Question 1

All of the following are intangible assets except

Accepted Answer

Accounts receivable are not considered intangible assets as they are a type of current asset that represents money owed to a company by its customers for goods or services sold on credit. Intangible assets are non-physical assets that have no intrinsic value but hold significant value to a company, such as patents, goodwill, and franchises.

Question 2

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 3

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

Accepted Answer

A gain on the disposal of plant assets is recognized when the sales price is greater than the book value (the original cost of the asset less its accumulated depreciation) and greater than the residual value (the estimated amount that the company would receive from selling the asset at the end of its useful life). Therefore, option B is the correct choice as it meets both conditions for a gain recognition.

Question 4

All of the following statements are true except:

Accepted Answer

Both A and B are true statements, while D is partially true (although the FASB does allow revaluation of assets in certain circumstances). However, statement C is false, as IFRS does require that estimates of residual value and asset life be reviewed annually.

Question 5

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...

Question 6

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 7

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

Accepted Answer

A capital expenditure involves spending money on assets that will benefit the company in the long term. Replacing an engine in a company car fits this definition, as it will help the car continue to function and provide transportation for the company. Cleaning the carpet, getting a tune-up for a truck, and replacing light bulbs are all examples of routine or maintenance expenses, which are not capital expenditures.

Question 8

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 sale increases cash by $4,000, which is a current asset, thus increasing working capital despite the loss.

Question 9

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

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

Question 10

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 caused by business operations, the cost of restoring the property must be added to the asset account. This is because it increases the value of the asset in question. If the cost of restoration is significant and materially affects the financial statements, it is common to disclose the specific nature of the legal obligation in the notes to the financial statements. The restoration cost should then be depreciated over the useful life of the asset, as it reflects a reduction in the asset's useful life.

Question 11

Operating assets with no physical properties are called

Accepted Answer

Intangible assets are assets that do not have a physical presence but provide value to the company. Examples include patents, trademarks, copyrights, goodwill, and software. Current assets are assets that are expected to be converted to cash within one year or one operating cycle, such as inventory, accounts receivable, and cash. Plant assets and property, plant, and equipment refer to physical assets that are used in operations, such as land, buildings, and equipment.

Question 12

Capitalizing an expenditure rather than recording it as a revenue expenditure

Accepted Answer

Capitalizing an expenditure instead of recording it as a revenue expenditure will increase the book value of plant assets on the balance sheet and reduce the amount of expenses recognized in the current accounting period, resulting in higher net income. Therefore, both the balance sheet and income statement are affected.

Question 13

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 in the wall should be recorded as a repair and maintenance expense. This cost is not significant enough to be capitalized and added to the asset account. It should also be recorded in the period in which it occurred, as it is an expense incurred by the landlord. While the tenants may be charged for the damage, this does not affect the recording of the expense on the landlord's books.

Question 14

Goodwill can be recorded as an asset when an

Accepted Answer

Goodwill is recorded as an asset only when a business is purchased and payment is made in excess of the value of the net assets acquired. This excess amount represents the value of the intangible asset of goodwill. Options A and B do not necessarily lead to the recognition of goodwill as an asset, and option C only indicates an offer to purchase the business, not the actual creation or existence of goodwill.

Question 15

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 the accounting estimate, the company should adjust it prospectively (going forward). Therefore, option A is incorrect as there is no need to correct prior financial statements. Option C is incorrect as the error should not be added to the current year's depreciation expense but rather the book value should be adjusted. Option D is incorrect as it does not reflect the correct treatment of a change in accounting estimate. Hence, the best choice is B as the book value should be determined at the point of change and the remaining amount should be depreciated over the remaining useful life.

Question 16

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 on the sale of an asset is calculated as the difference between the proceeds from the sale and the book value of the asset (cost less accumulated depreciation). In this case, the book value of the machine was $3,000 ($12,000 cost minus $9,000 accumulated depreciation), and the proceeds from the sale were $1,000. Therefore, the loss on the sale of the machine was $2,000 ($1,000 proceeds minus $3,000 book value).

Question 17

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...

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

When a company discards machinery that is fully depreciated, this transaction have which of the following effect on the company's accounts?

Accepted Answer

When machinery is discarded, the accumulated depreciation account is decreased (debited) and the machinery account is decreased (credited) to remove the asset and its accumulated depreciation from the books.

Question 20

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. This is because the outcome of research and development activities is uncertain and it's difficult to determine the future economic benefits that may result from these activities. Therefore, it's appropriate to expense these costs in the period incurred rather than capitalize them.

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