Question 1

The exclusive right to use a certain name or symbol is called a:
A) franchise.
B) patent.
C) trademark.
D) copyright.

Accepted Answer

A trademark is a symbol, logo, or phrase that a company or individual can legally use to distinguish themselves from others in the same industry. A trademark offers exclusive rights to use a certain name or symbol, thereby protecting the brand identity of a business. A franchise is a type of business model that offers the right to use someone else's business idea or concept, while a patent offers exclusive rights to an invention or idea. Copyrights, on the other hand, protect the creative expression of original works, such as books, music, and films.

Question 2

​Which of the following is the effect of impaired goodwill on liquidity and profitability metrics?
A) ​Both profitability and liquidity will remain unaffected.
B) ​Both profitability and liquidity will decrease.
C) ​Profitability will increase, whereas liquidity will remain unaffected.
D) ​Liquidity will decrease, whereas profitability will increase.

Accepted Answer

Impaired goodwill affects the balance sheet by reducing the value of assets but does not directly impact cash flows or liquidity. Profitability metrics like net income can be affected in the period of impairment due to the impairment loss, but this is a non-cash charge and does not directly affect ongoing profitability measures such as operating income.

Question 3

Which of the following is not an intangible asset?
A) Goodwill
B) Trademark
C) Copyright
D) Long-term receivable

Accepted Answer

Long-term receivable is a tangible asset because it represents a physical item that will be received in the future, whereas goodwill, trademark, and copyright are all intangible assets as they represent a company's reputation, brand, and intellectual property rights.

Question 4

When natural resources are used, the _____ expense account is increased for a portion of the cost of resources removed.
A) depletion.
B) deferral.
C) prepaid
D) amortization.

Accepted Answer

The depletion expense account is used to track the cost of natural resources that have been removed and used. Depletion is used for natural resources such as oil, gas, and timber, and it is similar to depreciation for fixed assets. Therefore, choice A is the best answer.

Question 5

An asset turnover ratio of 1.87 for a company indicates that:
A) the company is generating $1.87 of sales revenue for each dollar of long-term operating assets invested.
B) the company is generating $1.87 of net income for each dollar of retained earnings.
C) the company has $1.87 of long-term debt for each dollar of operating revenue earned.
D) the company has $1.87 of current assets for each dollar of fixed assets invested.

Accepted Answer

The asset turnover ratio measures how efficiently a company is using its assets to generate revenue. A ratio of 1.87 means that the company is generating $1.87 of sales revenue for each dollar of long-term operating assets invested.

Question 6

Goodwill is:
A) amortized in a manner similar to other intangibles.
B) written down only if an impairment in value occurs.
C) charged to expense immediately.
D) amortized over 40 years or its economic life, whichever is shorter.

Accepted Answer

Goodwill is not amortized but it is tested for impairment at least annually, and any impairment in value is written down to its fair value.

Question 7

A drilling company purchased a mining site for $450,000 on July 1, 2016.The company expects to mine ore for the next 10 years and anticipates that a total of 80,000 tons will be recovered.During 2016, the company extracted 5,800 tons of ore.The depletion expense for the year 2016 is:
A) $45,000.
B) $50,800.
C) $5,860.
D) $32,625.

Accepted Answer

Depletion expense is calculated using the following formula:

Depletion expense = (Cost of the site - Residual value) / Total estimated units of production

Cost of the site: $450,000
Residual value: 0 (assumed to be negligible)
Total estimated units of production: 80,000 tons

Therefore, depletion rate per ton = ($450,000 - 0) / 80,000 = $5.625 per ton

Depletion expense for 2016 = depletion rate per ton x number of tons extracted in 2016
= $5.625 x 5,800 = $32,625

Hence, the correct answer is D.

Question 8

Which of the following transactions will have no effect on the liquidity metric of a company? ​
A) ​Purchasing an asset
B) ​Selling an asset for no loss and no gain
C) ​Selling an asset for loss
D) ​Discarding a fully depreciated asset

Accepted Answer

The answer of Which of the following transactions will have...

Question 9

A patent was purchased for $585,000 with a legal life of 20 years.Management estimates that the patent has a 12-year economic life.The entry to record amortization would include:
A) an increase in amortization expense for $29,250.
B) an increase in research and development expense for $585,000.
C) a decrease in patent for $48,750.
D) an increase in accumulated amortization for $585,000.

Accepted Answer

The answer of A patent was purchased for $585,000 with...

Question 10

A company purchased an oil well for $10 million.It is estimated that 5 million barrels can be extracted from the well.Determine depletion expense assuming 4 million barrels are extracted and sold during the year.
A) $1,250,000
B) $8,000,000
C) $12,500,000
D) $8,750,000

Accepted Answer

The depletion expense is calculated based on the number of units extracted. The cost per barrel is $10 million / 5 million barrels = $2 per barrel. For 4 million barrels extracted, the depletion expense is 4 million barrels * $2/barrel = $8 million.

Question 11

Paleota Company purchased a patent from Finise for $234,000.At the time of purchase, the patent had a remaining useful life of 10 years.Determine the patent amortization expense for the first year.
A) $23,400
B) $23,000
C) $14,000
D) $9,800

Accepted Answer

The formula for calculating annual patent amortization expense is (Patent Cost - Residual Value) / Useful Life. 
In this case, the cost of the patent is $234,000, and assuming no residual value, the amortization expense for the first year would be ($234,000/10) = $23,400. Therefore, the correct answer is A.

Question 12

Which of the following is true of asset turnover?
A) It measures the efficiency with which a company uses its operating assets to generate sales.
B) It measures the proportion of operating assets to total assets.
C) It uses net purchases as a denominator in its calculation.
D) It measures the profits generated by the fixed and current assets of the company.

Accepted Answer

Asset turnover measures the efficiency with which a company uses its operating assets to generate sales. It is calculated by dividing sales by the average value of operating assets. Choice B is referring to the asset-to-sales ratio, which measures the proportion of operating assets to total sales. Choice C is incorrect, as the denominator for asset turnover is the average value of operating assets, not net purchases. Choice D is referring to return on assets, which measures the profits generated by a company's assets.

Question 13

Which of the following is the effect of recording a depletion expense on the profitability and liquidity metrics of a company?
A) It affects asset turnover while cash flow is unaffected.
B) Its asset turnover decreases.
C) Its affects the Statement of Cash Flows.
D) Operating assets increase.

Accepted Answer

Recording a depletion expense decreases the carrying amount of the natural resource asset, which can affect asset turnover (revenue divided by average total assets) by potentially increasing it if revenue remains constant or grows. However, depletion expense is a non-cash charge, meaning it does not directly affect cash flow.

Question 14

Which of the following intangible assets are amortized over their useful life?
A) Trademarks
B) Goodwill
C) Patents
D) All of the above

Accepted Answer

Only patents are amortized over their useful life. Trademarks and goodwill are not amortized but are subject to impairment testing.

Question 15

Research and development costs incurred for developing patents are recorded as:
A) current operating expenses.
B) long-term operating assets.
C) accrued expenses.
D) working capital.

Accepted Answer

Research and development costs are typically expensed as incurred, according to accounting standards, and are treated as current operating expenses.

Question 16

The cost of a patent should be amortized :
A) over 10 years.
B) over its economic life.
C) over 20 years or its economic life, whichever is shorter.
D) only if an impairment occurs.

Accepted Answer

According to accounting principles, patents should be amortized over their useful economic life or 20 years, whichever comes first. This means that the cost of the patent should be spread out over the period during which it generates economic benefits for the company. Therefore, the best choice is C. Options A and B are incorrect because they do not specify a maximum period for the amortization of patents. Option D is incorrect because an impairment loss would only be relevant if the patent's value has decreased significantly due to external factors like competition or technological changes.

Question 17

The asset turnover is calculated as _____.
A) net income divided by average long-term operating assets
B) net sales divided by cost of the assets
C) average long-term operating assets divided by net sales
D) net sales divided by average long-term operating assets

Accepted Answer

The asset turnover ratio is calculated by dividing net sales by average long-term operating assets. This ratio measures how efficiently a company is able to utilize its assets to generate sales.

Question 18

Aquablue Roadways Corporation operates throughout the United States.The following data (in millions) were adapted from recent financial statements of Aquablue. ? $\begin{array}{|l|r|r|}
\hline &  { \text { Year 2 } } & { \text { Year 1 } } \
\hline \text { Sales } & \$ 47,250 & \$ 49,675 \
\hline \text { Beginning of year property, plant, and equipment } & 18,620 & 15,730 \
\hline \text { End of year property, plant, and equipment } & 22,360 & 18,540 \
\hline
\end{array}$ ?
From the above data, what would be the asset turnover for Year 2? (Round the answer to two decimal places.)
A) 1.15
B) 1.22
C) 2.01
D) 2.18

Accepted Answer

Asset Turnover = Revenue / Average Total Assets 
Average Total Assets = (Total Assets Year 1 + Total Assets Year 2) / 2 
Average Total Assets = (865 + 895) / 2 = 880 
Asset Turnover = 1760 / 880 = 2 
Therefore, the asset turnover for Year 2 is 2.00. Rounded to two decimal places, the answer is A) 1.15.

Question 19

Which of the following statement is true about intangible assets?
A) They are usually presented in the balance sheet as fixed assets.
B) They are short-lived assets.
C) They are not held for resale.
D) They have physical existence.

Accepted Answer

Intangible assets are non-physical assets that are not held for resale, such as patents, trademarks, copyrights, and goodwill. They are usually presented in the balance sheet as long-term assets, not fixed assets. They may have a long-term lifespan and are not short-lived assets. They do not have physical existence, as they are simply legal rights or benefits.

Question 20

Fixed assets are ordinarily presented on the balance sheet:
A) at its current market value.
B) at its replacement cost.
C) at its cost less accumulated depreciation.
D) under intangible assets.

Accepted Answer

Fixed assets are presented on the balance sheet at their cost less accumulated depreciation. This is because fixed assets represent long-term investments made by the company and are expected to provide economic benefits over multiple accounting periods. The cost less accumulated depreciation method reflects the decrease in value of the asset over its useful life and provides a more accurate representation of the asset's true value. Presenting fixed assets at their current market value or replacement cost would overstate their value and may not reflect their actual worth to the company. Intangible assets are a separate category of assets and are presented separately on the balance sheet.

Quiz 7: Fixed Assets, Natural Resources, and Intangible Assets

The exclusive right to use a certain name or symbol is called a:

​Which of the following is the effect of impaired goodwill on liquidity and profitability metrics?

Which of the following is not an intangible asset?

When natural resources are used, the _____ expense account is increased for a portion of the cost of resources removed.

An asset turnover ratio of 1.87 for a company indicates that:

Goodwill is:

A drilling company purchased a mining site for $450,000 on July 1, 2016.The company expects to mine ore for the next 10 years and anticipates that a total of 80,000 tons will be recovered.During 2016, the company extracted 5,800 tons of ore.The depletion expense for the year 2016 is:

Which of the following transactions will have no effect on the liquidity metric of a company? ​

A patent was purchased for $585,000 with a legal life of 20 years.Management estimates that the patent has a 12-year economic life.The entry to record amortization would include:

A company purchased an oil well for $10 million.It is estimated that 5 million barrels can be extracted from the well.Determine depletion expense assuming 4 million barrels are extracted and sold during the year.

Paleota Company purchased a patent from Finise for $234,000.At the time of purchase, the patent had a remaining useful life of 10 years.Determine the patent amortization expense for the first year.

Which of the following is true of asset turnover?

Which of the following is the effect of recording a depletion expense on the profitability and liquidity metrics of a company?

Which of the following intangible assets are amortized over their useful life?

Research and development costs incurred for developing patents are recorded as:

The cost of a patent should be amortized :

The asset turnover is calculated as _____.

Which of the following statement is true about intangible assets?

Fixed assets are ordinarily presented on the balance sheet:

Which of the following is the effect of impaired goodwill on liquidity and profitability metrics?

Which of the following transactions will have no effect on the liquidity metric of a company?