87) Which of the following statements is correct with respect to a loss on the sale of a
depreciable asset?
A) Net income decreases and total assets increase.
B) Net income decreases and stockholders’ equity increases.
C) Total assets decrease and stockholders’ equity decreases.
D) Total assets increase and stockholders’ equity decreases.
88) Amanda Company purchased a computer that cost $10,000. It had an estimated useful life of
five years and a residual value of $1,000. The computer was depreciated by the straight-line
method and was sold at the end of the third year of use for $5,000 cash.
How much of a gain or loss should Amanda record?
A) A gain of $1,000.
B) A loss of $5,000.
C) A gain of $400.
D) A loss of $400.
89) Amanda Company purchased a computer that cost $10,000. It had an estimated useful life of
five years and a residual value of $1,000. The computer was depreciated by the straight-line
method and was sold at the end of the third year of use for $5,000 cash.
Which of the following statements correctly describes the computer sale?
A) Assets and stockholders’ equity both increase by $5,000.
B) Assets decrease $5,000 and stockholders’ equity is not affected.
C) Assets and stockholders’ equity both decrease by $400.
D) Assets and stockholders’ equity both increase by $400.
90) On March 1, 2019, Anniston Company purchased an oil well at a cost of $1,000,000. It is
estimated that 150,000 barrels of oil can be produced over the remaining life of the well and the
residual value of the well will be $100,000.
During 2019, 15,000 barrels of oil were produced and all of these barrels were sold. Which of the
following statements is incorrect with respect to the accounting for the oil well?
A) The 2019 cost of goods sold was $90,000.
B) The book value of the oil well decreased $90,000 during 2019.
C) The inventory of oil was $90,000 at December 31, 2019.
D) The depletion rate is $6.00 per barrel of oil.
91) On March 1, 2019, Anniston Company purchased an oil well at a cost of $1,000,000. It is
estimated that 150,000 barrels of oil can be produced over the remaining life of the well and the
residual value of the well will be $100,000.
During 2019, 15,000 barrels of oil were produced and 10,000 barrels were sold. Which of the
following statements is correct with respect to the accounting for the oil well?
A) The 2019 cost of goods sold was $90,000.
B) The book value of the oil well decreased $60,000 during 2019.
C) The inventory of oil was $30,000 at December 31, 2019.
D) The 2019 cost of goods sold was $30,000.
92) During 2019, a company purchased a mine at a cost of $3,000,000. The company spent an
additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons
of mineral can be removed from the mine and the residual value of the mine will be $600,000.
During 2019, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold.
Which of the following statements is correct with respect to the accounting for the mine?
A) The 2019 net income decreased $450,000 as a result of the mining during the year.
B) The book value of the mine decreased $350,000 during 2019.
C) The inventory of minerals was $450,000 at December 31, 2019.
D) The 2019 cost of goods sold was $350,000.
93) During 2019, a company purchased a mine at a cost of $3,000,000. The company spent an
additional $600,000 getting the mine ready for its intended use. It is estimated that 300,000 tons
of mineral can be removed from the mine and the residual value of the mine will be $600,000.
During 2019, 45,000 tons of mineral were removed from the mine and 35,000 tons were sold.
Which of the following statements is incorrect with respect to the accounting for the mine?
A) The book value of the mine on December 31, 2019 was $2,650,000.
B) The book value of the mine decreased $450,000 during 2019.
C) The inventory of minerals was $100,000 at December 31, 2019.
D) The 2019 cost of goods sold was $350,000.
94) Which of the following is most likely to be an intangible asset with an indefinite life?
A) Licenses
B) Franchise
C) Patent
D) Goodwill
95) Which one of the following would not be recorded as an intangible asset?
A) Patents
B) Copyrights
C) Internally generated goodwill
D) Franchises
96) Which of the following is not true regarding certain assets?
A) A copyright provides the right to publish, use, and sell equipment.
B) A trademark provides the right to a name, image, or slogan identified with a product.
C) The cost to design a software program for manufacturing equipment will be expensed as
research and development expense.
D) A patent on equipment enables the inventor to sell that equipment.
97) Failure to record amortization expense on a patent during the current year will result in
which of the following?
A) Net income will be overstated, but there would be no effect on total assets.
B) Net income for the year and total assets would both be overstated.
C) Assets will be overstated, but there would be no effect on net income for the year.
D) Net income and assets will both be understated.
98) Which of the following properly describes the accounting for goodwill?
A) Goodwill is recorded when it is internally generated.
B) Goodwill is amortized over its useful life.
C) Goodwill is the difference between the amount paid for a company relative to the book value
of the acquired company’s net assets.
D) Goodwill is written down when it has been determined to be impaired.
99) Which of the following properly describes the accounting for a patent?
A) Research and development costs associated with a patent are capitalized.
B) The patent will be amortized over its useful life.
C) Patent amortization expense is accounted for within the accumulated depreciation account.
D) A patent’s legal life extends to 70 years after the death of the inventor.
100) Which of the following statements is incorrect?
A) A copyright has a legal life not exceeding 70 years after the author’s death.
B) A trademark is recorded on the balance sheet at an amount equal to the related research and
development costs incurred.
C) A patent’s legal life is 20 years.
D) A franchise’s amortization period is determined by the franchise agreement.
101) During 2019, the Bowtie Company reported net income of $1,872 million, depreciation
expense of $1,412 million and $978 million paid for purchases of property, plant, and equipment.
Using the indirect method of preparing the statement of cash flows, what would be the effect on
cash flows from operating activities during 2019?
A) Cash flows from operating activities would be increased by depreciation expense and
decreased by the property, plant, and equipment purchases.
B) Cash flow from operating activities would be increased by depreciation expense and by the
property, plant, and equipment purchases.
C) Cash flow from operating activities would be increased by depreciation expense but the
property, plant, and equipment purchases would have no effect on cash flow from operating
activities.
D) Depreciation is a noncash expense and would not be used to calculate cash flow from
operating activities.
102) Lincoln Restaurants reported net income in 2019 of $45.9 million and depreciation expense
of $48.8 million. It also reported additions to property and equipment of $162.9 million. Using
the indirect method of preparing the statement of cash flows, how will these items impact the
2019 statement of cash flows?
A) Depreciation of $48.8 million would be deducted from net income under operating activities
and the $162.9 million would be added under investing activities.
B) Depreciation of $48.8 million would be added to net income under operating activities and the
$162.9 million would be added under investing activities.
C) Depreciation of $48.8 million would be added to net income under operating activities and the
$162.9 million would be deducted under investing activities.
D) Depreciation of $48.8 million would be deducted from net income under operating activities
and the $162.9 million would be deducted under investing activities.
103) Barkley Company has a piece of equipment that it has been depreciating for 3 years. The
equipment originally was estimated to have a useful life of 8 years and at the beginning of the
current year, Barkley determines that the equipment’s life has been extended to 10 years. When
Barkley calculates depreciation for the current year, how many years of life should be used to
calculate the depreciation expense?
A) 7 years.
B) 5 years.
C) 8 years.
D) 10 years.
104) Williams Company purchased a machine costing $25,000 and is depreciating it over a 10-
year estimated useful life with a residual value of $3,000. At the beginning of the eighth year, a
major overhaul on it was completed at a cost of $8,000, and the total estimated useful life was
changed to 12 years with the residual value unchanged. How much is the year 8 depreciation
expense assuming use of the straight-line depreciation method?
A) $2,200.
B) $2,920.
C) $3,100.
D) $8,800.
105) Augie Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of
five years and estimated residual value of $5,000. At the beginning of year three, Augie’s
managers concluded that the total useful life would be four years, rather than five years. There
was no change in the estimated residual value. What is the amount of depreciation that Augie
should record for year 3 under the straight-line depreciation method?
A) $15,500.
B) $8,250.
C) $11,000.
D) $16,500.
106) International Financial Reporting Standards (IFRS) require the recording of research and
development costs as follows:
A) Expense research and development costs.
B) Expense research costs and capitalize development costs.
C) Expense development costs and capitalize research costs.
D) Capitalize research and development costs.
107) International Financial Reporting Standards (IFRS) allow accounting for tangible and
intangible assets at fair value by:
A) Reapplication.
B) Reconsideration.
C) Revaluation.
D) Redefinition.
108) Which of the following is not true in comparing U.S. GAAP and International Financial
Reporting Standards (IFRS)?
A) IFRS and U.S. GAAP both allow intangible assets to be reported at their cost minus
accumulated amortization.
B) U.S. GAAP requires expensing of all costs of research and development.
C) IFRS allows for adjustments for increases in fair value of tangible assets.
D) IFRS requires capitalizing of research costs and expensing of development costs.
109) The following information is available for Coca-Cola and PepsiCo:
Coca-Cola
PepsiCo
$4,168
$5,266
4,435
5,438
19,889
20,438
2,177
2,183
110) The following information was available for Landmark Restaurants for the past three years.
Using this information, compute the fixed asset turnover ratio for Year 3 and Year 2. (Round
your answers to two decimal places.)
In thousands
Year 3
Year 2
Year 1
Net fixed assets
$965,575
$830,930
$587,829
Net sales
1,105,755
894,795
746,642
Net income
45,901
41,522
26,920
111) On January 1, 2019, Trenton Company purchased a machine costing $50,000. Trenton also
incurred the following costs: transportation, $1,000; installation, $2,000; and sales tax, $3,000.
Prepare the journal entry to record the machine acquisition assuming cash was paid.
112) Waterloo Corporation purchased factory equipment for a cost of $1,800,000. There was
also the cost of $100,000 for delivery, $220,000 for installation and modifications to the factory
building, and $60,000 in interest costs on borrowed funds used to acquire the equipment.
Calculate the acquisition cost of the new equipment.
113) In Year 4, Landmark Restaurants reported the cost of property and equipment at $1,189.8
million and the accumulated depreciation at $224.2 million. In that same year, Coca Cola
reported $10,149 million in long-lived, productive assets and accumulated depreciation on them
of $4,058.
A. Estimate the approximate percent of remaining life of the assets for Landmark and Coca Cola.
B. Which company appears to have newer assets with longer remaining lives?
114) Hi-Crest Company purchased a machine on January 1, 2019, for $300,000. The machine
has an estimated useful life of 5 years and a $10,000 residual value.
Calculate depreciation expense and the year-end book value for 2019 and 2020 using the double
declining-balance method of depreciation.