Smartbook Chapter 8 PDF

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1. Which of these are long-lived productive assets? (Check all that apply.)

● Delivery equipment ● Machinery

2. Tangible assets are first recorded at all costs to acquire them and prepare

them for use. 3. 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. Reason: One asset increases (computer), while another asset decreases (cash).

4. A company may make an exception to the accounting rules and not capitalize a

long-lived asset if its cost is immaterial 5. The process of allocating the acquisition cost of buildings and equipment over

their productive lives by using a systematic and rational method is termed as depreciation 6. Which of these are major types of long-lived assets?

● Buildings ● Mineral Deposits ● Patents

7. Miss Hap, the bookkeeper, forgot to record the depreciation for the year. This

error will cause: (Check all that apply.) ● assets to be overstated. ● shareholders' equity to be overstated. Reason: Depreciation is recorded with a debit to Depreciation Expense (+E, -SE) and a credit to Accumulated Depreciation (-A). Forgetting the entry, will cause both assets and shareholders' equity to be overstated. 8. 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. Reason: The renovation costs should be capitalized as an asset because the costs will benefit the theater for years to come. The renovation costs will be expensed (depreciated) over the theater's useful life and matched with the related revenues earned by using the theater.

9. Straight-line, units-of-production, and declining-balance are commonly used

depreciation methods. (Enter only one word per blank.) 10. Sunny Sky paid $30,000 cash for piece of land to be used for the new corporate

headquarters building. What is the effect of this transaction on the accounting equation? one asset increases, while another asset decreases

11. The formula for calculating straight-line depreciation is (cost - residual value) x

(1/useful life). 12. In accordance with US Generally Accepted Accounting Principles, which of the

following costs associated with long-lived assets are expensed, not capitalized? (Check all that apply.) ● Interest on loans to purchase the assets ● Immaterial repairs and maintenance ● Ordinary repairs and maintenance

13. Depreciable cost equals an asset's cost minus its residual (or salvage) value. 14. Matching part of the cost of a long-lived asset with the revenues generated by

the asset is depreciation. 15. 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. 16. Which account is credited in a journal entry to record depreciation on machinery?

Accumulated Depreciation 17. What is the formula for calculating units-of-production depreciation?

((Cost-residual value)/estimated total production) x actual production this period 18. Which of these depreciation methods are allowed by GAAP? (Select all that

apply.) ● Units-of-production ● Straight-line ● Declining-balance

19. Which of the following may lead to a revision of an estimate of a company's

depreciation expense? (Check all that apply.) ● Extraordinary repairs that significantly extend the asset's usefulness ● A change in the estimated useful life ● A change in the estimated residual value

20. On January 1, 2018, 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 year ended December 31, 2018 equals $575. Reason: Straight-line depreciation equals $575 or ($2,500 200) x 1/4 years. 21. If a depreciable asset is expected to be used evenly over its useful life, then

management should choose which method? straight-line 22. The asset's book value (or cost minus accumulated depreciation) must equal its

residual (salvage) value at the end of its useful life using which depreciation method? (Select all that apply.) ● Units-of-production ● Double-declining-balance ● Straight-line

23. Which of the following statements are true? (Check all that apply.)

● Depreciation of a truck equals the decline in the estimated usefulness of the truck. ● Impairment loss on an asset arises from a precipitous decline in the current value of the asset.

24. The straight-line depreciation method reports an equal amount of depreciation

expense each year. 25. A company might record an involuntary disposal of an asset if the asset was

seriously damaged in a fire. 26. ((Cost-residual value)/estimated total production) x actual production this period

is the formula for calculating units-of-production depreciation.

27. Squid Roe, Inc.'s $48,000 sushi bar was originally expected to be used for 8

years with no residual value. Depreciation on the bar was $6,000 per year for the past 2 years. In the 3rd year, management changed the estimated life of the bar to be a total of only 6 years instead of 8. What should Squid Roe do? Revise the depreciation expense to be $9,000 for years 3 through 6. 28. Depletion is ______. (Check all that apply.)

● a process used to allocate the cost of natural resources to Inventory as the resource is extracted or harvested ● calculated using the units-of-production method ● in accordance with the matching principle

29. True or false: GAAP require management to select an accelerated depreciation

method if the long-lived asset produces more revenue in its early years than in its later years. False Reason: Although management should select the method that provides the best matching of revenues with expenses, GAAP allow management to choose any one of the methods. 30. Which of the following result in an increase to intangible assets? (Check all that

apply,) ● $10,000 was spent to purchase a patent. ● A company purchased a franchise for $100,000. ● A company purchased another company for $10,000 more than its net assets.

31. When does impairment occur? When the future cash flow expected from

using an asset is less than the asset's book value 32. Why might a company dispose of a long-lived tangible asset? (Check all that

apply.) ● The company doesn't need the asset anymore. ● The asset has reached the end of its useful life. ● The asset was seriously damaged. ● The asset is replaced with a newer, more efficient model.

33. The journal entry to record amortization expense includes a debit to Amortization

Expense.

34. On-a-Roll, Inc. amortizes its copyright of $20,000 over 40 years. Miss Hap, the

bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes: (Check all that apply.) ● assets to be overstated. ● net income to be overstated.

35. Which of these are natural resources that are depleted over time? (Check all that

apply.) ● Timber ● Natural gas wells

36. Intangible assets with unlimited or indefinite lives are not amortized, but

instead are reviewed for impairment. 37. An intangible asset may be recorded only if Purchased. Reason: An intangible

asset may be recorded as an asset if it has been purchased. It does not have to later be sold to be considered an asset. 38. Potients, Inc. amortizes its patents over ten years. The entry to record the

amortization of its patents may include a ______. (Check all that apply.) ● credit to Patents (or Accumulated Amortization) ● debit to Amortization Expense

39. True or false: Assets are reviewed for impairment at least annually. True Reason:

Companies must review their assets for impairment at least once a year so as not to overstate their assets on their statement of financial position. 40. Which of the following financial statement totals are reduced by the adjusting

entry to record amortization? (Check all that apply.) ● Total assets on the statement of financial position ● Total shareholders' equity on the statement of financial position ● Net income on the income statement

41. Exclusive rights to a special name, image or slogan is a Trademark. 42. Trademarks have an unlimited life and hence are not amortized

43. An intangible asset may be recorded when a company ______. (Check all that

apply.) ● purchases a trademark ● pays more than the net assets of the company purchased

44. If a company wants to receive exclusive rights to a manufacturing process, it

should purchase a Patent.

45. Depreciation and impairment are different in that only impairment represents

the decline in the current value of the related asset. Reason: Both depreciation and impairment decrease total assets. Depreciation is a systematic allocation of the depreciable cost of the asset over its estimated life and does not reflect the current value of the asset. Impairment reduces the book value of the asset to its lower current value.

46. GAAP require assets be reviewed for impairment at least once a year. 47. Goodwill is recorded when the amount paid for a company is greater than its

purchased fair value of net assets

48. Intangible assets with unlimited or indefinite lives are not amortized, but

instead are reviewed for impairment. 49. XYZ Co. sold equipment that originally cost $14,000 with accumulated

depreciation of $11,000 for $4,000 cash, resulting in a gain of $1,000. Which of the statements below are correct regarding the treatment of this transaction on the statement of cash flows for the current period? (Check all that apply.) ● $4,000 is a cash inflow in investing activities. ● $1,000 is deducted from operating activities.

50. The sale of its intangible asset, trademark, is considered a(n) investing activity

because the purchase and sale of assets that benefit the company for more than one year are classified as such.

51. Depreciation Expense is added back to net income when preparing the cash flow

from operating activities section because depreciation represents a(n) noncash reduction to net income. Reason: Depreciation Expense decreases net income on the income statement but does not decrease cash from operating activities on the statement of cash flows (no check is written for depreciation expense). Depreciation Expense is a non-cash expense and thus is added back to net income when calculating cash from operating activities. 52. When a company purchases another company at a premium because of the

purchased company's favorable reputation, then the company would record an asset called goodwill. 53. Barclay, Inc. sold equipment that originally cost $30,000 four years ago for

$8,000 cash. The equipment had accumulated depreciation totaling $24,000. How will this transaction be listed in the investing activities section of Barclay's statement of cash flows? Cash inflow of $8,000 54. The sale of property, plant, and equipment results in a cash inflow

(inflow/outflow) to the investing activities section of the statement of cash flows. (Enter one word per blank.) 55. Which of the following statements best describes the reason depreciation

expense is added to net income when preparing the statement of cash flows? Depreciation Expense originally reduced net income, but the expense does not involve paying cash. Reason: Depreciation is a noncash expense that reduced net income. It should be added back to bring net income closer to a cash-based amount....