Flashcards in FA Deck (151)
A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January 1, year 1. On December 31, year 3, the accumulated
depreciation using the sum-of-the-years’ digits method would be
(Original cost less salvage value) multiplied by 9/10.
A development stage enterprise should include with its financial statements certain additional information. Cumulative amounts from the enterprise’s inception is an
example of additional information that should be included in its
b. Statement of cash flows
d. Income statement
Which of the following research and development related costs should be capitalized and amortized over current and future periods?
a. Research and development general laboratory building.
b. Inventory used for a specific research project.
c. Research findings purchased from another company to aid a particular research project currently in process.
d. Administrative salaries allocated to research and development.
Research and development general laboratory building.
In an arm’s-length transaction, Company A and Company B exchanged nonmonetary assets with no monetary consideration involved. The exchange was deemed to
have commercial substance for both Company A and Company B and the fair values of the nonmonetary assets were both clearly evident. The accounting for the
exchange should be based on the
Fair value of the asset surrendered.
Under IFRS, if the intangible asset’s carrying value is greater than its recoverable amount it is considered to be impaired. The recoverable amount is
The greater of its net selling price or its value in use.
Slad Co. exchanged similar productive assets with Gil Co.
and, in addition, paid Gil cash of $100,000. The following
information pertains to this exchange
Relinquished by Gil $75,000 $140,000
Relinquished by Slad 40,000 40,000
If the transaction lacks commercial substance, on Slad’s
books, the assets acquired should be recorded at what amount?
Darnell Company reported a loss of $40,000 on its year 1 income statement related to long-lived assets which it intended to sell. Qn Darnell’s December 31, year 1
balance sheet, these long-lived assets were reported at $200,000. During year 2, Darnell did not sell any of these long-lived assets, and, at December 31, year 2,
Darnell compiled the following information related to these assets which it intended to sell:
Fair value $220,000
Cost to sell 15,000
On Darnell’s December 31, year 2 balance sheet, what amount should be reported for the long-lived assets which were being held for sale?
Yellow Co. spent $12,000,000 during the current year developing its new software package. Of this amount, $4,000,000 was spent before it was at the application
development stage and the package was only to be used internally. The package was completed during the year and is expected to have a four-year useful life.
Yellow has a policy of taking a full-year’s amortization in the first year. After the development stage, $50,000 was spent on training employees to use the program.
What amount should Yellow report as an expense for the current year?
When should a long-lived asset be tested for recoverability?
When events or changes in circumstances indicate that its carrying amount may not be recoverable.
The management of Devin Corporation is testing two of its reporting units for impairment of goodwill. Information about results of these tests are shown below.
goodwill) $2,500,000 $3,000,000
Carrying value of
goodwill 500,000 500,000
Estimated fair value of
total 2,900,000 2,800,000
Estimated fair value of
assets and liabilities
other than goodwill 2,100,000 2,500,000
After properly adjusting the goodwill for impairment, which of the following represents the adjusted amount of goodwill for the two reporting units?
a. $500,000 $500,000
b. $800,000 $300,000
c. $500,000 $300,000
d. $400,000 $200,000
An expenditure to install an improved electrical system is
a. Revenue expenditure
c. Capital expenditures
Rye Co. purchased a machine with a 4-year estimated useful life and an estimated 10% salvage value for $80,000 on January 1, year 1. In its income statement,
what would Rye report as the depreciation expense for year 3 using the double-declining balance method?
Which of the following statements is correct concerning start-up costs?
a. Costs of start-up activities should be capitalized and amortized on a straight-line basis over the lesser of the estimated economic life of the company, or 60
months, while organization costs should be expensed as incurred.
b. Costs of start-up activities, including organization costs, should be capitallized and amortized on a straight-line basis over the lesser of the extimated economic
life of the company, or 60 months.
c. Costs of start-up activities, including organization costs, should be expensed as incurred.
d. Costs of start-up activities, including organization costs, should be capitalized and expensed only if an impairment exists.
Costs of start-up activities, including organization costs, should be expensed as incurred.
A company reported $6 million of goodwill in last year’s statement of financial position. How should the company account for the reported goodwill in the current
Determine whether fair value of the reporting unit is less than the carrying amount and report an impairment loss on goodwill in the income statement.
Under the IFRS revaluation model for accounting for plant, property, and equipment
There are no rules regarding the frequency of revaluation.
Parker Corporation prepares its financial statements in accordance with IFRS. Parker uses the revaluation model for reporting plant, property, and equipment. Parker
paid $400,000 for equipment on January 5, year 1. The equipment is valued at $410,000 on December 31, year 1. The $10,000 gain should be included in
A revaluation surplus account in other comprehensive income.
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.
Lano Corp.’s forest land was condemned for use as a national park. Compensation for the condemnation exceeded the forest land’s carrying amount. Lano
purchased similar, but larger, replacement forest land for an amount greater than the condemnation award. As a result of the condemnation and replacement, what
is the net effect on the carrying amount of forest land reported in Lano’s balance sheet?
The amount is increased by the excess of the replacement forest land’s cost over the condemned forest land’s carrying amount.
When only a few assets (not a reporting unit) acquired in a business combination accounted for using the acquisition method are being tested for recoverability, all goodwill that arose from that transaction should
Not be allocated to only part of a reporting unit..
In January year 1, Huff Mining Corporation purchased a mineral mine for $3,600,000 with removable ore estimated by geological surveys at 2,160,000 tons. The
property has an estimated value of $360,000 after the ore has been extracted. Huff incurred $1,080,000 of development costs preparing the property for the
extraction of ore. During year 1, 270,000 tons were removed and 240,000 tons were sold. For the year ended December 31, year 1, Huff should include what amount of depletion in its cost of goods sold?
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?
a. No effect No effect
b. No effect Increase
c. Decrease Increase
d. Increase Decrease
Which of the following statements describes the proper accounting for losses when nonmonetary assets are exchanged for other nonmonetary assets?
a. A loss is deferred so that the asset received in the exchange is properly valued.
b. A loss, if any, which ¡s unrelated to the determination of the amount of the asset received should be recorded.
c. A loss can occur only when assets are sold or disposed of in a monetary transaction.
d. A loss is recognized immediately, because assets received should not be valued at more than their cash equivalent price.
A loss is recognized immediately, because assets received should not be valued at more than their cash equivalent price.
Tomson Co. installed new assembly line production equipment at a cost of $175,000. Tomson had to rearrange the assembly line and remove a wall to install the equipment. The rearrangement cost $12,000 and the wall removal cost $3,000. The rearrangement did not increase the life of the assembly line but it did make it
more efficient. What amount of these costs should be capitalized by Tomson?
An impairment loss should be recognized for a long-lived asset if the expected undiscounted net future cash flows from the use and the disposal of the asset are less
Carrying amount of the asset.
Which of the following conditions must exist in order for an impairment loss to be recognized?
I. The carrying amount of the long-lived asset is less than its fair value.
II. The carrying amount of the long-lived asset is not recoverable.
II. The carrying amount of the long-lived asset is not recoverable.
On June 30, year 3, Finn, Inc. exchanged 2,000 shares of Edlow Corp. $30 par value common stock for a patent owned by Bisk Co. The Edlow stock was acquired in
year 1 at a cost of $50,000. At the exchange date, Edlow common stock had a fair value of $40 per share, and the patent had a net carrying amount of $100,000 on
Bisk’s books. Assuming that the transaction has commercial substance, Finn should record the patent at
Which of the following is considered investment property when preparing financial statements using IFRS?
a. Building used in the business.
b. Building held for lease under an operating lease.
c. Building held for sale in the normal course of business.
d. Building under construction.
Building held for lease under an operating lease.
After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements
about subsequent reversal of a previously recognized impairment loss is correct?
a. It is encouraged, but not required.
b. It is required when the reversal is considered permanent.
c. It must be disclosed in the notes to the financial statements.
d. It is prohibited.
It is prohibited.
On August 1, year 1, Bamco Corporation purchased a new machine on a deferred payment basis. A down payment of $1,000 was made and 4 monthly installments of
$2,500 each are to be made beginning on September 1, year 1. The cash equivalent price of the machine was $9,500. Bamco incurred and paid installation costs
amounting to $300. The amount to be capitalized as the cost of the machine is