Computing periodic depreciation charges for an asset


Question 1: Trademarks or trade names                
  
    must be renewed every 40 years
 
    can be considered intangibles with indefinite lives
 
    are developed internally and thus should not have any related costs capitalized and amortized
 
    are synonymous with internally developed goodwill
               
Question 2: The factors involved in computing periodic depreciation charges for an asset do not include the                
    
    method of cost allocation
 
    current value of the asset
 
    service life
 
    residual value of the asset
               
Question 3: Which of the following statements concerning internally developed goodwill is true?                
    
    it is a separately identifiable asset
 
    it is capitalized at its cost
 
    the costs associated with its development are expensed as incurred
 
    measuring its value is relatively easy and reliable
               
Question 4: 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:                
    
    all software production costs should be recorded as R&D expense
 
    all software production costs should be capitalized
 
    all software production costs should be recorded in R&D expense until technological feasibility is established
 
    all software production costs should be recorded in R&D expense until the product is available for general release to customers
               
Question 5: Which one of the following statements is true?                
    
    The activity method of computing depreciation could result in zero depreciation expense in some periods of time.
 
    If the activity method is in use, residual value should not be subtracted from cost to determine the depreciation base.
 
    The activity method produces a constant unit cost of depreciation.
 
    The activity method should be used when the service life of the asset is affected mostly by the passage of time.

Question 6: On January 1, 2004, Central Products, Inc., purchased 500 condensers for line use at a cost of $2,000 each. In 2005, two condensers had to be replaced at a cost of $2,500 each. Which one of the following statements is not true?                
     
    in 2005, there will be depreciation expense of $5,000 if the replacement depreciation method is in use
 
    in 2004, there will not be any depreciation expense recorded if the retirement depreciation method is in use
 
    in 2005, there will be $4,000 of depreciation expense if the replacement depreciation method is in use
 
    in 2005, the retirement depreciation method will result in less depreciation expense than the replacement depreciation method
               
Question 7: During 2006, 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 not successful with the defense of the patent. The legal fees should be                
 
    expensed in 2006 and classified as ordinary expense
 
    classified as an extraordinary item on the income statement for 2006
 
    capitalized and amortized over the remaining legal life of the patent
 
    capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter
               
Question 8:  FASB Statement No. 2 requires that research and development costs be                
 
    capitalized
 
    expensed as incurred
 
    accumulated until the existence of future benefits is determined
 
    expensed in part and capitalized in part
               
Question 9: Which depreciation method calculates annual depreciation expense based on the book value of an asset?                
    
    double-declining balance
 
    sum-of-the-years'-digits
 
    inventory systems
 
    group depreciation
               
Question 10: Which amortization method should be used for intangibles that are amortized?                
    
    a method based on the expected pattern of benefits to be produced by the asset
 
    a method based on an annual review for impairment
 
    the straight-line method; all others are inappropriate
 
    any method is appropriate
               
Question 11: Which one of the following statements is not a disclosure requirement for depreciation?                
    
    the balance of major classes of depreciable assets
 
    a general description of the method(s) used for depreciation
 
    the accumulated depreciation for each major class of depreciable asset
 
    the useful lives for each major class of depreciable asset
               
Question 12: Which statement regarding goodwill is true?                
    
    goodwill is an unidentifiable intangible asset
 
    internally developed goodwill should be capitalized while purchased goodwill should be expensed
 
    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
 
    in some situations, FASB Statement No. 141 requires that negative goodwill be recorded
               
Question 13: What effect does depreciation have on the calculation of the rate of return on total assets?                   
 
    affects both the numerator and denominator
 
    no effect
 
    increases it
 
    decreases it
               
Question 14: 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?                   
 
    maintenance and customer support costs
 
    design, coding, and testing costs incurred before technological feasibility is established
 
    costs of software developed for internal use
 
    costs of disks, software duplication, and training materials
               
Question 15: The Pecan Street Ice Cream Company discovers that depreciation expense was overstated last year. How should this discovery be reported in the current year?                
    
    as a reduction in the current year's depreciation expense
 
    as an increase to the retained earnings beginning balance
 
    as a miscellaneous item in the Other Revenue/Expense section of the income statement
 
    as a footnote only to the current year's financial statements
               
Question 16: Which of the following expenditures cannot be included in R&D costs?                
    
    indirect costs
 
    intangibles purchased from others
 
    personnel costs
 
    contract services performed for others
               
Question 17: Which of the following is not a required disclosure regarding goodwill for each period a company presents a balance sheet?                
    
    the amount of goodwill acquired
 
    the amount of goodwill sold
 
    the amount of any impairment loss recognized
 
    the amount of any goodwill included in the disposal of a reporting unit
               
Question 18: Related to in-process R&D the acquiring company may:                

    capitalize it.
 
    treat it as an intangible asset.
 
    increase the amount of goodwill.
 
    establish a patent in the name of the purchased company.
               
Question 19: Which one of the following disclosures is required by generally accepted accounting principles?                
    
    depreciation expense for each major class of asset
 
    balances of major classes of depreciable assets, by nature or function
 
    accumulated depreciation on each depreciable asset
 
    an explanation of why the depreciation method used was selected by management
               
Question 20: Which of the following methods is used to amortize intangible assets over their useful lives?                
     
    a declining balance method
 
    straight line
 
    annual review for impairment
 
    intangible assets are not amortized          

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Accounting Basics: Computing periodic depreciation charges for an asset
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