Question 1

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated depreciation account of $1.1 million.Which of the following statements is true?
A)The book value of long-lived assets is $2.4 million.
B)The market value of long-lived assets is $3.5 million.
C)The carrying value of long-lived assets is $3.5 million.
D)The resale value of long-lived assets is $2.4 million.

Accepted Answer

Book value or carrying value = Asset Cost - Accumulated depreciation.3.5 - 1.1 = 2.4 million.

Question 2

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated depreciation account for the facility is $258,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The residual value of the facility is:
A)$117,000.
B)$151,000.
C)$268,000.
D)$107,000

Accepted Answer

The residual value of an asset is the estimated amount that a company expects to obtain from disposing of the asset at the end of its useful life. In this case, Purrfect Pets expects to be able to sell the facility for $107,000 at the end of its useful life, which directly defines the residual value.

Question 3

Which of the following statements is true?
A)Long-lived tangible assets will not be used up within one year,but there is no minimum useful life for long-lived intangible assets.
B)Items in a company's inventory that are not expected to be sold in the next year are considered long-lived assets.
C)All long-lived intangible assets must be expensed over a period of 40 years or less.
D)Intangible assets with unlimited or indefinite lives are not amortized.

Accepted Answer

Intangible assets with unlimited or indefinite lives are not amortized. This is because their useful life cannot be determined, and therefore they are not subject to amortization over any specific period of time. Examples of such assets include trademarks and goodwill.

Question 4

When a company records depreciation expense it debits:
A)liabilities and credits expenses.
B)expenses and credits cash.
C)expenses and credits a contra-asset account.
D)long-lived assets and credits expenses.

Accepted Answer

Depreciation expense is recorded by debiting the depreciation expense account, which increases the expense on the income statement, and crediting a contra-asset account (such as accumulated depreciation), which reduces the book value of the asset on the balance sheet.

Question 5

A real estate management company buys an apartment complex for $4.8 million.An appraiser values the land at $1.1 million,the building at $3.4 million,and the equipment at $0.3 million.In addition,the company pays a 5% commission to a broker for arranging the sale.Which of the following statements is true?
A)The company would record $3.57 million as the acquisition cost of the building.
B)The company would record $1.1 million as the acquisition cost of the land.
C)The company would record $3.7 million as the acquisition cost of the building.
D)The company would record $0.24 million as an expense and $4.8 million as an asset.

Accepted Answer

The acquisition cost of the building includes its appraised value plus a proportionate share of the commission. The commission is 5% of $4.8 million, which is $0.24 million. The building's share of the total appraised value is $3.4 million out of $4.8 million, so the building's acquisition cost is $3.4 million + ($0.24 million * ($3.4 million / $4.8 million)) = $3.57 million.

Question 6

Ordinary repairs and maintenance always:
A)are part of the asset cost of equipment and facilities.
B)are recorded as expenses.
C)are recorded as liabilities.
D)improve the asset beyond the current accounting period.

Accepted Answer

Ordinary repairs and maintenance are recorded as expenses in the period in which they occur because they do not improve the asset beyond the current accounting period. They are considered routine operating expenses necessary to maintain the usefulness and expected life of the asset.

Question 7

Paul Hauling has a fleet of 10 large trucks that cost a total of $1,410,000.The fleet is expected to provide 1,000,000 miles of transportation during an estimated 10-year life,and be sold for 10% of the original cost at the end of that time.If the fleet traveled 125,000 miles in the current twelve-month period,what would be the depreciation expense under the straight-line (SL)and units-of-production (UoP)methods?
A)SL = $158,625 & UoP = $141,000
B)SL = $141,000 & UoP = $158,625
C)SL = $126,900 & UoP = $176,250
D)SL = $126,900 & UoP = $158,625

Accepted Answer

Straight line depreciation: Dep.Exp.per year = (Cost - residual value)* (1/useful life)
($1,410,000 - $141,000)* (1/10)= 126,900
Unit of Production: Dep Exp this period = (cost - residual value)* (actual prod this period/est total prod)(1,410,000 - 141,000)* (125,000/1,000,000)= $158,625.

Question 8

The main difference between ordinary repairs and extraordinary repairs is:
A)ordinary repairs cost less.
B)ordinary repairs are expenditures for routine maintenance and upkeep,whereas extraordinary repairs increase an asset economic usefulness in the future through increased efficiency,capacity,or longer life.
C)extraordinary repairs only maintain the asset for a short time,whereas ordinary repairs increase the usefulness of assets beyond their original condition.
D)extraordinary repairs are expenses,not expenditures.

Accepted Answer

Ordinary repairs refer to routine maintenance and upkeep, while extraordinary repairs increase the economic usefulness of an asset in the future through increased efficiency, capacity, or longer life. Therefore, the main difference between the two is the impact on the asset's economic usefulness. Option A is incorrect as it only considers the cost difference between the two types of repairs. Option C is incorrect as it implies that ordinary repairs do not maintain the asset for a long time, which is not true. Option D is incorrect as extraordinary repairs are also considered expenditures.

Question 9

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation.One-half of the total cost is paid in cash; the other half is financed.How should the company record this transaction?
A)Debit cash for $250,000,debit notes payable for $250,000,and credit equipment for $500,000.
B)Debit equipment for $500,000,credit cash for $250,000,and credit notes payable for $250,000.
C)Debit cash for $250,000,debit notes payable for $250,000 credit equipment for $450,000,and credit expenses for $50,000.
D)Debit equipment for $450,000,debit expenses for $50,000,credit cash for $250,000,and credit notes payable for $250,000.

Accepted Answer

Equipment is debited for the total cost of the asset ($450,000 + $50,000 = $500,000),Cash is credited for one-half of the total cost ($500,000/2 = $250,000),and Notes Payable is credited of the other half of the total cost.

Question 10

The book or carrying value of an asset is:
A)its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date.
B)its acquisition cost plus accumulated depreciation from the acquisition date to the balance sheet date.
C)the amount that could be obtained for the asset on the balance sheet date if it were sold.
D)the annual cost of carrying the asset in inventory.

Accepted Answer

The book or carrying value of an asset is its acquisition cost less the accumulated depreciation from the acquisition date to the balance sheet date. This reflects the current value of the asset on the company's balance sheet. Option B is incorrect as it adds the accumulated depreciation to the acquisition cost, which overstates the value of the asset. Option C is incorrect as it refers to the fair market value or selling price of the asset, which may not reflect the actual value of the asset to the company. Option D is incorrect as it refers to the cost of carrying the asset in inventory, which is not relevant to determining the asset's value on the balance sheet.

Question 11

If a company capitalizes costs that should be expensed,how is its income statement for current period impacted?
A)Net income will be lower than it should be.
B)Revenues will be lower than they should be.
C)Expenses will be lower than they should be.
D)Assets will be lower than they should be.

Accepted Answer

Capitalizing costs that should be expensed leads to lower reported expenses in the current period because the costs are recorded as assets and expensed over time rather than immediately. This results in higher net income for the period.

Question 12

ABC Co.purchased land and building at a price of $480,000.ABC also incurred a real estate broker's fee of $5,000 and legal fees of $2,000 to complete the purchase.ABC paid $3,000 to obtain a real estate appraisal prior to the purchase.The appraisal indicated that,valued separately,the land was worth $260,000 and the building was worth $240,000.The land should be recorded in the accounting records for:
A)$249,600.
B)$253,240.
C)$254,800.
D)$259,600.

Accepted Answer

$480,000 + $5000 + $2000 + $3000 = $490,000 × .52 = $254,800 (Land's proportion in the total market value of the property is 52%.260,000/240,000 + 260,000 = .52).

Question 13

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system.Your company should record:
A)$3 million in equipment and $200,000 in expenses.
B)$3.2 million in expenses.
C)$2.8 million in equipment and the rest in expenses.
D)$3.2 million in equipment.

Accepted Answer

Acquisition cost = Price + Installation costs = $3,000,000 + $200,000 = $3,200,000.

Question 14

The intangible asset most frequently reported by Canadian businesses is:
A)goodwill.
B)trademarks.
C)patents.
D)licensing rights.

Accepted Answer

Goodwill is the intangible asset most frequently reported by Canadian businesses, as it represents the value of a company's brand, reputation, customer base, and other intangible factors that contribute to its earnings potential. Trademarks, patents, and licensing rights are also important intangible assets for many businesses, but they may not be as commonly reported as goodwill.

Question 15

Amazon's website is an example of a:
A)patented intangible asset.
B)technology intangible asset.
C)current tangible asset.
D)copyright tangible asset.

Accepted Answer

Amazon's website represents a technology intangible asset as it is a non-physical asset that derives value from its technological innovations and intellectual property.

Question 16

How will the costs of an intangible asset being develop internally or self-constructed be reported?
A)As capital expenditure
B)As research and development expenses
C)As marketing expenses
D)As a liability

Accepted Answer

The costs of an intangible asset being developed internally or self-constructed are typically considered research and development expenses and are expensed as incurred rather than capitalized as a capital expenditure. This is because there is often uncertainty as to whether the asset will have future economic benefits and therefore does not meet the criteria for capitalization.

Question 17

Which of the following is $\bold{not}$ an amount that is needed to calculate straight-line depreciation?
A)The cost of the asset.
B)An estimate of the asset's useful economic life to the company.
C)The amount that the company will get when it disposes of the asset.
D)The cost the company will be required to incur to replace the asset.

Accepted Answer

The cost the company will be required to incur to replace the asset is not an amount needed to calculate straight-line depreciation. The other three options are necessary to calculate the depreciation expense.

Question 18

If the double-declining balance method were used to depreciate a building that has a 10-year useful life and a residual value equal to 10% of the building's original cost,what depreciation rate would be used?
A)9%
B)10%
C)18%
D)20%

Accepted Answer

Double-declining rate is twice the straight-line rate.DDB depreciation rate = 2/useful life; 2/10 = 20%.

Question 19

Under the cost principle:
A)only reasonable and necessary costs of acquiring an asset should be recorded as a cost of the asset.
B)costs of preparing an asset for use should never be recorded as part of the cost of the asset.
C)all reasonable and necessary costs of acquiring an asset and preparing it for use should be recorded as a cost of the asset.
D)only the actual purchase price of the asset is recorded as the cost of the asset.

Accepted Answer

According to the cost principle, all reasonable and necessary costs of acquiring an asset and preparing it for use should be recorded as a cost of the asset. This includes purchase price, freight charges, installation expenses, and any other necessary costs incurred to get the asset ready for use. Therefore, choice C is the correct answer.

Question 20

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities.Commercial use of the equipment began on May 1,2019.The estimated residual value of the equipment is $5,000.The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years.The company has an October 31,year-end and had used the equipment a total of 11,200 hours prior to the year-end.Using the units-of-production method,what amount of depreciation expense (to the nearest thousand)would the company report for this equipment in the income statement prepared for the year ended October 31,2019?
A)$102,000
B)$198,000
C)$204,000
D)$206,000

Accepted Answer

(Cost - residual value)* (actual production this period/estimated total production)
($15,000 - $5000)* ($11,200/$28,000)= $204,000.

Quiz 9: Long-Lived Tangible and Intangible Assets

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated depreciation account of $1.1 million.Which of the following statements is true?

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated depreciation account for the facility is $258,000.The company expects to be able to sell the facility for $107,000 at the end of its useful life.The residual value of the facility is:

Which of the following statements is true?

When a company records depreciation expense it debits:

Ordinary repairs and maintenance always:

The main difference between ordinary repairs and extraordinary repairs is:

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation.One-half of the total cost is paid in cash; the other half is financed.How should the company record this transaction?

The book or carrying value of an asset is:

If a company capitalizes costs that should be expensed,how is its income statement for current period impacted?

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system.Your company should record:

The intangible asset most frequently reported by Canadian businesses is:

Amazon's website is an example of a:

How will the costs of an intangible asset being develop internally or self-constructed be reported?

Which of the following is not\bold{not}not an amount that is needed to calculate straight-line depreciation?

If the double-declining balance method were used to depreciate a building that has a 10-year useful life and a residual value equal to 10% of the building's original cost,what depreciation rate would be used?

Under the cost principle:

Which of the following is $\bold{not}$ an amount that is needed to calculate straight-line depreciation?