Global Ch 10, 11, &12

Accounting recognition should be given to the gain realized on a non-monetary exchange of plant assets except when the exchange has a. no commercial substance and additional cash is paid. b. commercial substance and additional cash is received. c. commercial substance and additional cash is paid. d. All of these cause recognition of a gain.

A

When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds not needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be a. offset against interest cost incurred during construction. b. used to increase the cost of assets being constructed. c. multiplied by an appropriate interest rate to determine the amount of interest to be capitalized. d. recognized as revenue of the period.

A

A change in estimate should a. result in restatement of prior period statements. b. be handled in current and future periods. c. be handled in future periods only. d. be handled retroactively.

B

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

B

For a non-monetary exchange of plant assets, accounting recognition should not be given to a. a loss when the exchange has no commercial substance. b. a gain when the exchange has commercial substance. c. a gain when the exchange has no commercial substance. d. a loss when the exchange has commercial substance.

C

If a government entity provides an interest free loan to a company and the company accounts for the grant using the deferred revenue approach, a. no interest expense will be recorded. b. the interest element is initially recorded as Discount on Notes Payable. c. the interest element is amortized to Deferred Grant Revenue over the term of the loan. d. All of these answer choices are correct.

C

Myers Company acquired machinery on January 1, 2010 which it depreciated under the straight-line method with an estimated life of fifteen years and no residual value. On January 1, 2015, Myers estimated that the remaining life of this machinery was six years with no residual value. How should this change be accounted for by Myers? a. As a prior period adjustment b. As the cumulative effect of a change in accounting principle in 2015 c. By setting future annual depreciation equal to one-sixth of the book value on January 1, 2015 d. By continuing to depreciate the machinery over the original fifteen year life

C

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. Expenditures for the assets have been made. c. The interest rate is equal to or greater than the company's cost of capital. d. Activities that are necessary to get the asset ready for its intended use are in progress.

C

A patent should be amortized over a. twenty years. b. its useful life. c. its useful life or twenty years, whichever is longer. d. its useful life or twenty years, whichever is shorter

D

An expenditure made in connection with a machine being used by a company should be a. expensed immediately if it merely extends the useful life but does not improve the quality. b. expensed immediately if it merely improves the quality but does not extend the useful life. c. capitalized if it maintains the machine in normal operating condition. d. capitalized if it increases the quantity of units produced by the machine.

D

A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn? a. Vertically and sloping down to the right b. Vertically and sloping up to the right c. Horizontally and sloping down to the right d. Horizontally and sloping up to the right

C

The term "depreciable base," or "depreciation base," as it is used in accounting, refers to a. the total amount to be charged (debited) to expense over an asset's useful life. b. the cost of the asset less the related depreciation recorded to date. c. the estimated fair value of the asset at the end of its useful life. d. the acquisition cost of the asset.

A

Which characteristic is not possessed by intangible assets? a. Physical existence. b. Identifiable. c. Result in future benefits. d. Expensed over current and/or future years

A

Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is a. 8/8. b. 8/12. c. 9/12. d. 11/12.

B

Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will a. be reported in the Other income and expense section of the income statement. b. effectively reduce the amount to be recorded as the cost of the new asset. c. effectively increase the amount to be recorded as the cost of the new asset. d. be credited directly to the retained earnings account.

B

If the cost of the asset is recorded net of the government grant, a. equity will likely be overstated. b. liabilities will likely be overstated. c. assets will likely be understated. d. revenues will likely be understated.

C

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 extend the useful life of an existing asset beyond the time frame originally anticipated c. Expenditure made to maintain an existing asset so that it can function in the manner intended d. Expenditure made to add new asset services

C

Plant assets purchased on long-term credit contracts should be accounted for at a. the total value of the future payments. b. the future amount of the future payments. c. the present value of the future payments. d. none of these answer choices are correct.

C

Which of the following statements about involuntary conversions is false? a. An involuntary conversion may result from condemnation or fire. b. The gain or loss from an involuntary conversion is reported in other income and expense on the income statement. c. The gain or loss from an involuntary conversion should not be recognized when the company reinvests in replacement assets. d. None of these answer choices are false

C

Economic factors that shorten the service life of an asset include a. obsolescence. b. supersession. c. inadequacy. d. All of these answer choices are correct.

D

Factors considered in determining an intangible asset's useful life include all of the following except a. the expected use of the asset. b. any legal or contractual provisions that may limit the useful life. c. any provisions for renewal or extension of the asset's legal life. d. the amortization method used.

D

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will a. be constant. b. vary with unit sales. c. vary with sales revenue. d. vary with production.

D

Which of the following is a capital expenditure? a. Payment of an account payable b. Retirement of bonds payable c. Payment of income taxes d. None of these answer choices are correct

D

Which of the following is a realistic assumption of the straight-line method of depreciation? a. The asset's economic usefulness is the same each year. b. The repair and maintenance expense is essentially the same each period. c. The rate of return analysis is enhanced using the straight-line method. d. Depreciation is a function of time rather than a function of usage.

D

Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be computed? a. What depreciable base is to be used for the asset? b. What is the asset's useful life? c. What method of cost apportionment is best for this asset? d. What product or service is the asset related to?

D

Which of the following is required by IFRS? a. Resources acquired through government grants must be recorded at cost. b. Resources acquired through government grants must be recorded at fair value. c. Resources acquired through government grants must be accounted for using the capital approach. d. Resources acquired through government grants must be accounted for using the income approach.

D

Which of the following is true of depreciation accounting? a. It is not a matter of valuation. b. It is part of the matching of revenues and expenses. c. It retains funds by reducing income taxes and dividends. d. All of these answer choices are correct.

D

For income statement purposes, depreciation is a variable expense if the depreciation method used is a. units-of-production. b. straight-line. c. sum-of-the-years'-digits. d. declining-balance.

A

Interest revenue earned on specific borrowings for qualifying assets a. reduces the cost of the qualifying asset. b. reduces interest expense reported on the income statement. c. increases equity in the period earned. d. None of these answer choices are correct

A

One factor that is not considered in determining the useful life of an intangible asset is a. salvage value. b. provisions for renewal or extension. c. legal life. d. expected actions of competitors.

A

The activity method of depreciation a. is a variable charge approach. b. assumes that depreciation is a function of the passage of time. c. conceptually associates cost in terms of input measures. d. All of these answer choicesare correct.

A

The cost of a non-monetary asset acquired in exchange for another non-monetary asset and the exchange has commercial substance is usually recorded at a. the fair value of the asset given up, and a gain or loss is recognized. b. the fair value of the asset given up, and a gain but not a loss may be recognized. c. the fair value of the asset received if it is equally reliable as the fair value of the asset given up. d. 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.

A

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

A

When an asset acquired through government grants is recorded using the capital approach, a. assets and equity increase by the fair value of the asset. b. assets and liabilities increase by the fair value of the asset. c. assets and equity increase by the cost of the asset. d. assets and liabilities increase by the cost of the asset.

A

When cash is involved in an exchange having commercial substance. a. gains or losses are recognized in their entirety. b. a gain or loss is computed by comparing the fair value of the asset received with the fair value of the asset given up. c. only gains should be recognized. d. only losses should be recognized.

A

Which of the following costs incurred internally to create an intangible asset is generally expensed? a. Research phase costs. b. Filing costs. c. Legal costs. d. All of these choices are correct.

A

Which of the following is not a capital expenditure? a. Repairs that maintain an asset in operating condition b. An addition c. A betterment d. A replacement

A

Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment? a. Capitalize only the actual interest costs incurred during construction. b. Charge construction with all costs of funds employed, whether identifiable or not. c. Capitalize no interest during construction. d. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.

A

41. Which of the following statements is true regarding capitalization of interest? a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account. b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. c. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be recorded as interest revenue. d. The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.

B

Depreciation is normally computed on the basis of the nearest a. full month and to the nearest cent. b. full month and to the nearest dollar. c. day and to the nearest cent. d. day and to the nearest dollar.

B

Limited-life intangibles are reported at their a. replacement cost. b. carrying amount unless impaired. c. acquisition cost. d. liquidation value.

B

Lynch Printing Company determines that a printing press used in its operations has suffered an impairment in value because of technological changes. An entry to record the impairment should a. recognize extra depreciation expense for the period. b. include a credit to the equipment accumulated depreciation account. c. include a credit to the equipment account. d. not be made if the equipment is still being used.

B

The account Deferred Grant Revenue is classified as a. a separate component of shareholders' equity. b. a non-current liability. c. Other income and expense. d. Revenue.

B

Under current accounting practice, intangible assets are classified as a. amortizable or unamortizable. b. limited-life or indefinite-life. c. specifically identifiable or goodwill-type. d. legally restricted or goodwill-type.

B

When depreciation is computed for partial periods under a diminishing-charge depreciation method, it is necessary to a. charge a full year's depreciation to the year of acquisition. b. determine depreciation expense for the full year and then prorate the expense between the two periods involved. c. use the straight-line method for the year in which the asset is sold or otherwise disposed of. d. use a residual value equal to the first year's partial depreciation charge.

B

Which intangible assets are amortized? Limited-Life Indefinite-Life a. Yes Yes b. Yes No c. No Yes d. No No

B

Which of the following does not describe intangible assets? a. They lack physical existence. b. They are monetary assets. c. They provide long-term benefits. d. They are classified as long-term assets

B

Which of the following is not true with regard to the accounting for government grants? a. Assets may be recorded at fair value or nominal cost. b. Companies may use either the capital or income approach to account for the asset and the grant. c. Companies may apply the income approach either by recording the grant as deferred revenue or as an adjustment to the asset. d. None of these answer choices are correct.

B

Which of the following methods of amortization is normally used for intangible assets? a. Sum-of-the-years'-digits b. Straight-line c. Units of production d. Double-declining-balance

B

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. 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

B

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

B

An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be a. expensed. b. debited to accumulated depreciation. c. capitalized in the machinery account. d. allocated between accumulated depreciation and the machinery account.

C

Companies should evaluate indefinite life intangible assets at least annually for: a. recoverability. b. amortization. c. impairment. d. estimated useful life.

C

Costs incurred internally to create intangibles are a. capitalized. b. capitalized if they have an indefinite life. c. expensed as incurred. d. expensed only if they have a limited life.

C

Use of the sum-of-the-years'-digits method a. results in residual value being ignored. b. means the denominator is the years remaining at the beginning of the year. c. means the book value should not be reduced below residual value. d. All of these answer choices are correct

C

Which of the following characteristics do intangible assets possess? a. Physical existence. b. Claim to a specific amount of cash in the future. c. Long-lived. d. Held for resale.

C

Which of the following is true regarding the alternative ways to apply the income approach to accounting of resources acquired through government grants? a. expenses will be higher and net income lower if the grant is recorded as deferred revenue. b. expenses will be higher and net income lower if the grant is accounted for as an adjustment to the asset. c. depreciation expense will be higher if the grant is recorded as deferred revenue, but net income will be the same under the two alternatives. d. depreciation expense will be higher if the grant is recorded as an adjustment to the asset, but net income will be the same under the two alternatives.

C

Which of the following non-monetary exchange transactions has commercial substance? a. Exchange of assets with no difference in future cash flows. b. Exchange of products by companies in the same line of business with no difference in future cash flows. c. Exchange of assets with a difference in future cash flows. d. Exchange of an equivalent interest in similar productive assets that causes the companies involved to remain in essentially the same economic position.

C

Copyrights should be amortized over a. their legal life. b. the life of the creator plus fifty years. c. twenty years. d. their useful life or legal life, whichever is shorter.

D

Interest cost that is capitalized should a. be written off over the remaining term of the debt. b. be accumulated in a separate deferred charge account and written off equally over a 40-year period. c. not be written off until the related asset is fully depreciated or disposed of. d. None of these answer choices are correct.

D

The cost of an intangible asset includes all of the following except a. purchase price. b. legal fees. c. other incidental expenses. d. all of these are included.

D

The major problem of accounting for intangibles is determining a. fair value. b. separability. c. salvage value. d. useful life.

D

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were a. less than current fair value. b. greater than cost. c. greater than book value. d. less than book value.

D

Use of the double-declining balance method a. results in a decreasing charge to depreciation expense. b. means residual value is not deducted in computing the depreciation base. c. means the book value should not be reduced below residual value. d. All of these answer choices are correct.

D

When a closely held corporation issues preference shares for land, the land should be recorded at the a. total par value of the shares issued. b. total book value of the shares issued. c. total liquidating value of the shares issued. d. fair value of the land.

D

When a plant asset is acquired by issuance of ordinary shares, the cost of the plant asset is properly measured by the a. par value of the shares. b. stated value of the shares. c. book value of the shares. d. fair value of the shares.

D