Part I: Multiple-choice questions.
1. Lenovo paid $2,000,000 to purchase all of Thinkpad’s assets and assumed liabilities of
The acquired assets were appraised at a fair value of $1,800,000. What amount of
goodwill should be recorded on Lenovo’s book?
2. Which of the following is true
A. Using straight-line depreciation in comparison to an accelerated method will lead to a
lower earnings per share in the first year of an asset's life.
B. Using accelerated depreciation in the first year of an asset's life will report a higher net
profit margin compared to using straight-line.
C. Using accelerated depreciation will lead to a higher total asset turnover in the first year.
D. Using straight-line depreciation in comparison to an accelerated method will lead to a
higher current ratio in the first year of an asset's life.
3. If Southwest Airlines determines that an asset has been impaired by $2 million then which
of the following will occur at the end of the current accounting period?
A. No action will be taken to recognize its impairment until the asset is sold.
B. The impairment will not affect the accounts but will be disclosed in the footnotes.
C. A debit to retained earnings will be recorded for the effect of the loss thereby bypassing
the income statement.
D. A credit to the asset's account will be recorded for the amount of the loss.
4. Amanda Company purchased a computer that cost $10,000. It had an estimated useful life
of five years and residual value of $0. The computer was depreciated by the straight-line
method and was sold at the end of the fourth year of use for $3,000 cash. Amanda Company
A. a gain of $1,000.
B. a loss of $1,000.
C. neither a gain nor a loss - the computer was sold at its book value.
D. neither a gain nor a loss- the gain that occurred in this case would not be recognized.
5. On March 1, 2009, Anniston Company purchased a producing oil well at a cash cost of
It is estimated that 1,500,000 barrels of oil can be produced over the remaining
life of the well.
By December 31, 2009 (end of the accounting period), 150,000 barrels of oil
were produced and sold.
The amount of depletion for 2009 on this well that should be added
to oil inventory would be