Question 1

Berry Co.purchases a patent on January 1,2018,for $40,000 and the patent has an expected useful life of five years with no residual value.Assuming Berry Co.uses the straight-line method,what is the amortization expense for the year ended December 31,2019?

Accepted Answer

Using the straight-line method, the annual amortization expense is calculated as follows:

Total cost of the patent = $40,000 
Useful life of the patent = 5 years

Therefore, the annual amortization expense is:

$40,000/5 years = $8,000 per year

For the year ended December 31, 2019, the patent was owned for 2 years (2018 and 2019). Therefore, the amortization expense for the year ended December 31, 2019, would be:

$8,000/year x 2 years = $16,000

Therefore, the answer is B) $8,000.

Question 2

Bricktown Exchange purchases a copyright for $50,000.The copyright has a remaining legal life of 25 years,but only an expected useful life of five years with no residual value.Assuming the company uses the straight-line method,what is the carrying value at the end of the first year?

Accepted Answer

Using the straight-line method, we can calculate the annual depreciation as follows:
Annual Depreciation = (Cost - Residual Value) / Useful Life
Annual Depreciation = ($50,000 - $0) / 5 years = $10,000 per year
Therefore, the carrying value at the end of the first year can be calculated as:
Carrying Value = Cost - Accumulated Depreciation
Carrying Value = $50,000 - $10,000 = $40,000
Therefore, the correct answer is D.

Question 3

The balance sheet of Purdy's BBQ reports total assets of $800,000 and $900,000 at the beginning and end of the year,respectively.Net income and sales for the year are $85,000 and $1,700,000,respectively.What is Purdy's profit margin?

Accepted Answer

Profit margin is calculated as (Net Income / Sales) * 100. For Purdy's BBQ, it is ($85,000 / $1,700,000) * 100 = 5%.

Question 4

The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year,respectively.Net income and sales for the year are $240,000 and $2,000,000,respectively.What is Paradise Pizza's profit margin?

Accepted Answer

Profit margin is calculated as (Net Income / Sales) * 100. For Paradise Pizza, it is ($240,000 / $2,000,000) * 100 = 12%.

Question 5

The balance sheet of Purdy's BBQ reports total assets of $800,000 and $900,000 at the beginning and end of the year,respectively.Net income and sales for the year are $85,000 and $1,700,000,respectively.What is Purdy's return on assets?

Accepted Answer

Return on Assets (ROA) is calculated as Net Income divided by Average Total Assets. Average Total Assets = ($800,000 + $900,000) / 2 = $850,000. ROA = $85,000 / $850,000 = 0.1 or 10%.

Question 6

The balance sheet of Purdy's BBQ reports total assets of $800,000 and $900,000 at the beginning and end of the year,respectively.Net income and sales for the year are $85,000 and $1,700,000,respectively.What is Purdy's asset turnover?

Accepted Answer

Asset turnover is calculated as sales divided by average total assets. The average total assets are ($800,000 + $900,000) / 2 = $850,000. Therefore, asset turnover is $1,700,000 / $850,000 = 2.0 times.

Question 7

Which of the following intangible assets has an indefinite useful life?

Accepted Answer

Goodwill has an indefinite useful life as long as the business continues to operate and is successful. Patents, copyrights, and franchises have a limited useful life and expire after a certain period of time.

Question 8

Berry Co.purchases a patent on January 1,2018,for $40,000 and the patent has an expected useful life of five years with no residual value.Assuming Berry Co.uses the straight-line method,what is the carrying value of the patent on December 31,2019?

Accepted Answer

The straight-line depreciation method means that the cost of the patent will be depreciated evenly over its expected useful life of 5 years.
Depreciation per year = (Cost - Residual Value) / Useful Life = ($40,000 - $0) / 5 = $8,000 per year
To find the carrying value of the patent on December 31, 2019, we need to calculate the accumulated depreciation from January 1, 2018, to December 31, 2019, which is 2 years.
Accumulated depreciation = Depreciation per year x Number of years = $8,000 x 2 = $16,000
Carrying value = Cost - Accumulated depreciation = $40,000 - $16,000 = $24,000. Therefore, the answer is option C.

Question 9

The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year,respectively.Net income and sales for the year are $240,000 and $2,000,000,respectively.What is Paradise Pizza's return on assets?

Accepted Answer

Return on assets (ROA) is calculated as Net Income divided by Average Total Assets. Average Total Assets = ($1,500,000 + $1,700,000) / 2 = $1,600,000. ROA = $240,000 / $1,600,000 = 0.15 or 15%.

Question 10

Which of the following amortization methods is most commonly used?

Accepted Answer

Straight-line amortization is the most commonly used method as it is simple to calculate and understand. It involves dividing the cost of the asset by its useful life to determine an equal amount of amortization expense each period. The other two options are less commonly used and may only be appropriate for specific types of assets. Double declining balance involves higher amortization expense in the early years of an asset's life and decreases over time. Activity based amortization is based on actual usage or output of the asset and can be complex to calculate.

Question 11

The balance sheet of Purdy's BBQ reports total assets of $800,000 and $900,000 at the beginning and end of the year,respectively.The return on assets for the year is 20%.What is Purdy's net income for the year?

Accepted Answer

Return on assets = (Net income/Total assets) * 100%
20% = (Net income/($800,000 + $900,000)/2) * 100%
20% = (Net income/$850,000) * 100%
Net income = $170,000

Question 12

Which of the following statements is true regarding the amortization of intangible assets?

Accepted Answer

The expected residual value of most intangible assets is zero, therefore they are fully amortized over their useful life. Choice B is incorrect because the service life of an intangible asset may be shorter or longer than its legal life. Choice C is incorrect because intangible assets with a limited useful life are amortized over that useful life.

Question 13

Which of the following intangible assets may or may not be amortized depending on whether it has a finite or an indefinite life?

Accepted Answer

Trademarks can have either a finite or indefinite life. If they have a finite life, they are amortized over their useful life. If they have an indefinite life, they are not amortized but are tested for impairment annually.

Question 14

Return on assets is calculated as:

Accepted Answer

Return on assets is calculated by dividing net income by average total assets. This formula provides a more accurate representation of a company's performance, as it takes into account any changes in assets over the course of a year. Using the ending total assets (option C) would not factor in any fluctuations in assets over the year and could potentially skew the calculation. Using only total assets (option A) would not take into account any changes in assets over the year and would not provide an accurate measurement of the company's performance.

Question 15

Bricktown Exchange purchases a copyright for $50,000.The copyright has a remaining legal life of 25 years,but only an expected useful life of five years with no residual value.Assuming the company uses the straight-line method,what is the carrying value at the end of the second year?

Accepted Answer

Using the straight-line method, the annual depreciation would be ($50,000 - $0) / 5 = $10,000. After the second year, the accumulated depreciation would be $10,000 x 2 = $20,000. Therefore, the carrying value at the end of the second year would be $50,000 - $20,000 = $30,000. Thus, the correct answer is D.

Question 16

Return on assets is equal to:

Accepted Answer

Return on assets (ROA) is calculated by dividing the net income by the total assets. This can also be expressed as profit margin multiplied by asset turnover. Therefore, the best choice is C - profit margin times asset turnover.

Question 17

Bricktown Exchange purchases a copyright for $50,000.The copyright has a remaining legal life of 25 years,but only an expected useful life of five years with no residual value.Assuming the company uses the straight-line method,what is the amortization expense for the first year?

Accepted Answer

The amortization expense is calculated by dividing the cost of the copyright ($50,000) by its expected useful life (5 years), resulting in an annual expense of $10,000.

Question 18

Losses on the sale of long-term assets for cash:

Accepted Answer

Losses on the sale of long-term assets for cash are the excess of the book value over the cash received. They are recorded as a debit to the loss on disposal of the asset account and reduce the carrying amount of the disposed asset. They are not reported on a net-of-tax basis unless they are related to a discontinued operation.

Question 19

The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year,respectively.Net income and sales for the year are $240,000 and $2,000,000,respectively.What is Paradise Pizza's asset turnover?

Accepted Answer

Asset turnover is calculated as Sales divided by Average Total Assets. Average Total Assets = ($1,500,000 + $1,700,000) / 2 = $1,600,000. Asset Turnover = $2,000,000 / $1,600,000 = 1.25 times.

Question 20

Gains on the sale of long-term assets for cash:

Accepted Answer

Gains on the sale of long-term assets for cash are the excess of the cash received over the book value, not the other way around. Therefore, option D is the correct choice.

Quiz 7: Long-Term Assets