Multiple-Choice questions

1. Normal repair and maintenance of an asset is an example of what?

a. Revenue expenditure

b. Capital expenditure

c. An expenditure that will be depreciated

d. An expenditure that should be avoided

2. Murnane Company purchased a machine on February 1, 2005, for $100,000. In January 2009, when the book value of the machine is $70,000, Murnane believes the machine is impaired due to recent technological advances. Murnane expects the machine to generate future cash flow of $10,000 and has estimated the fair value of the machine to be $55,000. What is the loss from impairment?

a. $5,000

b. $15,000

c. $30,000

d. $45,000

3. Jerabek Inc. decided to sell one of its fixed assets that had a cost of $50,000 and accumulated depreciation of $35,000 on July 1, 2009. On that date, Jerabek sold the fixed asset for $20,000. What was the resulting gain or loss from the sale of the asset?

a. $5,000 loss

b. $5,000 gain

c. $15,000 loss

d. $15,000 gain

4. Which of the following statements is true?

a. The average age of the fixed assets is computed by dividing accumulated depreciation by depreciation expense.

b. The fixed asset turnover ratio assists managers in determining the estimated future capital expenditures that are needed.

c. If net sales increases, the fixed asset turnover ratio will decrease.

d. A relatively low fixed asset turnover ratio signals that a company is efficiently using its assets.

5. Which of the following is not an intangible asset?

a. Patent

b. Research & development

c. Trademark

d. Goodwill

6. Heston Company acquired a patent on January 1, 2009, for $60,000. The patent has a remaining legal life of 15 years, but Heston expects to receive benefits from the patent for only five years. What amount of amortization expense does Heston record in 2009 related to the patent?

a. $4,000

b. $6,000

c. $12,000

d. None of the above-patents are not amortized.

7. Howton Paper Company purchased $1,200,000 of timberland in 2008 for its paper operations. Howton estimates that there are 10,000 acres of timberland and it cut 2,000 acres in 2009. The land is expected to have a residual value of $200,000 once all the timber is cut. Which of the following is true with regard to depletion?

a. Howton will record depletion expense of $240,000 in 2009.

b. Howton's depletion rate is $120 per acre of timber.

c. Howton should deplete the timber at a rate of 20% (2,000 acres ÷ 10,000 acres) per year.

d. Depletion will cause Howton's timber inventory to increase.