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Chapter 9: Long-Lived Tangible and Intangible Assets

Terms in this set (71)

A productive asset ______.
is used to produce goods or services that will be sold to customers
Sunny Sky paid $30,000 cash for piece of land to be used for a new corporate headquarters building. What is the effect of this transaction on the accounting equation?
One asset increases, while another asset decreases.
Sunny Skys, Inc. bought a derelict hunting lodge, which it tore down at a cost of $45,000 and replaced with a new lodge. The demolition cost should be ______.
capitalized
Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed. What was the effect of this fraud on WorldCom's balance sheet?
Total assets were too high.
Retained earnings were too high
Cedar Fair purchased land; which of the following should be debited to the Land account?
Commissions paid to brokers when purchasing the land
Fees for surveying of the land
Legal fees for the land's title search
Long-lived assets are ______
-used by the business
-assets acquired for use over 1 or more years
The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.
$80,000
Thermal, Inc. bought a new computer system for $50,000 cash. What is the effect of this purchase on the company's total assets? Total assets ______.
Remain the same
X-it Company signed a $500,000, 5-year note payable to buy a new machine. The company paid $2,000 cash for transporting and $1,000 cash for installing the machine. What is the effect of this transaction on the accounting equation?
Total liabilities increase $500,000.
Machinery, an asset, increases $503,000.
Total assets increase $500,000.
The old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be ______.
capitalized as part of the cost of the theater
X Circle Company purchased a computer system Black Box, Inc. with a list price of $100,000 plus 5% sales tax. The cost to deliver and install the computer was $10,000. The debit to Equipment equals
$115,000. $100,000 List Price +$5,000 Sales tax + $10,000 delivery and installation
If management was to unethically capitalize costs that should not have been, which of the following would be misstated?
land at $20,000 and the building at $60,000
The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash causes total assets to ______.
increase by $8,000
The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of ______.
$106,500
Miss Hap, the company bookkeeper, recorded the annual repair costs on the company's machinery as an increase to the machinery account. As a result, which of the following is true?
Stockholders' equity will be overstated.
Assets will be overstated.
Revenue expenditures are recorded with a debit to ______.
an expense when they relate to ordinary repairs and maintenance
When a company capitalizes a cost, its ______ increase.
long-lived assets
Shenandoah Skies built a new lodge for its ski resort. Which of the following costs should be capitalized?
$7,000 in architect fees
$70,000 cost of lumber to build the lodge
$4,200 paid in sales tax on the lumber to build the lodge
In the case of a basket purchase, the cost of the land and building is ______.
split among the assets purchased in proportion to the market value of the assets as a whole
Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance?
$100 oil change on van
$900 for cleaning the van during the year
True or false: Long-lived assets (except land) are expensed over their useful lives.
True; Long-lived assets are depreciated (expensed over their useful lives.)
Select all of the items below in determining the cost of purchased equipment.
Add the sales tax
Add the list price
Add the delivery costs
Subtract the purchase discount
Add the installation costs
Which of the following costs associated with long-lived assets are expensed, not capitalized?
Ordinary repairs and maintenance
Immaterial repairs and maintenance
Computit bought a new copier machine. Which of these costs should be expensed?
Replacement of the toner for the copy machine
Annual maintenance cost
Which account is credited in an adjusting entry to record depreciation on machinery?
Accumulated Depreciation
Depreciation Expense is reported on the ______.
income statement as an operating expense
Recording depreciation is an application of the ______.
expense recognition (matching) principle
What is the effect of recording depreciation expense on the accounting equation?
Total assets decrease.
Total stockholders' equity decreases.
The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of ______
$106,500
An asset's book value or carrying value is its ______.
cost minus accumulated depreciation
The journal entry to record depreciation include which of the following?
Credit Accumulated Depreciation
Debit Depreciation Expense
X-it Company bought a new delivery truck. The manufacturer says that the truck should last for ten years and 120,000 miles. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. What is the useful life of the truck for depreciation purposes?
50,000 miles
4 years
Accumulated Depreciation is reported on the ______.
balance sheet netted against the related long-lived asset
The difference between the Equipment account and its Accumulated Depreciation is called the
book
Another term for residual value is
salvage value
Ace Electronics bought a new cash register for $2,500. Ace originally planned to use the cash register for 4 years and then sell it for $200. After 4 years, Ace had recorded $2,300 of depreciation. If Ace continues to use the cash register, still planning to sell it eventually for $200, then Ace should record ______.
no additional depreciation
How does management estimate useful lives and residual values?
They use professional judgment.
For long-lived assets that have been in use for more than one accounting period, Depreciation Expense on the ______ Accumulated Depreciation on the ______.
income statement will be less than; balance sheet
Which of these assets are not depreciated
cash
inventory
land
An asset's residual value is:
-the same as its salvage value
-the estimated amount it can be sold for at the end of its useful life
Which depreciation method results in higher depreciation expense when the asset is used more?
Units-of-production
What effect does the residual value have on a long-lived asset's depreciable cost?
The greater the residual value the smaller the depreciable cost.
An assets useful life
- can be expressed in either years or units
- is the asset's expected economic life to its owner
On January 1, Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $200. If Ace uses straight-line depreciation, depreciation expense for the 1st year ended December 31 equals ______.
Straight-line depreciation equals $575 or ($2,500 - 200) x 1/4 years.
Which of the following statements are true?
Depreciation Expense on the income statement reports only the current period's usefulness used.
Depreciation Expense is an operating expense on the income statement
Accumulated Depreciation on the balance sheet reports the amount of usefulness used since the long-lived asset was first put into use
Accumulated Depreciation is netted against the related long-lived asset on the balance sheet
Acme, Inc., bought land and a building for $150,000. Acme plans to use the building for 20 years and then sell it. What is the useful life of the land?
Unlimited
Depreciation Expense of a long-lived asset calculated using the straight-line depreciation method will be a ______ amount each year.
constant
Straight-line, units-of-production, and declining-balance are commonly used
Depreciation
(Cost - residual value) x (1/useful life) is the formula for calculating
The Straight-Line method of depreciation
Why is the straight-line method of depreciation called "straight-line"?
Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.
(Cost-residual value) x (actual production this period/estimated total production) is the formula for calculating ______ depreciation.
units-of-production
Assuming straight-line is used, which of the following is the depreciation formula for the revision of an estimate?
(Book value-new residual value) x (1/remaining life)
Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $200. The cash register's depreciable cost equals ______.
An asset's depreciable cost equals the asset's cost, $2,500, minus the residual value, $200. The depreciable cost equals $2,300 and represents the total amount of usefulness that will be expensed (depreciated) over the asset's useful life.
Why can depreciation expense be a different amount each year using the units-of-production method?
The method calculates expense based on the relationship between each year's output and total estimated output.
On January 1, Busy Beaver, Inc., signed a $315,000, 5-year note payable to buy a new industrial veneer cutter. Busy Beaver plans to use the machine for 10 years and then sell it for its scrap value of $5,000. Using straight-line depreciation, Depreciation Expense for the 1st year ended December 31 equals ______.
This is cost minus Accumulated Depreciation, not Depreciation Expense. Straight-line depreciation equals $31,000 or ($315,000 - 5,000) x 1/10 years.
What is the formula for calculating double-declining-balance depreciation?
(Cost - Accumulated Depreciation) x (2/useful life)
What is the formula for calculating units-of-production depreciation?
(Cost - residual value) x (actual production this period/estimated total production)
Which of the following may lead to a revision of an estimate of a company's depreciation expense?
Extraordinary repairs that significantly extend the asset's usefulness
A change in the estimated useful life
A change in the estimated residual value
Straight-line depreciatio
Choice, Does the best job of matching the expense with the related revenue when an asset is used evenly over its useful life
Does the best job of matching the expense with the related revenue when an asset is used evenly over its useful life
Units-of-production depreciation
Choice, Is the best method to use when the amount of an asset's use varies significantly from one accounting period to another
Is the best method to use when the amount of an asset's use varies significantly from one accounting period to another
Declining-balance depreciation
Choice, Is the best method to use when an asset is productive in its earliest years but quickly loses its usefulness
Is the best method to use when an asset is productive in its earliest years but quickly loses its usefulness
On January 1, Busy Beaver bought a new industrial lathe for $210,000. It expects to use the lathe for 10,000 hours over the next 5 years and then sell it for $10,000. Busy Beaver used the lathe for 2,000 hours in its 1st year and 2,500 hours in its 2nd year. Using units-of-production, Depreciation Expense will be ______.
greater in the 2nd year since the lathe was used more
On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______.
decrease to assets on the balance sheet
decrease to net income on the income statement
The formula for calculating straight-line depreciation is ______.
(cost - residual value) x (1/useful life)
Dew Drop Inn had net revenue of $117,000 in 2020 and $100,000 in 2021. Its fixed assets were $400,000 at the end of 2019, $380,000 at the end of 2020, and $360,000 at the end of 2021. In which year was the fixed asset turnover ratio better?
2020, because the ratio was higher; 2020 ratio is 0.30 times (= $117,000/((400,000 + 380,000)/2)) which is better than the 2021 ratio of 0.27 times (=$100,000/((380,000 + 360,000)/2)). Higher is better because it means the company was able to generate more revenues from its assets.
The formula for calculating double-declining-balance depreciation equals (Cost -
Accumulated Depreciation) x 2/useful life
True or false: It doesn't matter which depreciation method you use, since all 3 methods calculate the same depreciation expense each year.
False
Which of the following may cause net income to differ among companies?
Depreciation methods
Estimated residual values
Estimated useful lives
Amortizing intangible assets affects the accounting equation by causing ______.
stockholders' equity to decrease
assets to decrease
Both Spam Am Airlines and TWB Airlines used straight-line depreciation for a $20 million jet. Spam Am used an estimated 35 year useful life and TWB Airlines used an estimated 25 year life for its planes but estimated similar residual values. As result of the differences in useful lives, which company will appear more profitable?
Spam Am
On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______.
assets to be overstated
net income to be overstated
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