Financial Accounting Depreciation Multiple Choice Questions Homework Help
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1) Lennon Company purchased a depreciable asset for $200,000. The estimated salvage value is $10,000, and the estimated useful life is 10,000 hours. Lennon used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?
2) Bigbie Company purchased a depreciable asset for $600,000. The estimated salvage value is $30,000, and the estimated useful life is 10,000 hours. Bigbie used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?
3) Starr Company purchased a depreciable asset for $150,000. The estimated salvage value is $10,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?
4) The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser’s patented products should be
A. charged off in the current period.
B. amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.
C. amortized over the legal life of the purchased patent.
D. added to factory overhead and allocated to production of the purchaser’s product.
5) Costs incurred internally to create intangibles are
B. expensed only if they have a limited life.
C. capitalized if they have an indefinite life.
D. expensed as incurred.
6) Factors considered in determining an intangible asset s useful life include all of the following EXCEPT
A. the expected use of the asset.
B. the amortization method used.
C. any legal or contractual provisions that may limit the useful life.
D. any provisions for renewal or extension of the asset s legal life
7) Fleming Corporation acquired Out-of-Sight Products on January 1, 2008 for $4,000,000, and recorded goodwill of $750,000 as a result of that purchase. At December 31, 2008, the Out-of-Sight Products Division had a fair value of $3,400,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $2,900,000 at that time. What amount of loss on impairment of goodwill should Fleming record in 2008?
A. $ -0-
8) Mining Company acquired a patent on an oil extraction technique on January 1, 2006 for $5,000,000. It was expected to have a 10 year life and no residual value. Mining uses straight-line amortization for patents. On December 31, 2007, the expected future cash flows expected from the patent were expected to be $600,000 per year for the next eight years. The present value of these cash flows, discounted at Mining s market interest rate, is $2,800,000. At what amount should the patent be carried on the December 31, 2007 balance sheet?
9) General Products Company bought Special Products Division in 2006 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2007, the fair value of Special Products Division is $2,000,000 and it is carried on General Product s books for a total of $1,700,000, including the goodwill. An analysis of Special Products Division s assets indicates that goodwill of $200,000 exists on December 31, 2007. What goodwill impairment should be recognized by General Products in 2007?
10) Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some “negative goodwill.” Proper accounting treatment by Easton is to report the amount as
A. an extraordinary gain.
B. paid-in capital.
C. part of current income in the year of combination.
D. a deferred credit and amortize it.
11) Purchased goodwill should
A. be written off as soon as possible against retained earnings.
B. be written off by systematic charges as a regular operating expense over the period benefited.
C. be written off as soon as possible as an extraordinary item.
D. not be amortized.
12) The intangible asset goodwill may be
A. capitalized only when purchased.
B. capitalized only when created internally.
C. capitalized either when purchased or created internally.
D. written off directly to retained earnings.
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13) If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information EXCEPT
A. a general description of the financing arrangement.
B. the terms of any equity security issued or to be issued.
C. the terms of the new obligation incurred or to be incurred.
D. the number of financing institutions that refused to refinance the debt, if any.
14) Which of the following items is a current liability?
A. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months.
B. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.
C. Bonds due in three years.
D. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.
15) Which of the following statements is false?
A. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing.
B. Under the cash basis method, warranty costs are charged to expense as they are paid.
C. Cash dividends should be recorded as a liability when they are declared by the board of directors.
D. FICA taxes withheld from employees’ payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.
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