Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods' accountant debited the asset account

Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods' accountant debited the asset account, Equipment. Was this treatment an error, and if so, what will be the effect on Woods' financial statements?

A) No, the repair was accounted for correctly.

B) Yes, the error overstated assets and net income.

C) Yes, in the years following, net income will be overstated.

D) Yes, the error understated net income.

Answer: B

The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as:

A) Goodwill.

B) An addition in the Buildings account.

C) An expense in the period of the purchase.

D) A patent.

Answer: B

Adding a refrigeration unit to a delivery truck that previously did not have this capability is an example of:

A) Repairs and maintenance.

B) Additions.

C) Improvements.

D) An expenditure that only benefits the current period.

Answer: B

The cost of an engine tune-up is an example of which of the following expenditures after acquisition?

A) Ordinary repairs and maintenance.

B) Additions.

C) Improvements.

D) Capitalized costs.

Answer: A

Which of the following subsequent expenditures would not be capitalized?

A) Ordinary repairs and maintenance.

B) Additions.

C) Improvements.

D) Successful legal defense of intangible assets.

Answer: A

The cost of replacing a major component on a piece of equipment is an example of:

A) Repairs and maintenance.

B) Improvements.

C) Additions.

D) An expenditure that only benefits the current period.

Answer: B

The company believes that these efforts have increased the fair value of the entire company by $325,000.

A company has the following expenditures during the year.

Advertising $ 100,000

Employee training 80,000

Customer outreach and consultation 50,000

The company believes that these efforts have increased the fair value of the entire company by $325,000. How much goodwill can the company recognize at the end of the year associated with these expenditures?

A) $0.

B) $80,000.

C) $230,000.

D) $325,000.

Answer: A

Which of the following subsequent expenditures would be capitalized?

A) Ordinary repairs and maintenance.

B) Additions.

C) Improvements.

D) Additions and improvements.

Answer: D

Which of the following subsequent expenditures would be capitalized?

A) Ordinary repair.

B) Costs that increase the service life of an asset.

C) Routine maintenance.

D) Ordinary repair and routine maintenance.

Answer: B

Lake Incorporated purchased all of the outstanding stock of Huron Company, paying $850,000 cash.

Lake Incorporated purchased all of the outstanding stock of Huron Company, paying $850,000 cash. Lake assumed all of the liabilities. Book values and fair values of acquired assets and liabilities were:

Book Value Fair Value

Current assets (net) $ 130,000 $ 125,000

Property, plant, equip. (net) 600,000 750,000

Liabilities 175,000 175,000

Lake would record goodwill of:

A) $0.

B) $150,000.

C) $345,000.

D) $850,000.

Answer: B

Vikings Inc. reports the following amounts:

Book Value Fair Value

Assets $ 400,000 $ 500,000

Liabilities 45,000 45,000

Net income 25,000

How much goodwill would be recorded if Torretta Holdings purchases Vikings, assuming its liabilities, for $635,000?

A) $255,000.

B) $280,000.

C) $180,000.

D) $100,000.

Answer: C

Northern purchased the entire business of Southern including all its assets and liabilities for $600,000. Below is information related to the two companies:

Northern Southern

Fair value of assets $ 1,050,000 $ 800,000

Fair value of liabilities 575,000 300,000

Reported assets 800,000 650,000

Reported liabilities 500,000 250,000

Net Income for the year 60,000 50,000

How much goodwill did Northern pay for acquiring Southern?

A) $100,000.

B) $300,000.

C) $200,000.

D) $150,000.

Answer: A

The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000

The balance sheet of Cattleman's Steakhouse shows assets of $86,400 and liabilities of $15,000. The fair value of the assets is $90,000 and the fair value of its liabilities is $15,000. Longhorn paid Cattleman's $95,000 to acquire all of its assets and liabilities. Longhorn should record goodwill on this purchase of:

A) $3,600.

B) $5,000.

C) $20,000.

D) $23,600.

Answer: C

Which of the following is true concerning goodwill?

A) Goodwill can never be recorded.

B) Goodwill is recorded when a company is purchased for more than the fair value of its identifiable net assets.

C) Goodwill is recorded when the market value of a company exceeds the fair value of its identifiable net assets.

D) Goodwill is recorded as a revenue in the income statement.

Answer: B

In accounting, goodwill

A) Is never recorded.

B) May be recorded when a company's level of net income exceeds the industry average.

C) Must be expensed in the period when it is acquired.

D) May be recorded when the company purchases another business.

Answer: D

Bio-Lab Pharmaceuticals was engaged in a project to develop a new drug that would dramatically shorten the recovery period of influenza

Bio-Lab Pharmaceuticals was engaged in a project to develop a new drug that would dramatically shorten the recovery period of influenza. The project cost the company $150,000 before Bio-Lab abandoned the project due to the slim possibility to gain FDA approval. Bio-Lab then spent $300,000 on another project to develop a shot that would achieve the same goal, and the company is confident in gaining FDA approval and in generating profits from the shot. What amount would be expensed for these projects?

A) $0.

B) $150,000.

C) $300,000.

D) $450,000.

Answer: D

Research and development costs should be capitalized when the:

A) Future benefit is probable and the amount can be reasonably estimated.

B) Future benefit is reasonably possible and the amount can be reasonably estimated.

C) Future benefit is probable and the amount cannot be reasonably estimated.

D) None of these answer choices are correct.

Answer: D

Aspen, Inc. developed a new horse transport device and incurred research and development costs of $250,000. Rather than continue with its own research, Aspen decided to purchase a patent for a similar design from Vail, Inc. for $350,000. What are the total assets and expenses for these developments?

A) Assets $600,000 Expenses $0.

B) Assets $250,000 Expenses $350,000.

C) Assets $350,000 Expenses $250,000.

D) Assets $0 Expenses $600,000.

Answer: C

Morgan Pharmaceutical spends $50,000 this year in research and development for a new drug to cure liver damage

Morgan Pharmaceutical spends $50,000 this year in research and development for a new drug to cure liver damage. By the end of the year, management feels confident that the new drug will gain FDA approval and lead to higher future sales. What impact will the $50,000 spending have on this year's financial statements?

A) Increase Assets.

B) Decrease Revenues.

C) Increase Expenses.

D) Increase Revenues.

Answer: C

Suppose a company spends $100,000 in the current year to research and develop a safety device for motorcycles. By the end of the year, the company estimates that the new safety device has an 80% chance of generating $300,000 in revenues from sales to customers over the next five years. For what amount would Research and Development Expense be reported in the current year?

A) $100,000.

B) $80,000.

C) $20,000.

D) $0.

Answer: A

Suppose a company spends $100,000 on research and development in 2021. As a result of the products developed, additional revenue is generated over the next five years totaling $600,000. When is the cost of the research and development in 2021 recognized as an expense?

A) Evenly over the period 2022-2026.

B) Full amount in 2026.

C) Evenly over the period 2021-2025.

D) Full amount in 2021.

Answer: D