Question 1

Operating assets with no physical properties are called

Accepted Answer

Operating assets with no physical properties are intangible assets, which include items such as patents, trademarks, copyrights, and goodwill. Current assets are assets that can be converted to cash within a year, plant assets are physical property assets used for production or administration, and property, plant, and equipment are all physical assets with long-term potential use.

Question 2

All of the following statements are true except:

Accepted Answer

This statement is false. IFRS does require that residual value and asset life be reviewed at least annually and revised if necessary.

Question 3

Yellow Dog Transit sold an old truck on December 31,2013,for $18,400 cash.The following data was available when the truck sold:  When this transaction is recorded,it should include a(n)

Accepted Answer

The answer of Yellow Dog Transit sold an old truck...

Question 4

How should intangible assets be disclosed on the balance sheet?

Accepted Answer

Intangible assets should be disclosed on the balance sheet at their cost net of any accumulated amortization. This reflects the asset's historical cost less any recognized depreciation over time, aligning with accounting principles for asset valuation and presentation.

Question 5

Recently,companies have been ordered by governmental agencies to clean up environmental damages caused by business operations.How should costs incurred in these situations be treated?

Accepted Answer

If a legal obligation exists to clean up environmental damages, the cost of restoring the property must be added to the asset account. This follows the principle of prudence, which requires that all liabilities and losses be recognized as soon as they are probable and can be measured reliably. By recognizing the cost of restoration as a liability on the balance sheet, the company can better reflect its financial position and obligations to stakeholders.

Question 6

Crouch Apartments purchased an apartment building to rent to university students on December 15,2012.The tenants moved in on January 1,2013.On Super Bowl Sunday,a student punched a hole in the wall when his favorite team fumbled the ball.It cost the landlord $400 to repair the hole.How should this cost be recorded?

Accepted Answer

The cost of repairing the hole should be recorded as a repair and maintenance expense, as it is a normal operating expense for the landlord. It is not significant enough to be considered a capital improvement or part of the asset account. Additionally, the fact that the tenant will be charged for the damage does not affect how it should be recorded in the landlord's books.

Question 7

GAAP require that research and development costs to develop a new product be

Accepted Answer

GAAP requires research and development costs to be expensed in the period incurred because these costs are seen as expenses related to future periods which cannot be reliably predicted. Therefore, they are not capitalized as an asset, but rather recorded as an expense in the period incurred.

Question 8

Goodwill can be recorded as an asset when a(n)

Accepted Answer

Goodwill can be recorded as an asset when a business is purchased and payment is made in excess of the value of the net assets. This excess payment represents the value of the business's reputation, customer base, and other intangible assets that are not reflected on the balance sheet.

Question 9

Eagle's Nest sold equipment for $4,000 cash.This resulted in a $1,500 loss.What is the impact of this sale on the working capital?

Accepted Answer

The answer of Eagle's Nest sold equipment for $4,000 cash.This...

Question 10

When a company discards machinery that is fully depreciated,this transaction would be recorded with the following entry

Accepted Answer

The answer of When a company discards machinery that is...

Question 11

Capitalizing an expenditure rather than recording it as a revenue expenditure

Accepted Answer

Capitalizing an expenditure rather than recording it as a revenue expenditure affects the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period. This is because the expenditure is treated as a long-term asset and is depreciated over its useful life, which reduces the amount of net income reported. However, it also increases the book value of plant assets on the balance sheet because it is now included as an asset rather than an expense in the period incurred.

Question 12

On January 1,2013,Petersen Corp.sold a piece of equipment for $3,000 which it had used for several years.The equipment had cost $13,000,and its accumulated depreciation amounted to $9,000 at the time of the sale.What are the net effects on the accounting equation of selling the equipment?

Accepted Answer

The answer of On January 1,2013,Petersen Corp.sold a piece of...

Question 13

Which of the following below is an example of a capital expenditure?

Accepted Answer

A capital expenditure is a long-term investment that increases the value of an asset or extends its useful life. Replacing an engine in a company car is a major expense that improves the value and utility of the asset, making it a capital expenditure. The other choices are considered operating expenses, which are necessary for day-to-day operations but do not have a significant impact on the value or longevity of the asset.

Question 14

On January 2,2013,Hannah Company sold a machine for $1,000 that it had used for several years.The machine cost $12,000,and had accumulated depreciation of $9,000 at the time of sale.What gain or loss will be reported on the income statement for the sale of the machine?

Accepted Answer

To calculate the gain or loss on the sale of the machine, we need to subtract the machine's book value (cost - accumulated depreciation) from the selling price. In this case, the book value is $3,000 ($12,000 cost - $9,000 accumulated depreciation) and the selling price is $1,000, resulting in a loss of $2,000 ($1,000 - $3,000 = -$2,000). Therefore, Choice C is the correct answer.

Question 15

A gain is recognized on the disposal of plant assets when:

Accepted Answer

A gain on disposal of plant assets is recognized when the sales price is greater than the book value of the asset. If the sales price is also greater than the residual value, then a gain will be recognized. Therefore, option B is the correct choice.

Question 16

Research and development costs are

Accepted Answer

Research and development costs are expensed as incurred according to most accounting standards, including International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) in the United States. This treatment reflects the uncertainty of future economic benefits from these expenditures.

Question 17

All of the following are intangible assets except

Accepted Answer

Patents, goodwill, and franchises are all intangible assets because they represent non-physical assets that provide value to a company. Accounts receivable, on the other hand, are considered a current asset and represent money owed to a company for goods or services that have already been provided. They are not intangible assets.

Question 18

Creighton,Inc.determined that it had incorrectly estimated both the useful life and the estimated residual value of equipment which it purchased 2 years ago.When accounting for the change in its accounting estimates,Creighton must

Accepted Answer

When there is a change in accounting estimate, the company should adjust the depreciation expense in the current and future periods. The book value of the equipment should be adjusted to its revised estimated residual value, and the remaining amount should be depreciated over the revised remaining useful life. This approach ensures that the financial statements reflect the most accurate estimate of the equipment's useful life and residual value. Choice A is not necessary as the correction of prior years' financial statements is not required. Choice C is incorrect as adding the amount of the error to the current year's depreciation expense does not reflect the correct depreciation charges for the equipment. Choice D is not applicable as there is no actual loss incurred by the company.

Question 19

Tarkington Beers,Inc.purchased the most popular and well-known pub in a college town.Its purchase price was $1,200,000.The appraisers determined that the land should be valued at $400,000,the building at $500,000 and the equipment at $200,000.Which of the following statements is correct?

Accepted Answer

Tarkington Beers, Inc. should allocate the purchase price of $1,200,000 to the appraised values of the assets (land, building, equipment) totaling $1,100,000. The excess of the purchase price over the fair value of the net assets acquired ($1,200,000 - $1,100,000) is recorded as goodwill, which is $100,000.

Question 20

Lightning Delivery,Inc.purchased a truck on January 1,2013,for $30,000.The truck had an estimated life of 5 years and an estimated residual value of $5,000.Lightning Delivery used the straight-line method to depreciate the asset.On July 1,2015,the truck was sold for $17,000 cash.The journal entry to record the sale of the truck in 2015

Accepted Answer

The answer of Lightning Delivery,Inc.purchased a truck on January 1,2013,for...

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