ACTG 182 Final 10 & 11 & 12 & 13

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When assets such as buildings and equipment are transferred in a troubled debt restructuring, the creditor should record a gain or loss for the difference between the fair value and the debtor's book value. A. True B. False

False

When the effective rate of a bond is lower than the stated rate, the bond sells at a discount. A. True B. False

False

Total depreciation over an asset's life cannot exceed an amount equal to cost minus estimated salvage value. A. True B. False

True

The effective interest method calculates interest expense by multiplying the carrying value of the bonds by the stated rate of interest. A. True B. False

False

The entry to record the sale of a plant asset at a loss includes a credit to Accumulated Depreciation. A. True B. False

False

The loss recorded by the creditor in a troubled debt restructuring is based on the expected future cash flows discounted at the current effective interest rate. A. True B. False

False

The major limitation of the straight-line method is that it is inappropriate in situations in which depreciation is a function of time instead of activity. A. True B. False

False

The receipt of an asset from a contribution should be recorded as additional paid-in capital. A. True B. False

False

State and federal unemployment taxes are imposed on both employers and employees. A. True B. False

False

Mains Corporation owns equipment with a cost of $290,000 and accumulated depreciation at December 31, 2014 of $150,000. It is estimated that the machinery will generate future cash flows of $165,000. The machinery has a fair value of $115,000. Mains should recognize a loss on impairment of A. $0. B. $15,000. C. $25,000. D. $35,000.

A. $0.

Which of the following research and development costs may be capitalized? A. Contract services. B. Personnel. C. Indirect costs. D. Research and development equipment to be used on current and future projects.

D. Research and development equipment to be used on current and future projects.

Under MACRS, which one of the following is not considered in determining depreciation? A. Cost of asset B. Property recovery class C. Half-year convention D. Salvage value

D. Salvage value

Jacky Inc. purchased Manzanita Marine on June 1, 2012 for $25,000,000 and recorded goodwill of $3,100,000 in connection with the purchase. At December 31, 2015, the Manzanita Marine Division had a fair value of $25,400,000. The net identifiable assets of Manzanita (including goodwill) had a fair value of $24,900,000 at that time. What amount of loss on impairment of goodwill should Jacky record in 2015? A. $0. B. $500,000. C. $600,000. D. $2,600,000.

A. $0. The fair value of Manzanita is greater than its carrying amount so no impairment has occurred.

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. $4,800 gain. B. $6,000 gain. C. $18,000 gain. D. $24,000 gain.

A. $4,800 gain.

Lumberyard Inc. incurred the following costs during the year ended December 31, 2014: Laboratory research aimed at discovery of new knowledge $ 4,925,000 Costs of testing prototype and design modifications 712,500 Quality control during commercial production, including routine testing of products 485,000 Purchase of research facilities having an estimated useful life of 20 years but no alternative future use 7,360,000 The total amount to be classified and expensed as research and development in 2014 is A. $6,005,500. B. $6,490,500. C. $12,997,500. D. $13,482,500.

A. $6,005,500. $4,925,000 plus $712,500 plus $368,000 totals $6,005,500.

Which of the following represents a federally granted right? A. Copyrights. B. Goodwill. C. Franchise. D. Internet domain names.

A. Copyrights.

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

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

All of the following statements are true regarding IFRS treatment of reporting and recognition of liabilities except: A. IFRS allows the recognition of liabilities for future losses. B. IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity. C. For contingencies, IFRS requires insurance recoveries be "virtually certain" before recognition of an asset is permitted. D. The recognition criteria for asset retirement obligations is less stringent under IFRS than it is under U.S. GAAP.

A. IFRS allows the recognition of liabilities for future losses.

Which of the following statements concerning intangible assets is correct? A. Intangible assets derive their value from the rights and privileges granted to the company using them. B. Intangible assets include the right to receive cash or cash equivalents at a future date. C. Intangible assets are normally classified as current assets. D. All of these answer choices are correct.

A. Intangible assets derive their value from the rights and privileges granted to the company using them.

On January 1, 2014, Trinity Company loaned $901,560 to Litton Industries in exchange for a 3 year, zero-interest-bearing note with a face amount, $1,200,000. The prevailing rate of interest for a loan of this type is 10%. The adjusting journal entry made by Litton at December 31, 2014 with regard to the note will include A. a credit to Discount on Notes Payable for $90,160. B. a debit to Interest Expense for $120,000. C. a credit to Interest Payable for $60,000. D. a debit to Interest Expense for $29,850.

A. a credit to Discount on Notes Payable for $90,160.

St. Sebastian Company and A. Jamison Company were combined in a purchase transaction. St. Sebastian was able to acquire Jamison at a bargain price. The fair market value of Jamison's net assets exceeded the price paid by St. Sebastian to acquire the company. Proper accounting treatment by St. Sebastian is to report the excess fair value over purchase price as A. a gain. B. a loss. C. a liability. D. paid-in capital.

A. a gain.

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the A. bond indenture. B. bond debenture. C. registered bond. D. bond coupon.

A. bond indenture.

Federal income taxes withheld by the employer on behalf of the employee are recorded as A. current liabilities. B. expenses. C. unearned revenues. D. receivables.

A. current liabilities.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will A. exceed what it would have been had the effective-interest method of amortization been used. B. be less than what it would have been had the effective-interest method of amortization been used. C. be the same as what it would have been had the effective-interest method of amortization been used. D. be less than the stated (nominal) rate of interest.

A. exceed what it would have been had the effective-interest method of amortization been used.

Bonds which do not pay interest unless the issuing company is profitable are called A. income bonds. B. term bonds. C. debenture bonds. D. secured bonds.

A. income bonds.

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

A. is usually part of cost of goods sold.

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

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

The major difference between the service life of an asset and its physical life is that 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.

The period of time during which interest must be capitalized ends when A. the asset is substantially complete and ready for its intended use. B. no further interest cost is being incurred. C. the asset is abandoned, sold, or fully depreciated. D. the activities that are necessary to get the asset ready for its intended use have begun.

A. the asset is substantially complete and ready for its intended use.

A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place A. the present value of the debt instrument must be approximated using an imputed interest rate. B. it should not be recorded on the books of either party until the fair market value of the property becomes evident. C. the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction. D. the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.

A. the present value of the debt instrument must be approximated using an imputed interest rate.

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

False

Ultra-energy Company offers a cash rebate of $2 on each $9 package of protein powder sold during 2014. Historically, 20% of customers mail in the rebate form. During 2014, 3,000,000 packages are sold, and 250,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2014 financial statements? A. $500,000; $700,000 B. $1,200,000; $700,000 C. $1,200,000; $500,000 D. $500,000; $1,200,000

B. $1,200,000; $700,000

On July 2, 2014, 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 2014 income statement, what amount should be reported as amortization expense? A. $80,000. B. $137,500. C. $160,000. D. $275,000.

B. $137,500

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. $0. B. $140,000. C. $160,000. D. $210,000.

B. $140,000.

On January 1, 2014, Kimbrough Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the effective-interest method of amortizing bond discount. At December 31, 2014, Kimbrough should report unamortized bond discount of A. $274,500. B. $285,500. C. $258,050. D. $255,000.

B. $285,500.

On June 30, 2014, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $200,000 and $50,000, respectively. On June 30, 2014, Prouty acquired all of these bonds at 101 and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt? A. $505,000 gain. B. $300,000 loss. C. $200,000 gain. D. $250,000 loss.

B. $300,000 loss.

Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30 payment? A. $390,000 B. $392,082 C. $400,000 D. $784,164

B. $392,082

Cambodian Import Company purchased a depreciable asset for $160,000 on April 1, 2011. 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, 2014 when the asset is sold? A. $66,000 B. $70,000 C. $72,000 D. $186,667

B. $70,000

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

B. 2

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

B. Customer-related.

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

B. Financing-related.

In accounting for short-term debt expected to be refinanced to long-term debt: A. GAAP uses the authorization date to determine classification of short-term debt to be refinanced. B. IFRS uses the financial statement date to determine classification of short-term debt to be refinanced. C. IFRS uses the authorization date to determine classification of short-term debt to be refinanced. D. GAAP uses the date of issue, but only for secured debt, to determine classification of short-term debt to be refinanced.

B. IFRS uses the financial statement date to determine classification of short-term debt to be refinanced.

IFRS permits revaluation of A. Goodwill. B. Limited-life intangible assets. C. Indefinite-life intangible assets. D. All of these answer choices are correct.

B. Limited-life intangible assets.; IFRS permits revaluation of limited-life intangible assets; however, revaluations are not permitted for goodwill or indefinite-life intangible assets.

Which of the following is not an example of a current liability? A. Dividends Payable. B. Preferred dividends in arrears. C. Unearned Service Revenue. D. Salaries Payable.

B. Preferred dividends in arrears.

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? A. Associating cause and effect B. Systematic and rational allocation C. Immediate recognition D. Partial recognition

B. Systematic and rational allocation

Which of the following is not true about the discount on short-term notes payable? A. The Discount on Notes Payable account is a contra liability and has a debit balance. B. The Discount on Notes Payable account should be reported as an asset on the balance sheet. C. When there is a discount on a note payable, the effective interest rate is higher than the stated interest rate. D. The amortization of Discount on Notes Payable increases interest expense.

B. The Discount on Notes Payable account should be reported as an asset on the balance sheet.

Intangible assets are normally classified as current assets. A. True B. False

False

Which of the following statements is true regarding capitalization of interest? 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.

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

Which one of the following is not a characteristic of property, plant, and equipment? A. They are acquired for use in operations. B. They are long-term in nature and are always subject to depreciation. C. They possess physical substance. D. All of these answer choices are characteristics of property, plant, and equipment.

B. They are long-term in nature and are always subject to depreciation.

Marketing-related intangibles would include A. a customer list. B. a brand name. C. a copyright. D. a franchise.

B. a brand name.

On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include A. a credit to Bonds Payable for $102,000,000. B. a credit to Premium on Bonds Payable for $2,000,000. C. a debit to Cash for $100,000,000. D. a credit to Interest Expense for $2,000,000.

B. a credit to Premium on Bonds Payable for $2,000,000

Black Water Inc. is being sued by former employees as a result of negligence on the company's part. Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for a judgment costing the company anywhere from $100,000,000 to $200,000,000. However, the lawyer states that the most probable cost is $125,000,000. As a result of the above facts, Black Water should accrue A. a loss contingency of $100,000,000 and disclose an additional contingency of up to $100,000,000. B. a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000. C. a loss contingency of $125,000,000 but not disclose any additional contingency. D. no loss contingency but disclose a contingency of $100,000,000 to $200,000,000.

B. a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000.

A bond for which the issuer has the right to call and retire the bonds prior to maturity is a A. convertible bond. B. callable bond. C. retirable bond. D. debenture bond.

B. callable bond.

Construction permits are A. not considered to be intangible assets. B. contract-related intangible assets. C. customer-related intangible assets. D. marketing-related intangible assets.

B. contract-related intangible assets.

A principal objection to the straight-line method of depreciation is that it A. provides for the declining productivity of an aging asset. B. ignores variations in the rate of asset use. C. tends to result in a constant rate of return on a diminishing investment base. D. gives smaller periodic write-offs than decreasing charge methods.

B. ignores variations in the rate of asset use.

The numerator in the times interest earned ratio is: A. net income. B. income before interest and taxes. C. income before interest. D. income before taxes.

B. income before interest and taxes.

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. the nominal cost of taking title to it. B. its market value. C. one dollar (since the site cost nothing but should be included in the balance sheet). D. the value assigned to it by the company's directors.

B. its market value.

A loss related to general or unspecified business risks is A. always accrued. B. not accrued. C. sometimes accrued. D. usually accrued.

B. not accrued.

A bond that matures in installments is called a: A. term bond. B. serial bond. C. callable bond. D. bearer bond.

B. serial bond.

Employer payroll taxes include all of the following except A. federal unemployment taxes. B. state income taxes. C. FICA taxes. D. state unemployment taxes.

B. state income taxes.

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

B. the expected future net cash flows is less than the asset's carrying value.

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

B. the nearest full month.

Stonehenge, Inc. issued bonds with a maturity amount of $5,000,000 and a maturity eight years from date of issue. If the bonds were issued at a premium, this indicates that A. the market rate of interest exceeded the stated rate. B. the stated rate of interest exceeded the market rate. C. the market and stated rates coincided. D. no necessary relationship exists between the two rates.

B. the stated rate of interest exceeded the market rate.

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

B. False

Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. The company uses effective-interest amortization. Interest expense reported on the 2014 income statement will total A. $1,529,115 B. $1,560,000 C. $1,568,498 D. $1,600,000

C. $1,568,498

Tiburon Corporation purchased a patent for $1,850,000 on November 30, 2012. It has a remaining legal life of 11 years. Tiburon estimates that the remaining useful life of the patent is useful life of 15 years. What balance will be reported on the December 31, 2014 balance sheet for the patent (if necessary, round your answer to the nearest dollar)? A $1,850,000 B. $1,583,678. C. $1,593,056. D. $1,485,606.

C. $1,593,056.

Lundy Company purchased a depreciable asset for $99,000. 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. $11,000 B. $13,900 C. $16,988 D. $17,820

C. $16,988

Truffle Inc. acquired a patent on January 1, 2011 for $7,800,000. It was expected to have a 10 year life and no residual value. Truffle uses straight-line amortization for its patents. On December 31, 2014, the expected future cash flows from the patent are $518,000 per year for the next six years. The present value of these cash flows, discounted at Truffle's market interest rate, is $2,120,000. What amount, if any, of impairment loss will be reported on Truffle's 2014 income statement? A. $1,340,000. B. $2,120,000. C. $2,560,000. D. $4,680,000.

C. $2,560,000.

On June 30, 2014, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2024. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $210,000 and $60,000, respectively. On June 30, 2014, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? A. $5,940,000. B. $5,790,000. C. $5,730,000. D. $5,640,000.

C. $5,730,000.

Bogle Company purchased machinery for $320,000 on January 1, 2010. 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, 2014 at a gain of $6,000. How much cash did Bogle receive from the sale of the machinery? A. $46,000. B. $54,000. C. $66,000. D. $86,000.

C. $66,000.

Watauga Company purchased equipment on July 1, 2014 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. $70,000 B. $71,500 C. $72,700 D. $74,000

C. $72,700

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. $6,400 B. $7,000 C. $8,000 D. $16,000

C. $8,000

Which one of the following statements regarding revision of depreciation rates is incorrect? A. No entry is made at the time a revision of depreciation rates occurs. B. Opening balances are not adjusted when a change in estimate occurs. C. Changes in estimate should be handled in the current period only. D. Depreciation is computing by dividing the remaining book value less any salvage value by the remaining estimated life.

C. Changes in estimate should be handled in the current period only.

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

C. Contribution Revenue account.

Which of the following costs should be excluded from research and development expense? 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.

Which one of the following is not an accelerated depreciation method? A. Sum-of-the years' digits method. B. Double-declining-balance method. C. Declining-balance method. D. Activity method.

C. Declining-balance method.

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? A. Amount of loss is reasonably estimable and event occurs infrequently. B. Amount of loss is reasonably estimable and occurrence of event is probable. C. Event is unusual in nature and occurrence of event is probable. D. Event is unusual in nature and event occurs infrequently.

C. Event is unusual in nature and occurrence of event is probable.

The current ratio measures A. Profitability. B. Solvency. C. Liquidity. D. All of these options are correct.

C. Liquidity.

Which of the following is not an example of off-balance-sheet financing? A. Non-consolidated subsidiary. B. Special purpose entity. C. Non-interest bearing note. D. Operating lease.

C. Non-interest bearing note.

Which of the following is not acceptable treatment for the presentation of current liabilities? A. Listing current liabilities in order of maturity. B. Listing current liabilities according to amount. C. Offsetting current liabilities against assets that are to be applied to their liquidation. D. Showing currently maturing long-term debt as part of current liabilities.

C. Offsetting current liabilities against assets that are to be applied to their liquidation.

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

C. On assets being held for disposal.

Which of the following statements is false? A. When rights are vested, an employer has an obligation to make payment to an employee. B. Unemployment taxes are paid by the employer. C. Profit-Sharing Bonus Payable is usually reported as a long-term liability. D. The liability for compensated absences should be recognized in the year earned.

C. Profit-Sharing Bonus Payable is usually reported as a long-term liability.

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

C. Trade name.

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

Lyric Company issued a 90-day zero-interest-bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the issuance of the note will include A. a credit to Notes Payable for $2,855. B. a debit to Interest Expense for $145. C. a debit to Cash for $2,855. D. None of these answers are correct.

C. a debit to Cash for $2,855.

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

False

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: 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 $5,000. D. a credit to Accumulated Depreciation - Equipment for $32,000.

C. a debit to a loss account for $5,000.

A liability for compensated absences is A. accrued under all conditions. B. disclosed in a note only. C. accrued only if specific conditions are met. D. never accrued but may be disclosed if desired.

C. accrued only if specific conditions are met.

The printing costs and legal fees associated with the issuance of bonds should A. be expensed when incurred. B. be reported as a deduction from the face amount of bonds payable. C. be accumulated in a deferred charge account and amortized over the life of the bonds. D. not be reported as an expense until the period the bonds mature or are retired.

C. be accumulated in a deferred charge account and amortized over the life of the bonds.

When an asset being depreciated under the group method is disposed of, any resulting gain or loss is: A. recorded as an ordinary gain. B. recorded as an extraordinary gain. C. buried in the Accumulated Depreciation account. D. buried in Depreciation Expense account.

C. buried in the Accumulated Depreciation account.

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company A. is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. B. wishes to confine all information related to the debt to the income statement and the statement of cash flow. C. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. D. is in violation of generally accepted accounting principles.

C. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.

The accounting for interest costs incurred during construction recommended under GAAP is to: 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.

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.

The gain recognized in an exchange that lacks commercial substance and in which cash is received is computed by multiplying the total gain by the formula of: A. cash paid divided by the total of cash paid plus fair value of the asset received. B. cash paid divided by the total of cash paid plus fair value of the asset given up. C. cash received divided by the total of cash received plus fair value of the asset received. D. cash received divided by the total of cash received plus fair value of the asset given up.

C. cash received divided by the total of cash received plus fair value of the asset received.

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

C. expected future net cash flows.

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. accrual accounting winning out over cash-basis accounting. B. GAAP winning out over IFRS. C. faithful representation winning out over relevance. D. financial accounting winning out over managerial accounting.

C. faithful representation winning out over relevance

If a bond sold at 97, the market rate was: A. equal to the stated rate. B. less than the stated rate. C. greater than the stated rate. D. equal to the coupon rate.

C. greater than the stated rate.

When a bond sells at a premium, interest expense will be: A. equal to the bond interest payment. B. greater than the bond interest payment. C. less than the bond interest payment. D. None of these answer choices are correct.

C. less than the bond interest payment.

Ignoring income tax effects, accelerated depreciation methods can 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.

ssets acquired in a lump sum purchase should be recorded at: A. appraised value. B. relative book value. C. relative fair market values. D. fair market value.

C. relative fair market values.

Current liabilities are defined as obligations whose liquidation is reasonably expected to A. be paid within a year. B. require use of current assets. C. require use of current assets or creation of other current liabilities. D. require the distribution of cash.

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

Franzia Co. prepares its financial statements using IFRS. The company has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be A. zero. B. the minimum of the range. C. the mid-point of the range. D. the maximum of the range.

C. the mid-point of the range.

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

C. the nearest full month.

During self-construction of an asset by Gambino Company, the following were among the costs incurred: 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

Short-term obligations expected to be refinanced are not classified as current liabilities because A. they will be paid by the balance sheet date. B. the obligations will be satisfied before the financial statements are issued. C. their satisfaction will not require the use of assets classified as current as of the balance sheet date. D. None of these answers are correct.

C. their satisfaction will not require the use of assets classified as current as of the balance sheet date.

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

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

On September 1, 2014, Alpha Graphics Printing Co. incurred the following costs for one of its printing presses: 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.

On December 31, 2013, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2014. On January 10, 2014, SoBou arranged a line of credit with Suntrust Bank which allows SoBou to borrow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014,SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet which is issued on March 2, 2014 is A. $0. B. $500,000. C. $1,000,000. D. $1,500,000.

D. $1,500,000. The correct amount is ($5,000,000 - $4,000,000)+ $500,000 = $1,500,000.

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 A. $ -0-. B. $50,000. C. $55,000. D. $105,000.

D. $105,000.

On January 1, 2014, 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, 2014, how much amortization expense should it report? A. $67,500 B. $133,333 C. $80,000 D. $112,500

D. $112,500

Fancy Fish Company offers a cash rebate of $.25 on each $12 package of fish food sold during 2014. Historically, 10% of customers mail in the rebate form. During 2014, 5,000,000 packages are sold, and 150,000 $.25 rebates are mailed to customers. What is the rebate expense and liability, respectively, reported in the company's 2014 financial statements? A. $125,000; $37,500 B. $37,500; $87,500 C. $125,000; $125,000 D. $125,000; $87,500

D. $125,000; $87,500

Bryson Corporation purchased a limited-life intangible asset for $1,162,500 on May 1, 2012. It has a remaining useful life of 15 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2014 (if necessary, round your answer to the nearest dollar)? A. $66,667 B. $129,167 C. $155,000 D. $206,667

D. $206,667 $1,162,500 / 180 months multiplied by 32 months is $206,667.

Chattanooga Company purchased a depreciable asset for $80,000 on January 1, 2012. The estimated salvage value is $20,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. On January 1, 2014, the company made a capital expenditure of $16,000 for an addition to the asset. What is depreciation expense for 2014? A. $12,000 B. $14,400 C. $24,000 D. $25,333

D. $25,333

Oscar Company acquired a patent on a manufacturing process on January 1, 2012 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, 2013, 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, 2013 balance sheet? A. $5,100,000 B. $4,250,000 C. $3,875,000 D. $3,050,000

D. $3,050,000

Antigua Company purchased a depreciable asset for $45,000 on October 1, 2012. 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, 2014 when the asset is sold? A. $10,500 B. $15,750 C. $25,500 D. $34,500

D. $34,500

Lebanon Corporation owns equipment with a cost of $320,000 and accumulated depreciation at December 31, 2014 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. $0. B. $25,000. C. $35,000. D. $45,000.

D. $45,000.

Coral Corporation began operating as a business in 2014. During January 2014, the company paid $300,000 in design costs to develop its trademark and $250,000 in legal and registration fees to secure the trademark. During October 2014, the company successfully defended its trademark, paying an additional $150,000 in legal fees during the process. At what amount should Coral Corporation report its trademark on its December 31, 2014 balance sheet? A. $150,000 B. $400,000 C. $550,000 D. $700,000

D. $700,000

For 2014, 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 2014 asset turnover ratio is A. 23 times. B. 25 times. C. 1.14 times. D. 1.25 times.

D. 1.25 times.

Gain contingencies include all of the following except A. possible receipts of donations and bonuses. B. Pending court cases where the probable outcome is favorable. C. tax loss carryforwards. D. All of the options are gain contingencies.

D. All of the options are gain contingencies.

The total cost of natural resources includes all of the following except: 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.

Which of the following factors need not be considered in determining whether a liability should be recorded with respect to pending or threatened litigation? A. The time period in which the cause of action occurred. B. The probability of an unfavorable outcome. C. The ability to make a reasonable estimate of the loss. D. All of the options must be considered.

D. All of the options must be considered.

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.