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Exam 7: Long-Term Assets

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Question 71

Multiple Choice

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Using the straight-line method, depreciation expense for 2013 and the book value at December 31, 2013 would be:

A) $12,000 and $36,000.
B) $12,000 and $31,000.
C) $11,000 and $33,000.
D) $11,000 and $38,000.

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Question 72

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Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided.

Premises

Responses

Recording an expenditure as an asset.

Materiality

Expenses after acquisition that maintain a given level of benefits.

Capitalize

The cost of replacing a major component of an asset.

Improvement

Occurs when we add a new major component to an existing asset.

Repairs and maintenance

Large enough to influence an investor or creditor's decision.

Addition

Premises

Recording an expenditure as an asset.

Expenses after acquisition that maintain a given level of benefits.

The cost of replacing a major component of an asset.

Occurs when we add a new major component to an existing asset.

Large enough to influence an investor or creditor's decision.

Responses

Materiality

Capitalize

Improvement

Repairs and maintenance

Addition

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Correct Answer

Premises

Responses

Recording an expenditure as an asset.

Expenses after acquisition that maintain a given level of benefits.

The cost of replacing a major component of an asset.

Occurs when we add a new major component to an existing asset.

Large enough to influence an investor or creditor's decision.

Premises

Recording an expenditure as an asset.

Expenses after acquisition that maintain a given level of benefits.

The cost of replacing a major component of an asset.

Occurs when we add a new major component to an existing asset.

Large enough to influence an investor or creditor's decision.

Responses

Question 73

Multiple Choice

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Wilson Inc. owns equipment for which it paid $70 million. At the end of 2012, it had accumulated depreciation on the equipment of $12 million. Due to adverse economic conditions, Wilson's management determined that it should assess whether an impairment should be recognized for the equipment. The estimated future cash flows to be provided by the equipment total $60 million, and its fair value at that point totals $50 million. Under these circumstances, Wilson:

Explain how the accounting treatment differs between purchased and internally developed intangible assets.

Which one of the following regarding the book value of an asset is correct?

Bricktown Exchange purchases a copyright on January 1, 2012, for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the company uses the straight-line method, what is the amortization expense for the year ended December 31, 2012?

The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as:

Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life.

We use the term capitalize to describe recording an expenditure as an expense.

A more comparable measure of profitability than income is return on assets, which equals net income divided by average total assets.

The service life of an asset is always equal to the full life of the asset.

Aspen, Inc. developed a new horse transport device and incurred research and development costs of $250,000. Rather than continue with their own research, Aspen decided to purchase a patent for a similar design from Vail, Inc. for $350,000. What are the total assets and expenses for these developments?

Little King Sandwiches made the following expenditures related to its restaurant: 1. Replaced the heating and air conditioning system at a cost of $15,000. 2. Remodeled the restaurant building. The total cost of the project was $150,000. 3. Performed annual building maintenance at a cost of $47,000. 4. Paid annual insurance premium on the property for the coming year, $7,700. 5. Purchased a new delivery truck, $22,500. 6. Landscaped the property and added outdoor lights, $9,000. Little King credits cash for each of these expenditures. Indicate the account to be debited for each expenditure.

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and $800,000, respectively. What is Hidden Valley's return on assets?

Which of the following statements is true regarding the amortization of intangible assets?

Goodwill is amortized over its estimated useful life.

Advertising costs that increase the value of trademarks are recorded to the asset account entitled Trademarks.

Research and development costs incurred in developing a patent internally are not recorded as an intangible asset in the balance sheet, but rather are expensed directly in the income statement.

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. The return on assets for the year is 10%. What is Hidden Valley's net income for the year?

Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.