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102. Which of the following methods of computing depreciation is production based?
a. Straight-line.
b. Declining-balance.
c. Units-of-activity.
d. None of these answer choices are correct.
103. Management should select the depreciation method that
a. is easiest to apply.
b. best measures the plant asset’s market value over its useful life.
c. best measures the plant asset’s contribution to revenue over its useful life.
d. has been used most often in the past by the company.
104. The depreciation method that applies a constant percentage to depreciable cost in
calculating depreciation is
a. straight-line.
b. units–of-activity.
c. sum-of–year’s-digits.
d. None of these answer choices are correct.
105. On November 1, 2013, Love Company places a new asset into service. The cost of the
asset is $45,000 with an estimated 5-year life and $5,000 salvage value at the end of its
useful life. What is the depreciation expense for 2014 if Love Company uses the straight–
line method of depreciation?
a. $2,000.
b. $8,000.
c. $1,333.
d. $4,500.
106. On October 1, 2014, Mann Company places a new asset into service. The cost of the
asset is $80,000 with an estimated 5-year life and $20,000 salvage value at the end of its
useful life. What is the depreciation expense for 2014 if Mann Company uses the straight–
line method of depreciation?
a. $3,000.
b. $16,000.
c. $4,000.
d. $8,000.
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107. On January 1, a machine with a useful life of five years and a residual value of $15,000
was purchased for $75,000. What is the depreciation expense for year 2 under straight-
line depreciation?
a. $15,000.
b. $45,000.
c. $12,000.
d. $36,000.
108. On January 1, a machine with a useful life of four years and a residual value of $12,000
was purchased for $60,000. What is the depreciation expense for year 2 under straight–
line depreciation?
a. $5,000.
b. $24,000.
c. $12,000.
d. $30,000.
109 On January 1, a machine with a useful life of four years and a residual value of $9,000
was purchased for $57,000. What is the depreciation expense for year 2 under straight–
line depreciation?
a. $6,000.
b. $12,000.
c. $24,000.
d. $14,250.
110. Which depreciation method is most frequently used in businesses today?
a. Straight-line.
b. Declining-balance.
c. Units-of-activity.
d. Double-declining-balance.
111. A plant asset was purchased on January 1 for $75,000 with an estimated salvage value of
$15,000 at the end of its useful life. The current year’s Depreciation Expense is $5,000
calculated on the straight-line basis and the balance of the Accumulated Depreciation
account at the end of the year is $25,000. The remaining useful life of the plant asset is
a. 15 years.
b. 12 years.
c. 5 years.
d. 7 years.
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112. A plant asset was purchased on January 1 for $45,000 with an estimated salvage value of
$5,000 at the end of its useful life. The current year’s Depreciation Expense is $5,000
calculated on the straight-line basis and the balance of the Accumulated Depreciation
account at the end of the year is $25,000. The remaining useful life of the plant asset is
a. 10 years.
b. 8 years.
c. 5 years.
d. 3 years.
113. Mitchell Corporation bought equipment on January 1, 2014 .The equipment cost $180,000
and had an expected salvage value of $30,000. The life of the equipment was estimated
to be 6 years. The depreciable cost of the equipment is
a. $180,000.
b. $150,000.
c. $30,000.
d. $25,000.
114. Mitchell Corporation bought equipment on January 1, 2014. The equipment cost $180,000
and had an expected salvage value of $30,000. The life of the equipment was estimated
to be 6 years. The depreciation expense using the straight-line method of depreciation is
a. $35,000.
b. $36,000.
c. $25,000.
d. none of these answer choices are correct.
115. Mitchell Corporation bought equipment on January 1, 2014. The equipment cost $180,000
and had an expected salvage value of $30,000. The life of the equipment was estimated
to be 6 years. The book value of the equipment at the beginning of the third year would be
a. $180,000.
b. $150,000.
c. $130,000.
d. $50,000.
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116. Pearson Company bought a machine on January 1, 2014. The machine cost $144,000
and had an expected salvage value of $24,000. The life of the machine was estimated to
be 5 years. The depreciable cost of the machine is
a. $144,000.
b. $120,000.
c. $40,000.
d. $24,000.
117. Pearson Company bought a machine on January 1, 2014. The machine cost $144,000
and had an expected salvage value of $24,000. The life of the machine was estimated to
be 5 years. The depreciation expense using the straight-line method of depreciation is
a. $40,000.
b. $28,800.
c. $24,000.
d. none of these answer choices are correct.
118. Pearson Company bought a machine on January 1, 2014. The machine cost $144,000
and had an expected salvage value of $24,000. The life of the machine was estimated to
be 5 years. The book value of the machine at the beginning of the third year would be
a. $144,000.
b. $120,000.
c. $96,000.
d. $48,000.
119. Stine Company purchased machinery with a list price of $64,000. They were given a 10%
discount by the manufacturer. They paid $400 for shipping and sales tax of $3,000. Stine
estimates that the machinery will have a useful life of 10 years and a residual value of
$20,000. If Stine uses straight-line depreciation, annual depreciation will be
a. $4,100.
b. $4,072.
c. $6,100.
d. $3,760.
Reporting and Analyzing Long-Lived Assets
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120. Bates Company purchased equipment on January 1, 2013, at a total invoice cost of
$900,000. The equipment has an estimated salvage value of $22,500 and an estimated
useful life of 5 years. What is the amount of accumulated depreciation at December 31,
2014, if the straight-line method of depreciation is used?
a. $180,000.
b. $360,000.
c. $175,500.
d. $351,000.
121. Newell Company purchased a machine with a list price of $96,000. They were given a
10% discount by the manufacturer. They paid $600 for shipping and sales tax of $4,500.
Newell estimates that the machine will have a useful life of 10 years and a residual value
of $30,000. If Newell uses straight-line depreciation, annual depreciation will be
a. $6,150.
b. $6,108.
c. $9,150.
d. $5,640.
122. Machinery was purchased for $170,000. Freight charges amounted to $7,000 and there
was a cost of $20,000 for building a foundation and installing the machinery. It is
estimated that the machinery will have a $30,000 salvage value at the end of its 5-year
useful life. Depreciation expense each year using the straight-line method will be
a. $39,400.
b. $33,400.
c. $28,600.
d. $28,000.
123. Machinery was purchased for $170,000 on January 1, 2013. Freight charges amounted to
$7,000 and there was a cost of $20,000 for building a foundation and installing the
machinery. It is estimated that the machinery will have a $30,000 salvage value at the end
of its 5-year useful life. What is the amount of accumulated depreciation at December 31,
2014, if the straight-line method of depreciation is used?
a. $66,800.
b. $33,400.
c. $28,600.
d. $57,200.
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124. A machine that was purchased on January 1 for $45,000 has an estimated salvage value
of $9,000. If the machine’s depreciation rate is 20%, its annual depreciation is
a. $9,000.
b. $36,000.
c. $7,200.
d. $10,800.
125. A change in the estimated useful life of equipment requires
a. a retroactive change in the amount of periodic depreciation recognized in previous
years.
b. that no change be made in the periodic depreciation so that depreciation amounts are
comparable over the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and in future
years.
d. that income for the current year be increased.
126. Grant Company has decided to change the estimate of the useful life of an asset that has
been in service for 2 years. Which of the following statements describes the proper way to
revise a useful life estimate?
a. Revisions in useful life are permitted if approved by the IRS.
b. Retroactive changes must be made to correct previously recorded depreciation.
c. Only future years will be affected by the revision.
d. Both current and future years will be affected by the revision.
127. Expenditures that add to the utility of plant assets for more than one accounting period are
a. committed expenditures.
b. revenue expenditures.
c. current expenditures.
d. capital expenditures.
128. An expenditure for which of the following items would be considered a revenue
expenditure?
a. Plant asset.
b. Ordinary repair.
c. Addition.
d. Improvements.
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129. Jack’s Copy Shop bought equipment for $150,000 on January 1, 2013. Jack estimated the
useful life to be 3 years with no salvage value, and the straight-line method of depreciation
will be used. On January 1, 2014, Jack decides that the business will use the equipment
for a total of 5 years. What is the revised depreciation expense for 2014?
a. $50,000.
b. $20,000.
c. $25,000.
d. $37,500.
130. An asset was purchased for $300,000. It had an estimated salvage value of $60,000 and
an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is
revised to $48,000 but the estimated useful life is unchanged. Assuming straight-line
depreciation, depreciation expense in Year 6 would be
a. $36,000.
b. $26,400.
c. $18,000.
d. $25,200.
131. Equipment costing $40,000 with a salvage value of $8,000 and an estimated life of 8
years has been depreciated using the straight-line method for 2 years. Assuming a
revised estimated total life of 5 years and no change in the salvage value, the depreciation
expense for Year 3 would be
a. $4,800.
b. $10,667.
c. $8,000.
d. $6,400.
132. Ron’s Quik Shop bought equipment for $70,000 on January 1, 2013. Ron estimated the
useful life to be 5 years with no salvage value, and the straight-line method of depreciation
will be used. On January 1, 2014, Ron decides that the business will use the equipment
for a total of 6 years. What is the revised depreciation expense for 2014?
a. $11,200.
b. $5,600.
c. $9,333.
d $14,000.
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133. An asset was purchased for $100,000. It had an estimated salvage value of $25,000 and
an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is
revised to $20,000 but the estimated useful life is unchanged. Assuming straight-line
depreciation, depreciation expense in Year 6 would be
a. $15,000.
b. $10,625.
c. $8,500.
d. $12,500.
134. Equipment costing $70,000 with a salvage value of $14,000 and an estimated life of 8
years has been depreciated using the straight-line method for 2 years. Assuming a
revised estimated total life of 6 years and no change in the salvage value, the depreciation
expense for Year 3 would be
a. $10,500.
b. $9,333.
c. $14,000.
d. $7,000.
135. Expenditures that maintain the operating efficiency and expected productive life of a plant
asset are generally
a. expensed when incurred.
b. capitalized as a part of the cost of the asset.
c. debited to the Accumulated Depreciation account.
d. not recorded until they become material in amount.
136. Which of the following is not true of ordinary repairs?
a. They primarily benefit the current accounting period.
b. They can be referred to as revenue expenditures.
c. They maintain the expected productive life of the asset.
d. They increase the productive capacity of the asset.
137. Additions and improvements
a. occur frequently during the ownership of a plant asset.
b. normally involve immaterial expenditures.
c. increase the company’s investment in productive facilities.
d. typically only benefit the current accounting period.
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138. All of the following statements regarding impairments are true except
a. an impairment is a permanent decline in an asset’s market value.
b. after an impairment write-down, depreciation is generally lower in a subsequent
periods.
c. immediate recognition of impairment write-downs is now required.
d. impairments are generally recorded when the book value falls below the market value.
139. Compton Inc. made a $500 ordinary repair to a piece of equipment. Compton’s
accountant debited this amount to the asset account, Equipment and credited Cash. Was
this the correct entry and if not, why not?
a. Yes, this was the correct entry.
b. No, the correct entry would be a debit to Maintenance and Repairs Expense and a
credit to Cash.
c. No, the correct entry would be a debit to Cash and a credit to Maintenance and
Repairs Expense.
d. No, the correct entry would be a debit to Service Revenue and a credit to Cash.
140. Jamison, Inc. is a regional air cargo carrier. Jamison made a $4,500 improvement to one
of its airplanes. If Jamison’s accountant expensed this amount, which of the following
statements is true?
a. The entry will improperly understate net income for the year.
b. The entry will improperly overstate net income for the year.
c. The entry is the correct treatment.
d. The entry will overstate the balance sheet for the year.
141. All of the following are factors that a company should consider before a write-down
impairment of an asset is recorded except
a. an appraisal of the asset.
b. market trends.
c. company profits.
d. obsolescence of the asset.
142. Brevard Corporation purchased a taxicab on January 1, 2013 for $25,500 to use for its
shuttle business. The cab is expected to have a five-year useful life and no salvage value.
During 2014, it retouched the cab’s paint at a cost of $1,200, replaced the transmission for
$3,000 (which extended its life by an additional 2 years), and tuned-up the motor for $150.
If Brevard Corporation uses straight-line depreciation, what annual depreciation will
Brevard report for 2014?
a. $5,100.
b. $3,900.
c. $4,125.
d. $4,100.
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143. In 2014, Blanchard Corporation has plant equipment that originally cost $90,000 and has
accumulated depreciation of $36,000. A new processing technique has rendered the
equipment obsolete, so it is retired. Which of the following entries should Blanchard use to
record the retirement of the equipment?
a. Loss on Disposal of Plant Assets 54,000
Equipment 54,000
b. Accumulated Depreciation – Equipment 36,000
Loss on Disposal of Plant Assets 54,000
Equipment 90,000
c. Loss on Disposal of Plant Assets 54,000
Accumulated Depreciation – Equipment 54,000
d. Plant Equipment 90,000
Accumulated Depreciation – Equipment 36,000
Loss on Disposal of Plant Assets 54,000
144. A gain or loss on disposal of a plant asset is determined by comparing the
a. replacement cost of the asset with the asset’s original cost.
b. book value of the asset with the asset’s original cost.
c. original cost of the asset with the proceeds received from its sale.
d. book value of the asset with the proceeds received from its sale.
145. When an asset is sold, a gain occurs when the
a. sale price exceeds the book value of the asset sold.
b. sale price exceeds the original cost of the asset sold.
c. book value exceeds the sale price of the asset sold.
d. sale price exceeds the depreciable cost of the asset sold.
146. The book value of a plant asset is the difference between the
a. replacement cost of the asset and its historical cost.
b. cost of the asset and the amount of depreciation expense for the year.
c. cost of the asset and the accumulated depreciation to date.
d. proceeds received from the sale of the asset and its original cost.
147. A company sells a plant asset that originally cost $225,000 for $75,000 on December 31,
2014. The accumulated depreciation account had a balance of $90,000 after the current
year’s depreciation of $22,500 had been recorded. The company should recognize a
a. $150,000 loss on disposal.
b. $60,000 gain on disposal.
c. $60,000 loss on disposal.
d. $37,500 loss on disposal.
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148. A company sells a plant asset that originally cost $240,000 for $80,000 on December 31,
2014. The accumulated depreciation account had a balance of $120,000 after the current
year’s depreciation of $20,000 had been recorded. The company should recognize a
a. $40,000 loss on disposal.
b. $40,000 gain on disposal.
c. $80,000 loss on disposal.
d. $80,000 gain on disposal.
149. A truck costing $48,000 and on which $40,000 of accumulated depreciation has been
recorded was discarded as having no value. The entry to record this event would include
a
a. gain of $8,000.
b. loss of $8,000.
c. credit to Accumulated Depreciation for $40,000.
d. credit to Accumulated Depreciation for $48,000.
150. Equipment that cost $54,000 and on which $30,000 of accumulated depreciation has been
recorded was disposed of for $27,000 cash. The entry to record this event would include a
a. gain of $3,000.
b. loss of $3,000.
c. credit to the Equipment account for $9,000.
d. credit to Accumulated Depreciation for $30,000.
151. A truck costing $45,000 and on which $39,000 of accumulated depreciation has been re–
corded was discarded as having no value. The entry to record this event would include a
a. gain of $6,000.
b. loss of $6,000.
c. credit to Accumulated Depreciation for $39,000.
d. credit to Accumulated Depreciation for $45,000.
152. Equipment that cost $72,000 and on which $60,000 of accumulated depreciation has been
recorded was disposed of for $18,000 cash. The entry to record this event would include a
a. gain of $6,000.
b. loss of $6,000.
c. credit to the Equipment account for $18,000.
d. credit to Accumulated Depreciation for $60,000.
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153. If disposal of a plant asset occurs during the year, depreciation is
a. not recorded for the year.
b. recorded for the whole year.
c. recorded for the fraction of the year to the date of the disposal.
d. not recorded if the asset is scrapped.
154. If a plant asset is retired and is fully depreciated
a. a gain on disposal will be recorded.
b. phantom depreciation must be taken as though the asset were still on the books.
c. a loss on disposal will be recorded.
d. no gain or loss on disposal will be recorded.
155. The book value of an asset will equal its fair value at the date of sale if
a. a gain on disposal is recorded.
b. no gain or loss on disposal is recorded.
c. the plant asset is fully depreciated.
d. a loss on disposal is recorded.
156. A machine costing $132,000 was destroyed when it caught fire. At the date of the fire, the
accumulated depreciation on the machine was $60,000. An insurance check for $150,000
was received based on the replacement cost of the machine. The entry to record the
insurance proceeds and the disposition of the machine will include a
a. gain on disposal of $18,000.
b. credit to the Equipment account for $72,000.
c. credit to the Accumulated Depreciation account for $60,000.
d. gain on disposal of $78,000.
157. On July 1, 2014, Dillman Kennels sells equipment for $66,000. The equipment originally
cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000.
The Accumulated Depreciation account had a balance of $105,000 on January 1, 2014,
using the straight-line method. The gain or loss on disposal is
a. $9,000 gain.
b. $6,000 loss.
c. $9,000 loss.
d. $6,000 gain.
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158. A plant asset with a cost of $240,000 and accumulated depreciation of $228,000 is sold
for $28,000. What is the amount of the gain or loss on disposal of the plant asset?
a. $28,000 loss.
b. $16,000 loss.
c. $16,000 gain.
d. $28,000 gain.
159. A loss on disposal of a plant asset is reported in the financial statements
a. in the Other Revenues and Gains section of the income statement.
b. in the Other Expenses and Losses section of the income statement.
c. as a direct increase to the capital account on the balance sheet.
d. as a direct decrease to the capital account on the balance sheet.
160. Sprague Associates sold office furniture for $32,000. The furniture had an original cost of
$96,000 and accumulated depreciation of $48,000. Ignoring the tax effect, as a result of
the sale
a. net income will increase $32,000.
b. net income will increase $16,000.
c. net income will decrease $16,000.
d. net income will decrease $32,000.
161. Nix Corporation sold equipment for $20,000. The equipment had an original cost of
$60,000 and accumulated depreciation of $30,000. Ignoriing the tax effect, as a result of
the sale
a. net income will increase $20,000.
b. net income will increase $10,000.
c. net income will decrease $10,000.
d. net income will decrease $20,000.
162. Morton’s Courier Service recorded a loss of $6,000 when it sold a van that originally cost
$56,000 for $10,000. Accumulated depreciation on the van must have been
a. $52,000.
b. $16,000.
c. $50,000.
d. $40,000.
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163. Equipment costing $210,000 was destroyed when it caught on fire. At the date of the fire,
the accumulated depreciation on the equipment was $84,000. An insurance check for
$240,000 was received based on the replacement cost of the equipment. The entry to
record the insurance proceeds and the disposition of the equipment will include a
a. gain on disposal of $30,000.
b. credit to the Equipment account of $126,000.
c. credit to the Accumulated Depreciation account for $84,000.
d. gain on disposal of $114,000.
164. On July 1, 2014, Fleming Company sells machinery for $120,000. The machinery
originally cost $300,000, had an estimated 5-year life and an expected salvage value of
$50,000. The Accumulated Depreciation account had a balance of $175,000 on January
1, 2014, using the straight-line method. The gain or loss on disposal is
a. $20,000 gain.
b. $5,000 loss.
c. $10,000 loss.
d. $5,000 gain.
165. A plant asset with a cost of $480,000 and accumulated depreciation of $456,000 is sold
for $56,000. What is the amount of the gain or loss on disposal of the plant asset?
a. $56,000 loss.
b. $32,000 loss.
c. $32,000 gain.
d. $56,000 gain.
166. The following information is provided for Nguyen Company and Northwest Corporation.
(in $ millions) Nguyen Company Northwest Corporation
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Nguyen’s return on assets for 2014?
a. 400%
b. 136%
c. 25%
d. 73%
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167. The following information is provided for Nguyen Company and Northwest Corporation.
(in $ millions) Nguyen Company Northwest Corporation
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Northwest’s return on assets for 2014?
a. 12.7%
b. 11.4%
c. 13.0%
d. 11.1%
168. The following information is provided for Nguyen Company and Northwest Corporation.
(in $ millions) Nguyen Company Northwest Corporation
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Nguyen’s asset turnover ratio for 2014?
a. 4.00 times
b. 1.36 times
c. 0.25 times
d. 0.73 times
169. The following information is provided for Nguyen Company and Northwest Corporation.
(in $ millions) Nguyen Company Northwest Corporation
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
What is Northwest’s asset turnover ratio for 2014?
a. 1.17 times
b. 1.05 times
c. 1.52 times
d. 1.03 times
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170. The following information is provided for Nguyen Company and Northwest Corporation.
(in $ millions) Nguyen Company Northwest Corporation
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
If Nguyen and Northwest are in the same industry and the industry average for the asset
turnover ratio is equal to 1.20 times, which of the following statements is true?
a. Nguyen is operating more efficiently than the industry.
b. Northwest is operating more efficiently than Nguyen.
c. Both Nguyen and Northwest are operating more efficiently than the average company
in their industry.
d. The asset turnover ratio does not address the question of efficient operations.
171. The following information is provided for Nguyen Company and Northwest Corporation.
(in $ millions) Nguyen Company Northwest Corporation
Net income 2014 $275 $390
Net sales 2014 1,500 4,100
Total assets 12/31/12 1,000 2,400
Total assets 12/31/13 1,050 3,000
Total assets 12/31/14 1,150 4,000
If Nguyen and Northwest are in the same industry and the industry average for return on
assets is equal to 30%, which of the following statements is true?
a. Nguyen is more profitable than the average company in its industry.
b. Northwest is more profitable than Nguyen.
c. Both Nguyen and Northwest are more profitable than the average company in their
industry.
d. Nguyen is more profitable than Northwest.
172. Using the following data for Stevenson Industries, compute the return on assets ratio.
Net Income $ 150,000
Total Assets 12/31/14 2,410,000
Total Assets 12/31/13 1,980,000
Net Sales 250,000
a. 6.2%
b. 10.4%
c. 6.8%
d. 11.4%
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173. During 2014, Ronald Corporation reported net sales of $1,500,000, net income of
$900,000, and depreciation expense of $100,000. Ronald also reported beginning total
assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and
accumulated depreciation of $500,000. Ronald’s asset turnover ratio is
a. 1.5 times.
b. 1.2 times.
c. 0.98 times.
d. 0.72 times.
174. During 2014, Phelps Corporation reported net sales of $3,000,000, net income of
$1,320,000, and depreciation expense of $80,000. Phelps also reported beginning total
assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and
accumulated depreciation of $500,000. Phelps’s asset turnover ratio is
a. 1.5 times.
b. 1.2 times.
c. 2.0 times.
d. 2.4 times.
175. Intangible assets are the rights and privileges that result from ownership of long-lived
assets that
a. must be generated internally.
b. are depreciated over their useful life.
c. have been exchanged at a gain.
d. do not have physical substance.
176. A patent should
a. be amortized over a period of 20 years.
b. not be amortized.
c. be amortized over its useful life or 20 years, whichever is longer.
d. be amortized over its useful life or 20 years, whichever is shorter.
177. The cost of successfully defending a patent in an infringement suit should be
a. charged to Legal Expenses.
b. deducted from the book value of the patent.
c. added to the value of the patent.
d. recognized as a loss in the current period.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
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178. An asset that cannot be sold individually in the market place is
a. a patent.
b. goodwill.
c. a copyright.
d. a trade name.
Business Economics
179. Goodwill can be recorded
a. when customers keep returning because they are satisfied with the company’s
products.
b. when the company acquires a good location for its business.
c. when the company has exceptional management.
d. only when there is an exchange transaction involving the purchase of an entire
business.
180. On July 1, 2014, Linden Company purchased the copyright to Norman Computer Tutorials
for $140,000. It is estimated that the copyright will have a useful life of 5 years. The
amount of amortization expense recognized for the year 2014 would be
a. $28,000.
b. $13,125.
c. $25,900.
d. $14,000.
181. On May 1, 2014, Irwin Company purchased the copyright to Quick Computer Tutorials for
$90,000. It is estimated that the copyright will have a useful life of 5 years. The amount of
amortization expense recognized for the year 2014 would be
a. $18,000.
b. $12,000.
c. $9,000.
d. $9,600.
182. Which of the following is not an intangible asset arising from a government grant?
a. Goodwill.
b. Patent.
c. Trademark.
d. Trade name.
Reporting and Analyzing Long-Lived Assets
FOR INSTRUCTOR USE ONLY
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183. Which of the following is not considered an intangible asset?
a. Goodwill.
b. An oil well.
c. A franchise.
d. A patent.
184. The cost of an intangible asset with an indefinite life should
a. be amortized over 20 years.
b. be amortized over the life of the creator plus 70 years.
c. not be amortized.
d. None of these answer choices are correct.
185. Cost allocation of an intangible asset is referred to as
a. amortization.
b. depreciation.
c. accretion.
d. capitalization.
186. A patent
a. has a legal life of 20 years.
b. is not amortized.
c. can be renewed indefinitely.
d. is rarely subject to litigation because it is an exclusive right.
187. If a company incurs legal costs in successfully defending its patent, these costs are
recorded by debiting
a. Legal Expense.
b. the Intangible Loss account.
c. the Patent account.
d. a revenue expenditure account.
188. Copyrights are granted by the federal government
a. for the life of the creator or 70 years, whichever is longer.
b. for the life of the creator plus 70 years.
c. for the life of the creator or 70 years, whichever is shorter.
d. and therefore cannot be amortized.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
9-40
189. Goodwill
a. is only recorded when generated internally.
b. can be subdivided and sold in parts.
c. can only be identified with the business as a whole.
d. can be defined as normal earnings less accumulated amortization.
190. In recording the acquisition cost of an entire business
a. goodwill is recorded as the excess of cost over the fair value of identifiable net assets.
b. assets are recorded at the seller’s book values.
c. goodwill, if it exists, is never recorded.
d. goodwill is recorded as the excess of cost over the book value of identifiable net
assets.
191. Research and development costs
a. are classified as intangible assets.
b. must be expensed when incurred under generally accepted accounting principles.
c. should be included in the cost of the patent they relate to.
d. are capitalized and then amortized over a period not to exceed 20 years.
192. A computer company has $2,500,000 in research and development costs. Before
accounting for these costs, the net income of the company is $2,000,000. What is the
amount of net income or loss before taxes after these research and development costs
are accounted for?
a. $500,000 loss.
b. $2,000,000 net income.
c. $0.
d. Cannot be determined from the information provided.
193. A computer company has $3,000,000 in research and development costs. Before
accounting for these costs, the net income of the company is $3,600,000. What is the
amount of net income or loss before taxes after these research and development costs
are accounted for?
a. $600,000 loss.
b. $3,000,000 net income.
c. $600,000 net income.
d. Cannot be determined from the information provided.