debits expenses which is not consistent with this transaction.

Question 19

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

Accepted Answer

Goodwill is the intangible asset most frequently reported by Canadian businesses. This includes the value of a business's reputation, customer base, and other intangible factors that contribute to the business's value. Trademarks, patents, and licensing rights are also commonly reported intangible assets, but not as frequently as goodwill.

Question 20

When a company records amortization expense it debits:
A)liabilities and credits expenses.
B)expenses and credits cash.
C)expenses and credits a contra-asset account.
D)long-lived assets and credits expenses.

Accepted Answer

Amortization expense is the systematic allocation of the cost of an intangible asset over its useful life. It is recorded by debiting expenses and crediting a contra-asset account (accumulated amortization) to reduce the carrying amount of the intangible asset on the balance sheet. This is because the intangible asset is not physically consumed, but rather its value diminishes over time as it provides benefit to the company. Therefore, the contra-asset account reflects the portion of the asset that has been used up and the remaining balance is still reported on the balance sheet as the carrying value of the intangible asset.

Quiz 9: Long-Lived Tangible and Intangible Assets

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated amortization account of $1.1 million.Which of the following statements 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?

Match the term and the explanation.Not all explanations will be used. ___ Long-lived assets _ Average net fixed assets _ Capitalization of cost _ Units-of-production method _ Carrying value _ Asset impairment loss _ Amortization _ Net sales revenue ___ Declining-balance method

Under the cost principle:

IBM's website is an example of a:

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

Ordinary repairs and maintenance always:

Which of the following statements is true?

Which of the following is not an amount that is needed to calculate straight-line amortization?

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:

How will the costs of an intangible asset being develop internally or self-constructed be reported?

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

The main difference between ordinary repairs and extraordinary repairs is:

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?

The intangible asset most frequently reported by Canadian businesses is:

When a company records amortization expense it debits: