Question 1

Land is not depreciated.

Accepted Answer

Land is considered to have an indefinite useful life and therefore is not subject to depreciation.

Question 2

Companies do not amortize indefinite-life intangible assets.What do companies do each year for these assets?

Accepted Answer

Companies with indefinite-life intangible assets report them on the balance sheet and also apply an impairment test annually to determine if the asset has lost value. If impairment is found, they must write down the asset accordingly.

Question 3

Which of the following is NOT a current asset?

Accepted Answer

Land is a fixed asset, not a current asset. Current assets are assets that are expected to be converted to cash within a year or less.

Question 4

The net amount a company expects to collects on Accounts Receivable is equal to ________.

Accepted Answer

The net amount a company expects to collect on Accounts Receivable is equal to gross Accounts Receivable minus Allowance for Doubtful Accounts. Gross Accounts Receivable represents the total amount of money that customers owe to the company. Allowance for Doubtful Accounts is the estimated amount of Accounts Receivable that the company is unlikely to collect. Therefore, the net amount that the company expects to collect is the difference between these two figures.

Question 5

Intangible assets are ________.

Accepted Answer

Intangible assets are assets that lack physical substance and can include items such as patents, copyrights, trademarks, and goodwill. They generally represent rights to future benefits or advantages that are expected to flow to the company as a result of their possession or control of the asset. Intangible assets can have indefinite lives and are not limited to those with definite lives only.

Question 6

Manufacturers have several inventory accounts that do NOT include ________.

Accepted Answer

Construction in Process Inventory is a specific type of inventory account used by construction companies, but it is not commonly used by manufacturers. The other three options (A, B, and C) are commonly used inventory accounts for manufacturers.

Question 7

A unit of ending inventory has a cost of $100 per unit.The selling price per unit is $200.The replacement cost per unit is $90.What value is reported for this inventory on the balance sheet?

Accepted Answer

Under the lower of cost or market rule, inventory is reported on the balance sheet at the lower of its historical cost or market value. In this case, the market value (replacement cost) of $90 is lower than the historical cost of $100, so the inventory is reported at $90.

Question 8

A company's operating cycle can be longer than one year.

Accepted Answer

An operating cycle refers to the time it takes for a company to convert its inventory into cash. This cycle can vary depending on the industry and the specific company's operations. In some cases, it may take longer than one year to complete the cycle, especially for businesses with longer production and sales processes. Therefore, the statement is true.

Question 9

The amortization of intangible assets applies to ________.

Accepted Answer

The amortization of intangible assets applies to intangible assets with definite lives, which can be estimated with reasonable certainty. This includes intangible assets such as patents, copyrights, and trademarks, which have a limited lifespan and can be reliably measured over time. Goodwill and research and development costs are not subject to amortization. Goodwill is instead subject to impairment testing and research and development costs are immediately expensed as incurred. Intangible assets with indefinite lives are also not subject to amortization, but instead are subject to periodic impairment testing.

Question 10

The purpose of depreciation is to ________.

Accepted Answer

Depreciation is the process of allocating the original cost of a fixed asset to the periods that benefit from the use of the fixed asset. It is not used to establish current replacement cost, accumulate funds or set aside cash for replacement.

Question 11

Current assets are expected to be converted to cash or sold or consumed within ________.

Accepted Answer

Current assets are expected to be converted to cash, sold, or consumed either within one year or within the operating cycle, whichever is longer.

Question 12

Accounts receivable is a current asset.

Accepted Answer

Accounts receivable is a current asset as it represents money owed by customers to a company for goods or services sold on credit, which is expected to be collected within one year.

Question 13

Leasehold Improvements do NOT include ________.

Accepted Answer

Leasehold improvements refer to any renovations or modifications made to leased property to make it more functional or suitable for the tenant's business operations. Furniture used at leased property is not considered a leasehold improvement as it is generally movable and not permanently attached to the property. Therefore, option D is not included in leasehold improvements.

Question 14

Which of the following assets is NOT classified as a short-term investment?

Accepted Answer

A checking account balance is a liquid asset that can be easily accessed and used for daily expenses, and therefore it is not typically classified as a short-term investment. Short-term investments typically refer to assets that are held for a short period of time, ranging from a few days to a few months, with the goal of earning a return on investment. Examples of short-term investments include corporate stocks, bonds, and debt securities issued by governments.

Question 15

Details about Property,Plant and Equipment,such as the age of plant assets and the types of plant assets,are typically reported ________.

Accepted Answer

Details about Property, Plant, and Equipment are typically disclosed in a footnote to the financial statements. This footnote provides information about the types of plant assets, the cost of the assets, depreciation methods, depreciation expense, and other relevant information. These details are not reported on the balance sheet, income statement, or statement of cash flows.

Question 16

The Allowance for Bad Debts account is added to the Accounts Receivable account on the balance sheet.

Accepted Answer

The Allowance for Bad Debts account is a contra asset account that is subtracted from the Accounts Receivable account on the balance sheet to reflect the net realizable value of receivables.

Question 17

On a classified balance sheet,the Equipment account is reduced by ________.

Accepted Answer

Equipment is a long-term asset that depreciates over time. Accumulated Depreciation represents the total amount of depreciation taken on the equipment to date, and is subtracted from the original cost of the equipment to arrive at its net book value. Therefore, option C is the correct answer. A and B are related to accounts receivable, while D represents an expense account and not a contra account.

Question 18

Which of the following is NOT a tangible asset?

Accepted Answer

Goodwill is an intangible asset, which represents the non-physical assets of a company such as brand value, reputation, and customer base. The other options (inventories, land, and equipment) are all tangible assets that can be physically touched or seen.

Question 19

Freight and installation costs are added to the cost of equipment.

Accepted Answer

Freight and installation costs are typically added to the cost of equipment when purchasing or ordering it.

Question 20

Goodwill remains on a company's books until ________.

Accepted Answer

Goodwill is not amortized or depreciated like tangible assets. Instead, it remains on the company's books at its purchase price until management conducts an impairment test and determines that its value has decreased, at which point the value of goodwill is written down.

Quiz 16: Understanding Corporate Annual Reports: Basic Financial Statements