EXAM 2 – Ch. 8 quiz – Flashcards
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Which of the following would not be classified as a tangible long-term asset?
A. Delivery truck
B. Franchise
C. Land
D. Oil and gas reserve
answer
B. Franchise
A franchise is considered an intangible long-term asset. Delivery truck, land, and oil and gas reserve are all tangible long-term assets.
question
Which of the following terms is used to identify the process of expense recognition for property, plant and equipment?
A. Amortization
B. Depletion
C. Depreciation
D. Revision
answer
C. Depreciation
Depreciation is the process of expense recognition for property, plant and equipment. Amortization is used for intangible assets and depletion is used for natural resources.
question
Bybee Corporation acquired real estate that contained land, building and equipment. The property cost Bybee $950,000. Bybee paid $175,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $185,000; Building, $550,000 and Equipment, $365,000. (round percentages to two decimal places: ie .054 = 5%).
What value will be recorded for the building?
answer
$475,000
In a basket purchase, the cost of each asset in the "basket" is determined as a percentage of the basket's total appraised value. $550,000/($185,000 + $550,000 + $365,000) = 50%; $950,000 x 50% = $475,000
question
Anchor Company purchased a manufacturing machine with a list price of $80,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $1,200. Anchor paid $1,500 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $1,800 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:
answer
$81,100
$80,000 list price - ($80,000 x 2% discount) + $1,200 freight + $1,500 installation and testing = $81,100. The insurance cost is not included in the cost of the machine, but is instead expensed during the first year.
question
Which method of depreciation is used by most U. S. companies for financial reporting purposes?
A. Straight line
B. Units of production
C. Double declining balance
D. MACRS
answer
A. Straight Line
Straight line depreciation typically mirrors the use of most assets, and is used most often for financial reporting.
question
Which of the following assets is not considered to have indefinite useful lives?
A. Copyrights
B. Goodwill
C. Renewable franchises
D. Trademarks
answer
A. Copyrights
Copyrights have identifiable useful and legal lives.
question
Which of the following terms is used to identify the expense recognition for intangible assets?
A. Amortization.
B. Depletion.
C. Depreciation.
D. Allocation.
answer
A. Amortization
Amortization is similar to depreciation, but is applied to intangible assets that have identifiable useful lives.
question
Which of the following would be classified as a long-term operational asset?
A. Notes receivable.
B. Treasury stock.
C. Inventory.
D. Goodwill.
answer
D. Goodwill
Goodwill is an intangible long-term operational asset. While notes receivable could be long-term, it is not considered an operational asset. Inventory is a current asset, and treasury stock is not an asset at all.
question
On January 1, 2013 Ballard Company spent $6,000 on an asset to improve its quality. The asset had been purchased on January 1, 2012 for $26,000. The asset had a $2,000 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, 2016?
answer
$12,400
($26,000 cost - $2,000 salvage value)/6 years = $4,000 original annual depreciation; $26,000 - ($4,000 x 1 year) = $22,000 book value at the time of capital expenditure; ($22,000 book value + $6,000 capital expenditure - $2,000 salvage value)/5 years of remaining useful life = $5,200 new annual depreciation; $32,000 total cost of asset - $4,000 depr. in 2012 - $5,200 depr. in 2013 - $5,200 depr. in 2014 - $5,200 depr. in 2015 = $12,400 book value on 1/1/2016
question
Diaz Company purchased a truck that cost $36,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $5,000. If the truck is driven 26,000 miles in the current accounting period, what would be the amount of depreciation expense for the year?
answer
$8,060
($36,000 cost - $5,000 salvage value)/100,000 miles = $0.31/mile depreciation; $0.31/mile x 26,000 miles = $8,060 depreciation expense.
