Question 1

For financial reporting purposes,the gain or loss on the sale of a plant asset is determined by comparing the asset's:

Accepted Answer

For financial reporting purposes, the gain or loss on the sale of a plant asset is determined by comparing the asset's sales price with its book value. Book value is the asset's cost minus accumulated depreciation. Therefore, the book value represents the asset's carrying amount on the company's balance sheet. The sales price is the amount received by the company for the sale of the asset. The gain or loss is calculated by subtracting the book value from the sales price. If the sales price is greater than the book value, a gain is recognized. If the sales price is less than the book value, a loss is recognized.

Question 2

Coca-Cola's famous name printed in distinctive typeface is an example of:

Accepted Answer

A trademark is a type of intellectual property that includes recognizable signs, symbols, or designs, which are used to distinguish products or services from those of other companies. The distinctive Coca-Cola typeface is a registered trademark that identifies the company's products and distinguishes them from similar products made by other companies.

Question 3

The entry to record amortization on a copyright would include:

Accepted Answer

Amortization expense is recognized by debiting the amortization expense account, reflecting the expense associated with the use of the intangible asset (in this case, a copyright) over its useful life. This decreases net income and equity on the income statement.

Question 4

Suffolk Associates sold office furniture for cash of $42,000.The accumulated depreciation at the date of sale amounted to $38,000,and a gain of $18,000 was recognized on the sale.The original cost of the asset must have been:

Accepted Answer

The formula for calculating gain on sale of an asset is:

Gain on Sale = Proceeds from Sale – Book Value of Asset

Book Value = Original Cost – Accumulated Depreciation

From the given information:

Proceeds from Sale = $42,000

Accumulated Depreciation = $38,000

Gain on Sale = $18,000

Substituting the given values in the formula:

$18,000 = $42,000 – Book Value

Book Value = $24,000

Book Value = Original Cost – Accumulated Depreciation

$24,000 = Original Cost – $38,000

Original Cost = $62,000

Therefore, the original cost of the asset must have been $62,000. Option B is the correct answer.

Question 5

Cranston Instrumentation sold a depreciable asset for cash of $150,000.The original cost of the asset was $600,000.Cranston recognized a gain of $22,500 on the sale.What was the amount of accumulated depreciation on the asset at the time of its sale?

Accepted Answer

The amount of accumulated depreciation is found by subtracting the gain and the sale price from the original cost: $600,000 - $22,500 - $150,000 = $427,500. However, this calculation was incorrect. The correct calculation should be: Original Cost ($600,000) - Sale Price ($150,000) + Gain ($22,500) = Accumulated Depreciation. Therefore, the correct accumulated depreciation should be $600,000 - $150,000 - $22,500 = $427,500. My initial explanation contained a calculation error. The correct answer, based on the proper calculation, is not listed among the options provided, indicating a mistake in my response.

Question 6

Intangible assets are assets used in business operations but which:

Accepted Answer

Intangible assets lack physical substance, which means they cannot be touched or seen but still have value to the business. Examples of intangible assets include patents, copyrights, trademarks, and goodwill.

Question 7

International standards require that goodwill:

Accepted Answer

International standards require that goodwill should be capitalized and reviewed annually, and its value should be adjusted if impaired. Goodwill cannot be amortized over a fixed period like other intangible assets because it has an indefinite life. Instead, it is subject to annual impairment testing to determine if its value has been impaired. Therefore, option C is correct. Option A and B are incorrect because goodwill cannot be amortized over a fixed period. Option D is also incorrect because goodwill cannot be expensed immediately.

Question 8

The basic purpose of the matching principle is to allocate the cost of an asset to expense over the years in which the asset contributes to revenue.Current accounting practice does not strictly apply this principle to expenditures for:

Accepted Answer

Expenditures for research and development are not subject to strict application of the matching principle because their future economic benefits are uncertain and difficult to estimate. Therefore, they are generally expensed immediately rather than capitalized and amortized over multiple years.

Question 9

The term net identifiable assets means:

Accepted Answer

Net identifiable assets refer to all assets a company owns minus all its liabilities, encompassing both tangible and intangible assets except for goodwill.

Question 10

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:

Accepted Answer

Goodwill is an intangible asset that represents the excess purchase price paid by a company to acquire another business over and above the net identifiable assets of that business. In other words, it indicates that the company has paid more than the fair market value of the acquired company's tangible assets such as property, plant, and equipment, and identifiable intangible assets such as patents and trademarks. Therefore, the best choice is D.

Question 11

Which of the following would not be amortized?

Accepted Answer

Goodwill is not amortized, but is subject to impairment testing. The other choices, copyright, franchise fee, and patent, are all intangible assets that are typically amortized over their useful lives.

Question 12

Gloucester Associates sold office equipment for cash of $142,000.The accumulated depreciation at date of sale amounted to $138,000,and a gain of $18,000 was recognized on the sale.The original cost of the asset must have been:

Accepted Answer

The original cost of the asset can be calculated by adding the cash received from the sale ($142,000), the accumulated depreciation ($138,000), and subtracting the gain recognized on the sale ($18,000). This gives us $142,000 + $138,000 - $18,000 = $262,000.

Question 13

Lewis Imports sold a depreciable plant asset for cash of $135,000.The accumulated depreciation amounted to $170,000,and a loss of $15,000 was recognized on the sale.Under these circumstances,the original cost of the asset must have been:

Accepted Answer

The original cost of the asset is calculated as: Sale Price + Accumulated Depreciation + Loss on Sale = $135,000 + $170,000 + $15,000 = $320,000.

Question 14

Clark Imports sold a depreciable plant asset for cash of $35,000.The accumulated depreciation amounted to $70,000,and a loss of $5,000 was recognized on the sale.Under these circumstances,the original cost of the asset must have been:

Accepted Answer

The original cost of the asset is calculated by adding the accumulated depreciation and the book value at the time of sale. The book value is the sale price minus the loss. So, $35,000 (sale price) + $5,000 (loss) = $40,000 (book value). Adding the accumulated depreciation of $70,000 gives $110,000 as the original cost.

Question 15

The fair market value of Lewis Company's net identifiable assets is $5,000,000.Martin Corporation purchases Lewis' entire business for $5,800,000.Which of the following statements is not correct?

Accepted Answer

The statement about amortization expense is incorrect because goodwill is not amortized over a fixed period of time. Instead, it is tested for impairment annually and written down if necessary.

Question 16

Mayer Instrumentation sold a depreciable asset for cash of $300,000.The original cost of the asset was $1,200,000.Mayer recognized a gain of $45,000 on the sale.What was the amount of accumulated depreciation on the asset at the time of its sale?

Accepted Answer

The amount of accumulated depreciation is found by subtracting the gain and the cash received from the original cost of the asset. So, $1,200,000 - $45,000 - $300,000 = $855,000. However, there was a mistake in my calculation. The correct calculation should be: Original cost ($1,200,000) - Sale price ($300,000) + Gain ($45,000) = Accumulated Depreciation. Therefore, $1,200,000 - $300,000 - $45,000 = $855,000, which does not match any of the provided options, indicating a mistake in my initial explanation. The correct approach to find the accumulated depreciation is to subtract the cash received and the gain from the original cost: $1,200,000 (original cost) - $300,000 (cash received) - $45,000 (gain) = $855,000. However, this calculation was incorrect. The correct calculation is: Original cost - (Cash received - Gain) = Accumulated Depreciation. Therefore, the correct accumulated depreciation should actually be calculated as follows: Original cost ($1,200,000) - (Sale price ($300,000) - Gain ($45,000)) = Accumulated Depreciation. This means the correct formula and answer were not properly identified in my response. The correct answer, based on the proper calculation, is: $1,200,000 - $300,000 + $45,000 = $945,000, which matches option A.

Question 17

The gain on the disposal of equipment is recognized when:

Accepted Answer

The gain on the disposal of equipment is recognized when the book value of the equipment is less than the value received. This occurs when the sale price received for the equipment is greater than its carrying (book) value on the company's balance sheet.

Question 18

Expenditures for research and development intended to lead to new products of commercial value:

Accepted Answer

Expenditures for research and development are considered to be expenses and should be charged to expense when incurred. This is because it is difficult to determine the future economic benefits that will be derived from such expenditures. As such, they are not recognized as assets and cannot be capitalized.

Question 19

The legal life of most patents is:

Accepted Answer

The legal life of most patents is 20 years from the date of filing.

Question 20

All of the following may be considered intangible assets except:

Accepted Answer

Accounts receivable are not considered intangible assets, but rather they are part of a company's current assets. Intangible assets are assets that do not have physical substance and can include things like copyrights, franchises, and goodwill.

Quiz 9: Plant and Intangible Assets