Question 1

Early in the current year,Amazon Co.purchased the Rio Silver Mine at a cost of $30,000,000.The mine was estimated to contain 400,000 tons of ore and to have a residual value of $7,500,000 after mining operations are completed.During the year,115,000 tons of ore were removed from the mine.At year-end,the book value of the mine is:
A)$22,500,000.
B)$6,468,750.
C)$23,531,250.
D)$30,000,000.

Accepted Answer

The book value of the mine at year-end is calculated by subtracting the depletion expense from the original cost. The depletion expense is calculated based on the number of tons of ore removed. The cost to allocate is $30,000,000 - $7,500,000 = $22,500,000. The depletion per ton is $22,500,000 / 400,000 tons = $56.25 per ton. For 115,000 tons removed, the depletion expense is 115,000 tons * $56.25 = $6,468,750. Therefore, the book value at year-end is the original cost of $30,000,000 minus the depletion expense of $6,468,750, which equals $23,531,250.

Question 2

International standards require that goodwill:
A)Be capitalized and amortized over 20 years or less.
B)Be capitalized and amortized over 40 years or less.
C)Be capitalized and reviewed annually and its value should be adjusted if impaired.
D)Be expensed immediately.

Accepted Answer

According to international standards, goodwill should be capitalized and reviewed annually to assess whether it has been impaired. If there is an impairment, its value should be adjusted. Goodwill should not be amortized over a fixed period of time, but rather tested for impairment annually. Therefore, option C is the correct answer.

Question 3

Intangible assets are assets used in business operations but which:
A)Lack physical substance.
B)Cannot be sold.
C)Have been depreciated below their estimated salvage values.
D)Cannot be specifically identified.

Accepted Answer

Intangible assets are assets that lack physical substance, such as patents, copyrights, trademarks, and goodwill. They cannot be physically touched or felt, but have value to the business.

Question 4

In February 2015,Brilliant Industries purchased the Topaz Mine at a cost of $10,000,000.The mine is estimated to contain 500,000 carats of stone and to have a residual value of $500,000 after mining operations are completed.During 2015,50,000 carats of stone were removed from the mine and sold.In this situation:
A)The book value of the mine is $9,000,000 at the end of 2015.
B)The amount of depletion deducted from revenue during 2015 is $950,000.
C)The amount of depletion deducted from revenue during 2015 is $1,000,000.
D)The mine is classified as an intangible asset and amortized over a period not to exceed 40 years.

Accepted Answer

The depletion per carat is calculated as ($10,000,000 - $500,000) / 500,000 carats = $19 per carat. For 50,000 carats, the depletion is 50,000 * $19 = $950,000.

Question 5

Expenditures for research and development intended to lead to new products of commercial value:
A)Should be recorded as intangible assets and amortized during the years in which benefits are expected.
B)Should be charged to expense when incurred.
C)Should be capitalized only if patents are expected to be granted.
D)Should be classified as deferred charges.

Accepted Answer

According to generally accepted accounting principles (GAAP), research and development expenditures should be charged to expense when incurred. This is because it is difficult to determine the future economic benefits of these expenditures, and therefore they cannot be reliably measured or capitalized as assets.

Question 6

The entry to record amortization on a copyright would include:
A)A debit to amortization expense.
B)A debit to accumulated amortization.
C)A debit to copyright.
D)A credit to amortization expense.

Accepted Answer

Amortization is the process of allocating the cost of an intangible asset, such as a copyright, over its useful life. The entry to record amortization on a copyright would involve debiting (increasing) the amortization expense account and crediting (increasing) the accumulated amortization account. So, the correct choice is A, which represents a debit to amortization expense.

Question 7

In February 2015,Gemstone Industries purchased the Opal Mine at a cost of $20,000,000.The mine is estimated to contain 500,000 carats of stone and to have a residual value of $1,000,000 after mining operations are completed.During 2015,50,000 carats of stone were removed from the mine and sold.In this situation:
A)The book value of the mine is $19,000,000 at the end of 2015.
B)The amount of depletion deducted from revenue during 2015 is $1,900,000.
C)The amount of depletion deducted from revenue during 2015 is $1,000,000.
D)The mine is classified as an intangible asset and amortized over a period not to exceed 40 years.

Accepted Answer

The depletion per carat is calculated as ($20,000,000 - $1,000,000) / 500,000 carats = $38 per carat. For 50,000 carats, the depletion is 50,000 * $38 = $1,900,000.

Question 8

Wilbur Company purchased $10,000 of equipment on December 20,2015 on terms 2/15,net 30.Wilbur paid for the equipment on the 15^th day following purchase and took advantage of the discount.Which of the following statements is correct? A)Wilbur will record a cash outflow from operating activities of $10,000 in its 2015 financial statements. B)Wilbur will record a cash outflow from operating activities of $9,800 in its 2015 financial statements. C)Wilbur will record a cash outflow from operating activities of $10,000 in its 2016 financial statements. D)Wilbur will record a cash outflow from operating activities of $9,800 in its 2016 financial statements.

Accepted Answer

The answer of Wilbur Company purchased $10,000 of equipment on...

Question 9

The term net identifiable assets means:
A)All assets minus all liabilities.
B)All assets except goodwill,plus all liabilities.
C)All assets except intangibles,minus all liabilities.
D)All fixed assets less liabilities.

Accepted Answer

Net identifiable assets refer to all assets a company owns minus all its liabilities, encompassing both tangible and intangible assets except for goodwill.

Question 10

Total stockholders' equity of Tucker Company is $4,000,000.The fair market value of Tucker's net identifiable assets (assets less liabilities)is $5,000,000.Empire Corporation makes an offer to purchase Tucker's entire business for $5,800,000.In this situation:
A)Tucker Company should report goodwill of $800,000 in its balance sheet.
B)Tucker Company should report goodwill of $1,800,000 in its balance sheet.
C)Empire Corporation is willing to pay $1,800,000 for goodwill generated by Tucker,and Empire will report this goodwill in its balance sheet if the purchase is finalized.
D)Empire Corporation is willing to pay $800,000 for goodwill generated by Tucker,and Empire will report this goodwill in its balance sheet if the purchase is finalized.

Accepted Answer

The answer of Total stockholders' equity of Tucker Company is...

Question 11

Wilbur Company purchased $10,000 of equipment on January 20,2014.Wilbur uses the straight-line method to depreciate the equipment.The equipment has a 5-year useful life with no salvage value.Which of the following statements is correct?
A)Wilbur will record a cash inflow from operating activities of $2,000 in its 2015 financial statements.
B)Wilbur will record a cash outflow from operating activities of $2,000 in its 2015 financial statements.
C)Wilbur will record a cash outflow from investing activities of $2,000 in its 2015 financial statements.
D)Wilbur will record no cash flows related to this asset on its 2015 statement of cash flows.

Accepted Answer

Under the straight-line method, the depreciation expense will be $2,000 per year ($10,000/5 years). However, depreciation is a non-cash expense and does not affect cash flows. Therefore, Wilbur will not record any cash flows related to this asset on its 2015 statement of cash flows.

Question 12

Coca-Cola's famous name printed in distinctive typeface is an example of:
A)A trademark.
B)A patent.
C)A copyright.
D)Goodwill.

Accepted Answer

Coca-Cola's name printed in a distinctive typeface is a trademark. A trademark is a recognizable sign, design, or expression that identifies a product or service and sets it apart from those of other companies. Trademarks are used to protect the brand identity and reputation of a company's products or services.

Question 13

All of the following may be considered intangible assets except:
A)Accounts receivable.
B)Copyrights.
C)Franchises.
D)Goodwill.

Accepted Answer

Accounts receivable are considered a tangible asset because they represent money owed to the company that will be collected in the future. Copyrights, franchises, and goodwill are intangible assets because they represent non-physical assets that add value to the company.

Question 14

The legal life of most patents is:
A)5 years.
B)20 years.
C)40 years.
D)50 years.

Accepted Answer

The legal life of most patents is 20 years from the filing date of the patent application. After 20 years, the invention described in the patent becomes part of the public domain and can be used by anyone without permission or payment to the patent holder.

Question 15

Wanda Company sold an asset for $10,000 on September 6,2015.The historical cost of the asset was $22,000,and the asset's accumulated depreciation at the date of sale was $14,500.Which of the following statements is correct?
A)Wanda will record a cash inflow from operating activities of $10,000 in its 2015 financial statements.
B)Wanda will record a cash inflow from investing activities of $10,000 in its 2015 financial statements.
C)Wanda will record a cash inflow from investing activities of $2,500 in its 2015 financial statements.
D)Wanda will record no cash flows related to this asset on its 2015 statement of cash flows.

Accepted Answer

The sale of an asset is considered an investing activity, and the cash inflow from the sale is recorded as $10,000, which is the amount received from the sale.

Question 16

The basic purpose of the matching principle is to allocate the cost of an asset to expense over the years in which the asset contributes to revenue.Current accounting practice does not strictly apply this principle to expenditures for:
A)Natural resources.
B)Research and development.
C)Trademarks.
D)Equipment.

Accepted Answer

Research and development expenditures are not typically matched with revenue in the period they are incurred, as it is difficult to determine the future revenue benefits when conducting research and development activities. Instead, these costs are generally expensed in the period incurred.

Question 17

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:
A)That the company has a favorable reputation with its customers.
B)A monopoly position in the industry or superior management.
C)An unbroken record of annual earnings and dividends.
D)That the company has purchased a going business at a price in excess of the fair market value of the net identifiable assets.

Accepted Answer

Goodwill represents the difference between the purchase price of a going business and the fair value of the net assets acquired. Therefore, the inclusion of goodwill on the financial statements indicates that the company has purchased a business at a price in excess of the fair market value of the net identifiable assets. It does not necessarily indicate a favorable reputation, monopoly position, or an unbroken record of earnings and dividends.

Question 18

Which of the following would not be amortized?
A)Goodwill.
B)Copyright.
C)Franchise fee.
D)Patent.

Accepted Answer

Goodwill is not amortized but rather tested for impairment annually. Amortization is the process of spreading out the cost of an intangible asset over its useful life. Goodwill is considered to have an indefinite useful life and therefore cannot be amortized.

Question 19

Early in the current year,Tokay Co.purchased the Silverton Mine at a cost of $20,000,000.The mine was estimated to contain 200,000 tons of ore and to have a residual value of $5,000,000 after mining operations are completed.During the year,105,000 tons of ore were removed from the mine.At year-end,the book value of the mine (cost minus accumulated depletion)is:
A)$15,000,000.
B)$12,125,000.
C)$7,875,000.
D)Less than $10,000,000.

Accepted Answer

The depletion rate per ton of ore is calculated as follows:
Cost - Residual value / Estimated units of ore = Depletion rate per ton
($20,000,000 - $5,000,000) / 200,000 = $75 per ton

The total depletion for the year is calculated as follows:
Depletion rate per ton x Tons removed = Depletion for the year
$75 x 105,000 = $7,875,000

The book value of the mine at year-end is calculated as follows:
Cost - Accumulated depletion = Book value
$20,000,000 - $7,875,000 = $12,125,000

Therefore, the best choice is B.

Question 20

The fair market value of Lewis Company's net identifiable assets is $5,000,000.Martin Corporation purchases Lewis' entire business for $5,800,000.Which of the following statements is not correct?
A)Martin Corporation paid $800,000 for goodwill generated by Lewis Company.
B)Martin feels that Lewis Company has the ability to generate earnings in excess of a normal return on net identifiable assets.
C)Martin will record amortization expense over a period not to exceed 40 years.
D)Martin Corporation will record $800,000 to goodwill,an intangible asset,which will be reported in its balance sheet.

Accepted Answer

The statement regarding the amortization period is incorrect. Goodwill is no longer amortized over a period of time, but instead tested for impairment at least annually. Therefore, Martin will not record amortization expense over any specific period.

Quiz 9: Plant and Intangible Assets

International standards require that goodwill:

Intangible assets are assets used in business operations but which:

Expenditures for research and development intended to lead to new products of commercial value:

The entry to record amortization on a copyright would include:

Wilbur Company purchased $10,000 of equipment on December 20,2015 on terms 2/15,net 30.Wilbur paid for the equipment on the 15^th day following purchase and took advantage of the discount.Which of the following statements is correct?

The term net identifiable assets means:

Total stockholders' equity of Tucker Company is $4,000,000.The fair market value of Tucker's net identifiable assets (assets less liabilities) is $5,000,000.Empire Corporation makes an offer to purchase Tucker's entire business for $5,800,000.In this situation:

Wilbur Company purchased $10,000 of equipment on January 20,2014.Wilbur uses the straight-line method to depreciate the equipment.The equipment has a 5-year useful life with no salvage value.Which of the following statements is correct?

Coca-Cola's famous name printed in distinctive typeface is an example of:

All of the following may be considered intangible assets except:

The legal life of most patents is:

Wanda Company sold an asset for $10,000 on September 6,2015.The historical cost of the asset was $22,000,and the asset's accumulated depreciation at the date of sale was $14,500.Which of the following statements is correct?

The basic purpose of the matching principle is to allocate the cost of an asset to expense over the years in which the asset contributes to revenue.Current accounting practice does not strictly apply this principle to expenditures for:

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:

Which of the following would not be amortized?

The fair market value of Lewis Company's net identifiable assets is $5,000,000.Martin Corporation purchases Lewis' entire business for $5,800,000.Which of the following statements is not correct?