Exam 9: Long-Lived Tangible and Intangible Assets

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?

The MegaHit Film Studio owns a production lot and related equipment.How would MegaHit Company classify these assets on its balance sheet?

The net amount shown on a balance sheet for an intangible asset with an unlimited life should be:

When a company records amortization expense it debits:

Purrfect Pets has a facility that originally cost $375,000.The balance of the accumulated amortization 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:

At the beginning of 2009,your company buys a $30,000 piece of equipment that it expects to use for 4 years.The company expects to produce a total of 200,000 units.The equipment has an estimated residual value of $2,000. a.Find the amortizable cost. b.Find the amortization expense per year under the straight-line method. c.Prepare an amortization schedule under the straight-line method. d.Find the amortization rate per unit under the units-of-production method. e.Compare the annual amortization expense using both methods assuming constant annual production. f.Prepare an amortization schedule under the units-of-production method if 44,000 units are produced in year one,53,000 units in year two,51,000 units in year three,and 52,000 units in year four.

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

When the straight-line method is used to compute amortization,an asset's carrying value remains constant over the life of the asset. BT: Knowledge

All things being equal,if average net fixed assets decrease,then the fixed asset turnover ratio will increase. BT: Comprehension

An asset is purchased on January 1 for $40,000.It is expected to have a useful life of five years after which it will have an expected salvage value of $5,000.The company uses the straight-line method.If it is sold for $30,000 exactly two years after its purchase,the company will record a:

Match the term and the definition.Not all definitions will be used. _____ Accelerated amortization _____ Goodwill _____ Patent _____ EBITDA _____ Net book value _____ Fixed assets _____ Straight-line amortization _____ Residual value _____ Trademark A.Names or images that appear with a $\rightarrow$ or ^TM. B.A tax law dealing with how companies can amortize their assets. C.An intangible asset that represents the value of unidentifiable assets. D.Revenue that a company receives through a licensing agreement. E.Assets whose values do not change over time. F.When a company expenses the cost of a long-lived asset by a constant annual amount. G.The acquisition cost of an asset minus its accumulated amortization. H.The estimated total use a company expects to receive from an asset. I.Net income plus interest,taxes,and amortization expenses. J.What a company expects to receive when an asset is disposed of at the end of its useful life. K.What a company presents on its balance sheet as the fair market value of an asset. L.When a company expenses the entire cost of a long-lived asset in the first year of use. M.Tangible long-lived assets. N.When a company receives free publicity in return for charitable contributions. O.When a company allocates the cost of a long-lived asset at a higher rate in the first years of use. P.The exclusive right to sell or use a product or process that is granted to encourage innovation.

If net sales revenue rises 5% while the average book value of fixed assets falls 5%:

A loss on disposal of an asset is reported:

The amount of amortization expense over the life of an asset will be the same in all of the different methods of amortization. BT: Comprehension

Which of the following statements is true?

Goodwill:

Which of the following methods would be a typical choice when asset use fluctuates significantly from period to period?

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

Company A uses an accelerated amortization method while Company B uses the straight-line method.All other things equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?

During 2007,Company X sells 500,000 units for $8 each.Sales discounts are $100,000 and sales returns and allowances are $300,000.The company reported a total of $710,000 in fixed assets on January 1,2007 and $890,000 in fixed assets on December 31,2007. a.Calculate net sales revenue. b.Calculate average fixed assets. c.Calculate the fixed asset turnover ratio. d.Assume the 2007 fixed asset turnover ratio was lower than the 2006 ratio.Describe one circumstance where this change would indicate bad news and one circumstance where this change would be consistent with good news.