Question 1

Your company rents out computers to local businesses and schools.You have 1,000 computers with a net book value of $160,000.As a result of changing technology,your computers are more difficult to rent so you must severely reduce your rental price,which causes a decrease in estimated future cash flows.The fair value of the computers is estimated to be $125,000 because of their outmoded technology.Your company should report an asset impairment loss of:
A)$160,000.
B)$125,000.
C)$35,000.
D)none of the above.

Accepted Answer

Since the fair value of the computers is estimated to be $125,000, and their net book value is $160,000, the company should report an asset impairment loss equal to the difference between these two values, which is $35,000. Therefore, the correct answer is C, $35,000.

Question 2

A company sells a piece of equipment half-way through the accounting period.The straight-line rate of amortization on the equipment is $40,000 a year.Before recording the asset sale,the company should debit:
A)amortization expense for $40,000 and credit long-lived assets for $40,000.
B)accumulated amortization for $40,000 and credit cash for $40,000.
C)amortization expense for $20,000 and credit accumulated amortization for $20,000.
D)cash for $20,000 and credit amortization expense for $20,000.

Accepted Answer

Since the equipment was sold halfway through the accounting period, only half of the annual amortization expense should be recorded before the sale. Therefore, the company should debit amortization expense for $20,000 (half of $40,000) and credit accumulated amortization for $20,000 to record the amortization expense for the first half of the period. Then, the company should debit cash for the amount received from the sale and credit long-lived assets for the original cost of the equipment.

Question 3

Your company pays $620,000 for a patent that has 10 years remaining.Each year,your company should:
A)debit amortization expense for $62,000 and credit accumulated amortization for $62,000.
B)debit intangible assets and credit accumulated amortization for an amount equal to 20% of book value.
C)debit amortization expense for $31,000 and credit intangible assets for $31,000.
D)report no amortization expense because patents are not subject to amortization.

Accepted Answer

The best choice is A because the cost of the patent should be amortized over its remaining useful life, which is 10 years. Therefore, the annual amortization expense is $620,000/10 years = $62,000. The journal entry to record the amortization would be to debit amortization expense for $62,000 and credit accumulated amortization for $62,000. This would continue for each year until the patent's useful life is exhausted.

Question 4

When a company determines that estimated future cash flows from an asset are different from the book value of the asset,it records:
A)an asset impairment gain,if the value of the cash flows exceeds the asset's book value.
B)an asset impairment loss,if the value of the cash flows exceeds the asset's book value.
C)an asset impairment gain,if the asset's book value exceeds the value of the cash flows.
D)an asset impairment loss,if the asset's book value exceeds the value of the cash flows.

Accepted Answer

When a company determines that the estimated future cash flows from an asset are different from the book value of the asset, it records an asset impairment loss if the value of the cash flows is less than the asset's book value. This is because the asset's book value is higher than its expected future cash flows, indicating the asset is worth less than what it is being carried at on the balance sheet. Therefore, the company must reduce the asset's book value to its fair value, resulting in an impairment loss.

Question 5

When a company sells a long-lived asset,shareholders' equity will change by the:
A)amount of the sale.
B)amount of the asset's book value.
C)amount of the asset's accumulated amortization.
D)difference between the sale price and the asset's book value.

Accepted Answer

When a company sells a long-lived asset, shareholders' equity will change by the difference between the sale price and the asset's book value. This is because the company will record a gain or loss on the sale equal to this difference. The amount of the sale (A), the asset's book value (B), and the asset's accumulated amortization (C) do not directly impact shareholders' equity.

Question 6

,the company sold the vehicle for $6,000 and reported a loss on disposal of $3,480.What method of amortization did the company use?
A)Units-of-production method
B)Double-declining-balance method
C)Straight-line method
D)None of the above

Accepted Answer

The answer of ,the company sold the vehicle for $6,000...

Question 7

How does an asset impairment loss impact a company's financial statements?
A)Raise expenses and lower both revenue and net income.
B)Lower assets,shareholders' equity,and net income.
C)Raise expenses and lower net income with no effect on any other items.
D)Raise liabilities and lower shareholders' equity.

Accepted Answer

An asset impairment loss lowers the value of the asset, which in turn reduces the total value of assets on the balance sheet. This also reduces the shareholders' equity, which is calculated as assets minus liabilities. The impairment loss is recognized as an expense on the income statement, which reduces net income. Therefore, the correct answer is B, which states that an impairment loss lowers assets, shareholders' equity, and net income.

Question 8

In recording the acquisition cost of an entire business:
A)goodwill is recorded as the excess of cost over the fair market value of identifiable net assets.
B)assets are recorded at the seller's book values.
C)goodwill,if it exists,is never recorded.
D)goodwill is recorded as the excess of cost over the book value of identifiable net assets.

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 cost of acquiring a business is higher than the fair market value of its identifiable net assets, the difference is recorded as goodwill. This is because goodwill represents the intangible assets of a business, such as brand recognition and customer loyalty, that are not easily quantifiable.

Question 9

The net amount shown on a balance sheet for an intangible asset with an unlimited life should be:
A)the price for which it could be sold.
B)its acquisition cost or current market value,whichever is lower.
C)its purchase price minus accumulated amortization.
D)its purchase price adjusted for inflation.

Accepted Answer

The answer of The net amount shown on a balance...

Question 10

Goodwill:
A)should be treated like most other intangible assets and amortized over a useful life of not more than 40 years.
B)is an accounting measurement of how well a company's employees behave towards the company's customers.
C)should be recorded as a negative value if a company is purchased for less than the net carrying value of its assets.
D)is recorded when the purchasers of a business pay more than the fair market value of the assets purchased.

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 amount the purchaser is willing to pay for the company's reputation, brand recognition, customer loyalty, and other intangible assets. It is not an intangible asset to be amortized over a useful life and should not be recorded as a negative value. It is also not related to how well a company's employees behave towards customers, as that measurement would fall under customer satisfaction or employee performance metrics.

Question 11

Under what circumstance should a company record an asset impairment loss?
A)When residual value is greater than the repairs and maintenance expenses needed to keep the asset.
B)When net book value is less than the residual value of the asset.
C)When accumulated amortization equals the purchase cost of the asset.
D)When net book value is greater than expected future cash flows for the asset.

Accepted Answer

An asset impairment loss should be recorded when the net book value of an asset is greater than the expected future cash flows for the asset. This means that the asset is not worth its carrying value and its value has decreased due to changes in market conditions, technology, or other factors. The impairment loss is the difference between the net book value and the fair value of the asset, and should be recognized in the income statement as a separate line item.

Question 12

A truck costing $12,000 and on which $9,000 of accumulated amortization has been recorded was disposed of for $2,000 cash.The entry to record this event would include a:
A)gain of $1,000.
B)loss of $1,000.
C)credit to the Truck account for $3,000.
D)credit to Accumulated amortization for $9,000.

Accepted Answer

The book value of the truck is calculated by subtracting the accumulated amortization from the cost of the truck: $12,000 - $9,000 = $3,000. Since the truck was sold for $2,000, the company incurred a loss of $1,000 ($2,000 - $3,000 = -$1,000). Therefore, the entry should include a debit to Cash for $2,000, a credit to Truck for $12,000, a credit to Accumulated amortization for $9,000, and a loss on disposal of $1,000.

Question 13

A loss on disposal of an asset is reported:
A)in the Other Revenues section of the income statement.
B)in the Other Expenses section of the income statement.
C)as a direct increase to the asset account on the balance sheet.
D)as a direct decrease to the asset account on the balance sheet.

Accepted Answer

A loss on disposal of an asset is an expense and is therefore reported in the Other Expenses section of the income statement. It does not directly affect the asset account on the balance sheet.

Question 14

When a company sells equipment for cash on a date other than the last day of the accounting period,it must record:
A)amortization expense for the entire accounting period during which the equipment is sold.
B)the disposal by reducing equipment and increasing revenue; a gain or loss is reported if the decrease and increase are not equal.
C)the disposal by decreasing both equipment and accumulated amortization while increasing cash; a gain is reported if total assets increase.
D)accumulated amortization for the entire current accounting period.

Accepted Answer

When equipment is sold, the company must decrease the equipment account and accumulated amortization account, and increase the cash account. If the cash received is more than the book value of the equipment, a gain is reported.

Question 15

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:
A)gain of $6,000.
B)gain of $4,000.
C)loss of $4,000.
D)loss of $6,000.

Accepted Answer

The answer of An asset is purchased on January 1...

Question 16

A trucking company sold its fleet of trucks for $55,000.The trucks had originally cost $1,410,000 and had accumulated amortization 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?
A)Gain of $86,000.
B)Gain of $55,000.
C)Loss of $55,000.
D)Loss of $86,000.

Accepted Answer

The answer of A trucking company sold its fleet of...

Question 17

A company sells a long-lived asset that originally cost $200,000 for $50,000 on December 31,2009.The accumulated amortization 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)$100,000 loss on disposal.
B)$40,000 gain on disposal.
C)$40,000 loss on disposal.
D)$25,000 loss on disposal.

Accepted Answer

The book value of the asset can be calculated as follows:

Original cost - Accumulated depreciation = Book value
$200,000 - $110,000 = $90,000

Since the asset was sold for $50,000, the company incurred a loss on disposal.

Loss on disposal = Book value - Sale price
Loss on disposal = $90,000 - $50,000
Loss on disposal = $40,000

Therefore, the correct answer is C, a $40,000 loss on disposal.

Question 18

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:
A)a debit to cash of $500,000 and a credit to patents of $500,000.
B)a debit to patents of $620,000,a credit to cash of $500,000,and a credit to accumulated amortization of $120,000.
C)a debit to cash of $500,000,a debit to accumulated amortization of $124,000,a credit to patents of $620,000,and a credit to gains of $4,000.
D)a debit to patents of $496,000,a debit to losses of $4,000,and a credit to cash of $500,000.

Accepted Answer

When a patent is sold before the end of its useful life, any gain or loss on the sale is recognized in the income statement. In this case, the patent was sold for $500,000, which is less than its carrying value of $620,000. As a result, the company incurs a loss on the sale of $124,000. The journal entry to record this transaction should include a debit to cash for $500,000, a debit to accumulated amortization for $96,000 ($620,000/10 years x 2 years), a credit to patents for $620,000, and a credit to gains for $4,000 ($500,000 - $620,000 + $96,000 = $-24,000, which rounds up to $-4,000 gain). Therefore, option C is the correct answer.

Question 19

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:
A)a gain,increasing net income and shareholders' equity.
B)revenue,increasing net income and shareholders' equity.
C)cash,increasing assets and shareholders' equity.
D)accumulated amortization,increasing assets and shareholders' equity.

Accepted Answer

The extra $50,000 is a gain on the sale of equipment, which would increase net income and shareholders' equity. This is because the company received more for the equipment than its recorded book value, which is a positive financial outcome. Option B is incorrect because revenue is generated from the sale of goods or services in the normal course of business, while selling equipment is not a core activity for this company. Option C is incorrect because the company did not receive an increase in cash, but rather an increase in its assets (i.e. the gain on the sale of equipment). Option D is incorrect because accumulated amortization would decrease with the sale of equipment, not increase, since it represents the total amount of depreciation applied to the asset over its useful life.

Question 20

If a fully amortized asset with no residual value is retired without receiving any cash on retirement:
A)a gain on disposal will be recorded.
B)amortization must be recorded as though the asset were still on the books.
C)a loss on disposal will be recorded.
D)no gain or loss on disposal will be recorded.

Accepted Answer

Since the asset is fully amortized and has no residual value, its book value is zero. Therefore, retiring it without receiving any cash results in no gain or loss.

Quiz 9: Long-Lived Tangible and Intangible Assets

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

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

When a company determines that estimated future cash flows from an asset are different from the book value of the asset,it records:

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

,the company sold the vehicle for $6,000 and reported a loss on disposal of $3,480.What method of amortization did the company use?

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

In recording the acquisition cost of an entire business:

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

Goodwill:

Under what circumstance should a company record an asset impairment loss?

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

A loss on disposal of an asset is reported:

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

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:

A trucking company sold its fleet of trucks for $55,000.The trucks had originally cost $1,410,000 and had accumulated amortization 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?

A company sells a long-lived asset that originally cost $200,000 for $50,000 on December 31,2009.The accumulated amortization account had a balance of $110,000 after the current year's depreciation of $45,000 had been recorded.The company should recognize a:

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:

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:

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