Question 1

Yellow Dog Transit sold an old truck on December 31, 2016, for $18,400 cash.The following data was available when the truck sold: $\begin{array}{lr}
\text { Acquisition cost } & \$ 75,000 \
\text { Estimated residual value at time of acquisition } & 8,000 \
\text { Accumulated depreciation on December } 31,2016 \text { after adjustment } & 53,600
\end{array}$ ? When this transaction is recorded, it should include a(n)
A) Loss on Disposal account for $3,000
B) Decrease of $21,400 to the Truck account
C) Gain on Disposal account for $3,000
D) Gain on Disposal account for $5,000

Accepted Answer

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

Question 2

Which of the following below is an example of a capital expenditure?
A) cleaning the carpet in the front room
B) tune-up for a company truck
C) replacing an engine in a company car
D) replacing all burned-out light bulbs in the factory

Accepted Answer

A capital expenditure is an expense incurred to acquire or improve long-term assets, such as property, plant, or equipment. Replacing an engine in a company car would fall under this category. Cleaning the carpet in the front room is a maintenance expense, not a capital expenditure. A tune-up for a company truck and replacing burned-out light bulbs in a factory are both examples of repair and maintenance expenses.

Question 3

All of the following are intangible assets except
A) patents
B) goodwill
C) franchises
D) accounts receivable

Accepted Answer

Accounts receivable are considered a current asset because they represent money that is owed to a company for goods or services that have already been provided. Intangible assets, on the other hand, are assets that have no physical presence but still hold value, such as patents, goodwill, and franchises.

Question 4

All of the following statements are true except:
A) IFRS requires that estimates of residual value and the life of the asset be reviewed at least annually and revised if necessary.
B) The FASB standards do not have a specific rule that requires residual value and asset life to be reviewed annually.
C) IFRS does not have a specific rule that requires residual value and asset life to be reviewed annually.
D) 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.

Accepted Answer

IFRS does not have a specific rule that requires residual value and asset life to be reviewed annually. The other statements are true.

Question 5

Research and development costs are
A) treated as an expense when incurred.
B) capitalized but not amortized.
C) capitalized and amortized over the periods that will probably benefit from the research and development.
D) included with the cost of the patent resulting from the research and development.

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 the research and development activities.

Question 6

On January 2, 2016, 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?
A) Gain of $2,000
B) Loss of $11,000
C) Loss of $2,000
D) Gain of $3,000

Accepted Answer

To calculate the gain or loss on the sale of the machine, we need to subtract the machine's cost from the amount it was sold for.

Amount received from sale = $1,000

Book value of machine = cost - accumulated depreciation = $12,000 - $9,000 = $3,000

Since the amount received from the sale ($1,000) is less than the book value of the machine ($3,000), Hannah Company will report a loss on the sale of the machine.

Loss on sale = amount received - book value = $1,000 - $3,000 = -$2,000

The negative sign indicates a loss, so the answer is C, loss of $2,000.

Question 7

Crouch Apartments purchased an apartment building to rent to university students on December 15, 2015.The tenants moved in on January 1, 2016.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?
A) It should be recorded as part of the asset account.
B) It should be recorded as repair and maintenance expense.
C) It should not be recorded as the tenants will be charged for the damage.
D) It should not be recorded since this is an immaterial amount to the landlord.

Accepted Answer

The cost of repairing the hole in the wall should be recorded as repair and maintenance expense, as it is a normal business expense incurred to maintain the property in a good condition for rental purposes. It is not considered an asset, as it does not increase the property's value or extend its useful life. It should be expensed in the period in which it occurred, regardless of whether the tenants will be charged for the damage or if it is considered an immaterial amount.

Question 8

Operating assets with no physical properties are called
A) current assets
B) intangible assets
C) plant assets
D) property, plant, and equipment

Accepted Answer

Intangible assets are non-physical assets that have value and can be owned by a company. Examples include patents, trademarks, copyrights, and goodwill. Current assets are assets that are expected to be consumed or converted into cash within one year, while plant assets and property, plant, and equipment refer to physical assets such as land, buildings, and machinery.

Question 9

On January 1, 2016, 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?
A) Assets and Stockholders' Equity increase $1,000.
B) Assets decrease and Stockholders' Equity increases $3,000.
C) Assets and Stockholders' Equity decrease $1,000.
D) Assets and Stockholders' Equity decrease $3,000.

Accepted Answer

The answer of On January 1, 2016, Petersen Corp.sold a...

Question 10

How should intangible assets be disclosed on the balance sheet?
A) As a reduction of stockholders' equity
B) At cost in the current assets section
C) at the estimated market value at the balance sheet date
D) Net of the costs already amortized

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 11

Goodwill can be recorded as an asset when a(n)
A) business has above normal profitability compared to other businesses in its industry.
B) business can determine that it has created customer goodwill and name recognition.
C) offer is received to purchase the business at a price in excess of the value of the assets.
D) business is purchased and payment is made in excess of the value of the net assets.

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. As a result, the excess payment is recorded as goodwill, which is then amortized over time. Choice A is incorrect because above normal profitability does not necessarily indicate the presence of goodwill. Choice B is incorrect because the creation of goodwill and name recognition does not automatically result in the recognition of goodwill as an asset. Choice C is incorrect because an offer to purchase the business at a price in excess of the value of its assets does not necessarily mean that goodwill exists.

Question 12

Capitalizing an expenditure rather than recording it as a revenue expenditure
A) affects the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet.
B) affects the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period.
C) affects the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.
D) has no effect on the book value of plant assets on the balance sheet or the amount of income reported on the income statement.

Accepted Answer

Capitalizing an expenditure increases the asset's value on the balance sheet and spreads the expense over the asset's useful life through depreciation, affecting both the book value of plant assets and net income over time.

Question 13

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?
A) If a legal obligation exists, the cost of restoring the property must be added to the asset account.
B) As an expense entirely in one accounting period.
C) As an amortized expense in the period the cost is incurred.
D) Added to the asset, and then depreciated over 15 years.

Accepted Answer

If there is a legal obligation to clean up environmental damages, the cost of restoring the property should be added to the asset account. This is because the restoration of the property will provide future economic benefits to the company, and thus should be capitalized as an asset. The capitalized cost should then be depreciated over the useful life of the asset. However, if there is no legal obligation, the cost should be treated as an expense in the period it is incurred.

Question 14

When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry:
A) debit Accumulated Depreciation; credit Machinery
B) debit Machinery; credit Accumulated Depreciation
C) debit Cash; credit Accumulated Depreciation
D) debit Depreciation Expense; credit Accumulated Depreciation

Accepted Answer

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

Question 15

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?
A) Reduces working capital
B) Increases working capital
C) Has no effect on working capital
D) The increases offset the decrease.

Accepted Answer

Selling equipment for cash increases current assets (cash) without directly affecting current liabilities, thus increasing working capital. The loss impacts profit but not the immediate calculation of working capital.

Question 16

Pocono Co.purchased a patent at the beginning of 2016 for $490,000 Economic benefits were expected for 7 years, but the patent's legal life was 20 years.Also during 2016, the company incurred research and development costs of $150,000.Patent amortization expense for 2016 is
A) $24,500
B) $150,000
C) $72,143
D) $70,000

Accepted Answer

The patent should be amortized over its useful economic life of 7 years, not its legal life. Therefore, the annual amortization expense is $490,000 / 7 = $70,000.

Question 17

GAAP require that research and development costs to develop a new product be
A) capitalized in the patents account.
B) expensed in the period incurred.
C) capitalized in the research and development costs account.
D) amortized over the expected economic life of the new product.

Accepted Answer

GAAP requires that research and development costs be expensed in the period incurred because they are considered to be uncertain and speculative in nature. Capitalizing these costs would result in an overstatement of assets and income. However, costs incurred after a product is determined to be technically feasible and commercially viable may be capitalized as development costs.

Question 18

Boalsburg Co.purchased a truck on January 1, 2014, 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, 2016, the truck was sold for $17,000 cash.The journal entry to record the sale of the truck in 2016?
A) increases net income
B) increases total assets
C) decreases total expenses
D) decreases stockholders' equity

Accepted Answer

The answer of Boalsburg Co.purchased a truck on January 1,...

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?
A) Tarkington Beers, Inc.should record only the appraised value of the assets.
B) Tarkington Beers, Inc.needs to adjust the value of the assets in proportion to their appraised value so that the total of the assets equals the purchase price.
C) Tarkington Beers, Inc.paid too much for the business and needs to record a loss.
D) Tarkington Beers, Inc.needs to record goodwill of $100,000.

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

A gain is recognized on the disposal of plant assets when:
A) The sales price is greater than the book value and less than the residual value.
B) The sales price is greater than the book value and greater than the residual value.
C) The sales price is less than both the book value and the residual value.
D) The sales price is greater than the residual value but less than the book value.

Accepted Answer

A gain on the disposal of plant assets is recognized when the sales price is greater than the book value. Additionally, if the sales price is greater than the residual value, it indicates that the asset has been sold for more than its expected salvage value, which also results in a gain. Therefore, option B is the correct choice as it satisfies both conditions for gain recognition on disposal of plant assets.

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

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

All of the following are intangible assets except

All of the following statements are true except:

Research and development costs are

On January 2, 2016, 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?

Operating assets with no physical properties are called

On January 1, 2016, 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?

How should intangible assets be disclosed on the balance sheet?

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

Capitalizing an expenditure rather than recording it as a revenue expenditure

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?

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

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?

Pocono Co.purchased a patent at the beginning of 2016 for $490,000 Economic benefits were expected for 7 years, but the patent's legal life was 20 years.Also during 2016, the company incurred research and development costs of $150,000.Patent amortization expense for 2016 is

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

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?

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