Long-Term Assets | Ch8 – Full Test Bank – 2nd Cdn Ed

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Financial Accounting, 2nd Cdn. Ed. (Waybright)

Chapter 8 Long-Term Assets

8.1 Describe the difference between plant assets, intangible assets, and natural resources

1) IFRS uses the term amortization when referring to allocating the cost of intangible assets.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

2) ASPE uses the term amortization to refer to cost allocation of both tangible and intangible assets.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

3) IFRS uses the term depreciation when referring to allocating the cost of property, plant, and equipment.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

4) Plant assets can be called fixed assets or physical assets.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

5) Patents and copyrights represent the rights conveyed to the owners of these tangible assets.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

6) Timber, coal, and other minerals are long-term assets called natural resources.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Application

Blooms: Application

7) The cost of long-term assets must be allocated to an expense as the asset is used up.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Recall

Blooms: Knowledge

8) Patents, goodwill, and trademarks are:

A) amortized.

B) depleted.

C) depreciated.

D) expensed.

E) written off.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Comprehension

9) Buildings, vehicles, and desks are:

A) amortized.

B) depleted.

C) depreciated.

D) expensed.

E) written off.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Comprehension

10) Coal, oil, and timber are:

A) amortized.

B) depleted.

C) depreciated.

D) expensed.

E) written off.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Comprehension

11) Which of the following would NOT be considered an intangible asset?

A) Goodwill

B) Franchise

C) Land

D) Copyright

E) Patent

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Comprehension

12) Which of the following would be considered a natural resource?

A) Corn

B) Livestock

C) Timber

D) Wheat

E) Land

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Comprehension

13) Assets that come from the earth and can ultimately be used up are called ________.

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

14) How are intangible assets different from tangible assets?

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

15) What is another name for assets that cannot be seen, touched, or held?

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

16) What do "other long-term assets" typically consist of?

Diff: 1

LO: 8-1 Describe the difference between plant assets, intangible assets, and natural resources

Skill: Concept

Blooms: Knowledge

8.2 Calculate and record the acquisition of plant assets

1) When determining the cost of a plant asset, both IFRS and Canadian ASPE require the use of the market value principle.

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Recall

Blooms: Knowledge

2) Neither land nor land improvements are depreciated.

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Concept

Blooms: Comprehension

3) Whether a building is purchased or constructed, the same items are used to compute the price of the building.

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

4) Costs of testing the machinery or equipment before it is used would be included in the price of the machinery or the equipment.

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Comprehension

5) The cost of furniture and fixtures, such as desks, chairs, and other items, includes its basic cost plus all other costs to ready the asset for its intended use.

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

6) Which of the following would NOT be considered as part of the cost of land?

A) Survey

B) Realtor commissions

C) Paving

D) Unpaid property taxes on the land

E) Legal fees

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Comprehension

7) Which of the following would be considered part of land improvements?

A) Removal of unwanted building on the land

B) Title transfer fees

C) Paving of the parking lot

D) Surveying fees

E) Legal fees

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Comprehension

8) Which of the following would NOT be a part of land improvements?

A) Paving of the parking lot

B) Installing fences around the property

C) Putting in sidewalks

D) Grading and levelling the land

E) Underground sprinkler system

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Comprehension

9) Which of the following would be included in the cost of a constructed building?

A) Purchase price of the building

B) Payments for material, labour, and overhead

C) Land survey and legal fees

D) Realtor commissions

E) Cost of tearing down old building

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Comprehension

10) Which of the following would NOT be considered as part of the cost of a constructed building?

A) Building permit fees

B) Contractor charges

C) Land survey and legal fees

D) Architectural fees

E) Labour costs for construction of building

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Comprehension

11) To which account should title transfer fees be recorded?

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

12) To which account are repairs and maintenance after start-up recorded?

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

13) Do we record the sales taxes on the purchase of machinery to an asset or expense account? Be specific as to which asset or expense account.

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

14) To which account should the cost of installing fences be recorded?

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

15) Jimmie Company made a basket purchase involving four assets. Their market values were A: $45,000;

B: $37,500; C: $41,000; and D: $53,000. The price Jimmie paid for the four assets was $145,000. To the nearest dollar, what final price will Jimmie record for asset D?

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

16) Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. The amount at which item A should be recorded (rounded to the nearest dollar) is ________.

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

17) A company has installed a piece of machinery for a total of $76,000. In its third month of operation, repairs of $1,300 had to be made on the machine. The $1,300 would be allocated to which account?

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

18) The cost of removing unwanted buildings from land would be allocated to which account?

Diff: 1

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

19) Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. At what amount should item B be recorded?

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

20) Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. At what percentage of purchase price should item C be recorded? At what amount should item C be recorded (rounded to the nearest dollar)?

40% × $125,000 = $50,000

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

21) Joshua Company made a basket purchase involving four assets. Their market values were A: $45,000;

B: $37,500; C: $41,000; and D: $53,000. The price Joshua paid for the four assets was $160,000. What percentage of the $160,000 price would be allocated to asset C to the nearest one-tenth of a percent? What is the dollar amount recorded to asset C?

23.2% × $160,000 = $37,120

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

22) Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000 and a note was signed. What is the journal entry to record this purchase?

B: $55,000 / $150,000 × $125,000 = $45,833

C: $60,000 /$150,000 × $125,000 = $50,000

Debit Asset A 29,167

Debit Asset B 45,833

Debit Asset C 50,000

Credit Notes Payable 125,000

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

23) Ariana Corporation purchased land for $175,000 by signing a note payable. They paid cash as follows: $3,500 in realtor commission, $1,200 in transfer fees, a $1,700 survey fee, $3,200 to have the land graded and levelled, $6,300 for the installation of a fence, and $2,300 for a sprinkler system. Prepare the journal entry required.

Debit Land 184,600

Debit Land Improvements 8,600

Credit Note Payable 175,000

Credit Cash 18,200

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

24) Malinda Enterprises purchased land for $245,000 by signing a note payable for the same amount. The company also paid for the following: $2,500 in realtor commission, $6,400 to remove an old building, $3,300 to have the land fenced, and $2,700 for outdoor lighting. They also purchased machinery for $40,000 cash. Prepare the journal entry required.

Debit Land 253,900

Debit Land Improvements 6,000

Debit Machine 40,000

Credit Note Payable 245,000

Credit Cash 54,900

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

25) Isaiah Industries reported the following costs for land and land improvements:

Calculate the cost of the land showing details of what is included in the calculation.

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

26) Andy Industries is making a basket purchase of 4 items for $550,000 for cash. The current market values of the items are as follows:

Equipment: $133,000

Furniture: $147,000

Trucks: $127,000

Fixtures: $168,000

Calculate to the nearest dollar the amount at which Andy Industries should value each item and write the journal entry for this basket purchase on April 14, 2011.

Equipment: $________

Furniture: $________

Trucks: $________

Fixtures: $________

Furniture: $140,609

Trucks: $121,478

Fixtures: $160,696

Calculations:

$133,000/($133,000 + $147,000 + $127,000 + $168,000) × $550,000 = $127,217

$147,000/($133,000 + $147,000 + $127,000 + $168,000) × $550,000 = $140,609

$127,000/($133,000 + $147,000 + $127,000 + $168,000) × $550,000 = $121,478

$168,000/($133,000 + $147,000 + $127,000 + $168,000) × $550,000 = $160,696

Diff: 2

LO: 8-2 Calculate and record the acquisition of plant assets

Skill: Application

Blooms: Application

8.3 Calculate and record the depreciation of plant assets

1) Depreciation is a process of valuation of an asset.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Concept

Blooms: Knowledge

2) Depreciation is based upon cost, useful life, and salvage value.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Concept

Blooms: Knowledge

3) A plant asset's useful life may be short due to obsolescence.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Concept

Blooms: Comprehension

4) Book value is depreciable cost minus accumulated depreciation.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Concept

Blooms: Comprehension

5) Basing depreciation on a base such as kilometres driven per year would be an example of double-declining balance depreciation.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Concept

Blooms: Comprehension

6) DDB balance is an accelerated method of calculating depreciation where residual value is not part of the initial computation.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

7) Canada Revenue Agency requires that companies calculate the depreciation and amortization of their assets based on a specific depreciation method called capital cost allowance.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

8) CCA rate is used for financial reporting purposes.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

9) A company purchased a computer system on March 1, 2012. Its cost was $35,000 and it had an estimated residual value of $5,000. It was expected to have a useful life for four years. To the nearest dollar, the depreciation for 2012 using straight-line depreciation will be:

A) $8,750.

B) $7,500.

C) $6,250.

D) $5,625.

E) $6,500.

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

10) If an asset generates revenue evenly over time, the depreciation method best suited for this asset would be the:

A) double-declining balance method.

B) straight-line method.

C) units-of-production method.

D) expense method.

E) capitalization method.

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

11) If an asset produces more revenue in its early years, the depreciation method best suited for this asset would be the:

A) expense method.

B) units-of-production method.

C) double-declining balance method.

D) straight-line method.

E) capital cost allowance method.

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

12) The method often used for income tax purposes is the:

A) expense method.

B) units-of-production method.

C) capital cost allowance method.

D) straight-line method.

E) capitalization method.

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

13) Michele Company purchased a piece of equipment for $65,000 with an estimated residual value of $15,000 on January 1, 2012. Its estimated life is 5 years. To the nearest dollar, what is the equipment's depreciation using the double-declining-balance method for 2013?

A) $26,000

B) $20,000

C) $15,600

D) $12,000

E) $15,700

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

14) An asset was purchased on January 1, 2012 at a cost of $50,000. It has a residual value of $10,000 and it has a life of 5 years. Its fourth year of depreciation expense under the double-declining-balance method will be:

A) $7,200.

B) $4,320.

C) $800.

D) $0.

E) $1,000.

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

15) A building was purchased on August 1, 2012 for $450,000. It has a residual value of $38,000 and a useful life of 35 years. To the nearest dollar, how much will the depreciation expense for the building be for 2012 using the double-declining-balance method?

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

16) A company purchased a truck on August 1, 2012 and uses straight-line depreciation. For how many months would the company depreciate the asset in 2012?

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

17) After 4 years, a machine had an accumulated depreciation of $38,000. The machine had an anticipated life of 8 years and a residual value of $5,000. If the current book value after 4 years is $28,000 and the machine has only 2 years of useable life left, how much will be depreciated in Year 5 and in Year 6 using the straight-line method of depreciation, and assuming the residual value is still $5,000?

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

18) Meranda Corporation purchases a machine for $125,000. It has an estimated residual value of $10,000 and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced 14,500 units. To the nearest dollar, the depreciation for the first year under the units of production method will be ________.

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

19) The depreciation method in which the depreciable cost of an asset is apportioned equally over its estimated life in terms of month or years is called the ________.

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

20) A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000 after 120,000 kilometres of service. Using the units-of-production method, what is the first year's depreciation if the van is driven 24,000 kilometres?

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

21) What is the method best suited for depreciating items such as copy machines and vehicles?

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

22) After an asset is fully depreciated, at what amount is the asset kept on the book?

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Recall

Blooms: Knowledge

23) Jillian Company purchased a set of fixtures on January 1, 2012. The cost was $12,000 and the set had a

residual value of $2,000. The fixtures were given a useful life of 8 years. After the end of three years, it was determined that the fixtures would be obsolete in 2 more years. Assume that the estimated residual value is still $2,000. What will be the depreciation under the straight-line method to the nearest dollar for the fourth year? What is the journal entry in the fourth year to record depreciation?

$3,125

Debit Depreciation Expense 3,125

Credit Accumulated Depreciation 3,125

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

24) What is the formula to calculate straight-line depreciation?

Diff: 1

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Recall

Blooms: Knowledge

25) It is determined that a computer's depreciation expense for the year is $3,500. What is the journal entry to record this?

Debit Depreciation Expense/computer $3,500

Credit Accumulated Depreciation $3,500

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

26) A company purchased furniture on January 1, 2012. Its cost was $15,600 and it had a residual value of

$1,600. Its useful life is determined to be 3 years. Using double-declining balance depreciation, record the journal entry to record depreciation expense in 2013.

$15,600 × 2 / 3 = $10,400 in 2012; $(15,600 - $10,400) × 2/3 = $3,467

Debit Depreciation Expense 3,467

Credit Accumulated Depreciation 3,467

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

27) Dimitri Company has a delivery truck that was purchased for $42,000 and has a residual value of $5,000. It expects the truck to last 125,000 kilometres. During Year 1, the truck travelled 32,500 kilometres and during Year 2, the truck travelled 28,500 kilometres. What is the depreciation expense for Year 2 to the nearest dollar using the units-of-production method? (Round to three decimal places to get the unit rate.) Record the journal entry required in year 2 to record depreciation.

$(42,000 - 5,000) / 125,000 × 28,500 = $8,436

Debit Depreciation Expense 8,436

Credit Accumulated Depreciation 8,436

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

28) Tomisa Company has a machine with a cost of $90,000. It has a salvage value of $11,000 and a useful life of 8 years or 75,000 units of production. It was purchased on January 1, 2011. It produced 8,500 units in 2011. To the nearest dollar, what will be the depreciation expense for 2011 using:

A. straight-line depreciation?

B. double-declining-balance depreciation?

C. units-of-production depreciation?

$________ Straight-line depreciation

$________ Double-declining-balance depreciation

$________ Units-of-production depreciation

Straight-line: ($90,000 - $11,000) / 8 = $9,875

Double-declining-balance: $90,000 × (2/8) = $22,500

Units-of-production: [($90,000 — $11,000) / 75,000] × 8,500 = $8,953

Diff: 2

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

29) A truck was purchased on January 2 at a cost of $60,000. It is expected to be used for 5 years and to have a residual value of $5,000 after 120,000 kilometres of service. The truck was driven for 23,000 kilometres the first year and 25,000 kilometres the second year. Calculate the depreciation expense to the nearest dollar for the first and second years.

Diff: 3

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Application

30) On March 31, 2014, TNA corporation purchased equipment for $500,000. This asset had a residual value of $30,000 and a useful life of 10 years. This asset belongs to CCA class 8 and has a CCA rate of 20%. Calculate the CCA for the years 2014, 2015, and 2016.

2015 — ($500,000 - $50,000) × 20% = $90,000

2016 — ($500,000 - $50,000 - $90,000) × 20% = $72,000

Diff: 3

LO: 8-3 Calculate and record the depreciation of plant assets

Skill: Application

Blooms: Knowledge

8.4 Account for repairs to plant assets

1) Expenditures incurred, such as changing the oil and filter on a delivery truck, would be considered ordinary repairs.

Diff: 1

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Application

2) Replacing an engine on a delivery truck would be considered a betterment.

Diff: 1

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Application

3) Ordinary repairs are also called revenue expenditures because the expense is matched against the revenues for the period.

Diff: 1

LO: 8-4 Account for repairs to plant assets

Skill: Recall

Blooms: Knowledge

4) Lubricating a machine on a regular basis would be considered a(n):

A) betterment.

B) capital expenditure.

C) ordinary repair.

D) capital expense.

E) extraordinary repair.

Diff: 1

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Application

5) Replacing the engine of a 3-year-old vehicle would be an example of a(n):

A) extraordinary repair.

B) betterment.

C) ordinary repair.

D) capital expense.

E) revenue expenditure.

Diff: 1

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Application

6) A company replaced an engine on a vehicle and debited the amount to repairs expense, rather than debiting the "vehicle" account. Which of the following would occur because of this error?

A) Repairs Expense would be understated.

B) Net Income would be overstated.

C) The asset "vehicle" would be overstated.

D) The asset "vehicle" would be understated.

E) Shareholders' Equity would be overstated.

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Critical Thinking

Blooms: Application

7) What type of repair extends the useful life of an asset?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Concept

Blooms: Comprehension

8) A vehicle was purchased for $33,000 on January 1, 2009 with an estimated residual value of $4,000 and 5 years of useful life. The company uses the straight-line depreciation method. On July 1, 2011, the engine was overhauled with a cost of $4,000. As a result of the overhaul, it is estimated its residual value would increase by $500 and its useful life would increase by 1.5 years. What is the new depreciation?

Diff: 3

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Application

9) Would adding 30 rooms to an existing hotel be considered a betterment or an extraordinary repair?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Concept

Blooms: Comprehension

10) A company replaced tires on a vehicle and debited the amount to "vehicle" instead of repairs expense. What is the effect on the income statement as a result of this error?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Critical Thinking

Blooms: Application

11) If an extraordinary repair is incorrectly expensed in the current period, what is the effect on the net income for the current period and for future periods?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Critical Thinking

Blooms: Application

12) A company expenses the cost of a betterment by debiting Repair and Maintenance Expense, rather than capitalizing it (debiting an asset). What effect would this error have on the income statement?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Analysis

13) What is the definition of betterments, such as an addition to an existing building?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Recall

Blooms: Knowledge

14) Sorine Industries inadvertently debited a $5,000 betterment as an ordinary expense. What is the balance sheet effect of this mistake in the current year?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Critical Thinking

Blooms: Application

15) Prepare journal entries for the following transactions for Jacob Company.

Sept 2 Replaced the engine in Tractor #1, paying cash, $7,200.

Sept 5 Paid cash for an engine tune-up in Tractor #2, $630.

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Application

16) On September 9, Ariana Company paid $15,300 to purchase a front end loader for its Tractor #2.

What is the journal entry to record this?

Diff: 2

LO: 8-4 Account for repairs to plant assets

Skill: Application

Blooms: Application

8.5 Account for the disposal of plant assets

1) Disposal of a plant asset occurs after the asset has been fully depreciated.

Diff: 1

LO: 8-5 Account for the disposal of assets

Skill: Recall

Blooms: Knowledge

2) When an asset is disposed, the current period's depreciation expense account must be updated to the time of the disposal.

Diff: 1

LO: 8-5 Account for the disposal of assets

Skill: Recall

Blooms: Knowledge

3) The first step in recording a disposal transaction is to figure the gain or loss on the disposal.

Diff: 1

LO: 8-5 Account for the disposal of assets

Skill: Recall

Blooms: Knowledge

4) The old truck is an example of what might be debited as "what you got" in a transaction involving an exchange of assets.

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

5) Which of the following accounts would be debited as "something you got" in a journal entry for an asset exchange?

A) New truck

B) Old truck

C) Loss on exchange of assets

D) Notes payable

E) Accumulated depreciation - old truck

Diff: 1

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

6) Which of the following accounts would be something credited "as something you gave up" in a journal entry for an asset exchange?

A) Accumulated depreciation - old truck

B) Old truck

C) Loss on exchange of assets

D) Notes receivable

E) New truck

Diff: 1

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

7) What needs to be recorded before the disposal of the asset can be recorded?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

8) If an asset is discarded and scrapped for $0 when it has a net book value of $2,000, what is the gain or loss from this disposal?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

9) What are the three common ways that an asset can be disposed of?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Recall

Blooms: Knowledge

10) If an asset is being sold or exchanged, what values are compared to compute the gain or loss?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Recall

Blooms: Comprehension

11) If "what you gave up" is more than "what you got," the transaction would include an entry to which account, a gain or a loss?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Critical Thinking

Blooms: Comprehension

12) A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $0. What is the journal entry to record this transaction?

Debit Loss on Disposal $6,000

Debit Accumulated Depreciation-Truck $50,000

Credit Truck $56,000

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

13) A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $500. What is the journal entry to record this transaction?

Debit Cash $500

Debit Accumulated Depreciation–Truck $50,000

Debit Loss on Disposal $5,500

Credit Truck $56,000

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

14) A truck that cost $44,000 and had accumulated depreciation of $38,000 was traded in for a new truck with a fair market value of $58,000. The old truck and $50,000 cash were given for the new truck. What is the journal entry to record this exchange of assets?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

15) Equipment that cost $50,000 and had accumulated depreciation of $43,000 was traded in for new equipment with a fair market value of $62,000. The old equipment and $55,000 in cash were given up for the new equipment. What is the journal entry to record this exchange of assets?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

16) Machinery that cost $57,000 and had accumulated depreciation of $46,000 was sold for $2,500. What is the journal entry to record this disposal?

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

17) A van that cost $23,700 and had accumulated depreciation of $21,000 was sold for $1,250.

Record the journal entry required.

Diff: 2

LO: 8-5 Account for the disposal of assets

Skill: Application

Blooms: Application

8.6 Account for intangible assets

1) The process of allocating the cost of intangible assets to expense is called amortization.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Concept

Blooms: Knowledge

2) Amortization is computed over the useful life of the intangible asset using the double-declining-balance method.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Recall

Blooms: Knowledge

3) Instead of using an accumulated amortization account similar to accumulated depreciation, the expense of amortization is directly credited to the intangible asset itself.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Recall

Blooms: Knowledge

4) The slogan "Can you hear me now?" for Verizon is a protected slogan called a:

A) patent.

B) copyright.

C) trademark.

D) brand name.

E) licenses.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

5) Which of the following are generally rendered obsolete because of technological advancements?

A) Patent

B) Copyright

C) Franchise

D) Goodwill

E) Licenses.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

6) Levi's would be an example of a:

A) trademark.

B) copyright.

C) brand name.

D) patent.

E) goodwill.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

7) The Toronto Blue Jays is an example of a:

A) copyrighted team.

B) trademarked team.

C) franchised team.

D) patented team.

E) licensed team.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

8) Goodwill is:

A) amortized every year.

B) recorded as a gain only when the goodwill is gaining value.

C) recorded as a loss only when the goodwill is losing value.

D) amortized like other intangible assets.

E) recorded as a loss every year instead of recording amortization.

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Comprehension

9) How are research and development costs (R&D) generally recorded?

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Recall

Blooms: Knowledge

10) Patents to produce and sell inventions are conveyed by the federal government for a period of ________.

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Recall

Blooms: Knowledge

11) Which intangible asset is recorded only when an acquiring company purchases another company?

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Concept

Blooms: Knowledge

12) Copyrights to protect various forms of media are conveyed by the federal government for a period of ________.

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Recall

Blooms: Knowledge

13) What would a manufacturer obtain to identify its merchandise and to bar other manufacturers from using the same identification?

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Recall

Blooms: Comprehension

14) How often should goodwill be tested for impairment under IFRS?

Diff: 1

LO: 8-6 Account for intangible assets

Skill: Recall

Blooms: Knowledge

15) A patent has amortization this year of $2,300. What is the journal entry to record the amortization?

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

16) How is goodwill calculated?

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

17) Suppose Arian Industries pays $120,000 on January 1 to purchase a patent on a new manufacturing process. Arian Industries believes this patent's useful life is six years. Record the journal entries to record the purchase and the amortization.

Debit Patent $120,000

Credit Cash $120,000

Debit Amortization Expense - Patent $20,000

Credit Patent $20,000

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

18) Carine Corporation purchased Matilda Industries on January 1, 2012. At the time of the purchase, the market value of Matilda's assets is $1,120,000 and its liabilities total $320,000. Carine pays $900,000 for Matilda. Calculate the Goodwill and record the journal entry to record the purchase.

Goodwill = $900,000 - ($1,120,000 - $320,000) = $100,000

Debit Assets 1,120,000

Debit Goodwill 100,000

Credit Cash 900,000

Credit Liabilities 320,000

Diff: 3

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

19) Suppose goodwill that is carried on the balance sheet at its original value of $120,000 is valued at year end at $70,000. What is the journal entry required to record this?

Debit Loss on Goodwill $50,000

Credit Goodwill $50,000

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

20) A company pays $98,000 for a copyright and it is estimated that the useful life is ten years. What is the journal entry to record its amortization at year end?

Debit Amortization Expense $9,800

Credit Copyright $9,800

Diff: 2

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

21) Lobella Corporation purchased Melissa Industries on January 1, 2012. At the time of the purchase, the market value of Melissa's assets is $920,000 and its liabilities total $580,000. Lobella pays $500,000 for Melissa. Calculate the Goodwill and record the journal entry to record the purchase.

Goodwill = $500,000 - ($920,000 - $580,000) = $160,000

Debit Assets 920,000

Debit Goodwill 160,000

Credit Cash 500,000

Credit Liabilities 580,000

Diff: 3

LO: 8-6 Account for intangible assets

Skill: Application

Blooms: Application

8.7 Account for natural resources

1) The process of allocating the cost of natural resources is called depletion.

Diff: 1

LO: 8-7 Account for natural resources

Skill: Recall

Blooms: Knowledge

2) Computing depletion expense is much like computing depreciation under the straight-line method.

Diff: 1

LO: 8-7 Account for natural resources

Skill: Concept

Blooms: Comprehension

3) In computing depletion expense, residual value is not part of the computation.

Diff: 1

LO: 8-7 Account for natural resources

Skill: Recall

Blooms: Knowledge

4) Items such as minerals are considered natural resources.

Diff: 1

LO: 8-7 Account for natural resources

Skill: Application

Blooms: Application

5) Rick Corporation purchased a vein of coal ore for $3,500,000. It is estimated that 25,000,000 tons of ore are available to be extracted. The residual value is determined to be $150,000. The estimated depletion rate for each ton of ore (rounded to the nearest cent) is:

A) $0.13.

B) $0.14.

C) $0.15.

D) $1.40.

E) $.014

Diff: 2

LO: 8-7 Account for natural resources

Skill: Application

Blooms: Application

6) Rick Corporation purchased a vein of coal ore for $5,250,000. It is estimated that 30,000,000 tons of ore are available to be extracted. The residual value is determined to be $250,000. The estimated depletion expense for this year's extraction of 2,750,000 tons of ore (rounded to the nearest dollar) is:

A) $525,000.

B) $504,167.

C) $481,250.

D) $458,333.

E) $418,250.

Diff: 2

LO: 8-7 Account for natural resources

Skill: Application

Blooms: Application

7) If the amount extracted from a coal mine were different every year for four years, you would:

A) recompute the depletion expense rate per unit each year.

B) use the same depletion expense rate per unit each year.

C) debit Depletion Expense for the same amount each year.

D) credit Accumulated Depletion–coal mine for the same amount each year.

Diff: 2

LO: 8-7 Account for natural resources

Skill: Critical Thinking

Blooms: Comprehension

8) Information needed to compute a depletion charge per unit includes the:

A) estimated total amount of resources available for removal.

B) amount of resources removed during the period.

C) cumulative amount of resources removed.

D) amount of resources sold during the period.

Diff: 1

LO: 8-7 Account for natural resources

Skill: Concept

Blooms: Comprehension

9) What type of account is Accumulated Depletion?

Diff: 1

LO: 8-7 Account for natural resources

Skill: Concept

Blooms: Knowledge

10) What do you obtain when you take the cost divided by the total amount of the natural resource?

Diff: 1

LO: 8-7 Account for natural resources

Skill: Concept

Blooms: Comprehension

11) Subtracting accumulated depletion from the asset account "coal mine" would yield the ________.

Diff: 1

LO: 8-7 Account for natural resources

Skill: Concept

Blooms: Knowledge

12) When the natural resource gold is sold, what accounts are affected?

Diff: 2

LO: 8-7 Account for natural resources

Skill: Application

Blooms: Application

13) An oil field is purchased for $6,000,000. No residual value is expected. The estimated amount of oil is

250,000 barrels. During the year just ended, 27,000 barrels of oil were extracted. Compute the depletion rate per barrel. Show your work and prepare the journal entry for the depletion expense.

Calculation: ($6,000,000/250,000) × 27,000 = $648,000

Debit Depletion Expense - Oil Field $648,00

Credit Accumulated Depletion-Oil Field $648,000

Diff: 2

LO: 8-7 Account for natural resources

Skill: Application

Blooms: Application

14) Brandon Corporation purchased a vein of mineral ore for $3,250,000. It is estimated that 15,000,000 tons

of ore are available to be extracted. The residual value is determined to be $400,000. What is the depletion expense for this year's extraction of 1,760,000 tons of ore (rounded to the nearest dollar)? What is the journal entry?

Debit Depletion Expense - Mineral Ore $381,333

Credit Accumulated Depletion-Mineral Ore $381,333

Diff: 2

LO: 8-7 Account for natural resources

Skill: Application

Blooms: Application

8.8 Account for other long-term assets

1) Real estate for resale or investments in equity securities held for less than one year would be considered other long-term assets.

Diff: 1

LO: 8-8 Account for other long-term assets

Skill: Application

Blooms: Application

2) Investments in debt securities, such as bonds, are typically classified as "other long-term assets."

Diff: 1

LO: 8-8 Account for other long-term assets

Skill: Application

Blooms: Application

3) Increases in the value of a security while the company still owns it are considered realized gains.

Diff: 1

LO: 8-8 Account for other long-term assets

Skill: Concept

Blooms: Comprehension

4) Realized gains and losses only occur when the security is sold for more or less than the original cost.

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Concept

Blooms: Comprehension

5) Which of the following is NOT a classification for marketable securities?

A) Saleable securities

B) Available-for-sale securities

C) Trading securities

D) Held-to-maturity securities

E) Trading securities and available-for-sale securities

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Application

Blooms: Application

6) Interest and dividends earned during the period are reported on the income statement for which kind of marketable securities?

A) Trading securities

B) Available-for-sale securities

C) Held-to-maturity securities

D) All types of securities

E) Trading securities and available-for-sale securities

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Application

Blooms: Application

7) Marketable securities that are managed and held until the due date of the securities are:

A) trading securities.

B) available-for sale securities.

C) held-to-maturity securities.

D) trading and held-to-maturity securities.

E) trading securities and available-for sale securities.

Diff: 1

LO: 8-8 Account for other long-term assets

Skill: Application

Blooms: Application

8) Which type of marketable securities do not report increases or decreases in value on the income statement?

A) Trading and available-for-sale securities

B) Available-for-sale securities

C) Held-to-maturity securities

D) Held-to-maturity and available-for-sale securities

E) Trading and held-to-maturity securities

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Application

Blooms: Application

9) What securities are actively managed in order to maximize profit as a result of short-term changes in price?

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Concept

Blooms: Knowledge

10) For which type of security are any increases or decreases in value reported as a separate change in shareholders' equity for the period?

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Recall

Blooms: Comprehension

11) For which kind of marketable securities are any unrealized gains and losses shown on the income

statement?

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Recall

Blooms: Comprehension

12) What type of marketable securities are reported at market value on the balance sheet date?

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Recall

Blooms: Knowledge

13) What type of marketable securities are reported at cost on the balance sheet date?

Diff: 2

LO: 8-8 Account for other long-term assets

Skill: Application

Blooms: Application

8.9 Report long-term assets on the balance sheet

1) Long-term assets usually begin with the listing of natural resources first.

Diff: 1

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Recall

Blooms: Knowledge

2) Property, plant, and equipment are not shown at net book value on the balance sheet.

Diff: 1

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Recall

Blooms: Knowledge

3) Intangibles, such as patents and copyrights, are listed after property, plant, and equipment and after natural resources on a company's long-term assets portion of the balance sheet.

Diff: 1

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Application

Blooms: Application

4) Long-term marketable securities, such as five-year held-to-maturity securities, would be listed last in the long-term assets portion of a company's balance sheet.

Diff: 1

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Application

Blooms: Application

5) Under Canadian ASPE, at what value is Property, Plant, and Equipment recorded on the balance sheet?

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Concept

Blooms: Knowledge

6) Under IFRS, at what value is investment property recorded on the balance sheet after acquisition?

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Concept

Blooms: Comprehension

7) Under IFRS, a company can choose to record their Property, Plant, and Equipment at fair value. What method is this called?

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Concept

Blooms: Comprehension

8) Given the information below, prepare the Long-term Asset section of the Balance Sheet.

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Application

Blooms: Application

9) Under ASPE, when is it required that the impairment test occur?

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Recall

Blooms: Knowledge

10) When is an asset considered impaired?

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Recall

Blooms: Knowledge

11) Assume fair value of a vehicle is $14,000, value in use is $14,500, and carrying value $15,500. Is the asset impaired under IFRS? If so, what is the impairment loss?

$15,500 - $14,500 = $1,000 is the impairment loss.

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Application

Blooms: Application

12) Assume fair value of a vehicle is $16,000, value in use is $16,600, and carrying value $17,700. Is the asset impaired under IFRS? If so, what is the journal entry?

Journal entry:

Debit Loss on Impairment $1,100; Credit Accumulated Impairment Loss $1,100

Diff: 2

LO: 8-9 Report long-term assets on the statement of financial position

Skill: Application

Blooms: Application

8.10 Calculate the assets turnover ratio and return on assets

1) The assets turnover ratio measures the efficiency of the company in using its assets.

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Recall

Blooms: Knowledge

2) The total asset turnover ratio will show the company's efficiency in using its long-term assets.

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Recall

Blooms: Knowledge

3) The return on assets shows how many dollars of net income are generated by each dollar invested in assets.

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Recall

Blooms: Knowledge

4) The return on long-term assets show the company's efficiency in using its long-term assets.

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Recall

Blooms: Knowledge

5) The return on assets measure shows how many dollars of sales are generated by one dollar invested in assets.

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Recall

Blooms: Knowledge

6) The total asset turnover shows

A) the company's efficiency in using its long-term assets.

B) how many dollars of net income are generated by each dollar invested in assets.

C) how many dollars of sales are generated by one dollar invested in assets.

D) how many dollars of net income are generated by each dollar invested in long-term assets.

E) None of the above

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Application

Blooms: Knowledge

7) The return on assets shows

A) the company's efficiency in using its long-term assets.

B) how many dollars of net income are generated by each dollar invested in assets.

C) how many dollars of sales are generated by one dollar invested in assets.

D) how many dollars of net income are generated by each dollar invested in long-term assets.

E) None of the above

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Application

Blooms: Knowledge

8) The long-term asset turnover shows

A) the company's efficiency in using its long-term assets.

B) how many dollars of net income are generated by each dollar invested in assets.

C) how many dollars of sales are generated by one dollar invested in assets.

D) how many dollars of net income are generated by each dollar invested in long-term assets.

E) None of the above

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Application

Blooms: Knowledge

9) The return on long-term assets shows

A) the company's efficiency in using its long-term assets.

B) how many dollars of net income are generated by each dollar invested in assets.

C) how many dollars of sales are generated by one dollar invested in assets.

D) how many dollars of net income are generated by each dollar invested in long-term assets.

E) None of the above

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Application

Blooms: Knowledge

10) Deering Corporation reported net income of $100,000 in 2015. In 2014 it had an asset base of $25,000 and in 2015 it had an asset base of $75,000. Calculate the return on assets.

$100,000/($25,000 + $75,000)/2 = 2

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Application

Blooms: Application

11) Deering Corporation reported net sales of $50,000 in 2015. In 2014 it had an asset base of $25,000 and in 2015 it had an asset base of $75,000. Calculate the total asset turnover.

$50,000/($25,000 + $75,000)/2 = 1

Diff: 3

LO: 8-10 Calculate the assets turnover ratio and return on assets

Skill: Application

Blooms: Application

8.11 (Appendix 8A) Account for leases

1) A financial lease is sometimes referred to as a capital lease.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Concept

Blooms: Knowledge

2) A person or business who pays another party for the use of an asset is a lessee.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Concept

Blooms: Knowledge

3) A lessor is a person who gives/grants a lease.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Concept

Blooms: Knowledge

4) Operating lease payments are expenses to the lessee and revenue to the lessor.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Concept

Blooms: Knowledge

5) Rental agreements are typically:

A) capital leases.

B) operating leases.

C) expense leases.

D) revenue leases.

E) financial leases.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Concept

Blooms: Knowledge

6) Leases that are treated as financed purchases are called:

A) financial leases.

B) operating leases.

C) expense leases.

D) revenue leases.

E) non-financial leases.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Concept

Blooms: Knowledge

7) How would an operating lease be acccounted for by the lessee and the lessor? Explain in detail the financial statement effects.

From a lessor perspective, the asset would appear in most cases on the statement of financial position as "assets held for operating leases" or according to the nature of the asset, while the lease income would be recognized on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which the benefit derived from the leased asset is diminished.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Application

Blooms: Application

8) How would a financial lease be acccounted for by the lessee and the lessor? Explain in detail the financial statement effects.

From a lessor accounting perspective, the lease would be recorded as a receivable at an amount equal to the net investment in the lease.

Diff: 1

LO: 8-11 (Appendix 8A) Account for leases

Skill: Application

Blooms: Application

8.12 Cumulative Questions

1) Journalize the following transactions:

Feb 21 Purchased machinery for $4,500 on account.

Feb 23 Paid the shipping company $400 to get the machinery delivered.

Aug 1 Paid for the outstanding invoice from February 21.

Dec 31 Recorded depreciation on the machinery assuming the company

uses the units of production method, estimates total production to be

100,000 units, and has produced 12,000 units this year.

Dec 31 Paid $300 for minor repairs on the machine.

Diff: 3

LO: 6-9 Appendix 6A) Compute inventory costs using different methods under a periodic inventory system

Skill: Application

Blooms: Application

2) For each of the following situations, record the journal entries required.

On February 1, 2014, Alloy Company purchased $5,000 of merchandise from Alysou Company on account, terms 2/15, n/30, FOB shipping point. The goods cost Alysou $2,900. Alysou uses the perpetual inventory method.

On March 1, Alysou purchased a patent for $6,000. The patent was registered with the Canadian Intellectual Property Office 8 years ago. Alysou estimated that it would keep the patent for 8 years. Amortization is recorded on December 31.

On April 23, Lauren paid $4,650 to Alysou Company to fulfill her promissory note agreement. Of the $4,650, $650 is interest.

A year end physical count is performed for Alysou Company and it is determined that $25,240 worth of inventory is on hand on December 31. The balance sheet has a value of $26,700 as the inventory balance.

Diff: 3

LO: 5-3, 6-5, 7-4, 8-6

Skill: Application

Blooms: Application