Intermediate Acct 2

The net amount required to retire a bond before maturity (assuming no call premium and constant interest rates) is the .... A. Face value of the bond plus an unamortized premium or minus any unamortized discount. B. issuance price of the bond plus any unamortized discount or minus any unamortized premium. C. Face value of the bond plus any unamortized discount or minus any unamortized premium. D. Maturity value of the bond plus any unamortized discount or minus any unamortized premium.

A. Face value of the bond plus an unamortized premium or minus any unamortized discount.

Stanley company purchased a machine that was installed and placed in service on January 2, 2013 at a total cost of 680,000. Residual value was estimated at $70,000. The machine is being depreciated over ten years by the double declining balance method. For the year 2014, Stanley should record depreciation expense of A. 108,800 B. 97,600 C. 68,000 D. 61,000

A. 108,800

Which of the following reasons provides the best theoretical support for accelerated depreciation? A. Assets are more efficient in early years and initially generate more revenue B. expenses should be allocated in a manner that "smoothes" earnings c. repairs and maintenance costs will probably increase in later periods, so depreciation should decline D. accelerated depreciation provides easier replacement because of the time value of money

A. Assets are more efficient in early years and initially generate more revenue

Which of the following is true regarding SIC 12, "Consolidation --Special Purpose Entities", and FIN 46R, "Consolidation of Variable Interest Entities"? A. Both pronouncements show evidence of being a principles-based standard.

A. Both pronouncements show evidence of being a principles-based standard.

The impairment test for an intangible asset with an indefinite life compares the: A. Fair value of the asset to its book value B. sum of the undiscounted cash flows expected to be generated by the asset to its book value C. sum of the discounted cash flows expected to be generated by the asset to its fair value D. sum of the undiscounted cash flows expected to be generated by the asset to its fair value

A. Fair value of the asset to its book value

When bonds are sold between interest dates, any accrued interest is credited to... A. Interest Payable B. Interest Revenue C. Interest Receivable D. Bonds Payable

A. Interest Payable

Bonds usually sell at a discount when... A. Investors are willing to invest in the bonds only at rates that are higher than the stated interest rate.

A. Investors are willing to invest in the bonds only at rates that are higher than the stated interest rate.

A trademark is an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles? A. Marketing-related B. Customer-related C. Artistic-based D. Contract-based

A. Marketing-related

Which of the following ordinarily would be treated as a revenue expenditure rather than a capital expenditure? A. Repair and maintenance on buildings B. The replacement of a major component of a building C. Addition to an existing building D. Rearrangement costs that are identifiable, material and are expected to provide discernable future benefits.

A. Repair and maintenance on buildings

Which of the following does NOT meet the FASB's definition of a liability? A. The signing of a three-year employment contract at a fixed annual salary.

A. The signing of a three-year employment contract at a fixed annual salary.

Torlin Inc. neglected to amortize the discount on outstanding ten-year bonds payable. What is the effect of the failure to record discount amortization on interest expense and bony carrying value, respectively? A. Understate, understate B. Understate, overstate C. Overstate, overstate D. Overstate, understate

A. Understate, understate

Callable bonds A. can be redeemed by the issuer at some time at a pre-specified price. B. can be converted to stock. C. mature in a series of payments. D. None of these is correct.

A. can be redeemed by the issuer at some time at a pre-specified price.

The most conceptually appropriate method of valuing a liability under the historical cost basis is to... A. discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date the liability was initially incurred.

A. discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date the liability was initially incurred.

Danville corporation bought a new machine, 5 annual payments of $6,000. Prevailing interest rate 12%. PV of an ordinary annuity of $1 at 12% for five periods is 3.6. Future amount of ordinary annuity of $1 at 12% for five periods is 6.35. PV of $1 at 12% is .567. How much should Danville record as the note payable on the balance sheet if financial statements were prepared today? A. $17,010 B. $21,600 C. $30,000 D. $38,100

B. $21,600

Gunther purchased $400,000 of ten year bonds with a stated interest rate of 8% payable quarterly. Market interest is 12%. Determine amount of premium or discount. A. $92,442 premium B. $92,442 discount C. $81,143 premium D. $81,143 discount

B. $92,442 discount

Which of the following research and development related costs should be capitalized and amortized over current and future periods? A. Labor and material costs incurred in building a prototype model B. Cost of testing equipment that will also be used in another separate research and development project scheduled to begin next year C. Administrative salaries allocated to research and development D. Research findings purchased from another company to aid a particular research project currently in process.

B. Cost of testing equipment that will also be used in another separate research and development project scheduled to begin next year

For the issuer of ten-year bonds, the amount of amortization using the effective-interest method would increase each year if the bonds were sold at a.... A. Discount: No, Premium: No B. Discount: Yes, Premium: Yes C. Discount: No, Premium: Yes D. Discount: Yes, Premium: No

B. Discount: Yes, Premium: Yes

A company owns a piece of land that originally cost $10,000 and has a fair market value of $8,000. It is exchanged along with $5,000 cash for another piece of land having a fair value of $13,000. The exchange had a commercial substance. The proper journal entry would be: A. Dr. Land (new) 15,000 Cr. Land (old) 10,000 Cr. Cash 5,000 B. Dr. Land (New) 13,000 Dr. Loss Exchange 2,000 Cr. Land . 10,000 Cr. Cash 5,000 C. Dr. Land (new) 18,000 Cr. Land (old) 10,000 Cr. Cash 5,000 Cr. Gain 3,000 D. Dr. Land (new) 13,000 Dr. RE . 2,000 Cr. Land (old) 10,000 Cr. Cash . 5,000

B. Dr. Land (New) 13,000 Dr. Loss Exchange 2,000 Cr. Land . 10,000 Cr. Cash 5,000

A donated plant asset for which the fair value has been determined and for which incidental costs were incurred in acceptance of the asset, should be recorded at an amount equal to its: A. Incidental costs incurred B. Fair value and incidental costs incurred C. Book value on books of donor and incidental costs incurred D. Book value on books of donor

B. Fair value and incidental costs incurred

In accordance with the GAAP, which of the following methods of amortization is normally recommended for intangible assets? A. sum-of-the-years-digits B. straight-line C. group composite D. double-declining-balance

B. Straight line

The impairment test for an intangible asset with a definite life compares the: A. fair value of the asset to its book value B. Sum of the undiscounted cash flows expected to be generated by the asset to its book value C. Sum of the discounted cash flows expected to be generated by the asset to its fair value D. Sum of the undiscounted cash flows expected to be generated by the asset to its fair value

B. Sum of the undiscounted cash flows expected to be generated by the asset to its book value

Which of the following is correct? A. The fair value of internally generated intangible assets should be estimated and recorded on the books of the entity that developed the assets even in the absence of a business acquisition. B. The fair value of internally generated intangible assets may be estimated but should not be recorded on the books or displayed on the financial statements of the entity. C. Managers may value their own companies and recognize goodwill in the company accounts even though an entity has not been acquired in a business acquisition. D. Goodwill should be recognized in the accounts whenever the value of the firm increases based on current market prices of the firm's common stock.

B. The fair value of internally generated intangible assets may be estimated but should not be recorded on the books or displayed on the financial statements of the entity.

Which of the following represents a liability? B. The obligation to provide goods that customers have ordered and paid for during the current year.

B. The obligation to provide goods that customers have ordered and paid for during the current year.

Accrued interest on bonds that are sold between interest dates... B. increases the amount a buyer must pay to acquire the bonds.

B. increases the amount a buyer must pay to acquire the bonds.

A depreciable asset has an estimated 15 percent salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Productive output Sum of the years digits Double Declining A. yes no no B. no no no C. no yes no D. yes yes yes

B. no no no

In theory (disregarding any other marketplace variables), the proceeds from the sale of a bond will be equal to the... B. present value of the bond maturity value plus the present value of the interest payments to be made during the life of the bond.

B. present value of the bond maturity value plus the present value of the interest payments to be made during the life of the bond.

Legal fees incurred in successfully defending a patent suit should be capitalized when the patent has been: Internally developed purchased from an investor A. yes no B. yes yes C. no yes D. no no

B. yes, yes

When a company issues bonds, how are unamortized bond discounts and premiums classified on the balance sheet? A. Bond discounts are classified as assets, and bond premiums are classified as contra-asset accounts. B. Bond discounts are classified as expenses, and bond premiums are classified as revenues. C. Bond premiums are classified as additions to, and bond discounts are classified as deductions from, the face value of bonds. D. None of these are correct.

C. Bond premiums are classified as additions to, and bond discounts are classified as deductions from, the face value of bonds.

An improvement made to a machine increased its fair market value and its production capacity by 25 percent without extending machine's useful life. The cost of the improvement should be: A. Expensed B. Debited to accumulated depreciation C. Capitalized in the machine account D. Allocated between accumulated depreciation and the machine account

C. Capitalized in the machine account

Which of the following best describes the approach prescribed in "IAS 38, Intangible Assets A. Expense all research and development costs B. Capitalize all research and development costs C. Expense all research costs and capitalize D. Capitalize all research costs and expense all development costs

C. Expense all research costs and capitalize

Which of the following is true when the effective-interest method of amortizing bond discount is used? C. Interest expense increases each period.

C. Interest expense increases each period.

Cirrus Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay $40,000 per year for ten years. The plant assets should be valued at: A. $400,000 B. $400,000 plus imputed interest C. present value $40,000 annuity for ten years at an imputed interest rate D. future value $40,000 annuity for ten years at an imputed interest rate

C. present value $40,000 annuity for ten years at an imputed interest rate

Eli corp. issued $200,000 of 10 year bonds on Jan. 1. Bonds pay interest Jan. 1 and July 1 and have a stated interest rate of 10%. Market rate of interest is 8%. What is the issuance price? A. $175,078 B. $211,283 C. $215,902 D. $227,183

D. $227,183

On July 1, 2014, Saunter issued 2,000 of its 8%, $1,000 bonds for $1,752,000. Bonds were issued to yield 10%. Bonds are dated July 1, 2014 and mature on July 1, 2024. Interest is payable semiannually on Jan. 1 and July 1. Using the effective interest method, how much should the bond discount amortization be for six months ended Dec. 31 2014? D. $7,600

D. $7,600

October 1, 2014, Southpark issued at 101 plus accrued interest, 800 10%, $1,000 bonds. Bonds are dated July 1, 2014 and mature on July 1, 2021. Interest is payable semi-annually on Jan 1 and July 1, when issued, how much cash should southpark receive? D. $828,000

D. $828,000

On Jan 1, SOMA issued 10 year bonds with a face amount of $1,000,000 and a stated interest rate of 8% payable annually each Jan 1. Bonds priced to yield 10%. Total issue price is.... D. $880,000

D. $880,000

When a company purchases land with a building on it and immediately tears down the building so that the land can used for the construction of a plant, the costs incurred to tear down the building should be: A. Amortized over the estimated time period between the tearing down of the building and the completion of the plant B. Expensed as incurred C. Added to the cost of the plant D. Added to the cost of the land

D. Added to the cost of land

When a company replaced an old asphalt roof on its plant with a new fiberglass insulated roof, which of the following types of expenditure has occurred? A. Ordinary repairs and maintenance B. Addition C. Rearrangement D. Betterment

D. Betterment

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were: A. less than current market value B. greater than cost C. greater than book value D. less than book value

D. less than book value

Which of the following depreciation methods is computed in the same way as depletion? A. Straight line B. sum-of-the-years-digits C. double-declining-balance D. productive output

D. productive output

When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material is... A. amortized over the period remaining to maturity and reported as an extraordinary item in the income statement. B. amortized over the period remaining to maturity and reported as part of income from continuing operations in the income statement. C. reported in the income statement as an extraordinary item in the period of redemption. D. reported in the income statement as part of income from continuing operations in the period of redemption.

D. reported in the income statement as part of income from continuing operations in the period of redemption.