Accounting Theory and History Final
A company charges its sales commission costs to expense is an example of: Correct! expense recognition or matching principle measurement principle full disclosure principle periodicity assumption
A
A company incurred costs to fulfill a contract that has a four-year life. The costs are a direct result of the contract and would not have been incurred had the contract not existed. How should the costs to fulfill the contract be accounted for? Correct Answer Recorded as an asset and amortized over four years. You Answered Expensed in the period incurred becasue the company paid for the costs in the current period Recorded as a liability and expensed in the period paid Recorded as a liability and amortized over four years.
A
A conceptual framework is necessary for which of the following reasons? Correct! All of these answer choices are correct. It increases financial statement users' understanding of and confidence in financial reporting It enables standard setters to issue more useful and consistent pronouncements over time. It allows the profession to quickly solve new and emerging issues.
A
A purchased limited-life intangible asset ________ amortized and is impairment tested using _____________. Correct Answer is; the recoverability test and then the fair value test is not; the recoverability test and then the fair value test is not; the fair value test only You Answered is; the fair value test
A
In the US, inflation/deflation is ignored in accounting under which of the following assumptions? Correct! monetary unit assumption periodicity or time period assumption going concern assumption economic entity assumption
A
Which of the following statements is FALSE? A) 300 tokens in different shapes and sizes was immediately recognizable to archaeologists as the remains of an ancient accounting system. B) Writing, one of the greatest human accomplishments, was invented by accountants. C) Clay spheres called envelopes included tokens and were stamped with the signature seals of the parties involved D) Accountants eventually learned that clay tokens were not needed to record transactions; instead 2 dimensional symbols were used instead.
A
Sally collects a nonrefundable up-front fee of $192 when a new customer signs up for a 24-month contract for services. A monthly fee of $32 is also assessed for each customer. How much revenue does Sally record on the date the contract is signed? Correct Answer $0 You Answered $40 $192 $224
A
Sara consigns goods to Lee Company who charges a 10% commission on consignment sales. Lee sells $750 worth of goods on Sara's behalf. Assuming no other costs of selling, what amount of Accounts Receivable should Sara record from Lee Company for the consignment sales? Correct Answer $675 $750 $75 You Answered $0, Sara will record Cash
A
The change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources is called: Correct! comprehensive income revenues net income gains
A
The controversy surrounding the policy to expense all research & development costs associated with internally created intangible assets results in: Correct! understating assets and overstating expenses overstating assets and understating expenses understating assets and understating expenses overstating assets and overstating expenses
A
Which of the following research and development costs may be capitalized? Correct! Research and development equipment with alternative future uses in other R&D projects or otherwise Personnel Contract services Indirect costs
A
Which of the following statements about the fair value principle is true? Correct! Fair value is a market-based measure Measurements based on fair value increase the objectivity in financial reporting GAAP requires the use of fair value for all financial assets and liabilities Fair value is generally less relevant than historical cost.
A
Which of the following statements is FALSE? A) Academic research is based on deduction in which logic is used to form specific conclusions. B) Accounting theory is never a final and finished product. C) Most theory used in accounting research is borrowed from economics and the social sciences - especially psychology. D) A theory is a logical, structured, evidenced framework on which to base other idea.
A
Which of the following three inputs to the accounting policy-making function is most important? A) economic conditions B) accounting theory C) political factors
A
Which one of the following is NOT one of the 7 key ingredients necessary for the development and wide-spread use of double-entry accounting? A) Measurement B) Money C) Private property D) Arabic Numerals
A
Which type of revenue or gain is generally recognized with the passage of time? Correct! long-term construction contracts gain or loss from disposition revenue from sales revenue from fees or services
A
Why is a company's highly-skilled workforce not listed on the balance sheet? A) FASB has not determined a reliable way to measure the value of human resources. B) The workforce does not meet the definition of an asset, as defined in the conceptual framework. C) An indirect measure would have to be used and only direct measures appear on a balance sheet.
A
Wolf Company produces large pieces of machinery for use in the manufacturing industry. Blue Jay Manufacturing Company purchases a large piece of machinery from Wolf for use in Blue Jay's new production plant. Although Blue Jay could install the equipment on its own, management decides to include installation of the machinery in its contract with Wolf. Blue Jay agrees to a total contract price of $850,000 for both the equipment and the installation. Wolf does not offer a discount on the machinery if it completes the installation. The fair value of the equipment is $850,000, and its cost is $760,000. The fair value of the installation is $50,000 and the cost of the labor to Wolf is $40,000. How much of the contract price should Wolf allocate to the equipment and installation respectively? If a proportion is necessary, round to the nearest one hundredth of a percent (e.g. .####) and round all answers to the nearest dollar. Correct Answer Equipment $802,740; Installation $47,260 Equipment $850,000; Installation $0 Equipment $800,000; Installation $50,000 You Answered Equipment $807,500; Installation $42,500
A
Blue Corporation incurred the following costs in 2020: Cost of laboratory research aimed at discovery of new knowledge $185,000 Cost of testing in search for product alternatives $100,000 Cost of engineering activity required to advance the design of a product to the manufacturing stage $222,000 What is the amount that was debited to Research & Development Expense during the year? $285,000 $185,000 $322,000 Correct! $507,000
D
In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities. Correct! True False
True
All of the following should be capitalized EXCEPT: Improvement to a machine that increased its fair market value and its productive capacity by 30% without extending the asset's useful life. Correct! Expenditures that maintain the efficiency and effectiveness of a productive asset. Expenditure that increases the quality of the output of the productive asset Expenditure that increases the efficiency and effectiveness of a productive asset and increases the salvage value
B
A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month? Correct Answer $190,000 $185,000 $195,000 You Answered $200,000
A
According to the reading "History of Accounting", Pacioli stated that their were three things you needed to be a successful merchant. Which of the following is NOT one of those three things? a. Sufficient levels of inventory b. Sufficient cash or credit c. Good bookkeepers d. An accounting system that lets you view your finances at a glance.
A
All of the following are examples of measurements which possess social reality EXCEPT: A) Corporate allocations for which a division manager is NOT held accountable. B) Income numbers used to evaluate managers and which effect their salaries and bonuses. C) Income numbers and balance sheet ratios that impact the payment of cash dividends D) Income numbers and balance sheet ratios impacting a firm's credit standing and thus the rate of interest it has to pay
A
All of the following are necessary aspects of a profession EXCEPT: A) the ability to collaborate with others B) an established body of required knowledge C) an ethical requirement D) testing to prove understanding of the body of knowledge
A
All of the following statements are FALSE EXCEPT: Correct! Comparability pertains to the reporting of information in a similar manner for different companies as well as a company reporting under the same accounting policies over time. The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability. Verifiability is solely an enhancing characteristic for faithful representation. Information that possesses faithful representation is characterized as having predictive or confirmatory value.
A
Allocating a transaction price to multiple performance obligations includes which of the following steps: Correct! Identify distinct goods and/or services as separate performance obligations Obtain an independent appraisal of the value of services identified as a performance obligation. Complete every performance obligation before recognizing any revenue from the contract. Consolidate the components of the contract to two performance obligations because a contract should not have more than two performance obligations.
A
An increase in equity (net assets) arising from peripheral or incidental transactions is called a(n): Correct! gain investment by owners revenue asset
A
An indication that the customer has NOT taken control of the good or service is: Correct Answer the customer has not taken on the significant risks or rewards of ownership the customer has physical possession of the asset The selling company has transferred legal title to the asset You Answered The selling company has right to payment for the good or service
A
Bookkeeping or double entry accounting was started during which time period? A) 14th - 16th centuries B) 3000 - 3500 B.C. C) 10th-11th centuries D) 19th century
A
Depreciation and amortization policies are justifiable and appropriate only if we assume some permanence to the company because of the: Correct! going concern assumption economic entity assumption periodicity assumption monetary unit assumption
A
Foghorn Company entered into a sales transaction in which it agreed to receive common stock from Leghorn Corporation as payment for services provided to Leghorn Corporation. The journal entry to record the receipt of payment for the sales transaction will include a: Correct Answer Debit to Leghorn Investment Credit to Noncash Consideration Debit to Cash You Answered Credit to Common Stock
A
For a good or service to be considered distinct and identified as a separate performance obligation, it must be: Correct! Able to be used by the customer on its own or with resources readily available to the customer and able to be separately identified from other promises in the contract. Sold separately in other contracts Identified in the contract specifically as a performance obligation, and the transaction price attributable to the good or service must be distinctly identified Must be used by the customer with other performance obligations in the contract and must be dependent on other performance obligations in the contract to support including each obligation in a single contract.
A
Hendrix Inc., an equipment dealer, sells equipment on January 1, 2016, to Jimi Company for $200,000. Also, on January 1, 2016, Hendrix agrees to repurchase this equipment from Jimi Company on December 31, 2017 for a price of $233,280. At 1/1/16, Hendrix should record: Correct! a liability of $200,000 Sales Revenue of $200,000 Sales Revenue of $200,000 and a liability of $33,280 Sales Revenue of $200,000 and Interest Expense of $33,280
A
Holt Company enters into a contract to build a new plant facility for Segal Company for $2,500,000. In the contract, Segal will pay a performance bonus of $100,000 if Holt is able to complete the facility by October 1, 20X6. The performance bonus is reduced by 50% for each of the first two weeks after October 1, 20X6. If the completion is delayed more than two weeks, then Holt forfeits the entire performance bonus. Holt's prior experience with performance bonuses on similar contracts indicates the following probabilities of completion outcomes: Completed by:Probability:October 1, 20X680%October 8, 20X610%October 15, 20X65%After October 15, 20X65% How much should Holt record as the transaction price of the contract and why? Correct! $2,586,250 because Holt should use the expected value method $2,461,250 because Holt should use the expected value method. $2,500,000 because the performance bonus is not guaranteed. $2,600,000 because the most likely outcome is that Holt will deliver the facility by October 1, 20X6
A
How have bookkeeping methods changed since Pacioli's original teaching? A) Somewhat, but modern accountants still follow his teachings B) Significantly. Today's accounting is not at all like Pacioli's system. C) Not at all. We use Pacioli's system exactly as he wrote it. D) Significantly. With the advent of the computer, we no longer need to record the debit and credit of journal entries.
A
In determining the transaction price, the company must consider: Correct! variable consideration, non-cash consideration, time value of money, and consideration payable the time value of money, but not consideration payable non-cash consideration, but not the time value of money variable consideration, but not non-cash consideration
A
Kinnamont Company manufactures farming equipment that includes navigational systems as part of the standard equipment package and offers optional training on any navigational systems for an additional fee. Smith Company enters into a contract with Kinnamont that includes a combine, a navigational system, and training. Identify the performance obligations to which Smith should allocate the transaction price: Correct! The combine including the navigational system and the training as two separate performance obligations The combine, the navigational system, and the training as three performance obligations. The combine, the navigational system, and the training account for one performance obligation because they are all part of the same contract. No performance obligations exist because the work on the contract, including the training, has not begun.
A
Luca Pacioli is remembered as the "Father of Accounting" because: A) He was the first person to write a book explaining the double-entry method B) He was a successful businessman during the Italian Renaissance C) He invented double-entry accounting. D) He was the first person to audit the financial statements of the Italian government.
A
Luca Pacioli is remembered as the "Father of Accounting" because: A) He was the first person to write a book explaining the double-entry method B) He was a successful businessman during the Italian Renaissance C) He invented double-entry accounting. D) He was the first person to audit the financial statements of the Italian government.
A
Martinez Corporation purchases a patent from Carla Vista Company on January 1, 2020, for $71,000. The patent has a remaining legal life of 16 years. Martinez fells the patent will be useful for 10 years. Assume that at January 1, 2022, the carrying amount of the patent on Martinez's books is $56,800. In January , Martinez spends $30,400 successfully defending a patent suit. Martinez still feels the patent will be useful until the end of 2029. Which of the following is the correct amount of 2022 amortization? Correct Answer $10,900 You Answered $8,720 $3,800 $7,100
A
Mott Company purchases a machine from Janelle Company. Installation of the machine requires specialized knowledge that Mott does not possess. Janelle Company regularly includes installation as part of its sales contracts. The machine has a stand-alone price of $50,000, and the value of the installation is estimated to be $5,000. Mott agrees to purchase the machine for $50,000. How much of the contract price should be allocated to the machine and installation respectively? Correct Answer Machine $50,000; Installation $0 Machine $50,000; Installation $5,000 Machine $45,000; Installation $5,000 You Answered Machine $45,455; Installation $4,545
A
Murray Company has attempted to determine the replacement cost of its inventory. Three different appraisers arrive at substantially different amounts for this value. The president, nevertheless, decides to report the middle value for external reporting purposes. Which qualitative characteristic of information is lacking in these data? Correct! verifiability comparability confirmatory value materiality
A
Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year? Correct! $0 $120,000 $40,000 $15,000
A
On January 1, 2017, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest bearing note with a face amount of $629,406. The goods have an inventory cost on Fullbright's books of $240,000. What amount of Sales Revenue should Fullbright recognize in 2017? Correct! $400,000 $229,406 $240,000 $629,406
A
On January 1, 2017, Purdy Company enters into a contract to transfer Blue and Rain to Georgia Co. for $300,000. The contract specifies that payment for Blue will not occur until Rain is also delivered. In other words, payment will not occur until both Blue and Rain are transferred to Georgia. Purdy determines that standalone prices are $110,000 for Blue and $190,000 for Rain. Purdy delivers Blue to Georgia on February 10, 2017. On March 15, 2017, Purdy delivers Rain to Georgia. Purdy should record: Correct! Contract Asset of $110,000 on February 10 Contract Asset of $110,000 on January 1 Accounts Receivable of $300,000 on January 1 Accounts Receivable of $110,000 on February 10
A
On January 1, 20X2, Dot Company sold a three-year, service type extended warranty to Matrix Company for $36,000. The warranty took effect on the date of purchase (January 1, 20X2). What amount of Unearned Warranty Revenue should be reported on Dot's December 31, 20X3 Balance Sheet? Correct Answer $12,000 You Answered $24,000 $36,000 $0
A
On July 31, 2017, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory equipment. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam's only outstanding liability at December 31, 2017 is a $30,000, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31. What is the weighted-average accumulated expenditures to be used in the capitalization of interest calculation? Correct! $50,000 $200,000 $58,333 $66,667
A
One criteria that indicates that a company should disregard revenue guidance for contracts (i.e., a valid contract does not exist) is when: Correct! each party can unilaterally terminate the contract without compensation The contract has commercial substance Each party's rights regarding the goods or services to be transferred can be identified the payment terms for the goods and services to be transferred can be identified.
A
Preparation of merged financial statements when a parent-subsidiary relationship exists does NOT violate the: Correct! economic entity assumption comparability characteristic neutrality characteristic relevance characteristic
A
Rubin Company is the only company in its industry to depreciate its plant assets on a straight-line basis. What qualitative characteristic of accounting information is NOT being followed? Correct! comparability confirmatory value consistency verifiability
A
The following information is available about a signed agreement between two entities: The entities have agreed to specific performance obligations The entities have agreed on a price related to the performance obligations No work has begun on the performance obligations, and the contract is cancelable without payment of penalty or other consideration. It is probable that the company completing the work will collect the agreed-upon consideration. Does a valid contract exist between the entities to which the revenue recognition criteria may be applied? A) Correct! A valid contract does not exist because it is cancelable without penalty and no work on the performance obligations has begun. B) A valid contract exists because it identifies specific performance obligations and collectibility of the consideration is probable. C) A valid contract exists because the contract includes important terms, such as the agreed-upon price and specific performance obligations. D) A valid contract does not exist because the transaction price has not yet been allocated to the specific performance obligations.
A
The objective of financial reporting places most emphasis on: A) reporting to capital providers (i.e., investors and creditors) B) providing information to individuals who are experts in the field C) reporting on stewardship (i.e., managements effective use of assets) D) providing specific guidance related to specific needs
A
The objective or pervasive criterion of the conceptual framework is: Correct! decision usefulness understandability reliability comparability
A
The type of measurement in which assets are valued at the net realizable amount that the enterprise could expect to obtain from them in an orderly sale is known as: A) exit value B) historical cost C) general price level adjustment D) replacement cost
A
What brought professional accountancy to the US? A) British and Scottish accountants came over to account for large investments in industry; they stayed and opened their own shops B) The accounting systems in North American developed independently of European or Asian influence. C) University professors from the UK came to the US and began to teach the Italian method of bookkeeping D) Columbus brought over an Italian accountant when he discovered the New World.
A
What is meant by "political factors influencing accounting policy making"? A) Those who are affected by the rules will usually try to influence what those rules will be. B) Republicans prefer deregulating the capital markets. C) Democrats prefer taxing corporations and wealthy individuals D) All of the options are descriptive of what is meant by "political factors"
A
What is the end of Pacioli's accounting cycle? a) Trial Balance b) Posting to a ledger c) Making journal entries d) Recording accounting events in the Memorandum
A
What subject was Pacioli traveling to Italy to teach? A) Mathematics B) Art C) Literature D) Business
A
What was the significance of Arabic numerals in the development of accounting? A) An improvement over Roman numerals, they allowed for easy and systematic calculations. B)They allowed for the making of a permanent record in a common language. C) Arabic numerals evolved at the same time as reading and writing. D) They are necessary in equating debits and credits.
A
What was the title of Luca Pacioli's most famous book? A) Summa de Arithmetica, Geometia, Proportioniet Proportionalita B) De Computis et Scripturis C) Delia Mercatura et del Mercante Perfetto D) A System of Recordkeeping
A
Which Renaissance artist helped prepare drawings for Pacioli's work in 1497, Divinia Proportoine? A) Leonardo Da Vinci B) Van Gogh C) Michelangelo D) Raphael
A
Which of the following is FALSE regarding capitalization of interest? Correct! Interest can be capitalized for both self-constructed inventories and self-constructed assets. This policy is justified on the grounds that interest on borrowed funds is part of the total sacrifice required to acquire the asset it imputes an interest cost regardless of whether any specific debt was incurred to finance the asset construction. Verifiability is an issue with respect to this policy.
A
Which of the following is a true statement? Correct Answer Under the articulated approach, contributed capital, retained earnings, and unrealized capital adjustments are subclassifications of owners' equity. Under the articulated concept, accounting elements are defined using the revenue-expense approach rather than the asset-liability approach. The articulated approach severs the mathematical relationships between the balance sheet and income statement. You Answered Recent standards have advocated the non-articulated approach to financial statements.
A
Which of the following is a true statement? Correct Answer Revenue-expense proponents are prepared to introduce deferred charges and deferred credits in order to smooth income measurement. Asset-liability advocates are not prepared to tolerate a fluctuating income statement that may include unrealized holding gains and losses. Asset-liability advocates and revenue-expense advocates are polarized in part because the financial statements are non-articulated. You Answered With articulation, it is possible to have a revenue-expense-based income statement and an asset-liability-based balance sheet.
A
Which of the following is not a formal definition of assets that has been used by the accounting profession in the US? Correct! Only those economic resources that can be severed from the firm and sold. Something represented by a debit balance that is or would be properly carried forward upon a closing of books of account according to the rules or principles of accounting, on the basis that it represents either a property right or value acquired, or an expenditure made which has created a property or is properly applicable to the future. Economic resources of an enterprise that are recognized and measured in conformity with generally accepted accounting principles as well as certain deferred charges that are not resources but that are recognized and measured in conformity with generally accepted accounting principles. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
A
Which of the following is true of depreciation? Correct Answer It is the arbitrary matching of asset cost against revenue. It is the measurable loss in value associated with using an asset. It is calculated by applying rules and is a direct measure of an asset's cost relating to the current period. You Answered It is highly verifiable through calculation and recalculation.
A
Grayson Co. incurred significant costs in defending its patent rights. Which of the following is the appropriate treatment of the related litigation costs? Litigation costs would be capitalized regardless of the outcome of the litigation. Correct! Litigation costs would be capitalized if the patent right is successfully defended. Litigation costs would be expensed regardless of the outcome of the litigation. Litigation costs would be capitalized only if the patent was purchased rather than internally developed.
B
Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below: Truck #2 has a list price of $16,000 and is acquired for a down payment of $2,000 cash and a zero-interest-bearing note with a face amount of $14,000. The note is due April 1, 2018. Clarkson would normally have to pay interest at a rate of 10% for such a borrowing and the dealership has an incremental borrowing rate of 8%. The journal entry to record this purchase includes all of the following EXCEPT: Credit Notes Payable for $14,000 Correct! Debit Trucks for $14,962.96 Debit Discount on N/P of $1,272.74 Credit Cash for $2,000
B
On July 31, 2017, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory equipment. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam's only outstanding liability at December 31, 2017 is a $30,000, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31. How much interest may be capitalized as cost of the factory equipment? $8,000 Correct! $6,000 $17,400 $7,000
B
On September 1, 2020, Flint Corporation acquired Tamarisk Enterprises for a cash payment of $710,000. At the time of purchase, Tamarisk's balance sheet showed assets of $560,000, liabilities of $240,000, and owners' equity of $320,000. The fair value of Tamarisk's assets is estimated to be $790,000. Compute the amount of goodwill acquired by Flint. $230,000 Correct Answer $160,000 $80,000 You Answered none of the responses is correct
B
Peggy Fleming, Inc. has a fiscal year ending April 30. On May 2, 2017, Peggy Fleming Inc. borrowed $10,000,000 at 11% to finance construction of its own building. Repayments of the loan are to commence the month following completion of the building. During the year ended April 30, 2018, expenditures for the partially completed structure totaled $7,000,000. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $650,000 for the year. How much should be shown as capitalized interest on Peggy Fleming's financial statements at April 30, 2018? $1,100,000 Correct! $385,000 $120,000 $450,000
B
The expectations gap is: A) what governmental agencies want from standard-setting and what the standard setters provide B) what the public thinks accountants should do and what accountants think they can do. C) what financial information management provides and what users want D) what the users of financial statements want from the government and what is provided
B
Accounting standard setters use the following process in establishing accounting standards: A) research, preliminary views paper, discussion paper, standard B) discussion paper, research, exposure draft, standard C) research, discussion paper, exposure draft, standard D) research, exposure draft, discussion paper, standard
C
All of the following subsequent expenditures should be capitalized EXCEPT: Expenditure that increases the useful life of an existing asset Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset's salvage value Correct! Replacement of a minor broken part on a machine Expenditure that increases the effectiveness and efficiency of a productive asset but does not increase its salvage value
C
During 2017, Midori Ito Corporation constructed and manufactured certain assets and incurred the following interest costs in connection with those activities. Warehouse constructed for Ito's own use........$30,000 Special-order machine for sale to unrelated customer, produced according to customer's specifications.......$9,000 Inventories routinely manufactured, produced on a repetitive basis.....$8,000 All of these assets required an extended period of time for completion. Assuming the effect of interest capitalization is material, what is the total amount of interest cost to be capitalized? $30,000 $38,000 Correct! $39,000 $47,000
C
Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below: Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900. The journal entry to record this purchase includes all of the following EXCEPT: Credit to Cash of $13,900 Debit to Truck of $13,900 Correct! Debit to Truck of $15,000
C
Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below: Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of Common Stock in Clarkson Corporation. The stock has a par value of $10 and a market price of $13 per share. The journal entry to record this purchase includes all of the following EXCEPT: Debit to Trucks for $13,000 Credit to PIC in excess of par for $3,000 Correct! Credit to Common Stock for $14,000 Credit to Common Stock of $10,000
C
Martinez Corporation purchases a patent from Carla Vista Company on January 1, 2020, for $71,000. The patent has a remaining legal life of 16 years. Martinez fells the patent will be useful for 10 years. Assume that at January 1, 2022, the carrying amount of the patent on Martinez's books is $56,800. In January , Martinez spends $30,400 successfully defending a patent suit. Martinez still feels the patent will be useful until the end of 2029. How is the $30,400 expenditure recorded? Debit to Accumulated Amortization of $30,400 and credit of $30,400 to Cash Debit to Patent of $30,400 and Credit to Accumulated Amortization of $30,400 Correct! Debit to Patents of $30,400 and Credit to Cash of $30,400 Debit to Legal Expense of $30,400 and Credit to Cash
C
Navajo Corporation traded a used truck (cost of $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction. Assume the exchange has NO commercial substance. Which of the following is the correct journal entry to record this transaction? Debit Equipment $3,300; Debit Accumulated Depreciation $18,000; Credit Trucks $20,000; Credit Cash $500; Credit Gain on Disposal $800 Debit Equipment $2,500; Credit Trucks $2,000; Credit Cash $500 Correct! Debit Equipment $2,500; Debit Accumulated Depreciation $18,000; Credit Trucks $20,000; Credit Cash $500 Debit Equipment $2,800; Credit Gain on Disposal $300; Credit Trucks $2,000; Credit Cash $500
C
On December 31, 2017, Travis Tritt Inc. has a machine with a book value of $940,000. The original cost and related accumulated depreciation at this date are as follows: Machine $1,300,000 less Accumulated Depreciation of $360,000 Depreciation is computed at $60,000 per year on a straight-line basis. A fire completely destroys the machine on August 31, 2018. An insurance settlement of $430,000 was received for this casualty. Assume the settlement was received immediately. The journal entry to record this transaction would include all of the following EXCEPT: Don't forget to update depreciation! Credit to Machine of $1,300,000 Debit to Loss on Disposal of Machinery of $470,000 Correct! Debit to Accumulated Depreciation of $360,000 Debit to Cash of $430,000
C
On January 1, 2017, Oksana Baiul, Inc. signed a fixed-price contract to have Builder Associateds construct a major plant facility at a cost of $4,000,000. It was estimated that it would take 3 years to complete the project. Also on January 1, 2017, to finance the construction cost, Oksana Baiul borrowed $4,000,000 payable in 10 annual installments of $400,000, plus interest at the rate of 10%. During 2017, Oksana Baiul made deposit and progress payments totaling $1,500,000 under the contract; the weighted average amount of accumulated expenditures was $800,000 for the year. The excess borrowed funds were invested in short-term securities, from which Oksana Baiul realized investment income of $250,000. What amount should Oksana Baiul report as capitalized interest at December 31, 2017? $150,000 $40,000 Correct! $80,000 $150,000
C
On July 31, 2017, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory equipment. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam's only outstanding liability at December 31, 2017 is a $30,000, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31. What is interest revenue from the investment in short-term marketable securities earned during 2017? $12,500 $4,167 Correct! $2,500 $7,500
C
On July 31, 2017, Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory equipment. Construction was begun immediately and was completed on November 1, 2017. To help finance construction, on July 31 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final $100,000 payment to Minsk. Other than the note to Netherlands, Amsterdam's only outstanding liability at December 31, 2017 is a $30,000, 8%, 6-year note payable, dated January 1, 2014, on which interest is payable each December 31. What is the amount of "avoidable interest"? $8,000 $24,000 Correct! $6,000 $7,000
C
Since the completion of the codification project, GAAP can best be described as consisting of: A) Financial standards, interpretations, and concept statements B) FASB standards, interpretations, EITF consensuses, and accounting rules issued by FASB predecessor organizations C) any authoritative guidance included in the FASB codification D) FASB financial standards only
C
The authoritative status of FASB's conceptual framework is as follows: A) US GAAP does not have a conceptual framework; only the international standards do. B) It takes precedence over all other authoritative literature. C) It is used when there is no standard or interpretation related to the reporting issues under consideration. D) It is not as authoritative as a standard but takes precedence over any interpretation related to the reporting issue
C
Tiburon Corporation purchased a patent for $1,850,000 on November 30, 2018. It has a remaining legal life of 18 years. Tiburon estimates that the remaining useful life of the patent is a useful life of 15 years. What balance will be reported on the December 31, 2020 balance sheet for the patent (if necessary, round your answer to the nearest dollar)? Hint: This problem requires partial year depreciation for 2018. $1,485,606 $1,850,000 Correct! $1,593,056 $1,583,678
C
Which of the following is NOT a characteristic of intangible assets? They are not financial instruments. They are long-term in nature. Correct! They are all subject to amortization. They lack physical substance.
C
Which of the following is NOT an intangible asset? Legal costs incurred in securing a patent Unrecovered costs of a successful legal suit to protect the patent Correct! Cost of developing a patent Cost of purchasing a patent from an investor
C
Which of the following statements is TRUE? A) The primary objective of financial statements is to allow for a stewardship approach for reporting financial information - as opposed to efficient capital allocation. B) The objective of financial reporting is to prepare a balance sheet, an income statement, a statement of cash flows, and statement of owners' or stockholders' equity C) The objective of financing reporting uses an entity (A=L+OE) approach rather than a proprietary approach (A-L = OE) in determining what information to report. D) Because they are generally shorter, FASB interpretations are subject to less due process compared to FASB standards.
C
Bramble owns a patent that has a carrying value of $340,000. Bramble expects future net cash flows from this patent to total $260,000. The fair value of the patent is $185,000. What is the correct journal entry to record the impairment loss? No journal entry is required as the patent is not impaired. Dr. Loss on Impairment $155,000, Cr Accumulated Amortization - Patents $155,000 Dr Loss on Impairment $80,000, Cr Patents $80,000 Correct! Dr Loss on Impairment $155,000, Cr Patents $155,000
D
Fundamental considerations the FASB must keep in mind in its rule-making activities include: A) simplification of the accounting literature B) improvement in financial reporting C) international convergence D) All of the options are correct.
D
Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below: Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Clarkson carries in inventory. The computer system cost $12,000 and is normally sold by Clarkson for $15,200. Clarkson uses a perpetual inventory system. The journal entry to record this purchase includes all of the following EXCEPT: Credit to Inventory of $12,000 Debit to COGS of $12,000 Debit to Trucks of $15,200 Correct! Credit to Sales Revenue of $16,000
D
Navajo Corporation traded a used truck (cost of $20,000, accumulated depreciation $18,000) for a small computer with a fair value of $3,300. Navajo also paid $500 in the transaction. Assume the exchange has commercial substance. Which of the following is the correct journal entry to record this transaction? Debit Equipment $2,800; Credit Gain on Disposal $300; Credit Trucks $2,000; Credit Cash $500 Debit Equipment $2,500; Debit Accumulated Depreciation $18,000; Credit Trucks $20,000; Credit Cash $500 Debit Equipment $3,300; Credit Trucks of 2,000; Credit Cash of $500; Credit Gain on Disposal $800 Correct! Debit Equipment $3,300; Debit Accumulated Depreciation $18,000; Credit Trucks $20,000; Credit Cash $500; Credit Gain on Disposal $800
D
On December 31, 2017, Travis Tritt Inc. has a machine with a book value of $940,000. The original cost and related accumulated depreciation at this date are as follows: Machine $1,300,000 less Accumulated Depreciation of $360,000 Depreciation is computed at $60,000 per year on a straight-line basis. On April 1, 2018, Tritt sold the machine for $1,040,000 to Dwight Yoakam Company. What is the amount of Gain on Sale of the Equipment? Don't forget to update depreciation! $100,000 gain $110,000 gain $80,000 gain Correct! $115,000 gain
D
On December 31, 2017, Travis Tritt Inc. has a machine with a book value of $940,000. The original cost and related accumulated depreciation at this date are as follows: Machine $1,300,000 less Accumulated Depreciation of $360,000 Depreciation is computed at $60,000 per year on a straight-line basis. On July 31, 2018, the company donated this machine to the Mountain King City Council. The fair value of the machine at the time of the donation was estimated to be $1,100,000. Which of the following statements is True with respect to the journal entry? Don't forget to update depreciation! The company will record Loss on Disposal of Machinery of $905,000 The company will first update depreciation expense by $30,000 increase. The company will record Contribution Expense of $905,000 Correct! The company will record Contribution Expense of $1,100,000
D
The failure of financial reports to provide information on customer satisfaction indexes, reject rates, and company sustainability efforts describes the financial reporting challenge of: A) soft assets B) understandability C) forward-looking information D) nonfinancial measurements
D
The major players in financial reporting in the U.S. are FASB and the SEC. On the international side, the major players are: A) IOSCO and the SEC B) IASB and FASB C) FASB and IOSCO D) IASB and IOSCO
D
Which of the following is an intangible asset? Investment in a subsidiary company You Answered Goodwill generated internally Operating losses incurred in the start-up of a business Correct Answer Purchase cost of a franchise
D
Which of the following statements is FALSE regarding the SEC? A) The SEC was established by Congress with the Securities Exchange Act of 1934. B) The SEC has the authority to enforce its regulations. C) Corporations whose securities are listed on a US stock exchange are required to file audited financial statements with the SEC. D) The SEC established the PCAOB (Public Company Accounting Oversight Board)
D