Solved by verified expert :True / False Questions
1. Plant assets are assets held for sale.
2. Plant assets refer to intangible assets that are used in
the operations of a business.
3. Plant assets are used in operations and have useful lives
that extend over more than one accounting period.
4. Land held for future expansion is an intangible
asset.
5. Depreciation is the process of allocating the cost of a
plant asset to expense in the accounting periods benefiting from its use.
6. Salvage value is an estimate of an asset’s value at the
end of its benefit period.
7. Inadequacy refers to the insufficient capacity of a
company’s plant assets to meet the company’s growing productive demands.
8. Depreciation should be recorded on the date an asset is
purchased.
9. Depreciation measures the actual decline in market
value of an asset.
10. A plant asset’s useful life might not be the same as its
productive life.
11. It is not necessary to report both the cost and the
accumulated depreciation of plant assets in the financial statements.
12. Depreciation expense is calculated using estimates of an
asset’s salvage value and useful life.
13. Accumulated depreciation represents funds set aside
to buy new assets when the assets currently owned are replaced.
14. When an asset is purchased (or disposed of) at a time
other than the beginning or the end of an accounting period, depreciation is
recorded for part of a year so that the year of purchase or the year of
disposal is charged with its share of the asset’s depreciation.
15. Revising an estimate
of the useful life or salvage value of a plant asset is referred to as a change
in accounting estimate, and is reflected in the past, current, and future
financial statements.
16. The going concern
assumption supports the reporting of plant assets at book value rather than
market value.
17. Total depreciation
expense over an asset’s useful life will be identical under all methods of
depreciation.
18. Financial accounting
and tax accounting require the same recordkeeping and there should be no
difference in results between the two accounting system
19. Most companies use
accelerated depreciation for tax purposes because it reduces taxable income due
to higher depreciation expense in the early years of an asset’s life.
20. The book value
of an asset when using double-declining-balance depreciation is always greater
than the book value from using straight-line depreciation, except at the
beginning and the end of the asset’s useful life, when it is the same.
21. The modified
accelerated cost recovery system (MACRS) is a depreciation method used for tax
reporting.
22. Decision makers
and other users of financial statements are especially interested in evaluating
a company’s ability to use its assets in generating sales.
23. Asset turnover is
computed by dividing average total assets by cost of sales.
24. Capital
intensive companies have a relatively large amount invested in assets to generate
a given level of sales.
25. Coors reported
net sales of $2,463 million and average total assets of $1,546 million. Its total
asset turnover equals 1.59.
26. Anheiser-Busch
reported average total assets of $10,965 million and net sales of $11,430
million. Its total asset turnover equals .96.
27. An asset’s cost
includes all normal and reasonable expenditures necessary to get the asset in
place and ready for its intended use.
28. If a machine is
damaged during unpacking, the repairs are added to its cost.
29. An expenditure must be
normal, reasonable, and necessary in preparing an asset for its intended use to
be charged to and reported as part of the cost of a plant asset.
30. The purchase of
a property that included land, building, and improvements is called a lump-sum
purchase.
31. When a company
constructs a building, the cost of the building includes materials and labor,
design fees, building permits, and insurance during construction.
32. Land is not
subject to depreciation because it has an unlimited life. This means that items
which increase the usefulness of the land such as parking lots are not
depreciated.
33. The cost of fees for
insuring the title and any accrued property taxes are included in the cost of
land.
34. The most frequently
used method of depreciation is the straight-line method.
35. Total asset cost plus
depreciation expense equals book value.
36. The units-of-production
method of depreciation charges a varying amount of expense for each period of
an asset’s useful life depending on its usage.
37. An accelerated
depreciation method yields smaller depreciation expense in the early years of
an asset’s life and larger depreciation expense in later years.
38. The
double-declining balance method is applied by (1) computing the asset’s
straight-line depreciation rate, (2) doubling it, (3) subtracting salvage value
from cost, and (4) multiplying the rate times the net value.
39. A company
purchased a plant asset for $45,000. The asset has an estimated salvage value
of $6,000, and an estimated useful life of 10 years. The annual depreciation
expense using the straight-line method is $3,900 per year.
40. Revenue expenditures
are additional costs of plant assets that materially increase the assets’ life
or productive capabilities.
41. Ordinary repairs are
expenditures that keep assets in normal, good operating condition.
42. Extraordinary
repairs are expenditures extending the asset’s useful life beyond its original
estimate, and are capital expenditures because they benefit future
periods.
43. Capital expenditures
are also called balance sheet expenditures.
44. Betterments are a type
of capital expenditure.
45. Treating capital
expenditures of a small dollar amount as revenue expenditures is likely to
mislead users of financial statements. FALSE
46. Plant assets can be
disposed of by discarding, selling, or exchanging them.
47. The first step
in accounting for an asset disposal is to calculate the gain or loss on
disposal.
48. Accounting for the exchange
of assets depends on whether the transaction has commercial substance;
commercial substance implies that it alters the company’s future cash
flows.
49. If an asset is
sold above its book value, the selling company records a loss.
50. Gain or loss on
the disposal of assets is determined by comparing the disposed asset’s book
value to the market value of any assets received.
51. A loss on disposal of
a plant asset can only occur if the cash proceeds received from the asset sale
is less than the asset’s book value.
52. Natural resources are
assets that include standing timber, mineral deposits, and oil and gas fields.
53. Amortization is
the process of allocating the cost of natural resources to periods when they
are consumed.
54. Natural resources are
often called wasting assets because they are physically consumed when
used.
55. Natural
resources are reported on the balance sheet at cost plus accumulated
depletion.
56. When the
usefulness of plant assets used to extract natural resources is directly
related to the depletion of a natural resource, their costs are depreciated
using the units-of-production method of depreciation, as long as the assets
will not be moved to and used at another site when extraction of the natural
resources is complete.
57. An ore deposit
costing $800,000 is expected to produce 1,600,000 tons of ore. A total of
70,000 tons are mined and sold in the current year. The depletion expense for
the current year is $35,000.
58. The cost of an
intangible asset must be systematically allocated to depreciation expense over
its estimated useful life.
59. Intangible
assets are certain nonphysical assets used in operations that confer on their owners
long-term rights, privileges, or competitive advantage.
60. Goodwill is the amount by which a company’s value exceeds
the value of its individual assets and liabilities.
61. The cost of an intangible is systematically allocated to
expense over its estimated useful life through the process of depletion.
62. Since goodwill is an
intangible, it is amortized each year using the straight-line method, the same
as other intangibles are amortized.
63. A patent is an exclusive right granted to its owner to
manufacture and sell a patented device or to use a process for 20 years.
64. A copyright gives its
owner the exclusive right to publish and sell a musical, literary, or artistic
work during the life of the creator plus 17 years.
65. The cost of
developing, maintaining, or enhancing the value of a trademark is always added
to the value of the asset when incurred.
Multiple Choice Questions
66. Plant assets
are:
A. Tangible assets used in
the operation of a business that have a useful life of more than one accounting
period.
B. Current
assets.
C. Held for sale.
D. Intangible
assets used in the operations of a business that have a useful life of more
than one accounting period.
E. Tangible
assets used in the operation of business that have a useful life of less than
one accounting period.
67. A main accounting issue for plant assets is:
A. Computing the
cost of the plant assets.
B. Matching the
costs of plant assets against revenues for the periods they benefit.
C. Accounting for
repairs and improvements to plant assets.
D. The disposal
of plant assets.
E. All of these.
68. Plant assets are:
A. Current
assets.
B. Used in operations.
C. Natural
resources.
D. Long-term
investments.
E. Intangible.
69. The relevant factor(s) in computing depreciation
include:
A. Cost.
B. Salvage value.
C. Useful life.
D. Depreciation
method.
E. All of these.
70. Salvage value is:
A. Also called
residual value.
B. Also called
scrap value.
C. An estimate of
the asset’s value at the end of its benefit period.
D. A factor
relevant to determining depreciation.
E. All of these.
71. Depreciation:
A. Measures the
decline in market value of an asset.
B. Measures
physical deterioration of an asset.
C. Is the process of
allocating to expense the cost of a plant asset.
D. Is an outflow
of cash from the use of a plant asset.
E. Is applied to
land.
72. The useful life of a
plant asset is:
A. The length of time it is
productively used in a company’s operations.
B. Never related
to its physical life.
C. Its productive
life, but not to exceed one year.
D. Determined by
the FASB.
E. Determined by
law.
73. Inadequacy
refers to:
A. The insufficient
capacity of a company’s plant assets to meet the company’s growing production
demands.
B. An asset that
is worn out.
C. An asset that
is no longer useful in producing goods and services.
D. The condition
where the salvage value is too small to replace the asset.
E. The condition
where the asset’s salvage value is less than its cost.
74. Obsolescence:
A. Occurs when an
asset is at the end of its useful life.
B. Refers to a plant asset
that is no longer useful in producing goods and services.
C. Refers to the
insufficient capacity of a company’s plant assets to meet the company’s
productive demands.
D. Occurs when an
asset’s salvage value is less than its replacement cost.
E. Does not
affect plant assets.
75. Once the
estimated depreciation expense for an asset is calculated:
A. It cannot be
changed due to the historical cost principle.
B. It may be revised based
on new information.
C. Any changes
are accumulated and recognized when the asset is sold.
D. The estimate
itself cannot be changed; however, new information should be disclosed in
financial statement footnotes.
E. It cannot be
changed due to the consistency principle.
76. A machine
originally had an estimated useful life of 5 years, but after 3 complete years,
it was decided that the original estimate of useful life should have been 10
years. At that point the remaining cost to be depreciated should be allocated
over the remaining:
A. 2 years.
B. 5 years.
C. 7 years. (10 year revised life – 3 years depreciated
= 7 remaining)
D. 8 years.
E. 10 years.
77. A change in an accounting estimate
is:
A. Reflected in
past financial statements.
B. Reflected in
future financial statements and also requires modification of past statements.
C. A change in a calculated
amount that is included in current and future years’ financial statements as a
result of new information or subsequent developments and from better insight or
improved judgment.
D. Not allowed
under current accounting rules.
E. Considered an
error in the financial statements.
78. When originally
purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost
$23,000 and its estimated salvage value is $1,500. After 4 years of
straight-line depreciation, the asset’s total estimated useful life was revised
from 8 years to 6 years and there was no change in the estimated salvage value.
The depreciation expense in year 5 equals:
A. $ 5,375.00.
B. $ 2,687.50.
C. $ 5,543.75.
D. $10,750.00.
E. $ 2,856.25.
79. A company used
straight-line depreciation for an item of equipment that cost $12,000, had a
salvage value of $2,000, and had a five-year useful life. After depreciating
the asset for three complete years, the salvage value was reduced to $1,200 and
its total useful life was increased from 5 years to 6 years. Determine the
amount of depreciation to be charged against the machine during each of the
remaining years of its useful life:
A. $1,000.
B. $1,800.
C. $1,467.
D. $1,600.
E. $2,160.
80. Nelson Company
purchased equipment on July 1 for $27,500 and decided to depreciate the
equipment on the straight-line method over its useful life of five years.
Assuming the equipment’s salvage value is $3,500, the amount of monthly
depreciation expense Nelson should recognize is:
A. $2,400
B. $ 200
C. $4,800
D. $ 400
E. $ 450
81. Thomas Enterprises
purchased a depreciable asset on October 1, 2008 at a cost of $100,000.
The asset is expected to have a salvage value of $15,000 at the end of its
five-year useful life. If the asset is depreciated on the
double-declining-balance method, the asset’s book value on December 31, 2010
will be:
A. $27,540
B. $21,600
C. $32,400
D. $18,360
E. $90,000
82. Based on the
information provided in question #81, Thomas Enterprises should recognize what
amount of depreciation expense in 2012?
A. $4,440
B. $6,610
C. $1,524
D. $5,520
E. $2,000
83. Lomax Enterprises
purchased a depreciable asset for $22,000 on March 1, 2008. The asset will be
depreciated using the straight-line method over its four-year useful life.
Assuming the asset’s salvage value is $2,000, what will be the amount of
accumulated depreciation on this asset on December 31, 2011?
A. $5,000.00
B. $4,166.67
C. $16,666.68
D. $20,000.00
E. $19,166.67
84. Based on the
information provided in question # 83, Lomax Enterprises should recognize
depreciation expense in 2011 in the amount of:
A. $19,166.67
B. $5,000.00
C. $5,500.00
D. $20,000.00
E. $4,166.67
85. The following
information is available on a depreciable asset owned by First Bank &
Trust:
The asset’s book value is $70,000 on October 1, 2010. On that date, management
determines that the asset’s salvage value should be $5,000 rather than the
original estimate of $10,000. Based on this information, the amount of
depreciation expense the company should recognize during the last three months
of 2010 would be:
A. $2,187.50
B. $1,718.75
C. $2,031.25
D. $2,321.43
E. $1,964.29
86. Many companies use an accelerated depreciation method because:
A. It is required
by the tax code.
B. It is required
by financial reporting rules.
C. It yields larger
depreciation expense in the early years of an asset’s life.
D. It yields a
higher income in the early years of the asset’s useful life.
E. The results
are identical to straight-line depreciation.
87. The modified
accelerated cost recovery system (MACRS):
A. Is included in the U.S.
federal income tax rules for depreciating assets.
B. Is an
out-dated system that is no longer used by companies.
C. Is required
for financial reporting.
D. Is identical
to units of production depreciation.
E. All of these.
88. The
straight-line depreciation method and the double-declining-balance depreciation
method:
A. Produce the same total
depreciation over an asset’s useful life.
B. Produce the
same depreciation expense each year.
C. Produce the
same book value each year.
D. Are acceptable
for tax purposes only.
E. Are the only
acceptable methods of depreciation for financial reporting.
89. Total asset turnover is used to evaluate:
A. The efficiency of
management’s use of assets to generate sales.
B. The necessity
for asset replacement.
C. The number of
times operating assets were sold during the year.
D. The cash flows
used to acquire assets.
E. The relation
between asset cost and book value.
90. A total asset turnover ratio of 3.5 indicates that:
A. For every $1
in sales, the firm acquired $3.50 in assets during the period.
B. For every $1 in assets,
the firm produced $3.50 in net sales during the period.
C. For every $1
in assets, the firm earned gross profit of $3.50 during the period.
D. For every $1
in assets, the firm earned $3.50 in net income.
E. For every $1
in assets, the firm paid $3.50 in expenses during the period.
91. Total asset
turnover is calculated by dividing:
A. Gross profit
by average total assets.
B. Average total
assets by gross profit.
C. Net sales by average total
assets.
D. Average total
assets by net sales.
E. Net assets by
total assets.
92. A company had average
total assets of $897,000. Its gross sales were $1,090,000 and its net sales
were $1,000,000. The company’s total asset turnover equals:
A. 0.82.
B. 0.90.
C. 1.09.
D. 1.11.
E. 1.26.
93. Dell had net sales of
$35,404 million. Its average total assets for the period were $14,502 million.
Dell’s total asset turnover equals:
A. 0.40.
B. 0.35.
C. 1.45.
D. 2.44.
E. 3.50.
94. Land improvements
are:
A. Assets that
increase the usefulness of land, and like land, are not depreciated.
B. Assets that increase the
usefulness of land, but that have a limited useful life and are subject to
depreciation.
C. Included in
the cost of the land account.
D. Expensed in
the period incurred.
E. Also called
basket purchases.
95. Plant assets
include:
A. Land.
B. Land
improvements.
C. Buildings.
D. Machinery and
equipment.
E. All of these.
96. The cost of land can
include:
A. Purchase
price.
B. Assessments by
local governments.
C. Costs of
removing existing structures.
D. Fees for
insuring the title.
E. All of these.
97. A company paid
$150,000, plus a 6% commission and $4,000 in closing costs for a property. The
property included land appraised at $87,500, land improvements appraised at
$35,000, and a building appraised at $52,500. What should be the allocation of
this property’s costs in the company’s accounting records?
A. Land $75,000;
Land Improvements, $30,000; Building, $45,000.
B. Land $75,000;
Land Improvements, $30,800; Building, $46,200.
C. Land $81,500; Land
Improvements, $32,600; Building, $48,900.
D. Land $79,500;
Land Improvements, $32,600; Building, $47,700.
E. Land $87,500;
Land Improvements; $35,000; Building; $52,500.
98. A company purchased
property for a building site. The costs associated with the property were:
What portion of these costs should be allocated to the cost of the land and
what portion should be allocated to the cost of the new building?
A. $175,800 to
Land; $18,800 to Building.
B. $190,000 to
Land; $3,800 to Building.
C. $190,800 to
Land; $1,000 to Building.
D. $192,800 to
Land; $0 to Building.
E. $193,800 to Land; $0 to
Building.
99. A company purchased
property for $100,000. The property included a building, a parking lot, and
land. The building was appraised at $62,000; the land at $45,000, and the
parking lot at $18,000. Land should be recorded in the accounting records with
an allocated cost of:
A. $ 0.
B. $ 36,000.
C. $ 42,000.
D. $ 45,000.
E. $100,000.
100. The formula for
computing annual straight-line depreciation is:
A. Depreciable
cost divided by useful life in units.
B. Cost plus
salvage value divided by the useful life in years.
C. Cost less salvage value
divided by the useful life in years.
D. Cost
multiplied by useful life in years.
E. Cost divided
by useful life in units.
101. The total cost of an
asset less its accumulated depreciation is called:
A. Historical
cost.
B. Book value.
C. Present value.
D. Current
(market) value.
E. Replacement
cost.
102. A method that
charges the same amount of expense to each period of the asset’s useful life is
called:
A. Accelerated
depreciation.
B. Declining-balance
depreciation.
C. Straight-line
depreciation.
D. Units-of-production
depreciation.
E. Modified
accelerated cost recovery system (MACRS) depreciation.
103. A method that
allocates an equal portion of the total depreciable cost for a plant asset to
each unit produced is called:
A. Accelerated
depreciation.
B. Declining-balance
depreciation.
C. Straight-line
depreciation.
D. Units-of-production
depreciation.
E. Modified
accelerated cost recovery system (MACRS) depreciation.
104. A depreciation method
in which a plant asset’s depreciation expense for a period is determined by
applying a constant depreciation rate to the asset’s beginning-of-period book
value is called:
A. Book value
depreciation.
B. Declining-balance
depreciation.
C. Straight-line
depreciation.
D. Units-of-production
depreciation.
E. Modified
accelerated cost recovery system (MACRS) depreciation.
105. A depreciation
method that produces larger depreciation expense during the early years of an
asset’s life and smaller expense in the later years is a (an):
A. Accelerated depreciation
method.
B. Book value
depreciation method.
C. Straight-line
depreciation method.
D. Units-of-production
depreciation method.
E. Unrealized
depreciation method.
106. A company purchased a
delivery van for $23,000 with a salvage value of $3,000 on September 1, 2008.
It has an estimated useful life of 5 years. Using the straight-line method, how
much depreciation expense should the company recognize on December 31,
2008?
A. $1,000.
B. $1,333.
C. $1,533.
D. $4,000.
E. $4,600.
107. A company purchased a cash register on January 1 for
$5,400. This register has a useful life of 10 years and a salvage value of
$400. What would be the depreciation expense for the second-year of its
useful life using the double-declining-balance method?
A. $ 500.
B. $ 800.
C. $ 864.
D. $1,000.
E. $1,080.
108. A company purchased a
rope braiding machine for $190,000. The machine has a useful life of 8 years
and a residual value of $10,000. It is estimated that the machine could produce
750,000 units of climbing rope over its useful life. In the first year, 105,000
units were produced. In the second year, production increased to 109,000 units.
Using the units-of-production method, what is the amount of depreciation that
should be recorded for the second year?
A. $25,200.
B. $26,160.
C. $26,660.
D. $27,613.
E. $53,160.
109. Revenue expenditures:
A. Are additional costs of
plant assets that do not materially increase the asset’s life or its productive
capabilities.
B. Are known as
balance sheet expenditures.
C. Extend the
asset’s useful life.
D. Substantially
benefit future periods.
E. Are debited to
asset accounts.
110. Another name for a capital expenditure is:
A. Revenue
expenditure.
B. Asset
expenditure.
C. Long-term
expenditure.
D. Contributed
capital expenditure.
E. Balance sheet
expenditure.
111. Extraordinary repairs:
A. Are revenue
expenditures.
B. Extend an asset’s useful
life beyond its original estimate.
C. Are credited
to accumulated depreciation.
D. Are additional
costs of plants assets that do not materially increase the asset’s life.
E. Are expensed
as incurred.
112. Ordinary repairs:
A. Are
expenditures to keep an asset in normal operating condition.
B. Are necessary
if an asset is to perform to expectations over its useful life.
C. Are treated as
expenses.
D. Include
cleaning, lubricating, and normal adjusting.
E. All of these.
113. Betterments:
A. Are
expenditures making a plant asset more efficient or productive.
B. Are also
called improvements.
C. Do not always
increase an asset’s life.
D. Are capital
expenditures.
E. All of these.
114. An asset’s book value is $18,000 on June 30, 2008. The
asset is being depreciated at an annual rate of $3,000 on the straight-line
method. Assuming the asset is sold on December 31, 2009 for $15,000, the
company should record:
A. A loss on sale
of $1,500.
B. A gain on sale of
$1,500.
C. Neither a gain
nor a loss is recognized on this type of transaction.
D. A gain on sale
of $3,000.
E. A loss on sale
of $3,000.
115. An asset’s book value is $36,000 on January 1, 2008. The
asset is being depreciated $500 per month using the straight-line method.
Assuming the asset is sold on July 1, 2009 for $25,000, the company should
record:
A. Neither a gain
or loss is recognized on this type of transaction.
B. A gain on sale
of $2,000.
C. A loss on sale
of $1,000.
D. A gain on sale
of $1,000.
E. A loss on sale of
$2,000.
116. Information on a depreciable asset owned by Wilson
Engineering is as follows:
If the asset is sold on July 1, 2012 for $20,000, the journal entry to record
the sale will include:
A. A credit to
cash for $20,000.
B. A debit to accumulated
depreciation for $22,500.
C. A debit to
loss on sale for $10,000.
D. A credit to
loss on sale for $10,000.
E. A debit to
gain on sale for $2,500.
117. Information on a depreciable asset is as follows:
If the asset is sold on January 1, 2011 for $13,000, the journal entry to
record the sale will include:
A. A credit to
gain on sale for $8,000.
B. A debit to loss on sale
for $2,625.
C. A credit to
accumulated depreciation for $59,375.
D. A debit to
loss on sale for $3,042.
E. A credit to
gain on sale for $4,979.
118. An asset can be disposed of by:
A. Discarding it.
B. Selling it.
C. Exchanging it
for another asset.
D. Donating it to
charity.
E. All of these.
119. A company sold a
machine that originally cost $100,000 for $60,000 cash. The accumulated
depreciation on the machine was $40,000. The company should recognize a:
A. $0 gain or loss.
B. $20,000 gain.
C. $20,000 loss.
D. $40,000 loss.
E. $60,000 gain.
120. A company discarded a
display case originally purchased for $8,000. The accumulated depreciation was
$7,200. The company should recognize a (an):
A. $0 gain or
loss.
B. $800 loss.
C. $800 gain.
D. $8,000 loss.
E. $7,200 loss.
121. A company had a bulldozer destroyed by fire. The
bulldozer originally cost $125,000 with accumulated depreciation of $60,000.
The proceeds from the insurance company were $90,000. The company should
recognize:
A. A loss of
$25,000.
B. A gain of $25,000.
C. A loss of
$65,000.
D. A gain of
$65,000.
E. A gain of
$90,000.
122. Natural
resources:
A. Include
standing timber, mineral deposits, and oil and gas fields.
B. Are also
called wasting assets.
C. Are long-term
assets.
D. Are depleted.
E. All of these.
123. Depletion:
A. Is the process of
allocating the cost of natural resources to periods in which they are consumed.
B. Is also called
depreciation.
C. Is also called
amortization.
D. Is an
unrealized expense reported in equity.
E. Is the process
of allocating the cost of intangibles to periods in which they are used.
124. A company purchased a
tract of land for its natural resources at a cost of $1,500,000. It expects to
mine 2,000,000 tons of ore from this land. The salvage value of the land is
expected to be $250,000. The depletion expense per ton of ore is:
A. $0.75.
B. $0.625.
C. $0.875.
D. $6.00.
E. $8.00.
125. A company
purchased a mineral deposit for $800,000. It expects this property to produce
1,200,000 tons of ore and to have a salvage value of $50,000. In the current
year, the company mined and sold 90,000 tons of ore. Its depletion expense for
the current period equals:
A. $ 15,000.
B. $ 60,000.
C. $150,000.
D. $ 56,250.
E. $139,500.
126. Intangible
assets include:
A. Patents.
B. Copyrights.
C. Trademarks.
D. Goodwill.
E. All of these.
127. Amortization:
A. Is the systematic
allocation of the cost of an intangible asset to expense over its estimated
useful life.
B. Is the process
of allocating to expense the cost of a plant asset to the accounting periods
benefiting from its use.
C. Is the process
of allocating the cost of natural resources to periods when they are consumed.
D. Is an
accelerated form of expensing an asset’s cost.
E. Is also called
depletion.
128. A patent:
A. Gives its
owner the exclusive right to publish and sell a musical or literary work during
the life of the creator plus 70 years.
B. Gives its owner an
exclusive right to manufacture and sell a patented item or to use a process for
20 years.
C. Gives its
owner an exclusive right to manufacture and sell a device or to use a process
for 50 years.
D. Is the amount
by which the value of a company exceeds the fair market value of a company’s
net assets if purchased separately.
E. Gives its
owner the exclusive right to publish and sell a musical or literary work during
the life of the creator plus 17 years.
129. A
copyright:
A. Gives its owner the
exclusive right to publish and sell a musical or literary work during the life
of the creator plus 70 years.
B. Gives its
owner an exclusive right to manufacture and sell a patented item or to use a
process for 20 years.
C. Gives its
owner an exclusive right to manufacture and sell a device or to use a process
for 50 years.
D. Is the amount
by which the value of a company exceeds the fair market value of a company’s
net assets if purchased separately.
E. Gives its
owner the exclusive right to publish and sell a musical or literary work during
the life of the creator plus 20 years.
130. A leasehold:
A. Is a
short-term rental agreement.
B. Is the same as
a patent.
C. Are the rights granted
to the lessee by the lessor of a lease.
D. Is recorded as
revenue expenditure when paid.
E. Is an
investment asset.
131. Goodwill:
A. Is not amortized, but is
tested annually for impairment.
B. Is amortized
using the straight-line method.
C. Is amortized
using the units-of-production method.
D. May be
amortized using either the straight-line or units-of-production method.
E. Is never
amortized or tested for impairment.
132. A company’s old machine that cost $40,000 and had
accumulated depreciation of $30,000 was traded in on a new machine having an
estimated 20-year life with an invoice price of $50,000. The company also paid
$43,000 cash, along with its old machine to acquire the new machine. If this
transaction has commercial substance, the new machine should be recorded
at:
A. $40,000.
B. $47,000.
C. $50,000.
D. $53,000.
E. $10,000.
133. Endor Fishing Company exchanged an old boat for a new
one. The old boat had a cost of $260,000 and accumulated depreciation of
$200,000. The new boat had an invoice price of $400,000. Endor received a trade
in allowance of $100,000 on the old boat, which meant the company paid $300,000
in addition to the old boat to acquire the new boat. If this transaction lacks
commercial substance, what amount of gain or loss should be recorded on this
exchange?
A. $0 gain or loss.
B. $40,000 gain.
C. $40,000 loss.
D. $60,000 loss
E. $100,000 loss.
134. Huffington Company traded in an old delivery truck for a
new one. The old truck had a cost of $75,000 and accumulated depreciation of
$60,000. The new truck had an invoice price of $125,000. Huffington was given a
$12,000 trade-in allowance on the old truck, which meant they paid $113,000 in
addition to the old truck to acquire the new truck. If this transaction has
commercial substance, what is the recorded value of the new truck?
A. $15,000
B. $75,000
C. $113,000
D. $125,000
E. $128,000
135. A company bought a
new display case for $42,000 and was given a trade-in of $2,000 on an old
display case, so the company paid $40,000 cash with the trade-in. The old case
had an original cost of $37,000 and accumulated depreciation of $34,000. If the
transaction has commercial substance, the company should record the new display
case at:
A. $ 2,000.
B. $ 3,000.
C. $40,000.
D. $42,000.
E. $43,000.
136. A company purchased a
machine valued at $66,000. It traded in an old machine for a $9,000 trade-in
allowance and the company paid $57,000 cash with the trade-in. The old machine
cost $44,000 and had accumulated depreciation of $36,000. This transaction has
commercial substance. What is the recorded value of the new machine?
A. $ 8,000.
B. $ 9,000.
C. $57,000.
D. $65,000.
E. $66,000.
