Intermediate accounting 1 exam 4

On October 1, year 1, Johnson Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Johnson uses the double-declining-balance method of depreciation. The partial year depreciation for year 1 is Multiple choice question. $10,000 $5,000 $20,000 $40,000

$10,000 Reason: The depreciation rate is 1/5 x 2 = 40%. $100,000 x 40% x 1/4 = $10,000 depreciation expense in year 1.

The measurement of an impairment loss for intangible assets with indefinite useful lives is a(n) ____ process. Multiple choice question. three-step one-step two-step

1

Which of the following accounting changes must be justified in the notes to the financial statements? Multiple choice question. Changes in the remaining service life Changes in the estimated residual value Changes in depreciation methods

Changes in depreciation methods

Which of the following is true regarding a nonmonetary exchange of assets? Multiple choice question. The new asset is recorded at the book value of the old asset. The gain or loss recognized is the difference between the historical cost of the asset given up and the fair value of the new asset received. A gain or loss is recognized for the difference between the fair value and the book value of the asset given up. The new asset is recorded at the book value of the old asset plus the cash paid.

A gain or loss is recognized for the difference between the fair value and the book value of the asset given up.

An asset is exchanged for another asset and no cash is exchanged in the transaction. The fair value of the assets are not determinable. At what amount should the new asset be recorded? Multiple choice question. Book value of the asset given. The difference between the book values of the two assets. Book value of the asset received. Historical cost of the asset given.

Book value of the asset given.

An asset is exchanged for another asset and cash is received in the transaction. The fair value of the assets are not determinable. At what amount should the new asset be recorded? Multiple choice question. Book value of the asset given up less the cash received. Book value of the asset received less the cash received. Historical cost of the asset given up less the cash received. Cash received plus the book value of the asset given up.

Cash received plus the book value of the asset given up.

To determine whether an impairment loss should be recorded for goodwill, a company should determine if the fair value of the reporting unit is less than its Multiple choice question. net realizable value. net present value. discounted future cash flows. book value.

book value

Expenditures subsequent to acquisition may be properly capitalized when they increase the asset's useful life or increase its productive capacity. However, most companies set thresholds for capitalizing these expenditures based on Multiple choice question. materiality. relevance. objectivity. neutrality.

materiality.

The exclusive legal right to manufacture a product or to use a process is called a(n)

patent

In determining whether an impairment loss should be recognized for goodwill, a company compares the book value of the reporting unit with Multiple choice question. the discounted sum of estimated cash flows from goodwill. the fair value of the reporting unit. the total amount of fixed assets. the undiscounted sum of estimated future cash flows from goodwill.

the fair value of the reporting unit.

True or false: Assets held for sale are not depreciated or amortized while classified as held for sale.

true

An impairment occurs when the Multiple choice question. undiscounted sum of estimated future cash flows is less than the asset's book value. fair value of the asset is less than the book value of the asset. discounted sum of past cash flows is more than the asset's book value. book value of the asset is less than the fair value of the asset.

undiscounted sum of estimated future cash flows is less than the asset's book value.

If a company bases depreciation expense on the life of a machine in hours, and depreciates the machine for the number of hours used during the year, it is using the ______ method of depreciation. Multiple choice question. straight-line sum-of-the-years'-digits double-declining-balance units-of-production

units-of-production

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Kirby uses the straight-line method of depreciation. The partial year depreciation for year 1 is

$5,000 Reason: Year 1 - Depreciation is only for 3months (Oct to Dec) $100,000/5 years = $20,000 per year x 1/4 year = $5,000 depreciation expense in year 1.

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the consideration received and the ______ value of the asset sold. Multiple choice question. net realizable book fair net present

book

When assets are exchanged and the transaction lacks commercial substance, the asset received is valued at the Multiple choice question. net present value of the asset given up. fair value of the asset given up. book value of the asset given up. fair value of the asset received.

book value of the asset given up.

Donated assets should be recorded on the balance sheet at what amount? Multiple choice question. Zero Fair value Book value of the donor Net realizable value

fair value

When a company acquires assets by issuing debt or equity securities, the first indicator of fair value is the Multiple choice question. fair value of the debt or equity securities given. net present value of assets received. book value of the assets received. fair value of the assets received.

fair value of the debt or equity securities given.

An impairment loss for intangible assets with indefinite lives is calculated as the book value less the Multiple choice question. fair value. net present value. net realizable value. replacement cost.

fair value.

The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at Multiple choice question. book value of the asset given up. fair value. book value of the asset received plus cash received. book value plus the cash given.

fair value.

A(n)______________ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time. (Enter only one word.)

fanchise

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time is called a Multiple choice question. franchise. patent. trademark. copyright.

franchise.

A company's reputation and clientele, its trained employees, and favorable business location may give rise to

goodwill

A unique intangible asset whose cost can't be directly associated with any specific identifiable right and the cost is not separable from the company itself is referred to as: Multiple choice question. franchise. unidentifiable assets. identified intangible assets. goodwill.

goodwill.

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? (Select all that apply.) Multiple select question. grading the land title insurance legal fees to secure title current year's property taxes costs to remove an old building

grading the land title insurance legal fees to secure title costs to remove an old building

When an asset has a significant decline in value and is written down, this is called ______. Multiple choice question. depreciation amortization depletion impairment

impairment

True or false: When accounting for impairments, the two categories for recognizing and measuring the loss are tangible and intangible assets. True false question.

False Reason: The categories for accounting for impairments are assets to be held and used and assets held for sale.

Which statement is true about the straight-line method of depreciation? Multiple choice question. It is an accelerated method of depreciation. It allocates an equal amount of depreciation to each year of the asset's service life. It is the preferred method for companies expecting to use the asset more in its early years of life. It recognizes expense proportionately with the amount of use of the asset.

It allocates an equal amount of depreciation to each year of the asset's service life.

Which of the following are required when a material error is discovered in a subsequent accounting period that impacts retained earnings? (Select all that apply.) Multiple select question. The error is accounted for on a prospective basis in the current year and future years. Previous financial statements are retrospectively restated. A prior period adjustment is made to the beginning balance of retained earnings. The cumulative effect of the error is corrected in retained earnings and other account balances are unchanged. A disclosure note describing the nature of the error and the impact of the correction on net income and earnings per share.

Previous financial statements are retrospectively restated. A prior period adjustment is made to the beginning balance of retained earnings. A disclosure note describing the nature of the error and the impact of the correction on net income and earnings per share.

What is the accounting treatment for the discovery of a material error in a previous year? Multiple choice question. A gain or loss is recognized in the year the error is discovered. The error is accounted for on a prospective basis in the current year and future years. Account balances are corrected in the current year with an adjustment made to net income of the period. Previous years' financial statements are restated.

Previous years' financial statements are restated.

Which of the following should be included in the cost of buildings? Multiple choice question. Cost of paving parking lot in front of building Real estate commissions relating to purchase of building Cost of clearing land adjacent to building Fire insurance premiums relating to building

Real estate commissions relating to purchase of building

Which of the following should be included in the cost of buildings? Multiple choice question. Real estate commissions relating to purchase of building Fire insurance premiums relating to building Cost of clearing land adjacent to building Cost of paving parking lot in front of building

Real estate commissions relating to purchase of building

When assets are exchanged and the transaction lacks commercial substance, which of the following occurs? (Select all that apply.)

The asset received is valued at the book value of the asset given.

If an impairment loss is recognized for an intangible asset with a finite life, which of the following occurs? (Select all that apply.) Multiple select question. The written-down book value is the new cost basis for future amortization. A recovery can be recognized up to the initial amount of the impairment Future impairment losses are prohibited. Later recovery of the impairment is prohibited.

The written-down book value is the new cost basis for future amortization. Later recovery of the impairment is prohibited.

What is the purpose of group or composite depreciation? Multiple choice question. To reduce the record-keeping costs of determining depreciation. To classify assets by type as required by GAAP. To eliminate the need for impairment testing. To eliminate the accounting entries when disposing of assets.

To reduce the record-keeping costs of determining depreciation.

What are the issues when accounting for impairments? (Select all that apply.) Multiple select question. When to recognize the impairment. How to measure the impairment loss. Whether to recognize the impairment as an extraordinary loss. What duration of time to allocate the impairment to the income statement.

When to recognize the impairment. How to measure the impairment loss.

Allocation of the cost of an intangible asset is called Multiple choice question. accretion. amortization. depreciation. depletion.

amortization

In accounting, the term impairment refers to Multiple choice question. cost recovery of an asset for investment purposes. allocation of an asset over its useful life. offsetting liabilities against the related assets. an asset's significant decline in value

an asset's significant decline in value

Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as an expense on the income statement. an asset on the balance sheet. a contra asset on the balance sheet. a liability on the balance sheet.

an expense on the income statement.

Intangible assets with indefinite useful lives should be tested for impairment Multiple choice question. only if events or changes in circumstances indicate possible impairment. on the last day of the fiscal year-end. annually or more frequently if events or changes in circumstances indicate possible impairment.

annually or more frequently if events or changes in circumstances indicate possible impairment.

A company issues its equity securities to purchase land. The common stock is not publicly traded. The best indicator of fair value is the Multiple choice question. appraised value of the land. estimated value of the stock.

appraised value of the land.

Obligations associated with disposition of property, plant, equipment, or natural resources are called Multiple choice question. contra-asset-liabilities. accumulated depreciation. asset retirement obligations. nonrecurring fixed assets.

asset retirement obligations.

When accounting for impairments, the two categories for recognizing and measuring the loss are Multiple choice question. assets to be held and used and assets held for sale. assets with finite lives and assets with indefinite lives. property and equipment. tangible and intangible assets.

assets to be held and used and assets held for sale.

An asset impairment for assets to be held for sale is measured as the excess of the Multiple choice question. accumulated depreciation less fair value. book value over the fair value less costs to sell. historical cost less fair value.

book value over the fair value less costs to sell.

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______. Multiple choice question. capitalized accrued expensed

capitalized

Expenditures needed to get land ready for its intended use should be: Multiple choice question. capitalized as part of the cost of a related building capitalized as part of the cost of land expensed as incurred

capitalized as part of the cost of land

Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods? (Select all that apply.) Multiple select question. change in useful life of an asset forgetting to record depreciation expense in the previous period incorrectly capitalizing an item when it should be expensed increasing the residual value of an asset

change in useful life of an asset increasing the residual value of an asset

The gain or loss on disposal of an asset is calculated as Multiple choice question. the cost of the asset less the accumulated depreciation. consideration received less the book value of asset sold. consideration received less the fair value of the asset sold. the fair value of the asset less the accumulated depreciation.

consideration received less the book value of asset sold.

A(n) ___________is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book. (Enter only one word.)

copyright

For natural resources the depletion base is Multiple choice question. the cost less the restoration value. cost plus the value of resources extracted. cost less any anticipated residual value. the value of the resources to be extracted.

cost less any anticipated residual value.

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land? (Select all that apply.) Multiple select question. costs to remove an old building title insurance current year's property taxes grading the land legal fees to secure title

costs to remove an old building title insurance grading the land legal fees to secure title

A company acquires equipment by signing an interest-bearing note payable for $20,000. The interest rate is realistic so the company will record (Select all that apply.) Multiple select question. debit machine for an amount less than $20,000 credit note payable $20,000 debit discount on note payable debit machine $20,000

credit note payable $20,000 debit machine $20,000

Marston acquired assets for $100,000. At the end of year 3, the assets had accumulated depreciation of $40,000. An impairment loss was indicated, and the fair value of the assets was $48,000. The journal entry to record the impairment loss will include (Select all that apply.) Multiple select question. credit to accumulated depreciation of $40,000. debit to accumulated depreciation of $40,000. debit to assets of $48,000. debit to loss on impairment of $12,000. credit to assets of $52,000. credit to assets of $100,000.

debit to accumulated depreciation of $40,000. debit to loss on impairment of $12,000. credit to assets of $52,000.

The cost of a natural resource less its anticipated residual value is called the_____________ ____________

depletion base

Accounting for land improvements requires that the costs of land improvements are (Select all that apply.) Multiple select question. included in the cost of land. expensed in the current period. depreciated or amortized over the periods benefited. capitalized.

depreciated or amortized over the periods benefited. capitalized.

The allocation of the cost of a tangible fixed asset over a period of time is referred to as______________ , whereas the allocation of the cost of an intangible asset is referred to as________________.

depreciation amortization

The costs incurred after a natural resource has been discovered but before production begins are referred to as Multiple choice question. disposition costs. acquisition costs. exploration costs. development costs.

development costs.

Expenditures relating to a search for natural resources are referred to as Multiple choice question. acquisition costs. restoration costs. development costs. exploration costs.

exploration costs.

When a company receives an asset from an unrelated party by a donation, the assets are valued at _________ value.

fair

When assets are acquired in a noncash transaction, if the fair value of the noncash items given is not clearly evident, then the ______ value of the assets received is used to record the assets. Multiple choice question. book net realizable estimated fair

fair

When assets are acquired in a noncash transaction, if the fair value of the noncash items given is not clearly evident, then the ______ value of the assets received is used to record the assets. fair net realizable estimated book

fair

An asset, other than financial assets, that has no physical substance is referred to as a(n) Multiple choice question. finite asset. current asset. intangible asset. depreciable asset.

intangible asset.

Long-term assets are typically classified in one of these two categories: intangible assets investments property, plant, and equipment construction in progress leasehold improvements

intangible assets property, plant , and equipment

Which assets are required to be tested for impairment annually? Multiple choice question. intangible assets with finite lives intangible assets with indefinite lives property, plant, and equipment

intangible assets with indefinite lives

No amortization is recorded for Multiple choice question. intangible assets with finite lives. intangible assets valued at fair value. intangible assets used in production. intangible assets with indefinite lives.

intangible assets with indefinite lives.

The two categories for intangible assets are Multiple select question. intangibles with infinite lives. intangibles with finite lives. intangibles with indefinite lives. intangibles with undefined lives.

intangibles with finite lives. intangibles with indefinite lives.

The two important accounting issues related to self-constructed assets are Multiple choice question. historical cost and useful life. interest charges and allocation of overhead. interest charges and date placed in service. allocation of overhead and depreciation rates.

interest charges and allocation of overhead.

reporting unit

is an operating segment of a company or a component of an operating segment for which discrete financial information is available and management regularly reviews the operating results of that component.

The FASB requires research and development costs to be expensed because Multiple choice question. it is difficult to objectively determine the future benefits. research and development costs have no future value. the costs of research are greater than the benefits.

it is difficult to objectively determine the future benefits.

The distinction between land and land improvements is that: Multiple choice question. land has a definite life land has an indefinite life land is depreciated and land improvements are not there is no distinction, they are treated the same for accounting purposes

land has an indefinite life

Under U.S. GAAP, if a company recognizes an impairment loss, Multiple choice question. recovery of the loss is limited to the actual amount of the loss. recovery of the loss can be made within the next accounting period. the asset is revalued at fair value at the end of each period. later recovery of the impairment loss is prohibited.

later recovery of the impairment loss is prohibited.

Which of the following items should always be capitalized in the cost of equipment? (Select all that apply.) Multiple select question. legal fees to establish title installation and testing of equipment sales tax training costs for equipment operators freight to deliver the equipment

legal fees to establish title installation and testing of equipment sales tax freight to deliver the equipment

If obsolescence were expected to limit the longevity of a protected product, the useful life of a patent might be _________ its legal life. Multiple choice question. less than the same as more than

less than

Margot Company purchases land, building and equipment for a single purchase price. Margot should account for the purchase as a ______ purchase. Multiple choice question. lump-sum bargain single-sum

lump-sum

Superior mining Inc. purchases a large piece of land with rich mineral deposits and plans to start extracting the mineral-rich ore immediately. The cost of the piece of land should be reported in this category: Multiple choice question. intangible asset - mineral rights land natural resources

natural resources

A change in accounting estimate requires a company to account for the change Multiple choice question. as a prior period adjustment. as an error in the previous periods. by retroactively restating the financial statements. on a prospective basis in the current year and future years.

on a prospective basis in the current year and future years.

A change in accounting estimate requires a company to account for the change Multiple choice question. as an error in the previous periods. by retroactively restating the financial statements. as a prior period adjustment. on a prospective basis in the current year and future years.

on a prospective basis in the current year and future years.

If there is a change in an intangible asset's estimated useful life, the change is treated Multiple choice question. as a change in accounting principle. as an extraordinary item. as a prior period adjustment. on a prospective basis.

on a prospective basis.

For plant, property, and equipment, U.S. GAAP requires the investigation of possible impairment Multiple choice question. only if events or changes in circumstances indicate that the asset may not be recoverable. every 3 years from the date of acquisition of the asset. annually if the group or composite depreciation method is used. at the end of each reporting period.

only if events or changes in circumstances indicate that the asset may not be recoverable.

A(n) ______________is the exclusive right to manufacture a product or use a process granted for a period of__________ years.

patent, 20

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the Multiple choice question. retail selling price of the equipment as indicated in the dealer's catalog. future value of payments on the note payable. net present value of future cash flows of the equipment. present value of the note payable, which is the face amount of the note.

present value of the note payable, which is the face amount of the note.

A change in depreciation method is treated as a change in estimate that is achieved by a change in accounting principle, and is accounted for Multiple choice question. by making a prior period adjustment. by restating the previous year's financial statements. by making an error correction adjustment in the current year. prospectively in the current and future periods.

prospectively in the current and future periods.

A change in depreciation method is treated as a change in estimate that is achieved by a change in accounting principle, and is accounted for Multiple choice question. by restating the previous year's financial statements. by making a prior period adjustment. by making an error correction adjustment in the current year. prospectively in the current and future periods.

prospectively in the current and future periods.

Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.) Multiple select question. interest on the loan purchase price legal fees to obtain title utilities for the building

purchase price legal fees to obtain title

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land? (Select all that apply.) real estate agent commissions legal fees to secure title costs to remove an old building current year's property taxes

real estate agent commissions legal fees to secure title costs to remove an old building

In measuring an impairment loss, the difference between the asset's book value and its fair value is Multiple choice question. recognized as an impairment loss. recognized as an extraordinary loss. recorded in a revaluation account in OCI. recognized as a gain.

recognized as an impairment loss.

Group and composite depreciation commonly is used to Multiple choice question. mislead financial statement users. reduce costs of record-keeping. increase reported assets. decrease total depreciation expense.

reduce costs of record-keeping.

The useful life of an intangible asset may be limited by what type of provisions? (Select all that apply.) Multiple select question. financial regulatory contractual legal

regulatory contractual legal

Which of the following costs should be capitalized in the costs of acquiring a building? (Select all that apply.) Multiple select question. insurance on the building remodeling building legal fees to obtain title realtor commissions current year property taxes

remodeling building legal fees to obtain title realtor commissions

Berner Mining Company estimates that after it completes extraction of valuable metals from a tract of land, $245,000 will be necessary to return the land to its original condition. This cost is considered a(n) Multiple choice question. restoration cost overhead cost residual value operating expense

restoration cost

Manfred Mining Company is required to restore a piece of land to its original condition after it completes extraction of precious metals. From a financial reporting perspective, the related obligation is referred to as an asset Multiple choice question. retirement obligation. exploration obligation. development cost.

retirement obligation.

When a company receives an asset from an unrelated party by a donation, the assets are valued at fair value and revenue is recorded. paid-in capital is increased. a gain is recorded. a liability is increased.

revenue is recorded.

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics (Select all that apply.) Multiple select question. short-lived valued at fair value revenue-producing long-lived

revenue-producing long-lived

Indicate which costs would be capitalized as part of the cost of manufacturing equipment. (Select all that apply.) Multiple select question. depreciation for the first month set-up cost insurance during transit training of equipment operator freight-in

set-up cost insurance during transit freight-in

A company issues its equity securities to purchase land. The common stock is publicly traded, and both the value of the stock and the land is known. The best indicator of fair value is the value of the Multiple choice question. land. stock.

stock

The service life or useful life of an asset is Multiple choice question. determined by MACRS tables. the amount of use the company expects to obtain before disposing of the asset. the time period from the purchase of the asset until it becomes impaired.

the amount of use the company expects to obtain before disposing of the asset.

The measurement of an impairment loss in step 2 is the difference between Multiple choice question. the asset's fair value and its lower-of-cost-or-market value. the asset's estimated future cash flows and its fair value. the asset's book value and its fair value. the asset's book value and its net present value.

the asset's book value and its fair value.

In a lump-sum purchase of assets, the cost must be allocated to the individual assets because Multiple choice question. intangible assets must be identified and expensed. goodwill must be expensed immediately. the assets have different useful lives.

the assets have different useful lives.

Which of the following are classified as natural resources? (Select all that apply.) Multiple select question. land and land improvements timber tracts mineral deposits building

timber tracts mineral deposits

Norbert Company has an exclusive right to display a specific symbol and routinely uses it on its promotional materials, company letterhead, and other media to distinguish its company from other firms. This right is referred to as a

trademark

Which of the following intangible assets are usually considered to have indefinite lives? Multiple choice question. Copyrights Trademarks Patents Franchises

trademark

Which of the following items are intangible assets? (Select all that apply.) Multiple select question. goodwill land accounts receivable trademarks buildings

trademark and goodwill

An exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service is referred to as a Multiple choice question. trademark. patent. franchise. copyright.

trademark.

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

true