18. If an organization has an obligation to pay $5,000 to a supplier two years from now, the
present value of the obligation:
19. Depreciation, in accounting, is a process that results in:
20.
The present value of $3,000 to be received in 7 years at 10% is:
21.
The present value of $3,000 to be received every year for 9 years, at 10%, is:
22.
The present value of an obligation of $4,000 payable in 7 years at 8% is:
23.
A particular common stock has an annual cash dividend of $2.00 per share and is predicted to
have a market value of $30 per share 5 years from now. Assuming a discount rate of 10%, a fair
market price for the stock today is:
24.
Psyche Company wants to acquire Trim Company. Trim’s ROI has been above average for its
industry; net income has averaged $70,000 a year more than the industry average. These
“excess” earnings are expected to continue at this amount for 5 years. Assuming a discount rate
of 8%, how much goodwill will arise from Psyches’ purchase of Trim?
25. Leasehold is an example of which of the following types of assets?
26. The principal challenge to calculating depletion is estimating:
27. Noncurrent, intangible assets such as leasehold improvements, patents, and copyrights
are all subject to:
28. When a depreciable asset is sold:
29. Goodwill is an asset that arises because the present value of an acquired company’s
estimated future earnings, discounted at the acquiring firm’s ROI:
30. The intangible asset goodwill:
31. Accounting for natural resources:
32. Which of the following is
not
a term that describes part of the accounting for noncurrent
assets?
33. Many companies use accelerated depreciation for tax purposes because:
34. Lone Star Sales & Service acquired a new machine that cost $42,000 in early 2013. The
machine is expected to have a five-year useful life and is estimated to have a salvage value of
$7,000 at the end of its life. (Round your final answers to the nearest dollar.)
(a.) Using the straight-line depreciation method, calculate the depreciation expense to be
recognized in the second year of the machine’s life and calculate the accumulated depreciation
after the third year of the machine’s life.
(b.) Using the double-declining-balance depreciation method, calculate the depreciation expense
for the third year of the machine’s life and the net book value of the machine at this point in
time.
35. Goodwill results from the purchase of one firm by another for a price that is greater than
the fair value of the net assets acquired. On January 1, 2014, Blue Grass Co. purchased Red
Grass Co. for $1,200,000 when the net assets were valued at $1,000,000. Goodwill will be tested
annually for impairment. Assume that after the first year there was an impairment of $15,000.
Required:
(a.) Compute the value of goodwill to be recorded on the books of Blue Grass Company upon the
purchase of the business.
(b.) What is impairment and how is the first year’s impairment recorded in the books?