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1 | |
Which of the following is a tangible long-term asset? (LO 1) |
| | A) | Patent |
| | B) | Goodwill |
| | C) | Timber |
| | D) | Trademark |
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2 | |
Which of the following is an intangible asset with an identifiable useful life? (LO 1) |
| | A) | Patent |
| | B) | Goodwill |
| | C) | Timber |
| | D) | Trademark |
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3 | |
The process of recognizing expense for property, plant, and equipment is called (LO 1) |
| | A) | Allocation |
| | B) | Amortization |
| | C) | Depletion |
| | D) | Depreciation |
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4 | |
The process of recognizing expense for a natural resource is called (LO 1) |
| | A) | Allocation |
| | B) | Amortization |
| | C) | Depletion |
| | D) | Depreciation |
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5 | |
The process of recognizing expense for intangible assets with identifiable useful lives is called (LO 1) |
| | A) | Allocation |
| | B) | Amortization |
| | C) | Depletion |
| | D) | Depreciation |
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6 | |
Johnson Company purchased a new piece of equipment to use in its business. The details of the purchase and related costs are as follows: 1. | Purchase price of equipment | $125,000 | 2. | Freight costs (FOB shipping point) | 1,000 | 3. | Installation of equipment | 15,000 | 4. | Annual salary of new employee hired to operate the equipment | 40,000 | 5. | Increase in the annual cost of the fire and theft insurance policy to cover the new equipment | 800 |
Determine the amount to be capitalized for this equipment. (LO 2) |
| | A) | $126,000 |
| | B) | $141,000 |
| | C) | $181,000 |
| | D) | $181,800 |
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7 | |
Robinson Corporation purchased land and a building for $750,000. An appraisal was obtained that indicated that the land was worth $300,000 and the building was worth $700,000. What amount of the purchase price should Robinson allocate to the land and the building? (LO 2) |
| | A) | Land $50,000; building $700,000 |
| | B) | Land $225,000; building $525,000 |
| | C) | Land $300,000; building $450,000 |
| | D) | Land $300,000; building $700,000 |
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8 | |
Thompson Corporation purchased a truck that will be used extensively in the first two years of its five-year useful life. Which of the following depreciation methods is the most appropriate method to recognized depreciation expense for this truck? (LO 3) |
| | A) | Straight-line method |
| | B) | Double-declining-balance method |
| | C) | Units-of-production method |
| | D) | Any of the methods are equally appropriate |
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9 | |
In 2005 Goodman Company purchases equipment for $100,000 and records $20,000 in depreciation expense. How does the recording of the equipment purchase and the depreciation expense affect the statement of cash flows? (LO 3) |
| | A) | Cash flow for operating activities ($100,000) |
| | B) | Cash flow for investing activities ($100,000) |
| | C) | Cash flow for investing activities ($120,000) |
| | D) | Cash flow for operating activities ($20,000); cash flow for investing activities ($100,000) |
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10 | |
Use the following information to answer Questions 10, 11, 12, and 13: On January 1, 2005 , Jacobson Company purchased a delivery truck for $64,000. The van was estimated to have a five-year useful life or 100,000 miles. Salvage value was estimated at $4,000. The van was driven 25,000 miles in 2005 and 22,000 miles in 2006. Assume that Jacobson Company uses the straight-line depreciation method. What is the amount of depreciation expense for 2005 and 2006? (LO 3) |
| | A) | $12,000 in 2005; $12,000 in 2006 |
| | B) | $12,000 in 2005; $24,000 in 2006 |
| | C) | $12,800 in 2005; $12,800 in 2006 |
| | D) | $12,800 in 2005; $25,600 in 2006 |
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11 | |
Assume that Jacobson Company uses the double-declining-balance depreciation method. What is the amount of depreciation expense for 2005 and 2006? (LO 3) |
| | A) | $24,000 in 2005; $14,400 in 2006 |
| | B) | $24,000 in 2005; $38,400 in 2006 |
| | C) | $25,600 in 2005; $15,360 in 2006 |
| | D) | $25,600 in 2005; $40,960 in 2006 |
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12 | |
Assume that Jacobson Company uses the units-of-production depreciation method. What is the amount of depreciation expense for 2005 and 2006? (LO 3) |
| | A) | $15,000 in 2005; $13,200 in 2006 |
| | B) | $15,000 in 2005; $28,200 in 2006 |
| | C) | $16,000 in 2005; $14,080 in 2006 |
| | D) | $16,000 in 2005; $30,080 in 2006 |
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13 | |
For income tax purposes, Jacobson Company uses the modified accelerated cost recovery system (MACRS). What is the maximum amount of depreciation expense that Jacobson Company will record for 2005 and 2006 assuming the truck is 5-year property? (LO 5) |
| | A) | $ 8,574 in 2005; $14,694 in 2006 |
| | B) | $ 9,146 in 2005; $15,674 in 2006 |
| | C) | $12,000 in 2005; $19,200 in 2006 |
| | D) | $12,800 in 2005; $20,480 in 2006 |
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14 | |
Wharton Company owns a truck that was purchased four years ago. The company spent $3,000 to replace the transmission which will extend the useful life by 2 years. Which of the following choices represents the journal entry necessary to record this transaction? (LO 7) |
| | A) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | a. | | (3,000) | + | n/a | – | n/a | = | n/a | + | (3,000) | | n/a | – | 3,000 | = | (3,000) | | (3,000) OA | |
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| | B) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | b. | | (3,000) | + | 3,000 | – | n/a | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (3,000) IA | |
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| | C) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | c. | | (3,000) | + | n/a | – | (3,000) | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (3,000) IA | |
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| | D) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | d. | | (3,000) | + | n/a | – | n/a | = | n/a | + | (3,000) | | n/a | – | 3,000 | = | (3,000) | | (3,000) IA | |
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15 | |
Wharton Company owns a truck that was purchased four years ago. The company spent $600 for routine maintenance on the truck. Which of the following choices represents the journal entry necessary to record this transaction? (LO 7) |
| | A) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | a. | | (600) | + | n/a | – | n/a | = | n/a | + | (600) | | n/a | – | 600 | = | (600) | | (600) OA | |
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| | B) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | b. | | (600) | + | 600 | – | n/a | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (600) IA | |
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| | C) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | c. | | (600) | + | n/a | – | (600) | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (600) IA | |
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| | D) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Truck | – | Acc. Dep. | | | | | | | | | | | | | | d. | | (600) | + | n/a | – | n/a | = | n/a | + | (600) | | n/a | – | 600 | = | (600) | | (600) IA | |
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16 | |
Warrior Company owns a machine that was purchased three years ago. The company spent $8,000 to improve the productive quality of the machine. Which of the following choices represents the journal entry necessary to record this transaction? (LO 7) |
| | A) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Mach. | – | Acc. Dep. | | | | | | | | | | | | | | a. | | (8,000) | + | n/a | – | n/a | = | n/a | + | (8,000) | | n/a | – | 8,000 | = | (8,000) | | (8,000) OA | |
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| | B) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Mach. | – | Acc. Dep. | | | | | | | | | | | | | | b. | | (8,000) | + | 8,000 | – | n/a | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (8,000) IA | |
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| | C) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Mach. | – | Acc. Dep. | | | | | | | | | | | | | | c. | | (8,000) | + | n/a | – | (8,000) | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (8,000) IA | |
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| | D) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | Mach. | – | Acc. Dep. | | | | | | | | | | | | | | d. | | (8,000) | + | n/a | – | n/a | = | n/a | + | (8,000) | | n/a | – | 8,000 | = | (8.000) | | (8,000) IA | |
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17 | |
Butler Company sold a machine for $9,000 cash. The machine originally cost $50,000 and the company had recognized $38,000 in depreciation over the life of the machine. What is the effect of this sale on the income statement and the statement of cash flows? (LO 4) |
| | A) | $3,000 loss on the income statement; ($3,000) cash from investing activities |
| | B) | $3,000 loss on the income statement; $9,000 cash from investing activities |
| | C) | $3,000 gain on the income statement; $3,000 cash from investing activities |
| | D) | $41,000 loss on the income statement; $9,000 cash from investing activities |
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18 | |
Valley Company purchased a machine for $45,000. The machine had an expected useful life of 7 years and a $3,000 salvage value. After 3 years of using straight-line depreciation, Valley Company revised the expected life from 7 years to 11 years with no change in expected salvage value. What is the depreciation expense for year 4? |
| | A) | $2,455 |
| | B) | $3,000 |
| | C) | $3,375 |
| | D) | $6,000 |
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19 | |
Three years ago Cooper Mining Company paid $6,000,000 cash to purchase a mine with an estimated 20,000,000 tons of coal. In 2005 Cooper mined 500,000 tons of coal. What is effect on the income statement and the statement of cash flows for 2005? (LO 8) |
| | A) | $150,000 expense on the income statement; ($150,000) cash flow from operating activities |
| | B) | $150,000 expense on the income statement; no effect on the statement of cash flows |
| | C) | $1,666,667 expense on the income statement; ($1,666,667) cash flow from operating activities. |
| | D) | $1,666,667 expense on the income statement; no effect on the statement of cash flows |
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20 | |
Which of the following is an incorrect statement regarding goodwill? (LO 9) |
| | A) | Goodwill is an intangible asset with an indefinite useful life. |
| | B) | Goodwill must be tested for impairment annually. |
| | C) | Goodwill is the value attributable to favorable factors such as reputation, location, and superior product. |
| | D) | If the book value of goodwill is less than its fair value, an impairment loss must be recognized. |
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21 | |
In 2005, Sanderson Company and Bradley Company each paid $50,000 for an asset with an expected useful life of five years and no salvage value. Sanderson uses the straight-line depreciation method and Bradley Company uses the double-declining-balance depreciation method. Assuming that all revenue and other expense items are identical for both companies, which of the following statements is correct? (LO 10) |
| | A) | Straight-line depreciation provides the lowest depreciation expense and the best return on sales. |
| | B) | Straight-line depreciation provides the highest depreciation expense and the best return on sales. |
| | C) | Double-declining-balance depreciation provides the lowest depreciation expense and the best return on sales. |
| | D) | Double-declining-balance depreciation provides the highest depreciation expense and the best return on sales. |
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