1. Real Angus Steakhouse purchased land for $75,000 cash. They also incurred commissions
of $4,500, property taxes of $5,000, and title insurance of $800. The $5,000 in property taxes
includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for
the current year after the purchase date. For what amount should Real Angus Steakhouse
record the land?
2. Which of the following would be recorded as land improvements?
3. Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash. They also incurred
a shipping cost of $400 to get the equipment to its factory. The fair value of this equipment is
$7,000. For what amount should Bad Brads BBQ record the equipment?
4. Wiley Company purchased new equipment for $60,000. Wiley paid cash for the equipment.
Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid
$3,000; and installation cost, $2,500. The cost recorded for the equipment was:
5. Cowboy Development incurred the following costs associated with the purchase of a piece
of land that it will use to re-build an office building:
What amount should be recorded for the purchase of the land?
6. Bahama Catering purchased a commercial dishwasher by paying cash of $5,000. The
dishwasher’s fair value on the date of the purchase was $5,600. The company incurred $400 in
transportation costs, $300 installation fees, and paid a $200 fine for illegal parking while the
dishwasher was being delivered. For what amount will Bahama record the dishwasher?
7. Capital Construction purchased a 3-acre tract of land for a building site for $350,000. The
company demolished the old building at a cost of $12,000, but was able to sell scrap from the
building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the
contract was $500. Property taxes paid were $3,000, of which $250 covered the period after
the purchase date. The capitalized cost of the land is:
8. On July 1, 2012, Landon Co. purchased a $500,000 tract of land that is intended to be the
site of a new office complex. Landon incurred additional costs and realized salvage proceeds
during 2012 as follows:
What would be the capitalized cost of the land?
9. Fruitasia purchased land, a building, and equipment for $800,000. The estimated fair values
of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. At
what amount would the company record the land?
10. Productive assets that are physically used up, or depleted are:
11. The following financial information is from Cook Company:
What is the amount of long-term assets assuming the accounts above reflect normal activity?
12. The legal life of a patent is:
13. An exclusive 20-year right to manufacture a product or to use a process is a:
14. The exclusive right to benefit from a creative work, such as a film, is a:
15. A word, slogan, or symbol that distinctively identifies a company, product, or service is a:
16. Research and development costs should be:
17. Morgan Pharmaceutical spends $50,000 this year in research and development for a new
drug to cure liver damage. By the end of the year, management feels confident that the new
drug will gain FDA approval and lead to higher future sales. What impact will the $50,000
spending have on this year’s financial statements?
18. 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?
19. Research and development costs should be capitalized when the:
20. Bio-Lab Pharmaceuticals carried on a project to develop a new drug that dramatically
shortened the recovery period for flu infection. The project cost the company $150,000 before
Bio-Lab abandoned the project due to the slim possibility to gain FDA approval. Bio-Lab then
spent $300,000 on another project developing a kind of shot that achieves the same goal for
flu recovery, and the company is confident in gaining FDA approval for the new shot and in
making profits out of the shot. What amount would be expensed?
21. Goodwill is:
22. In accounting, goodwill
23. In accounting, goodwill
24. The balance sheet of Cattleman’s Steakhouse shows assets of $86,400 and liabilities of
$15,000. The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000.
Longhorn paid Cattleman’s $95,000 to acquire it. Longhorn should record goodwill on this
purchase of:
25. Northern purchased the entire business of Southern including all its assets and liabilities
for $600,000. Below is information related to the two companies:
How much goodwill did Northern pay for acquiring Southern?
26. Lake Incorporated purchased all of the outstanding stock of Huron Company paying
$850,000 cash. Lake assumed all of the liabilities. Book values and fair values of acquired
assets and liabilities were:
Lake would record goodwill of:
27. Which of the following subsequent expenditures would be capitalized?
28. Which of the following subsequent expenditures would be capitalized?
29. The purchase of a new cooling system for $150,000 to upgrade an office building owned
by the company would be accounted for as:
30. Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods’
accountant debited the asset account, Equipment. Was this treatment an error, and if so, what
will be the effect on the financial statements of Woods?
31. The replacement of a major component increased the productive capacity of equipment
from 10 units per hour to 18 units per hour. The expenditure for the replacement component
should be debited to:
32. Which one of the following regarding the book value of an asset is correct?
33. Which of the following is considered a “contra” account?
34. The factors used to compute depreciation expense are an asset’s:
36. Using the straight-line method, depreciation expense for 2012 would be:
37. Using the straight-line method, the book value at December 31, 2012 would be:
38. Using the straight-line method, depreciation expense for 2013 and the book value at
December 31, 2013 would be:
39. Using the double-declining balance method, depreciation expense for 2012 would be:
40. Using the double-declining balance method, depreciation expense for 2013 would be:
41. Using the double-declining balance method, the book value at December 31, 2013 would
be:
42. A machine has a cost of $15,000, an estimated residual value of $3,000, and an estimated
useful life of four years. The machine is being depreciated on a straight-line basis. At the end
of the second year, what amount will be reported for accumulated depreciation?