Chapter 11 Quiz



1. betterments
2. false
3. true
4. true
5. gains
6. income
7. false
8. cost less amortization
9. false


1. betterments
2. loss
3. commercial substance
4. gain, loss
5. boot
6. depletion
7. intangible assets
8. goodwill
9. amortization


1.a. Repair and maintenance expense is recorded because this is a relatively small expenditure benefiting only the immediate period. If it qualified as a capital expenditure, it might be recorded as described in choices “b” or “c.” This is clearly not an intangible asset.


2. c. $10,540. The original annual depreciation is $9,740 (($100,000 + $1,000 + $2,400 – $6,000)/10 years). The additional amount of depreciation is $800 ($7,200/9 years) per year.


3. a. a loss should be recognized.


4. d. The appropriate journal entry to record the sale is:
Accumulated Depreciation14,000
Loss 600
Cash 3,400
The only choice consistent with this entry is “d.”


5. d. A loss on the sale of a depreciable asset indicates that the proceeds received from the sale were less than the recorded book value of the asset. A gain would result if the proceeds were greater than cost or book value. Hopefully, the sale proceeds equaled market value; a loss, therefore, suggests that market value is also below book value.


6. b. The consideration given ($3,000 – $2,125) = $875) is $250 greater than the value of the asset received ($625), necessitating the recording of a loss.


7. c. $720,000. The depletion which should be deducted from revenue equals the 180,000 units sold times the $4 per ton depletion rate. The depletion on the other 120,000 units (300,000 – 180,000) is reported as inventory (120,000 X $4 = $480,000).


8. b. Depletion is the allocation of the cost of a natural resource. Depreciation relates to plant and equipment and amortization relates to intangible assets. Accrual is a more general concept relating to accounting measurements.


9. c. Patents have a 20-year life. Because the only purpose for the purchased patent is to protect an existing patent (already 8 years old), the cost of the purchased patent should be spread over no more than the twelve year remaining life of the old patent.


10. d. Goodwill should only be recorded when it is purchased; internally generated goodwill is not recorded. The comments in the other choices are all correct.