11) Which of the following is often rendered obsolete because of technological advancements?
A) Patent
B) Copyright
C) Franchise
D) Goodwill
12) Levi’s would be an example of a:
A) trademark.
B) copyright.
C) brand name.
D) patent.
13) The Indianapolis Colts and Seattle Seahawks are examples of:
A) copyrighted teams.
B) trademarked teams.
C) franchised teams.
D) patented teams.
14) Which intangible asset is recorded only when an acquiring company purchases another
company?
A) Franchise
B) Goodwill
C) Brand name
D) Trademark
15) According to GAAP, goodwill is:
A) amortized every year.
B) recorded as a gain only when the goodwill is gaining value.
C) recorded as a loss only when the goodwill is losing value.
D) amortized like other intangible assets.
16) Research and development costs (R&D) are generally:
A) expensed and become part of the Income Statement.
B) listed as “other intangibles” on the Balance Sheet.
C) listed as “current assets” on the Balance Sheet.
D) listed as “long-term assets” on the Balance Sheet.
17) A patent has amortization this year of $2,300. The journal entry would be to:
A) debit amortization expense-patent, $2,300; credit Accumulated Depreciation-patent, $2,300.
B) debit accumulated amortization-patent, $2,300; credit patent, $2,300.
C) debit amortization expense-patent, $2,300; credit patent, $2,300.
D) debit accumulated amortization-patent, $2,300; credit amortization expense-patent, $2,300.
18) Goodwill is defined as:
A) assets minus liabilities.
B) excess of the cost of the purchase of a business over the market value of its net assets.
C) liabilities minus assets.
D) the acquisition costs of a franchise.
19) A manufacturer may identify its product with a unique symbol and prevent other
manufacturers from using the same symbol by obtaining a:
A) patent.
B) copyright.
C) trademark.
D) franchise.
8.7 Questions
1) The process of allocating the cost of natural resources to an expense is called depletion.
2) Computing depletion expense is much like computing depreciation under the straight-line
method.
3) In computing depletion expense, salvage value is not part of the computation.
4) Items such as minerals are considered natural resources.
5) Juarez Mining purchased a vein of coal ore for $3,500,000. It is estimated that 25,000,000
tons of ore are available to be extracted. The estimated depletion rate for each ton of ore
(rounded to the nearest cent) is:
A) $0.13.
B) $0.14.
C) $0.15.
D) $1.40.
6) Aspen Ore purchased a vein of coal ore for $5,250,000. It is estimated that 30,000,000 tons of
ore are available to be extracted. The estimated depletion expense for this year’s extraction of
2,750,000 tons of ore (rounded to the nearest dollar) is:
A) $525,000.
B) $504,167.
C) $481,250.
D) $458,333.
7) Spring Creek Mines purchased a vein of mineral ore for $3,250,000. It is estimated that
15,000,000 tons of ore are available to be extracted. The estimated depletion expense for this
year’s extraction of 1,760,000 tons of ore (rounded to the nearest dollar) is:
A) $428,267.
B) $400,000.
C) $334,400.
D) $381,333.
8) Accumulated depletion is a(n):
A) contra-asset account.
B) contra-liability account.
C) expense account.
D) cash account.
9) Cost divided by the total amount of the natural resource to be removed yields:
A) depletion expense for the period.
B) depletion rate per unit for the period.
C) accumulated rate for the period.
D) depreciation rate per unit for the period.
10) If the amount extracted from a coal mine was different every year for four years, you would:
A) recompute the depletion expense rate per unit each year.
B) use the same depletion expense rate per unit each year.
C) debit Depletion expense for the same amount each year.
D) credit Accumulated depletion–coal mine for the same amount each year.
11) Subtracting accumulated depletion from the asset account coal mine would yield the:
A) current market value of the coal mine.
B) original cost of the coal mine.
C) net book value of the coal mine.
D) current period’s depletion expense for the coal mine.
12) Information needed to compute a depletion charge per unit includes the:
A) estimated total amount of resources available for removal.
B) amount of resources removed during the period.
C) cumulative amount of resources removed.
D) amount of resources sold during the period.
13) Properties whose physical substance consists of natural resources that are consumed in the
operation of a business are called:
A) depreciable assets.
B) depletable assets.
C) amortizable assets.
D) intangible assets.
14) When calculating depletion, what is the proper treatment of residual value?
A) There is no residual value in the calculation of depletion expense.
B) The residual value is subtracted from cost to determine the depletable base.
C) The residual value is added to cost to determine the depletable base.
D) Residual value is ignored until the end of the asset’s life at which time it is used to limit the
final year’s expense amount.
15) Which of the following is NOT true regarding depletion?
A) Depletion is the systematic reduction of a natural resource’s carrying value on the books.
B) Depletion is computed in a similar manner to straight-line depreciation.
C) Depletion is an expense that applies to the natural resources in the same way depreciation
applies to fixed assets.
D) Depletion is an expense that applies to natural resources in the same way amortization applies
to intangible assets.
8.8 Questions
1) Equity securities which management intends to hold for less than one year would be
considered other long-term assets.
2) Investments in debt securities, such as bonds, may be classified as either current or long-term
assets.
3) Increases in the value of a security while the company still owns it are considered realized
gains.
4) Realized gains and losses only occur when the security is sold for more or less than the
original cost.
5) Trading securities are shown as long-term assets on the Balance Sheet.
6) Available-for-sale securities are reported at their current market value, and any increases or
decreases in market value are reported as part of net income.
7) Which of the following is NOT a classification for marketable securities?
A) Saleable securities
B) Available-for-sale securities
C) Trading securities
D) Held-to-maturity securities
8) Which of the following marketable securities are reported at market value on the Balance
Sheet date?
A) Held-to-maturities securities
B) Available-for-sale securities
C) Trading securities
D) Available-for-sale and trading securities
9) Which of the following marketable securities are reported at cost on the Balance Sheet date?
A) Trading securities
B) Available-for sale securities
C) Held-to-maturity securities
D) Trading and held-to-maturity securities
10) For which kind of marketable securities are any unrealized gains and losses shown on the
income
statement?
A) Trading securities
B) Available-for sale securities
C) Held-to-maturity securities
D) Trading and held-to-maturity securities
11) For which of the following securities are any increases or decreases in value reported as a
separate change in Stockholders’ Equity for the period?
A) Trading securities
B) Available-for sale securities
C) Held-to-maturity securities
D) Trading and held-to-maturity securities
12) Interest and dividends earned during the period are reported on the Income Statement for
which kind of marketable securities?
A) Trading securities
B) Available-for-sale securities
C) Held-to-maturity securities
D) All types of securities show interest and dividend income on the Income Statement.
13) Securities that are actively managed in order to maximize profit as a result of short-term
changes in price are:
A) trading securities.
B) available-for sale securities.
C) held-to-maturity securities.
D) trading and held-to-maturity securities.
14) Marketable securities that are held until the due date of the securities are:
A) trading securities.
B) available-for sale securities.
C) held-to-maturity securities.
D) trading and held-to-maturity securities.
15) Which type of marketable securities do NOT report increases or decreases in value on the
Income Statement?
A) Trading and available-for-sale securities
B) Available-for sale securities
C) Held-to-maturity securities
D) Held-to-maturity and available-for-sale securities
8.9 Questions
1) Long-term assets usually begin with the listing of natural resources first.
2) GAAP does not allow property, plant, and equipment to be shown at net book value on the
Balance Sheet.
3) Intangibles, such as patents and copyrights, are generally listed after property, plant, and
equipment and after natural resources on a company’s long-term assets portion of the Balance
Sheet.
4) Long-term marketable securities, such as five-year held-to-maturity securities, would be listed
last in the long-term assets portion of a company’s Balance Sheet.
5) The footnotes to the financial statements will include a description of the intangible asset and
its estimated useful life.
8.10 Questions
1) The return on assets (ROA) is the ratio of net income divided by average fixed assets.
2) The fixed asset turnover is the ratio of sales to average fixed assets.
3) The return on assets and the fixed asset turnover are usually computed monthly.
4) Charmed Inc. has net income of $50,000, sales of $250,000, beginning total assets of
$150,000 and ending total assets of $200,000. The return on assets is (rounded) 33%.
5) Charbucks has net income of $50,000, sales of $250,000, beginning fixed assets of $150,000
and ending fixed assets of $200,000. The fixed asset turnover is (rounded) 1.4.
6) The following is selected data for Inland Industries:
2012
2011
Sales
$1,158,000
$1,076,000
Net Income
114,000
106,000
Total Current Assets
162,000
147,000
Property, Plant and Equipment
643,000
638,000
The return on assets (rounded to the nearest tenth of a percent) for 2012 was:
A) 14.2.
B) 17.8.
C) 14.3.
D) 17.7.
7) The following is selected data for Northwest Industries:
2012
2011
Sales
$1,642,000
1,743,000
Net Income
173,000
191,000
Total Current Assets
177,000
163,000
Property, Plant, and Equipment
724,000
644,000
The return on assets (rounded to the nearest tenth of a percent) for 2012 was:
A) 20.3.
B) 19.2.
C) 23.9.
D) 25.3.