Accounting Chapter 11

Flannery Corporation owns machinery with a book value of $520,000. It is estimated that the machinery will generate future cash flows of $465,000. The machinery has a fair value of $415,000. Florence should recognize a loss on impairment of $55,000. $105,000. $ -0-. $50,000.

$105,000

The asset turnover ratio is computed by dividing: net income by ending total assets. net income by average total assets. net sales by average total assets. net sales by ending total assets.

net sales by average total assets.

An impairment of property, plant, or equipment has occurred if the expected future cash outflows exceeds the asset's carrying value. the revised estimated useful life is less than the original estimated useful life. the expected future net cash flows is less than the asset's carrying value. the estimated salvage value is less than the actual proceeds received on disposal.

the expected future net cash flows is less than the asset's carrying value.

Lundy Company purchased a depreciable asset for $99,000. The estimated salvage value is $18,000, and the estimated useful life is 9 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? (Round the depreciation rate (expressed as a percentage) to the nearest whole, e.g. 15%) $11,000 $13,900 $16,988 $17,820

$16,988 (22% of $99,000) $21,780. The second year's depreciation is [22% of ($99,000 - $21,780)] or $16,988.

Lebanon Corporation owns equipment with a cost of $320,000 and accumulated depreciation at December 31, 2014 of $120,000. It is estimated that the machinery will generate future cash flows of $175,000. The machinery has a fair value of $155,000. If Lebanon uses IFRS, the company should recognize a loss on impairment of $45,000. $0. $25,000. $35,000.

$45,000

Cambodian Import Company purchased a depreciable asset for $160,000 on April 1, 2011. The estimated salvage value is $40,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on March 1, 2014 when the asset is sold? $66,000 $70,000 $72,000 $186,667

($160,000 - $40,000) / 60 months results in a monthly depreciation of $2,000 For 35 months the accumulated depreciation is $70,000.

Antigua Company purchased a depreciable asset for $45,000 on October 1, 2012. The estimated salvage value is $9,000, and the estimated useful life is 6 years. The straight-line method is used for depreciation. What is the book value on July 1, 2014 when the asset is sold? $34,500 $25,500 $15,750 $10,500

($45,000 - $9,000) / 72 months results in a monthly depreciation of $500. After 21 months, the balance in accumulated depreciation is $10,500 and the book value of the asset is $34,500.

Mains Corporation owns equipment with a cost of $290,000 and accumulated depreciation at December 31, 2014 of $150,000. It is estimated that the machinery will generate future cash flows of $165,000. The machinery has a fair value of $115,000. Mains should recognize a loss on impairment of $25,000. $0. $15,000. $35,000.

0

For 2014, Lassiter Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. Lassiter's 2014 asset turnover ratio is 1.25 times. 1.14 times. .25 times. .23 times.

1.25

Which one of the following is not an accelerated depreciation method? Sum-of-the years' digits method. Declining-balance method. Activity method. Double-declining-balance method.

Activity method.

The depletion base of a natural resource includes: development costs. restoration costs. All of these answer choices are correct. exploration costs.

All of these answer choices are correct.

Which one of the following statements regarding revision of depreciation rates is incorrect? Depreciation is computing by dividing the remaining book value less any salvage value by the remaining estimated life. No entry is made at the time a revision of depreciation rates occurs. Changes in estimate should be handled in the current period only. Opening balances are not adjusted when a change in estimate occurs.

Changes in estimate should be handled in the current period only.

Which of the following is not true of depreciation accounting? Tangible assets with limited lives are depreciated. Depreciation lowers the book value of the asset as it ages and its fair value declines. Depreciation matches expenses against revenues over the periods which benefit from the asset's use. Depreciation is a process of cost allocation.

Depreciation lowers the book value of the asset as it ages and its fair value declines.

Hilo Company has land that cost $350,000 but now has a fair value of $500,000. Hilo Company decides to use the revaluation method specified in IFRS to account for the land. Which of the following statements is correct? Hilo Company must continue to report the land at $350,000. Hilo Company would report a net income increase of $150,000 due to an increase in the value of the land. Hilo Company would debit Revaluation Surplus for $150,000. Hilo Company would credit Revaluation Surplus by $150,000.

Hilo Company would credit Revaluation Surplus by $150,000.

IFRS accounting for impairments differs from GAAP in which of the following ways? IFRS uses a recoverability test in addition to the fair value test used by GAAP in testing for impairment. IFRS permits recoveries of impairment to be recorded for all tangible assets. The IFRS impairment test is less strict than that required by GAAP. IFRS prohibits write-ups for recoveries of impairments for assets held for sale.

IFRS permits recoveries of impairment to be recorded for all tangible assets.

Which of the following statements is correct? Both IFRS and GAAP permit revaluation of property, plant, and equipment. IFRS permits revaluation of property, plant, and equipment but not GAAP. Both IFRS and GAAP do not permit revaluation of property, plant, and equipment. GAAP permits revaluation of property, plant, and equipment but not IFRS.

IFRS permits revaluation of property, plant, and equipment but not GAAP.

Under IFRS, when is the restoration of an impairment loss on a tangible asset permitted? On assets that have been that have already been disposed. On all tangible assets whether held for use of disposal. On assets held for use. On assets being held for disposal.

On all tangible assets whether held for use of disposal.

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? Partial recognition Associating cause and effect Systematic and rational allocation Immediate recognition

Systematic and rational allocation

The total cost of natural resources includes all of the following except: restoration costs. all of the options are included in the total cost. intangible development costs. exploration costs.

all of the options are included in the total cost.

When an asset being depreciated under the group method is disposed of, any resulting gain or loss is: recorded as an ordinary gain. recorded as an extraordinary gain. buried in the Accumulated Depreciation account. buried in Depreciation Expense account.

buried in the Accumulated Depreciation account.

Erie Corporation owns machinery with a book value of $2,200,000. It is estimated that the machinery will generate future cash flows of $1,995,000. The machinery has a fair value of $1,915,000. The journal entry to record the impairment loss will reduce income from continuing operations by $205,000. include a $285,000 credit to the asset account. record an extraordinary loss of $80,000. credit the asset's Accumulated Depreciation account by $285,000.

credit the asset's Accumulated Depreciation account by $285,000.

An asset impairment occurs when the asset's carrying amount exceeds the: present value of expected future net cash flows. expected future net cash flows. asset's book value. asset's fair value.

expected future net cash flows.

A principal objection to the straight-line method of depreciation is that it provides for the declining productivity of an aging asset. ignores variations in the rate of asset use. tends to result in a constant rate of return on a diminishing investment base. gives smaller periodic write-offs than decreasing charge methods.

ignores variations in the rate of asset use.

Depletion expense is usually part of cost of goods sold. includes tangible equipment costs in the depletion base. excludes restoration costs from the depletion base. excludes intangible development costs from the depletion base.

is usually part of cost of goods sold.

The depreciable base of an asset is its original cost: less accumulated depreciation. less salvage value. plus salvage value. plus accumulated depreciation.

less salvage value.

For the composite method, the composite rate is the total annual depreciation divided by the total depreciable cost. life is the total cost divided by the total annual depreciation. life is the total depreciable cost divided by the total annual depreciation. rate is the total cost divided by the total annual depreciation.

life is the total depreciable cost divided by the total annual depreciation

For the composite method, the composite rate is the total cost divided by the total annual depreciation. life is the total depreciable cost divided by the total annual depreciation. life is the total cost divided by the total annual depreciation. rate is the total annual depreciation divided by the total depreciable cost.

life is the total depreciable cost divided by the total annual depreciation.

Depreciation is a: means of recording the decline in an asset's fair market value. means of allocating the cost of a tangible asset to each of the periods that benefit from its use. measure of deterioration in the physical condition of an asset. matter of valuation.

means of allocating the cost of a tangible asset to each of the periods that benefit from its use.

Reserve recognition accounting is a historical cost method similar to the full cost approach and the successful efforts approach. is used for reporting of oil and gas reserves for federal income tax purposes. is presently the generally accepted accounting method for financial reporting of oil and gas reserves. requires estimates of future production costs, the appropriate discount rate, and the expected selling price of oil and gas reserves.

requires estimates of future production costs, the appropriate discount rate, and the expected selling price of oil and gas reserves.

the major difference between the service life of an asset and its physical life is that physical life is always longer than service life. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.

service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last.

A general description of the depreciation methods applicable to major classes of depreciable assets is needed in financial reporting when company policy differs from income tax policy. is not a current practice in financial reporting. should be included in corporate financial statements or notes thereto. is not essential to a fair presentation of financial position.

should be included in corporate financial statements or notes thereto.

In computing partial-year depreciation, depreciation is normally computed on the basis of: a full year's depreciation in the period of acquisition and none in the year of disposal. the nearest full month. the nearest fraction of a year. a half year's depreciation in the period of acquisition and disposal.

the nearest full month.

All of the following statements are true regarding IFRS accounting for property, plant, and equipment except: under IFRS, interest costs incurred during construction must be capitalized. under IFRS, depreciation is viewed as an allocation of cost over an asset's life. under IFRS, units-of-production depreciation is not permitted. under IFRS, a fair value test is used to measure impairment loss.

under IFRS, units-of-production depreciation is not permitted.

All of the following are economic factors related to depreciation except: Entry field with correct answer obsolescence. supersession. wear and tear. inadequacy.

wear and tear.