Question 1

A company wants to minimize the amount of time and effort its bookkeepers spend on calculating depreciation.Since the company has not been profitable,taxes are not an issue,but maximizing the profit and minimizing reported losses are major objectives.Recommend a course of action for this company and provide support for your recommendation.

Accepted Answer

The answer of A company wants to minimize the amount...

Question 2

Fireworks City Information for 2012 and 2011 is presented below for this company which uses the straight-line depreciation method.
$\begin{array}{l}
\begin{array}{lll}
\
\text { Property, plant and equipment  }\
\text { Accumulated depreciation   }\
\text {Depreciation expense }\
\text {Net sales }\
\text { Total assets }\
\end{array}
\begin{array}{lll}
 \underline{ 2012 }&  \underline{ 2011 } \ 
 { \$750,000 } & { \$ 190,000 } \
100,000 & 85,000 \ 
62,500 & 47,500 \ 
1,000,000 & 900,000 \ 
625,000 & 475,000
\end{array}
\end{array}$ 
-Refer to Fireworks City.Using the data for 2012,determine the average life of the company's property,plant,and equipment rounded to one decimal place.

Accepted Answer

A) 1.6 years 
B) 2.5 years 
C) 4.0 years 
D) 10.0 years

Question 3

For Heaven Scapes purchased a trademark at the beginning of 2012 for $200,000.The trademark's legal life is 10 years.How much total amortization expense would have been recorded by January 2013?

Accepted Answer

A) $0 
B) $20,000 
C) $40,000 
D) $60,000

Question 4

Fireworks City Information for 2012 and 2011 is presented below for this company which uses the straight-line depreciation method.
$\begin{array}{l}
\begin{array}{lll}
\
\text { Property, plant and equipment  }\
\text { Accumulated depreciation   }\
\text {Depreciation expense }\
\text {Net sales }\
\text { Total assets }\
\end{array}
\begin{array}{lll}
 \underline{ 2012 }&  \underline{ 2011 } \ 
 { \$750,000 } & { \$ 190,000 } \
100,000 & 85,000 \ 
62,500 & 47,500 \ 
1,000,000 & 900,000 \ 
625,000 & 475,000
\end{array}
\end{array}$ 
-Refer to Fireworks City.Determine the asset turnover ratio for 2012.

Accepted Answer

A) 7.84 times 
B) 1.60 times 
C) 4.00 times 
D) 4.55 times

Question 5

Fernbank Farms This company purchased a semi truck at the beginning of 2011 at a cost of $100,000.The truck had an estimated life of 5 years,an estimated residual value of $20,000,and will be depreciated using the straight-line method.On January 1,2013,the company made major repairs of $30,000 to the truck that extended the life 3 years.Thus,starting with 2013,the truck has a remaining life of 5 years and a new salvage value of $8,000.
-Refer to Fernbank Farms.When calculating depreciation for 2013,the company's accountant should

Accepted Answer

A) add the $30,000 to the book value at December 31,2012,and then allocate the revised depreciation 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 2011. 
C) ignore the change in life on the original cost of $100,000 and depreciate the additional $30,000 cost separately over its useful life. 
D) expense the $30,000 and depreciate the original cost of $100,000 over its revised estimated total live of 7 years.

Question 6

Falling Leaves Lawn Care This company purchased new excavating equipment at the beginning of 2012.The equipment 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 2012.The equipment was used 20,000 hours during 2012 and 24,000 hours during 2013.The number of expected hours over five years is 100,000.
-Refer to Falling Leaves Lawn Care.The company is comparing the straight-line and double-declining-balance depreciation methods.Of these two methods,which method creates the larger expense and larger tax savings in 2012?

Accepted Answer

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 7

An impairment is a temporary decline in the future benefit or service potential of an asset.

Accepted Answer

A) True 
 B)False

Question 8

Which statement is true concerning operating assets?

Accepted Answer

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

Question 9

When plant assets are reported,the current period's depreciation expense is subtracted from the original cost on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 10

If technology changes rapidly,a firm should

Accepted Answer

A) expense plant assets 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 11

The two items that must be estimated with respect to a plant asset in order to properly allocate cost to the affected accounting periods are ____________________ and ____________________

Accepted Answer

The answer of The two items that must be estimated...

Question 12

How should intangible assets be disclosed on the balance sheet?

Accepted Answer

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 13

The intangible asset called ____________________ can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired.

Accepted Answer

The answer of The intangible asset called ____________________ can only...

Question 14

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

Accepted Answer

A) True 
 B)False

Question 15

In 2012,Fisher Apartments purchased an apartment building to rent to university students.It cost the company $250 to repair damage done by a tenant to one of its units.How should this cost be recorded?

Accepted Answer

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 16

Depreciation has an effect on the company's income taxes.

Accepted Answer

A) True 
 B)False

Question 17

Fantasy Cruise Lines On January 1,2012,the company purchased a ship for $1,000,000.It has a ten-year useful life and a residual value of $100,000.The company uses the double-declining-balance method.
-Refer to Fantasy Cruise Lines.Compute the amount of depreciation expense for the year ended December 31,2012.

Accepted Answer

A) $ 90,000 
B) $100,000 
C) $180,000 
D) $200,000

Question 18

What is the relationship between the book value of a plant asset,the market value of the plant asset,and the salvage value of a plant asset? Explain.

Accepted Answer

The answer of What is the relationship between the book...

Question 19

A company determined that it had incorrectly estimated the useful life of equipment that it had purchased two years ago.It must now depreciate the asset's remaining book value over the current and future accounting periods.

Accepted Answer

A) True 
 B)False

Question 20

One reason management may choose the straight-line method of depreciation is because it is easy to compute.

Accepted Answer

A) True 
 B)False

Exam 7: Operating Assets

For Heaven Scapes purchased a trademark at the beginning of 2012 for $200,000.The trademark's legal life is 10 years.How much total amortization expense would have been recorded by January 2013?

An impairment is a temporary decline in the future benefit or service potential of an asset.

Which statement is true concerning operating assets?

When plant assets are reported,the current period's depreciation expense is subtracted from the original cost on the balance sheet.

If technology changes rapidly,a firm should

The two items that must be estimated with respect to a plant asset in order to properly allocate cost to the affected accounting periods are and

How should intangible assets be disclosed on the balance sheet?

The intangible asset called ____________________ can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired.

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

In 2012,Fisher Apartments purchased an apartment building to rent to university students.It cost the company $250 to repair damage done by a tenant to one of its units.How should this cost be recorded?

Depreciation has an effect on the company's income taxes.

What is the relationship between the book value of a plant asset,the market value of the plant asset,and the salvage value of a plant asset? Explain.

A company determined that it had incorrectly estimated the useful life of equipment that it had purchased two years ago.It must now depreciate the asset's remaining book value over the current and future accounting periods.

One reason management may choose the straight-line method of depreciation is because it is easy to compute.

Exam 7: Operating Assets

For Heaven Scapes purchased a trademark at the beginning of 2012 for $200,000.The trademark's legal life is 10 years.How much total amortization expense would have been recorded by January 2013?

An impairment is a temporary decline in the future benefit or service potential of an asset.

Which statement is true concerning operating assets?

When plant assets are reported,the current period's depreciation expense is subtracted from the original cost on the balance sheet.

If technology changes rapidly,a firm should

The two items that must be estimated with respect to a plant asset in order to properly allocate cost to the affected accounting periods are ____________________ and ____________________

How should intangible assets be disclosed on the balance sheet?

The intangible asset called ____________________ can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired.

Acquisition cost includes all of the costs that are normal and necessary to acquire and maintain a plant asset over its useful life.

In 2012,Fisher Apartments purchased an apartment building to rent to university students.It cost the company $250 to repair damage done by a tenant to one of its units.How should this cost be recorded?

Depreciation has an effect on the company's income taxes.

What is the relationship between the book value of a plant asset,the market value of the plant asset,and the salvage value of a plant asset? Explain.

A company determined that it had incorrectly estimated the useful life of equipment that it had purchased two years ago.It must now depreciate the asset's remaining book value over the current and future accounting periods.

One reason management may choose the straight-line method of depreciation is because it is easy to compute.

The two items that must be estimated with respect to a plant asset in order to properly allocate cost to the affected accounting periods are and