Question 1

On January 1,2018,Orangewood Industries bought a new cash register for $7,500.Orangewood plans to use the cash register for 4 years and then sell it for $600.If Orangewood uses straight-line depreciation,depreciation expense for the year ended December 31,2018 equals:

Accepted Answer

A)  $1,725.
B)  $5,625.
C)  $1,875.
D)  $5,775. A

Question 2

The carrying value of a long-lived asset is referred to as its:

Accepted Answer

A)  residual value.
B)  carrying value.
C)  market value.
D)  sales value. B

Question 3

Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life.Other things being equal,which of the following is correct?

Accepted Answer

A)  Company A will have higher net income in the early years,but Company B will have higher net income towards the end of the asset's useful life.
B)  Company A will consistently have the larger net income until residual value is reached.
C)  Company B will have higher net income in the early years,but Company A will have higher net income towards the end of the asset's useful life.
D)  Company B will consistently have the larger net income until residual value is reached. C

Question 4

MacKenzie Manufacturing purchased equipment for $160,000.In addition,shipping charges of $2,000 were incurred to obtain the equipment.The company paid $12,500 to construct a foundation and install the equipment.The equipment is estimated to have a residual value of $15,000 at the end of its 5-year useful life. Using the straight-line method,what is the amount of depreciation expense each year?

Accepted Answer

A)  $34,900
B)  $34,500
C)  $31,900
D)  $29,900

Question 5

Tidy Limited purchased a new van on January 1,2018.The van cost $20,000.It has an estimated life of five years and the estimated residual value is $5,000.Tidy uses the double-declining-balance method to compute depreciation. What is the depreciation expense for 2018?

Accepted Answer

A)  $4,000
B)  $3,000
C)  $6,000
D)  $8,000

Question 6

If a company wants exclusive rights to artistic material,it should obtain:

Accepted Answer

A)  a copyright.
B)  a patent.
C)  goodwill.
D)  a license.

Question 7

If Company A has a contractual right to sell certain products or services,use certain trademarks,or perform activities in a certain geographical regions,then Company A has:

Accepted Answer

A)  a trademark.
B)  a copyright.
C)  goodwill.
D)  a franchise.

Question 8

Match each term with the appropriate explanation.Not all explanations will be used.
-Carrying value

Accepted Answer

A)  Assets that will be used for more than a year.
B)  When a company writes down the value of an asset when estimated future cash flows fall below the original level estimated.
C)  The numerator of the fixed asset turnover ratio.
D)  The cost of financing an asset.
E)  When costs are recorded as assets rather than expenses.F) How expenses are reported in the income statement.G) The denominator of the fixed asset turnover ratio.H) The average proportion of a company's total assets that is long-lived.I) A depreciation method that produces higher amounts of depreciation expense in the early years of an asset's life and lower amounts in the later years.J) When a company writes down the value of an asset because estimated future cash flows fall below the book value.K) Assets that have physical substance.L) A depreciation method that spreads asset cost by use rather than time.M) The process of transferring the cost of long-lived tangible assets to expenses.N) Also known as book value.

Question 9

The company has net sales revenue of $3.6 million during 2018.The company's records also included the following information:  What is the company's fixed asset turnover ratio for 2018?

Accepted Answer

A)  18.00
B)  1.33
C)  1.00
D)  1.50

Question 10

Sierra Nevada Corp.reported Sales Revenue of $500,000,000 and Sales Discounts of $4,000,000 for the year.The beginning balance of Net Plant and Equipment was $23,000,000,and the ending balance was $27,000,000.What is the fixed asset turnover ratio?

Accepted Answer

A)  18.37
B)  18.52
C)  20.00
D)  19.84

Question 11

Match each term with the appropriate definition.Not all definitions will be used.
-Licensing right

Accepted Answer

A)  Net sales revenue divided by average net fixed assets.
B)  Costs that are expensed in the period incurred.
C)  A contractual agreement that allows limited permission for use of a property.
D)  Net income divided by average total assets.
E)  An estimate of how long a tangible asset will last before it physically wears out.F) Asset cost minus residual value.G) Costs that are recorded as revenues.H) An estimate of how long a company will use a particular asset.I) Allocating the cost of tangible assets over their limited useful life.J) A cumulative record of depreciation expense,accumulated depreciation and book value.K) Asset cost minus accumulated depreciation.L) Grants the exclusive right to sell or use a creative work.M) The method whereby different parts of an asset may be depreciated over different useful lives under IFRS.N) The principle that companies wish to pay the lowest possible tax at the last possible time.O) Allocating the cost of intangible assets over their limited useful life.

Question 12

Once the depreciation expense for a long-lived asset is calculated:

Accepted Answer

A)  it cannot be changed because of the cost principle.
B)  it may be revised based on new information.
C)  any changes are not recognized until the date the asset is sold.
D)  it cannot be changed due to the consistency principle.

Question 13

An asset's book value or carrying value is its:

Accepted Answer

A)  cost minus accumulated depreciation.
B)  cost minus salvage or residual value.
C)  cost minus salvage or residual value and accumulated depreciation.
D)  accumulated depreciation.

Question 14

On December 31,2018,Far Niente Winery sold a wine press for $545,000;the wine press had originally cost $900,000.Cash was paid by the buyer of the press.Accumulated Depreciation on the press,updated to the date of disposal,was $450,000. What is the effect of the sale on the balance sheet and income statement of Far Niente reported as of and for the year ended December 31,2018?

Accepted Answer

A)  No effect on assets;increase net income.
B)  Decrease assets;Increase net income.
C)  Increase assets;Increase net income.
D)  Decrease assets;Decrease net income.

Question 15

Match each term with the appropriate definition.Not all definitions will be used.
-Fixed asset turnover ratio

Accepted Answer

A)  Net sales revenue divided by average net fixed assets.
B)  Costs that are expensed in the period incurred.
C)  A contractual agreement that allows limited permission for use of a property.
D)  Net income divided by average total assets.
E)  An estimate of how long a tangible asset will last before it physically wears out.F) Asset cost minus residual value.G) Costs that are recorded as revenues.H) An estimate of how long a company will use a particular asset.I) Allocating the cost of tangible assets over their limited useful life.J) A cumulative record of depreciation expense,accumulated depreciation and book value.K) Asset cost minus accumulated depreciation.L) Grants the exclusive right to sell or use a creative work.M) The method whereby different parts of an asset may be depreciated over different useful lives under IFRS.N) The principle that companies wish to pay the lowest possible tax at the last possible time.O) Allocating the cost of intangible assets over their limited useful life.

Question 16

Morris Lest,Inc.sold its truck and received less cash than the truck's book value.The net effect of this sale on the accounting equation is a(n):

Accepted Answer

A)  increase to total assets.
B)  increase to stockholders' equity.
C)  decrease to total liabilities.
D)  decrease to stockholders' equity.

Question 17

The fixed asset turnover ratio measures the:

Accepted Answer

A)  useful life of long-lived assets.
B)  the average difference between book value and disposal value of fixed assets.
C)  useful life of intangible assets.
D)  efficiency with which the investment in fixed assets produces revenue.

Question 18

Which of McGraw-Hill's intangible assets gives it the legal right to prevent you from borrowing a textbook from a friend and photocopying several chapters from the book?

Accepted Answer

A)  Patent
B)  Trademark
C)  Franchise agreement
D)  Copyright

Question 19

What is the effect of an impairment loss on the accounting equation?

Accepted Answer

A)  It increases total assets.
B)  It has no effect.
C)  It increases total stockholders' equity.
D)  It decreases total stockholders' equity.

Question 20

Accumulated Depreciation:

Accepted Answer

A)  appears in the asset section of a balance sheet.
B)  appears on the income statement.
C)  is a liability on the balance sheet.
D)  is a contra-stockholders' equity item.

Exam 9: Long-Lived Tangible and Intangible Assets