Question 1

Which one of the following would not be recorded as an intangible asset?

Accepted Answer

A)  Patents 
B)  Copyrights 
C) Internally generated goodwill 
D) Franchises

Question 2

The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following transactions would not increase the fixed asset turnover ratio?

Accepted Answer

A)  A decrease in sales revenue. 
B)  A profitable sale of fixed assets for cash. 
C) Selling manufacturing equipment for a loss. 
D) A decrease in operating expenses.

Question 4

Gains and losses on disposal of a long-lived asset are determined by comparing the asset's cost to its book value.

Accepted Answer

A) True 
 B)False

Question 5

Failure to record amortization expense on a patent during the current year will result in which of the following?

Accepted Answer

A)  Net income will be overstated, but there would be no effect on total assets. 
B)  Net income for the year and total assets would both be overstated. 
C) Assets will be overstated, but there would be no effect on net income for the year. 
D) Net income and assets will both be understateD.Failure to record patent amortization results in an understatement of expenses and therefore an overstatement of net income. Assets are overstated because the patent account was not reduced by the amortization that was not recorded.

Question 6

The equipment cost initially reported on the balance sheet includes the equipment-related installation and transportation costs.

Accepted Answer

A) True 
 B)False

Question 7

Depreciation is the process of allocating a long-lived asset's cost over its productive life.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following would most likely not be a revenue expenditure?

Accepted Answer

A)  Repairing the carpet in the sales department offices. 
B)  Repairing a leaky roof. 
C) Putting a hydraulic lift on a delivery truck making it easier and quicker to deliver appliances. 
D) Painting the exterior of the factory building.

Question 9

Lincoln Restaurants reported net income in 2014 of $45.9 million and depreciation expense of $48.8 million. It also reported additions to property and equipment of $162.9 million. Which of the following disclosures would appear on the 2014 statement of cash flows?

Accepted Answer

A)  Depreciation of $48.8 million would be deducted from net income under operating activities and the $162.9 million would be added under investing activities. 
B)  Depreciation of $48.8 million would be added to net income under operating activities and the $162.9 million would be added under investing activities. 
C) Depreciation of $48.8 million would be added to net income under operating activities and the $162.9 million would be deducted under investing activities. 
D) Depreciation of $48.8 million would be deducted from net income under operating activities and the $162.9 million would be deducted under investing activities.

Question 10

Under what conditions would a company most likely adopt the double-declining-balance method for financial reporting?

Accepted Answer

A)  The company has high technology, robotic equipment in its plant that becomes obsolete quickly and declines in utility to the company more rapidly in the early years of the assets' lives. 
B)  The company wants to maximize its net income during the earlier years of the asset's life. 
C) The company wants to maximize the asset's book value in the earlier years of the asset's life. 
D) The company wants to maximize the total depreciation expense over the life of the asset.

Question 11

On December 31, 2014, Hamilton Inc. sold a used industrial crane for $600,000 cash. The original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31, 2014. What is the gain or loss from the December 31, 2014 equipment sale?

Accepted Answer

A)  $600,000 gain. 
B)  $600,000 loss. 
C) $200,000 loss. 
D) $200,000 gain.

Question 12

Which of the following is most likely to be an intangible asset with an indefinite life?

Accepted Answer

A)  Leasehold 
B)  Franchise 
C) Patent 
D) Goodwill

Question 13

A company has some bottling equipment which cost $8.5 million, has a net book value of $4.1 million, estimated future cash flows of $3.7 million, and a fair value of $3.1 million. Which of the following correctly describes the recording of the asset impairment loss?

Accepted Answer

A)  The loss account is debited for $1.0 million and the asset account is credited for $1.0 million. 
B)  The loss account is debited for $0.4 million and the asset account is credited for $0.4 million. 
C) The loss account is debited for $5.4 million and the asset account is credited for $5.4 million. 
D) The loss account is debited for $4.8 million and the asset account is credited for $4.8 million.

Question 14

The following information was available for Landmark Restaurants for the past three years.
Required:
Using this information, compute the fixed asset turnover ratio for Year 3 and Year 2. Round your answers to two decimal places. $$\begin{array} { l r r r r } 
\text { In thousands } & \text { Year 3 } & \text { Year 2 } & \text { Year 1 } \
\text { Net fixed assets } & \$ 965,575 & \$ 830,930 & \$ 587,829 \
\text { Net sales } & 1,105,755 & 894,795 & 746,642 \
\text { Net income } & 45,901 & 41,522 & 26,920
\end{array}$$

Accepted Answer

The answer of The following information was available for Landmark...

Question 15

Schager Company purchased a computer system on January 1, 2014, at a cash cost of $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. How much is the 2015 depreciation expense?

Accepted Answer

A)  $5,000. 
B)  $4,120. 
C) $4,000. 
D) $3,520.

Question 16

On March 1, 2014, Anniston Company purchased an oil well at a cost of $1,000,000. It is estimated that 150,000 barrels of oil can be produced over the remaining life of the well and the residual value of the well will be $100,000. During 2014, 15,000 barrels of oil were produced and 10,000 barrels were sold. Which of the following statements is correct with respect to the accounting for the oil well?

Accepted Answer

A)  The 2014 cost of goods sold was $90,000. 
B)  The book value of the oil well decreased $60,000 during 2014. 
C) The inventory of oil was $30,000 at December 31, 2014. 
D) The 2014 cost of goods sold was $30,000.

Question 17

Which of the following statements about asset impairment is false?

Accepted Answer

A)  Asset impairment loss is the difference between an asset's net book value and its estimated future cash flows. 
B)  If an asset is impaired, a loss would be recognized in the period it can be estimated. 
C) Impairment will lead to writing down the asset's net book value. 
D) Asset impairment occurs when the estimated future cash flows are less than the asset's net book value.

Question 18

If depreciation expense is calculated without taking into account the asset's residual value, depreciation expense will be overstated.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, 2014, Wasson Company purchased a delivery vehicle costing $40,000. The vehicle has an estimated 6-year life and a $4,000 residual value. What is the vehicle's book value as of December 31, 2015, assuming Wasson uses the straight-line depreciation method?

Accepted Answer

A)  $12,000. 
B)  $24,000. 
C) $30,000. 
D) $28,000.

Question 20

A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-line basis of $2,700 per year. The residual value was estimated to be 10% of cost. The estimated useful life is

Accepted Answer

A)  3 years. 
B)  4 years. 
C) 5 years. 
D) 6 years.

Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Which one of the following would not be recorded as an intangible asset?

The systematic and rational allocation of the acquisition cost of natural resources to those periods in which the resources contribute to revenue is called depletion.

Which of the following transactions would not increase the fixed asset turnover ratio?

Gains and losses on disposal of a long-lived asset are determined by comparing the asset's cost to its book value.

Failure to record amortization expense on a patent during the current year will result in which of the following?

The equipment cost initially reported on the balance sheet includes the equipment-related installation and transportation costs.

Depreciation is the process of allocating a long-lived asset's cost over its productive life.

Which of the following would most likely not be a revenue expenditure?

Lincoln Restaurants reported net income in 2014 of $45.9 million and depreciation expense of $48.8 million. It also reported additions to property and equipment of $162.9 million. Which of the following disclosures would appear on the 2014 statement of cash flows?

Under what conditions would a company most likely adopt the double-declining-balance method for financial reporting?

On December 31, 2014, Hamilton Inc. sold a used industrial crane for $600,000 cash. The original cost of the crane was $5.0 million and its accumulated depreciation equaled $4.2 million on December 31, 2014. What is the gain or loss from the December 31, 2014 equipment sale?

Which of the following is most likely to be an intangible asset with an indefinite life?

A company has some bottling equipment which cost $8.5 million, has a net book value of $4.1 million, estimated future cash flows of $3.7 million, and a fair value of $3.1 million. Which of the following correctly describes the recording of the asset impairment loss?

Schager Company purchased a computer system on January 1, 2014, at a cash cost of $25,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance depreciation method. How much is the 2015 depreciation expense?

Which of the following statements about asset impairment is false?

If depreciation expense is calculated without taking into account the asset's residual value, depreciation expense will be overstated.

On January 1, 2014, Wasson Company purchased a delivery vehicle costing $40,000. The vehicle has an estimated 6-year life and a $4,000 residual value. What is the vehicle's book value as of December 31, 2015, assuming Wasson uses the straight-line depreciation method?

A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-line basis of $2,700 per year. The residual value was estimated to be 10% of cost. The estimated useful life is