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ACC 414 Chapter Notes - Chapter 12: Intangible Asset, Interest Expense, The Assets

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School
Ryerson University
Department
Accounting
Course
ACC 414
Professor
Else Grech

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Document Summary

Intangible assets: are identifiable non-monetary assets that lack physical substance: they must have these characterists to be appropriately recognized as intangible assets. Identifiability: an asset is identifiable if it results from contractual or legal rights; or if it is separable can be divided or separated and sold, transferred, rented . Value of the intangible asset comes from the rights and priviledges that are granted to the company using them. If the intangible componenent is needed for the physical component to work, it is a. Cannot be monetary assets whose values come from the right or claim to receive fixed or determinable amounts of money in ther future. Recognition and measurement at acquisition: measured at cost of acquisition. Probable that the entity will receive the expected future economic benefits. The asset"s cost can be measured reliably. **there is although more uncertainty with the future value of an intangible: purchased intangibles.

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Related Questions

7. An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on December 31, 2020, for $5,000.

a. $500 gain

b. $3,000 loss

c. $1,500 gain

d. $500 loss

8. On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchase equipment related to production of the new clothing for $140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment only over the patent’s service life and then sell it for an estimated $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2021 related to the patent and equipment should be:

a. $40,000

b. $38,000

c. $45,000

d. $31,000

9. Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The franchise agreement is for a period of six years. Russell uses straight-line to amortize all intangible assets. What would be the reported book value of the franchise two years after the purchase?

a. $300,000

b. $250,000

c. $200,000

d. $100,000

10. Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017, Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $80,000 residual value. In 2018, Herman has started to change its business strategy and now believes that the equipment will be used for only another two years (five years total) but does not believe the residual value has changed. What depreciation would Herman record for the year 2018 on this equipment?

a. $150,000

b. $175,000

c. $124,000

d. $ 96,000

Read the 2015 annual report of Air France – KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports ‘Consolidated statement of recognized income and expenses’ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can ‘exercise significant influence on financial and operating policy decisions?’

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an ‘accumulated other comprehensive income’ item among those reported in the ‘reserves and retained earnings’ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLM’s intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-years’-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in ‘income from operating activities’ but not in ‘income from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an ‘other non-current income and expenses’ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities

5. Archie Co. purchased a framing machine for $45,000 on January 1, 2018. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years.


Using the straight-line method, depreciation for 2019 and book value at December 31, 2019, would be:

a. $10,000 and $20,000

b. $10,00 an $25,000

c. $11,250 and $17,500

d. $11,250 and $22,500

6. On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service.


Depreciation for 2018, using the double-declining balance method, would be:

a. $40,000

b. $10,000

c. $36,000

d. $9,000

7. An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on December 31, 2020, for $5,000.

a. $500 gain

b. $3,000 loss

c. $1,500 gain

d. $500 loss

8. On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchase equipment related to production of the new clothing for $140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment only over the patent’s service life and then sell it for an estimated $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2021 related to the patent and equipment should be:

a. $40,000

b. $38,000

c. $45,000

d. $31,000

9. Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The franchise agreement is for a period of six years. Russell uses straight-line to amortize all intangible assets. What would be the reported book value of the franchise two years after the purchase?

a. $300,000

b. $250,000

c. $200,000

d. $100,000

10. Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017, Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $80,000 residual value. In 2018, Herman has started to change its business strategy and now believes that the equipment will be used for only another two years (five years total) but does not believe the residual value has changed. What depreciation would Herman record for the year 2018 on this equipment?

a. $150,000

b. $175,000

c. $124,000

d. $ 96,000