1. A principal objection to the straight-line method of depreciation is that it ______. (Points: 1)
provides for the declining productivity of an aging asset
ignores variations in the rate of asset use
tends to result in a constant rate of return on a diminishing investment base
gives smaller periodic write-offs than decreasing charge methods
2. Roberts Truck Rental uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the______. (Points: 1)
original cost of the truck.
original cost of the truck less the cash proceeds.
cash proceeds received.
cash proceeds received and original cost of the truck.
3. Composite or group depreciation is a depreciation system whereby (Points: 1)
the years of useful life of the various assets in the group are added together and the total divided by the number of items.
the cost of individual units within an asset group is charged to expense in the year a unit is retired from service.
a straight-line rate is computed by dividing the total of the annual depreciation expense for all assets in the group by the total cost of the assets.
the original cost of all items in a given group or class of assets is retained in the asset account and the cost of replacements is charged to expense when they are acquired.
4. Depreciation is normally computed on the basis of the nearest (Points: 1)
full month and to the nearest cent.
full month and to the nearest dollar.
day and to the nearest cent.
day and to the nearest dollar.
5. On January 1, 2007, the Accumulated Depreciation-Machinery account of a particular company showed a balance of $370,000. At the end of 2007, after the adjusting entries were posted, it showed a balance of $395,000. During 2007, one of the machines which cost $125,000 was sold for $60,500 cash. This resulted in a loss of $4,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2007? (Points: 1)
$85,500
$93,500
$25,000
$60,500
No answer!
Accum Depr’n of Machine Disposed = $125,000 - $4,000 - $60,500 = $60,500
Depreciation Expense = $395,000 – ($370,000 - $60,500) = $89,500
6. 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 (Points: 1)
an extraordinary gain.
part of current income in the year of combination.
a deferred credit and amortize it.
paid-in capital.
7. Purchased goodwill should ______. (Points: 1)
be written off as soon as possible against retained earnings
be written off as soon as possible as an extraordinary item
be written off by systematic charges as a regular operating expense over the period benefited
not be amortized
8. Lynne Corporation acquired a patent on May 1, 2008. Lynne paid cash of $20,000 to the seller. Legal fees of $800 were paid related to the acquisition. What amount should be debited to the patent account? (Points: 1)
$800
$19,200
$20,000
$20,800
$20,000 + $800 = $20,800
9. Maris Corporation acquired a patent on May 1, 2008. Maris paid cash of $25,000 to the seller. Legal fees of $1,000 were paid related to the acquisition. What amount should be debited to the patent account? (Points: 1)
$1,000
$24,000
$25,000
$26,000
$25,000 + $1,000
10. Jeff Corporation purchased a limited-life intangible asset for $120,000 on May 1, 2006. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008? (Points: 1)
$ -0-
$24,000
$32,000
$36,000
$120,000 x 2.66667 / 10 = $32,000
11. Rich Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2006. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008? (Points: 1)
$ -0-
$36,000
$48,000
$54,000
$180,000 x 2.66667 / 10 = $48,000
12. ELO Corporation purchased a patent for $180,000 on September 1, 2006. It had a useful life of 10 years. On January 1, 2008, ELO spent $44,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2008? (Points: 1)
$41,200
$40,000
$37,600
$31,200
Patent (Dec 31, 2007) = $180,000 – ($180,000 x 1.3333 / 10) = $156,000
Patent Amort. Exp. (2008) = ($156,000 + $44,000) / 5 = $40,000