Deck 8: Operating Assets: Property, Plant, and Equipment, and Intangibles

Question 1

A building with an appraisal value of $167,000 is made available at an offer price of $162,000.The purchaser acquires the property for $25,000 in cash, a 90-day note payable for $75,000, and a mortgage amounting to $65,000.The cost basis recorded in the buyer's accounting records to recognize this purchase is

A)$167,000
B)$162,000
C)$165,000
D)$140,000

Answer 1

C

Question 2

Central National Bank recently acquired a new computer system.Which of the following costs associated with the computer should not be debited to the Equipment account?

A)Installation of a backup power source required for the computer.
B)Replacement of several circuit boards damaged during installation.
C)System programmer wages for personnel hired to prepare the system for use.
D)Insurance coverage covering the transport period from the manufacturer.

Answer 2

B

Question 3

Oakland Corp.purchased land and a building for a combined cost of $500,000.Oakland must

A)record the $500,000 acquisition cost in an account called Land and Buildings.
B)depreciate the $500,000 acquisition cost, less any residual value, over the expected useful life of the building.
C)because part of the purchase involved land, record all of the cost in the Land account.
D)allocate the $500,000 acquisition cost to separate Land and Buildings accounts based on their respective fair market values.

Answer 3

D

Question 4

If a company constructs an asset over a period of time and borrows money, the amount of interest incurred during construction on the borrowed money is

A)capitalized as part of the cost of the plant asset.
B)amortized over the construction period.
C)reported as interest expense on the income statement.
D)reported as depletion on the income statement.

Question 5

Crimson Corp.constructed equipment to manufacture a new line of home products during 2015.The average balance of accumulated expenditures on the equipment during September through December 2015 was $500,000.Construction started on September 1, 2015 and was still in progress at the end of 2015.If Crimson borrowed $500,000 for one year on September 1, 2015, to finance the construction, and the interest rate on the construction loan was 6%, how much interest can Crimson capitalize as part of the equipment cost for 2015?

A)$ -0-
B)$10,000
C)$20,000
D)$30,000

Question 6

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?

A)Accumulated Depreciation-Buildings
B)Buildings
C)Depreciation Expense-Buildings
D)Land

Question 7

Barton Resort incurred the following costs to acquire and prepare land during 2015 for a new parking lot: purchase price for land, $800,000; cost to clear the land, $30,000; cost of paving, $40,000; and lighting for the parking lot, $20,000.How much should Barton record in the Land Improvements account?

A)$30,000
B)$40,000
C)$60,000
D)$90,000

Question 8

Darrin Brown bought a pub.The purchase price was $695,000.An appraiser provided the following appraisal values: land $320,000: building $370,000 and equipment $60,000.What cost should be allocated to the building?

A)$370,000
B)$695,000
C)$342,867
D)$399,281

Question 9

Wyoming Real Estate purchased a building for $600,000 in 2002.At the end of 2014, when it had a book value of $450,000, it was appraised for $1,000,000.A potential buyer offered $900,000.Wyoming rejected the offer.What amount should is recorded on Wyoming's records at the end of 2014 in the account called Buildings?

A)$1,000,000
B)$900,000
C)$600,000
D)$450,000

Question 10

Which of the following costs related to the purchase of production equipment incurred by Newark Company during 2015 would be considered a revenue expenditure?

A)Installation costs for equipment
B)Purchase price of the equipment less the cash discount
C)Repair and maintenance costs during the equipment's first year of service
D)Transportation charges to deliver the equipment to Newark Company

Question 11

Which statement is true concerning operating assets?

A)Operating assets have no physical properties.
B)A company's operating assets are important to its short­term liquidity.
C)Operating assets are used over two or more periods to generate revenues.
D)All operating assets are reported on the balance sheet

Question 12

All of the following are included in the acquisition cost of property, plant, and equipment except:

A)transportation costs
B)taxes on the purchase
C)installation costs
D)maintenance costs

Question 13

Depreciation is a process by which

A)replacement funds are accumulated for plant and equipment.
B)the decline in market value of plant and equipment is determined and recorded.
C)the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.
D)the difference between current market value and historical cost of plant and equipment.

Question 14

Borden Company incurred the following costs to acquire and prepare land for a new parking lot: purchase price for land, cost to clear the land, cost of paving, lighting for the parking lot, and landscaping for the parking lot.How should the company determine which costs should be recorded as Land Improvements and which cost should be recorded as Land?

A)The costs with an unlimited life will increase Land, and the costs with a limited useful life will increase Land Improvements.
B)The costs with a limited life will increase Land, and the costs with an unlimited useful life will increase Land Improvements.
C)The costs to be depreciated will increase Land, and the costs that will not be depreciated will increase Land Improvements
D)Costs that are depreciable will increase Land Improvements, while other costs are expensed immediately because of a lack of definite life.

Question 15

Assets classified as property, plant, and equipment are reported at

A)each asset's estimated market value at the balance sheet date.
B)each asset's estimated salvage value at the balance sheet date.
C)the estimated depreciable cost at the balance sheet date.
D)each asset's original cost less depreciation since acquisition.

Question 16

When constructing assets, capitalized interest is based on

A)the amount allowed by the company's auditors.
B)the expenditures at the end of the of the period.
C)the expenditures at the beginning of the period.
D)the average accumulated expenditures.

Question 17

On December 1, 2014, Xeon Company bought land and an accompanying warehouse from Yen Company for $800,000.The fair market values of the land and the building at the time of purchase were $700,000 and $300,000, respectively.How much of the purchase price should Xeon Company allocate to the land and how much should be allocated to the building?

A)$457,143 and $342,857, respectively.
B)$700,000 and $300,000, respectively.
C)$560,000 and $240,000, respectively.
D)$500,000 and $300,000, respectively

Question 18

Greer Company purchased land for $256,000.Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence and a legal fee of $8,500.What is the cost of the land?

A)$256,000
B)$282,200
C)$284,600
D)$281,000

Question 19

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called

A)Accumulated Amortization
B)Accumulated Depreciation
C)Amortization Expense
D)Depreciation Expense

Question 20

Interest is capitalized when incurred in connection with the construction of plant assets because

A)interest is considered a part of the acquisition cost of the related plant asset.
B)the decision to purchase a plant asset is a business decision separate from the financing decision.
C)many plant assets last longer than 20 years.
D)interest is considered an expense of the period.

Question 21

A company should choose a depreciation method that

A)best allocates the original cost of the asset to the periods benefited by the use of the asset.
B)saves the most taxes.
C)minimizes net income
D)shows the highest amount of net income.

Question 22

Norwood, Inc.
Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.
Refer to the information about Norwood, Inc.
What amount will Norwood, Inc.report as depreciation expense over the 8-year life of the equipment?

A)$60,000
B)$72,000
C)$75,000
D)$80,000

Question 23

Bing's Export Co.
Bing's Export Co.purchased a new delivery truck at the beginning of 2015.The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000.A full year's depreciation expense is to be recorded in 2015.The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016.The number of expected miles over five years is 100,000.
Refer to information for Bing's Export Co.
By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck?

A)The salvage value of $7,000.
B)Cost less total depreciation.
C)Cost plus total depreciation.
D)Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

Question 24

Bing's Export Co.
Bing's Export Co.purchased a new delivery truck at the beginning of 2015.The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000.A full year's depreciation expense is to be recorded in 2015.The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016.The number of expected miles over five years is 100,000.
Refer to information for Bing's Export Co.
What is the amount by which double-declining-balance depreciation exceeds straight-line depreciation over the 5-year life of the truck?

A)$ -0-
B)$ 7,000
C)$37,000
D)$ 6,000

Question 25

Which of the following sets of factors is needed to calculate depreciation on plant and equipment?

A)The asset's acquisition cost, replacement cost, and its estimated residual value
B)The estimated residual value of the asset, its replacement cost, and its market value
C)The asset's replacement cost, its estimated life, and its estimated residual value
D)The estimated life of the asset, its acquisition cost, and its estimated residual value

Question 26

If technology changes rapidly, a firm should

A)expense plant asset immediately because of the uncertainty of future benefits.
B)depreciate plant assets over long periods of time.
C)consider an accelerated rate of depreciation.
D)use the straight-line method of depreciation as it is the easiest.

Question 27

Norwood, Inc.
Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.
Refer to the information for Norwood, Inc,
Based on this information, what method of depreciation will produce the maximum depreciation expense in 2016?

A)Straight-line
B)Double-declining-balance
C)Units-of-production
D)All methods produce the same expense in 2016.

Question 28

Blanket Airlines acquires a new aircraft.It has an estimated life of 15 years and should be used for 15,000 hours of flight.What is the most appropriate method of depreciation to properly match revenues and expenses?

A)Double-declining-balance
B)Revenue expenditure method
C)Straight-line
D)Units-of-production

Question 29

Norwood, Inc.
Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.
Refer to the information about Norwood, Inc.
If Norwood uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2016?

A)$14,063
B)$15,000
C)$18,750
D)$20,000

Question 30

Fall Corp.uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration.Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the company's assets?

A)Double-declining-balance
B)Revenue expenditure method
C)Straight-line
D)Units-of-production

Question 31

Bing's Export Co.
Bing's Export Co.purchased a new delivery truck at the beginning of 2015.The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000.A full year's depreciation expense is to be recorded in 2015.The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016.The number of expected miles over five years is 100,000.
Refer to information about Bing's Export Co.
Bing's Export Co.wants to use the depreciation method that will result in the highest depreciation expense for 2015.Which method should be used?

A)straight-line
B)units-of-production
C)double-declining-balance
D)all methods create the same income in 2015

Question 32

Bing's Export Co.
Bing's Export Co.purchased a new delivery truck at the beginning of 2015.The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000.A full year's depreciation expense is to be recorded in 2015.The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016.The number of expected miles over five years is 100,000.
Refer to information for Bing's Export Co.
Bing's is comparing the straight­line and double­declining­balance depreciation methods.Of these two methods, which method creates the larger expense and larger tax savings in 2015?

A)Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings.
B)Straight-line depreciation creates both the larger expense and the larger tax savings.
C)Double-declining-balance depreciation creates both the larger expense and the larger tax savings.
D)Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

Question 33

Arena, Inc.uses straight-line depreciation for its equipment.Arena purchased equipment for $300,000 and estimated its useful life at 8 years.The bookkeeper failed to consider the residual value of $50,000.What is the impact on earnings per share and operating income of failing to consider the residual value?

A)Earnings per share will be overstated and operating income will be understated.
B)Earnings per share will be understated and operating income will be overstated.
C)Both earnings per share and operating income will be overstated.
D)Both earnings per share and operating income will be understated.

Question 34

Land is not depreciated because it

A)appreciates in value.
B)does not have an established depreciable life.
C)has a useful life that is limited to the period of time a company is in business.
D)will provide future benefits for a company for an unlimited period of time.

Question 35

Depreciation is

A)an effort to achieve proper matching of the cost of operating assets.
B)an accumulation of funds to replace the related plant asset.
C)the difference between the original cost and salvage value of an asset.
D)the cash allocated each period to maintain a plant asset.

Question 36

Harkin Company purchased a building on a tract of land and allocated the entire cost of the purchase to building.Normally it depreciates buildings over 20 years using the straight-line method with zero residual value and does not depreciate land.Because of its accounting treatment of the purchase, Harkin's income before taxes for the next 20 years will be

A)overstated.
B)understated.
C)unaffected.
D)in conformance with GAAP.

Question 37

Norwood, Inc.
Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.
Refer to the information about Norwood, Inc.
If Norwood uses the straight-line method, what is the book value at December 31, 2017?

A)$46,875
B)$51,875
C)$62,500
D)$67,500

Question 38

Norwood, Inc.
Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.
Refer to the information for Norwood, Inc.
Based on this information, what method of depreciation will produce the maximum depreciation expense in 2015?

A)Straight-line
B)Double-declining-balance
C)Units-of-production
D)All methods produce the same expense in 2015.

Question 39

Which of the following factors is not related to the decline in the usefulness of plant and equipment assets, and therefore does not need to be considered in selecting an appropriate depreciation method?

A)Physical deterioration
B)Obsolescence
C)Repair and maintenance policies
D)Current replacement cost

Question 40

Norwood, Inc.
Norwood, Inc.purchased a crane at a cost of $80,000.The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation.The crane was purchased on January 1, 2015 and was used 2,700 hours in 2015 and 2,600 hours in 2016.
Refer to the information about Norwood, Inc.
If Norwood uses the units-of-production method, what is the depreciation rate per hour for the equipment?

A)$4.00
B)$5.00
C)$6.00
D)$7.50

Question 41

In 2010, Blanton Company bought equipment with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years.It was depreciated by the straight-line method for 4 years.Due to obsolescence, it was determined at the beginning of 2014 that the useful life should be shortened by 3 years and the residual value changed to zero.The depreciation expense for 2014 is

A)$11,636
B)$16,00
C)$11,00
D)$8,000

Question 42

Sara's Designs purchased equipment at the beginning of 2015 for $11,000.Sara decided to depreciate the equipment over a 5-year period using the straight-line method.Sara estimated the equipment's residual value at $1,000.The estimated fair market value at the end of 2015 was $10,000.Which of the following statements is correct concerning Sara's financial statements at December 31, 2015?

A)The book value of the equipment is $7,200.
B)The book value of the equipment is $9,000.
C)The total accumulated depreciation is $2,200.
D)The equipment will be reported on the balance sheet at it fair market value of $10,000.

Question 43

Using different depreciation methods for book purposes versus tax purposes for the same asset is

A)not allowed since the amount can only be calculated one way or the other, not both.
B)the direct result of the differing goals of financial and tax accounting.
C)contrary to GAAP.
D)against the Internal Revenue Code, and as such, against the law.

Question 44

Barnhill, Inc.uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero residual value.The CEO points out that the equipment will last much longer than 10 years, perhaps up to 20 years.What is the impact on earnings per share and net income of depreciating equipment over 20 years rather than 10 years?

A)Both earnings per share and net income will decrease.
B)Both earnings per share and net income will increase.
C)Earnings per share will decrease and net income will increase.
D)Earnings per share will increase and net income will decrease.

Question 45

Paulson Transport Company
On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000.It has a ten-year useful life and a residual value of $50,000.The company uses the double-declining-balance method.
What was the depreciation expense for Paulson Transport for the year ended December 31, 2015?

A)$ -0-
B)$195,000
C)$390,000
D)$400,000

Question 46

Newco Publishing Company purchased equipment at the beginning of 2014 for $200,000.The company decided to depreciate the equipment over an 8-year period using the straight-line method.The company estimated the equipment's residual value at $20,000.The journal entry to record depreciation expense for 2014 will

A)increase Depreciation Expense and increase Accumulated Depreciation for $25,000.
B)increase Accumulated Depreciation and decrease Equipment for $25,000.
C)increase Depreciation Expense and decrease Equipment for $22,500.
D)increase Depreciation Expense and increase Accumulated Depreciation for $22,500.

Question 47

Royal Company purchased a dump truck at the beginning of 2012 at a cost of $60,000.The truck had an estimated life of 6 years and an estimated residual value of $24,000.On January 1, 2014, the company made major repairs of $20,000 to the truck that extended the life 1 year.Thus, starting with 2014, the truck has a remaining life of 5 years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.What is the book value of the truck to be reported on the balance sheet at December 31, 2014?

A)$44,000
B)$50,000
C)$56,000
D)$62,000

Question 48

Blanton Company bought equipment on January 1, 2010 with a cost of $160,000, an estimated residual value of $40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years.Due to obsolescence, it was determined at the beginning of 2014 that the useful life should be shortened by 3 years and the residual value changed to zero.What is the accumulated depreciation at the end of 2013?

A)$42,667
B)$32,000
C)$40,000
D)$8,000

Question 49

Wind Chime and Fire Hut Companies purchased identical equipment having an estimated useful life of ten years.Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation.Assuming the two entities are similar in all other respects, which of the following statements is correct?

A)Wind Chime's depreciation expense will be greater in the second year than Fire Hut's depreciation expense.
B)Fire Hut's book value will be greater than Wind Chime's book value at the end of year one.
C)Wind Chime's net income will be greater than Fire Hut's net income in year nine.
D)Fire Hut's book value will be less than Wind Chime's book value at the end of year two.

Question 50

Calhoun, Inc.purchased equipment at the beginning of 2015 for $180,000.Rose decided to depreciate the equipment over a 5-year period using the double-declining-balance method.Calhoun estimated the equipment's residual value at $30,000.Which of the following statements is correct concerning Rose's financial statements at December 31, 2015?

A)The book value of the equipment is $108,000.
B)The book value of the equipment is $72,000.
C)The total accumulated depreciation is $90,000.
D)Depreciation expense for 2015 is $60,000.

Question 51

Royal Company purchased a dump truck at the beginning of 2012 at a cost of $60,000.The truck had an estimated life of 6 years and an estimated residual value of $24,000.On January 1, 2014, the company made major repairs of $20,000 to the truck that extended the life 1 year.Thus, starting with 2014, the truck has a remaining life of 5 years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.What amount should be recorded as depreciation expense each year starting in 2014?

A)$6,000
B)$12,000
C)$13,600
D)$14,400

Question 52

If Paulson Transport continues to use the ship in its eleventh year, what is the correct accounting procedure?

A)Take the asset off the books and record a gain on the disposal
B)Continue to depreciate it
C)The company may not use it any longer
D)No longer depreciate it but leave it on the records at its book value at the end of its useful life

Question 53

What was the book value of the ship for Paulson Transport at the end of the useful life?

A)$ -0-
B)$ 50,000
C)$214,400
D)Need more information to determine this answer.

Question 54

The effect of recording depreciation for the year is an)

A)decrease in assets and a decrease in net income.
B)decrease in assets but no change in owners' equity.
C)increase in assets and an increase in net income.
D)decrease in net income and no change in assets.

Question 55

Creighton, Inc.determined that it had incorrectly estimated both the useful life and the estimated residual value of equipment which it purchased 2 years ago.When accounting for the change in its accounting estimates, Creighton must

A)correct the financial statements of prior years affected by the errors in the estimates.
B)determine the book value at the point of change and depreciate that amount over the remaining useful life.
C)add the amount of the error to the amount of the current year's depreciation expense.
D)determine the effect of the error and report it as a loss on the income statement in Other Revenues and Expenses.

Question 56

Royal Company purchased a dump truck at the beginning of 2012 at a cost of $60,000.The truck had an estimated life of 6 years and an estimated residual value of $24,000.On January 1, 2014, the company made major repairs of $20,000 to the truck that extended the life 1 year.Thus, starting with 2014, the truck has a remaining life of 5 years and a new salvage value of $8,000.Royal uses the straight-line depreciation method.When calculating depreciation for 2014, Royal should

A)add the $20,000 to the book value at December 31, 2013 and then allocate the revised basis over the remaining adjusted useful life of 5 years.
B)report the effect of the change in life as an expense on the income statement in 2013.
C)ignore the change in life on the original cost of $60,000 and depreciate the additional $20,000 cost separately over its useful life.
D)expense the $20,000 and depreciate the original cost of $60,000 over its revised estimated total live of 7 years.

Question 57

Plant assets are depreciated because

A)the accrual basis of accounting requires matching of costs to revenues.
B)some plant assets last longer than others.
C)useful lives cannot be reasonably estimated.
D)the replacement cost of plant assets may fluctuate over time.

Question 58

Paulson Transport Company
On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000.It has a ten-year useful life and a residual value of $50,000.The company uses the double-declining-balance method.
What was the depreciation expense for Paulson Transport for the year ended December 31, 2016?

A)$ -0-
B)$160,000
C)$320,000
D)$400,000

Question 59

Using the straight-line depreciation method will cause a company to incur tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation.

A)more
B)less
C)equal
D)This cannot be determined from the information given.

Question 60

Many companies use MACRS Modified Accelerated Cost Recovery System) depreciation for

A)financial reporting purposes and a different method for tax purposes.
B)financial reporting purposes because depreciation is not allowed for tax purposes.
C)tax purposes because it results in a larger net income in the early years of a plant asset's life
D)tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

Question 61

Yellow Dog Transit sold an old truck on December 31, 2013, for $18,400 cash.The following data was available when the truck sold: When this transaction is recorded, it should include an)

A)Loss on Disposal account for $3,000
B)Decrease of $21,400 to the Truck account
C)Gain on Disposal account for $3,000
D)Gain on Disposal account for $5,000

Question 62

On January 2, 2013, Hannah Company sold a machine for $1,000 that it had used for several years.The machine cost $12,000, and had accumulated depreciation of $9,000 at the time of sale.What gain or loss will be reported on the income statement for the sale of the machine?

A)Gain of $2,000
B)Loss of $11,000
C)Loss of $2,000
D)Gain of $3,000

Question 63

A gain is recognized on the disposal of plant assets when:

A)The sales price is greater than the book value and less than the residual value.
B)The sales price is greater than the book value and greater than the residual value.
C)The sales price is less than both the book value and the residual value.
D)The sales price is greater than the residual value but less than the book value.

Question 64

Recently, companies have been ordered by governmental agencies to clean up environmental damages caused by business operations.How should costs incurred in these situations be treated?

A)If a legal obligation exists, the cost of restoring the property must be added to the asset account.
B)As an expense entirely in one accounting period.
C)As an amortized expense in the period the cost is incurred.
D)Added to the asset, and then depreciated over 15 years.

Question 65

Miguel Foods, Inc.purchased a patent at the beginning of 2013 for $350,000.Economic benefits were expected for 7 years, but the patent's legal life was 20 years.Also during 2013, the company incurred research and development costs of $270,000.Patent amortization expense for 2013 is

A)$11,000
B)$17,500
C)$31,000
D)$50,000

Question 66

Goodwill can be recorded as an asset when an)

A)business has above normal profitability compared to other businesses in its industry.
B)business can determine that it has created customer goodwill and name recognition.
C)offer is received to purchase the business at a price in excess of the value of the assets.
D)business is purchased and payment is made in excess of the value of the net assets.

Question 67

All of the following statements are true except:

A)IFRS requires that estimates of residual value and the life of the asset be reviewed at least annually and revised if necessary.
B)The FASB standards do not have a specific rule that requires residual value and asset life to be reviewed annually.
C)IFRS does not have a specific rule that requires residual value and asset life to be reviewed annually.
D)The FASB generally requires operating assets to be recorded at acquisition cost, less depreciation, and the assets' values are not changed to reflect their fair market values or selling prices.

Question 68

On January 1, 2013, Petersen Corp.sold a piece of equipment for $3,000 which it had used for several years.The equipment had cost $13,000, and its accumulated depreciation amounted to $9,000 at the time of the sale.What are the net effects on the accounting equation of selling the equipment?

A)Assets and Stockholders' Equity increase $1,000.
B)Assets decrease and Stockholders' Equity increases $3,000.
C)Assets and Stockholders' Equity decrease $1,000.
D)Assets and Stockholders' Equity decrease $3,000.

Question 69

Eagle's Nest sold equipment for $4,000 cash.This resulted in a $1,500 loss.What is the impact of this sale on the working capital?

A)Reduces working capital
B)Increases working capital
C)Has no effect on working capital
D)The increases offset the decrease.

Question 70

Crouch Apartments purchased an apartment building to rent to university students on December 15, 2012.The tenants moved in on January 1, 2013.On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball.It cost the landlord $400 to repair the hole.How should this cost be recorded?

A)It should be recorded as part of the asset account.
B)It should be recorded as repair and maintenance expense.
C)It should not be recorded as the tenants will be charged for the damage.
D)It should not be recorded since this is an immaterial amount to the landlord.

Question 71

How should intangible assets be disclosed on the balance sheet?

A)As a reduction of stockholders' equity
B)At cost in the current assets section
C)at the estimated market value at the balance sheet date
D)Net of the costs already amortized

Question 72

When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry:

A)debit Accumulated Depreciation; credit Machinery
B)debit Machinery; credit Accumulated Depreciation
C)debit Cash; credit Accumulated Depreciation
D)debit Depreciation Expense; credit Accumulated Depreciation

Question 73

Lightning Delivery, Inc.purchased a truck on January 1, 2013, for $30,000.The truck had an estimated life of 5 years and an estimated residual value of $5,000.Lightning Delivery used the straight-line method to depreciate the asset.On July 1, 2015, the truck was sold for $17,000 cash.The journal entry to record the sale of the truck in 2015

A)decreases stockholder's equity
B)increases total assets
C)decreases total expenses
D)increases net income

Question 74

Which of the following below is an example of a capital expenditure?

A)cleaning the carpet in the front room
B)tune-up for a company truck
C)replacing an engine in a company car
D)replacing all burned-out light bulbs in the factory

Question 75

Operating assets with no physical properties are called

A)current assets
B)intangible assets
C)plant assets
D)property, plant, and equipment

Question 76

All of the following are intangible assets except

A)patents
B)goodwill
C)franchises
D)accounts receivable

Question 77

Research and development costs are

A)treated as an expense when incurred.
B)capitalized but not amortized.
C)capitalized and amortized over the periods that will probably benefit from the research and development.
D)included with the cost of the patent resulting from the research and development.

Question 78

Tarkington Beers, Inc.purchased the most popular and well-known pub in a college town.Its purchase price was $1,200,000.The appraisers determined that the land should be valued at $400,000, the building at $500,000 and the equipment at $200,000.Which of the following statements is correct?

A)Tarkington Beers, Inc.should record only the appraised value of the assets.
B)Tarkington Beers, Inc.needs to adjust the value of the assets in proportion to their appraised value so that the total of the assets equals the purchase price.
C)Tarkington Beers, Inc.paid too much for the business and needs to record a loss.
D)Tarkington Beers, Inc.needs to record goodwill of $100,000.

Question 79

GAAP require that research and development costs to develop a new product be

A)capitalized in the patents account.
B)expensed in the period incurred.
C)capitalized in the research and development costs account.
D)amortized over the expected economic life of the new product.

Question 80

Capitalizing an expenditure rather than recording it as a revenue expenditure

A)affects the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.
B)affects the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period.
C)affects the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet.
D)has no effect on the book value of plant assets on the balance sheet or the amount of income reported on the income statement.