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Exam 7: Long-Term Assets

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Question 71

Multiple Choice

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Wilson Inc.owns equipment for which it originally paid $70 million and has recorded accumulated depreciation on the equipment of $12 million.Due to adverse economic conditions,Wilson's management determined that it should assess whether an impairment should be recognized for the equipment.The estimated future cash flows to be provided by the equipment total $60 million,and its fair value at that point totals $50 million.Under these circumstances,Wilson:

A) Would record no impairment loss on the equipment.
B) Would record an $8 million impairment loss on the equipment.
C) Would record a $20 million impairment loss on the equipment.

D) A) and B)
E) A) and C)

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Question 72

Multiple Choice

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The balance sheet of Purdy's BBQ reports total assets of $800,000 and $900,000 at the beginning and end of the year,respectively.Net income and sales for the year are $85,000 and $1,700,000,respectively.What is Purdy's profit margin?

A) 5%.
B) 10%.
C) 20%.

D) A) and B)
E) A) and C)

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Question 73

True/False

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A copyright is an exclusive right of protection given to the creator of a published work such as a song,film,painting,photograph,book,or computer software.

We record a gain if we sell an asset for less than book value.We record a gain if we sell an asset for more than book value.

Intangible assets with an indefinite useful life (goodwill and most trademarks)are not amortized.

Depreciation in accounting is the process of allocating to expense the cost of an asset over its service life.

Aspen,Inc.developed a new horse transport device and incurred research and development costs of $250,000.Rather than continue with their own research,Aspen decided to purchase a patent for a similar design from Vail,Inc.for $350,000.What are the total assets and expenses for these developments?

We record a long-term asset at its cost less all expenditures necessary to get the asset ready for use.We record a long-term asset at its cost plus all expenditures necessary to get the asset ready for use.

Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash.They also incurred a shipping cost of $400 to get the equipment to its factory.The fair value of this equipment is $7,000.For what amount should Bad Brads BBQ record the equipment?

Alliance Products purchased equipment that cost $120,000.It had an estimated useful life of four years and no residual value.The equipment was depreciated by the straight-line method and was sold at the end of the third year of use for $25,000 cash.Alliance should record:

Kansas Enterprises purchased equipment for $60,000 on January 1,2018.The equipment is expected to have a five-year life,with a residual value of $5,000 at the end of five years.Using the straight-line method,depreciation expense for 2018 would be:

Which of the following intangible assets is not amortized?

The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year,respectively.The return on assets for the year is 10%.What is Hidden Valley's net income for the year?

If a firm successfully defends an intangible right,it should expense the litigation costs as incurred.If a firm successfully defends an intangible right,it should capitalize the litigation costs and amortize them over the remaining useful life of the related intangible.

Management must review long-term assets for impairment when events or changes in circumstances indicate that book value might not be recoverable.

Productive assets that are physically used up or depleted are:

Which of the following subsequent expenditures would be capitalized?

Which of the following subsequent expenditures would not be capitalized?

The following financial information is from Cook Company: What is the total amount of property,plant,and equipment assuming the accounts above reflect normal activity? $\begin{array} { | l | r | } \hline \text { Accounts Payable } & \$ 55,000 \\\hline \text { Land } & \$ 90,000 \\\hline \text { Inventory } & \$ 10,500 \\\hline \text { Accounts Receivable } & \$ 7,500 \\\hline \text { Equipment } & \$ 8,000 \\\hline \text { Deferred Revenue } & \$ 58,500 \\\hline \text { Short-term Investments } & \$ 20,000 \\\hline \text { Notes Receivable (due in 8 months) } & \$ 45,500 \\\hline \text { Interest Payable } & \$ 2,000 \\\hline \text { Patents } & \$ 75,000 \\\hline\end{array}$

Kansas Enterprises purchased equipment for $60,000 on January 1,2018.The equipment is expected to have a five-year life,with a residual value of $5,000 at the end of five years.Using the double-declining balance method,depreciation expense for 2019 would be: