Question 1

Which of the following is true of goodwill?

Accepted Answer

A)  It is an indefinite-life tangible asset. 
B)  It is not subject to amortization. 
C)  It is a definite-life intangible asset. 
D)  It is subject to amortization.

Question 2

U.S. GAAP requires straight-line amortization of finite-life intangible assets over the useful life or legal life, whichever is shorter.

Accepted Answer

A) True 
 B)False

Question 3

All fixed assets with a useful life of more than one year must be capitalized and depreciated.

Accepted Answer

A) True 
 B)False

Question 4

Under U.S. GAAP, which of the following costs are capitalized as the asset value of an internally-developed patent?

Accepted Answer

A)  research and development costs 
B)  legal costs for patent defense 
C)  both R&D and legal defense costs 
D)  No costs are capitalized for internally-developed patents.

Question 5

A company acquires a natural resource for $1,400,000 and spends another $530,000 on development of the site and $320,000 for a nonmovable tangible asset installed at the site and $150,000 for tangible movable equipment. Both assets have an expected useful life of 10 years. The natural resource is expected to yield 140,000 units over its expected life. In year 1, 45,000 units are extracted from the resource. What depletion rate will be used? (Round your final answer to the nearest cent.)

Accepted Answer

A)  $10.00 per unit 
B)  $13.79 per unit 
C)  $16.07 per unit 
D)  $17.14 per unit

Question 6

a. What is the distinction between a capital and an operating expenditure? Give two examples of each.
b. Distinguish between ordinary repairs and maintenance and major repairs. How should a company account for each?

Accepted Answer

The answer of a. What is the distinction between a...

Question 7

Which of the following is an indefinite-life intangible asset?

Accepted Answer

A)  land 
B)  patent 
C)  trademark 
D)  copyright

Question 8

Double-declining balance method charges twice the amount of straight-line depreciation expense each period.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about derecognition of an asset is true?

Accepted Answer

A)  Derecognition requires that the firm remove the asset acquisition value from the balance sheet but not the related accumulated depreciation. 
B)  Derecognition increases or decreases the balance of the Allowance for Derecognition account. 
C)  Before a gain or loss on derecognition is recognized, the firm must always first recognize current period depreciation expense. 
D)  A loss on derecognition occurs when the amount of cash proceeds (if any) is less than the acquisition cost of the asset.

Question 10

To determine the amount of interest to capitalize, the interest rate on specific borrowings to finance construction of the asset is multiplied times the total weighted-average accumulated expenditures.

Accepted Answer

A) True 
 B)False

Question 11

List and briefly describe five types of finite-life intangible assets.

Accepted Answer

The answer of List and briefly describe five types of...

Question 12

Goodwill is the difference between fair value and book value for all assets a company owns.

Accepted Answer

A) True 
 B)False

Question 13

An improvement made to a machine increased its fair value and its production capacity. The cost of the improvement should be debited to ________.

Accepted Answer

A)  expense 
B)  accumulated depreciation 
C)  equipment 
D)  intangible assets

Question 14

A company acquires a natural resource for $1,200,000 and spends another $520,000 on development of the site and $370,000 for a nonmovable tangible asset installed at the site and $150,000 for tangible movable equipment. Both assets have an expected useful life of 10 years. The natural resource is expected to yield 200,000 units over its expected life. In year 1, 10,000 units are extracted from the resource. What is the depletion expense for year 1? (Round any intermediary calculations to the nearest cent, and round your final answer to the nearest dollar.)

Accepted Answer

A)  $60,000 
B)  $86,000 
C)  $104,500 
D)  $112,000

Question 15

When a firm sells or abandons an asset, how is the gain or loss to be recognized on the income statement measured?

Accepted Answer

A)  The difference between cash proceeds received and the carrying value of the asset. 
B)  The difference between cash proceeds received and the acquisition value of the asset. 
C)  The difference between cash proceeds received and the accumulated depreciation of the asset. 
D)  The difference between the book value of the asset and the carrying value of the asset.

Question 16

The cost of land does not include ________.

Accepted Answer

A)  costs of removing old buildings 
B)  costs of improvements with limited lives 
C)  costs of grading and clearing the land 
D)  legal fees and closing costs

Question 17

Which of the following is not a method for determining depreciation expense for a specific asset?

Accepted Answer

A)  net method 
B)  units-of-output method 
C)  double-declining-balance method 
D)  straight-line method

Question 18

Adding new offices to an existing office building would qualify as a capital expenditure.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following information is not used to determine the current period depreciation expense for a specific asset when using the straight-line method?

Accepted Answer

A)  acquisition cost of the asset 
B)  useful life of the asset 
C)  residual value of the asset 
D)  current carrying value of the asset

Question 20

Which of the following is an exclusive right to reproduce and sell an original creative work?

Accepted Answer

A)  copyright 
B)  franchise 
C)  trademark 
D)  patent

Exam 11: Long-Term Operating Assets: Acquisition, Cost Allocation

Which of the following is true of goodwill?

U.S. GAAP requires straight-line amortization of finite-life intangible assets over the useful life or legal life, whichever is shorter.

All fixed assets with a useful life of more than one year must be capitalized and depreciated.

Under U.S. GAAP, which of the following costs are capitalized as the asset value of an internally-developed patent?

a. What is the distinction between a capital and an operating expenditure? Give two examples of each. b. Distinguish between ordinary repairs and maintenance and major repairs. How should a company account for each?

Which of the following is an indefinite-life intangible asset?

Double-declining balance method charges twice the amount of straight-line depreciation expense each period.

Which of the following statements about derecognition of an asset is true?

To determine the amount of interest to capitalize, the interest rate on specific borrowings to finance construction of the asset is multiplied times the total weighted-average accumulated expenditures.

List and briefly describe five types of finite-life intangible assets.

Goodwill is the difference between fair value and book value for all assets a company owns.

An improvement made to a machine increased its fair value and its production capacity. The cost of the improvement should be debited to ________.

When a firm sells or abandons an asset, how is the gain or loss to be recognized on the income statement measured?

The cost of land does not include ________.

Which of the following is not a method for determining depreciation expense for a specific asset?

Adding new offices to an existing office building would qualify as a capital expenditure.

Which of the following information is not used to determine the current period depreciation expense for a specific asset when using the straight-line method?

Which of the following is an exclusive right to reproduce and sell an original creative work?