Chapter 8: Operating Assets: Property, Plant and Equipment, and Intangibles
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
80. Which of the following sets of factors is needed to calculate depreciation on plant and equipment?
a.
The asset’s acquisition cost, replacement cost, and its estimated residual value
b.
The estimated residual value of the asset, its replacement cost, and its market value
c.
The asset’s replacement cost, its estimated life, and its estimated residual value
d.
The estimated life of the asset, its acquisition cost, and its estimated residual value
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Understanding
81. Biglersville Corp. purchased equipment at the beginning of 2016 for $16,000. Biglersville Corp. decided to depreciate
the equipment over a 5-year period using the straight-line method. Biglersville Corp. estimated the equipment’s residual
value at $1,000. The estimated fair market value at the end of 2016 was $15,000. Which of the following statements is
correct concerning Biglersville Corp.’s financial statements at December 31, 2016?
a.
The book value of the equipment is $30,000.
b.
The book value of the equipment is $13,000.
c.
The total accumulated depreciation is $1,000.
d.
The equipment will be reported on the balance sheet at it fair market value of $15,000.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
82. Calhoun, Inc. purchased equipment at the beginning of 2016 for $180,000. Calhoun decided to depreciate the
equipment over a 5-year period using the double-declining-balance method. Calhoun estimated the equipment’s residual
value at $30,000. Which of the following statements is correct concerning Rose’s financial statements at December 31,
2016?
a.
The book value of the equipment is $108,000.
b.
The book value of the equipment is $72,000.
c.
The total accumulated depreciation is $90,000.
d.
Depreciation expense for 2016 is $60,000.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
83. Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for
a.
financial reporting purposes and a different method for tax purposes.
b.
financial reporting purposes because depreciation is not allowed for tax purposes.
c.
tax purposes because it results in a larger net income in the early years of a plant asset’s life
d.
tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
84. Using different depreciation methods for book purposes versus tax purposes for the same asset is
a.
not allowed since the amount can only be calculated one way or the other, not both.
b.
the direct result of the differing goals of financial and tax accounting.
c.
contrary to GAAP.
d.
against the Internal Revenue Code, and as such, against the law.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Understanding
85. Newco Publishing Company purchased equipment at the beginning of 2016 for $200,000. The company decided to
depreciate the equipment over an 8-year period using the straight-line method. The company estimated the equipment’s
residual value at $20,000. The journal entry to record depreciation expense for 2016 will
a.
increase Depreciation Expense and increase Accumulated Depreciation for $25,000.
b.
increase Accumulated Depreciation and decrease Equipment for $25,000.
c.
increase Depreciation Expense and decrease Equipment for $22,500.
d.
increase Depreciation Expense and increase Accumulated Depreciation for $22,500.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
86. The effect of recording depreciation for the year is a(n)
a.
decrease in net income and no change in assets.
b.
decrease in assets but no change in owners’ equity.
c.
increase in assets and an increase in net income.
d.
decrease in assets and a decrease in net income.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Applying
87. Plant assets are depreciated because
a.
the accrual basis of accounting requires matching of costs to revenues.
b.
some plant assets last longer than others.
c.
useful lives cannot be reasonably estimated.
d.
the replacement cost of plant assets may fluctuate over time.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Understanding
a.
$ -0-
b.
$195,000
$390,000
d.
$400,000
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
88. Delmont Fire Co. purchased identical equipment having an estimated useful life of ten years. Wind Chime uses the
straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation. Assuming the
two entities are similar in all other respects, which of the following statements is correct?
a.
Wind Chime’s depreciation expense will be greater in the second year than Fire Hut’s depreciation expense.
b.
Fire Hut’s book value will be greater than Wind Chime’s book value at the end of year one.
c.
Wind Chime’s net income will be greater than Fire Hut’s net income in year nine.
d.
Fire Hut’s book value will be less than Wind Chime’s book value at the end of year two.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Applying
89. Using the straight-line depreciation method will cause a company to incur ____ tax expense in the early years of an
asset’s life than they would experience using an accelerated method of depreciation.
a.
more
b.
less
c.
equal
d.
This cannot be determined from the information given.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
91. What was the depreciation expense for Grove City Corp. for the year ended December 31, 2017?
a.
$ -0-
b.
$160,000
c.
$320,000
d.
$400,000
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
92. If Grove City Corp. continues to use the ship in its eleventh year, what is the correct accounting procedure?
a.
Take the asset off the books and record a gain on the disposal
b.
Continue to depreciate it
c.
The company may not use it any longer
d.
No longer depreciate it but leave it on the records at its book value at the end of its useful life
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
93. What was the book value of the ship for Grove City Corp. at the end of the useful life?
a.
$ -0-
b.
$ 50,000
c.
$214,400
d.
Need more information to determine this answer.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
94. Blanton Company bought equipment on January 1, 2012, with a cost of $160,000, an estimated residual value of
$40,000, and an estimated life of 15 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it
was determined at the beginning of 2016 that the useful life should be shortened by 3 years and the residual value changed
to zero. What is the accumulated depreciation at the end of 2015?
a.
$42,667
b.
$32,000
c.
$40,000
d.
$8,000
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
95. In 2012, Blanton Company bought equipment with a cost of $160,000, an estimated residual value of $40,000, and an
estimated life of 15 years. It was depreciated by the straight-line method for 4 years. Due to obsolescence, it was
determined at the beginning of 2016 that the useful life should be shortened by 3 years and the residual value changed to
zero. The depreciation expense for 2016 is
a.
$11,636
b.
$16,000
c.
$11,000
d.
$8,000
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Analyzing
96. Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000. The truck had an estimated life
of 6 years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to
the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new
salvage value of $8,000. Royal uses the straight-line depreciation method. What is the book value of the truck to be
reported on the balance sheet at December 31, 2016?
a.
$44,000
b.
$50,000
c.
$56,000
d.
$62,000
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-06 – LO: 08-06
KEYWORDS:
Bloom’s: Analyzing
97. Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000. The truck had an estimated life
of 6 years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to
the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new
salvage value of $8,000. Royal uses the straight-line depreciation method. What amount should be recorded as
depreciation expense each year starting in 2016?
a.
$6,000
b.
$12,000
c.
$13,600
d.
$14,400
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-06 – LO: 08-06
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
98. Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000. The truck had an estimated life
of 6 years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to
the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new
salvage value of $8,000. Royal uses the straight-line depreciation method. When calculating depreciation for 2016, Royal
should
a.
add the $20,000 to the book value at December 31, 2015 and then allocate the revised basis over the remaining
adjusted useful life of 5 years.
b.
report the effect of the change in life as an expense on the income statement in 2015.
c.
ignore the change in life on the original cost of $60,000 and depreciate the additional $20,000 cost separately
over its useful life.
d.
expense the $20,000 and depreciate the original cost of $60,000 over its revised estimated total live of 7 years.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-06 – LO: 08-06
KEYWORDS:
Bloom’s: Analyzing
99. Barnhill, Inc. uses straight-line depreciation for its equipment with an estimated useful life of 10 years and zero
residual value. The CEO points out that the equipment will last much longer than 10 years, perhaps up to 20 years. What
is the impact on earnings per share and net income of depreciating equipment over 20 years rather than 10 years?
a.
Both earnings per share and net income will decrease.
b.
Both earnings per share and net income will increase.
c.
Earnings per share will decrease and net income will increase.
d.
Earnings per share will increase and net income will decrease.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-06 – LO: 08-06
KEYWORDS:
Bloom’s: Analyzing
100. Creighton, Inc. determined that it had incorrectly estimated both the useful life and the estimated residual value of
equipment which it purchased 2 years ago. When accounting for the change in its accounting estimates, Creighton must
a.
correct the financial statements of prior years affected by the errors in the estimates.
b.
determine the book value at the point of change and depreciate that amount over the remaining useful life.
c.
add the amount of the error to the amount of the current year’s depreciation expense.
d.
determine the effect of the error and report it as a loss on the income statement in Other Revenues and
Expenses.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-06 – LO: 08-06
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
101. Recently, companies have been ordered by governmental agencies to clean up environmental damages caused by
business operations. How should costs incurred in these situations be treated?
a.
If a legal obligation exists, the cost of restoring the property must be added to the asset account.
b.
As an expense entirely in one accounting period.
c.
As an amortized expense in the period the cost is incurred.
d.
Added to the asset, and then depreciated over 15 years.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-07 – LO: 08-07
KEYWORDS:
Bloom’s: Understanding
102. Capitalizing an expenditure rather than recording it as a revenue expenditure
a.
affects the amount of net income reported during an accounting period, but has no effect on the total book
value of plant assets on the balance sheet.
b.
affects the total book value of plant assets on the balance sheet, but has no effect on the amount of net income
reported during an accounting period.
c.
affects the total book value of plant assets reported on the balance sheet and the amount of net income reported
during a period.
d.
has no effect on the book value of plant assets on the balance sheet or the amount of income reported on the
income statement.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-07 – LO: 08-07
KEYWORDS:
Bloom’s: Understanding
103. Crouch Apartments purchased an apartment building to rent to university students on December 15, 2015. The
tenants moved in on January 1, 2016. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team
fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded?
a.
It should be recorded as part of the asset account.
b.
It should be recorded as repair and maintenance expense.
c.
It should not be recorded as the tenants will be charged for the damage.
d.
It should not be recorded since this is an immaterial amount to the landlord.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-07 – LO: 08-07
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
104. Which of the following below is an example of a capital expenditure?
a.
cleaning the carpet in the front room
b.
tune-up for a company truck
c.
replacing an engine in a company car
d.
replacing all burned-out light bulbs in the factory
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-07 – LO: 08-07
KEYWORDS:
Bloom’s: Applying
105. When a company discards machinery that is fully depreciated, this transaction would be recorded with the following
entry:
a.
debit Accumulated Depreciation; credit Machinery
b.
debit Machinery; credit Accumulated Depreciation
c.
debit Cash; credit Accumulated Depreciation
d.
debit Depreciation Expense; credit Accumulated Depreciation
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Applying
106. A gain is recognized on the disposal of plant assets when:
a.
The sales price is greater than the book value and less than the residual value.
b.
The sales price is greater than the book value and greater than the residual value.
c.
The sales price is less than both the book value and the residual value.
d.
The sales price is greater than the residual value but less than the book value.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Applying
107. Eagle’s Nest sold equipment for $4,000 cash. This resulted in a $1,500 loss. What is the impact of this sale on the
working capital?
a.
Reduces working capital
b.
Increases working capital
c.
Has no effect on working capital
d.
The increases offset the decrease.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
108. Yellow Dog Transit sold an old truck on December 31, 2016, for $18,400 cash. The following data was available
when the truck sold:
Acquisition cost
$75,000
Estimated residual value at time of acquisition
8,000
Accumulated depreciation on December 31, 2016 after adjustment
53,600
When this transaction is recorded, it should include a(n)
a.
Loss on Disposal account for $3,000
b.
Decrease of $21,400 to the Truck account
c.
Gain on Disposal account for $3,000
d.
Gain on Disposal account for $5,000
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Analyzing
109. Boalsburg Co. purchased a truck on January 1, 2014, for $30,000. The truck had an estimated life of 5 years and an
estimated residual value of $5,000. Lightning Delivery used the straight-line method to depreciate the asset. On July 1,
2016, the truck was sold for $17,000 cash. The journal entry to record the sale of the truck in 2016?
a.
increases net income
b.
increases total assets
c.
decreases total expenses
d.
decreases stockholders’ equity
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Applying
110. On January 2, 2016, Hannah Company sold a machine for $1,000 that it had used for several years. The machine cost
$12,000, and had accumulated depreciation of $9,000 at the time of sale. What gain or loss will be reported on the income
statement for the sale of the machine?
a.
Gain of $2,000
b.
Loss of $11,000
c.
Loss of $2,000
d.
Gain of $3,000
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
111. All of the following statements are true except:
a.
IFRS requires that estimates of residual value and the life of the asset be reviewed at least annually and revised
if necessary.
b.
The FASB standards do not have a specific rule that requires residual value and asset life to be reviewed
annually.
c.
IFRS does not have a specific rule that requires residual value and asset life to be reviewed annually.
d.
The FASB generally requires operating assets to be recorded at acquisition cost, less depreciation, and the
assets’ values are not changed to reflect their fair market values or selling prices.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Understanding
112. On January 1, 2016, Petersen Corp. sold a piece of equipment for $3,000 which it had used for several years. The
equipment had cost $13,000, and its accumulated depreciation amounted to $9,000 at the time of the sale. What are the net
effects on the accounting equation of selling the equipment?
a.
Assets and Stockholders’ Equity increase $1,000.
b.
Assets decrease and Stockholders’ Equity increases $3,000.
c.
Assets and Stockholders’ Equity decrease $1,000.
d.
Assets and Stockholders’ Equity decrease $3,000.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Analyzing
113. Operating assets with no physical properties are called
a.
current assets
b.
intangible assets
c.
plant assets
d.
property, plant, and equipment
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Understanding
114. How should intangible assets be disclosed on the balance sheet?
a.
As a reduction of stockholders’ equity
b.
At cost in the current assets section
c.
at the estimated market value at the balance sheet date
d.
Net of the costs already amortized
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
115. Goodwill can be recorded as an asset when a(n)
a.
business has above normal profitability compared to other businesses in its industry.
b.
business can determine that it has created customer goodwill and name recognition.
c.
offer is received to purchase the business at a price in excess of the value of the assets.
d.
business is purchased and payment is made in excess of the value of the net assets.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Understanding
116. GAAP require that research and development costs to develop a new product be
a.
capitalized in the patents account.
b.
expensed in the period incurred.
c.
capitalized in the research and development costs account.
d.
amortized over the expected economic life of the new product.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Understanding
117. Research and development costs are
a.
treated as an expense when incurred.
b.
capitalized but not amortized.
c.
capitalized and amortized over the periods that will probably benefit from the research and development.
d.
included with the cost of the patent resulting from the research and development.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Understanding
118. All of the following are intangible assets except
a.
patents
b.
goodwill
c.
franchises
d.
accounts receivable
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
119. Tarkington Beers, Inc. purchased the most popular and well-known pub in a college town. Its purchase price was
$1,200,000. The appraisers determined that the land should be valued at $400,000, the building at $500,000 and the
equipment at $200,000. Which of the following statements is correct?
a.
Tarkington Beers, Inc. should record only the appraised value of the assets.
b.
Tarkington Beers, Inc. needs to adjust the value of the assets in proportion to their appraised value so that the
total of the assets equals the purchase price.
c.
Tarkington Beers, Inc. paid too much for the business and needs to record a loss.
d.
Tarkington Beers, Inc. needs to record goodwill of $100,000.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Applying
120. Pocono Co. purchased a patent at the beginning of 2016 for $490,000 Economic benefits were expected for 7 years,
but the patent’s legal life was 20 years. Also during 2016, the company incurred research and development costs of
$150,000. Patent amortization expense for 2016 is
a.
$24,500
b.
$150,000
c.
$72,143
d.
$70,000
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
FACC.PONO.13.08-10 – LO: 08-10
KEYWORDS:
Bloom’s: Analyzing
121. Ramirez Stores purchased a trademark at the beginning of 2016 for $340,000. Economic benefits were expected for
10 years, but the trademark’s legal life was 20 years. Also, during 2016, Ramirez incurred research and development costs
of $200,000. The book value of the trademarks at December 31, 2016, is
a.
$506,000
b.
$306,000
c.
$323,000
d.
$486,000
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-09 – LO: 08-09
FACC.PONO.13.08-10 – LO: 08-10
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
122. At the end of 2016, Clock Products, Inc. determined that one of its patents was worthless. The patent had a cost of
$300,000. The patent had been amortized for 5 years of its estimated 15-year legal life. Which of the following statements
is correct?
a.
Clock Products must continue to amortize the patent over its remaining 10 years of life.
b.
The patent must be reduced to 5/15, or 33.3% of its original cost and amortized over the remaining 10 years.
c.
The remaining unamortized cost must be removed from the accounting records and treated as a loss on the
income statement.
d.
Clock Products must correct its financial statements for the past five years, so that the entire cost is allocated
to that five-year period.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-10 – LO: 08-10
KEYWORDS:
Bloom’s: Analyzing
123. At the end of 2016, Mirror Productions determined that one of its copyrights was worthless. The copyright had a cost
of $320,000. The copyright had been amortized for 8 years of its estimated 25-year legal life. Which of the following
statements is the justification for removing the remaining cost of the copyright from the accounting records?
a.
The copyright no longer represents a future benefit to the company.
b.
The federal government does not allow copyrights to be recorded as assets once they are deemed worthless.
c.
The cost of the copyright represents an obligation to return capital contributions to the stockholders.
d.
The cost of the copyright has usefulness that will impact the net income of future accounting periods.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-10 – LO: 08-10
KEYWORDS:
Bloom’s: Analyzing
124. Waxman Company purchased a patent for $170,000 at the beginning of 2016, and estimated that its expected useful
life was 10 years. The patent has a legal life of 17 years. What amount should be recorded as amortization expense for the
patent in 2016?
a.
$ -0-
b.
$ 7,000
c.
$10,000
d.
$17,000
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-10 – LO: 08-10
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
125. Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill,
should
a.
not be amortized.
b.
be reported on the statement of retained earnings in the year in which acquired.
c.
be amortized over a reasonable period of time not to exceed 40 years.
d.
increase an expense account entirely in the year in which acquired.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-10 – LO: 08-10
KEYWORDS:
Bloom’s: Understanding
126. The accounting life of intangible assets is determined by
a.
their legal lives.
b.
their useful lives.
c.
their legal lives or useful lives, whichever is shorter.
d.
the tax life mandated by the IRS.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-10 – LO: 08-10
KEYWORDS:
Bloom’s: Understanding
127. Which of the following items is added to net income to determine cash flows from operating activities when the
indirect method is used to prepare the Operating Activities category of the statement of cash flows?
a.
Accumulated depreciation
b.
Cash from note payable related to truck acquired
c.
Cost of plant assets acquired during the year
d.
Depreciation expense
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding
128. Why is depreciation added to net income in the Operating Activities category of the statement of cash flows when the
indirect method is used?
a.
Depreciation expense is a negative amount in the Investing Activities section and therefore is a positive
amount in the Operating Activities section.
b.
Depreciation provides cash and therefore must be added to net income.
c.
Depreciation was deducted in arriving at net income on the accrual basis of accounting; however, it did not
require the use of cash.
d.
Depreciation reduced the book value of plant assets and, therefore, must be reported as an investing activity.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
129. All of the following statements are true except:
a.
International accounting standards are more flexible in allowing the use of fair market values for intangible
assets.
b.
FASB standards require all research and development costs to be expensed.
c.
IFRS requires all research and development costs to be expensed.
d.
Under IFRS, fair market values for intangibles require an active market.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding
130. The income statement of Hope Market, Inc. reported a gain from the sale of land. How are the cash flow effects of
this transaction reported on the statement of cash flows if the direct method is used to prepare the Operating Activities
category?
a.
The entire proceeds from the sale of the land are reported as an investing activity.
b.
The gain on the sale of land is reported in the Investing Activities category as a cash flow from the sale of
land.
c.
The entire proceeds from the sale of the land are reported as an operating activity.
d.
The cash received from the sale of land is reported in the financing activity category as a cash flow from the
sale of land.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding
131. How are the cash flow effects from the purchase and sale of intangible assets reported on a statement of cash flows?
a.
As operating activities
b.
As investing activities
c.
As financing activities
d.
They are not reported on a statement of cash flows.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding
Chambersburg Corp.
Use the information presented below for Chambersburg Corp. for 2017 and 2016 to answer the questions that follow.
Chambersburg uses the straight-line depreciation method.
2017
2016
Property, plant, and equipment
$ 250,000
$190,000
Accumulated depreciation
100,000
85,000
Depreciation expense
62,500
47,500
Net sales
1,000,000
900,000
Average Total assets
625,000
475,000
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
132. Refer to the information for Chambersburg Corp.
Using the 2017 data, what is the average age of Chambersburg’s property, plant, and equipment?
a.
1.60 years
b.
2.50 years
c.
4.00 years
d.
10.00 years
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-12 – LO: 08-12
KEYWORDS:
Bloom’s: Analyzing
133. Refer to the information for Chambersburg Corp.
What is the asset turnover ratio for Chambersburg for 2017?
a.
1.60 times
b.
1.82 times
c.
4.00 times
d.
4.55 times
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-12 – LO: 08-12
KEYWORDS:
Bloom’s: Analyzing
134. Refer to the information for Chambersburg Corp.
Between 2016 and 2017, Chambersburg sold some equipment that had an original cost of $57,500. Which statement is
most likely true concerning transactions that must have occurred during the period?
a.
Chambersburg also purchased additional equipment during the year.
b.
The selling price of the equipment sold was reported with net sales.
c.
The equipment that was sold had a book value of $12,500.
d.
The equipment sold had not been reported with Chambersburg’s property, plant and equipment.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-071 – LO: 08-07
FACC.PONO.13.08-08 – LO: 08-08
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
135. Refer to the information for Chambersburg Corp.
Using the 2017 data, what is the average life of Chambersburg’s property, plant, and equipment (rounded to one decimal
place)?
a.
1.6 years
b.
2.5 years
c.
4.0 years
d.
10.0 years
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-12 – LO: 08-12
KEYWORDS:
Bloom’s: Analyzing
136. If a company’s asset turnover ratio decreased from 2016 to 2017, which of the following conclusions can be made?
a.
The company was more efficient during 2017 in using its assets to produce profits.
b.
The company produced less sales in 2017 for each dollar invested in assets.
c.
The company was less profitable in 2016.
d.
The company’s average total assets decreased for relatively stable sales in 2016 and 2017.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-12 – LO: 08-12
KEYWORDS:
Bloom’s: Analyzing
137. A machine with a cost of $100,000 and accumulated depreciation of $80,000 was sold at a loss of $6,000. What
amount of cash was received from the sale?
a.
$26,000
b.
$14,000.
c.
$20,000.
d.
$94,000.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Analyzing
138. Mayflower Company had a machine with a cost of $123,000 and accumulated depreciation of $87,000 that was sold
at for a gain of $5,000. What amount of cash was received from the sale?
a.
$30,000.
b.
$36,000.
c.
$41,000.
d.
$128,000.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Analyzing
Chapter 8: Operating Assets: Property, Plant and Equipment, and Intangibles
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Multiple Response
139. Given the following list of methods of depreciation, select the method that is best for the situation or purpose given.
(Select all that apply.)
This method is used in situations where technological advances are rapid.
a.
Straight-line
b.
Units-of-production
c.
Double-declining-balance
d.
MACRS
ANSWER:
c, d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-05 – LO: 08-05
KEYWORDS:
Bloom’s: Understanding
Select where the following accounts would be reported on Coca-Cola’s financial statements. (Select all that apply.)
140. Depreciation expense
a.
Balance Sheet—Property, Plant, and Equipment
b.
Balance Sheet—Intangible Assets
c.
Balance Sheet—Current Assets
d.
Balance Sheet—Other Assets
e.
Income Statement—Operating Section
f.
Income Statement—Other Revenue and Expense Section
g.
Statement of Cash Flows
ANSWER:
e, g
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-07 – LO: 08-07
KEYWORDS:
Bloom’s: Understanding
141. Gain on sale of plant asset
a.
Balance Sheet—Property, Plant, and Equipment
b.
Balance Sheet—Intangible Assets
c.
Balance Sheet—Current Assets
d.
Balance Sheet—Other Assets
e.
Income Statement—Operating Section
f.
Income Statement—Other Revenue and Expense Section
g.
Statement of Cash Flows
ANSWER:
f, g
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Understanding
apply.)
a.
Income statement
b.
Balance sheet
c.
Statement of cash flows
ANSWER:
a, c
DIFFICULTY:
Moderate
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding
142. Cash received from the sale of a plant asset
a.
Balance Sheet—Property, Plant, and Equipment
b.
Balance Sheet—Intangible Assets
c.
Balance Sheet—Current Assets
d.
Balance Sheet—Other Assets
e.
Income Statement—Operating Section
f.
Income Statement—Other Revenue and Expense Section
g.
Statement of Cash Flows
ANSWER:
c, g
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Understanding
143. Loss on sale of patent
a.
Balance Sheet—Property, Plant, and Equipment
b.
Balance Sheet—Intangible Assets
c.
Balance Sheet—Current Assets
d.
Balance Sheet—Other Assets
e.
Income Statement—Operating Section
f.
Income Statement—Other Revenue and Expense Section
g.
Statement of Cash Flows
ANSWER:
f, g
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
KEYWORDS:
Bloom’s: Understanding
Completion
ANSWER:
b. property, plant, and equipment or tangible property.
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.08-071 – LO: 08-07
FACC.PONO.13.08-09 – LO: 08-09
KEYWORDS:
Bloom’s: Remembering
ANSWER:
historical cost
DIFFICULTY:
LEARNING OBJECTIVES:
FACC.PONO.13.08-02 – LO: 08-02
KEYWORDS:
Bloom’s: Remembering
145. Did the company sell any property, plant, and equipment during the year at a gain or loss?
a.
Income statement
b.
Balance sheet
c.
Statement of cash flows
d.
Statement of retained earnings
ANSWER:
a, c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-08 – LO: 08-08
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding
146. Did the company purchase any intangible assets during the year?
a.
Income statement
b.
Balance sheet
c.
Statement of cash flows
d.
Statement of retained earnings
ANSWER:
b, c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.08-02 – LO: 08-02
FACC.PONO.13.08-11 – LO: 08-11
KEYWORDS:
Bloom’s: Understanding