Question 1

If the double-declining balance method were used to depreciate a building that has a 10-year useful life and a residual value equal to 10% of the building's original cost, what depreciation rate would be used?

Accepted Answer

A)   9%
B)   10%
C)   18%
D)   20%E) B) and C)
F) None of the above

Question 2

Once the depreciation expense for a long-lived asset is calculated:

Accepted Answer

A)   it cannot be changed because of the cost principle
B)   it may be revised based on new information
C)   any changes are not recognized until the date the asset is sold
D)   it cannot be changed due to the consistency principleE) C) and D)
F) None of the above

Question 3

The costs assigned to the individual assets acquired in a basket purchase is based on their relative

Accepted Answer

A)   historical costs.
B)   market values.
C)   book values.
D)   depreciable costs.E) A) and D)
F) All of the above

Question 4

Accumulated depreciation represents funds set aside to buy new assets.

Accepted Answer

A) True 
 B)False

Question 5

Goodwill is the most frequently reported intangible asset.

Accepted Answer

A) True 
 B)False

Question 6

The MegaHit Film Studio owns a production lot and related equipment. How would MegaHit Company classify these assets on its balance sheet?

Accepted Answer

A)   Tangible asset
B)   Other long-lived asset
C)   Intangible asset
D)   Nonreported assetE) B) and D)
F) B) and C)

Question 7

A machine had an estimated useful life of 5 years, but after 3 years, it was decided that the original estimate of useful life should have been 10 years. At that point, the remaining cost to be depreciat ed should be allocated over the remaining:

Accepted Answer

A)   2 years
B)   5 years
C)   7 years
D)   10 yearsE) B) and D)
F) A) and B)

Question 8

Intangible assets are usually amortized using the straight-line method.

Accepted Answer

A) True 
 B)False

Question 9

There are no differences between GAAP and IFRS rules of accounting for tangible and intangible assets.

Accepted Answer

A) True 
 B)False

Question 10

Goodwill:

Accepted Answer

A)   should be treated like most other intangible assets and amortized over a useful life of not more than 40 years.
B)   is an accounting measurement of how well a company's employees behave towards the company's customers.
C)   should be recorded as a negative value if a company is purchased for less than the net carrying value of its assets.
D)   is recorded when the purchasers of a business pay more than the fair market value of the assets purchased.E) All of the above
F) None of the above

Question 11

When a company records depreciation it debits:

Accepted Answer

A)   liabilities and credits expenses.
B)   expenses and credits cash.
C)   expenses and credits a contra-asset account.
D)   long-lived assets and credits expenses.E) None of the above
F) C) and D)

Question 12

Which of the following statements regarding the nature of long-lived assets is true?

Accepted Answer

A)   Long-lived assets are assets that never decline in value.
B)   Another name for a tangible long-lived asset is a fixed asset.
C)   Long-lived assets have useful lives between 10 and 20 years.
D)   Long-lived assets are defined as assets that are no longer being depreciated.E) C) and D)
F) A) and D)

Question 13

Impairment occurs when the estimated future cash flows from a long-lived asset fall below its book value.

Accepted Answer

A) True 
 B)False

Question 14

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated depreciation account of $1.1 million. Which of the following statements is true?

Accepted Answer

A)   The book value of long-lived assets is $2.4 million.
B)   The market value of long-lived assets is $3.5 million.
C)   The carrying value of long-lived assets is $3.5 million.
D)   The resale value of long-lived assets is $2.4 million.E) A) and B)
F) A) and C)

Question 15

When a company determines that estimated future cash flows from an asset are less than the book value of the asset, it records:

Accepted Answer

A)   an asset impairment gain, if the value of the cash flows exceeds the asset's book value.
B)   an asset impairment loss, if the value of the cash flows exceeds the asset's book value.
C)   an asset impairment gain, if the asset's book value exceeds the value of the cash flows.
D)   an asset impairment loss, if the asset's book value exceeds the value of the cash flows.E) All of the above
F) B) and D)

Question 16

Extraordinary repairs

Accepted Answer

A)   are revenue expenditures.
B)   extend an asset's life beyond the original estimate.
C)   are expensed as incurred.
D)   are credited to accumulated depreciation.E) A) and B)
F) B) and D)

Question 17

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?

Accepted Answer

A)   To indicate how the asset has physically deteriorated.
B)   To show that the asset will eventually and gradually become obsolete.
C)   To record that the asset's market value declines over time.
D)   To match the cost of the asset to the period in which it generates revenue.E) A) and B)
F) None of the above

Question 18

If a company produces the same number of units per period over an asset's useful life, straight -line depreciation expense per period will be the same as the depreciation expense recorded using the
units-of-production method.

Accepted Answer

A) True 
 B)False

Question 19

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system. Your company should record:

Accepted Answer

A)   $3 million in equipment and $200,000 in expenses.
B)   $3.2 million in expenses.
C)   $2.8 million in equipment and the rest in expenses.
D)   $3.2 million in equipment.E) A) and D)
F) All of the above

Question 20

A book manufacturing company sells equipment for $450,000 when the book value of the equipment is $400,000. The company would record the extra $50,000 as:

Accepted Answer

A)   a gain, increasing net income and stockholders' equity.
B)   revenue, increasing net income and stockholders' equity.
C)   cash, increasing assets and stockholders' equity.
D)   accumulated depreciation, increasing assets and stockholders' equity.E) None of the above
F) B) and C)

Exam 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Goodwill:

Correct AnswerverifiedShow Answer

When a company determines that estimated future cash flows from an asset are less than the book value of the asset, it records:

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If the double-declining balance method were used to depreciate a building that has a 10-year useful life and a residual value equal to 10% of the building's original cost, what depreciation rate would be used?

Correct AnswerverifiedShow Answer

A book manufacturing company sells equipment for $450,000 when the book value of the equipment is $400,000. The company would record the extra $50,000 as:

Correct AnswerverifiedShow Answer

Which of the following statements most appropriately describes the purpose of depreciating a long-lived tangible asset?

Correct AnswerverifiedShow Answer

Impairment occurs when the estimated future cash flows from a long-lived asset fall below its book value.

Correct AnswerverifiedShow Answer

The Buddy Burger Corporation has $3.5 million in long-lived assets and has an accumulated depreciation account of $1.1 million. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Extraordinary repairs

Correct AnswerverifiedShow Answer

Intangible assets are usually amortized using the straight-line method.

Correct AnswerverifiedShow Answer

Accumulated depreciation represents funds set aside to buy new assets.

Correct AnswerverifiedShow Answer

A machine had an estimated useful life of 5 years, but after 3 years, it was decided that the original estimate of useful life should have been 10 years. At that point, the remaining cost to be depreciat ed should be allocated over the remaining:

Correct AnswerverifiedShow Answer

When a company records depreciation it debits:

Correct AnswerverifiedShow Answer

Your company buys a computer system from IBM for $3 million and pays IBM $200,000 to install the computer system. Your company should record:

Correct AnswerverifiedShow Answer

If a company produces the same number of units per period over an asset's useful life, straight -line depreciation expense per period will be the same as the depreciation expense recorded using the units-of-production method.

Correct AnswerverifiedShow Answer

There are no differences between GAAP and IFRS rules of accounting for tangible and intangible assets.

Correct AnswerverifiedShow Answer

The costs assigned to the individual assets acquired in a basket purchase is based on their relative

Correct AnswerverifiedShow Answer

Goodwill is the most frequently reported intangible asset.

Correct AnswerverifiedShow Answer

The MegaHit Film Studio owns a production lot and related equipment. How would MegaHit Company classify these assets on its balance sheet?

Correct AnswerverifiedShow Answer

Which of the following statements regarding the nature of long-lived assets is true?

Correct AnswerverifiedShow Answer

Once the depreciation expense for a long-lived asset is calculated:

Correct AnswerverifiedShow Answer

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