Long-term assets

1. Long-term assets are defined as
assets that extend benefits beyond the coming fiscal year or operating cycle
only tangible assets that extend benefits beyond the coming year or operating cycle, whichever is longer
assets that are depreciated for a maximum of 40 years
assets that extend no future benefits to a company

2.
On January 1, 2007 a Medical Testing Laboratory acquired new blood processing equipment costing $400,000. The equipment has an estimated useful life of 10 years and an estimated residual value of $50,000. After making all necessary calculations and entries on December 31, 2008, what is the accumulated depreciation to date and book value of the equipment? (Assume the straight-line method is used.)

Accumulated Depreciation Book Value as of
as of December 31, 2008 December 31, 2008

$70,000 $330,000
$70,000 $280,000
$35,000 $365,000
$35,000 $315,000

3.
When companies have a temporary surplus of cash, they often invest it in

short-term marketable securities
long-term marketable securities
intangible assets
property, plant, and equipment

4.
A bond is purchased at a discount. What will happen to the net carrying value of the bond on the balance sheet as its maturity date approaches?

stays the same
increases
decreases
cannot be determined from the data given

5. Which of the following are included as part of the cost of plant assets?
amount paid for the asset only
the cost of site preparation and installation of the asset only
construction costs to make assets usable
all of the above are included as part of the cost of plant assets

6.
Marbella Company has an investment in stock, classified as available-for-sale, with the following information at December 31, 2007:

Cost = $240,000
Market value = $280,000

How would Marbella report this information?

unrealized holding gain of $40,000 added to stockholders’ equity
realized gain added to the income statement of $40,000
unrealized holding gain deducted from stockholders’ equity of $40,000
unrealized holding gain added to the income statement of $40,000

7.
Intangible assets would include patents, copyrights, trademarks, and goodwill.

True
False

8. Which of the following statements is correct concerning investing activities?
they involve obtaining and managing financial resources
they use financial resources to acquire items to sell in the normal course of activities
they use financial resources to acquire assets a company needs to produce and sell its products
they involve buying and selling a company’s own stock

9. Assume a building was purchased for $250,000 and used for four of its estimated 10-year life. It has residual value of $50,000 and the straight-line method is used for depreciating the building. The book value of the building after the four years’ of usage would be reported on the balance sheet at
$20,000
$80,000
$120,000
$170,000

10. Cash received from the sale of long-term assets is reported as
an operating activity
a financing activity
an adjustment to stockholders’ equity
an investing activity

11.
Depreciation and amortization

reduce net income and cash flow from operating activities
reduce net income but increase cash flow from operating activities
reduce net income but have no direct effect on cash flow from operating activities
have no direct effect on net income or cash flow from operating activities

12.
Which of the following is NOT true?

the source of financing for plant assets does not affect the way assets are reported on the balance sheet
intangible assets provide legal rights or benefits to a company
one of the four categories of assets on the balance sheet includes the value of management and employee skills
long-term investments are investments in the debt or equity securities of other companies

13. The excess of the purchase price of a company over the fair market value of its net assets is known as
surplus
amortization
goodwill
capital

14.
Accelerated depreciation

results in lower net income in earlier years and higher net income in later years
is used more often on the income statement than is the straight-line method
leads to higher book values for depreciable assets than does the straight-line method
allocates larger portions of cost to later periods than to earlier

15.
Emergent Markets Corporation purchased a machine for $200,000 on January 1, 2007. The estimated life is 10 years. What is the book value on the December 31, 2009 balance sheet assuming straight-line depreciation is used and estimated residual value is zero?

$180,000
$160,000
$140,000
$ 60,000

16. Which of the following would NOT be included in property, plant, and equipment?
inventory
land
equipment
buildings

17.
Meteorite Company sells its Available-For-Sale stock investment at a price of $61 per share. It had originally been purchased at $20 per share and its most recent adjustment had been to a market value of $32 per share. What was the per share realized gain or loss on sale?

$29 realized gain
$41 realized gain
$12 realized loss
$73 realized gain

18.
Plant assets are reported on the balance sheet at their fair market value.

True
False

19.
Murray Company purchased a 5%, $5,000, 10-year bond for $4,800 at the date of issue. The interest revenue shown on Murray’s income statements over the life of the bond will total

$2,500
$2,700
$2,300
$2,600

20.
Quick Freight Trucking owned a truck which cost $30,000 when it was purchased on January 1, 2007. It had accumulated depreciation of $18,000 at December 31, 2008. The company originally estimated the truck would have a residual value after using it for four years of $3,000. It sold the truck for $22,500 cash on January 1, 2009. The amount of gain (loss) on the sale of the truck was

$4,500 gain
$19,500 gain
$1,500 loss
$10,500 gain