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Exam 9: Long-Lived Tangible and Intangible Assets

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Question 21

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A declining fixed asset turnover ratio suggests that a:

A) company is not as efficient in using its fixed assets as it was in previous periods.
B) company's net sales must be increasing.
C) company must have purchased some intangible assets.
D) company's beginning fixed asset balance must be greater than its ending fixed asset balance.

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

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Question 22

Multiple Choice

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ABC Co.purchased land and building at a price of $480,000.ABC also incurred a real estate broker's fee of $5,000 and legal fees of $2,000 to complete the purchase.ABC paid $3,000 to obtain a real estate appraisal prior to the purchase.The appraisal indicated that,valued separately,the land was worth $260,000 and the building was worth $240,000.The land should be recorded in the accounting records for:

A) $249,600.
B) $253,240.
C) $254,800.
D) $259,600.

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

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Question 23

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

Extraordinary repairs,replacements,and additions are added to the appropriate asset accounts rather than being recorded as expenses. BT: Comprehension

If net sales revenue and the average book value of fixed assets both rise 5%:

A company purchases property that includes land,buildings,and equipment for $5.5 million.The company pays $180,000 in legal fees,$220,000 in commissions,and $100,000 in appraisal fees.The land is estimated at 25%,the buildings are at 40%,and the equipment at 35% of the property value.Prepare the journal entry that is required to record the purchase assuming that the company paid 50% of the amounts using cash and signed a note for the remainder.Explain how you derived your answer.

Under the cost principle:

Match the term and the definition.Not all definitions will be used. _____ Amortization _____ Capitalized interest _____ Licensing right _____ Least and latest rule _____ Voluntary disposal _____ Fixed asset turnover ratio _____ Copyright _____ Amortization schedule _____ Involuntary disposal A.Allocating the cost of tangible assets over their limited useful life. B.Generally accepted accounting principle that a company must report assets at the lower of their most recent market value or acquisition cost. C.Asset cost minus residual value. D.Net income divided by average total assets. E.Allocating the cost of intangible assets over their limited useful life. F.A method of calculating how a company will use different amortization methods for an asset. G.When a company is no longer able to use an asset because of events beyond its control. H.Grants the exclusive right to sell or use a creative work. I.A cumulative record of amortization expense,accumulated amortization,and book value. J.The cost of financing the self-construction of a tangible asset. K.Net sales revenue divided by average net fixed assets. L.The principle that companies wish to pay the lowest possible tax at the last possible time. M.Also known as book value. N.A contractual agreement that allows limited use of a property. O.How interest payments are recorded as liabilities on the balance sheet. P.When a company decides it no longer wants to hold an asset but sells,trades,or donates it instead.

A company paid $500,000 to purchase equipment and $15,000 to have the equipment delivered to and installed in the company's production facilities.Commercial use of the equipment began on May 1,2009.The estimated residual value of the equipment is $5,000.The equipment is expected to be used a total of 28,000 hours throughout its estimated useful life of six years.The company has an October 31,year-end and had used the equipment a total of 11,200 hours prior to the year-end.Using the units-of-production method,what amount of amortization expense (to the nearest thousand) would the company report for this equipment in the income statement prepared for the year ended October 31,2009?

Your company buys a computer server,which it expects to use for eight years and then sell when it upgrades to a more powerful model.The server would probably be used by the business that buys it at that time for another three years.The useful life of the server for your company is:

The gain or loss resulting from the disposal of a long-lived asset appears below the "operating income" line on the income statement. BT: Comprehension

Your company has net sales revenue of $36 million during the year.At the beginning of the year,fixed assets are $8 million.At the end of the year,fixed assets are $10 million.What is the fixed asset turnover ratio?

When a company sells a long-lived asset,shareholders' equity will change by the:

In recording the acquisition cost of an entire business:

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

What is the adjusted balance in the Accumulated amortization account at the end of 2010?

The main difference between ordinary repairs and extraordinary repairs is:

How does an asset impairment loss impact a company's financial statements?

When a company records an asset impairment loss,it will reduce net income for that period. BT: Comprehension

If a company builds its own facility,only the cost of materials is capitalized. BT: Comprehension