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Exam 9: Long-Lived Tangible and Intangible Assets

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Question 31

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Match the term and the explanation.Not all explanations will be used.

Premises

Responses

Declining-balance method

Also known as book value.

Long-lived assets

The denominator of the fixed asset turnover ratio.

Net sales revenue

Assets that will be used for more than three years.

Asset impairment loss

A depreciation method that produces higher amounts of depreciation expense in the early years of an asset's life and lower amounts in the later years.

Average net fixed assets

Also known as the average total cost of production.

Carrying value

When a company writes down the value of an asset when estimated future cash flows fall below the original level estimated.

Capitalization of cost

When a company writes down the value of an asset because estimated future cash flows fall below the book value.

Units-of-production method

The process of transferring the cost of long-lived tangible assets to expenses.

Depreciation

How expenses are reported in the income statement.

The cost of financing an asset.

Also known as the initial value or balance forward value.

The average proportion of a company's total assets that is long-lived.

When costs are recorded as assets rather than expenses.

The numerator of the fixed asset turnover ratio.

A depreciation method that spreads asset cost by production rather than time.

Assets that will be used for more than a year.

Premises

Declining-balance method

Long-lived assets

Net sales revenue

Asset impairment loss

Average net fixed assets

Carrying value

Capitalization of cost

Units-of-production method

Depreciation

Responses

Also known as book value.

The denominator of the fixed asset turnover ratio.

Assets that will be used for more than three years.

A depreciation method that produces higher amounts of depreciation expense in the early years of an asset's life and lower amounts in the later years.

Also known as the average total cost of production.

When a company writes down the value of an asset when estimated future cash flows fall below the original level estimated.

When a company writes down the value of an asset because estimated future cash flows fall below the book value.

The process of transferring the cost of long-lived tangible assets to expenses.

How expenses are reported in the income statement.

The cost of financing an asset.

Also known as the initial value or balance forward value.

The average proportion of a company's total assets that is long-lived.

When costs are recorded as assets rather than expenses.

The numerator of the fixed asset turnover ratio.

A depreciation method that spreads asset cost by production rather than time.

Assets that will be used for more than a year.

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Correct Answer

Premises

Responses

Also known as book value.

The denominator of the fixed asset turnover ratio.

Assets that will be used for more than three years.

A depreciation method that produces higher amounts of depreciation expense in the early years of an asset's life and lower amounts in the later years.

Also known as the average total cost of production.

When a company writes down the value of an asset when estimated future cash flows fall below the original level estimated.

When a company writes down the value of an asset because estimated future cash flows fall below the book value.

The process of transferring the cost of long-lived tangible assets to expenses.

How expenses are reported in the income statement.

The cost of financing an asset.

Also known as the initial value or balance forward value.

The average proportion of a company's total assets that is long-lived.

When costs are recorded as assets rather than expenses.

The numerator of the fixed asset turnover ratio.

A depreciation method that spreads asset cost by production rather than time.

Assets that will be used for more than a year.

Premises

Also known as book value.

The denominator of the fixed asset turnover ratio.

Assets that will be used for more than three years.

A depreciation method that produces higher amounts of depreciation expense in the early years of an asset's life and lower amounts in the later years.

Also known as the average total cost of production.

When a company writes down the value of an asset when estimated future cash flows fall below the original level estimated.

When a company writes down the value of an asset because estimated future cash flows fall below the book value.

The process of transferring the cost of long-lived tangible assets to expenses.

How expenses are reported in the income statement.

The cost of financing an asset.

Also known as the initial value or balance forward value.

The average proportion of a company's total assets that is long-lived.

When costs are recorded as assets rather than expenses.

The numerator of the fixed asset turnover ratio.

A depreciation method that spreads asset cost by production rather than time.

Assets that will be used for more than a year.

Responses

Question 32

Multiple Choice

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Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?

A) A smaller fixed asset turnover ratio and a smaller gain on asset disposal.
B) A larger fixed asset turnover ratio and a larger gain on asset disposal.
C) A smaller fixed asset turnover ratio and a larger gain on asset disposal.
D) A larger fixed asset turnover ratio and a smaller gain on asset disposal.

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

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Question 33

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Another name for a tangible long-lived asset is a fixed asset.

The only asset that is assumed to have an indefinite useful life is:

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

The main difference between ordinary repairs and extraordinary repairs is:

A piece of equipment purchased on January 1,2017,for $16,000 was estimated to have a residual value of $4,000 at the end of its three-year useful life.If the equipment was depreciated using the straight-line method and disposed of on December 31,2018,for $5,000,what amount of gain or loss would be reported on the income statement?

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.

In recording the acquisition cost of an entire business:

The MegaHit Film Studio has a licensing right (or agreement) to distribute films produced by the Artsy Film Company.How would the MegaHit Company classify this licensing right on its balance sheet?

The amount of net income will be higher in case of straight line depreciation as compared to double declining method.

At the beginning of 2019,your company buys a $30,000 piece of equipment that it expects to use for 4 years.The company expects to produce a total of 200,000 units.The equipment has an estimated residual value of $2,000. a.Find the depreciable cost. b.Find the depreciation expense per year under the straight-line method. c.Prepare an depreciation schedule under the straight-line method. d.Find the depreciation rate per unit under the units-of-production method. e.Compare the annual depreciation expense using both methods assuming constant annual production. f.Prepare an depreciation schedule under the units-of-production method if 44,000 units are produced in year one,53,000 units in year two,51,000 units in year three,and 52,000 units in year four.

Shaggy Limited purchased a new van on January 1,2018.The van cost $20,000.It has an estimated life of five years and the estimated residual value is $5,000.Shaggy uses the double-declining-balance method to compute depreciation. What is the adjusted balance in the Accumulated depreciation account at the end of 2019?

If net sales revenue and the average book value of fixed assets $\bold{\text{both rise}}$ 5%:

The net amount shown on a balance sheet for an intangible asset with an unlimited life should be:

The fixed asset turnover ratio measures the:

Straight-line depreciation results in,

Match the term and the definition.Not all definitions will be used.

A company sells a long-lived asset that originally cost $200,000 for $50,000 on December 31,2018.The accumulated depreciation account had a balance of $110,000 after the current year's depreciation of $45,000 had been recorded.The company should recognize a:

A book manufacturing company sells equipment for $450,000 when the book value of the equipment is $400,000.The company would record the extra $50,000 as: