61)
Since goodwill is an intangible asset, it is amortized each year using the straight-line method.
A)
True
B)
False
62)
A patent is an exclusive right granted to its owner to manufacture and sell a patented device or to
use a process for 20 years.
A)
True
B)
False
63)
A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic
work during the life of the creator plus 17 years.
A)
True
B)
False
64)
A trademark is an exclusive right granted to its owner to publish and sell a musical, literary, or
artistic work during the life of the creator plus 70 years.
A)
True
B)
False
65)
Plant assets are defined as:
A)
Current assets.
B)
Tangible assets that have a useful life of more than one accounting period and are used in the
operation of a business.
C)
Intangible assets used in the operations of a business that have a useful life of more than one
accounting period.
D)
Tangible assets used in the operation of business that have a useful life of less than one
accounting period.
E)
Held for sale.
66)
One characteristic of plant assets is that they are:
A)
Long-term investments.
B)
Intangible.
C)
Used in operations.
D)
Natural resources.
E)
Current assets.
67)
The relevant factors in computing depreciation do not include:
A)
Salvage value.
B)
Cost.
C)
Depreciation method.
D)
Useful life.
E)
Market value.
68)
Salvage value is:
A)
A factor relevant to amortizing an intangible asset with an indefinite life.
B)
A factor relevant to determining depreciation under MACRS.
C)
An estimate of the asset’s value at the end of its benefit period.
D)
A factor relevant to determining depreciation that cannot be revised during an asset’s useful
life.
E)
Not a factor relevant to determining depletion.
69)
Depreciation:
A)
Measures the decline in market value of an asset.
B)
Measures physical deterioration of an asset.
C)
Is the process of allocating the cost of a plant asset to expense.
D)
Is applied to land.
E)
Is an outflow of cash from the use of a plant asset.
70)
The useful life of a plant asset is:
A)
Never related to its physical life.
B)
Determined by law.
C)
Determined by the FASB.
D)
Its productive life, but not to exceed one year.
E)
The length of time it is productively used in a company’s operations.
71)
The term inadequacy, as it relates to the useful life of an asset, refers to:
A)
An asset that is no longer useful in producing goods and services.
B)
The condition where the asset’s salvage value is less than its cost.
C)
The insufficient capacity of a company’s plant assets to meet the company’s growing
production demands.
D)
An asset that is worn out.
E)
The condition where the salvage value is too small to replace the asset.
72)
The term, obsolescence, as it relates to the useful life of an asset, refers to:
A)
The end of an asset’s useful life.
B)
Intangible assets that have been fully amortized.
C)
The insufficient capacity of a company’s plant assets to meet the company’s productive
demands.
D)
A plant asset that is no longer useful in producing goods and services with a competitive
advantage.
E)
An asset’s salvage value becoming less than its replacement cost.
73)
Once the estimated depreciation expense for an asset is calculated:
A)
The estimate itself cannot be changed; however, new information should be disclosed in
financial statement footnotes.
B)
Any changes are accumulated and recognized when the asset is sold.
C)
It may be revised based on new information.
D)
It cannot be changed, based on the historical cost principle.
E)
It cannot be changed, based on the consistency principle.
74)
A machine originally had an estimated useful life of 6 years, but after 4 complete years, it was
decided that the original estimate of useful life should have been 10 years. At that point the
remaining cost to be depreciated should be allocated over the remaining:
A)
16 years. B) 2 years. C) 10 years. D) 4 years. E) 6 years.
75)
A change in an accounting estimate is:
A)
Reflected in future financial statements and also requires modification of past statements.
B)
Not allowed under current accounting rules.
C)
Reflected in current and future years’ financial statements, not in prior statements.
D)
Considered an error in the financial statements.
E)
Reflected in past financial statements.
76)
When originally purchased, a vehicle costing $23,000 had an estimated useful life of 8 years and an
estimated salvage value of $3,000. After 4 years of straight-line depreciation, the asset’s total
estimated useful life was revised from 8 years to 6 years and there was no change in the estimated
salvage value. The depreciation expense in year 5 equals:
A) $11,500. B) $2,875. C) $5,000. D) $2,500. E) $5,750.
77)
A company used straight-line depreciation for an item of equipment that cost $12,000, had a
salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete
years, the salvage value was reduced to $1,200 but its total useful life remained the same.
Determine the amount of depreciation to be charged against the equipment during each of the
remaining years of its useful life:
A) $2,400 B) $2,000 C) $5,400 D) $1,800 E) $1,000
78)
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $100,000.
The asset is expected to have a salvage value of $20,000 at the end of its five-year useful life. If the
asset is depreciated on the double-declining-balance method, the asset’s book value on December
31, Year 2 will be:
A) $54,000 B) $90,000 C) $16,000 D) $36,000 E) $42,000
79)
Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be
depreciated using the straight-line method over its four-year useful life. Assuming the asset’s
salvage value is $2,000, what will be the amount of accumulated depreciation on this asset on
December 31, Year 3?
A) $13,750 B) $15,000 C) $20,000 D) $15,125 E) $5,000
80)
Peavey Enterprises purchased a depreciable asset for $22,000 on April 1, Year 1. The asset will be
depreciated using the straight-line method over its four-year useful life. Assuming the asset’s
salvage value is $2,000, Peavey Enterprises should recognize depreciation expense in Year 2 in the
amount of:
A) $5,000 B) $20,000 C) $9,250 D) $10,000 E) $5,500
81)
The following information is available on a depreciable asset owned by Mutual Savings Bank:
Purchase date
July 1, Year 1
Purchase price
$85,000
Salvage value
$10,000
Useful life
10 years
Depreciation method
straight-line
The asset’s book value is $70,000 on July 1, Year 3. On that date, management determines that the
asset’s salvage value should be $5,000 rather than the original estimate of $10,000. Based on this
information, the amount of depreciation expense the company should recognize during the last six
months of Year 3 would be:
A) $3,750.00 B) $4,062.50 C) $7,375.00 D) $7,812.50 E) $8,125.00
82)
A benefit of using an accelerated depreciation method is that:
A)
It is preferred by the tax code.
B)
It yields a higher income in the early years of the asset’s useful life.
C)
It yields larger depreciation expense in the early years of an asset’s life.
D)
The results are identical to straight-line depreciation.
E)
It is the simplest method to calculate.
83)
The modified accelerated cost recovery system (MACRS):
A)
Does not allow partial year depreciation.
B)
Is an outdated system that is no longer used by companies.
C)
Is identical to units of production depreciation.
D)
Is required for financial reporting.
E)
Is included in the U.S. federal income tax rules for depreciating assets.
84)
The straight-line depreciation method and the double-declining-balance depreciation method:
A)
Are the only acceptable methods of depreciation for financial reporting.
B)
Produce the same total depreciation over an asset’s useful life.
C)
Produce the same depreciation expense each year.
D)
Are acceptable for tax purposes only.
E)
Produce the same book value each year.
85)
Total asset turnover is used to evaluate:
A)
The relation between asset cost and book value.
B)
The efficient use of assets to generate sales.
C)
The cash flows used to acquire assets.
D)
The necessity for asset replacement.
E)
The number of times operating assets were sold during the year.
86)
A total asset turnover ratio of 3.5 indicates that:
A)
For every $1 in assets, the firm earned $3.50 in net income.
B)
For every $1 in assets, the firm produced $3.50 in net sales during the period.
C)
For every $1 in assets, the firm paid $3.50 in expenses during the period.
D)
For every $1 in assets, the firm earned gross profit of $3.50 during the period.
E)
For every $1 in sales, the firm acquired $3.50 in assets during the period.
87)
The calculation of total asset turnover is:
A)
Net assets multiplied by total assets.
B)
Average total assets multiplied by net sales.
C)
Gross profit divided by average total assets.
D)
Average total assets divided by gross profit.
E)
Net sales divided by average total assets.
88)
A company had average total assets of $887,000. Its gross sales were $1,090,000 and its net sales
were $1,000,000. The company’s total asset turnover equals:
A) 1.23. B) 1.09. C) 1.13. D) 0.81. E) 0.89.
89)
Spears Co. had net sales of $35,400 million. Its average total assets for the period were $14,700
million. Spears’ total asset turnover equals:
A) 3.54. B) 0.42. C) 1.48. D) 2.41. E) 0.35.
90)
Land improvements are:
A)
Assets that increase the usefulness of land, but that have a limited useful life and are subject
to depreciation.
B)
Expensed in the period incurred.
C)
Included in the cost of the land account.
D)
Assets that increase the usefulness of land, and like land, are not depreciated.
E)
Also called basket purchases.
39
91)
Which of the following is not classified as plant assets?
A)
Buildings.
B)
Patent.
C)
Land improvements.
D)
Land.
E)
Machinery and equipment.
92)
The cost of land would not include:
A)
Government assessments.
B)
Purchase price.
C)
Cost of parking lot lighting.
D)
Fees for insuring the title.
E)
Costs of removing existing structures.
93)
A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property. The
property included land appraised at $87,500, land improvements appraised at $35,000, and a
building appraised at $52,500. What should be the allocation of this property’s costs in the
company’s accounting records?
A)
Land $82,750; Land Improvements, $33,100; Building, $49,650.
B)
Land $75,000; Land Improvements, $30,800; Building, $46,200.
C)
Land $80,250; Land Improvements, $32,100; Building, $48,150.
D)
Land $77,500; Land Improvements; $31,000; Building; $46,500.
E)
Land $75,000; Land Improvements, $30,000; Building, $45,000.