Ch 7 8 9 MC trivia

What is a post-closing trial balance?

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Which of the following will be reported under other expenses and losses in the income from continuing operations section of the income statement? A loss on impairment B depreciation expense C purchase of land below market price D sale of equipment from a discontinued product line

A loss on impairment

An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be

Capitalized in the machine account

When an asset being depreciated under the group method is disposed of, which of the following happens to any resulting gain or loss?

It is buried in the Accumulated Depreciation account.

In a period of rising prices, the inventory method that produces the lowest ending inventory is the:

LIFO perpetual method. -LIFO periodic method. FIFO perpetual method. average cost method.

Which of the following is not a physical factor related to depreciation?

Obsolescence is an economic, not a physical, factor of depreciation.

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

Supplies. Raw materials. -Finished goods. Work-in-process.

Which of the following is true of the composite method?

The composite life is the total depreciable cost divided by the total annual depreciation.

The return on assets is computed by dividing:

The return on assets is equal to net income divided by average total assets.

Cramer Coffeehouse spent $35,000 on equipment in 2017. The equipment had a useful life of 5 years. In 2020, a new model of equipment came out and the coffeehouse calculated an impairment loss on the equipment of $5,400. However, the new model had a faulty piece, making the older models increase in value by $8,000 in 2021. If Cramer Coffeehouse is still using their older equipment, how would they record this late increase in value?

They would not record the increase in value. The rationale for not writing the asset up in value is that the new cost basis puts the impaired asset on an equal basis with other assets that are unimpaired

Why would a company sell receivables to another company?

To accelerate access to amounts collected.

Estimating future net cash flows expected from the use of an asset and its eventual disposal is the first step in determining whether an asset is impaired.

True

Under MACRS, which of the following must be considered in determining depreciation?

Under MACRS, the cost of asset, property recovery class, and half-year convention are considered in determining depreciation. This is the best answer.

When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the

market value of the stock

When using the percentage of completion method, the company

recognizes revenues and gross profit each period during the contract.

The undiscounted future net cash flows should be used in the

recoverability test for impairment.

The best measure of the fair value of a performance obligation is

standalone selling price.

Paul's construction uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by which of the following?

the cash proceeds received

An indication that the customer has not taken control of the good or service is

the customer has no significant risks or rewards of ownership.

Trade discounts are

used to avoid frequent changes in catalogs.

In determining the transaction price, the company must consider:

variable consideration, non-cash consideration, time value of money, and consideration payable.

Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years.For each of the following items, indicate whether the expenditure should be capitalized or expensed in the period incurred. CAPITALIZED

-Improvement. -Expenditure that increases the useful life of an existing asset. -Expenditure that increases the efficiency and effectiveness of a productive asset but does not increase its salvage value. -Expenditure that increases the efficiency and effectiveness of a productive asset and increases the asset's salvage value. -Expenditure that increases the quality of the output of the productive asset. -Improvement to a machine that increased its fair market value and its production capacity by 30% without extending the machine's useful life.

Plant assets often require expenditures subsequent to acquisition. It is important that they be accounted for properly. Any errors will affect both the balance sheets and income statements for a number of years.For each of the following items, indicate whether the expenditure should be capitalized or expensed in the period incurred. EXPENSED

-Ordinary repairs. -Replacement of a minor broken part on a machine.

Which of the following is a period cost?

-Selling costs. Direct costs. Production costs. Freight in.

In a period of rising prices, the inventory method which tends to give the highest reported net income is

-first-in, first-out. last-in, first-out. weighted-average. base stock.

Asset valuation accounting principles are most similar between

Assets held for disposal

O'Dell Vegetables purchased a harvesting machine on July 1, 2016, for $984,000. The machine was estimated to have a useful life of 8 years with an estimated salvage value of $140,000. O'Dell uses the straight-line method of depreciation. During 2019, it became apparent that the machine would become uneconomical after December 31, 2023, and that the machine would have no scrap value. What should be the charge for depreciation in 2019 under generally accepted accounting principles?

$144,050

For the fiscal year that just ended, Zephyr Corporation had net sales of $12.4 million and a 0.4 asset turnover ratio. If Zephyr had total assets of $29 million on the first day of the fiscal year, then what were its total assets on the last day of the fiscal year?

$33 million AT = NS / AVG TA (BEG + END / 2)

Crane Company has the following account balances at year end: Office supplies $3500 Raw materials 26000 Work-in-process 58000 Finished goods 108000 Prepaid insurance 5000 What amount should Crane report as inventories in its balance sheet?

-$192000. $111500. $195500. $108000.

Which of the following is a characteristic of a perpetual inventory system?

-Cost of goods sold is recorded with each sale. Inventory purchases are debited to a Purchases account. Inventory records are not kept for every item. Cost of goods sold is determined as the amount of purchases less the change in inventory.

Kate's company has been discussing the harvesting of timber in the last three quarters, which has them somewhat concerned. Tom's company has recently been working to renew their copyright on an artwork, as it recently expired. What is implied here?

Kate is discussing depletion, while Tom is discussing amortization.

Ken and Tammy are working with asset valuation. Ken is trying to determine if an asset is impaired, and Tammy is calculating the amount of impairment for an asset that has no available market value. What is the difference between the values used by Ken and Tammy?

Ken will be using undiscounted future cash flows, and Tammy will be using discounted future cash flows.

Larry and Dawn have both found that their company has previously impaired assets that have increased in value compared to the book value. The asset at Larry's company is being held for disposal, and the asset at Dawn's company is currently in use. Compare the accounting process that Larry and Dawn must take to record the increased value.

Larry's company will record an increase in value, and Dawn's company will not.

Fairfield Unlimited has equipment with a carrying amount of $2,800,000. The expected future net cash flows from the equipment are $3,120,000, and its fair value is $2,570,000. The equipment is expected to be used in operations in the future. What amount (if any) should Fairfield report as an impairment to its equipment?

No impairment should be recorded

Question 13 Which of the following types of expenditures should be capitalized in this instance: (1)an expenditure for routine maintenance that increases the useful life compared with deferring the maintenance,(2)an expenditure that increases the useful life of the asset compared with the original estimate assuming normal maintenance at the required intervals,(3)an expenditure that increases the utility of the asset.

No, Yes, Yes

Which of the following tests is used to determine if an impairment has occurred?

Recover-ability Test

On January 1, 2017, Purdy Company enters into a contract to transfer Blue and Rain to Georgia Co. for $300,000. The contract specifies that payment for Blue will not occur until Rain is also delivered. In other words, payment will not occur until both Blue and Rain are transferred to Georgia. Purdy determines that standalone prices are $110,000 for Blue and $190,000 for Rain. Purdy delivers Blue to Georgia on February 10, 2017. On March 15, 2017, Purdy delivers Rain to Georgia. Purdy should record

Contract Asset of $110,000 on February 10.

Which of the following depreciation methods is not based on the passage of time?

The Activity method assumes that depreciation is a function of activity or production, not time. Straight-line, declining base and sum-of-years digits are all time-based methods.

What is activity method of depreciation?

The activity method (also called the variable-charge or units-of-production approach) assumes that depreciation is a function of use or productivity, instead of the passage of time

A depreciation method that is used when a collection of assets is heterogeneous and the assets have different useful lives is the:

The composite method is used when a collection of assets is heterogeneous and includes assets which have different lives.

What is the normal journal entry for recording bad debt expense under the allowance method?

Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.

A portion of fixed overhead incurred during self-construction of an asset must be allocated to the construction process.

False

Being inappropriate in situations where depreciation is a function of time instead of activity is the biggest limitation of the straight-line method. T or F

False

Finch Construction purchased a new dump truck, but they are keeping their old dump truck in case they need excess hauling capacity. Therefore, they decided that the old dump truck has lower future cash flows than the remaining book value of the truck and decide to write it off as an impairment. Under what circumstance would they use the present value of expected future net cash flows to calculate the loss on impairment?

If no estimate of the truck's market value is available

Under what circumstances does GAAP allow restoration of an impairment loss on a tangible asset?

If the asset is being held for disposal.

Why do many companies assign a pro rata portion of fixed overhead to self-constructed assets?

Because doing so results in better recognition of costs in the periods benefited.

Miller Company follows IFRS and applies revaluation accounting to plant assets with a carrying value of $900,000, a useful life of 3 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $990,000. Miller's journal entry to record depreciation for year one will include:

Under IFRS, depreciation expense for year 1 is based on the carrying value for that year (Carrying value, $900,000/Useful life, 3 years = Year 1 depreciation, $300,000) and is recorded with a debit to Depreciation Expense and a credit to Accumulated Depreciation for $300,000.

When an estimate in a tangible asset's service life is changed, the change should

be handled in current and future periods.

If a new technology leads to the availability of a more efficient and cost-effective machine, older models of the machine will likely

be written down as impairment losses.

Antique Company has notes receivable that have a fair value of $920,000 and a carrying amount of $710,000. Antique decides on December 31, 2020, to use the fair value option for these recently-acquired receivables. The adjusting entry to record this change will include a:

credit to Unrealized Holding Gain or Loss―Income for $210,000.

Which of the following can be found by multiplying the composite depreciation rate for a group of assets by the total cost of the group of assets?

depreciation expense

One criteria that indicates that a company should disregard revenue guidance for contracts is when

each party can unilaterally terminate the contract without compensation.

A contract should be treated as having multiple performance obligations if

each performance obligation is not highly dependent on other promises in the contract.

The seller of a good or service should recognize revenue when

each performance obligation is satisfied.

The restoration of an impairment loss is only permitted if an impaired asset

is being held for disposal.

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and

is so near its maturity that it presents insignificant risk of changes in interest rates.

In a period of rising prices, the inventory method which tends to give the highest reported inventory is

moving average. weighted-average. -FIFO. LIFO.

The accounts receivable turnover measures the

number of times the average balance of accounts receivable is collected during the period.

Sheffield Incorporated purchased land for expansion in 2016 for $642,000. Property values declined in 2019, and Sheffield recorded a loss on impairment of $107,000. They decided to forego the expansion and sell the property in the future. In 2020, property values increased again to $718,000 because a new developer purchased land in the area. In 2020, Sheffield would likely

record an increase in asset value of $107,000. Because, the carrying value after the write-up never exceeds the carrying amount of the asset before the impairment.

In a consignment sale, the consignee

records a payable when consigned merchandise is sold.

If you multiply a firm's profit margin on sales by its asset turnover, you will have calculated the firm's

return on assets.

A firm's asset turnover ratio reveals how many dollars of

sales were produced by each dollar invested in assets.

An assumption of the straight-line method of depreciation is that

the asset's economic usefulness is the same each year.

If an asset is sold at a gain,

the book value of the asset is less than the proceeds received from the sale.

An indication that the customer has taken control of the good or service is that

the selling company has transferred legal title to the asset.

Why would a company pay a liquidating dividend?

to return the capital investment to the investors

Interest revenue earned on borrowed funds during the construction of an asset to be used by a firm can be used to reduce the cost of interest to be capitalized.

False

When assets are similar in nature and have approximately the same useful lives, companies frequently use the composite approach.

False

When listing its assets, a firm should offset all liabilities secured by property, plant, equipment, and natural resources against these assets.

False

Changes in the estimates used to calculate depreciation should be handled as a correction of an error and require an adjustment to the beginning balance of Retained Earnings.

False. A change in estimate is not the same as a correction of an error. Such changes are used to change the depreciation charge in the current and prospective periods.

I. Beginning balances for the asset and its accumulated depreciation account are not adjusted when a change in estimate occurs. II. Changes in estimate should be handled in the current period only. III. No "catch-up" entry is made at the time a revision of depreciation rates occurs. IV. Depreciation expense is revised by dividing the remaining book value less any salvage value by the remaining estimated life.

I, III, and IV.

Under which of the following circumstances has impairment of property, plant, or equipment occurred?

If the expected future net cash flows are less than the asset's carrying value

If you divide a firm's net sales by its average total assets, you have calculated the firm's

asset turnover ratio

If a firm's net sales increase but its average total assets remain constant, then the firm's

asset turnover will increase.

Melanie knows her firm's profit margin on sales and its net income amount. Given these values, Melanie

can determine the firm's net sales by dividing its net income by its profit margin on sales.

Which inventory costing method most closely approximates current cost for each of the following:

Ending inventory=FIFO Cost of Goods sold=LIFO

In January 2020, Free State Resources purchased a mineral mine for $6,500,000 with removable ore estimated by geological surveys at 3,400,000 tons. The property has an estimated value of $900,000 after the ore has been extracted. Free State incurred $1,200,000 of development costs preparing the property for the extraction of ore. During 2020, 390,000 tons were removed and 350,000 tons were sold. For the year ended December 31, 2020, Free State should include what amount of depletion in its cost of goods sold?

700k

Which of the following is not a capital expenditure with regard to a manufacturing facility?

A.Painting the exterior of the building. In general, costs incurred to achieve greater future benefits should be capitalized, whereas expenditures that simply maintain a given level of services should be expensed. Repairs that maintain an asset in operating condition are not capital expenditures, such as painting the exterior of the building.

What will happen if a company has an increase in the intangible development costs of a project but no change in the salvage value or the estimate of the total amount of the resource available?

The depletion cost per unit of product will increase.

How is the loss on impairment reported differently if the asset has a resale value rather than no resale value?

The loss on impairment for the asset with a resale value would be calculated based on the difference between the book value and the resale value; the loss on impairment for the asset without a resale value would be calculated based on the difference between the book value and the present value of the future cash flows.

What is "recourse" as it relates to selling receivables?

The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.

In a bill-and-hold arrangement, which of the following is not one of the criteria which must be met for the customer to have obtained control of the product?

The product must be physically located in the seller's warehouse.

Kessler GPS spent $180,000 on equipment in January 2019. The equipment had a useful life of 3 years, and Kessler GPS uses straight-line depreciation. In 2020, a new model of equipment came out and Kessler calculated an impairment of $54,000 on August 6, 2020. However, the new model was defective, and older models had an increased market value of $112,000 in 2021. If Kessler GPS is holding their older equipment for disposal, how would they record this late increase in value in March 2021?

They would record a $46,000 increase in value for the equipment.

If a company is holding impaired assets for disposal, they should report the value of the assets at the lower of cost or net realizable value.

True

In order to handle changes in estimates prospectively, the asset's salvage value is subtracted from the book value at the time of the change, and this amount is divided by the asset's remaining estimated useful life.

True

The profit margin on sales ratio does not provide insight into a firm's use of property, plant, and equipment.

True

IFRS and GAAP both use a commercial substance test to determine whether gains on nonmonetary exchanges should be recognized.

True GAAP changed from a "similar in nature" criterion to the commercial substance test to converge with IFRS.

When nonmonetary assets are traded in an exchange that lacks commercial substance and no cash is received, any loss is recognized immediately.

True When nonmonetary assets are traded in an exchange that lacks commercial substance and no cash is received, any loss is recognized immediately.

A company can write up or write down an asset held for disposal in future periods as long as the carrying value after the write-up does not exceed the carrying amount before the impairment.

True. A company can write up or down an asset held for disposal if future periods, as long as the carrying value after the write-up never exceeds the carrying amount of the asset before the impairment.

Recording an impairment loss for an asset increases the balance in its Accumulated Depreciation account.

True. An impairment loss is recorded with a credit to Accumulated Depreciation which increases the balance in the account.