Chapter 10, 11, 12 Multiple Choice.

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? (LO 1) (a)Associating cause and effect (b)Systematic and rational allocation (c)Immediate recognition (d)Partial recognition

(b)Systematic and rational allocation Depreciation is a systematic and rational allocation of costs to periods of benefit.

Rhett Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000 for equipment with a fair value of $48,000 and received $12,000 cash. The exchange lacked commercial substance. The gain to be recognized from the exchange is (LO 4) (a)$4,800 gain. (b)$6,000 gain. (c)$18,000 gain. (d)$24,000 gain.

(a)$4,800 gain. The formula is [($12,000 / {$12,000 + $48,000}) × {($48,000 + $12,000 − ($66,000 - $30,000)}], or $4,800.

The residual value of an intangible asset should be assumed to be zero unless, at the end of its useful life, the intangible asset has value to another company. True/False

True

The major difference between the service life of an asset and its physical life is that (LO 1) (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 salvage value and service life requires the use of salvage 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)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. 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.

The entry to record the sale of a plant asset at a loss includes a credit to Accumulated Depreciation. True/Flase

False

Total depreciation over an asset's life cannot exceed an amount equal to cost minus estimated salvage value. true/false

True

Obsolescence is the replacement of one asset with another more efficient and economical asset. True/False

False

The accounting for interest costs incurred during construction recommended under GAAP is to: (LO 3) (a)capitalize no interest charges during construction. (b)charge construction with all costs of funds employed, whether identifiable or not. (c)capitalize the lesser of actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made. (d)capitalize a pro rata portion of all costs of funds employed.

(b)charge construction with all costs of funds employed, whether identifiable or not. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.

Erie Corporation owns machinery with a book value of $2,200,000. It is estimated that the machinery will generate future cash flows of $1,995,000. The machinery has a fair value of $1,915,000. The journal entry to record the impairment loss will (LO 3) (a)record a discontinued operations loss of $80,000. (b)increase the asset's Accumulated Depreciation account by $285,000. (c)reduce income from continuing operations by $205,000. (d)include a $285,000 credit to the asset account.

(b)increase the asset's Accumulated Depreciation account by $285,000. The impairment loss of $285,000 (book value of $2,200,000 less the fair value of $1,915,000) is recorded with a debit to an ordinary loss account and a credit to Accumulated Depreciation.

The cost of property acquired by the issuance of securities which are actively traded on an organized exchange is equal to: (LO 1) (a)the original cost of the securities. (b)the market value of the securities. (c)the par value of the securities. (d)the book value of the property acquired.

(b)the market value of the securities. Property acquired in a non-cash transaction is recorded at the market value of the item given up or the market value of the property received, whichever is more readily determinable.

Dixon Company purchased a depreciable asset for $32,000. The estimated salvage value is $4,000, and the estimated useful life is 4 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? (LO 1) (a)$6,400 (b)$7,000 (c)$8,000 (d)$16,000

(c)$8,000 The first year's depreciation is (50% of $32,000) $16,000. The second year's depreciation is [50% of ($32,000 − $16,000)] or $8,000.

Which of the following costs should be excluded from research and development expense? (LO 5) (a)Modification of the design of a product. (b)Acquisition of R&D equipment for use on a current project only. (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. The cost of marketing research for a new product should be excluded from research and development expenses.

Expensing all R&D costs associated with internally created intangible assets could result in (LO 1) (a)Overstating assets and overstating expenses. (b)Overstating assets and understating expenses. (c)Understating assets and overstating expenses. (d)Understating assets and understating expenses.

(c)Understating assets and overstating expenses. Expensing all R&D costs associated with internally created intangible assets could result in understating assets and overstating expenses.

Which of the following statements is true regarding capitalization of interest? (LO 3) (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 offset against interest cost incurred when determining the amount of interest cost to be capitalized. (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.

(c)When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. Capitalizing the lesser of actual interest cost for the period or the amount of interest cost incurred during the period that the company could have avoided if expenditures for the asset had not been made is the approach recommended under GAAP.

Delta River Company sold manufacturing equipment with a cost of $44,000 and accumulated depreciation of $32,000 for $9,000. The journal entry to record this transaction will include: (LO 6) (a)a credit to the Equipment account for $12,000. (b)a credit to a gain account for $8,000. (c)a debit to a loss account for $3,000. (d)a credit to Accumulated Depreciation — Equipment for $32,000.

(c)a debit to a loss account for $3,000. The journal entry to record the sale would include debits to Cash ($9,000), Accumulated Depreciation — Equipment ($32,000) and a loss account ($3,000). Equipment would be credited for $44,000.

Ignoring income tax effects, accelerated depreciation methods can (LO 1) (a)generate funds for the earlier replacement of fixed assets. (b)decrease funds provided by operations. (c)offset the effect of increasing repair and maintenance costs as the asset ages. (d)decrease the fixed asset turnover ratio.

(c)offset the effect of increasing repair and maintenance costs as the asset ages. Over the life of the asset, depreciation expense decreases each period while repairs and maintenance expense increases.

Cayo Casta Cabins Corporation recently purchased Ship Island Resort and Casino and the land on which it is located with the plan to tear down the resort and build a new luxury hotel on the site. Cayo Casta Cabin Corporation salvaged fixtures and wood flooring from Ship Island prior to demolishing the building. The proceeds from the sale of the salvaged materials should be (LO 1) (a)recognized as revenue in the period of the sale. (b)recognized as an extraordinary gain in the year the hotel is torn down. (c)recorded as a reduction of the cost of the land. (d)recorded as a reduction of the cost of the new hotel.

(c)recorded as a reduction of the cost of the land. Proceeds from the sale of the salvaged materials should reduce the cost of the land.

Flannery Corporation owns machinery with a book value of $520,000. It is estimated that the machinery will generate future cash flows of $465,000. The machinery has a fair value of $415,000. Florence should recognize a loss on impairment of (LO 3) (a)$0. (b)$50,000. (c)$55,000. (d)$105,000.

(d)$105,000. The future cash flows are less than book value, thus the book value is not recoverable. Book value, $520,000, less fair value, $415,000, results in a loss of $105,000 to be recognized.

On September 1, 2017, Alpha Graphics Printing Co. incurred the following costs for one of its printing presses: (LO 5) Purchase of attachment:$35,000 Installation of attachment: 3,000 Replacement parts for renovation of press: 12,000 Labor and overhead in connection with renovation of press: 1,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized? (a)$0. (b)$38,000. (c)$47,000. (d)$51,000.

(d)$51,000. Since the renovation significantly increased productivity, all $51,000 should be capitalized.

During self-construction of an asset by Gambino Company, the following were among the costs incurred: (LO 2) Fixed overhead for the year: $1,210,000 Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production: 35,000 Variable overhead attributable to self-construction: 25,000 What amount of overhead should Gambino include in the cost of the self-constructed asset? (a)$0 (b)$25,000 (c)$35,000 (d)$60,000

(d)$60,000 The amount is $35,000 + $25,000, or $60,000.

Which of the following is a factor to be considered in determining a limited-life intangible asset's useful life? (LO 1) (a)Any legal provisions that may limit the useful life. (b)The expected useful life of any related asset. (c)The effects of obsolescence. (d)All of the answer choices are correct.

(d)All of the answer choices are correct. All of the options are factors affecting useful life.

The total cost of natural resources includes all of the following except: (LO 4) (a)exploration costs. (b)intangible development costs. (c)restoration costs. (d)All of the options are included in the total cost.

(d)All of the options are included in the total cost. The total cost of natural resources includes all of the options.

The difference between the price paid to acquire another company and the fair market value of that company's net assets can be referred to as (LO 2) (a)A master valuation account. (b)Goodwill. (c)A gap filler. (d)All of these answer choices are correct.

(d)All of these answer choices are correct. Goodwill is the difference between the purchase price and the fair market value of the company's net assets. Since it is measured as a residual amount, it is sometimes called a master valuation account or a gap filler.

The presentation of intangible assets in the financial statements (LO 5) (a)Includes reporting R&D costs as an expense in the income statement. (b)Involves crediting amortization directly to the intangible asset account. (c)Includes the disclosure of the amortization expense for the next 5 years. (d)All of these answer choices are correct.

(d)All of these answer choices are correct. The presentation of intangibles in the financial statement includes reporting R&D expense in the income statement, crediting amortization directly to the intangible asset account, and disclosing amortization expense for the next 5 years.

IFRS accounting for impairments differs from GAAP in which of the following ways? (LO 7) (a)IFRS uses only a recoverability test in testing for impairment. (b)IFRS prohibits write-ups for recoveries of impairments for assets held for sale. (c)The IFRS impairment test is less strict than that required by GAAP. (d)IFRS permits recoveries of impairment to be recorded for all tangible assets.

(d)IFRS permits recoveries of impairment to be recorded for all tangible assets. While GAAP only permits write-ups for recoveries of impairment for assets held for sale, IFRS permits recovery write-ups for all tangible assets.

Under MACRS, which one of the following is not considered in determining depreciation? (LO 6) (a)Cost of asset (b)Property recovery class (c)Half-year convention (d)Salvage value

(d)Salvage value MACRS assumes a salvage value of zero.

Which of the following is not a characteristic of intangible assets? (LO 1) (a)They lack physical existence. (b)They are not financial instruments. (c)They are long-term in nature. (d)They are all subject to amortization.

(d)They are all subject to amortization. All of the options are characteristics except not all intangibles are subject to amortization.

Timber Ridge Company sold equipment with a cost of $75,000 and accumulated depreciation of $40,000 for $37,000. The journal entry to record this transaction will include: (LO 6) (a)a credit to the Equipment account for $35,000. (b)a credit to a gain account for $38,000. (c)a debit to a loss account for $2,000. (d)a debit to Accumulated Depreciation — Equipment for $40,000.

(d)a debit to Accumulated Depreciation — Equipment for $40,000. When plant assets are sold for an amount greater than their book value, a gain is recorded. The journal entry would include debits to Cash ($37,000) and Accumulated Depreciation ($40,000) and credits to Equipment ($75,000) and a gain account ($2,000).

Expenditures that extend the useful life of a plant asset without improving its quantity or quality are accounted for: (LO 5) (a)as additions. (b)as improvements. (c)by debiting the asset account. (d)by debiting Accumulated Depreciation.

(d)by debiting Accumulated Depreciation. Expenditures that extend the useful life of a plant asset are accounted for by debiting Accumulated Depreciation.

The cost of equipment would include all of the following except: (LO 1) (a)purchase price reduced by any discount taken. (b)freight costs. (c)installation costs. (d)cost of training the equipment operator.

(d)cost of training the equipment operator. The cost of training the equipment operator would not be capitalized as part of the cost of the equipment.

For the composite method, the composite (LO 2) (a)rate is the total cost divided by the total annual depreciation. (b)rate is the total annual depreciation divided by the total depreciable cost. (c)life is the total cost divided by the total annual depreciation. (d)life is the total depreciable cost divided by the total annual depreciation.

(d)life is the total depreciable cost divided by the total annual depreciation. The composite life is the total depreciable cost divided by the total annual depreciation.

The interest rate(s) used in computing avoidable interest is the: (LO 3) (a)rate incurred on specific borrowings. (b)weighted average rate incurred on all other outstanding debt. (c)lower of the rate incurred on specific borrowings or the weighted average rate. (d)rate incurred on specific borrowings for the weighted-average expenditures equal to the specific borrowings and the weighted average rate of other borrowings for the excess expenditures.

(d)rate incurred on specific borrowings for the weighted-average expenditures equal to the specific borrowings and the weighted average rate of other borrowings for the excess expenditures. The interest rates used in computing avoidable interest are the specific interest rate and the weighted average rate.

The controversy surrounding the policy to expense all research and development costs associated with internally created intangible assets results in: A. understating assets and overstating expenses. B. overstating assets and overstating expenses. C. understating assets and understating expenses. D. overstating assets and understating expenses.

A. understating assets and overstating expenses.

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

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

On July 1, 2017, Adele Company bought a trademark from Robert, Inc. for $2,750,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Robert's books was $1,600,000. In Adele's 2017 income statement, what amount should be reported as amortization expense? A. $137,500. B. $275,000. C. $160,000. D. $80,000.

A. $137,500. Straight-line amortization, $2,750,000 (cost) / 10 years (useful life) X 6/12 (July 1 - December 31, 2017) results in an amortization expense of $137,500.

Bogle Company purchased machinery for $320,000 on January 1, 2014. Straight-line depreciation has been recorded based on a $20,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2018 at a gain of $6,000. How much cash did Bogle receive from the sale of the machinery? A. $66,000. B. $54,000. C. $46,000. D. $86,000.

A. $66,000. $320,000 - $260,000 (320,000 - 20,000/ 5 years = 60,000 x 4 years = $240,000 ? 60,000 x 4/12 months, $20,000) results in book value of $60,000. Add $6,000 gain = $66,000.

Cambodian Import Company purchased a depreciable asset for $160,000 on April 1, 2014. The estimated salvage value is $40,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on March 1, 2017 when the asset is sold? A. $70,000 B. $72,000 C. $186,667 D. $66,000

A. $70,000 (Asset cost, $160,000 - Salvage value, $40,000) / 60 months results in a monthly depreciation of $2,000. For 35 months (April 1, 2014 - March 1. 2017) the accumulated depreciation is $70,000 (35 months x $2,000).

Watauga Company purchased equipment on July 1, 2017 for $70,000. Sales tax on the purchase was $700. Other costs incurred were freight charges of $800, insurance during shipping of $ 150, repairs of $1,300 for damage during installation, and installation costs of $1, 050. What is the cost of the equipment? A. $72,700 B. $71,500 C. $74,000 D. $70,000

A. $72,700 $70,000 + $700 + $800 + $150 + 1,050 = $72,700. Repair costs are not capitalized.

The impairment rule for goodwill involves how many steps? A. 2 B. 4 C. 3 D. 1

A. 2

Property received through a contribution is to be recognized at its fair market value and offset with a credit entry to a: A. Contribution Revenue account. B. Miscellaneous Gain account. C. Additional Paid-in Capital account. D. Paid-in Capital account.

A. Contribution Revenue account.

When is the restoration of an impairment loss permitted? A. On assets being held for disposal. B. On assets that have been that have already been disposed. C. On assets held for use. D. On all tangible assets whether held for use of disposal.

A. On assets being held for disposal.

A principal objection to the straight-line method of depreciation is that it: A. assumes that the asset's economic usefulness is the same each year. B. tends to result in a constant rate of return on a diminishing investment base. C. provides for the declining productivity of an aging asset. D. gives smaller periodic write-offs than decreasing charge methods.

A. assumes that the asset's economic usefulness is the same each year.

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

A. expected future net cash flows.

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

A. is usually part of cost of goods sold.

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

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

Impairment testing is performed in the same way for indefinite-life intangibles and limited-life intangibles.True/False

False

Lundy Company purchased a depreciable asset for $99,000 on January 1. The estimated salvage value is $18,000, and the estimated useful life is 9 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? A.$13,900 B. $16,988 C.$11,000 D. $17,820

B. $16,988 The double-declining balance rate is 100%/9 x 2 = 22%. The first year's depreciation is (22% of book value of asset first of year - Year 1, $99,000) $21,780. The second year's depreciation is [22% of (book value of asset first of year - Year 2, $99,000 - $21,780)] or $16,988.

Intangible assets are normally classified as current assets. True/False

False

Texarkana Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000 for equipment with a fair value of $48,000 and received $12,000 cash. The exchange lacked commercial substance. The gain to be recognized from the exchange is: A. $18,000 gain. B. $4,800 gain. C. $24,000 gain. D. $6,000 gain.

B. $4,800 gain. [$12,000/ ($12,000 + $48,000)] x [($48,000 + $12,000 - ($66,000 - $30,000) = $4,800 Gain.

Which of the following is not one of the major categories of intangibles? A. Marketing-related. B. Financing-related. C. Artistic-related. D. Contract-related.

B. Financing-related.

Which of the following research and development costs may be capitalized? A. Personnel. B. Research and development equipment with alternative future uses in other research & development projects or otherwise. C. Indirect costs. D. Contract services.

B. Research and development equipment with alternative future uses in other research & development projects or otherwise.

Which of the following is not a way in which MACRS differs from GAAP depreciation? C. Assigned salvage value of zero. B. Useful life must be shorter than legal life. C. Cost recovery is accelerated. D. Estimated life is mandated by tax law.

B. Useful life must be shorter than legal life.

In an exchange that lacks commercial substance in which a gain exists and cash is received, the asset received is recorded at the: A. book value of the asset given up less cash received. B. fair value of the asset received less the deferred portion of the gain. C. book value of the asset given up less the deferred portion of the gain. D. fair value of the asset given up less cash received.

B. fair value of the asset received less the deferred portion of the gain.

Capitalizing goodwill only when it is purchased in an arm's-length transaction, and not capitalizing any goodwill generated internally, is an example of: A. GAAP winning out over IFRS. B. faithful representation winning out over relevance. C. financial accounting winning out over managerial accounting. D. accrual accounting winning out over cash-basis accounting.

B. faithful representation winning out over relevance.

A purchased limited-life intangible asset ______ amortized and is impairment tested using _______________. A. is not; the fair value test only B. is; the recoverability test and then the fair value test C. is not; the recoverability test and then the fair value test D. is; the fair value test only

B. is; the recoverability test and then the fair value test

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

B. the nearest full month.

On January 1, 2017, Bumper Corp. acquires a customer list for $400,000. Bumper estimates that this customer list will generate value for at least 5 years. At the end of 3 years, Bumper plans to sell the customer list to another company for $62,500. On Bumper's income statement for the year ended December 31, 2017, how much amortization expense should it report? A. $133,333 B. $80,000 C. $112,500 D. $67,500

C. $112,500 Customer lists should be amortized over their useful life (lesser of useful life or legal/economic life): Annual Amortization Expense = Cost less residual value / useful life: ($400,000 - 62,500)/ 3 years = $112,500 annual amortization expense.

Burchell Company purchased land and a building for a lump sum cost of $420,000. The land has a fair market value of $160,000 and the building has a fair market value of $320,000. The cost assigned to the land is: A. $210,000. B. $0. C. $140,000. D. $160,000.

C. $140,000. $160, 000/ ($160,000 + $320,000) = $480,000 x $420,000 = $140,000

Lebanon Corporation owns equipment with a cost of $320,000 and accumulated depreciation at December 31, 2017 of $120,000. It is estimated that the machinery will generate future cash flows of $175,000. The machinery has a fair value of $155,000. If Lebanon uses IFRS, the company should recognize a loss on impairment of: A. $35,000. B. $0. C. $45,000. D. $25,000.

C. $45,000. IFRS does not use the first-stage recoverability test. The impairment loss would be the $45,000 difference between the asset's book value of $200,000 ($320,000 - $120,000) and its fair value of $155,000.

Production backlogs fall under which category of intangible assets? A. Technology-related. B. Marketing-related. C. Customer-related. D. Artistic-related.

C. Customer-related.

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

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

Which of the following would not be amortized? A. Patent. B. Copyright. C. Trade name. D. Customer List.

C. Trade name.

IFRS permits revaluation of: A. all of these answer choices are correct. B. indefinite-life intangible assets. C. limited-life intangible assets. D. goodwill.

C. limited-life intangible assets.

Land held for speculative purposes is classified as Property, Plant and Equipment but is not depreciated. True/False

False

Oscar Company acquired a patent on a manufacturing process on January 1, 2015 for $5,100,000. It was expected to have a 12 year life and no residual value. Oscar uses straight-line amortization for patents. On December 31, 2016, the expected future cash flows from the patent are $387,500 per year for the next ten years. The present value of these cash flows, discounted at Oscar's market interest rate, is $3,050,000. At what amount should the patent be carried on the December 31, 2016 balance sheet? A. $4,250,000 B. $5,100,000 C. $3,875,000 D. $3,050,000

D. $3,050,000 The book value of the patent at December 31, 2016 is $4,250,000 (cost of $5,100,000 less 2 years amortization at $425,000 per year ($5,100,000 cost / 12 year useful life)). Since the sum of the undiscounted cash flows of $3,875,000 is less than the carrying value, the company must measure and recognize an impairment loss. The patent should be carried on the balance sheet at the present value of the $387,500 expected annual cash flows for the next 10 years, $3,050,000.

Antigua Company purchased a depreciable asset for $45,000 on October 1, 2015. The estimated salvage value is $9,000, and the estimated useful life is 6 years. The straight-line method is used for depreciation. What is the book value on July 1, 2017 when the asset is sold? A. $10,500 B. $15,750 C. $25,500 D. $34,500

D. $34,500 (Asset cost, $45,000 - Salvage value, $9,000) / Useful life, 72 months results in a monthly depreciation of $500. After 21 months (October 1, 2015 - July 1, 2017), the balance in accumulated depreciation is $10,500 (21 months x $500), and the book value of the asset is $34,500 (Asset cost, $45,000 - Accumulated Depreciation, $10,500).

Dixon Company purchased a depreciable asset for $32,000. The estimated salvage value is $4,000, and the estimated useful life is 4 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? A. $7,000 B. $16,000 C. $6,400 D. $8,000

D. $8,000 The double-declining balance rate is 100%/4 x 2 = 50%. The first year's depreciation is (50% of book value of asset first of year - Year 1, $32,000) $16,000. The second year's depreciation is [50% of book value of asset first of year - Year 2, ($32,000 - $16,000)] or $8,000.

For 2017, Lassiter Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. Lassiter's 2017 asset turnover ratio is: A. .23 times. B. .25 times. C. 1.14 times. D. 1.25 times.

D. 1.25 times. Asset turnover ratio = Net Sales / Average Total Assets = $1,250,000 / [($900,000 + $1,100,000) / 2] is 1.25 times.

Which of the following is considered a research activity? A. Operation of a pilot plant. B. Construction of a prototype. C. All of these answer choices are correct. D. Critical investigation aimed at discovery of new knowledge.

D. Critical investigation aimed at discovery of new knowledge.

Which of the following statements is true regarding capitalization of interest? A. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. B. 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. C. 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. D. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.

D. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.

All of the following statements regarding IFRS accounting treatments for intangibles are true except: A. IFRS permits some capitalization of internally generated intangible assets. B. IFRS permits revaluation on limited-life intangible assets. C. IFRS allows reversal of impairment losses when there has been a change in economic conditions. D. Under IFRS, costs in the development phase of Research & Development costs are expensed once technological feasibility is achieved.

D. Under IFRS, costs in the development phase of Research & Development costs are expensed once technological feasibility is achieved.

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. all of these answer choices are correct.

The excess cost of the purchase over the fair market value of a company's identifiable net assets is sometimes referred to as A. a master valuation account. B. goodwill. C. a gap filler. D. all of these answer choices are correct.

D. all of these answer choices are correct.

Overhead costs related to self-constructed assets are accounted for by: A. assigning a portion of all overhead to the asset. B.allocating overhead on the basis of lost production. C. assigning no fixed overhead to the asset. D. assigning a pro rata portion of fixed overhead to the asset.

D. assigning a pro rata portion of fixed overhead to the asset.

In an exchange of nonmonetary assets that lacks commercial substance in which a gain exists and no cash is paid or received, the asset received is recorded at: A. book value of the asset received less the gain deferred. B. book value of the asset given up plus the deferred gain. C. fair value of the asset received up less the gain deferred. D. fair value of the asset given up less the deferred gain.

D. fair value of the asset given up less the deferred gain.

A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at: A. one dollar (since the site cost nothing but should be included in the balance sheet). B. the value assigned to it by the company's directors. C. the nominal cost of taking title to it. D. its fair value.

D. its fair value.

Property, plant, and equipment includes: A. deposits on machinery not yet received. B. idle equipment awaiting sale. C. land held for possible use as a future plant site. D. none of these answer choices would be classified as Property, plant, and equipment.

D. none of these answer choices would be classified as Property, plant, and equipment.

Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the: A.face value of the note. B. book value of the asset received. C. fair value of the asset received. D. present value of the note.

D. present value of the note.

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

D. should be included in corporate financial statements or notes thereto.

Avoidable interest is the lesser of actual interest cost incurred during a fiscal period or the amount of interest cost incurred during the construction period that a company could theoretically avoid if it had not made expenditures for the asset. True/False

False

Cash or other assets received in an exchange are referred to as "boot." True/False

False

If a company buys several intangible assets in a "basket purchase," the company should allocate the cost on the basis of the book values of the purchased intangible assets. True/False

False

Depletion is normally calculated using the straight-line method. True/False

False. Depletion is normally calculated using the units of production method, not the straight-line method.

A special assessment by the municipality for sidewalks and a drainage system would be included in the cost of land. True/False

True