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Exam 7: Long-Term Assets

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Question 51

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The franchisee's initial fee is recorded as an expense on the income statement.

A) True
B) False

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Question 52

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Listed below are five terms followed by a list of phrases that describe or characterize the terms.Match each phrase with the best term placing the letter designating the term in the space provided. a.Return on assets b.Profit margin c.Asset turnover d.Impairment e.Big bath Phrases: _____ Net sales divided by average total assets;which measures the sales per dollar of assets invested. _____ Net income divided by net sales;indicates the earnings per dollar of sales. _____ Net income divided by average total assets;measures the amount of net income generated for each dollar invested in assets. _____ Recording all losses in one year to make a bad year even worse. _____ Occurs when the future cash flows (future benefits)generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

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Question 53

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Advertising costs that increase the value of trademarks are recorded to the asset account entitled Trademarks.

Using the double-declining balance method,depreciation expense for 2015 would be:

On January 1,2015,The Donut Stop purchased a patent for $80,000.The remaining legal life is 20 years,but the company estimates the patent will be useful for only five more years.In January 2016,the company incurred legal fees of $25,000 in successfully defending a patent infringement suit.The successful defense did not change the company's estimate of useful life.The Donut Stop's year end is December 31.Record the purchase and amortization in 2015 and the legal fees and amortization in 2016.What is the balance in the Patents account at the end of 2016?

Leonard's Jewelry owns a patent with a carrying value of $50 million.Due to adverse economic conditions,Leonard's management determined that it should assess whether an impairment should be recognized for the patent.The estimated future cash flows to be provided by the patent total $43 million,and its fair value at that point totals $35 million.Under these circumstances,Leonard:

Most of the costs associated with internally developed intangible assets are recorded as intangible assets on the balance sheet.

Land improvements are recorded separately from the land itself because,unlike land,these assets are subject to depreciation.

Which of the following intangible assets is not amortized?

Wilson Inc.owns equipment for which it originally paid $70 million and has recorded accumulated depreciation on the equipment of $12 million.Due to adverse economic conditions,Wilson's management determined that it should assess whether an impairment should be recognized for the equipment.The estimated future cash flows to be provided by the equipment total $60 million,and its fair value at that point totals $50 million.Under these circumstances,Wilson:

We record a loss if we sell an asset for less than book value.

The Bomb Pop Corporation sold ice cream equipment for $16,000.They originally purchased the equipment for $40,000,and depreciation through the date of sale totaled $25,000.What was the gain or loss on the sale of the equipment? Record the sale of the equipment.

Fruitasia purchased land,a building,and equipment for $800,000.The estimated fair values of the land,building,and equipment are $100,000,$700,000,and $200,000,respectively.At what amount would the company record the land?

Profit margin is net income divided by net sales.

We record a long-term asset at its cost less all expenditures necessary to get the asset ready for use.

Real Angus Steakhouse purchased land for $75,000 cash.They also incurred commissions of $4,500,property taxes of $5,000,and title insurance of $800.The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date.For what amount should Real Angus Steakhouse record the land?

Accumulated Depreciation is a liability account that is increased by credits.

Soccer Wholesale purchased land and a warehouse for $800,000.In addition to the purchase price,Soccer Wholesale makes the following expenditures related to the acquisition: broker's commission,$48,000;title insurance,$3,000;and miscellaneous closing costs,$8,000.The warehouse is immediately demolished at a cost of $80,000 in anticipation of building a new warehouse.Determine the amount Soccer Wholesale should record as the cost of the land.

The depreciable cost used in calculating depreciation expense is:

A more comparable measure of profitability than income is return on assets,which equals net income divided by average total assets.