Question 1

Which of the following is the proper formula for computing free cash flow?
A)= Net Cash Flows from Investing Activities - Purchases of Plant Assets
B)= Net Cash Flows from Financing Activities + Sales of Plant Assets - Dividends
C)= Net Cash Flows from Investing,Financing,and Operating Activities - Purchases of Plant Assets + Sales of Plant Assets
D)= Net Cash Flows from Operating Activities - Dividends - Purchases of Plant Assets + Sales of Plant Assets

Accepted Answer

Free cash flow is calculated by subtracting capital expenditures (purchases of plant assets) from cash flows from operations and adding back any cash received from the sale of assets (sales of plant assets) and subtracting any cash paid out for dividends. Therefore, the formula in option D is the correct choice.

Question 2

The golden globe used to identify the publisher of a textbook is an example of a
A)franchise.
B)patent.
C)trademark.
D)copyright.

Accepted Answer

The golden globe is a symbol used as a trademark to identify the publisher of a textbook. A trademark is a recognizable sign, design, or expression which identifies products or services of a particular source from those of others.

Question 3

A copyright is obtained for what becomes a very successful book.The publisher expects the book to generate sales for ten years.The copyright should be
A)amortized over the author's life plus 70 years.
B)expensed immediately.
C)amortized over 10 years.
D)amortized over a reasonable life.

Accepted Answer

The copyright is expected to generate sales for 10 years, so it should be amortized over 10 years. This means that the cost (or purchase price) of the copyright is spread out over its expected useful life of 10 years, and a portion of its cost is expensed each year during that period.

Question 4

When a list of customers or subscribers is purchased,its cost is
A)immediately expensed.
B)capitalized as an intangible asset.
C)amortized over a maximum of 5 years.
D)amortized as people on the list move away or pass on.

Accepted Answer

When a list of customers or subscribers is purchased, it represents an intangible asset that has the potential to generate future economic benefits for the company. Therefore, it should be capitalized as an intangible asset and amortized over its useful life. The useful life of the list may vary depending on several factors, such as the quality of the list, the size of the list, and the industry in which the company operates. However, it is usually considered to be a finite useful life, which means it cannot be amortized indefinitely.

Question 5

Free cash flow is
A)a financial ratio.
B)an important measure of a company's ability to finance long-term assets.
C)what remains after deducting dividends declared from net income.
D)an important measure of a company's ability to invest in short-term assets.

Accepted Answer

Free cash flow measures the cash a company generates from its operations after subtracting its capital expenditures. It helps investors evaluate a company's ability to finance long-term assets, pay dividends, and invest in future growth.

Question 6

The exclusive right to sell a product within a certain geographic area is called a
A)leasehold.
B)franchise.
C)patent.
D)copyright.

Accepted Answer

The exclusive right to sell a product within a certain geographic area is a characteristic of a franchise agreement. Franchisees typically have the exclusive right to operate within their designated territory and cannot be encroached upon by other franchisees or the franchisor themselves. A leasehold pertains to property leasing, patent pertains to intellectual property rights, and copyright pertains specifically to creative works such as literature and music.

Question 7

According to generally accepted accounting principles,the proper accounting treatment for the cost of a trademark that management feels will retain its value indefinitely is to
A)write the cost off immediately.
B)amortize the cost over a reasonable life.
C)amortize the cost over five years.
D)carry the cost as an asset as long as circumstances continue to support an indefinite life.

Accepted Answer

According to generally accepted accounting principles, a trademark should be carried as an asset as long as circumstances continue to support an indefinite life. This means that the cost of a trademark should not be immediately written off or amortized over a specific period of time, but rather should be monitored for any changes in circumstances that may affect its value. Only if it becomes impaired, meaning its value has decreased significantly, should it be written down.

Question 8

If net cash flows from operating activities total $115,000,net cash flows from financing activities total $50,000,net cash flows from investing activities total $60,000,purchases of plant assets total $30,000,dividends total $12,000,and sales of plant assets total $17,000,the free cash flow equals
A)$90,000.
B)$174,000.
C)$116,000.
D)$56,000.

Accepted Answer

The answer of If net cash flows from operating activities...

Question 9

The exclusive right to publish and sell a literary,artistic,or musical work is called a
A)patent.
B)trademark.
C)copyright.
D)franchise.

Accepted Answer

A copyright is the exclusive right given to the creator of an original work to publish and sell that work. This includes literary, artistic, and musical works, among others. Patents are for inventions or discoveries, trademarks are for identifying and distinguishing goods, and franchises are for granting the right to use a business system or name.

Question 10

Improperly classifying large expenditures as assets rather than expenses
A)could constitute fraud.
B)understates income for the period.
C)understates equity on the balance sheet.
D)results in none of these options.

Accepted Answer

Improperly classifying large expenditures as assets rather than expenses can be considered as an act of fraud. This is because it can overstate the value of assets and understate expenses, leading to the misrepresentation of the company's financial position to stakeholders.

Question 11

According to generally accepted accounting principles,the proper accounting treatment of the cost of developing intangible assets is to
A)carry the cost as an asset indefinitely.
B)amortize the cost over five years.
C)amortize the cost over a reasonable life.
D)write off the cost immediately.

Accepted Answer

The answer of According to generally accepted accounting principles,the proper...

Question 12

Boulder Company had net cash flows of $150,000 from operating activities.It extended $60,000 for purchases of plant assets,sold plant assets for $5,000,and paid dividends of $70,000.The company's free cash flow is
A)$25,000.
B)$50,000.
C)$60,000.
D)$75,000.

Accepted Answer

Free cash flow is calculated as net cash flows from operating activities minus capital expenditures. Here, it's $150,000 (operating activities) - $60,000 (purchase of plant assets) = $90,000. Then, adding the $5,000 from the sale of plant assets gives $95,000. However, paying dividends is not considered in calculating free cash flow, so the final calculation remains $95,000 - $70,000 (an incorrect subtraction not relevant to free cash flow calculation) does not apply. The correct calculation should simply be $150,000 - $60,000 = $90,000, indicating an error in the provided choices and explanation. Given the options, none directly match the correct calculation of free cash flow based on the standard definition. The closest option based on the initial incorrect explanation was A) $25,000, but this was based on a misunderstanding of how free cash flow is calculated. The correct free cash flow, without considering dividends (since they're not part of its calculation), would indeed be $90,000, which is not an option provided.

Question 13

When an intangible asset becomes worthless,
A)it should remain on the books at its existing carrying value.
B)its remaining carrying value should be written off immediately as a loss.
C)prior years' accounting records should be adjusted retroactively.
D)its remaining carrying value should be amortized over 20 years.

Accepted Answer

When an intangible asset becomes worthless, its remaining carrying value should be written off immediately as a loss. This is because its value has been fully impaired and it no longer has any value to the company. Keeping it on the books at its carrying value would overstate the assets of the company and misrepresent its financial position. Adjusting prior years' accounting records retroactively or amortizing the remaining value over 20 years would also be incorrect as the asset is no longer capable of generating any future economic benefits.

Question 14

If a company's free cash flow is $66,000,net cash flows from operating activities total $133,000,purchases of plant assets total $61,000,and the payment of dividends was $20,000,what amount was obtained from the sale of plant assets?
A)$7,000
B)$14,000
C)$28,000
D)Impossible to determine from the facts given.

Accepted Answer

The answer of If a company's free cash flow is...

Question 15

A contract limiting the rights of others to go into business in a specific industry or line of business for a specified period is called a
A)noncompete covenant.
B)patent.
C)copyright.
D)trademark.

Accepted Answer

A noncompete covenant is a contractual agreement between two parties, usually an employer and an employee or seller and buyer, where one party agrees not to engage in a certain line of business or industry for a specified period of time within a certain geographic area. It is a legal mechanism used to protect the business interests of the party imposing the restriction. Patents, copyrights, and trademarks are forms of intellectual property protection and do not limit the rights of others to go into business in a particular industry or line of business.

Question 16

Which of the following costs normally is expensed in the year incurred,regardless of the extent of future benefit?
A)Technology
B)Customer lists
C)Research and development
D)Leasehold improvements

Accepted Answer

Research and development costs are typically expensed in the year they are incurred as there is often uncertainty surrounding the future benefits and usefulness of these costs. The other options listed (technology, customer lists, leasehold improvements) may provide future benefit and are often capitalized and amortized over time.

Question 17

Which of the following is not a component of free cash flow?
A)Purchases of plant assets
B)Net income
C)Dividends
D)Net cash flows from operating activities

Accepted Answer

The answer of Which of the following is not a...

Question 18

The federal government grants patents for
A)10 years.
B)20 years.
C)40 years.
D)the useful life of the patent.

Accepted Answer

The federal government grants patents for a period of 20 years from the date of filing. This is to encourage innovation and to protect the inventors from having competition in the market for a reasonable period of time.

Question 19

The purchased right to reproduce and sell a computer program is covered by which intangible?
A)copyright.
B)franchise.
C)patent.
D)trademark.

Accepted Answer

The purchased right to reproduce and sell a computer program is protected by copyright, which is an intangible right that gives the creator the exclusive right to reproduce, distribute, and profit from their work. Franchise, patent, and trademark are other types of intangible property rights, but they do not apply to computer programs in the same way that copyright does.

Question 20

If a company's free cash flow is $90,000,net cash flows from operating activities total $220,000,purchases of plant assets total $100,000,and sales of plant assets total zero,what amount is committed to dividends?
A)$20,000
B)$30,000
C)$60,000
D)Impossible to determine from the facts given.

Accepted Answer

To determine the amount committed to dividends, we need to use the formula: 
Free cash flow = Net cash flows from operating activities - Capital expenditures +/- Changes in working capital

Rearranging the formula: 
Free cash flow + Capital expenditures +/- Changes in working capital = Net cash flows from operating activities

Substituting the given values: 
$90,000 + $100,000 +/- Changes in working capital = $220,000

Solving for Changes in working capital: 
Changes in working capital = $30,000

This means that $30,000 was used for changes in working capital, leaving $60,000 for other uses such as dividends. Therefore, the answer is B) $30,000.

Quiz 10: Long -Term Assets

Which of the following is the proper formula for computing free cash flow?

The golden globe used to identify the publisher of a textbook is an example of a

A copyright is obtained for what becomes a very successful book.The publisher expects the book to generate sales for ten years.The copyright should be

When a list of customers or subscribers is purchased,its cost is

Free cash flow is

The exclusive right to sell a product within a certain geographic area is called a

According to generally accepted accounting principles,the proper accounting treatment for the cost of a trademark that management feels will retain its value indefinitely is to

If net cash flows from operating activities total $115,000,net cash flows from financing activities total $50,000,net cash flows from investing activities total $60,000,purchases of plant assets total $30,000,dividends total $12,000,and sales of plant assets total $17,000,the free cash flow equals

The exclusive right to publish and sell a literary,artistic,or musical work is called a

Improperly classifying large expenditures as assets rather than expenses

According to generally accepted accounting principles,the proper accounting treatment of the cost of developing intangible assets is to

Boulder Company had net cash flows of $150,000 from operating activities.It extended $60,000 for purchases of plant assets,sold plant assets for $5,000,and paid dividends of $70,000.The company's free cash flow is

When an intangible asset becomes worthless,

If a company's free cash flow is $66,000,net cash flows from operating activities total $133,000,purchases of plant assets total $61,000,and the payment of dividends was $20,000,what amount was obtained from the sale of plant assets?

A contract limiting the rights of others to go into business in a specific industry or line of business for a specified period is called a

Which of the following costs normally is expensed in the year incurred,regardless of the extent of future benefit?

Which of the following is not a component of free cash flow?

The federal government grants patents for

The purchased right to reproduce and sell a computer program is covered by which intangible?

If a company's free cash flow is $90,000,net cash flows from operating activities total $220,000,purchases of plant assets total $100,000,and sales of plant assets total zero,what amount is committed to dividends?