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Exam 7: Long-Term Assets

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Question 41

True/False

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Straight-line depreciation assumes that the benefits we derive from the use of an asset are the same each year.

A) True
B) False

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Question 42

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In accounting,goodwill

A) Is never recorded.
B) May be recorded when a company's level of net income exceeds the industry average.
C) Must be expensed in the period when it is acquired.
D) May be recorded when the company purchases another business.

E) B) and C)
F) A) and D)

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Question 43

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The depreciable cost used in calculating depreciation expense is:

Many intangible assets are not recorded on the balance sheet at their estimated market values.

Declining-balance depreciation will be lower than straight-line depreciation in earlier years,but higher in later years.Declining-balance depreciation will be higher than straight-line depreciation in earlier years,but lower in later years.

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits.We expense repairs and maintenance expenditures in the period incurred because they maintain a given level of benefits.

The following financial information is from Cook Company: What is the amount of intangible assets assuming the accounts above reflect normal activity? $\begin{array} { | l | r | } \hline \text { Accounts Payable } & \$ 55,000 \\\hline \text { Land } & \$ 90,000 \\\hline \text { Inventory } & \$ 10,500 \\\hline \text { Accounts Receivable } & \$ 7,500 \\\hline \text { Equipment } & \$ 8,000 \\\hline \text { Deferred Revenue } & \$ 58,500 \\\hline \text { Short-term Investments } & \$ 20,000 \\\hline \text { Notes Receivable (due in 8 months) } & \$ 45,500 \\\hline \text { Interest Payable } & \$ 2,000 \\\hline \text { Patents } & \$ 75,000 \\\hline\end{array}$

Which of the following statements is true regarding the amortization of intangible assets?

Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.

Bricktown Exchange purchases a copyright for $50,000.The copyright has a remaining legal life of 25 years,but only an expected useful life of five years with no residual value.Assuming the company uses the straight-line method,what is the carrying value at the end of the second year?

With the straight-line depreciation method,we allocate an equal amount of the depreciable cost to each year of the asset's service life.

The balance sheet of Paradise Pizza reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year,respectively.Net income and sales for the year are $240,000 and $2,000,000,respectively.What is Paradise Pizza's profit margin?

A trademark is a word,slogan,or symbol that distinctively identifies a company,product,or service.

We use the term capitalize to describe recording an expenditure as an expense.We use the term capitalize to describe recording an expenditure as an asset.

Leonard's Jewelry owns a patent with a carrying value of $50 million.Due to adverse economic conditions,Leonard's management determined that it should assess whether an impairment should be recognized for the patent.The estimated future cash flows to be provided by the patent total $43 million,and its fair value at that point totals $35 million.Under these circumstances,Leonard:

Straight-line produces a lower net income than accelerated methods in the earlier years of an asset's life.Straight-line produces a higher net income than accelerated methods in the earlier years of an asset's life.

Bricktown Exchange purchases a copyright for $50,000.The copyright has a remaining legal life of 25 years,but only an expected useful life of five years with no residual value.Assuming the company uses the straight-line method,what is the amortization expense for the first year?

Which one of the following regarding the book value of an asset is correct?

The cost of replacing a major component on a piece of equipment is an example of:

We allocate natural resources to expense through a process known as "depletion."