Chapter 7 - investing activities

The need to incur costs to reclaim a natural resource is an example of a(n) A. asset retirement obligation B. development cost C. depletion cost D. exploration cost

A. asset retirement obligation

All of the following are typically costs that fail the future benefits test of long-lived operating assets except: A. costs of equipment used in production B. costs related to marketing C. costs related to brand building activities D. costs related to research and development

A. costs of equipment used in production

When a foreign entity has the U.S. dollar as its functional currency, it uses which exchange rate to translate monetary assets and liabilities? A. end of the period exchange rate B. the exchange rate based on the date the asset of liability was obtained C. the average exchange rate during the period D. the historical exchange rate

A. end of the period exchange rate

Which of the following is not a classification for a minority, passive investment? A. equity securities B. available for sale securities C. trading securities D. held to maturity securities

A. equity securities

A key characteristic of asset measurement is best described as: A. fair value at the acquisition date B. disposal cost less depreciation C. fair value less depreciation D. average value based on all assets held by the company

A. fair value at the acquisition date

When dividends from an investment are recognized as income, the investment must have been of which type? A. minority, passive investment B. majority active investment C. minority, active investment D. majority, passive investment

A. minority passive investment

Which of the following is not a difficulty in determining current market values when determining the value of fixed assets? A. Our current accounting model is not equipped to handle changes in market values. B. There is an absence of active markets for many fixed assets C. It is difficult to identify comparable assets currently available in the marketplace to value assets in place D. It is difficult to make assumptions about the effects of technology and other improvements when using the prices of new assets currently available on the market in the valuation process.

A. our current accounting model is not equipped to handle changes in market values

GAAP stipulates that firms should do what with expenditures that increase the service potential of an asset beyond that originally anticipated? A. expense the expenditure immediately B. charge it off to shareholder's equity C. capitalize the expenditure & depreciate it over the remaining service life of the asset D. capitalize the expenditure but do not depreciate the asset

C. capitalize the expenditure & depreciate it over the remaining service life of the asset

Which one of the following is an example of the expected benefit approach for valuing long-lived assets? A. current cost B. current replacement cost C. discounted present value D. historical cost

C. discounted present value

Expenditures included in the cost of a long-lived asset are A. intangible B. capitalized C. charged off D. expensed

B. capitalized

All of the following are types of intercorporate investments in capital stock except: A. minority, active B. majority, passive C. majority active D. minority passive

B. majority passive

When a foreign entity has the foreign currency as its functional currency, it uses which exchange rate to translate revenues and expenses in the income statement? A. the end of the period exchange rate B. the average exchange rate during the period C. the exchange rate on the date of the asset or liability was obtained D. the historical exchange rate

B. the average exchange rate during the period

Which of the following terms is least consistent with the allocation of costs using a rational and systematic method? A. amortization B. upward revaluation C. depreciation D. depletion

B. upward revaluation

Firms recognize an impairment loss when the carrying amount of a tangible fixed asset is deemed "not recoverable" as specified by GAAP. GAAP defines a carrying amount as "not recoverable" if A. it is less valuable than its current fair value. B.it is greater than the sum of the undiscounted cash flows expected from the asset's use and disposal. C. it is greater than the sum of the cash flows expected from the asset's use and disposal. D. it is less valuable than its current carrying value.

B.it is greater than the sum of the undiscounted cash flows expected from the asset's use and disposal.

Which of the following is the least effective way for an analyst to understand whether existing long-lived assets must be replaced? A. understand industry conditions and firm strategies for capital expenditure growth B. calculate the proportion of depreciable assets consumed C. calculate the percentage of ownership the firm has in another entity D. calculate the average age of depreciable assets

C. calculate the percentage of ownership the firm has in another entity

The method used to account for oil and gas exploration costs that capitalizes the exploration costs of all unsuccessful exploratory wells is the A. reserve recognition accounting B. soft asset approach C. full-cost approach D. successful efforts approach

C. full cost approach

For U.S. GAAP, software development costs are capitalized as intangible assets A. once the product is introduced into the marketplace. B. from the beginning of development C. once the technological feasibility of the product is established. D. after a copyright is obtained

C. once the technological feasibility of the product is established.

When a foreign entity has the U.S. dollar as its functional currency, it uses which exchange rate to translate monetary assets and liabilities? A. the exchange rate on the date the asset or liability was obtained B. the end of the period exchange rate C. the average exchange rate during the period D. the historical exchange rate

C. the average exchange rate during the period

A company would need to record an impairment loss for its equipment when A. the cash flows from the equipment are less than its fair value. B. the original cost of the equipment exceeds its fair value and is deemed not recoverable. C. the carrying amount of the equipment exceeds its fair value and is deemed not recoverable. D. management determines that the equipment will no longer be used.

C. the carrying amount of the equipment exceeds its fair value and is deemed not recoverable

goodwill represents: A. the synergies that will be achieved through the acquisition. B. the difference between the acquisition cost and the book value of the identifiable assets and liabilities. C. the difference between the acquisition cost and the market value of the identifiable assets and liabilities. D. the merger premium

C. the difference between the acquisition cost and the market value of the identifiable assets and liabilities.

All of the following statements are true regarding accounting for software development costs except: A. All of the following statements are true regarding accounting for software development costs except: B. The interpretation of the meaning of technological feasibility has created diversity in the practice of accounting for software development costs. C. Firms must expense as incurred all costs incurred internally in developing computer software until such development achieves the technological feasibility of a product. D. Firms must capitalize as incurred all costs incurred internally in developing computer software.

D. Firms must capitalize as incurred all costs incurred internally in developing computer software.

All of the following are factors that must be considered when measuring depreciation expense except: A. depreciation method B. acquisition cost C. expected useful life of depreciable asset D. active markets for the depreciable asset

D. active markets for the depreciable asset

Which of the following items would be charged to the cost of land rather than the cost of the building? A. capitalization of interest financing charges B. architectural fees C. cost of foundation D. demolition of existing structure

D. demolition of existing structure

Which one of the following is an example of the expected benefit approach for valuing long-lived assets? A. current replacement value B. current cost C. historical cost D. discounted present value

D. discounted present value

The method used to account for oil and gas exploration costs that capitalizes the exploration costs of all unsuccessful exploratory wells is the A. successful efforts approach B. reserve recognition accounting C. soft asset approach D. full-cost approach

D. full cost approach

Focus Company's accounting manager decided to start capitalizing the company's routine repairs and maintenance expense, starting in 2011. What effect will this change have on the company's 2012 income and assets respectively? A. understate, overstate B. overstate, understate C. understate, understate D. overstate, overstate

D. overstate, overstate

Under IFRS, when an asset is revalued upwards, subsequent depreciation is based on A. the asset's original cost B. the method used for determining depreciation on the company's tax returns. C. the amount of future cash flows the asset is expected to generate. D. the asset's fair value

D. the asset's fair value

When a firm sells a trading security, it recognizes A. amortizes any difference between the acquisition cost and maturity value as interest revenue over the life of the debt. B. amortizes any difference between the acquisition cost and maturity value as interest revenue over the life of the debt. C. the average of the selling price and the book value as a gain or loss in measuring net income. D. the difference between the selling price and the book value as a gain or loss in measuring net income.

D. the difference between the selling price and the book value as a gain or loss in measuring net income.

Unrealized holding gains or losses which are immediately recognized in the income statement are from securities classified as A. equity B. held to maturity C. available for sale D. trading

D. trading

Ignore taxes for this problem. Assume an acquisition was made using the acquisition method. The buyer established a $10 million acquisition reserve for unsettled lawsuit related to the target company. In the event that the lawsuit is ultimately settled for $8 million, then: A. the buyer would make no adjustments to the reserve B. The buyer would charge $8 million to the reserve. Goodwill would be adjusted by $2 million with no impact on net income. C. Net income for the year would be decreased by $8 million. D. The buyer would charge $8 million to the reserve. Net income for the year would be increased by $2 million.

The buyer would charge $8 million to the reserve. Net income for the year would be increased by $2 million.

Managers are typically faced with all of the following primary choices and estimates when allocating acquisition costs of tangible assets and intangible assets to the periods benefited except: A. establishing a reserve for obsolescence B. estimating salvage value C. choosing an allocation method D. estimating useful life

establishing a reserve for obsolescence