Question 1

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 an)

Accepted Answer

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Question 2

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

The gain or loss is calculated as the selling price minus the book value of the asset. The book value is the cost minus the accumulated depreciation. In this case, the book value of the machine is $3,000 ($12,000 - $9,000). Therefore, the loss on the sale of the machine is $2,000 ($1,000 - $3,000). So, the correct answer is C: Loss of $2,000.

Question 3

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

Accepted Answer

A gain is recognized on the disposal of plant assets when the sales price is greater than the book value. In this case, the sales price is not only greater than the book value but also greater than the residual value, which means that the company is selling the asset for more than it expected to be able to get for it at the end of its useful life. This results in a gain, which is recognized on the income statement.

Question 4

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, the cost of restoring the property must be added to the asset account. This is because the cost of restoring the property enhances the future economic benefits of the asset, and as such, should be capitalized rather than expensed immediately.

Question 5

Miguel Foods, Inc.purchased a patent at the beginning of 2013 for $350,000.Economic benefits were expected for 7 years, but the patent's legal life was 20 years.Also during 2013, the company incurred research and development costs of $270,000.Patent amortization expense for 2013 is

Accepted Answer

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Question 6

Goodwill can be recorded as an asset when an)

Accepted Answer

Goodwill is an intangible asset that is recorded when a business is purchased and payment is made in excess of the value of the net assets. This excess payment is considered to be the value of the goodwill that the purchased business possesses. Option A is not relevant as profitability does not necessarily lead to goodwill. Option B is also incorrect as recognition alone does not guarantee value. Option C may describe the accurate occurrence of goodwill but D is the primary explanation for when goodwill is recorded as an asset.

Question 7

All of the following statements are true except:

Accepted Answer

IFRS does require that estimates of residual value and the life of the asset be reviewed at least annually and revised if necessary (statement A is true). The FASB standards do not have a specific rule that requires residual value and asset life to be reviewed annually, but they do require companies to periodically review the useful life and salvage value of their depreciable assets to ensure that they are still appropriate (statement B is partially true). The FASB generally requires operating assets to be recorded at acquisition cost, less depreciation, and the assets' values are not changed to reflect their fair market values or selling prices (statement D is true). Therefore, the only statement that is not true is statement C, which incorrectly states that IFRS does not have a specific rule that requires residual value and asset life to be reviewed annually.

Question 8

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

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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

Selling equipment for cash increases current assets (cash) without directly affecting current liabilities, thus increasing working capital. The loss does not impact the calculation of working capital, which is concerned with current assets and liabilities.

Question 10

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 because it was a necessary repair caused by normal wear and tear of the rented property. It should not be recorded as an asset because it does not increase the value of the property. It should also not be assumed that the tenants will pay for the damage, as their responsibility for the cost depends on the terms of their lease agreement. Finally, even though $400 might be considered a small amount, it still represents a real cost for the landlord and should be recorded accordingly.

Question 11

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 12

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

Accepted Answer

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Question 13

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

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Question 14

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

Accepted Answer

A capital expenditure is a long-term investment in fixed assets. Replacing an engine in a company car is a significant investment in a fixed asset that will benefit the company for several years, making it a capital expenditure. The other options, cleaning the carpet, a tune-up, and replacing light bulbs, are operational expenses that are necessary for the day-to-day operations of the business, but do not qualify as capital expenditures.

Question 15

Operating assets with no physical properties are called

Accepted Answer

Intangible assets are assets that have no physical substance but provide value to the company, such as patents, trademarks, and goodwill. Current assets refer to assets that are expected to be converted to cash within one year, while plant assets and property, plant, and equipment refer to physical assets used in the operation of the business.

Question 16

All of the following are intangible assets except

Accepted Answer

Accounts receivable are not intangible assets but are considered a part of working capital. Intangible assets are those assets that lack physical substance, such as patents, goodwill, and franchises.

Question 17

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 18

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 19

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

Accepted Answer

GAAP requires that research and development costs be expensed in the period incurred. This is because the future economic benefits of research and development projects are uncertain and not reliably measurable, making it difficult to accurately capitalize and amortize these costs. Therefore, these costs are expensed as incurred on the income statement to provide a more accurate representation of the company's financial performance.

Question 20

Capitalizing an expenditure rather than recording it as a revenue expenditure

Accepted Answer

If an expenditure is capitalized, it is recorded as an asset and depreciated over its useful life, which affects the total book value of plant assets reported on the balance sheet. Additionally, capitalizing an expenditure will lower the amount of expenses shown on the income statement for that period, thus increasing net income. Therefore, it affects both the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.

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

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 an)