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Name:___________________________ Number______ Intangibles MULTIPLE CHOICE 1. Which of the following methods is used to amortize intangible assets over their useful lives? a. a declining balance method b. straight line c. annual review for impairment d. intangible assets are not amortized 2. Which of the following characteristics is not common to both tangible and intangible assets? a. held for use and not for investment b. expected life of more than one year c. derive value from the ability to generate revenue d. may have value only to a particular company 3. Which of the following groups would be classified as intangible assets for financial accounting and reporting purposes? a. long-term notes receivable, copyrights, goodwill, and trademarks b. patents, computer software costs, franchises, and trademarks c. computer software costs, research and development costs for internally developed patents, patents, and goodwill d. organization costs, goodwill, costs of employee training programs, and trademarks 4. Which amortization method should be used for intangibles that are amortized? a. a method based on the expected pattern of benefits to be produced by the asset b. a method based on an annual review for impairment c. the straight-line method; all others are inappropriate d. any method is appropriate 5. Costs for which of the following activities should not be included in research and development (R&D)? a. modification of the formulation or design of a product or process b. design of tools, jigs, molds, and dies involving new technology c. design, construction, and testing of preproduction prototypes and models d. trouble-shooting in connection with breakdowns during commercial production ACCO 202 (Asignacin #3) - Prof. Carlos Alvarez 1-1 6. At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have alternative future uses in research and development should be a. capitalized b. charged directly to retained earnings c. included in R&D expense immediately d. charged as a loss from continuing operations 7. Which of the following expenditures cannot be included in R&D costs? a. indirect costs b. intangibles purchased from others c. personnel costs d. contract services performed for others 8. Which of the following research and development costs should always be capitalized? a. costs of intangibles purchased from others b. costs of materials, equipment, and intangibles with alternative future uses purchased from others c. costs of equipment with an expected life greater than three years d. costs of contract services purchased from others 9. During 2016, Rockon Company, Inc. incurred $240,000 in legal fees in defending a patent against an infringement with a carrying value of $2,500,000. Rockon's lawyers were successful with the defense of the patent. The legal fees should be a. expensed in 2016 and classified as ordinary expense b. classified as an extraordinary item on the income statement for 2016 c. capitalized and amortized over the remaining legal life of the patent d. capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter 10. Software production costs related to computer software that is to be sold, leased, or otherwise marketed should be accounted for in which of the following ways: a. all software production costs should be recorded as R&D expense b. all software production costs should be capitalized c. all software production costs should be recorded in R&D expense until technological feasibility is established d. all software production costs should be recorded in R&D expense until the product is available for general release to customers 1-2 11. As a result of FASB Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," most software production costs are likely to be a. expensed as R&D costs b. allocated to inventory and expensed to cost of goods sold when the software is sold c. capitalized and amortized over a 40-year period d. capitalized and amortized over a relatively short period, such as five years 12. Which of the following statements concerning intangibles is true? a. a copyright should be considered an intangible with an indefinite life b. organization costs must be expensed as incurred c. a patent should be amortized over the shorter of the inventor's life or its economic life d. the registration of a trademark or tradename lasts for 20 years and is nonrenewable 13. Concerning computer software to be sold, leased, or otherwise marketed, which of the following costs are inventoriable and thus included in cost of goods sold? a. maintenance and customer support costs b. design, coding, and testing costs incurred before technological feasibility is established c. costs of software developed for internal use d. costs of disks, software duplication, and training materials 14. As computer software is developed that is to be sold, leased, or otherwise marketed, software production costs should be accounted for as follows: Expense up to technological feasibility a. b. c. d. Yes Yes No No Capitalize after general release Yes No Yes No ACCO 202 (Asignacin #3) - Prof. Carlos Alvarez 1-3 15. The cost of a copyright should: a. be amortized over a period not to exceed the life of the author plus 50 years b. be amortized over a period not to exceed 20 years, unless the right is renewed c. not be amortized and the cost should be capitalized as an asset with indefinite life. d. be amortized over a period not to exceed its economic life 16. Trademarks or trade names a. must be renewed every 40 years b. can be considered intangibles with indefinite lives c. are developed internally and thus should not have any related costs capitalized and amortized d. are synonymous with internally developed goodwill BONOS: 17. Which statement regarding goodwill is true? a. goodwill is an unidentifiable intangible asset b. internally developed goodwill should be capitalized while purchased goodwill should be expensed c. goodwill can be defined as the value attached to the ability of a company to earn a higher than normal rate of return on the book value of its identifiable assets d. in some situations, FASB Statement No. 141 requires that negative goodwill be recorded 18. Which of the following is not a required disclosure regarding intangible assets that are amortized for each period a company presents a balance sheet? a. the total cost b. the accumulated amortization c. the amortization expense d. the estimated amortization expense for the next ten years 19. In Able Company's efforts to estimate a value for Baker Company's goodwill, Able is estimating Baker Company's expected future earnings. Able is using Baker's past earnings to project the future earnings. Which of the following items should be eliminated from Baker's past earnings in order to project future earnings? Extraordinary items a. Yes b. Yes c. No 1-4 Amortization expense for identifiable intangibles No Yes Yes d. No No PROBLEM 1. Costs associated with various intangibles of a company may either be expensed when incurred or capitalized and amortized. Such costs might be recorded in any of the following ways: a. b. c. d. charged to the Patent account and amortized charged to the Franchise account and amortized charged to other appropriate asset accounts and amortized or depreciated charged to expense when incurred Required: Indicate how each of the following costs should be recorded by placing the appropriate letter (a through d) in the space provided. ____ 1. Initial fee to acquire a franchise. ____ 2. Design, construction, and testing of preproduction prototypes and models. ____ 3. Legal costs incurred in connection with a successful patent application. ____ 4. Laboratory research aimed at discovery of new knowledge. ____ 5. Cost of purchased equipment that will be used in a series of R&D projects over a ten-year period. ____ 6. Legal costs of the initial incorporation of a business. ____ 7. Cost of a long-term lease of mineral deposits. ____ 8. Annual service fee paid to the franchiser's headquarters for administrative services rendered to the franchisee. ACCO 202 (Asignacin #3) - Prof. Carlos Alvarez 1-5 Name:___________________________ Number______ Depreciation and Depletion MULTIPLE CHOICE 1. Which one of the following statements is not true? a. Depreciation is the process of allocating the purchase price of an asset minus its residual value to expense, for each period benefited by the asset. b. The cost of an asset includes all acquisition costs necessary to obtain the benefits to be derived from the asset. c. The service life of an asset is the measure of the number of years of service expected from the asset before its disposal. d. The residual value of an asset is the difference between the expected book value of the asset at the end of its service and the costs of disposal. 2. The service life of an asset may be measured by all of the following, except a. units of output b. units of activity c. units of input d. units of time 3. Which one of the following is not a factor that limits the service life of an asset? a. operational use b. adequacy c. deterioration as a function of time d. obsolescence 4. Which of the following methods should be used when the expected benefits to be received from an asset will decline each period? a. straight-line b. units-of-production c. sum-of-the-years'-digits d. compound-interest 5. Which depreciation method ignores residual value when computing the depreciable base of an asset? a. sum-of-the-years'-digits b. double-declining-balance c. composite depreciation d. group depreciation ACCO 202 (Asignacin #4) - Prof. Carlos Alvarez 1-1 6. Which depreciation method calculates annual depreciation expense based on the book value of an asset? a. double-declining balance b. sum-of-the-years'-digits c. inventory systems d. group depreciation 7. Which of the following is not a factor in selecting a depreciation method? a. salvage value b. repair and maintenance costs c. inflation d. the risk associated with the cash flows from the asset 8. Which one of the following disclosures is required by generally accepted accounting principles? a. depreciation expense for each major class of asset b. balances of major classes of depreciable assets, by nature or function c. accumulated depreciation on each depreciable asset d. an explanation of why the depreciation method used was selected by management 9. Which one of the following statements is true? a. Financial statement readers cannot determine whether the depreciation method used by a company is appropriate. b. Financial statement readers can determine the useful lives of assets depreciated during the reported period. c. Financial statement readers cannot determine the depreciation expense for the reported period. d. Financial statement readers can accurately estimate the effect an alternative depreciation method would have on income. 10. On January 1, 2016, Homestead Designs purchased some equipment for $19,600. The anticipated life of the equipment was five years and residual value was estimated to be $3,100. The machine was expected to produce 600,000 units. In January, 25,000 units were produced and production was doubled in February. The company uses the activity depreciation method. What is the amount of depreciation expense for the month of February? a. $637.50 b. $1,210.00 c. $2,354.00 d. $1,375.00 1-2 11. A student is defending a certain depreciation method. She uses the argument that repairs and maintenance costs will probably increase as the asset gets older. She also argues that the asset will produce less as it gets older. What depreciation method is she probably defending? a. straight-line b. sum-of-the-years'-digits c. sinking-fund d. Activity 12. A certain asset has an estimated life of 30 years. The denominator for sum-of-the-years'-digits depreciation would be a. 465 b. 930 c. 870 d. 435 13. Keller Industries uses the straight-line depreciation method. One asset had been purchased for $6,000. Annual depreciation expense was $600.00 after considering residual value of $1,000. What was the approximate life of the asset? a. 5.0 years b. 8.3 years c. 9.5 years d. 10.2 years 14. The Clarke Co. acquired a machine on May 1, 2016, at a cost of $60,000. The machine is expected to have a ten-year life and a residual value of $5,000. The estimated lifetime output from the machine is expected to be 55,000 units. Under which of the following depreciation methods would the depreciation charge be the greatest in 2016, if 9,100 units were produced in that year? a. activity (units of output) method b. straight-line method c. sum-of-the-years'-digits method d. double-declining-balance method 15. When a number of low-cost depreciable assets with similar characteristics, service lives, and residual values is acquired, which depreciation method should be used? a. composite depreciation b. replacement depreciation c. group depreciation d. retirement depreciation ACCO 202 (Asignacin #4) - Prof. Carlos Alvarez 1-3 16. Depreciation expense under the inventory system is a. based on cost minus residual value b. basically a FIFO approach to depreciable asset accounting c. the result of applying a depreciation rate to the original cost d. a measure of the change in the value of the depreciable asset BONOS: 17. On July 1, 2016, Underwood Studios purchased camera equipment for $5,000. The estimated life of the equipment was ten years and residual value was estimated to be $2,000. Double-declining-balance depreciation was used. If calculations are based on the nearest whole month, depreciation expense for the year 2018 would be a. $720 b. $900 c. $640 d. $800 18. Depletion of a natural resource is typically recorded as a a. debit to an inventory account b. debit to depletion expense c. debit to cost of goods sold d. debit to accumulated depletion 19. Tangible assets that are attached to natural resources are depreciated over a. the life of the natural resource b. the shorter of the tangible asset's life or the natural resource's life c. the life of the tangible asset d. the longer of the tangible asset's life or the natural resource's life 1-4 PROBLEM 1. The Jason Knife Co. purchased a machine on January 1, 2016. The machine cost $495,000. It had an estimated life of ten years, or 25,000 units, and an estimated residual value of $45,000. In 2016, Jason produced 3,000 units. Required: Compute the depreciation charge for 2016 using each of the following methods: a. b. c. d. double declining balance units of output sum of the years' digits straight line ACCO 202 (Asignacin #4) - Prof. Carlos Alvarez 1-5 How to solve this 3 the procedure checking the boot everybody have this 3 wrong 12. Sansoni Services exchanged an asset with a cost of $20,000 (now 30% depreciated) for a similar asset worth $18,000. Sansoni received $2,000 boot. In the entry to record this exchange, Sansoni should record a. a $6,000 gain b. a $600 gain c. no gain or loss d. a $600 loss 13. Outboard Marina exchanged a boat with a cost of $20,000 (now 75% depreciated) for a similar boat with a current fair value of $7,000. No boot was paid or received. Outboard should record the new boat at a. $ 5,000 b. $15,000 c. $ 7,000 d. $20,000 14. Anoy, Inc., exchanged a truck that cost $30,000 (now 50% depreciated) for a similar truck with an appraised value of $25,000. Anoy paid boot of $6,000. Anoy should record the new truck at a. $25,000 b. $30,000 c. $21,000 d. $31,000 12. Sansoni Services exchanged an asset with a cost of $20,000 (now 30% depreciated) for a similar asset worth $18,000. Sansoni received $2,000 boot. In the entry to record this exchange, Sansoni should record a. a $6,000 gain b. a $600 gain c. no gain or loss d. a $600 loss 13. Outboard Marina exchanged a boat with a cost of $20,000 (now 75% depreciated) for a similar boat with a current fair value of $7,000. No boot was paid or received. Outboard should record the new boat at a. $ 5,000 b. $15,000 c. $ 7,000 d. $20,000 14. Anoy, Inc., exchanged a truck that cost $30,000 (now 50% depreciated) for a similar truck with an appraised value of $25,000. Anoy paid boot of $6,000. Anoy should record the new truck at a. $25,000 b. $30,000 c. $21,000 d. $31,000