Deck 8: Capital Assetstangible and Intangible

Question 1

Internally generated goodwill may be capitalized annually.

Answer 1

False

Question 2

The cash inflows generated from a capital asset will be received over several future periods.

Answer 2

True

Question 3

The capitalization of interest costs during construction is based on the matching principle.

Answer 3

True

Question 4

If a company determines that, due to damage the recoverable cost of its asset is reduced, it increases accumulated amortization.

Question 5

Long term capital assets with a \ an) ________________may not be amortizable.

A)defined life
B)undefined life
C)residual value
D)undefined value

Question 6

If a capital asset is written down it can be written back up if the net recoverable amount increases.

Question 7

Basic research costs that occur prior to any decision to develop a product or process are usually capitalized.

Question 8

The unexpensed portion of an amortizable asset is called:

A)accumulated amortization.
B)net realizable value.
C)net book value.
D)net present value.

Question 9

Which of the following is not a tangible capital asset?

A)Buildings
B)Land
C)Copyrights
D)Equipment

Question 10

The ultimate sales value of a capital asset is referred to as its:

A)residual value.
B)value in use.
C)net book value.
D)historical value.

Question 11

Capital assets must be recorded at cost and must be adjusted for changes in their market value.

Question 12

Amortization expense is a measure of an asset's decrease in value due to wear and tear.

Question 13

Traditional Canadian GAAP requires that property, plant, and equipment be valued at its:

A)historical cost.
B)replacement cost.
C)net realizable value.
D)present value.

Question 14

Depreciation, amortization, and depletion are all applications of the matching principle.

Question 15

Residual value directly enters into the calculation of amortization expense under all amortization methods.

Question 16

The return on assets should be calculated prior to any payments or returns to the debtholders or shareholders.

Question 17

In a basket purchase, the total purchase price is divided equally among the assets acquired.

Question 18

All patents have useful and economic lives of 20 years.

Question 19

The total accumulated amortization on a capital asset is also known as the asset's amortized cost.

Question 20

Larger resource companies are more likely to use the successful efforts method of capitalizing exploration costs.

Question 21

Interest is a capitalized cost in which of the following situations?

A)On assets being constructed for a firm's own use.
B)On assets being purchased for a firm's own use.
C)On assets being manufactured for inventory.
D)On assets being purchased for inventory.

Question 22

A machine was built for $125,500 during July, the cost included $750 in interest expense.The company had to pay $4,000 for shipping and another $2,000 for insuring the parts.The capitalized cost of the equipment was:

A)$124,750
B)$125,500
C)$131,500
D)$132,250

Question 23

In 2011, as part of a property purchase Melrose Ltd.incurred and paid 2010 property taxes.These costs should be:

A)recognized as an impairment loss
B)recognized on the income statement as an expense
C)recognized as a capital cost
D)not be taken into consideration, these costs are irrelevant.

Question 24

Capitalized interest is based on the:

A)all amounts borrowed to pay for the materials during construction.
B)estimated costs of interest during construction.
C)costs incurred to borrow money to pay for material, labour, and overhead.
D)interest incurred to finance purchased assets.

Question 25

The amortization method that most closely resembles what is allowable for tax purposes under CRA is:

A)the straight line method
B)units of activity method
C)the declining balance method
D)depletion method

Question 26

Jerry Corp.purchased a piece of equipment on May 15 for $27,000.It cost $400 to ship the equipment to the company's facilities and another $1,000 to install the equipment.After the equipment was installed the company had to pay an additional $1,500 for increased insurance.The capitalized cost of the equipment was:

A)$29,900
B)$29,500
C)$28,400
D)$27,400

Question 27

Assets that produce their greatest benefits to a firm early in their useful life should be amortized using the:

A)straight-line method.
B)declining-balance method.
C)compound interest method.
D)units-of-activity method.

Question 28

According to accounting standards, the method of amortization chosen should:

A)measure the change in an asset's value.
B)be systematic and rational.
C)allocate the most of the asset's cost to the early periods benefiting from its use.
D)recognize the reduced usefulness of an asset.

Question 29

The residual value is not directly used for the calculation of depreciation expense under which method:

A)units of activity method
B)straight line method
C)interest capitalization method
D)declining balance method

Question 30

The most commonly used method of amortization is:

A)straight-line.
B)capital cost allowance.
C)declining-balance.
D)units-of-activity.

Question 31

Which of the following statements is true with respect to capitalizing asset costs?

A)All additional costs related to acquiring an asset should be expensed.
B)Land cannot be amortized so it should just be expensed when acquired.
C)When costs are capitalized, the company gets the tax deduction immediately.
D)Some small expenses related to the purchase of an asset can be expensed for simplicity.

Question 32

Assets acquired in a basket purchase are to be allocated a portion of the total price based on their respective:

A)fair market values.
B)book values.
C)present values.
D)assessed values.

Question 33

Which of the following would not be classified as property, plant, and equipment?

A)Buildings in current use
B)Land purchased for resale
C)Machinery
D)Tools used in production

Question 34

When capitalizing the cost of a purchased asset, all of the following cost should be included in capitalization except for:

A)the full purchase price plus any discounts
B)set up costs
C)legal costs
D)shipping costs

Question 35

A plot of land was purchased for $120,000 which had $10,000 of past due property taxes on it.Sales taxes on the purchase were $1,400 and the title search cost $500.The capitalized cost of the land was:

A)$120,000
B)$121,900
C)$130,000
D)$131,900

Question 36

Which of the following would be an example of a land improvement?

A)Costs of grading the land before building.
B)Costs of digging the hole for the foundation.
C)Land transfer tax paid on purchase of the land.
D)Costs of installing lighting.

Question 37

IFRS permits corporations to capitalize interest costs for:

A)assets that are constructed or acquired over time only.
B)assets that are purchased only.
C)both assets that are purchased or constructed.
D)capitalizing interest is never allowed.

Question 38

When deciding whether to expense or capitalize the costs incurred when acquiring a capital asset, which one of the following is not relevant to the decision?

A)Materiality criterion
B)Matching principle
C)Income tax rules
D)Revenue recognition principles

Question 39

Which of the following would not be capitalized as part of a purchased asset's cost?

A)Sales tax
B)Installation cost
C)Shipping costs
D)Interest costs

Question 40

Lewis-Bruno Co.purchased 12 acres of land with an office building and warehouse on it for $2,000,000.The assets were appraised at: land $1,000,000, building $600,000, and warehouse $900,000.The assets were carried on the seller's books at: land $800,000, building $500,000, and warehouse $700,000.At what cost should the purchasing company record each of the assets?

Question 41

To apply the units-of-activity method, all of the following information is needed except the:

A)original cost.
B)estimated residual value.
C)estimated useful life.
D)estimated usage.

Question 42

The Canada Revenue Agency allows corporations to deduct the following when calculating taxable income:

A)declining-balance amortization.
B)straight-line amortization.
C)capital cost allowance.
D)one-half of the cost of the asset in the year of acquisition.

Question 43

The amortizable cost of an asset is defined as the:

A)original cost less residual value.
B)original cost less amortization.
C)original cost less accumulated amortization.
D)original cost.

Question 44

Which of the following amortization methods ignore residual value in the calculation of the annual amortization expense?

A)Double-declining-balance and capital cost allowance
B)Straight-line and double-declining-balance
C)Straight-line and capital cost allowance
D)Present value and straight-line

Question 45

Use the following information for questions:
Western Farms purchased some equipment on January 1, 2011 for $12,600.The equipment has an estimated useful life of 10 years and an estimated residual value of $1,200.The company uses double-declining-balance amortization.
The net book value on January 1, 2012 would be:

A)$10,080
B)$10,320
C)$11,340
D)$11,460

Question 46

An asset with an original cost of $75,000, a residual value of $7,500 and a useful life of 5 years is given away without any consideration at the end of year five.The entry to record this is:

Question 47

Use the following information for questions:
On January 1, 2011, Mary Co.purchased some equipment that cost $52,800.Freight costs were $300, sales taxes were $6,400, and installation $500.Estimated residual value is $2,000.The company uses a straight-line rate of 10%.
Amortization expense for 2011 was:

A)$6,130
B)$5,900
C)$5,800
D)$5,930

Question 48

If management wanted to show an increasing income over the life of an asset which method of amortization should they chose?

A)Capital cost allowance
B)Declining-balance
C)Units-of-activity
D)Straight-line

Question 49

Use the following information for questions:
On January 1, 2011, Mary Co.purchased some equipment that cost $52,800.Freight costs were $300, sales taxes were $6,400, and installation $500.Estimated residual value is $2,000.The company uses a straight-line rate of 10%.
What would the amortization expense be for 2011 if Mary Co.used the double declining balance method:

A)$12,200
B)$12,000
C)$11,600
D)$ 6,000

Question 50

Use the following information for questions:
Maddie Co.purchased a machine on January 1, 2011 for $22,500.The machine had an estimated useful life of 10 years and an estimated residual value of $2,500.The company uses double-declining-balance amortization.
What will be the amortization expense for 2011?

A)$4,500
B)$3,500
C)$2,250
D)$2,000

Question 51

The maximum capital cost allowance CCA) that may be deducted for new assets is:

A)the same as the amortization calculated for the year.
B)restricted by the residual value.
C)restricted to 50% of the normal amount.
D)is the annual amount prorated based on when during the year the asset was purchased.

Question 52

Use the following information for questions:
Western Farms purchased some equipment on January 1, 2011 for $12,600.The equipment has an estimated useful life of 10 years and an estimated residual value of $1,200.The company uses double-declining-balance amortization.
Amortization expense for 2011 would be:

A)$1,140
B)$1,260
C)$2,280
D)$2,520

Question 53

Which of the following amortization methods calculates annual amortization expense based on an asset's cost minus its residual value?

A)Deferred amortization
B)Straight-line
C)Capital cost allowance
D)Declining-balance

Question 54

The correct entry to record the annual amortization expense for a capital asset is:

Question 55

Use the following information for questions:
On January 1, 2011, Mary Co.purchased some equipment that cost $52,800.Freight costs were $300, sales taxes were $6,400, and installation $500.Estimated residual value is $2,000.The company uses a straight-line rate of 10%.
Accumulated amortization at the end of 2013 would be:

A)$17,400
B)$17,700
C)$17,790
D)$18,390

Question 56

Use the following information for questions:
Maddie Co.purchased a machine on January 1, 2011 for $22,500.The machine had an estimated useful life of 10 years and an estimated residual value of $2,500.The company uses double-declining-balance amortization.
If Maddie Co.used the straightline method of amortization what would the carrying value of the machine be at the end of 2011?

A)$20,500
B)$20,250
C)$18,250
D)$18,000

Question 57

If an asset generates revenues evenly over its useful life, which amortization method should be used?

A)Capital cost allowance
B)Declining-balance
C)Units-of-activity
D)Straight-line

Question 58

A company is amortizing a $1,000,000 building using a straight-line rate of 5%.The building has an estimated residual value of $200,000.What would the amount of amortization be in the first year using the straight-line method and the double-declining balance method?

Question 59

Use the following information for questions:
Maddie Co.purchased a machine on January 1, 2011 for $22,500.The machine had an estimated useful life of 10 years and an estimated residual value of $2,500.The company uses double-declining-balance amortization.
Assuming Maddie Co.uses straight-line amortization, what would be the book value of the machine on December 31, 2021?

A)$ -0-
B)$2,000
C)$2,250
D)$2,500

Question 60

Any difference that arises from the use of capital cost allowance CCA) for tax purposes and amortization methods for accounting purposes is referred to as an):

A)undepreciated capital cost.
B)temporary difference.
C)future income tax liability.
D)future tax asset.

Question 61

Upon the disposal of an asset, if the proceeds are greater than the carrying value of the asset the company must:

A)recognize a loss
B)recognize a gain
C)adjust the accumulated amortization account so the carrying value equals the proceeds
D)adjust the carrying value to market value

Question 62

A building currently has a net book value of $650,000 after three years of straight-line amortization totalling $150,000.The estimated residual value is $50,000.What was the building's original cost?

A)$900,000
B)$850,000
C)$800,000
D)$750,000

Question 63

Changes in the estimates for residual value or useful life result in changes in the amortization expense calculation.These changes are handled:

A)retroactively.
B)as cumulative changes.
C)prospectively.
D)as prior period adjustments.

Question 64

An asset that cost $16,200 with a residual value of $1,200 and a useful life of 5 years was amortized for two years using the straight-line method.In the third year, the useful life was determined to be 2 years longer than initially expected.Amortization in the third year would be:

A)$3,000
B)$2,143
C)$2,040
D)$1,800

Question 65

An amortizable asset with a cost of $42,500 has a residual value of $2,500 and a useful life of 8 years.Total estimated units of output are 80,000 and in year 1, 5,200 units were produced.Under the straight-line method and the units-of-activity method the amortization expense for the first year would be:

Question 66

The amortization expense of an asset can change for all of the following reasons except:

A)change in the estimated useful life.
B)change in the asset's expected residual value.
C)increases due to additions to the asset for major repairs and improvements.
D)increase in the asset due to regular repairs and maintenance.

Question 67

Accounting income times the tax rate equals:

A)taxes payable.
B)tax expense.
C)deferred taxes.
D)none of these.

Question 68

Which of the following intangibles would be capitalized?

A)Research
B)Advertising
C)Goodwill acquired in a purchase
D)Internally developed patent

Question 69

Water Company purchased a bottling machine on October 1, 2009 for $250,000.The estimated useful life is 25 years and they are using straight-line amortization.During 2011, they spent $46,000 on the machine to double its capacity and $5,000 on routine cleaning.What should the amortization expense be at September 30, 2011? The company's year end is September 30.

A)$10,000
B)$30,000
C)$12,200
D)$12,000

Question 70

Caricature's Inc.bought new computers on January 1 for $18,000 to improve the quality of their animation.The computers have a useful life of 8 years but Caricature's Inc.thinks that continuing technology developments will likely mean they will replace the computers after 4 years, at which time they will be worth $2,000.If they use straight-line amortization the amortization expense for the first year will be:

A)$2,000
B)$2,250
C)$4,000
D)$4,500

Question 71

The method of accounting for oil exploration that capitalizes the costs of all explorations is known as:

A)successful efforts method.
B)successful costs method.
C)full cost method.
D)full efforts method.

Question 72

An asset being amortized with the straight-line method has a residual value of $10,000 and accumulated amortization expense of $30,000 in its second year.What was the original cost of the asset if its useful life was 5 years?

A)$160,000
B)$140,000
C)$ 85,000
D)$75,000

Question 73

Which of the following methods of amortization is a company most likely to use for financial statement purposes if it purchases a patent?

A)Capital cost allowance
B)Double-declining-balance
C)Units-of-activity
D)Straight-line

Question 74

The capitalized costs for the development of a natural resource are allocated over the expected life of the asset using:

A)depreciation.
B)amortization.
C)depletion.
D)accretion.

Question 75

Bayside Ltd.owns a piece of land it had purchased in 2010 for $400,000.When they started to develop the land in 2011, they discovered that there were environmental problems with the land.It is now estimated to be worth only $150,000.Which of the following is the correct way to account for this?

A)No accounting is necessary because the land is recorded at its historical cost, not its market value.
B)The land account should be written down to $150,000 and a loss recognized.
C)The land should be written off completely because now the company cannot use it for the purpose they intended to.
D)The land should be amortized at a new rate to reflect the decline in its value.

Question 76

Which of the following is the biggest concern for an analyst when reviewing the value of assets on a company's financial statement?

A)Understanding the amortization method used.
B)Estimating the age of the assets reported.
C)Understanding what assets are not reported on the financial statement.
D)Estimating the original cost of the asset.

Question 77

Taxable income times the tax rate equals:

A)taxes payable.
B)tax expense.
C)deferred taxes.
D)none of these.

Question 78

On July 1, 2011, a truck was sold for $10,000.The company originally paid $28,000 on June 30, 2004 and has recorded accumulated amortization on it to date of $15,000.The entry to record the sale would include a:

A)credit to accumulated amortization for $15,000.
B)debit to trucks for $28,000.
C)credit to gain on sale of truck for $3,000.
D)debit to loss on sale of truck for $3,000.

Question 79

The most commonly used method of calculating depletion is called:

A)units-of-activity.
B)sum-of-the-years'-digits.
C)double-declining-balance.
D)straight-line.

Question 80

Proctor Paper Products purchased a machine on January 1, 2011, at a cost of $380,000 with an estimated residual value of $30,000 at the end of its estimated useful life of 8 years.On January 1, 2013, Proctor Paper estimates that the machine only has a remaining life of 5 years and a residual value of $20,000.Proctor Paper uses straight-line amortization.Depreciation expense for 2013 would be:

A)$48,500
B)$54,500
C)$57,000
D)$72,000