Intermediate Acct Test 2

Ayesha Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase price $50,000 Freight and handling 2,000 Concrete pad for equipment 5,000 Maintenance during year 3,000 Shipping insurance 400

$57,400

Which of the following would be considered "expenditures subsequent to acquisition" for a building?

Repairing a major roof leak three years after use Cost of installing solar panels after three months of use of the building

Which of the following items should be capitalized in the cost of equipment?

Sales tax Freight to deliver the equipment Legal fees to establish title Installation and testing of equipment

Allocation base

The cost of the asset that is expected to be consumed The cost of the asset that is expected to be consumed

Service life

The estimated use that the company expects to receive from the asset

Allocation method

The pattern in which the usefulness is expected to be consumed

Which of the following intangible assets are usually considered to have indefinite lives?

Trademarks

Theoretically, which depreciation method provides the best estimate of expense to correspond with the usage of the asset?

Units-of-production depreciation

A retirement or abandonment of an asset is different from a sale of an asset because

a loss must be recognized for the remaining book value. no consideration is received.

The types of expenditures that can occur subsequent to an asset's acquisition are

additions. improvements. repairs and maintenance. rearrangements.

Finite life intangible assets

amortization pg. 8 ch 11

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the consideration received and the ______ value of the asset sold. Multiple choice question.

book

The gain or loss on disposal of an asset is calculated as

consideration received less the book value of asset sold.

Declining balance depreciation methods multiply _____ by an annual rate that is a multiple of the straight-line rate.

cost less accumulated depreciation

For natural resources the depletion base is

cost less any anticipated residual value.

For natural resources the depletion base is Multiple choice question.

cost less any anticipated residual value.

The cost of a natural resource less its anticipated residual value is called the

depletion base

The total cost of plant and equipment to be expensed over its service life is referred to as its

depreciable base

Which of the following are research and development costs?

design, construction, and testing of pre-production prototypes research aimed at discovering new knowledge

When assets are acquired in a noncash transaction, if the fair value of the noncash items given is not clearly evident, then the ______ value of the assets received is used to record the assets.

fair

When assets are acquired in a noncash transaction, if the fair value of the noncash items given is not clearly evident, then the ______ value of the assets received is used to record the assets. Multiple choice question.

fair

Amortization is appropriate for intangible assets with

finite useful lives

Which of the following items should be capitalized in the cost of equipment?

insurance on equipment during shipping Purchase price freight to deliver the equipment to its location installation and testing of equipment

Which of the following items should be capitalized in the cost of equipment? (Select all that apply.)

insurance on equipment during shipping installation and testing of equipment freight to deliver the equipment to its location Purchase price

No amortization is recorded for

intangible assets with indefinite lives.

Assets that do not qualify for interest capitalization are

inventories routinely manufactured.

Which of the following are included in research and development costs?

labor costs of research personnel allocation of overhead for lab facilities equipment in the lab

Intangible assets

lack physical substance represent exclusive rights that provide benefits to owners can be purchased can be internally developed finite useful life: amortize over useful life indefinite useful life: not amortized

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics (Select all that apply.)

long-lived revenue-producing

When assets are purchased in a group for a single sum, it is referred to as a

lump-sum purchase.

A change in accounting estimate requires a company to account for the change Multiple choice question.

on a prospective basis in the current year and future years.

For self-constructed assets, the costs incurred include labor, materials, and Multiple choice question.

overhead.

A company acquires equipment by signing a note payable. If the note does not bear interest, the company should record the equipment at the

present value of the equipment or note.

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the

present value of the note payable, which is the face amount of the note.

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the Multiple choice question.

present value of the note payable, which is the face amount of the note.

Long-term assets are typically classified in one of these two categories:

property, plant, and equipment intangible assets

A lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's

relative fair value

A lump-sum acquisition of assets requires that an allocation is made to each individual asset based on the asset's ______.

relative fair value

Which of the following terms describes expenditures made to maintain a given level of benefits

repairs and maintenance

Research

search to discover new knowledge to help develop new product or service or process/ tecnique to improve product

The amount of use that the company expects to obtain from an asset before disposing of it is referred to as the_____ life of the asset.

service, useful or depreciable

The method of amortization used for intangible assets

should reflect the pattern of use of the asset. is most commonly straight-line.

A company issues its equity securities to purchase land. The common stock is publicly traded, and both the value of the stock and the land is known. The best indicator of fair value is the value of the

stock

Emil Company expects that its asset will be more useful during early years of its life than during later years. In addition, the company estimates that repair costs will increase over time. Which method(s) may help equalize total expenses recognized over the service life of this asset?

sum-of-the-years digits declining balance

The formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year.

The formula for calculating declining balance depreciation is the depreciation rate per year times Multiple choice question.

the book value at the beginning of the year.

Capitalizing interest on a self-constructed asset as a cost to get the asset ready for its intended use is consistent with

the historical cost principle.

In a lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times

the relative fair value percentages of each asset.

Although activity-based depreciation methods are theoretically superior to time-based methods, activity-based methods are (Select all that apply.)

too costly to use. difficult to apply in practice.

Development

translation of research into findings into plan or design for new product or process

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

true

True or false: The sum-of-the-years'-digits (SYD) method of depreciation is an accelerated method in which depreciation expense decreases each year.

true

If a company bases depreciation expense on the life of a machine in hours, and depreciates the machine for the number of hours used during the year, it is using the ______ method of depreciation. Multiple choice question.

units-of-production

Donated Assets

usually and enticement from donor to benefit donor debit asset account; credit revenue fair value based on market price or appraised value

Goodwill

value of company above value of identifiable tangible and intangible assets only recorded when the whole company is purchased

Which of the following are not accelerated methods of depreciation?

straight-line depreciation units-of-output depreciation

long term assets

inital cost is capitalized (recorded as an asset)

Changes in estimates or methods

accounted for prospectively effect is on current and future period financial statements

In accounting, the term impairment refers to

an asset's significant decline in value.

Polly Corporation purchases land for $200,000. Polly incurs the following costs associated with the land acquisition: Property taxes for current year $4,000 Delinquent property taxes 8,000 Commission to broker 14,000 Cost of grading 2,000 Cost of land improvements 12,000 What is the amount that Polly should capitalize in the land account?

$224,000

initial cost

= purchase price + all costs necessary to get ready to use

Which of the following is true regarding a nonmonetary exchange of assets? Multiple choice question.

A gain or loss is recognized for the difference between the fair value and the book value of the asset given up

Which of the following accounting changes must be justified in the notes to the financial statements?

Changes in depreciation methods

The cost of a major improvement that extends the useful life of an asset would be ______; the cost of maintenance that does not increase the future benefits would be ______. Multiple choice question.

capitalized; expensed

Which of the following is not included in research and development expenses? Multiple choice question.

Filing and legal costs for a patent.

Which statement is true about the straight-line method of depreciation? Multiple choice question.

It allocates an equal amount of depreciation to each year of the asset's service life.

An asset is acquired by signing a note payable. The note does not indicate an interest rate, and the fair value of the asset cannot be reliably determined. At what amount should the asset be recorded? Multiple choice question.

Present value of the note payable discounted at the market rate

Sherman Corporation purchases land for $100,000. Sherman incurs the following costs associated with the land acquisition: Property taxes for current year $3,000 Cost of removing old building 7,000 Title insurance 1,000 Cost of grading 4,000 Delinquent property taxes 2,000 What is the cost that Sherman should capitalize in the cost of land?

Reason: $100,000 + $7,000 + $1,000 + $4,000 + $2,000 = $114,000

On October 1, year 1, Kirby Corp. purchased equipment for $100,000. The equipment has a useful life of 5 years with no residual value. Kirby uses the straight-line method of depreciation. The partial year depreciation for year 1 is

Reason: $100,000/5 years = $20,000 per year x 1/4 year = $5,000 depreciation expense in year 1.

Retirement/ Abandonment

asset is given up for nothing

R&D costs

expensed in the period incurred

Which of the following expenditures are classified as repairs and maintenance for a vehicle? (Select all that apply.)

routine oil change engine tune-up

Which of the following terms is equivalent to an asset's useful life to a particular company?

service life

Which of the following are expenditures on assets subsequent to acquisition?

repairs and maintenance additions improvements

Loss

sold for less than book value

Gain

sold for more than book value

In the sum-of-the-years'-digits method of depreciation, the depreciation rate is multiplied by the depreciable base. The depreciable base is

cost less residual value.

A company acquires equipment by signing an interest-bearing note payable for $20,000. The interest rate is realistic so the company will record (Select all that apply.)

credit note payable $20,000 debit machine $20,000

The journal entry to record depreciation expense includes

credit to accumulated depreciation debit to depreciation expense

stock issuance

debit asset account; credit common stock (and APIC if needed)

The FASB requires research and development costs to be expensed because Multiple choice question.

it is difficult to objectively determine the future benefits.

The allocation of the cost of a tangible fixed asset is referred to as Blank 1Blank 1 m , Incorrect Unavailable, whereas the allocation of the cost of an intangible asset is referred to as Blank 2Blank 2

depreciation amortization

What are the cost components for self-constructed assets?

direct labor manufacturing overhead direct material

Which of the following are accelerated methods of depreciation?

double-declining-balance method declining balance method sum-of-the-years'-digits method

The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at

fair value

When a company acquires assets by issuing debt or equity securities, the first indicator of fair value is the

fair value of the debt or equity securities given

Indicate which costs would be capitalized as part of the cost of manufacturing equipment.

freight-in set-up cost insurance during transit

indefinite life intangible assets

not subject to amortization but to impairment -goodwill, trademarks, tradenames

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

Which items qualify for interest capitalization?

Assets built as discrete projects for sale or lease Assets built for a company's own use

Land, building, machinery, furniture, and equipment are typically are reported as part of: Multiple choice question.

property, plant, and equipment

Expenditures needed to get land ready for its intended use should be

capitalized as part of the cost of land

most companies use what method to calculate amortization expense?

straight line