Question 1

Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. 
-Using the double-declining balance method, the book value at December 31, 2019, would be:

Accepted Answer

A)  $14,400. 
B)  $24,960. 
C)  $27,360. 
D)  $25,920.

Question 2

Which of the following types of subsequent expenditures normally is capitalized?

Accepted Answer

A)  An extension of the useful life of the asset. 
B)  An increase in the operating efficiency of the asset. 
C)  An increase in the quality of the goods or services produced by the asset. 
D)  All of these answer choices are normally capitalized.

Question 3

Component depreciation, required under International Financial Reporting Standards (IFRS), is allowed but rarely used by U.S. companies.

Accepted Answer

A) True 
 B)False

Question 4

Listed below are 10 terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term.
-Additions

Accepted Answer

A) Cost allocation for an intangible asset. 
B) Adding a new major component to existing plant and equipment. 
C) Can be expressed in units of time or in units of activity. 
D) Cost allocation for natural resources. 
E) The amount the company expects to receive for the asset at the end of its life.
F)The replacement of a major component of plant and equipment asset.
G)Allocates an equal amount of depreciable base to each period.
H)Estimates service life in terms of a measure of activity.
I)The difference between cost and residual value.
J)Multiplies book value by twice the straight-line rate.

Question 5

An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on December 31, 2020, for $5,000.

Accepted Answer

A)  $500 gain. 
B)  $3,000 loss. 
C)  $1,500 gain. 
D)  $500 loss.

Question 6

Which of the following typically would cause the service life of an asset to be less than its physical life?

Accepted Answer

A)  The company no longer provides the products or services associated with the use of the asset. 
B)  Suppliers may develop new technologies that are more efficient. 
C)  The expected rate of technological change may shorten service life. 
D)  All of these answer choices are correct.

Question 7

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term.
-Indefinite life

Accepted Answer

A) Cost allocation for plant and equipment. 
B) Results in depreciation declining by the same amount in subsequent years. 
C) The reason for not amortizing goodwill. 
D) Estimates service life in years. 
E) Aggregates assets that are similar.

Question 8

On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchase equipment related to production of the new clothing for $140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment only over the patent's service life and then sell it for an estimated $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2021 related to the patent and equipment should be:

Accepted Answer

A)  $40,000. 
B)  $38,000. 
C)  $45,000. 
D)  $31,000.

Question 9

In December of 2018, XL Computer's internal auditors discovered that office equipment costing $800,000 was charged to expense in 2016. The asset had an expected life of 10 years with no residual value. XL would have recorded a half year of depreciation in 2016.
Required:
Prepare the necessary correcting entry that would be made in 2018 (ignore income taxes), and the entry to record depreciation for 2018.

Accepted Answer

The answer of In December of 2018, XL Computer's internal...

Question 10

On January 1, 2018, Morrow Inc. purchased a spooler at a cost of $40,000. The equipment is expected to last eight years and have a residual value of $4,000. During its eight-year life, the equipment is expected to produce 250,000 units of product. In 2018 and 2019, 42,000 and 76,000 units respectively were produced. 
-Required:
Compute depreciation for 2018 and 2019 and the book value of the spooler at December 31, 2018 and 2019, assuming the double-declining-balance method is used.

Accepted Answer

The answer of On January 1, 2018, Morrow Inc. purchased...

Question 11

Why is land not depreciated? What are land improvements? Why do we record land and land improvements separately?

Accepted Answer

The answer of Why is land not depreciated? What are...

Question 12

On January 1, 2016, Al's Sporting Goods purchased store fixtures at a cost of $180,000. The anticipated service life was 10 years with no residual value. Al's has been using the double-declining balance method, but in 2018 adopted the straight-line method because the company believes it provides a better measure of income. Al's has a December 31 year-end. The journal entry to record depreciation for 2018 is:

Accepted Answer

A)   
B)   
C)   
D)  No entry

Question 13

Listed below are five terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term.
-Date placed in service

Accepted Answer

A) Triggers commencement of depreciation. 
B) Cost less accumulated depreciation. 
C) Expenditures made to restructure an asset without addition, replacement, or improvement. 
D) Only used for tax purposes. 
E) Three methods are employed to record these costs.

Question 14

In 2017, Dooling Corporation acquired Oxford Inc. for $250 million, of which $50 million was attributed to goodwill. At the end of 2018, Dooling's accountants derive the following information for a required goodwill impairment test:

-Required: Determine the amount, if any, of the goodwill impairment loss that Dooling must recognize on these assets.

Accepted Answer

The answer of In 2017, Dooling Corporation acquired Oxford Inc....

Question 15

An asset that has an estimated physical life of six years and an estimated service life of four years should be depreciated over:

Accepted Answer

A)  Four years. 
B)  Five years. 
C)  Six years. 
D)  Any of these choices can be chosen by management.

Question 16

Qualcomm Inc. engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. In a recent income statement the company reported a $114 million goodwill impairment loss. The loss related to the goodwill of its Firethorn reporting unit.
Required:
1. Why did Qualcomm conduct an impairment test of the goodwill of this reporting unit?
2. Describe the steps Qualcomm performed to conduct its impairment test.
3. Where would the impairment loss be shown in the company's income statement?

Accepted Answer

The answer of Qualcomm Inc. engages in the development, design,...

Question 17

Which of the following typically refers to the process of allocating the cost of long-term intangible assets used in the business over future periods?

Accepted Answer

A)  Depreciation. 
B)  Amortization. 
C)  Depletion. 
D)  Impairment.

Question 18

Accounting for impairment losses:

Accepted Answer

A)  Involves a two-step process for recoverability and measurement. 
B)  Applies only to depreciable assets. 
C)  Applies only to assets with finite lives. 
D)  All of these answer choices are correct.

Question 19

The replacement of a major component increased the productive capacity of production equipment from 10 units per hour to 18 units per hour. The expenditure should be debited to:

Accepted Answer

A)  Repairs expense. 
B)  Maintenance expense. 
C)  Equipment. 
D)  Gain from repairs

Question 20

Intangible assets that have an indefinite useful life:

Accepted Answer

A)  Are those with no foreseeable limit on the period of time over which the asset is expected to contribute to the cash flows of the entity. 
B)  Are those with no legal, contractual, or economic factors that are expected to limit their useful life to a company. 
C)  Are those whose acquisition costs is not amortized over their useful life. 
D)  All of these answer choices are correct.

Exam 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Cutter Enterprises purchased equipment for $72,000 on January 1, 2018. The equipment is expected to have a five-year life and a residual value of $6,000. -Using the double-declining balance method, the book value at December 31, 2019, would be: