Computing periodic depreciation charges

Question

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