FAR 2 FINAL
Romo Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented, all in the year 2017. How should these costs be accounted for in 2017?
The $190,000 should be expensed as R&D expense in 2017. The $91,000 is expensed as selling and promotion expense in 2017. The $45,000 of costs to legally obtain the patent should be capitalized and amortized over the useful or legal life of the patent, whichever is shorter
What should be the pattern of amortization for a limited-life intangible?
The amortization amount should reflect the pattern in which the asset is consumed or used up, if that pattern can be reliably determined. If the pattern can't be determined, then straight-line should be used
During 2017, Node Co. sold equipment that had cost $392,000 for $235,200. This resulted in a gain of $17,200. The balance in Accumulated Depreciation—Equipment was $1,300,000 on January 1, 2017, and $1,240,000 on December 31. No other equipment was disposed of during 2017. Depreciation expense for 2017 was a) $114,000 b) $77,200 c) $234,000 d) $60,000
a) $114,000
What are the factors to be considered in estimating the useful life of an intangible asset?
-The expected use of the asset by the entity -The expected useful life of another asset or group of assets to which the useful life of the intangible asset may relate -Any legal, regulatory, or contractual provisions that may limit useful life -Any legal, regulatory, or contractual provisions that enable renewal or extension of the asset's legal or contractual life without substantial cost -The effects of obsolescence, demand, competition, and other economic factors -The level of maintenance expenditure required to obtain the expected future cash flows from the asset
Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be readily determined. Prepare the journal entry to record the amortization of the patent in its first year of use.
Amortization Expense 35,000 Patents 35,000
Why does the accounting profession make a distinction between internally created intangibles and purchased intangibles?
Internally created intangibles - hard to know for sure what their future potential is Purchased intangibles - capitalized because its cost can be objectively verified and reflects its fair value at the date of acquisition
What is a bargain purchase?
It occurs when the FV of the assets purchased is higher than the cost
Intangibles have either a limited useful life or an indefinite useful life. How should these two different types of intangibles be amortized?
Limited-life: amortized by systematic charges to expense over their useful life Indefinite-life: not amortized
What are the two main characteristics of intangible assets?
They lack physical substance They are not a financial instrument
Unrealized holding gains or losses which are recognized in income are from debt securities classified as a) trading b) available-for-sale c) held-to-maturity d) none of these
a) trading
The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. These costs should be a) capitalized and never amortized b) capitalized and amortized over 40 years c) capitalized and amortized over 5 years d) expensed as incurred
d) expensed as incurred
Which of the following is not a common disclosure for inventories? a) inventory composition b) inventory costing methods employed c) inventory location d) inventory financing arrangements
c) inventory location
In 2017, Ghostbusters Corp. spent $420,000 for "goodwill" visits by sales personnel to key customers. The purpose of these visits was to build a solid, friendly relationship for the future and to gain insight into the problems and needs of the companies served. How should this expenditure be reported?
Companies cannot capitalize self-developed, self-maintained, or self-created goodwill. These expenditures would most likely be reported as selling expenses
Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift's journal entries to record the purchase of the patent and 2017 amortization.
Patents 54,000 Cash 54,000 Amort. Exp. 5,400 Patents 5,400 ($54,000 x 1/10 = $5,400)
Which of the following is a characteristic of a current liability but not a long-term liability? a) liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities b) transaction or other event creating the liability has already occurred c) unavoidable obligation d) present obligation that entails settlement by probable future transfer or use of cash, goods, or services
a) liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities
When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the a) market price of the stock b) par value of the stock c) stated value of the stock d) book value of the stock
a) market price of the stock
Which of the following is an example of a contingent liability? a) obligations related to product warranties b) pending court case with a probable favorable outcome c) tax loss carryforwards d) possible receipt from a litigation settlement
a) obligations related to product warranties
In a service-type warranty, warranty revenue is a) recognized equally over the warranty period b) recognized only in the last year of the warranty period c) recognized in the year of sale d) not recognized
a) recognized equally over the warranty period
Which of the following situations may give rise to unearned revenue? a) selling magazine subscriptions b) providing manufacturer warranties c) selling inventory d) providing trade credit to customers
a) selling magazine subscriptions
Which of the following costs incurred internally to create an intangible asset is generally expensed? a) Filing costs b) Research and development costs c) Legal costs d) All of the above
b) Research and development costs
An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is NOT true? a) the cost of sales of the following year will be understated b) income of the following year will be understated c) the closing inventory of the current year is understated d) the current year's income is understated
b) income of the following year will be understated
Purchased goodwill should a) be written off as soon as possible as an extraordinary item b) not be amortized c) be written off as soon as possible against retained earnings d) be written off by systematic charges as a regular operating expense over the period benefited
b) not be amortized
Why might inventory be reported at sales prices (net realizable value or market price) rather than cost? a) when there are no significant costs of disposal b) when there is a controlled market with a quoted price applicable to all quantities c) when there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal d) when a non-cancellable contract exists to sell the inventory
c) when there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal
Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $300 per unit sold and reported a liability for estimated warranty costs $10.4 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $324 million and paid warranty claims of $12,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? a) $3,733,333 b) $6,000,000 c) $18,000,000 d) $16,400,000
d) $16,400,000
When depreciation is computed for partial periods under a decreasing charge depreciation method, it is necessary to a) use the straight-line method for the year in which the asset is sold or otherwise disposed of b) charge a full year's depreciation to the year of acquisition c) use a salvage value equal to the first year's partial depreciation charge d) determine depreciation expense for the full year and then prorate the expense between the two periods involved
d) determine depreciation expense for the full year and then prorate the expense between the two periods involved
Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to a) expenses of the period b) legal fees and amortized over 5 years or less c) patents and amortized over the legal life of the patent d) patents and amortized over the remaining useful life of the patent
d) patents and amortized over the remaining useful life of the patent
Which of the following is NOT a correct statement about sales taxes? a) if sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate b) Sales Taxes Payable is classified as a current liability c) many companies record sales taxes in the sales account d) sales taxes are an expense of the seller
d) sales taxes are an expense of the seller
Net realizable value is a) selling price plus costs to complete and sell b) acquisition cost plus costs to complete and sell c) selling price d) selling price less costs to complete, sell, and transport
d) selling price less costs to complete, sell, and transport
General Products Company bought Special Products Division in 2017 and appropriately recorded $750,000 of goodwill related to the purchase. On December 31, 2018, the fair value of Special Products Division is $6,000,000 and it is carried on General Products' books for a total of $5,100,000 including the goodwill. An analysis of Special Products Division's assets indicates that goodwill of $600,000 exists on December 31, 2018. What goodwill impairment should be recognized by General Products in 2018? a) $300,000 b) $450,000 c) $0 d) $75,000
c) $0
Kern Company purchased bonds with a face amount of $1,000,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $15,000, and paid accrued interest for three months of $25,000. The amount to record as the cost of this long-term investment in bonds is a) $1,060,000 b) $1,020,000 c) $1,035,000 d) $1,000,000
c) $1,035,000 ($1,000,000 × 1.02) + $15,000 = $1,035,000
In January, 2017, Yager Corporation purchased a mineral mine for $5,100,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $300,000 after the ore has been extracted. The company incurred $1,500,000 of development costs preparing the mine for production. During 2017, 600,000 tons were removed and 480,000 tons were sold. What is the amount of depletion that Yager should expense for 2017? a) $1,152,000 b) $1,440,000 c) $1,512,000 d) $2,016,000
c) $1,512,000 [($5,100,000 - $300,000 + $1,500,000) ÷ 2,000,000] × 480,000 = $1,512,000
A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2016 for $3,000,000. The company uses straight-line amortization for patents. On January 2, 2018, a new patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least amount of amortization that could be recorded in 2018 is a) $500,000 b) $136,362 c) $100,000 d) $115,000
c) $100,000 $3,000,000 - [($3,000,000 ÷ 6) × 2] = $2,000,000. $2,000,000 ÷ 20 = $100,000
Rich Corporation purchased a limited-life intangible asset for $450,000 on May 1, 2016. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2018? a) $90,000 b) $135,000 c) $120,000 d) $0
c) $120,000
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost / Retail Beginning inventory $147,000 / $210,000 Purchases $672,000 / $960,000 Freight-in $18,000 / — Net markdowns — / $42,000 Sales — / $1,008,000 Net markups — / $60,000 Assuming no change in the price level if the LIFO inventory method were used in conjunction with the data, the ending inventory at cost would be a) $129,600 b) $126,000 c) $122,400 d) $127,800
c) $122,400
Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademarked product will generate cash flows for an indefinite period of time. How should this trademark be amortized?
Because it is an indefinite-life intangible it shouldn't be amortized
If intangibles are acquired for stock, how is the cost of the intangible determined?
By the FV of the consideration given or the FV of the consideration received, whichever is more clearly evident
On January 1, 2018, Reston Company purchased 25% of Ace Corporation's common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston's investment account was $1,170,000 at December 31, 2018. Ace reported net income of $700,000 for the year ended December 31, 2018, and paid cash dividends on common stock totaling $280,000 during 2018. How much did Reston pay for its 25% interest in Ace? a) $1,065,000 b) $1,275,000 c) $1,240,000 d) $1,415,000
a) $1,065,000
Turner Corporation acquired two inventory items at a lump-sum cost of $100,000. The acquisition included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for $30 per unit, and 1B for $10 per unit. If Turner sells 1,000 units of LF, what amount of gross profit should it recognize? a) $11,250 b) $23,750 c) $3,750 d) $20,000
a) $11,250
A company gives each of its 75 employees (assume they were all employed continuously through 2017 and 2018) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2017, they made $21 per hour and in 2018 they made $24 per hour. During 2018, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2017 and 2018 balance sheets, respectively? a) $151,200; $216,000 b) $151,200; $210,600 c) $172,800; $216,000 d) $172,800; $210,600
a) $151,200; $216,000
Given the acquisition cost of product Dominoe is $20, the net realizable value for the product Dominoe is $17, the normal profit for product Dominoe is $2, and the market value (replacement cost) for product Dominoe is $18, what is the proper per unit inventory price for product Dominoe applying LCM? a) $17 b) $20 c) $18 d) $15
a) $17
On January 1, 2014, the Accumulated Depreciation—Machinery account of a particular company showed a balance of $740,000. At the end of 2014, after the adjusting entries were posted, it showed a balance of $790,000. During 2014, one of the machines which cost $250,000 was sold for $121,000 cash. This resulted in a loss of $8,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2014? a) $171,000 b) $50,000 c) $121,000 d) $187,000
a) $171,000
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost / Retail Beginning inventory $147,000 / $210,000 Purchases $672,000 / $960,000 Freight-in $18,000 / — Net markdowns — / $42,000 Sales — / $1,008,000 Net markups — / $60,000 The ending inventory at retail should be: a) $180,000 b) $192,000 c) $126,000 d) $222,000
a) $180,000
Barton Corporation acquires a coal mine at a cost of $1,800,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $210,000. Barton estimates that 6,000 tons of coal can be extracted. What is the amount of depletion per ton? a) $355 b) $320 c) $300 d) $390
a) $355
Orton Corporation, which has a calendar year accounting period, purchased a new machine for $80,000 on April 1, 2013. At that time Orton expected to use the machine for nine years and then sell it for $8,000. The machine was sold for $44,000 on Sept. 30, 2018. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be a) $4,000 b) $8,000 c) $0 d) $6,000
a) $4,000
Wilson Co. purchased land as a factory site for $1,350,000. Wilson paid $120,000 to tear down two buildings on the land. Salvage was sold for $8,100. Legal fees of $5,220 were paid for title investigation and making the purchase. Architect's fees were $46,800. Title insurance cost $3,600, and liability insurance during construction cost $3,900. Excavation cost $15,660. The contractor was paid $4,200,000. An assessment made by the city for pavement was $9,600. Interest costs during construction were $255,000. What is the total cost of the new building? a) $4,521,360 b) $4,207,260 c) $4,205,700 d) $4,219,800
a) $4,521,360
Platteville Corporation has the following account balances at 12/31/18: Amortization expense $ 20,000 Goodwill 280,000 Patent, net of $60,000 amortization 160,000 What amount should Platteville report for intangible assets on the 12/31/18 balance sheet? a) $440,000 b) $220,000 c) $160,000 d) $460,000
a) $440,000 $280,000 + $160,000 = $440,000
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $36,000 and a fair value of $45,000. The asset given up by Armstrong Co. has a book value of $60,000 and a fair value of $57,000. Boot of $12,000 is received by Armstrong Co. What amount should Glen, Inc. record for the asset received? a) $48,000 b) $60,000 c) $57,000 d) $45,000
a) $48,000
Debt securities that are accounted for at amortized cost, not fair value, are a) held-to-maturity debt securities b) trading debt securities c) never-sell debt securities d) available-for-sale debt securities
a) held-to-maturity debt securities
Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $390,000 ($594,000), purchases during the current year at cost (retail) were $2,055,000 ($3,300,000), freight-in on these purchases totaled $129,000, sales during the current year totaled $3,000,000, and net markups (markdowns) were $72,000 ($108,000). What is the ending inventory value at cost? a) $556,842 b) $567,138 c) $580,206 d) $858,000
a) $556,842
Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2018 for $1,000,000. During 2018, Doane earned $400,000 and paid dividends of $250,000. Rich's 30% interest in Doane gives Rich the ability to exercise significant influence over Doane's operating and financial policies. During 2019, Doane earned $500,000 and paid cash dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2019, Rich sold half its stock in Doane for $660,000 cash. Before income taxes, what amount should Rich include in its 2018 income statement as a result of the investment? a) $75,000 b) $400,000 c) $250,000 d) $120,000
a) $75,000
Landis Company purchased $3,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $3,124,740 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Avaliable-For-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $10,620 and $10,980, respectively. At December 31, 2018, the fair value or the Ritter, Inc. bonds was $3,180,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity? a) $76,860 b) No entry should be made c) $21,600 d) $55,260
a) $76,860
Carson Company purchased a depreciable asset for $560,000. The estimated salvage value is $28,000, and the estimated useful life is 10,000 hours. Carson used the asset for 1,500 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset? a) $79,800 b) $53,200 c) $532,000 d) $88,200
a) $79,800
Ryan Distribution Co. has determined its December 31, 2017 inventory on a FIFO basis at $980,000. Information pertaining to that inventory follows: Estimated selling price $1,020,000 Estimated cost of disposal 40,000 Normal profit margin 120,000 Current replacement cost 900,000 Ryan records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2017, the loss that Ryan should recognize is a) $80,000 b) $40,000 c) $0 d) $20,000
a) $80,000 $980,000 - $900,000 (RC) = $80,000
The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost / Retail Beginning inventory $147,000 / $210,000 Purchases $672,000 / $960,000 Freight-in $18,000 / — Net markdowns — / $42,000 Sales — / $1,008,000 Net markups — / $60,000 If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost-to-retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of a) $819,000 and $1,170,000 b) $837,000 and $1,230,000 c) $837,000 and $1,170,000 d) $837,000 and $1,188,000
a) $819,000 and $1,170,000
A markup of 25% on cost is equivalent to what markup on selling price? a) 20% b) 80% c) 75% d) 25%
a) 20%
At December 31, 2018, Atlanta Company has an equity portfolio valued at $160,000. Its cost was $132,000. If the Securities Fair Value Adjustment has a debit balance of $8,000, which of the following journal entries is required at December 31, 2018? a) DR FV Adjustment 20,000 CR Unrealized Hold. G/L - Income 20,000 b) DR Unrealized Hold. G/L - Income 20,000 CR FV Adjustment 20,000 c) DR FV Adjustment 28,000 CR Unrealized Hold. G/L- Income 28,000 d) DR Unrealized Hold. G/L - Income 28,000 CR FV Adjustment 28,000
a) DR FV Adjustment 20,000 CR Unrealized Hold. G/L - Income 20,000
Which of the following activities should be expensed currently as R&D costs? a) Testing in search for or evaluation of product or process alternatives b) Engineering follow-through in an early phase of commercial production c) Legal work in connection with patent applications or litigation, and the sale or licensing of patents
a) Expense as R&D b) Expense as R&D c) Capitalize as patent and/or license and amortize
Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be a) capitalized as part of the cost of the land b) depreciated over the period from acquisition to the date the hotel is scheduled to be torn down c) capitalized as part of the cost of the new hotel d) written off as an extraordinary loss in the year the hotel is torn down
a) capitalized as part of the cost of the land
An expenditure made in connection with a machine being used by an enterprise should be a) capitalized if it increases the quality of units produced by the machine b) capitalized if it maintains the machine in normal operating condition c) expensed immediately if it merely improves the quality but does not extend the useful life d) expensed immediately if it merely extends the useful life but does not improve the quality
a) capitalized if it increases the quality of units produced by the machine
Which of the following would be considered research and development costs? a) construction of prototypes b) routine efforts to refine an existing product c) marketing research to promote a new product d) periodic alterations to existing production lines
a) construction of prototypes
Lower-of-cost or net realizable value as it applies to inventory is best described as the: a) drop of future utility below its original cost b) method of determining cost of goods sold c) change in inventory value to market value d) assumption to determine inventory flow
a) drop of future utility below its original cost
In no case can "market" in the lower-of-cost-or-market rule be more than a) estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal b) estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses c) estimated selling price in the ordinary course of business d) estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin
a) estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal
To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should a) include markups but not markdowns b) include markdowns but not markups c) ignore both markups and markdowns d) include markups and markdowns
a) include markups but not markdowns
Depletion expense a) is usually part of COGS b) excludes restoration costs from the depletion base c) includes tangible equipment costs in the depletion base d) excludes intangible development costs from the depletion base
a) is usually part of COGS
When a patent is amortized, the credit is usually made to a) the Patents account b) the Deferred Credit account c) an Accumulated Amortization account d) an expense account
a) the Patents account
When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? a) the investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee b) the investor should always use the fair value method to account for its investment c) the investor should always use the equity method to account for its investment d) the investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee
a) the investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee
Which of the following most accurately reflects the concept of depreciation as used in accounting? a) the process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset b) the process of charging the decline in value of an economic resource to income in the period in which the benefit occurred c) a method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved d) an accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets
a) the process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset
On January 2, 2015, Wang Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $45,000. The depreciation applicable to this equipment was $210,000 for 2018, computed under the sum-of-the-years'-digits method. What was the acquisition cost of the equipment? a) $1,650,000 b) $1,695,000 c) $1,625,000 d) $1,605,000
b) $1,695,000 (AC - 45,000) x 7/55 = 210,000 AC = 1,695,000
On January 1, 2017, the merchandise inventory of Glaus, Inc. was $1,600,000. During 2017 Glaus purchased $3,200,000 of merchandise and recorded sales of $4,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2017? a) $1,000,000 b) $1,800,000 c) $3,000,000 d) $800,000
b) $1,800,000 COGS = 4,000,000 x .75 = 3,000,000 1,600,000 + 3,200,000 - 300,000 = 1,800,000
On January 1, 2011, Forrest Company purchased equipment at a cost of $390,000. The equipment was estimated to have a salvage value of $12,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2018? a) $48,750 b) $10,500 c) $47,250 d) $10,833
b) $10,500 ($390,000 - $12,000) × 1/36 = $10,500
Equipment that cost $660,000 and has accumulated depreciation of $300,000 is exchanged for equipment with a fair value of $480,000 and $120,000 cash is received. The exchange lacked commercial substance. The new equipment should be recorded at a) $480,000 b) $288,000 c) $300,000 d) $360,000
b) $288,000 $480,000 - ($240,000 - $48,000) = $288,000
Gutierrez Company is constructing a building. Construction began in 2017 and the building was completed 12/31/17. Gutierrez made payments to the construction company of $3,000,000 on 7/1, $6,600,000 on 9/1, and $6,000,000 on 12/31. Weighted-average accumulated expenditures were a) $3,150,000 b) $3,700,000 c) $15,600,000 d) $9,600,000
b) $3,700,000
Hardin Company received $120,000 in cash and a used computer with a fair value of $360,000 from Page Corporation for Hardin Company's existing computer having a fair value of $480,000 and an undepreciated cost of $450,000 recorded on its books. The transaction has no commercial substance. How much gain should Hardin recognize on this exchange, and at what amount should the acquired computer be recorded, respectively? a) $120,000 and $450,000 b) $30,000 and $360,000 c) $0 and $330,000 d) $1,537 and $221,537
b) $30,000 and $360,000
During 2017, Woods Company purchased 80,000 shares of Holmes Corporation common stock for $1,260,000 as an equity investment. The fair value of these shares was $1,200,000 at December 31, 2017. Woods sold all of the Holmes stock for $17 per share on December 3, 2018, incurring $56,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2018 of a) $160,000 b) $44,000 c) $100,000 d) $104,000
b) $44,000
Newell, Inc. purchased equipment on July 1, 2011 at a cost of $800,000. The equipment has a useful life of 8 years, is depreciated using the straight-line method, and has no salvage value. On January 1, 2013 it became apparent to Newell, Inc. that this equipment had suffered an impairment of value. On January 1, 2013 it is estimated that the undiscounted future cash flows are $590,000 and the fair value is $420,000. The entry to record the impairment is: a) DR Retained Earnings 230,000 CR Reserve for Loss on Impairment of Equipment 230,000 b) DR Loss on Impairment of Equipment 230,000 CR Accumulated Depr. - Equipment 230,000 c) DR Loss on Impairment of Equipment 60,000 CR Accumulated Depr. - Equipment 60,000 d) DR Loss on Impairment of Equipment - 380,000 CR Accumulated Depr. - Equipment 380,000
b) DR Loss on Impairment of Equipment 230,000 CR Accumulated Depr. - Equipment 230,000
On August 1, 2018, Dambro Company acquired 1,200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2024, with interest paid each October 31 and April 30. The bonds will be added to Dambro's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2018 is a) Debt Investments DR $1,164,000 Interest Recievable DR $27,000 Cash CR $1,191,000 b) Debt Investments DR $1,164,000 Interest Revenue DR $27,000 Cash CR $1,191,000 c) Debt Investments DR $1,200,000 Interest Revenue DR $27,000 Discount on Debt Investments CR $36,000 Cash CR $1,191,000 d) Debt Investments DR $1,191,000 Cash CR $1,191,000
b) Debt Investments DR $1,164,000 Interest Revenue DR $27,000 Cash CR $1,191,000
Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes a) a credit to Premium on Debt Investments of $15,000 b) a debit to Debt Investments of $315,000 c) a debit to Debt Investments at $300,000 d) None of these choices are correct
b) a debit to Debt Investments of $315,000
Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost of acquiring Easton. Easton will report the excess amount as a) part of current income in the year of combination b) a gain c) deferred credit and amortize it d) paid-in capital
b) a gain
Which of the following is NOT a major characteristic of a plant asset? a) possesses physical substance b) acquired for resale c) yields services over a number of years d) acquired for use
b) acquired for resale
Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are a) never-sell debt securities b) available-for-sale debt securities c) held-to-maturity debt securities d) trading debt securities
b) available-for-sale debt securities
A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should a) not be accrued unless a written contractual obligation exists b) be accrued during the period when earned c) be accrued during the period when the compensated time is expected to be used by employees d) be accrued during the period following vesting
b) be accrued during the period when earned
A change in estimate should: a) result in restatement of prior period statements b) be handled in current and future periods c) be handled retroactively d) be handled in future periods only
b) be handled in current and future periods
The intangible asset goodwill may be a) written off directly to RE b) capitalized only when purchased c) capitalized either when purchased or created internally d) capitalized only when created internally
b) capitalized only when purchased
Investments in debt securities are generally recorded at a) maturity value b) cost including brokerage and other fees c) cost including accrued interest d) maturity value with a separate discount or premium account
b) cost including brokerage and other fees
Bargain Surplus made cash sales during the month of October of $375,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions? a) credit Sales Revenue for $347,483 b) credit Sales Taxes Payable for $22,500 c) debit Accounts Receivable for $375,000 d) credit Sales Taxes Payable for $21,226
b) credit Sales Taxes Payable for $22,500
Which of these is NOT included in an employer's payroll tax expense? a) state unemployment taxes b) federal income taxes c) federal unemployment taxes d) FICA (social security) taxes
b) federal income taxes
The retail inventory method is based on the assumption that the a) ratio of cost to retail changes at a constant rate b) final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods c) proportions of markups and markdowns to selling price are the same d) ratio of gross margin to sales is approximately the same each period
b) final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods
When boot is involved in an exchange having commercial substance a) only losses should be recognized b) gains or losses are recognized in their entirety c) a gain or loss is computed by comparing the fair value of the asset received with the fair value of the asset given up d) only gains should be recognized
b) gains or losses are recognized in their entirety
On April 1, Mooney Corporation purchased for $1,710,000 a tract of land on which was located a warehouse and office building. The following data were collected concerning the property: Current Assessed Valuation Vendor's Original Cost Land $600,000 $560,000 Warehouse 400,000 360,000 Office building 800,000 680,000 TOTAL $1,800,000 $1,600,000 What are the appropriate amounts that Mooney should record for the land, warehouse, and office building, respectively? a) land, $598,500; warehouse, $384,750; office building, $363,375 b) land, $570,000; warehouse, $380,000; office building, $760,000 c) land, $560,000; warehouse, $360,000; office building, $680,000 d) land, $600,000; warehouse, $400,000; office building, $800,000
b) land, $570,000; warehouse, $380,000; office building, $760,000
When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at? a) historical cost b) net realizable value c) NRV reduced by a normal profit margin d) sales price
b) net realizable value
When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to a) the total interest cost actually incurred b) that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made c) that portion of weighted-average accumulated expenditures on which no interest cost was incurred d) a cost of capital charge for stockholders equity
b) that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made
When a patent is amortized, the credit is usually made to a) a Deferred Credit account b) the Patents account c) an expense account d) an Accumulated Amortization account
b) the Patents account
Factors considered in determining an intangible asset's useful life include all of the following except: a) any legal or contractual provisions that may limit the useful life b) the amortization method used c) any provisions for renewal or extension of the asset's legal life d) the expected use of the asset
b) the amortization method used
The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when the exchange has commercial substance is usually recorded at a) the fair value of the asset received if it is equally reliable as the fair value of the asset given up b) the fair value of the asset given up, and a gain or loss is recognized c) either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company d) the fair value of the asset given up, and a gain but not a loss may be recognized
b) the fair value of the asset given up, and a gain or loss is recognized
Which of the following most accurately reflects the concept of depreciation as used in accounting? a) the process of charging the decline in value of an economic resource to income in the period in which the benefit occurred b) the process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset c) an accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets d) a method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved
b) the process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset
Which statement is true about the retail inventory method? a) it may not be used to estimate inventories for interim statements b) there are different versions of the retail inventory method c) it may not be used by auditors d) it may not be used to expedite physical inventory counts
b) there are different versions of the retail inventory method
An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a a) debit to the discount account b) debit to Interest Revenue c) debit to Debt Investments d) none of these answers are correct
c) debit to Debt Investments
On January 1, 2014, Russell Company purchased a copyright for $2,500,000, having an estimated useful life of 16 years. In January 2018, Russell paid $375,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2018, should be: a) $179,686 b) $156.250 c) $187,500 d) $0
c) $187,500 $2,500,000 / 16 years = $156,250/yr $375,000 / remaining 12 yrs = $31,250/yr $156,250 + $31,250 = $187,500
Myers Company acquired a 60% interest in Gannon Corporation on December 31, 2017 for $1,775,000. During 2018, Gannon had net income of $1,000,000 and paid cash dividends of $250,000. At December 31, 2018, the balance in the investment account should be a) $2,525,000 b) $2,375,000 c) $2,225,000 d) $1,775,000
c) $2,225,000
Timmons Company traded machinery with a book value of $600,000 and a fair value of $1,000,000. It received in exchange from Lewis Company a machine with a fair value of $900,000 and cash of $100,000. Lewis's machine has a book value of $950,000. What amount of gain should Timmons recognize on the exchange (assuming lack of commercial substance)? a) $0 b) $100,000 c) $40,000 d) $400,000
c) $40,000 ($1,000,000 - $600,000) × [$100,000 ÷ ($100,000 + $900,000)] = $40,000
On March 1, 2017, Newton Company purchased land for an office site by paying $2,700,000 cash. Newton began construction on the office building on March 1. The following expenditures were incurred for construction: Date Expenditures March 1, 2017 $ 1,800,000 April 1, 2017 2,520,000 May 1, 2017 4,500,000 June 1, 2017 4,800,000 The office was completed and ready for occupancy on July 1. To help pay for construction, and purchase of land $3,600,000 was borrowed on March 1, 2017 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2017 was a $1,500,000, 12%, 6-year note payable dated January 1, 2017. Assume the weighted-average accumulated expenditures for the construction project are $4,350,000. The amount of interest cost to be capitalized during 2017 is a) $450,000 b) $504,000 c) $414,000 d) $391,500
c) $414,000
On January 3, 2017, Moss Company acquires $500,000 of Adam Company's 10-year, 10% bonds at a price of $532,090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2018 related to thse bonds? a) $53,208 b) $50,000 c) $47,698 d) $47,890
c) $47,698
On January 3, 2017, Moss Company acquires $500,000 of Adam Company's 10-year, 10% bonds at a price of $532,090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2018 related to these bonds? a) $53,208 b) $50,000 c) $47,698 d) $47,890
c) $47,698 ($532,090 × .09) - ($500,000 × .10) = ($2,112) - 2017 Amortization ($532,090 - $2,112) × .09 = $47,698 - 2018 Interest Revenue
Slotkin Products purchased a machine for $65,000 on July 1, 2017. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $5,000. Depreciation for 2017 is a) $32,500 b) $14,219 c) $8,125 d) $15,000
c) $8,125
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $72,000 and a fair value of $90,000. The asset given up by Armstrong Co. has a book value of $120,000 and a fair value of $114,000. Boot of $24,000 is received by Armstrong Co. What amount should Glen Inc. record for the asset received? a) $90,000 b) $114,000 c) $96,000 d) $120,000
c) $96,000
During 2018, Logic Company purchased 10,000 shares of Midi, Inc. for $30 per share. During the year, Logic Company sold 2,500 shares of Midi, Inc. for $35 per share. At December 31, 2018 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of unrealized gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2018 related to its investment in Midi, Inc. stock? a) $12,500 b) ($20,000) c) ($2,500) d) ($7,500)
c) ($2,500)
Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method / Equity Method a) Decrease / No Effect b) Increase / Decrease c) No Effect / Decrease d) No Effect / No Effect
c) No Effect / Decrease
Which of the following research and development related costs should be capitalized and depreciated over current and future periods? a) Inventory used for a specific research project b) Research findings purchased from another company to aid a particular research project currently in process c) Research and development general laboratory building which can be put to alternative uses in the future d) Administrative salaries allocated to research and development
c) Research and development general laboratory building which can be put to alternative uses in the future
In 2017, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2018 for $700,000. Before the December 31, 2017 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2017 will result in a credit that should be reported a) on the income statement b) as a valuation account to Inventory on the balance sheet c) as a current liability d) as an appropriation of retained earnings
c) as a current liability
The intangible asset goodwill may be a) capitalized only when created internally b) written off directly to retained earnings c) capitalized only when it is purchased d) capitalized either when purchased or created internally
c) capitalized only when purchased
Which of the following costs should be EXCLUDED from research and development expense? a) acquisition of R&D equipment for use on a current project only b) modification of the design of a product c) cost of marketing research for a new product d) engineering activity required to advance the design of a product to the manufacturing stage
c) cost of marketing research for a new product
Among the short-term obligations of Larsen Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Dennison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Larsen Company as a) long-term liabilities b) intermediate debt c) current liabilities d) deferred charges
c) current liabilities
Under the equity method of accounting for investments an investor recognizes its share of the earnings in the period in which the a) investee declares a dividend b) investee pays a dividend c) earnings are reported by the investee in its financial statements d) investor sells the investment
c) earnings are reported by the investee in its financial statements
Which of the following best describes the accounting for assurance-type warranty costs? a) expensed when warranty claims are certain b) expensed when paid c) expensed based on estimate in year of sale d) expensed when incurred
c) expensed based on estimate in year of sale
In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as a) customer patents b) indirect costs c) goodwill d) other assets
c) goodwill
Which statement is true about the gross profit method of inventory valuation? a) when calculated on selling price, it will always be more than the related percentage based on cost b) it may be used to estimate inventories for annual statements c) it may be used to estimate inventories for interim statements d) it eliminates the need for physical inventories
c) it may be used to estimate inventories for interim statements
Under current accounting practice, intangible assets are classified as a) legally restricted or goodwill-type b) amortizable or unamortizable c) limited-life or indefinite-life d) specifically identifiable or goodwill-type
c) limited-life or indefinite-life
Securities which could be classified as held-to-maturity are: a) redeemable preferred stock b) warrants c) municipal bonds d) treasury stock
c) municipal bonds
At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements? a) record unrealized gains of $400,000 and disclose the existence of the purchase commitment b) record unrealized losses of $400,000 and disclose the existence of the purchase commitment c) only disclose the existence of the purchase commitment d) no impact
c) only disclose the existence of the purchase commitment
The cost of land typically includes the purchase price and all of the following costs except a) grading, filling, draining, and clearing costs b) assumption of any liens or mortgages on the property c) private driveways and parking lots d) street lights, sewers, and drainage systems cost
c) private driveways and parking lots
Of the following items, the only one which should NOT be classified as a current liability is a) sales taxes payable b) current maturities of long-term debt c) short-term obligations expected to be refinanced on a long-term basis d) unearned revenues
c) short-term obligations expected to be refinanced on a long-term basis
Of the following costs related to the development of natural resources, which one is not a part of depletion cost? a) exploration costs b) intangible development costs such as drilling costs, tunnels, and shafts c) tangible equipment costs associated with machinery used to extract the natural resource d) acquisition cost of the natural resource deposit
c) tangible equipment costs associated with machinery used to extract the natural resource
Which of the following is NOT a condition that must be satisfied before interest capitalization can begin on a qualifying asset? a) interest cost is being incurred b) activities that are necessary to get the asset ready for its intended use are in progress c) the interest rate is equal to or greater than the company's cost of capital d) expenditures for the assets have been made
c) the interest rate is equal to or greater than the company's cost of capital
Neer Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be a) the maximum of the range b) zero c) the minimum of the range d) the mean of the range
c) the minimum of the range
The term "depreciable base", or "depreciation base", as it is used in accounting, refers to a) the cost of the asset less the related depreciation recorded to date b) the acquisition cost of the asset c) the total amount to be charged (debited) to expense over an asset's useful life d) the estimated market value of the asset at the end of its useful life
c) the total amount to be charged (debited) to expense over an asset's useful life
Tracy Company owns 4,000 of the 10,000 outstanding shares of Penn Corporation common stock. During 2018, Penn earns $450,000 and pays cash dividends of $150,000. If the beginning balance in the investment account was $900,000, the balance at December 31, 2018 should be a) $900,000 b) $1,200,000 c) $1,080,000 d) $1,020,000
d) $1,020,000 $900,000 + ($450,000 × .4) - ($150,000 × .4) = $1,020,000
In January 2017, Fritz Mining Corporation purchased a mineral mine for $6,300,000 with removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated value of $600,000 after the ore has been extracted. Fritz incurred $1,725,000 of development costs preparing the property for the extraction of ore. During 2017, 585,000 tons were removed and 525,000 tons were sold. For the year ended December 31, 2017, Fritz should include what amount of depletion in its cost of goods sold? a) $1,737,000 b) $1,333,800 c) $1,197,000 d) $1,559,250
d) $1,559,250 [(6,300,000 - 600,000 + 1,725,000) / 2,500,000] x 525,000 = 1,559,250
Given the historical cost of product Dominoe is $12, the selling price of product Dominoe is $15, costs to sell product Dominoe are $2, the replacement cost for product Dominoe is $11, and the normal profit margin is 20% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method? a) $13 b) $10 c) $12 d) $11
d) $11 Ceiling $13 ($15 - $2), Floor $12 ($13 - $3), RC $11; $11 MV, $12 Cost, LCM = $11
In March, 2017, Mallory Mines Co. purchased a coal mine for $8,000,000. Removable coal is estimated at 1,500,000 tons. Mallory is required to restore the land at an estimated cost of $960,000, and the land should have a value of $840,000. The company incurred $2,000,000 of development costs preparing the mine for production. During 2017, 360,000 tons were removed and 240,000 tons were sold. The total amount of depletion that Mallory should record for 2017 is a) $1,619,200 b) $2,198,400 c) $1,465,600 d) $2,428,800
d) $2,428,800 [(8,000,000 + 960,000 - 840,000 + 2,000,000) / 1,500,000] x 360,000 = 2,428,800
Blue Sky Company's 12/31/18 balance sheet reports assets of $7,000,000 and liabilities of $2,800,000. All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $420,000 greater than its book value. On 12/31/18, Horace Wimp Corporation paid $7,140,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase? a) $0 b) $2,940,000 c) $140,000 d) $2,520,000
d) $2,520,000 Blue Sky book value net assets: $7,000,000 - $2,800,000 = $4,200,000 12/31 Horace is buying them so compare what he pays with the FV of Blue Sky, so adjust for undervaluation of land $4,200,000 + $420,000 = $4,620,000 $7,140,000 - $4,620,000 = $2,520,000
Hall Co. incurred research and development costs in 2018 as follows: Materials used in R&D projects ($950,000) Equipment acquired that will have alternate future uses in future R&D projects ($3,000,000) Depreciation for 2018 on above equipment ($500,000) Personnel costs of persons involved in R&D projects ($750,000) Consulting fees paid to outsiders for R&D projects ($300,000) Indirect costs reasonably allocable to R&D projects ($225,000) Total: $5,725,000 The mount of research and development costs charged to Hall's 2018 income statement should be:
d) $2,725,000 Everything should be expensed except for the $3,000,000 equipment for alternate future uses
Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $280,000. The patents were carried on Shaq's books as follows: Patent A: $5,000; Patent B: $2,000, and Patent C: $3,000. When Alonzo acquired the patents, their fair values were: Patent A: $20,000, Patent B: $240,000, Patent C: $60,000. At what amount should Alonzo record Patent B? a) $93,333 b) $2,000 c) $186,666 d) $210,000
d) $210,000
Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year: Cost Retail Beginning inventory $ 30,000 $ 45,000 Purchases 190,000 260,000 Freight-in 2,500 — Net markups — 8,500 Net markdowns — 10,000 Employee discounts — 1,000 Sales revenue — 205,000 If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail ratio? a) $222,500 / $303,500 b) $222,500 $305,000 c) $220,000 / $315,000 d) $222,500 / $313,500
d) $222,500 / $313,500
Sutherland Company purchased machinery for $1,120,000 on January 1, 2014. Straight-line depreciation has been recorded based on a $70,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2018 at a gain of $21,000. How much cash did Sutherland receive from the sale of the machinery? a) $301,000 b) $161,000 c) $189,000 d) $231,000
d) $231,000 [($1,120,000 - $70,000) ÷ 5] × 4 1/3 = $910,000 ($1,120,000 - $910,000) + $21,000 = $231,000
Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market? a) $26 b) $12 c) $27 d) $24
d) $24
Mendenhall Corporation constructed a building at a cost of $14,000,000. Weighted-average accumulated expenditures were $5,600,000, actual interest was $560,000, and avoidable interest was $280,000. If the salvage value is $1,120,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is a) $469,000 b) $336,000 c) $357,000 d) $329,000
d) $329,000
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $36,000 and a fair value of $45,000. The asset given up by Armstrong Co. has a book value of $60,000 and a fair value of $57,000. Boot of $12,000 is received by Armstrong Co. What amount should Armstrong Co. record for the asset received? a) $48,000 b) $60,000 c) $57,000 d) $45,000
d) $45,000
Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $200,000. The total selling price is $560,000, and estimated costs of disposal are $20,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet? a) $180,000 b) $560,000 c) $240,000 d) $540,000
d) $540,000
The following information is available for Barkley Company's patents: Cost: $3,440,000 Carrying amount: $1,920,000 Expected future net cash flows: $1,600,000 Fair value: $1,300,000 Barkley would record a loss on impairment for a) $1,840,000 b) $1,920,000 c) $320,000 d) $620,000
d) $620,000 carrying amt vs fair value
On January 2, 2018, Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2018, Jobs, Inc. reported net income of $1,260,000 and distributed dividends of $540,000. The ending balance in the Investment in Pod Company account at December 31, 2018 was $960,000 after applying the equity method during 2018. What was the purchase price Pod Company paid for its investment in Jobs, Inc.? a) $1,140,000 b) $510,000 c) $1,410,000 d) $780,000
d) $780,000
On January 2, 2018, Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2018, Jobs, Inc. reported net income of $1,260,000 and distributed dividends of $540,000. The ending balance in the Investment in Pod Company account at December 31, 2018 was $960,000 after applying the equity method during 2018. What was the purchase price Pod Company paid for its investment in Jobs, Inc? a) $1,410,000 b) $1,140,000 c) $510,000 d) $780,000
d) $780,000
Slotkin Products purchased a machine for $39,000 on July 1, 2014. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2015 to the closest dollar is a) $7,500 b) $4,875 c) $19,500 d) $8,531
d) $8,531
Barton Corporation acquires a coal mine at a cost of $1,500,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $510,000. Barton estimates that 6,000 tons of coal can be extracted. If 900 tons are extracted the first year, which of the following would be included in the journal entry to record depletion? a) Credit to Inventory for $225,000 b) Debit to Accumulated Depletion for $229,500 c) Credit to Accumulated Depletion for $382,500 d) Debit to Inventory for $229,500
d) Debit to Inventory for $229,500
What characteristic is NOT possessed by intangible assets? a) Expensed over current and/or future years b) Long-lived c) Result in future benefits d) Physical existence
d) Physical existence
Judd, Inc. owns 35% of Cosby Corporation. During the calendar year 2018, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on this investment account, net income, and retained earnings, respectively? a) Understate, overstate, overstate b) Overstate, overstate, overstate c) Overstate, understate, understate d) Understate, understate, understate
d) Understate, understate, understate
Use of the double-declining balance method a) results in a decreasing charge to depreciation expense b) means salvage value is not deducted in computing the depreciation base c) means the book value should not be reduced below salvage value d) all of these
d) all of these
The cost of an intangible asset includes all of the following except a) other incidental expenses b) purchase price c) legal fees d) all of these are included
d) all of these are included
A requirement for a security to be classified as held-to-maturity is a) the security must be a debt security b) positive intent c) ability to hold the security to maturity d) all of these are required
d) all of these are required
Assets that qualify for interest cost capitalization include a) assets that are not currently being used because of excess capacity b) assets that are ready for their intended use in the earnings of the company c) all of these assets qualify for interest cost capitalization d) assets under construction for a company's own use
d) assets under construction for a company's own use
McDonald Company acquired machinery on January 1, 2012 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2017, McDonald estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by McDonald? a) as a prior period adjustment b) as the cumulative effect of a change in accounting principle in 2017 c) by continuing to depreciate the machinery over the original fifteen year life d) by setting future annual depreciation equal to one-sixth of the book value on January 1, 2017
d) by setting future annual depreciation equal to one-sixth of the book value on January 1, 2017
Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2017 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Greeson used a "Discount of Note Payable" account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2017 will include a a) credit to Discount on Note Payable for $2,600 b) debit to Discount on Note Payable for $2,600 c) credit to Interest Expense for $5,200 d) debit to Interest Expense for $5,200
d) debit to Interest Expense for $5,200
In no case can "market" in the lower-of-cost-or-market rule be less than a) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal b) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses c) estimated selling price in the ordinary course of business d) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin
d) estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin
In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made? a) expenditure made to increase the efficiency or effectiveness of an existing asset b) expenditure made to add new asset services c) expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated d) expenditure made to maintain an existing asset so that it can function in the manner intended
d) expenditure made to maintain an existing asset so that it can function in the manner intended
Which of the following is not reported as part of continuing operations? a) impairment losses for intangible assets b) amortization expense c) research and development costs d) goodwill
d) goodwill
A principal objection to the straight-line method of depreciation is that it a) provides for the declining productivity of an aging asset b) tends to result in a constant rate of return on a diminishing investment base c) gives smaller periodic write-offs than decreasing charge methods d) ignores variations in the rate of asset use
d) ignores variations in the rate of asset use
Goodwill a) represents the purchase price of a business that is about to be sold b) is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value c) generated internally should be capitalized in the year it occurs d) is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business
d) is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business
Which of the following is not a difference between the accounting treatment for depreciation and cost depletion? a) depletion refers to the physical exhaustion of consumption of the asset while depreciation refers to the wear, tear, and obsolescence of the asset b) depletion applies to natural resources while depreciation applies to plant and equipment c) many formulas are used in computing depreciation but only one is used to any extent in computing depletion d) the cost of the asset is the starting point from which computation of the amount of the periodic change is made to operations for depreciation, but the fair value reassessed each year as the starting point for the periodic charge for depletion
d) the cost of the asset is the starting point from which computation of the amount of the periodic change is made to operations for depreciation, but the fair value reassessed each year as the starting point for the periodic charge for depletion
When computing an impairment, companies must develop a model of discounted future cash flows. To discount the cash flows, companies use the weighted-average cost of capital (WACC). Which one of the following is the formula for the WACC? a) the weighted average, after-tax cost of debt - the weighted average cost of equity b) the weighted average, before-tax cost of debt + the weighted average cost of equity c) the weighted average, before-tax cost of debt + the weighted average, after-tax cost of equity d) the weighted average, after-tax cost of debt + the weighted average cost of equity
d) the weighted average, after-tax cost of debt + the weighted average cost of equity
