ACC 321 Quiz 3

How are gain contingencies reported?

Added to notes in financial statements if there is a high probability of occurrance

Which of the following may be a current liability? Deferred Revenue Withheld Income Taxes All of these Deposits Received from Customers

All of these

True or False: R&D expenses are capitalized

False

In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as

Goodwill

Which of the following principles best describes the current method of accounting for research and development costs? Associating cause and effect Income tax minimization Systematic and rational allocation Immediate recognition as an expense

Immediate recognition as an expense

Goodwill formula

Purchase price - fair value of net assets

Which of the following loss contingencies is not usually accrued? noncollectibility of receivables. product warranty obligations. risk of loss from fire. premium offer obligations.

Risk of loss from fire

Research and development costs do not include: critical investigation aimed at discovering new knowledge routine ongoing efforts to improve the qualities of an existing product. construction of prototypes. searching for applications of new research findings.

Routine ongoing efforts to improve the qualities of an existing product

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

They are all subject to amortization.

True or False: Gain contingencies are not recorded.

True

Expensing all R&D costs associated with internally created intangible assets results in

Understating assets, overstating expenses

Gain contingency

claim to receive assets or have a liability reduced

contingent liabilities

contingent liabilities are liabilities created from a loss contingency

Effect of bond premium amortization on interest expense using a straight line method

decreases interest expense

Existing claims related to litigation as of December 31, 2016, indicate that it is probable that a liability has been incurred. However, as of December 31, 2016, the amount of the obligation cannot be reasonably estimated. Based on these facts, an estimated loss contingency should be

disclosed but not accrued

Assurance waranty

included in sale price, recognize warranty cost as expense in sale period to match expenses with revenues

The entry to accrue a contingent liability

includes a debit to a loss account.

Effect of bond discount amortization on interest expense using a straight line method

increases interest expense

2 ways Goodwill can arise from

internal generation, purchased

3 requirements for reporting a litigation loss contingencies

liability occurred before litigation, probable unfavorable outcome, and loss can be reasonably estimated

2 characteristics of a liability

little or no discretion to avoid payment, transaction has already happened

bonds payable

long term liability not requiring payment within 1 year or the operating cycle

Current liabilities are usually recorded in the accounting records and reported in financial statements at their:

maturity value

Service warranty

muster defer revenue and recognize it as the performance obligation is satisfied

The operating cycle is best defined as:

period of time elapsing between the acquiring goods involved in the manufacturing and the subsequent collection of cash from sales.

loss contingencies

possible loss

liabilities

present obligation satisfied by probable future transfer of assets or services

2 requirements for accruing estimated losses

probability that liability occurred, liability can be reasonably estimated

warranty

promise made by seller to buyer to make good on defect

Current liabilities are defined as obligations whose liquidation is reasonably expected to

require use of current assets or creation of other current liabilities.

Requirements for goodwill impairment test

required annually or when event occurs that could impair goodwill

indentures

spell out terms of the bonds and covenants

The carrying value of an intangible is

the asset's acquisition cost less the total related amortization recorded to date.