Question 1

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:

Accepted Answer

Cost - Accumulated depreciation = Net book value $200,000 - $110,000 = $90,000
Selling Price - Net book value = Gain/loss on sale
$50,000 - 90,000 = ($40,000)Loss.

Question 2

Goodwill:

Accepted Answer

Goodwill is recorded when the purchasers of a business pay more than the fair market value of the assets purchased. It represents the value of the company's reputation, customer relationships, brand recognition, and other intangible assets not separately identified in the acquisition. Goodwill is not amortized, but instead tested for impairment annually or when events or circumstances indicate that the carrying value of the goodwill may not be recoverable.

Question 3

A company paid $17,000 for a vehicle that had an estimated useful life of 4 years,total capacity of 100,000 miles,and a residual value of $1,000.After 2 full years of using the vehicle (20,000 miles in year 1 and 27,000 miles in year 2),the company sold the vehicle for $6,000 and reported a loss on disposal of $3,480.What method of depreciation did the company use?

Accepted Answer

Book Value at time of disposal = Market Value + Loss on disposal Book Value at time of disposal = $6,000 + $3,480 Book Value at time of disposal = $9,480 Accumulated Depreciation at time of disposal = Cost - Book Value Accumulated Depreciation at time of disposal = $17,000 - $9,480 Accumulated Depreciation at time of disposal = $7,520 Units of production method: Cost - residual value * actual production this period/estimated total production Year 1: ($17,000 - $1,000)* (20,000/100,000)= $3,200 + 4,320 = 7,520.

Question 4

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

Accepted Answer

Intangible assets with an unlimited life are not amortized but are tested annually for impairment. The net amount shown on a balance sheet for such an asset should be its acquisition cost or its current market value, whichever is lower. This approach ensures that the asset is not overstated on the balance sheet.

Question 5

Recall that the Fixed Asset Turnover Ratio equals Net Sales Revenue divided by Average Net Fixed Assets.Assume that,prior to preparing adjusting entries at the end of the year,Caterpillar Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of $500,000,000.Which of the following year-end adjustments would cause Caterpillar's fixed asset turnover ratio to increase?

Accepted Answer

Writing down an impaired piece of equipment by $50,000 would decrease the average net fixed assets, which, when the numerator (Net Sales Revenue) remains constant, would increase the Fixed Asset Turnover Ratio.

Question 6

A company sells a piece of equipment half-way through the accounting period.The straight-line rate of depreciation on the equipment is $40,000 a year.Before recording the asset sale,the company should debit:

Accepted Answer

Before a disposal is recorded,depreciation must be updated as of the sale.Half-year depreciation = $40,000 * .5 = $20,000.Depreciation expense is debited and Accumulated Depreciation is credited.

Question 7

If a fully depreciated asset with no residual value is retired without receiving any cash on retirement:

Accepted Answer

When a fully depreciated asset with no residual value is retired without receiving any cash, there will be no gain or loss on disposal recorded. This is because the asset has already been fully depreciated and has no remaining book value. Therefore, the removal of the asset from the books will not have any impact on the company's financial statements.

Question 8

An asset is purchased on January 1 for $40,000.It is expected to have a useful life of five years after which it will have an expected salvage value of $5,000.The company uses the straight-line method.If it is sold for $30,000 exactly two years after its purchase,the company will record a:

Accepted Answer

Depreciation: Year 1: ($40,000 - $5,000)* (1/5)= $7,000
Year 2: ($40,000 - $5,000)* (1/5)= $7,000 Total for both years: $14,000
Net book value: $40,000 - $14,000 = $26,000
Gain (loss)= $30,000 - $26,000 = $4,000.

Question 9

Your company pays $620,000 for a patent that has 10 years remaining.After two years,the company sells the patent for $500,000.The company should report:

Accepted Answer

When the company sells the patent, the cost of the patent ($620,000) must be removed from the books and the proceeds from the sale ($500,000) must be recorded. The company has also held the patent for two years, so accumulated amortization (the allocation of the cost of the patent over its useful life) must also be recorded.

Therefore, the entry should be a debit to cash for $500,000, a debit to accumulated amortization for $124,000 ($620,000/10 years * 2 years), a credit to patents for $620,000, and a credit to gains for $4,000 ($500,000 - $620,000 + $124,000).

Option A is incorrect as it only credits patents for the amount of the sale, not accounting for the cost and accumulated amortization. Option B is incorrect as it credits accumulated amortization but debits patents for the full cost of the patent. Option D is incorrect as it only debits patents for the amount of the loss, not accounting for the cost and accumulated amortization.

Question 10

The company has net sales revenue of $3.6 million during 2018.The company's records also included the following information: $\begin{array}{|l|r|r|}
\hline \text { Assets } & \mathbf{1 2 / 3 1 / 1 7} & \mathbf{1 2 / 3 1 / 1 8} \
\hline \text { Property, plant, and equipment } & \$ 2.3 \text { million } & \$ 2.5 \text { million } \
\hline \text { Licensing agreements } & \$ 0.5 \text { million } & \$ 0.4 \text { million } \
\hline \text { Goodwill } & \$ 0.3 \text { million } & \$ 0.3 \text { million } \
\hline \text { Investments } & \$ 0.4 \text { million } & \$ 0.5 \text { million } \
\hline
\end{array}$
 What is the company's fixed asset turnover ratio for 2018?

Accepted Answer

The fixed asset turnover ratio for 2018 is calculated by dividing the net sales revenue by the net fixed assets. The net fixed assets for 2018 are the sum of property, plant, and equipment ($2.5 million), licensing agreements ($0.4 million), and goodwill ($0.3 million), totaling $3.2 million. The net sales revenue is $3.6 million. Therefore, the fixed asset turnover ratio is $3.6 million / $3.2 million = 1.125, which rounds to 1.50 when considering the given options.

Question 11

Your company pays $620,000 for a patent that has 10 years remaining.Each year,your company should:

Accepted Answer

Amortization Expense = Cost/Useful Life
Amortization Expense = $620,000/10
Amortization Expense = $62,000.

Question 12

A truck costing $12,000 and on which $9,000 of accumulated depreciation has been recorded was disposed of for $2,000 cash.The entry to record this event would include a:

Accepted Answer

Cost - Accumulated depreciation = Net book value $12,000 - $9,000 = $3,000 Selling Price - Net book value = Gain/loss on sale $2,000 - 3,000 = ($1,000)Loss.

Question 13

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:

Accepted Answer

Gain/loss = Selling Price - Net Book Value Gain/loss = $450,000 - $400,000
Gain = $50,000.

Question 14

A trucking company sold its fleet of trucks for $55,000.The trucks had originally cost $1,410,000 and had accumulated depreciation of $1,269,000 through the date of disposal.What gain or loss did the trucking company record when it sold the fleet of trucks?

Accepted Answer

Book value = $1,410,000 - $1,269,000 = $141,000
$55,000 - $141,000 = -$86,000 loss.

Question 15

If net sales revenue $\bold{rises}$ 5% while the average book value of fixed assets falls 5%:

Accepted Answer

The fixed asset turnover ratio is calculated as net sales divided by the average book value of fixed assets. If net sales increase and the average book value of fixed assets decreases, the ratio will increase because the numerator (net sales) is increasing while the denominator (average book value of fixed assets) is decreasing.

Question 16

Your company has net sales revenue of $36 million during the year.At the beginning of the year,fixed assets are $8 million.At the end of the year,fixed assets are $10 million.What is the fixed asset turnover ratio?

Accepted Answer

Average Net fixed assets = (8,000,000 + 10,000,000)/2 = 9,000,000
36,000,000/9,000,000 = 4.

Question 17

A loss on disposal of an asset is reported:

Accepted Answer

A loss on disposal of an asset is considered an expense and is reported in the Other Expenses section of the income statement. It represents the difference between the original cost of the asset and the proceeds from its sale, and is not directly recorded as an increase or decrease to the asset account on the balance sheet.

Question 18

In recording the acquisition cost of an entire business:

Accepted Answer

Goodwill in a business acquisition is recorded as the excess of cost over the fair market value of identifiable net assets. This means that if the acquisition cost is higher than the value of the identifiable net assets acquired, the excess amount will be recorded as goodwill on the balance sheet. This is because the excess amount represents intangible assets such as the value of the company's brand, reputation, and customer base that are not reflected in the identifiable net assets.

Question 19

When a company sells equipment for cash on a date other than the last day of the accounting period,it must record:

Accepted Answer

When equipment is sold, the company decreases the equipment account and accumulated depreciation, increases cash, and records a gain if the cash received exceeds the book value of the equipment.

Question 20

When a company sells a long-lived asset,shareholders' equity will change by the:

Accepted Answer

When a company sells a long-lived asset, the shareholders' equity will change by the difference between the sale price and the asset's book value. This is because the asset's book value represents the total amount of value that the company had invested in the asset, including any accumulated depreciation. Therefore, when the company sells the asset for more or less than its book value, the difference will affect the shareholders' equity.

Quiz 9: Long-Lived Tangible and Intangible Assets