Ch. 10

Question 1

Cash discounts for prompt payment, how should the discount be taken?

Answer 1

Company should consider the discount as a reduction in the purchase price of the asset

Question 2

When no interest rate is stated or if the specified rate is unreasonable

Answer 2

Company imputes an appropriate interest rate

Question 3

When imputing an interest rate, companies consider what factors?

Answer 3

Brows credit rating, the amount and maturity date of the note, and prevailing interest rate

Question 4

Cash exchange price of the asset acquired is used for

Answer 4

The basis for recording the asset and measuring the interest element

Question 5

In lump sum purchases the total cost is allocated

Answer 5

Among the various assets on the basis of their relative fair values

Question 6

No monetary assets

Answer 6

Is accounted on the basis of fair value of asset given up or the fair value of the asset received whichever is clearly more evident

Question 7

Companies should recognize what immediately?

Answer 7

Gains and losses on exchange

Question 8

Rationale for immediate recognition is that more transactions have

Answer 8

Commercial substance and gains and losses should be recognized

Question 9

An exchange has commercial substance if

Answer 9

Future cash flows change as a result of that transaction

Two parties economic position change

Question 10

For the exchange of similar assets can the economic position of company change,?

Answer 10

Yes

Question 11

It is possible to exchange similar assets but not have a significant difference in cash flows. So if the company is in the same positions before the exag version the company recognizes?

Answer 11

Loss but generally defers a gain

Question 12

If company receives no cash in exchange it defers

Answer 12

Gain

Question 13

If company receives cash in such exchange it recognizes

Answer 13

Part of gain immediately

Question 14

When the company exchanges non monetary assets and a loss results the companies recognize the loss immediately because

Answer 14

Companies should not value assets at more than their cash equivalent price

Question 15

Should companies recognize a loss whether it has commercial substance or not?

Answer 15

Yes

Question 16

Cost of non monetary asset acquired in exchange for another non monetary asset at the fair value of he asset given up and immediately recognizes a gain

Answer 16

,

Question 17

When should the fair value of the asset received be used?

Answer 17

Only when it is clearly more evident the fair value of asset given up

Question 18

Contribution is some type of asset such as cash securities land building BUT IT COULD ALSO BE

Answer 18

Forgiveness of debt

Question 19

Accounting for contributions should be recognized as

Answer 19

Contributions received as revenues in the period received

Question 20

Some companies promise to give pledge some type of asset in the future

If the promise is UNCONDITIONAL

Answer 20

UNCONDITIONAL : depends only on the passage of time or on de and by the recipient for performance, the company should report contribution expense and related payable immediately

CONDITIONAL : company recognizes the expense in the period benefited by the contribution generally when it transfers the asset

Question 21

Prudent cost

Answer 21

This concept states that if for some reason accompany ignorantly paid too much for an asset originally it is theoretically preferable to charge a loss immediately

Question 22

Costs incurred to achieve greater future benefits should be

Answer 22

Capitalized

Question 23

Whereas expenditures that simply maintain a given level of services should be

Answer 23

Expensed

Question 24

In Oder to capitalize cost , one of the three conditions must be present

Answer 24

1. The useful life of asset must be increased
2. Quantity of units produced from asset must be increased
3. Quality of the units produced must be enhanced

Question 25

Four major expenditures

Answer 25

Additions - increase or extension of existing assets Improvements and replacements - substitution of an improved asset for an existing one Rearrangement and reinstallation - movements of assets from one location to another Repairs- expenditures that maintain assets in condition for operation

Question 26

By definition companies do what to any addition to plant assets because a new asset is created

Answer 26

Capitalize

Question 27

The problem additions have is h

Answer 27

Accounting for any changes related to the existing structure as a result of the addition.

Question 28

Companies substitute one asset for another through

Answer 28

Improvements and replacements

Question 29

Improvement

Answer 29

Is the substitution of a better asset for the one currently used

Question 30

Replacement

Answer 30

Is the substitution of a similar asset

Question 31

If the expenditure increase the future service potential of the asset a company can capitalize it using three ways

Answer 31

1. Substitution approach 2. Capitalize the new cost 3. Charge to accumulated depreciation

Question 32

Substitution approach is correct if what is available

Answer 32

Carrying amount of old asset

Question 33

Capitalize new cost

Answer 33

Capitalizes improvement and keeps the carrying amount of old asset on the books

Question 34

Charge to accumulated depreciation

Answer 34

If company does not improve quantity or quality of the asset itself but instead extends its useful life the company debits expenditure to accumulated depreciation

Question 35

Rearrangement and reinstallation costs

Answer 35

If material : capitalize new costs as an asset to be amortized over future periods expected to benefit If immaterial: cannot be separated from other operating expenses or if their future benefit is questionable, company should immediately expense

Question 36

Ordinary repAIRS

Answer 36

Maintain assets in operating condition

Question 37

Ordinary repairs are charged to

Answer 37

Expense account in the period incurred on the basis that it is the primary period benefited

Question 38

If a major report occurs server all periods will benefit

Answer 38

True

Question 39

For repairs , a company should handle costs as an

Answer 39

Addition improvement or replacement

Question 40

Generally the book value of asset does not equal the disposed value of asset

Answer 40

True Reasons: depreciation is an estimate of cost allocation and not a Process of valuation

Question 41

Gain or loss is a correction of

Answer 41

Net income

Question 42

Involuntary conversion

Answer 42

Such as fire flood theft or condemnation

Question 43

If company scraps or abandons an asset without

Answer 43

Any cash recovery it recognize a loss to the asset book. Value

Question 44

If scrap exists the gain or loss that occurs is between

Answer 44

Assets scrap value and its book value

Question 45

If an asset can still be used even though it is fully depreciated

Answer 45

It may be kept on the books at historical cost less depreciation