acct 2 final
A method that excludes residual value from the depreciation base for the calculation of depreciation is: Double-declining-balance Sum-of-the-years'-digits activity Straight-line
Double-declining-balance
A machine with a 4-year estimated useful life and an estimated 15% residual value was acquired on January 1. Would depreciation expense using the sum-of-the-years'-digits method be higher or lower than depreciation expense using the double-declining-balance method in the first and second years? First Year Second Year Higher Higher First Year Second Year Lower Lower First Year Second Year Higher Lower First Year Second Year Lower Higher
First Year Second Year Lower Higher
A fixed asset with a 5-year estimated useful life is sold during the second year. How would the use of the straight-line method of depreciation instead of the double-declining-balance method of depreciation affect the amount of gain or loss on the sale of the fixed asset? Gain Loss Decrease Increase Gain Loss Increase Decrease Gain Loss No effect No effect Gain Loss No effect Increase
Gain Loss Decrease Increase
When a company replaces an old asphalt roof on its plant with a new fiberglass insulated roof, which of the following types of expenditure occurs? Improvement Rearrangement Addition Ordinary repair
Improvement
At the end of the expected useful life of a depreciable asset with an estimated 15% residual value, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Straight-line Sum-of-the-Years'-Digits No Yes Straight-line Sum-of-the-Years'-Digits Yes No Straight-line Sum-of-the-Years'-Digits No No Straight-line Sum-of-the-Years'-Digits Yes Yes
Straight-line Sum-of-the-Years'-Digits No No
Morgan Company determined that (1) it has a material obligation relating to employees' rights to receive compensation for future absences attributable to employees' services already rendered, (2) the obligation relates to rights that vest, and (3) payment of the compensation is probable. The amount of Morgan's obligation as of December 31, 2016, is reasonably estimated for the following employee benefits: Vacation pay $100,000 Holiday pay 25,000 What total amount should Morgan report as its liability for compensated absences on its December 31, 2016, balance sheet? a. $125,000 b. $100,000 c. $25,000 d. $0
a. $125,000
A company has $300,000 of 20-year bonds payable, which mature in the current year. How are these liabilities classified on the company's balance sheet? a. $300,000 is reported as current liability. b. $150,000 is reported as current liability. c. $150,000 is reported as long term liability. d. $300,000 is reported as long term liability.
a. $300,000 is reported as current liability.
Bronson Apparel Inc. operates a retail store and must determine the proper December 31, 2016, year-end accrual for the following expenses: a. The store lease calls for fixed rent of $1,000 per month, payable at the beginning of the month, and additional rent equal to 6% of net sales over $200,000 per calendar year, payable on January 31 of the following year. Net sales for 2016 are $800,000. b. Bronson has personal property subject to a city property tax. The city's fiscal year runs from July 1 to June 30, and the tax is payable on June 30. Bronson estimates that its personal property tax will amount to $6,000 for the city's fiscal year ending June 30, 2017. In its December 31, 2016, balance sheet, Bronson should report accrued expenses of: a. $39,000 b. $54,000 c. $42,000 d. $51,000
a. $39,000
Liabilities are the probable sacrifices of economic benefits arising from present obligations of a company to transfer assets or provide future services to other entities as a result of past transactions or events. In this context, "obligation" means all of the following except: a. Duties imposed personally. b. Duties imposed legally. c. Duties imposed socially. d. All of the choices are correct.
a. Duties imposed personally.
Which of the following are included in the definition of a contingency? I. Existing condition. II. Ability to identify the recipient before the time of settlement. III. Resolved when a future event occurs or fails to occur. a. I and III only. b. I, II, and III. c. I and II only. d. II and III only.
a. I and III only.
Chris Co. purchased a piece of equipment and incurred the following costs. Which of these costs is properly capitalized and recorded as part of the cost of the equipment? I. Freight charges to transport the equipment to the factory. II. Assembly of the equipment at the factory. III. Testing costs to ensure the equipment was properly installed. IV. The manufacturer allowed a 3% discount for early payment, and Chris Co. paid in cash at delivery. a. I, II, III, and IV b. I, II, and IV only c. I and IV only d. I and II only
a. I, II, III, and IV
Which of the following characteristics are necessary for a company to include an asset in the category of property, plant, and equipment? The asset: I. Has an expected life of more than 5 years II. Is held for use in operations III. Has physical substance a. II and III only b. I and III only. c. I, II, and III d. I and II only
a. II and III only
Companies may make changes and corrections with respect to depreciation. Which of the following is incorrect regarding these changes and corrections? a. If a company corrects an error in depreciation, it is accounted for prospectively. b. If a company changes its depreciation method from straight-line to sum-of-the-years-digits, it is accounted for prospectively. c. If a company corrects an error in depreciation, it requires a correction to the amount in the accumulated depreciation account. d. If a company changes its estimate of the service life of an asset, it is accounted for prospectively.
a. If a company corrects an error in depreciation, it is accounted for prospectively.
Which of the following methods of allocating fixed overhead costs during self-construction of an asset is supported by the idea that the overhead would have been incurred whether or not the construction takes place? a. Include only incremental overhead in the cost of the self-constructed asset. b. Allocate a portion of fixed overhead to the self-constructed asset. c. Allocate the fixed overhead that could have been avoided to the self-constructed asset with all other fixed overhead being expensed as incurred. d. Allocate no fixed or incremental overhead to the self-constructed asset.
a. Include only incremental overhead in the cost of the self-constructed asset.
Which of the following is not an employer liability relating to payroll? a. Income taxes payable. b. Employee withholdings for income taxes. c. Union dues. d. Federal Insurance Contribution Act (F.I.C.A.) taxes.
a. Income taxes payable.
Which of the following statements is incorrect? a. Losses are recognized under the group method of depreciation, but all gains are deferred until each individual asset is retired. b. The group method of depreciation applies to homogeneous assets. c. The composite method of depreciation recognizes no gains or losses until all the assets are retired. d. The depreciation estimates used in the group method of depreciation are based on averages.
a. Losses are recognized under the group method of depreciation, but all gains are deferred until each individual asset is retired.
When a company exchanges its own common stock for an asset, the acquisition cost of the asset is: I. The par value of the common stock issued II. The book value of the asset acquired a. Neither I nor II. b. Either I or II, whichever is more clearly evident and representationally faithful. c. I only. d. II only.
a. Neither I nor II.
Which of the following statements is correct? a. Requiring companies to use the same depreciation method is an example of form over economic substance. b. When companies use the same depreciation method, differences in financial statements are reduced or eliminated. c. All companies in the same industry are required to use the same depreciation method. d. All of the choices are correct.
a. Requiring companies to use the same depreciation method is an example of form over economic substance.
Four factors are used to compute a company's periodic charge for depreciation. Which of the following terms and definitions is incorrect? a. Residual value - the present value of the amount the company expects to obtain from disposing of the asset at some future date. b. Asset cost - all the costs necessary to prepare the asset for use in order to obtain the benefits from the asset. c. Service life - may be measured in units of time or units of activity or output. d. Method of cost allocation - the method of cost allocation should be "systematic and rational."
a. Residual value - the present value of the amount the company expects to obtain from disposing of the asset at some future date.
Compensated absences include all of the following except: a. Severance pay. b. Illness. c. Vacation. d. All of the choices are types of compensated absences.
a. Severance pay.
When a company receives a deposit from a customer to protect itself against nonpayment for future services, the deposit should be classified by the company as: a. a liability b. revenue c. part of the allowance for doubtful accounts d. a deferred credit deducted from accounts receivable
a. a liability
All of Rolf Co.'s employees are entitled to two weeks of paid vacation for each full year in Rolf's employ. Unused vacation time can be accumulated and carried forward to succeeding years and will be compensated at the salary in effect when the vacation is taken. Mary Beal started her employment with Rolf on January 1, 2016. As of December 31, 2016, when Beal's salary was $500 per week, Beal had used none of her vacation time. As of December 2016, Rolf expects to give its employees 10% raises in July 2017. How much should Rolf report as a liability at December 31, 2016, for Beal's accumulated vacation time? a. $1,100 b. $1,000 c. $0 d. $500
b. $1,000
Parker Company developed a patent that is currently valued at $100,000. The company paid $1,000 in legal and filing fees. At what amount, if any, does Parker Company record the patent on its books? a. $100,000. b. $1,000. c. $0 d. $101,000
b. $1,000.
The balance in Ashwood Company's Accounts Payable account at December 31, 2016, was $1,200,000 before any necessary year-end adjustment relating to the following: a. Goods were in transit from a vendor to Ashwood on December 31, 2016. The invoice cost was $85,000, and the goods were shipped FOB shipping point on December 29, 2016. The goods were received on January 2, 2017. b. Goods shipped FOB shipping point on December 20, 2016, from a vendor to Ashwood were lost in transit. The invoice cost was $40,000. On January 5, 2017, Ashwood filed a $40,000 claim against the common carrier. c. Goods shipped FOB destination on December 22, 2016, from a vendor to Ashwood were received on January 6, 2017. The invoice cost was $20,000. What amount should Ashwood report as accounts payable on its December 31, 2016, balance sheet? a. $1,260,000 b. $1,325,000 c. $1,345,000 d. $1,285,000
b. $1,325,000
Ashton Company exchanged a nonmonetary asset with a cost of $30,000 and accumulated depreciation of $16,000 for another nonmonetary asset worth $12,000. Ashton also received $1,400 cash. In the entry to record this exchange, Ashton should record a: a. $2,000 gain b. $600 loss c. $2,000 loss d. $600 gain
b. $600 loss
If a company that uses IFRS determines that a provision must be accrued and estimates a range of possible outcomes between $60,000 and $100,000 with no one amount being more likely than another, what amount should be accrued as a provision? a. $100,000 b. $80,000 c. $60,000 d. Since no amount is more likely than another, no accrual is made until an amount can be determined.
b. $80,000
Which of the following statements is correct regarding the disposal of an asset at a loss? a. A company normally reports the loss as a contra shareholders' equity account. b. A company may dispose of property, plant, and equipment by involuntary conversion or abandonment. c. A loss results when the book value of the asset sold is less than the consideration received. d. A company records the disposal by debiting cash and crediting the asset account for the remaining book value.
b. A company may dispose of property, plant, and equipment by involuntary conversion or abandonment.
Chris Co. purchased land adjacent to its factory. Chris Co. plans to hold this land and sell it at some future date, and hopes to earn a profit from holding the land. How should Chris Co. classify this land on its balance sheet and why? a. As property, plant, and equipment because if the land is sold at a profit the profit will be reported as part of net income. b. As an investment because it is not being used in the normal course of business. c. As property, plant, and equipment because it provides the company with potential productive capacity. d. As an investment because the company cannot be assured that the land will eventually be sold at a profit.
b. As an investment because it is not being used in the normal course of business.
Unidentifiable intangible assets: a. Include customer lists and noncompete agreements. b. Cannot be separated from the entity. c. May be transferred or exchanged. d. All of the choices are correct.
b. Cannot be separated from the entity.
Donald Company operates a business in Orange County. While Donald uses a calendar fiscal year, Orange County's fiscal year begins in October. How should Donald account for its property taxes assessed by Orange County? a. Donald will begin accruing a property tax liability in January based on its estimate and report it as a current asset on its balance sheet. b. Donald will begin accruing a property tax liability in October based on its estimate and report it as a current liability on its balance sheet. c. Donald will begin accruing a property tax liability in January based on its estimate and report it as a current liability on its balance sheet. d. Donald will begin accruing a property tax liability in October based on its estimate and report it as a current asset on its balance sheet.
b. Donald will begin accruing a property tax liability in October based on its estimate and report it as a current liability on its balance sheet.
Accounting for the cost of intangible assets involves all of the following except: a. Distinguishing between those that are externally acquired and those that are internally developed. b. Expensing as incurred all costs of internally developed intangible assets. c. Reviewing for impairment purchased unidentifiable intangible assets. d. Amortizing the cost of purchased intangible assets with a finite life.
b. Expensing as incurred all costs of internally developed intangible assets.
Required disclosures for depreciation include all of the following except: a. Depreciation expense for the period. b. Fair value information for major classes of depreciable assets, by nature or function, at the balance sheet date. c. A general description of the method or methods used in computing depreciation. d. Accumulated depreciation, either by major classes of depreciable assets or in total, at the balance sheet date.
b. Fair value information for major classes of depreciable assets, by nature or function, at the balance sheet date.
Financial flexibility: I. Involves the management of cash. II. Refers to a company's ability to take advantage of opportunities. a. I only. b. I and II. c. II only. d. Neither I nor II.
b. I and II.
Internally developed goodwill is expensed as the costs are incurred because: I. Internally developed goodwill is not separable from the other assets of a company. II. Measuring the value of internally developed goodwill would be less representationally faithful than measuring the value of identifiable intangible assets. a. I only. b. I and II. c. II only. d. Neither I nor II.
b. I and II.
The amount of interest a company may capitalize when it constructs an asset is: I. The amount of the interest cost that could have been avoided if the construction had not occurred II. The amount of interest computed by applying an interest rate to the weighted average accumulated expenditures for the qualifying asset during the capitalization period a. Neither I nor II. b. I and II. c. I only. d. II only.
b. I and II.
The fair value of an asset: I. Is equal to the acquisition cost on the acquisition date. II. Due to market fluctuations and depreciation expense, the fair (or market) value is greater than the book value throughout the asset's life. a. II only. b. I only. c. I and II. d. Neither I nor II.
b. I only
Which of the following are characteristics of a liability? I Are measured, recorded, and reported at their face amount. II The liability transaction must have already occurred. III The company has little or no discretion to avoid the future sacrifice of economic benefits. a. I and III only. b. II and III only. c. I, II, and III. d. I and II only.
b. II and III only.
A company should select an accelerated depreciation method because: I. There is a large decline in the fair value of an asset early in its life. II. The usage and decline in service potential of the asset is greater in the early years. a. I only. b. II only. c. I and II. d. Neither I nor II.
b. II only.
A company's operating cycle is: I. Always one year. II. Cash to inventory to receivables and back to cash. a. I and II. b. II only. c. I only. d. Neither I nor II.
b. II only.
Under which of the following conditions may a company capitalize the interest incurred? I. An asset that is ready for its intended use. II. An asset being constructed as a discrete project for lease to another company. a. I only. b. II only. c. I and II. d. Neither I nor II.
b. II only.
Which of the following assets is amortized over the shorter of its expected useful life or 20 years? I. Trademarks. II. Patents. a. I and II. b. II only. c. I only. d. Neither I nor II.
b. II only.
Which of the following statements is not correct regarding accounting for property, plant, and equipment under IFRS? a. IFRS allow a company to subsequently value its property, plant, and equipment up to fair value if fair value can be reliably measured. b. If the fair value of the asset increases and then subsequently decreases, the decrease is always recognized as an expense. c. Revaluation surplus is accumulated in shareholders' equity. d. If the property, plant, and equipment is increased to fair value, the increase is recognized in other comprehensive income.
b. If the fair value of the asset increases and then subsequently decreases, the decrease is always recognized as an expense.
What two criteria must be met before a company can classify short-term debt that is expected to be refinanced as a noncurrent liability? a. Probable and reasonably estimable. b. Intent and ability to refinance on a long-term basis. c. Measurability and reportability. d. Liquidity and financial flexibility.
b. Intent and ability to refinance on a long-term basis.
Which of the following are permitted under both IFRS and U.S. GAAP? I. Capitalization of the total amount of interest related to specific construction loans. II. Offsetting of interest revenue from the temporary investment of funds borrowed specifically for construction. a. I only. b. Neither I nor II. c. II only. d. I and II.
b. Neither I nor II.
Which of the following assets typically are amortized? a. Patents Trademarks No Yes b. Patents Trademarks Yes Yes c. Patents Trademarks Yes No d. Patents Trademarks No No
c. Patents Trademarks Yes No
During 2012, Traco Machine Company spent $176,000 on R&D costs for an invention. This invention was patented on January 2, 2013, at a nominal cost that was expensed in 2013. The patent had a legal life of 20 years and an estimated useful life of 8 years. In January 2017, Traco paid $16,000 for legal fees in a successful defense of the patent. Amortization for 2017 should be: a. $1,000 b. $0 c. $4,000 d. $26,000
c. $4,000
Flint Corporation's general ledger as of December 31, 2016, includes the following accounts: Corporation (start-up) costs $ 5,000 Deposits with advertising agency (will be used to promote goodwill) 8,000 Discounts on bonds payable 15,000 Excess of purchase price over fair value of the identifiable net assets of acquired company 70,000 Trademarks 12,000 In the preparation of Flint's balance sheet as of December 31, 2016, what should be reported as total intangible assets? a. $110,000 b. $95,000 c. $82,000 d. $87,000
c. $82,000
The Plaza Company originated late in 2015 and began operations on January 2, 2016. Plaza is engaged in conducting market research studies on behalf of manufacturers. Prior to the start of operations, the following costs were incurred: Attorney's fees in connection with organization of Plaza $ 4,000 Improvements to leased offices prior to occupancy 7,000 Meetings of incorporators, state filing fees, and other company expenses 5,000 $16,000 What is the amount of expense recognized for 2016? a. $7,000 b. $4,000 c. $9,000 d. $16,000
c. $9,000
Under IFRS, development costs a. Are capitalized if purchased from an outside 3rd party. b. Are expensed as incurred. c. Are capitalized if technical and economic feasibility can be demonstrated. d. Are capitalized once the legal rights to the product or process have been obtained.
c. Are capitalized if technical and economic feasibility can be demonstrated.
Which of the following statements regarding depreciation is incorrect? a. Accumulated depreciation is the sum of all previous amounts of depreciation expense for the asset. b. Deprecation is a method of cost allocation only. c. Depreciation provides funds for the replacement of an asset. d. Depreciation is computed using any systematic and rational method.
c. Depreciation provides funds for the replacement of an asset.
One of the primary issues in accounting for current liabilities is: a. Determining if there is a legal requirement for assets to be transferred. b. Determining the identity of the recipient before the time of settlement. c. Determining how to report the liability in the financial statements and related notes. d. All of the choices are primary issues in accounting for current liabilities.
c. Determining how to report the liability in the financial statements and related notes
The proceeds for a non-interest-bearing note are computed as: a. Present value + (Face value x interest rate x fraction of year) b. Present value + (Present value x interest rate x fraction of year) c. Face value - (Face value x interest rate x fraction of year) d. Face value + (Face value x interest rate x fraction of year)
c. Face value - (Face value x interest rate x fraction of year)
A long term debt, which is callable by the creditor within 1 year, is reported as current liability in the debtor company's financial statements. The exceptions are: I. The creditor has waived the right to request repayment for more than 1 year from the balance sheet date. II. It is probable that the company will resolve the violation within a specified grace period; thus, preventing it from becoming callable. III. The company follows a policy of reporting these amounts as long term liability. a. II and III b. I and III c. I and II d. I, II, and III
c. I and II
The manager of a utility stated that since its transmission lines are kept in good condition by regular repairs and maintenance and their efficiency remains constant, the lines do not depreciate. Under which of the following circumstances might the manager be correct about no depreciation being recorded on the transmission lines? I. The lines have an unlimited useful life. II. The lines have an estimated residual value greater than their cost. a. I only b. II only c. I and II d. Neither I nor II
c. I and II
Accelerated depreciation is appropriate when: I. The asset is more productive in the earlier years of its life. II. The service potential of the asset will be approximately constant each period. III. The service potential of the asset will decline more quickly in the early periods of the asset's useful life. a. I and II only. b. I, II, and III. c. I and III only. d. II and III only.
c. I and III only.
Which of the following elements of R&D activities does a company include in R&D costs? I. Personnel. II. Contract services. III. Intangible assets purchased from others. a. II and III only. b. I and II only. c. I, II and III. d. I and III only.
c. I, II and III.
In estimating the useful life of an intangible asset, a company uses: I. The level of maintenance costs required to obtain the expected future cash flows from the asset. II. The effect of competition. III. Contractual provisions the enable renewal or extension of the asset's legal or contractual life without substantial economic cost. a. III only. b. II and III only. c. I, II, and III. d. I and III only.
c. I, II, and III.
Accounting for impaired assets requires a number of steps and procedures. Place the following steps or procedures in their correct sequential order: I. The impairment loss is reported as part of income from continuing operations. II. Compare the estimated future net cash flows expected from the asset to the book value of the asset. III. The difference between an asset's book value and its fair value are measured. a. III, II, I. b. I, II, III. c. II, III, I. d. III, I, II.
c. II, III, I.
Recording depreciation affects the financial statements in all of the following ways except: a. Decreasing Income Tax Expense. b. Increasing Accumulated Depreciation. c. Increasing Retained Earnings. d. Reducing Net Income.
c. Increasing Retained Earnings
The materiality constraint is used to justify: a. Not recording equitable and constructive liabilities since there is no legal requirement to pay. b. Recording all liabilities as long-term for which the recipient is not identified. c. Recording current liabilities at their face amount. d. All of the choices are correct regarding the materiality constraint.
c. Recording current liabilities at their face amount.
What method does a company use in accounting for improvement and replacement costs when the company knows the book value of the asset being replaced? a. Expenditure method. b. Depreciation method. c. Substitution method. d. Nonreciprocal method.
c. Substitution method.
Goodwill represents the excess of the purchase price of an acquired company over the: a. Book value of an acquired company b. Sum of the fair values assigned to intangible assets acquired minus liabilities assumed c. Sum of the fair values assigned to identifiable assets acquired minus liabilities assumed d. Sum of the fair values assigned to tangible assets acquired minus liabilities assumed
c. Sum of the fair values assigned to identifiable assets acquired minus liabilities assumed
When nonmonetary assets are exchanged, a company records the cost of the nonmonetary asset acquired at: a. The fair value of the nonmonetary asset surrendered plus cash received. b. The fair value of the nonmonetary asset surrendered minus cash paid. c. The fair value of the nonmonetary asset surrendered plus cash paid. d. The book value of the asset received minus cash paid.
c. The fair value of the nonmonetary asset surrendered plus cash paid.
Which of the following statements is incorrect regarding asset impairments under IFRS and U.S. GAAP? a. IFRS require a company to annually assess whether indicators of impairment exist. b. IFRS determine if an impairment exists by comparing the book value of an asset to the higher of the asset's fair value (less costs to sell) or value in use. c. U. S. companies will recognize impairment losses earlier than international companies. d. U.S. GAAP requires an impairment assessment only when events or changes in circumstances indicate that the book value of property, plant, and equipment may not be recoverable.
c. U. S. companies will recognize impairment losses earlier than international companies.
What is the proper time or time period over which to amortize an intangible asset if there is no forseeable limit on the period of time over which the intangible assets is expected to be used in operations? a. 40 years b. 50 years c. not amortized d. immediately
c. not amortized
Gain contingencies are usually recognized in the income statement when: a. occurrence is probable and the amount can be reasonably estimated b. the amount can be reasonably estimated c. realized d. occurrence is reasonably possible and the amount can be reasonably estimated
c. realized
On September 1, 2016, a company borrowed cash and signed a 1-year, interest-bearing note on which both the principal and interest are payable on September 1, 2017. How will the note payable and the related interest be classified in the December 31, 2016, balance sheet? a. Note Payable Accrued Interest Current liability Noncurrent liability b. Note Payable Accrued Interest Noncurrent liability No entry c. Note Payable Accrued Interest Noncurrent liability Current liability d. Note Payable Accrued Interest Current liability Current liability
d. Note Payable Accrued Interest Current liability Current liability
How should a loss contingency that is reasonably possible and for which the amount can be reasonably estimated be reported? a. Accrued Disclosed Yes No b. Accrued Disclosed No No c. Accrued Disclosed Yes Yes d. Accrued Disclosed No Yes
d. Accrued Disclosed No Yes
Which of the following amounts incurred in connection with a trademark should be capitalized? a. Cost of a Successful Defense Registration Fees Yes No b. Cost of a Successful Defense Registration Fees No Yes c. Cost of a Successful Defense Registration Fees No No d. Cost of a Successful Defense Registration Fees Yes Yes
d. Cost of a Successful Defense Registration Fees Yes Yes
Which of the following is classified as an accrued payroll liability? a. Federal Income Tax Withheld Employee's Share of F.I.C.A. Taxes No Yes b. Federal Income Tax Withheld Employee's Share of F.I.C.A. Taxes No No c. Federal Income Tax Withheld Employee's Share of F.I.C.A. Taxes Yes No d. Federal Income Tax Withheld Employee's Share of F.I.C.A. Taxes Yes Yes
d. Federal Income Tax Withheld Employee's Share of F.I.C.A. Taxes Yes Yes
Frye Company incurred R&D costs in 2016 as follows: Equipment acquired for use in multiple R&D projects $1,000,000 Depreciation on the equipment 150,000 Materials used 200,000 Wages and salaries of R&D personnel 500,000 Outside consulting fees 100,000 Appropriately allocated indirect costs 250,000 The total R&D costs reported in Frye's 2016 income statement should be: a. $900,000 b. $1,800,000 c. $650,000 d. $1,200,000
d. $1,200,000
Sherwood Corporation incurred $68,000 of R&D costs in its laboratory to develop a patent that was granted on January 2, 2016. Legal fees and other costs associated with registration of the patent totaled $13,600. Sherwood estimates that the economic life of the patent will be 8 years. What amount should Sherwood charge to patent amortization expense for the year ended December 31, 2016? a. $0 b. $10,200 c. $800 d. $1,700
d. $1,700
During 2016, Lawton Company introduced a new line of machines that carry a 3-year assurance type warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first 3-year period were as follows: Sales Actual Warranty Expenditures 2016 $ 200,000 $ 3,000 2017 500,000 15,000 2018 700,000 45,000 $1,400,000 $63,000 What amount should Lawton report as a liability at December 31, 2018? a. $0 b. $84,000 c. $21,000 d. $105,000
d. $105,000
The cost of a natural resource includes: a. Acquisition costs. b. Restoration costs. c. Development costs. d. All of the choices are correct.
d. All of the choices are correct.
Which of the following factors cause the market value of a company to be greater than the book value of the company? a. Many assets are listed on the balance sheet at amounts different from their fair market value. b. Goodwill may exist but not be recognized. c. The acquirer paid too much. d. All of the choices are correct.
d. All of the choices are correct.
A company may demonstrate the ability to refinance currently maturing short-term debt by: I. Actually refinancing the debt after the date of its balance sheet but before that balance sheet is issued. II. Entering into a long-term financing agreement before the balance sheet is issued. a. I only. b. II only. c. Neither I nor II. d. Both I and II.
d. Both I and II.
The book value of an asset is best described by: a. Market value - accumulated depreciation. b. Market value + accumulated depreciation. c. Cost + accumulated depreciation. d. Cost - accumulated depreciation.
d. Cost - accumulated depreciation.
Which of the following paired statements is incorrect regarding the accounting for warranty costs under the expense warranty accrual method, sales warranty accrual method, and modified cash basis? a. Sales warranty accrual method - costs necessary to satisfy the warranty are expensed as incurred b. Sales warranty accrual method - sales revenue is deferred and recognized on a straight-line basis over the life of the contract c. Modified cost basis - a liability is recognized in the period of sale for future performance d. Expense warranty accrual method - warranty expense recorded when repairs are made
d. Expense warranty accrual method - warranty expense recorded when repairs are made
Which of the following activities are excluded from R&D? I. Design of tools, jigs, molds, and dies involving new technology. II. Quality control and testing during commercial production. III. Design, construction, and testing of preproduction prototypes and models. a. I only. b. I and III only. c. II and III only. d. II only.
d. II only.
The accountants for SFC Company are trying to decide whether the loss from an unfiled lawsuit must be accrued in SFC's financial statements. Which of the following are required in order for SFC to accrue the unfiled lawsuit? I. The event resulting in the possible lawsuit must have occurred after the financial statements are issued. II. It is not probable that a lawsuit will be filed. III. The amount of the loss can be reasonably estimated. a. I, II, and III. b. II only. c. I and II only. d. III only.
d. III only.
A company borrows some money, which it uses to acquire a parcel of land on which it plans to construct a building. Before construction of the building begins, a period of time passes while the company obtains the necessary plans and permissions. May the company capitalize interest during this period? If so, should it capitalize the interest to the Land or the Building account? a. No capitalization is permitted during this period because construction has not started. b. Interest may be capitalized, and it should be capitalized to the Land account. c. Interest may be capitalized, and it should be capitalized to both the Land and the Building accounts in relative proportions. d. Interest may be capitalized, and it should be capitalized to the Building account.
d. Interest may be capitalized, and it should be capitalized to the Building account.
In order for a loss contingency to be reported in a company's financial statements: I. The identity of the recipient must be known before the time of settlement. II. It must be reasonably possible that a liability has been incurred or an asset has been impaired. a. I only. b. II only. c. I and II. d. Neither I nor II.
d. Neither I nor II.
The objective of accounting for depreciation is to: I. Measure and report the fair value of an asset. II. Value the asset at the market value of its remaining service potential. a. I and II. b. I only. c. II only. d. Neither I nor II.
d. Neither I nor II.
Under U.S. GAAP, in a year in which the fair value of an asset rises, a company should: I. Not record depreciation since the asset's value and service potential have increased. II. Record more depreciation expense to reflect the increase in the asset's service potential. a. I or II depending on if the increase in fair value is objectively determinable. b. I only. c. II only. d. Neither I nor II.
d. Neither I nor II.
When is goodwill amortized? a. Whenever events or changes in circumstances occur that would indicate an impairment may exist. b. When a company assesses qualitative factors and determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value. c. When a company assesses qualitative factors and determines that the fair value of the reporting unit is more likely than not greater than its carrying value. d. Never.
d. Never.
A purchased patent has a remaining legal life of 15 years. It should be: a. expensed in the year of acquisition b. not amortized c. amortized over 15 years regardless of its useful life d. amortized over its useful life if less than 15 years
d. amortized over its useful life if less than 15 years
The composite depreciation method: excludes residual value from the base of the depreciation calculation. does not recognize gain or loss on the retirement of single assets in the group. is applied to a group of homogeneous assets. is an accelerated method of depreciation.
does not recognize gain or loss on the retirement of single assets in the group.
A donated plant asset should be recorded at an amount equal to its: book value on books of donor historical cost or fair value, whichever is more clearly determinable fair value historical cost
fair value
Vorst Corporation's schedule of depreciable assets at December 31, 2016, was as follows: Asset Cost Accumulated Depreciation Acquisition Date Residual Value A $100,000 $ 64,000 2015 $20,000 B 55,000 36,000 2014 10,000 C 70,000 33,600 2014 14,000 $225,000 $133,600 $44,000 Vorst takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of an asset's disposition. The estimated useful life of each depreciable asset is 5 years. Vorst depreciates Asset C by the straight-line method. On June 30, 2017, Vorst sold Asset C for $28,000 cash. How much gain (loss) should Vorst record in 2017 on the disposal of Asset C? $(2,800) $2,800 $(5,600) $(8,400)
$(8,400)
Crowder Company acquired a tract of land containing an extractable natural resource. Crowder is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $9,000,000 Estimated restoration costs 1,500,000 If Crowder maintains no inventories of extracted material, what should be the depletion expense per ton of extracted material? $2.10 $1.60 $1.80 $1.90
$1.90
Lyle Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay $20,000 at the time of purchase and $20,000 at the end of each of the next 5 years. The plant assets should be valued at: present value of a $20,000 ordinary annuity for 5 years $120,000 minus imputed interest $120,000 plus imputed interest $120,000
$120,000 minus imputed interest
Vorst Corporation's schedule of depreciable assets at December 31, 2016, was as follows: Asset Cost Accumulated Depreciation Acquisition Date Residual Value A $100,000 $ 64,000 2015 $20,000 B 55,000 36,000 2014 10,000 C 70,000 33,600 2014 14,000 $225,000 $133,600 $44,000 Vorst takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of an asset's disposition. The estimated useful life of each depreciable asset is 5 years. Vorst depreciates asset A on the double-declining balance method. How much depreciation expense should Vorst record in 2017 for asset A? $32,000 $14,400 $6,400 $25,600
$14,400
Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of $5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. a The present value of an ordinary annuity of $1 at 15% for 5 periods is 3.35. b The future amount of an ordinary annuity of $1 at 15% for 5 periods is 6.74. c The present value of $1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine? $16,750 $33,700 $12,500 $25,000
$16,750
On January 2, 2016, Yuki Yogurt Company decided to replace its obsolete refrigeration system with a more efficient one. The old system had a book value of $9,000 and a fair value of $1,000. Yuki's new refrigeration system has a fair value of $190,000, for which Yuki paid $189,000 after permitting the contractor to keep the old refrigeration equipment. How much should Yuki capitalize as the cost of the new refrigeration system? $198,000 $197,000 $189,000 $190,000
$190,000
The following expenditures were among those incurred by Jensen Corporation during the year ended December 31, 2016: Replacement of tiles on portion of roof that had been leaking $4,000 Overhaul of machinery that is expected to extend its useful life for another 2 years 6,000 How much should be charged to repairs and maintenance in 2016? $0 $10,000 $4,000 $6,000
$4,000
Vorst Corporation's schedule of depreciable assets at December 31, 2016, was as follows: Asset Cost Accumulated Depreciation Acquisition Date Residual Value A $100,000 $ 64,000 2015 $20,000 B 55,000 36,000 2014 10,000 C 70,000 33,600 2014 14,000 $225,000 $133,600 $44,000 Vorst takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of an asset's disposition. The estimated useful life of each depreciable asset is 5 years. Using the sum-of-the-years-digits method, how much depreciation expense should Vorst record in 2017 for Asset B? $6,000 $12,000 $9,000 $11,000
$6,000
On July 1, 2015, Mundo Corporation purchased factory equipment for $50,000. Residual value was estimated at $2,000. The equipment will be depreciated over 10 years using the double-declining balance method. Counting the year of acquisition as one-half year, Mundo should record 2016 depreciation expense of: $7,680 $9,000 $9,600 $10,000
$9,000
he Hickory Company made a lump-sum purchase of 3 pieces of machinery for $130,000 from an unaffiliated company. At the time of acquisition, Hickory paid $5,000 to determine the appraised value of the machinery. The appraisal disclosed the following values: Machine A $70,000 Machine B $42,000 Machine C $28,000 What cost should be assigned to machines A, B, and C, respectively? A B C $45,000 $45,000 $45,000 A B C $65,000 $39,000 $26,000 A B C $70,000 $42,000 $28,000 A B C $67,500 $40,500 $27,000
A B C $67,500 $40,500 $27,000 last one
When a company purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant, the costs incurred to tear down the building should be: Added to the cost of the land Added to the cost of the plant Amortized over the estimated time period between the tearing down of the building and the completion of the plant Expensed as incurred
Added to the cost of the land
Intangible and tangible assets have which of the following characteristics in common? a. Held for use in the course of business. b. All of the choices are correct. c. May be expensed by a company over several periods. d. Have a useful life of more than 1 year.
All of the choices are correct.
