ACCT 211 Chapter Notes - Chapter 8: Internal Revenue Service, Intangible Asset, Fixed Asset

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copperhornet780

30 Aug 2016

School

Binghamton University

Department

Accounting

Course

ACCT 211

Professor

Elliot Kamlet

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Document Summary

Chapter 8 fixed assets and intangible assets. A fixed asset is any tangible resource that is expected to be used in the normal course of operations for more than one year and is not intended for resale. Reported on the balance sheet and are classified as noncurrent assets because they are used for more than one year. Not intended for resale differentiates fixed assets from inventory. Following the cost principle, fixed assets should be recorded at the cost of acquiring them. Includes all costs incurred to get the asset delivered, installed and ready to use. Insurance is no included in the cost because it is an operating expense. A fixed asset converts to an expense as it is used and consumed. The expensing of fixed assets is accomplished through depreciation. Depreciation is the process of allocating the cost of a fixed asset over its useful life. The amount of expense recognized each period is known as depreciation expense.

Related Questions

1.The useful life of a plant asset is:

The length of time it is used productively in a company'soperations

Never related to its physical life

Its productive life, but not to exceed one year

Determined by the FASB

Determined by law

2. Depreciation:

Measures the decline in market value of an asset

Measures physical deterioration of an asset

Is the process of allocating to expense the cost of a plantasset

Is an outflow of cash from the use of a plant asset

Is applied to land

3. Plant assets are

Tangible assets used in the operation of a business that have auseful life of more than one accounting period

Current assets

Held for sale

Intangible assets used in the operations of a business that havea useful life of more than one accounting period

Tangible assets used in the operation of business that have auseful life of less than one accounting period

4. A company has net sales of $870,000 and average accountsreceivable of $174,000. What is its accounts receivable turnoverfor the period?

0.20

5.00

20.0

73.0

1,825

5. FICA taxes include:

Social Security taxes

Charitable giving

Employee income taxes

Unemployment taxes

6. Times interest earned is calculated by:

Multiplying interest expense times income

Dividing interest expense by income before interest expense

Dividing income before interest expense and any income tax byinterest expense

Dividing interest and income tax expense by income beforeinterest and income tax expense

7. Amortization:

Is the systematic allocation of the cost of an intangible assetto expense over its estimated useful life

Is the process of allocating to expense the cost of a plantasset to the accounting periods benefiting from its use

Is the process of allocating the cost of natural resources toperiods when they are consumed

Is an accelerated form of expensing an asset's cost

Is the same as depletion

8. A method of estimating bad debts expense that involves adetailed examination of outstanding accounts and their length oftime past due is the:

Direct write-off method

Aging of accounts receivable method

Percentage of sales method

Aging of investments method

Percent of accounts receivable method

9. A company purchased a tract of land for its natural resourcesat a cost of $1,500,000. It expects to mine 2,000,000 tons of orefrom this land. The salvage value of the land is expected to be$250,000. The depletion expense per ton of ore is:

$0.75

$0.625

$0.875

$6.00

$8.00

10. The matching principle requires:

That expenses be ignored if their effect on the financialstatements are less important than revenues to the financialstatement user

The use of the direct write-off method for bad debts

The use of the allowance method of accounting for bad debts

That bad debts be disclosed in the financial statements

That bad debts not be written off

11. Liabilities:

Must be certain

Must sometimes be estimated

Must be for a specific amount

Must always have a definite date for payment

Must involve an outflow of cash

12. In the accounting records of a defendant, lawsuits:

Are estimated liabilities

Should always be recorded

Should always be disclosed

Should be recorded if payment for damages is probable and theamount can be reasonably estimated

13. A contingent liability:

Is always of a specific amount

Is a potential obligation that depends on a future event arisingout of a past transaction or event

Is an obligation not requiring future payment

Is an obligation arising from the purchase of goods or serviceson credit

Is an obligation arising from a future event

14. Total asset turnover is calculated by dividing:

Gross profit by average total assets

Average total assets by gross profit

Net sales by average total assets

Average total assets by net sales

Net assets by total assets

15. If the times interest ratio:

Increases, then risk increases

Increases, then risk decreases

Is greater than 1.5, then the company is in default

Is less than 1.5, the company is carrying too little debt

16. Promissory notes that require the issuer to make a series ofpayments consisting of both interest and principal are:

Debentures

Discounted notes

Installment notes

Indentures

Investment notes

17. A company borrowed $300,000 cash from the bank by signing a5-year, 8% installment note. The present value factor for anannuity at 8% for 5 years is 3.9927. Each annuity payment equals$75,137. The present value of the note is:

$75,137

$94,013

$300,000

$375,685

18. A bond traded at 102

burgundypug781

1.As a company records depreciation expense for a period oftime, cash is accumulated to replace fixed assets as they wearout.

True/False

4.An asset was purchased for $110,000.00 on January 1, Year 1and originally estimated to have a useful life of 11 years with aresidual value of $9,000.00. At the beginning of the third year, itwas determined that the remaining useful life of the asset was only4 years with a residual value of $2,600.00. Calculate thethird-year depreciation expense using the revised amounts andstraight line method.

Select the correct answer.

$22,759.09

$21,259.09

$22,259.09

$23,259.09

5. Costs associated with normal research and developmentactivities should be treated as intangible assets.

True/False

7. The amount of the depreciation expense for the second fullyear of use of a fixed asset costing $100,000, with an estimatedresidual value of $5,000 and a useful life of 4 years, is $25,000by the double-declining-balance method.

True/False

9. The amount of depreciation expense for the first full year ofuse of a fixed asset costing $95,000, with an estimated residualvalue of $5,000 and a useful life of 5 years, is $19,000 by thestraight-line method.

True/False

12. The accumulated depletion of a natural resource is reportedon the:

a. balance sheet as a deduction from the cost of theresource

b. income statement as a deduction from revenues

c. balance sheet as depreciation from the cost of theresource

d. income statement as an increase in revenue

15. An exchange is said to have commercial substance if futurecash flows remain the same as a result of the exchange.

True/False

18 Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?

$19,000

$22,000

$30,000

$21,000

30. When exchanging equipment, if the trade-in allowance isgreater than the book value a loss results.

True/False

38. Once the useful life of a depreciable asset has beenestimated and the amount to be depreciated each year has beendetermined, the amounts cannot be changed.

True/False

Before you begin this assignment, it will be helpful if you review

McDonald'sMcDonald's

Corporation

20152015

annual report

(https://www.sec.gov/Archives/edgar/data/63908/000006390816000103/mcd-12312015x10k.htm ).

McDonald'sMcDonald's

Corporation is the world's leading global food service retailer with more than 36,000 locations worldwide in more than 100 countries. The corporation operates and franchises

McDonald'sMcDonald's

restaurants, which serve menu items such as the Big Mac, Chicken McNuggets, and McFlurry desserts. In addition,

McDonald'sMcDonald's

also serves McCafe beverages and pastries.Read the requirements

Requirement 1. Where would

McDonald'sMcDonald's

Corporation report plant assets on its financial statements? How are plant assets reported and what is the value as of December 31,

20152015 ?

(Enter any amounts in millions, to the nearest tenth of a million, X.X, as shown in the financial statements.)

Plant assets are reported at	cost	on the	consolidated balance sheet.
The gross value of plant assets at December 31, 2015 is $		37,692.4	(in millions).

Requirement 2. Does

McDonald'sMcDonald's

Corporation depreciate its plant assets? How do you know? What is the depreciation method used and the useful lives?

No,

McDonald'sMcDonald's

Corporation does not depreciate its plant assets. We know this because there is no difference between the cost and net value of the plant assets as shown on the consolidated balance sheet. This is reasonable given that the company's only category of plant assets is land, which is not depreciated. As such, no depreciation method is in use.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the straight-line method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 30 years for buildings, five to 10 years for leasehold improvements, and three to 12 years for furniture and equipment.

Yes,

McDonald'sMcDonald's

Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and depreciation expense is reported on the consolidated statement of income. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.

ACCT 211 Chapter Notes - Chapter 8: Internal Revenue Service, Intangible Asset, Fixed Asset

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