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Exam 7: Long-Term Assets

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Question 1

True/False

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The CEO,as head of the company,is ultimately responsible for the firm's accounting.

A) True
B) False

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Question 2

Multiple Choice

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An exclusive 20-year right to manufacture a product or to use a process is a:

A) Patent.
B) Copyright.
C) Trademark.

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

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Question 3

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The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000.The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000.Longhorn paid Cattleman's $95,000 to acquire it.Longhorn should record goodwill on this purchase of:

The franchisee's initial fee is recorded as an expense on the income statement.The franchisee's initial fee is recorded as an intangible asset and then expensed over the life of the franchise agreement.

Which of the following subsequent expenditures would not be capitalized?

Landon Co.purchased a $500,000 tract of land that is intended to be the site of a new office complex.Landon incurred additional costs and realized salvage proceeds as follows: What would be the capitalized cost of the land? $\begin{array} { | l | c | } \hline \text { Demolition of existing building on site } & \$ 75,000 \\\hline \text { Legal and other fees to close esc row } & 15,000 \\ \text { Proceeds from sale of demolition scrap } & 10,000 \\\hline\end{array}$

When a firm develops a trademark internally through advertising,it does not record the advertising costs as an intangible asset,but rather expenses them in the income statement.

Which of the following intangible assets may or may not be amortized depending on whether it has a finite or an indefinite life?

A machine has a cost of $15,000,an estimated residual value of $3,000,and an estimated useful life of four years.The machine is being depreciated on a straight-line basis.At the end of the second year,what amount will be reported for accumulated depreciation?

Accumulated Depreciation is a liability account that is increased by credits.Accumulated Depreciation is a contra-asset account;it reduces an asset account.

Profit margin is net income divided by net sales.

Impairment occurs when the future cash flows generated for a long-term asset fall below its fair value.Impairment occurs when the future cash flows generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

Berry Co.purchases a patent on January 1,2018,for $40,000 and the patent has an expected useful life of five years with no residual value.Assuming Berry Co.uses the straight-line method,what is the carrying value of the patent on December 31,2019?

Woods Company made an ordinary repair to a delivery truck at a cost of $500.Woods' accountant debited the asset account,Equipment.Was this treatment an error,and if so,what will be the effect on Woods' financial statements?

Costello Company purchased a computer that cost $10,000.It had an estimated useful life of 5 years and no residual value.The computer was depreciated by the straight-line method and was sold at the end of the second year of use for $5,000 cash.Costello should record:

The legal life of a patent is:

Morgan Pharmaceutical spends $50,000 this year in research and development for a new drug to cure liver damage.By the end of the year,management feels confident that the new drug will gain FDA approval and lead to higher future sales.What impact will the $50,000 spending have on this year's financial statements?

Which of the following amortization methods is most commonly used?

We expense internally generated intangible assets,such as research and development and advertising costs,as we incur them.

Which of the following would be recorded as land improvements?