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Exam 7: Long-Term Assets

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Question 31

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Research and development costs should be:

A) Expensed in the period incurred.
B) Expensed in the period they are determined to be unsuccessful.
C) Deferred pending determination of success.
D) Expensed if unsuccessful,capitalized if successful.

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

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Question 32

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Management must review long-term assets for impairment when events or changes in circumstances indicate that book value might not be recoverable.

A) True
B) False

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Question 33

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ACME Drilling is evaluating an offshore oil-drilling platform for possible impairment.They estimate the following: book value,$18.5 million;fair value,$12 million;sum of estimated future cash flows generated from the oil drilling platform,$16 million.What amount of impairment loss,if any,should they record?

A trademark is a word,slogan,or symbol that distinctively identifies a company,product,or service.

The replacement of a major component increased the productive capacity of equipment from 10 units per hour to 18 units per hour.The expenditure for the replacement component should be debited to:

The service life of an asset is always equal to the full life of the asset.

Landon Co.purchased a $500,000 tract of land that is intended to be the site of a new office complex.Landon incurred additional costs and realized salvage proceeds as follows: What would be the capitalized cost of the land?

Accounting for impairment losses:

When a change in estimate is required,the company changes depreciation in prior,current and future years.

Most companies use straight-line amortization for intangibles and credit the amount of amortization to the intangible asset account itself rather than to Accumulated Amortization.

Nate's Hot Dogs exchanges long-term assets with Lizzy's Lemonade.Nate receives a delivery truck and gives up a piece of machinery.The fair value and book value of the machinery were $27,000 and $25,000 (original cost of $35,000 less accumulated depreciation of $10,000),respectively.Since the delivery truck was worth $32,000,Nate paid an additional $5,000 in cash to Lizzy.Record the exchange for Nate's Hot Dogs.

Mountainview Resorts purchased equipment for $40,000.Residual value at the end of an estimated four-year service life is expected to be $8,000.The machine operated for 2,200 hours in the first year and the company expects the machine to operate for a total of 10,000 hours over its four year life.Calculate depreciation expense for the first year using each of the following depreciation methods: (1)straight-line, (2)double-declining-balance,and (3)activity-based.

Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life.

Taco Hut purchased equipment on May 1,2015,for $15,000.Residual value at the end of an estimated 8 year service life is expected to be $3,000.Calculate depreciation expense using the straight-line method for 2015 and 2016,assuming a December 31 year-end.

We record a gain if we sell an asset for less than book value.

Which depreciation method is most common for financial reporting? Which depreciation method is most common for tax reporting? Why do companies choose these methods?

We expense internally generated intangible assets,such as research and development and advertising costs,as we incur them.

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits.

We use the term capitalize to describe recording an expenditure as an expense.

Many intangible assets are not recorded on the balance sheet at their estimated market values.