Ch 7 Long-Term Assets

Question 1

Assets in this category include land, land improvements, buildings, equipment, and natural resources.

Answer 1

Tangible assets.

Question 2

Assets in this category include patents, trademarks, copyrights, franchises, and goodwill. We distinguished these assets from property, plant, and equipment by their lack of physical substance. The evidence of their existence often is based on a legal contract. Alphabet’s copyrights are intangible assets.

Answer 2

Intangible assets.

Question 3

We report long-term assets at their cost plus ___ _____________ necessary to get the assets ready for use.

Answer 3

all expenditures

Question 4

Report an expenditure as an asset.

Answer 4

capitalize.

Question 5

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

Answer 5

capitalized.

Question 6

To _______ an expenditure means to account for the full expenditure as an expense ___________

Answer 6

expense, immediately.

Question 7

Costs that produce future benefits are ______, but costs that produce benefits only in the current period are ______.

Answer 7

capitalized; expensed

Question 8

The distinction between land and land improvements is that:

Answer 8

land has an indefinite life

Question 9

Which of the following items should be capitalized in the cost of equipment?

Answer 9

Purchase price

Insurance on equipment during shipping

Installation and testing of equipment

Freight to deliver the equipment to its location

Question 10

Which of the following are tangible assets?

Answer 10

Building

Land improvements

Question 11

Property, plant and equipment

Answer 11

The asset is not physically used up or depleted

Question 12

Natural resources

Answer 12

The asset is physically used up or depleted

Question 13

The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

Answer 13

True.

Question 14

The cost of a major improvement that extends the service life of an asset would be
, whereas the cost of maintenance that does not increase the future benefits would be
.

Answer 14

capitalized; expensed

Question 15

The cost of land improvements are capitalized separately from land because land improvements tend to have a
useful life.

Answer 15

limited, finite, shorter, short, or definite

Question 16

Which of the following items should be capitalized in the cost of equipment?

Answer 16

Installation and testing of equipment

Sales tax

Legal fees to establish title

Freight to deliver the equipment

Question 17

______ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process.

Answer 17

Natural resources

Question 18

An asset that has no physical substance is called a(n)
asset.

Answer 18

intangible

Question 19

The purchase price and all costs to bring an asset to its desired condition and location for use should be Blank______.

Answer 19

capitalized

Question 20

A purchased intangible is valued at its original cost. Original cost for acquiring a patent would include:

Answer 20

purchase price.

legal costs to acquire.

required filing fees.

Question 21

Intangible assets include:

Answer 21

Franchises

Copyrights

Goodwill

Patents

Question 22

The distinction between land and land improvements is that:

Answer 22

land has indefinite life

Question 23

Goodwill is the intangible value of a company’s employees, management team, and business location that is reported by the company.

Answer 23

False

Question 24

An asset that has no physical substance is referred to as a(n)

Answer 24

intangible asset

Question 25

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

Answer 25

provides benefits to the company.

Question 26

The initial valuation of purchased intangible assets requires that the intangible asset is reported at

Answer 26

original cost

Question 27

What item is not an intangible asset?

Answer 27

Land

Question 28

When a company purchases another company and the purchase price is greater than the fair value of the net assets acquired, this excess is referred to as ______.

Answer 28

Goodwill

Question 29

Recognizing depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides .

Answer 29

benefits, revenues, value, or revenue

Question 30

The original cost of the asset less the accumulated depreciation is the ____ ______ of the asset.

Answer 30

Field 1: book or carrying Field 2: value

Question 31

Activity-based

Answer 31

Method that matches usage of the asset with revenues generated from the asset

Question 32

Straight-line method

Answer 32

Allocates an equal portion of the depreciable base to each year of the asset's service life

Question 33

Declining-balance method

Answer 33

Accelerated method that multiplies a constant percentage rate times the decreasing book value

Question 34

Depreciation

Answer 34

Property, plant, and equipment

Question 35

Amortization

Answer 35

Intangible assets

Question 36

When we recognize depreciation, we allocate a portion of the asset's cost to each year in which the asset

Answer 36

provides benefits to the company

Question 37

The original cost of an asset minus accumulated depreciation is

Answer 37

book value.

Question 38

Most companies use ________ ____ amortization for intangible assets.

Answer 38

straight line

Question 39

What depreciation method results in an equal amount of depreciation each year?

Answer 39

Straight-line

Question 40

Allocating the cost of property, plant, and equipment to expense is called

Answer 40

depreciation.

Question 41

allocating the cost of intangible assets to expense is called

Answer 41

amortization.

Question 42

Gerhard Inc. recognizes goodwill related to the acquisition of another company. Gerhard should:

Answer 42

periodically test goodwill for impairment capitalize the goodwill when the company is acquired

Question 43

An asset occurs when an asset is no longer useful, but cannot be sold.

Answer 43

retirement

Question 44

The method of amortization used for intangible assets

Answer 44

is most commonly straight-line.

Question 45

Goodwill acquired in a business combination is amortized over its estimated useful life.

Answer 45

False

Question 46

A retirement or abandonment of an asset is different from a sale of an asset because

Answer 46

no cash is received. a loss must be recognized for the remaining book value.

Question 47

On December 30, 20X1, Rocket Corp. disposed of equipment with a historical cost of $100,000 and accumulated depreciation of $70,000. The equipment was sold for $80,000 cash. What is the gain or loss on disposal of the equipment?

Answer 47

$50,000 gain

Question 48

A higher return on assets typically indicates the company

Answer 48

is using its assets effectively.

Question 49

The ratio that indicates the amount of net income achieved per dollar of sales is the

Answer 49

profit margin ratio.

Question 50

On December 30, 20X1, Brighton Corp. disposed of equipment with a historical cost of $150,000 and accumulated depreciation of $60,000. The equipment was sold for $70,000 cash. What is the gain or loss on disposal of the equipment?

Answer 50

$20,000 loss

Question 51

Gosling Corporation had a return on asset ratio of 4% in 20X1 and 9% in 20X2. This change in return on assets can be interpreted as

Answer 51

Gosling is using its assets more effectively to earn income.

Question 52

The profit margin ratio indicates the amount of net income achieved for

Answer 52

each dollar of sales.

Question 53

What is the accounting treatment for goodwill acquired in a business acquisition?

Answer 53

Do not amortize Capitalize the goodwill Test for impairment

Question 54

On December 30, 20X1, Glaze Corp. disposed of equipment with a historical cost of $50,000 and accumulated depreciation of $30,000. The equipment was sold for $45,000 cash. What is the gain or loss on disposal of the equipment?

Answer 54

$25,000 gain

Question 55

Gosling Corporation had a return on asset ratio of 4% in 20X1 and 9% in 20X2. This change in return on assets can be interpreted as

Answer 55

Gosling is using its assets more effectively to earn income.