81
190) The process of recording expense for natural resources.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Depreciation – General; Amortization of
Intangible Assets
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-04
Calculate depreciation of property, plant, and equipment.; 07-05 Calculate amortization of
intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
191) An accelerated depreciation method that records more depreciation in earlier years and less
depreciation in later years.
Difficulty: 2 Medium
Topic: Acquisition – Property, Plant, and Equipment; Depreciation – General; Amortization of
Intangible Assets
Learning Objective: 07-01 Identify the major types of property, plant, and equipment.; 07-04
Calculate depreciation of property, plant, and equipment.; 07-05 Calculate amortization of
intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
82
Match the following:
A) Franchise
B) Patent
C) Trademark
D) Goodwill
E) Copyright
192) Payment for the exclusive right to use the company’s name and to sell its products within a
specified geographical area.
Difficulty: 2 Medium
Topic: Intangible Asset
Learning Objective: 07-02 Identify the major types of intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
193) An exclusive right to manufacture a product or to use a process.
Difficulty: 2 Medium
Topic: Intangible Asset
Learning Objective: 07-02 Identify the major types of intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
194) A word, slogan, or symbol that distinctively identifies a company, product, or service.
Difficulty: 2 Medium
Topic: Intangible Asset
Learning Objective: 07-02 Identify the major types of intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
195) An exclusive right of protection given to the creator of a published work such as a song, film,
painting, photograph, book, or computer software.
Difficulty: 2 Medium
Topic: Intangible Asset
Learning Objective: 07-02 Identify the major types of intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
83
196) The purchase price of a company less the fair value of the net assets acquired.
Difficulty: 2 Medium
Topic: Intangible Asset
Learning Objective: 07-02 Identify the major types of intangible assets.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
84
Match the following:
A) Residual value
B) Book value
C) Accumulated depreciation
D) Depreciation
E) Service life
197) A contra asset account representing the total depreciation taken to date.
Difficulty: 2 Medium
Topic: Depreciation – General
Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
198) Equal to the original cost of the asset minus the current balance in accumulated depreciation.
Difficulty: 2 Medium
Topic: Depreciation – General
Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
199) Allocating the cost of a tangible asset over its service life.
Difficulty: 2 Medium
Topic: Depreciation – General
Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
200) The amount the company expects to receive from selling the asset at the end of its service life.
Difficulty: 2 Medium
Topic: Depreciation – General
Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
201) How long the company expects to receive benefits from the asset before disposing of it.
Difficulty: 2 Medium
Topic: Depreciation – General
Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
85
Match the following:
A) Impairment
B) Profit margin
C) Big bath
D) Asset turnover
E) Return on assets
202) Net income divided by average total assets; measures the amount of net income generated for
each dollar invested in assets.
Difficulty: 2 Medium
Topic: Analysis – Return on Assets; Analysis – Profit Margin; Analysis – Asset Turnover; Asset
Impairment
Learning Objective: 07-07 Describe the links among return on assets, profit margin, and asset
turnover.; 07-08 Identify impairment situations and describe the two-step impairment process.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
203) Net income divided by net sales; indicates the earnings per dollar of sales.
Difficulty: 2 Medium
Topic: Analysis – Return on Assets; Analysis – Profit Margin; Analysis – Asset Turnover; Asset
Impairment
Learning Objective: 07-07 Describe the links among return on assets, profit margin, and asset
turnover.; 07-08 Identify impairment situations and describe the two-step impairment process.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
204) Net sales divided by average total assets; measures the sales per dollar of assets invested.
Difficulty: 2 Medium
Topic: Analysis – Return on Assets; Analysis – Profit Margin; Analysis – Asset Turnover; Asset
Impairment
Learning Objective: 07-07 Describe the links among return on assets, profit margin, and asset
turnover.; 07-08 Identify impairment situations and describe the two-step impairment process.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
205) Occurs when the future cash flows (future benefits) generated for a long-term asset fall below
its book value (cost minus accumulated depreciation).
Difficulty: 2 Medium
Topic: Analysis – Return on Assets; Analysis – Profit Margin; Analysis – Asset Turnover; Asset
Impairment
Learning Objective: 07-07 Describe the links among return on assets, profit margin, and asset
turnover.; 07-08 Identify impairment situations and describe the two-step impairment process.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
206) Recording all losses in one year to make a bad year even worse.
Difficulty: 2 Medium
Topic: Analysis – Return on Assets; Analysis – Profit Margin; Analysis – Asset Turnover; Asset
Impairment
Learning Objective: 07-07 Describe the links among return on assets, profit margin, and asset
turnover.; 07-08 Identify impairment situations and describe the two-step impairment process.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking
207) Soccer Wholesale purchased land and a warehouse for one price of $800,000. In addition to
the purchase price, Soccer Wholesale makes the following expenditures related to the acquisition:
broker’s commission, $48,000; title insurance, $3,000; and miscellaneous closing costs, $8,000.
The warehouse is immediately demolished at a cost of $80,000 in anticipation of building a new
warehouse. Determine the amount Soccer Wholesale should record as the cost of the land.
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208) Holiday Laboratories purchased a high-speed industrial centrifuge at a cost of $420,000.
Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An
additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs
totaled $6,000. Materials used up in testing cost $3,000. What is the total cost of the equipment?
How much of this amount should be expensed immediately?
88
209) Little King Sandwiches made the following expenditures related to its restaurant:
1. Replaced the heating and air-conditioning equipment 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
of these expenditures.
210) Suddenly Salad had the following expenditures related to developing its trademark.
General advertising costs
$300,000
Advertising specifically focused on trademark development
120,000
Legal fees to register trademark
52,000
Registration and design fees for the trademark
38,000
Legal fees for successful defense of the new trademark
33,000
Total
$543,000
During your year-end review of the accounts related to intangibles, you discover that the company
has capitalized all the above as costs of the trademark. Management contends that all of the costs
increase the value of the trademark; therefore, all the costs should be capitalized.
1. Which of the above costs should the company capitalize to the Trademark account in the balance
sheet?
2. Which of the above costs should the company report as expense in the income statement?
1. Trademark account in the balance sheet:
$52,000
38,000
33,000
$123,000
2. Expense in the income statement:
$300,000
$420,000
211) New Harvest Bakery acquired all the outstanding common stock of Red Rock Bakery for
$68,000 in cash. The book values and fair values of Red Rock’s assets and liabilities were as
follows:
Book Value
Fair Value
Current assets
$24,000
$30,000
Property, plant, and equipment
44,000
56,000
Other assets
4,000
6,000
Current liabilities
16,000
16,000
Long-term liabilities
24,000
22,000
Calculate the amount paid for goodwill.
Purchase price
$68,000
Less:
92,000
Goodwill
$14,000
212) Western Wholesale Foods incurs the following expenditures during the current fiscal year:
(1) salaries for the repair technicians, $155,000; (2) remodeling of the executive offices, $84,000;
(3) annual maintenance costs related to its machinery, $72,900; (4) improvement of the production
line resulting in an increase in productivity, $38,000; and (5) addition of a sprinkler system to the
manufacturing facility to reduce the risk of fire damage, $35,000. How should Western account for
each of these expenditures?
213) Taco Hut purchased equipment on May 1, 2021, for $15,000. Residual value at the end of an
estimated eight-year service life is expected to be $3,000. Calculate depreciation expense using the
straight-line method for 2021 and 2022, assuming a December 31 year-end.
214) China Dragon purchased new restaurant equipment on September 1, 2021, for $8,000.
Residual value at the end of an estimated five-year service life is expected to be $2,000. Calculate
depreciation expense using the straight-line method for 2021 and 2022, assuming a December 31
year-end.
215) Mountain View Resorts purchased equipment at the beginning of 2021 for $40,000. Residual
value at the end of an estimated four-year service life is expected to be $8,000. The machine
operated for 2,200 hours in the first year and the company expects the machine to operate for a
total of 10,000 hours over its four-year life. Calculate depreciation expense for 2021, using each of
the following depreciation methods: (1) straight-line, (2) double-declining-balance, and (3)
activity-based.
216) Chubbyville purchases a delivery van for $23,500. Chubbyville estimates a four-year service
life and a residual value of $2,500. During the four-year period, the company expects to drive the
van 105,000 miles. Calculate annual depreciation for the four-year life of the van using each of the
following methods. Round all amounts to the nearest dollar.
1. Straight-line.
2. Double-declining-balance.
3. Activity-based. Actual miles driven each year were 24,000 miles in Year 1; 26,000 miles in
Year 2; 22,000 miles in Year 3; and 25,000 miles in Year 4. Note that actual total miles of 97,000
fall short of expectations by 8,000 miles.
94
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217) Burger Chef acquired a delivery truck on March 1, 2021, for $26,000. The company estimates
a residual value of $2,000 and a six-year service life. It expects to drive the truck 80,000 miles.
Actual mileage was 12,000 miles in 2021 and 16,000 miles in 2022. Calculate depreciation
expense using the activity-based method for 2021 and 2022, assuming a December 31 year-end.
218) Strawberry Fields purchased a tractor at a cost of $38,000 and sold it two years later for
$25,000. Strawberry Fields recorded depreciation using the straight-line method, a five-year
service life, and an $8,000 residual value. What was the gain or loss on the sale? Record the sale.
219) At the beginning of the year, Big Time Tires acquired a patent for $800,000 and a trademark
for $300,000. Big Time Tires’ policy is to amortize intangible assets with finite useful lives using
the straight-line method, no residual value, and a five-year service life. What is the total amount of
amortization expense that would appear in Big Time Tires’ income statement for the first year
related to these items?
220) On January 1, 2021, The Donut Stop purchased a patent for $80,000. At that time, the
remaining legal life was 15 years, but the company estimated the patent would be useful for only
five more years. In late December 2022, the company incurred legal fees of $25,000 in
successfully defending the patent in an infringement suit. The successful defense did not change
the company’s estimate of the patent’s useful life. The Donut Stop’s year-end is December 31.
Record (1) the purchase of the patent in 2021, (2) amortization in 2021, (3) the cost of legal fees in
2022, and (4) amortization in 2022 (for simplicity, assume no amortization for the legal fees is
recorded in 2022 because the expenditures did not occur until late December). What is the balance
in the Patents account at the end of 2022?
221) The Bomb Pop Corporation sold ice cream equipment for $16,000. The equipment was
originally purchased for $40,000, and depreciation through the date of sale totaled $25,000. What
was the gain or loss on the sale of the equipment? Record the sale of the equipment.
222) Nate’s Hot Dogs exchanges long-term assets with Lizzy’s Lemonade. Nate receives a delivery
truck and gives up a piece of machinery. The fair value and book value of the machinery were
$27,000 and $25,000 (original cost of $35,000 less accumulated depreciation of $10,000),
respectively. Since the delivery truck was worth $32,000, Nate paid an additional $5,000 in cash to
Lizzy. Record the exchange for Nate’s Hot Dogs.
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223) New World Deli exchanged land for a more suitable parcel of land to be used for a new
restaurant. New World Deli reported the old land at its original cost of $85,000. According to an
independent appraisal, the old land currently is worth $110,000. New World Deli paid $15,000 in
cash to complete the transaction. Record the exchange.
224) Allied Construction and Axis Construction reported the following information in their annual
financial statements ($ in millions):
Allied Construction
2021
2020
Sales
$48,283
$46,927
Net income
2,809
3,105
Total assets
30,869
27,767
Axis Construction
2021
2020
Sales
$77,349
$90,837
Net income
4,395
5,761
Total assets
44,324
52,263
Required:
1. Calculate Allied Construction’s return on assets, profit margin, and asset turnover ratio for 2021.
2. Calculate Axis Construction’s return on assets, profit margin, and asset turnover ratio for 2021.
3. Which company has the better profit margin and which company has the better asset turnover?