Chapter 8

Question 1

Capital assets

Answer 1

Long term assets

Question 2

Three categories of long term assets

Answer 2

PPE
Intangible assets
Goodwill

Question 3

Goodwill

Answer 3

Long term asset from 2 businesses combining, represent future economic benefits from the combination that cannot be inventoried separately as tangible or intangible

Question 4

Two models for determining amount at which PPE is reflected

Answer 4

Cost model

Revaluation model

Question 5

Cost model

Answer 5

PPE assets are reflected at carrying amount

Question 6

Carrying amount of PPE=

Answer 6

Cost - accumulated depreciation - accumulated impairment losses

Question 7

Cost model for PPE is allowed under

Answer 7

ASPE

Question 8

Basket purchase

Answer 8

Single price paid for all goods in basket

Must allocate price between all goods

Question 9

To determine if costs should be capitalized or expense

Answer 9

Does the asset give future economic benefit?
If yes then capitalize
If no then expense

Question 10

Depreciable amount =

Answer 10

Cost - estimated residual value

Question 11

3 depreciation methods

Answer 11

Straight line
Units of production
Diminishing balance

Question 12

Straight line method depreciation rate =

Answer 12

1/estimated useful life

Question 13

Unit of production depreciation per unit =

Answer 13

(Cost - estimated residual value) / estimated useful life (in units)

Question 14

Double Diminishing balance depreciation rate =

Answer 14

(1/estimated useful life) * 2

Question 15

Journal entry to record depreciation expense

Answer 15

Dr depreciation expense

Cr accumulated depreciation

Question 16

Impairment

Answer 16

Managements estimates of life or economic benefit may be overvalued, carrying amounts should be reduced

Question 17

Recoverable amount

Answer 17

Greater of expected future cash flows from asset use and asset fair value selling costs

Question 18

Calculation of impairment loss =

Answer 18

Carrying amount - expected future cash flow OR fair value selling costs

Question 19

Journal entry for impairment loss

Answer 19

Dr loss on impairment

Cr accumulated impairment loss

Question 20

Two steps to derecognize PPE

Answer 20

Predicate asset up to date of recognition

Remove asset and accumulated depreciation and determined gain or loss

Question 21

Gain on sale =

Answer 21

Proceeds of sale > carrying amount

Question 22

Loss on sale

Answer 22

Proceeds from sale < carrying amount

Question 23

Journal entry to record sale of equipment with gain

Answer 23

Dr cash
Dr accumulated depreciation
Cr equipment
Cr gain on sale of equipment

Question 24

Journal entry to record scrapping of equipment

Answer 24

Dr accumulated depreciation
Dr loss on disposal of equipment
Cr equipment

Question 25

Revaluation model

Answer 25

PPE assets are carried at fair value as determined at points in time, minus any subsequent accumulated depreciation and impairment losses

Question 26

Intangible assets are depreciated using

Answer 26

The straight line method

Question 27

Intangible assets are recorded at

Answer 27

Cost

Question 28

Intangible assets with finite useful lives must be tested for impairment

Answer 28

When company becomes aware of something that may indicate impairment

Question 29

Intangible assets with indefinite useful lives must be tested

Answer 29

Annually for impairment

Question 30

Goodwill =

Answer 30

Purchase price
- fair value of land, building, equipment, inventory, patents
+ fair value of mortgage assumed

Question 31

Is goodwill amortized

Answer 31

No

Question 32

Is goodwill shown at carrying amount and is it assessed for impairment

Answer 32

Yes