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Flashcards in FA Deck (151):
1

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.

2

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
a. Neither
b. Statement of cash flows
c. Both
d. Income statement

Both

3

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.

4

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.

5

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.

6

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
Carrying Fair
amounts values
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?

$140,000

7

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?

$205,000

8

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?

$6,050,000

9

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.

10

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.
Reporting Units
Telecommunications Networking
Segment carrying
amount (including
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?
Telecommunications Networking
a. $500,000 $500,000
b. $800,000 $300,000
c. $500,000 $300,000
d. $400,000 $200,000

$500,000 $300,000

11

An expenditure to install an improved electrical system is
a. Revenue expenditure
b. Neither
c. Capital expenditures
d. Both

Capital expenditures

12

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?

$10,000

13

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.

14

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
year?

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.

15

Under the IFRS revaluation model for accounting for plant, property, and equipment

There are no rules regarding the frequency of revaluation.

16

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.

17

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.

18

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.

19

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..

20

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?

$480,000

21

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
a. No effect No effect
b. No effect Increase
c. Decrease Increase
d. Increase Decrease

Decrease Increase

22

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.

23

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?

$190,000

24

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
than the

Carrying amount of the asset.

25

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.

26

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

$80,000

27

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.

28

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.

29

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

$ 9,800

30

Which of the following describes the appropriate accounting for intangible assets with finite useful lives?
a. The cost of the asset is not amortized but is periodically tested for impairment.
b. The cost of the asset is amortized over its useful life and the asset is never tested for impairment.
c. The cost of the asset is amortized over its useful life and the asset is periodically tested for impairment.
d, The cost of the asset is amortized over 40 years.

The cost of the asset is amortized over its useful life and the asset is periodically tested for impairment.

31

Veronica Corp. uses the revaluation model for intangible assets. On March 1, year 1, Veronica acquired intangible assets with an indefinite life for $200,000. On
December 31, year 1, it was determined that the recoverable amount for these intangible assets was $180,000. On December 31, year 2, it was determined that the intangible assets had a recoverable amount of $187,000. How should Veronica recognize the gain or loss in the December 31, year 2 financial statements?

Unrealized gain in other comprehensive income of $7,000.

32

Mark Co. bought a franchise from Fred Co. on January 1, year 1, for $204,000. An independent consultant retained by Mark estimated that the remaining useful life
of the franchise was 50 years. Its unamortized cost on Fred’s books at January 1, year 1, was $68,000. Mark has decided to amortize the franchise over the maximum period allowed. What amount should be amortized for the year ended December 31, year 1?

$4,080

33

Which type of expenditure occurs when a company installs a higher capacity boiler to heat its plant?
a. Betterment.
b. Ordinary repair and maintenance.
c. Addition.
d. Rearrangement.

Betterment.

34

A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January 1 year 1. The increase in accumulated depreciation for
year 2 using the double-declining balance method would be

Original cost x 50% x 50%.

35

Tech Co. bought a trademark on January 2, two years ago. Tech accounted for the copyright as instructed under the provisions of ASC Topic 350 during the current
year. The intangible was being amortized over forty years. The carrying value at the beginning of the year was $38,000. It was determined that the cash flow will be
generated indefinitely at the current level for the trademark. What amount should Tech report as amortization expense for the current year?

$0

36

Newt Co. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should
be reported as a

Part of continuing operations.

37

ABC Co. was organized on July 15, year 1, and earned no significant revenues until the first quarter of year 4. During the period year 1-year 3, ABC acquired plant
and equipment, raised capital, obtained financing, trained employees, and developed markets. In its financial statements as of December 31, year 3, ABC should
defer all costs incurred during year 1-year 3

Which are recoverable in future periods.

38

Jae Corporation purchased land for $1O0OOO. Jae is holding the land for future use and appropriately classifies the land as investment property. Jae prepares its
financial statements in accordance with IFRS. What valuation model(s) may Jae use to report the land?

Cost model or fair value model.

39

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.
Reporting Units
Telecommunications Networking
Segment carrying
amount (including
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, what will be the amount of the goodwill impairment loss reported by Devin Corporation?

$200,000

40


A company recently acquired a copyright that now has a remaining legal life of 30 years. The copyright initially had a 38-year useful life assigned to it. An analysis of market trends and consumer habits indicated that the copyrighted material will generate positive cash flows for approximately 25 years. What is the remaining
useful life, if any, over which the company can amortize the copyright for accounting purposes?

25 years.

41

Under the reporting requirements of ASC Topic 360, impairment losses for assets to be held and used shall be reported

As a component of income from continuing operations.

42

Belle Co. determined after 4 years that the estimated useful life of its labeling machine should be 10 years rather than 12 years. The machine originally cost $46,000
and had an estimated salvage value of $1,000. Belle uses straight-line depreciation. What amount should Belle report as depreciation expense for the current year?

$5,000

43

Which of the following statements is(are) correct about the carrying amount of a long-lived asset expected to be disposed of after a loss has been recognized. Assume the long-lived asset was depreciable prior to the decision to dispose of it.
I. The reduced carrying amount of the asset may be increased in subsequent years up to the carrying amount prior to
adjustment, if fair value less cost to sell changes.
II. Such assets shall continue to be classified on the balance sheet as property, plant, and equipment.

I. The reduced carrying amount of the asset may be increased in subsequent years up to the carrying amount prior to
adjustment, if fair value less cost to sell changes.

44

During year 1, Burr Co. had the following transactions pertaining to its new office building:
Purchase price of land $60,000
Legal fees for contracts to
purchase land 2,000
Architects' fees 8,000
Demolition of building on site 5,000
Sale of scrap from old building 3,000
Construction cost of new building
(fully completed) 350,000
In Burr’s December 31, year 1 balance sheet, what amounts should be reported as the cost of land and cost of building?
Land Building
a. $60,000 $360,000
b. $62,000 $360,000
c. $64,000 $358,000
d. $65,000 $362,000

$64,000 $358,000

45

The required disclosures for the impairment of long-lived assets include all of the following except
a. The business segment(s) affected, if applicable.
b. The recommendation of the auditor, signed and dated as of the date of discovery.
c. The facts and circumstances leading to the impairment.
d. The amount of the impairment loss and how fair value was determined.

The recommendation of the auditor, signed and dated as of the date of discovery.

46

Company A and Company B exchanged nonmonetary assets with no monetary consideration involved and no impairment of value. The exchange did not result in the
cash flows of the new asset being significantly different than the cash flows of the old asset. The accounting should be based on the

Recorded amount of the asset relinquished.

47

On January 2, year 1, Mogul Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $5,000. The depreciation applicable to this equipment was $24,000 for year 3, computed under the sum-of-the-years’ digits method. What was the acquisition cost of the equipment?

$170,000

48

A lessee incurred costs to construct walkways to improve leased property. The estimated useful life of the walkways is 15 years. The remaining term of the nonrenewable lease is 20 years. The walkway costs should be

Capitalized as leasehold improvements and depreciated over 15 years.

49

Madden Company owns a tract of land which it purchased in year 1 for $100,000. The land is held as a future plant site and has a fair market value of $140,000 on July 1, year 4. Hall Company also owns a tract of land held as a future plant site. Hall paid $180,000 for the land in year 3 and the land has a fair market value of $200,000 on July 1, year 4. On this date Madden exchanged its land and paid $50,000 cash for the land owned by Hall. It is expected that the cash flows from the two tracts of land will not be significantly different. At what amount should Madden record the land acquired in the exchange?

$150,000

50

Simms Company has been working on creating a new tablet to compete with existing tablets. Simms is confident it has the ability to sell the asset and show a profit. Simms spent $200,000 during the first quarter of 20X1 studying alternatives. During the second quarter of 20X1, Simms spent an additional $25,000 improving one
alternative at which point it became technologically and economically feasible. During the third quarter of 20X1, Simms spent another $75,000 on the tablet to make
it ready for use and sale by the end of the year. Under IFRS, how much should Simms capitalize as development?

$75,000

51

A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected $100,000, and a market value of $105,000. What amount of impairment loss should be reported?

$0

52

Which of the following amounts incurred in connection with a trademark should be capitalized?
a. Cost of a successful defense
b. Cost of a successful defense and Registration fees
c. Registration fees
d. Neither

Cost of a successful defense and Registration fees.

53

When equipment is retired, accumulated depreciation is debited for the original cost less any residual recovery under which of the following depreciation methods?
a. Neither
b. Group depreciation
c. Composite depreciation
d. Both

Both

54

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 charge to depletion expense per ton of extracted material?

$1.90

55

Caravan Corporation owned a warehouse located in the path of a proposed highway. Caravan bought the land in year 1 for $10,000. That same year, it built the warehouse at a cost of $50,000. In year 23, after prolonged litigation, the state exercised its right of eminent domain and condemned the property, awarding Caravan $200,000. Depreciation accumulated to the date of the award was $45,000. On its year 23 federal income tax return, Caravan elected not to recognize the gain since
replacement property was bought for $225,000. For income statement purposes, Caravan should recognize a gain in year 23 of

$185,000

56

Derby Co. incurred costs to modify its building and to rearrange its production line. As a result, an overall reduction in production costs is expected. However, the
modifications did not increase the building’s market value, and the rearrangement did not extend the production line’s life. Should the building modification costs and
the production line rearrangement costs be capitalized?
a. Building
b. Building and production line rearrangement costs
c. Neither
d. Production line rearrangement costs

Building and production line rearrangement costs

57

Herr, Inc. has a fiscal year ending April 30. On May 1, year 1, Herr borrowed $10,000,000 at 15% to finance construction of its own building. Repayments of the loan
are to commence the month following completion of the building. During the year ended April 30, year 2, expenditures for the partially completed structure totaled
$6,000,000. These expenditures were incurred evenly throughout the year. Interest earned on the unexpended portion of the loan amounted to $400,000 for the
year. How much should be shown as capitalized interest on Herr’s financial statements at April 30, year 2?

$450,000

58

Company N donated computer equipment to a university (a nonreciprocal transfer). The fair value of the computer equipment was determinable. The difference
between the fair value of the nonmonetary asset transferred and its recorded amount at the date of donation should be recognized in Company N’s income statement
when the difference results in a
a. Gain
b. Gain and loss
c. Loss
d. Neither

gain and loss

59

Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a
nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year?

$0

60

Goodwill should be tested for value impairment at which of the following levels?
a. Each acquisition unit.
b. Each reporting unit.
c. Entire business as a whole.
d. Each identifiable long-term asset.

Each reporting unit.

61

On December 31, year 1, the New Bite Company had capitalized costs for a new computer software product with an economic life of 4 years. Sales for year 2 were 10% of expected total sales of the software. At December 31, year 2, the software had a net realizable value equal to 80% of the capitalized cost. The unamortized cost reported on the December 31, year 2 balance sheet should be

75% of capitalized cost.

62

Under IFRS intangible assets may be accounted for using the revaluation model only if

An active market exists for the intangible asset.

63

IFRS allows plant, property, and equipment to be valued using the cost model or the revaluation model. Which statement is true about the revaluation model for
valuing plant, property, and equipment?
a. Revaluation of assets must be made on the last day of the fiscal year.
b. Revaluation of assets must be made every two years.
c. There is no rule for the frequency or date of revaluation.
d. Revaluation of assets must be made on the same date each year.

There is no rule for the frequency or date of revaluation.

64

Talton Co. installed new assembly line production equipment at a cost of $185,000. Talton had to rearrange the assembly line and remove a wall to install the
equipment. The rearrangement cost was $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 Talton?

$200,000

65

The sum-of-the-years’ digits method of depreciation is being used for a machine with a 5-year estimated useful life. What would be the fraction applied to the cost to be depreciated in the second year?

4/15

66

A manufacturing firm purchased used equipment for $135,000. The original owners estimated that the residual value of the equipment was $10,000. The carrying
amount of the equipment was $120,000 when ownership transferred. The new owners estimate that the expected remaining useful life of the equipment was 10
years, with salvage value of $15,000. What amount represents the depreciable base used by the new owners?

$120,000

67

Which of the following is considered investment property for entities preparing financial statements using ¡FRS?
a. Land held for future use.
b. Held-to-maturity securities.
c. Trading securities.
d. Factory building used to produce inventory.

Land held for future use.

68

Korn Company incurred the following costs during year 1:
Modification to the formulation
of a chemical product $135,000
Troubleshooting in connection
with breakdowns during
commercial production $150,000
Design of tools, jigs, molds and
dies involving new technology $170,000
Seasonal or other periodic design
changes to existing products $185,000
Laboratory research aimed at
discovery of new technology $215,000
In its income statement for the year ended December 31, year 1, Korn should report research and development cost of

$520,000

69

Which of the following is true about biological assets under IFRS?
a. Biological assets are living animals or plants and must be disclosed as a separate item on the balance sheet.
b. Biological assets must be valued at cost.
c. Biological assets do not generally have future economic benefits.
d. Biological assets are only found in Biotech companies.

Biological assets are living animals or plants and must be disclosed as a separate item on the balance sheet.

70

Carr, Inc. purchased equipment for $100,000 on January 1, year 1. The equipment had an estimated 10-year useful life and a $15,000 salvage value. Carr uses the 200% declining balance depreciation method. In its year 2 income statement, what amount should Carr report as depreciation expense for the equipment?

$16,000

71

Scott Co. exchanged similar nonmonetary assets with Dale Co. No cash was exchanged. The carrying amount of the asset surrendered by Scott exceeded both the
fair value of the asset received and Dale’s carrying amount of that asset. If the transaction lacks commercial substance, Scott should recognize the difference
between the carrying amount of the asset it surrendered and

The fair value of the asset it received as a loss.

72

A development stage enterprise

Issues an income statement that is the same as an established operating enterprise, and shows cumulative amounts from the enterprise’s inception as additional
information.

73

Milgram Corporation prepares its financial statements in accordance with ¡FRS. Milgram has investment property that it leases to Jenson Corporation. Milgram uses
the fair value model to report its investment property. Which of the following statements is true?
a. Milgram should record the increase in fair value in other comprehensive income for the period.
b. Milgram should value the equipment at cost less accumulated depreciation and less accumulated impairment losses.
c. Milgram depreciates the equipment using normal depreciation methods for property, plant, and equipment.
d. Milgram does not record depreciation on the investment property.

Milgram does not record depreciation on the investment property.

74

Sun Co. was constructing fixed assets that qualified for interest capitalization. Sun had the following outstanding debt issuances during the entire year of construction:
$6,000,000 face value, 8% interest
$8,000,000 face value, 9% interest
None of the borrowings were specified for the construction of the qualified fixed asset. Average expenditures for the year were $1,000,000. should Sun use to calculate capitalized interest on the construction?

8.57%

75

A donated plant asset for which the fair value has been determined, and for which incidental costs were incurred in acceptance of the asset, should be recorded at an
amount equal to its

Fair value and incidental costs incurred.

76

Which of the following should be expensed as incurred by the franchisee for a franchise with an estimated useful life of 10 years?
a. Periodic payments to the franchiser based on the franchisee’s revenues.
b. Amount paid to the franchiser for the franchise.
c. Periodic payments to a company, other than the franchiser, for that company’s franchise.
d. Legal fees paid to the franchisee’s lawyers to obtain the franchise.

Periodic payments to the franchiser based on the franchisee’s revenues.

77

In January year 1, the Under Mine Corporation purchased a mineral mine for $3,400,000 with removable ore estimated by geological surveys at 4,000,000 tons. The
property has an estimated value of $200,000 after the ore has been extracted. The company incurred $800,000 of development costs preparing the mine for production. During year 1, 400,000 tons were removed and 375,000 tons were sold. What is the amount of depletion that Under Mine should record for year 1?

$400,000

78

Solen Co. and Noise Co. exchanged similar trucks with fair values in excess of carrying amounts. In addition, Solen paid Noise to compensate for the difference in
truck values and the transaction lacks commercial substance. As a consequence of the exchange, Solen recognizes

Neither a gain nor a loss.

79

In January year 1 Colonial Company purchased equipment for $120,000, to be used in its manufacturing operations. The equipment was estimated to have a useful
life of 8 years, with salvage value estimated at $12,000. Colonial considered various methods of depreciation and selected the sum-of-the-years’ digits method. On
December 31, year 2, the related allowance for accumulated depreciation balance should be how much higher then using the straight line method.

$18,000

80

An activity that would be expensed currently as research and development costs is the

Testing in search for or evaluation of product or process alternatives.

81

During June year 1, Maxwell Corporation determined that actual costs incurred associated with the equipment used in its assembly line significantly exceeded original
expected costs. At June 30, year 1, Maxwell had compiled the following information:
Original cost of the equipment $800,000
Accumulated depreciation $300,000
Expected net future cash inflows
(undiscounted) related to the
continued use and eventual disposal
of the equipment $450,000
Fair value of the equipment $375,000
What is the amount of impairment loss that should be reported on Maxwell’s income statement prepared for the period ended June 30, year 1?

$125,000

82

Which of the following utilizes the straight-line depreciation method?
a. Composite depreciation and Group depreciation
b. Composite depreciation
c. Group depreciation
d. Neither

Composite depreciation and Group depreciation

83

For IFRS reporting what valuation methods are used for intangible assets?

The cost model or the revaluation model.

84

During year 1, Yvo Corp. installed a production assembly line to manufacture furniture. In year 2, Yvo purchased a new machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life of the assembly line, but it did result in significantly more efficient production. The following expenditures were incurred in connection with this project:
Machine $75,000
Labor to install machine 14,000
Parts added in rearranging the
assembly line to provide future
benefits 40,000
Labor and overhead to rearrange
the assembly line 18,000
What amount of the above expenditures should be capitalized in year 2?

$147,000

85

On July 14, year 1, JX Corporation exchanged 1,000 shares of its $8 par value common stock for a plot of land. JX’s common stock is listed on the NYSE and traded
at an average price of $21 per share on July 14. The land was appraised by independent real estate appraisers on July 14 at $23,000. As a result of this exchange,
JX’s additional paid-in capital will increase by

$13,000

86

Young Corp. purchased equipment by making a down payment of $4,000 and issuing a note payable for $18,000. A payment of $6,000 is to be made at the end of
each year for three years. The applicable rate of interest is 8%. The present value of an ordinary annuity factor for three years at 8% is 2.58, and the present value
for the future amount of a single sum of one dollar for three years at 8% is .735. Shipping charges for the equipment were $2,000, and installation charges were
$3,500. What is the capitalized cost of the equipment?

$24,980

87

A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January t. would depreciation expense using the sum-of-the-
years’ digits method of depreciation be higher or lower than depreciation expense using the double-declining balance method of depreciation in the first and second
years?
First year Second year
a. Higher Higher
b. Higher Lower
c. Lower Higher
d. Lower Lower

Lower Higher

88

Which of the following is a research and development cost?
a. Development or improvement of techniques and processes.
b. Market research related to a major product for the company.
c. Research and development performed under contract for others.
d. Offshore oil exploration that is the primary activity of a company.

Development or improvement of techniques and processes.

89

On December 1, year 4, Wilson Co. purchased a $400,000 tract of land for a factory site. Boyd razed an old building on the property and sold the materials it
salvaged from the demolition. Wilson incurred additional costs and realized salvage proceeds during December year 4 as follows:
Demolition of old building $50,000
Legal fees for purchase contract and
recording ownership $15,000
Title guarantee insurance $12,000
Proceeds from sale of salvaged materials $8,000
In its December 31, year 4 balance sheet, Wilson should report a balance in the land account of

$469,000

90

During year 1, Jase Co. incurred research and development costs of $136,000 in its laboratories relating to a patent that was granted on July 1, year 1. Costs of
registering the patent equaled $34,000. The patent’s legal life is 17 years, and its estimated economic life is 10 years. In its December 31, year 1 balance sheet, what amount should Jase report as patent, net of accumulated amortization

$ 32,300

91

The following expenditures relating to the plant building were made by Pine Company during the year ended December 31, year 1:
Replacement of the old shingle
roof with a fireproof tile roof $75,000
Repainted the plant building $ 5,000
Major improvements to the
electrical wiring system $35,000
How much should be capitalized in year 1?

$110,000

92

An asset is being constructed for an enterprise’s own use. The asset has been financed with a specific new borrowing. The interest cost incurred during the
construction period as a result of expenditures for the asset is

A part of the historical cost of acquiring the asset to be written off over the estimated useful life of the asset.

93

During year 1, the Commander Corporation acquired 3 pieces of machinery at an auction for a lump sum price of $240,000. In addition, Commander paid $12,000 to
have the machines installed. An appraisal disclosed the following values:
Machine A $ 50,000
Machine B $ 150,000
Machine C $ 100,000
What costs should be assigned to Machines A, B, and C, respectively?

$42,000, $126,000, and $84,000

94

What factor must be present to use the units-of-production (activity) method of depreciation?

Total units to be produced can be estimated.

95

An impairment loss for a long-lived asset, which is being used in the operations of a business, is measured by the excess of the asset’s carrying amount over its

Fair value.

96

On January 1, year 1, Kent Corporation purchased a machine for $50,000. Kent paid shipping expenses of $500 as well as installation costs of $1,200. The machine
was estimated to have a useful life of 10 years and an estimated salvage value of $3,000. In January year 2, additions costing $3,600 were made to the machine in
order to comply with pollution control ordinances. These additions neither prolonged the life of the machine nor did they have any salvage value. If Kent records
depreciation under the straight-line method, depreciation expense for year 2 is

$5,270

97

Cart Co. purchased an office building and the land on which it is located for $750,000 cash and an existing $250,000 mortgage. For realty tax purposes, the property
is assessed at $960,000, 60% of which is allocated to the building. At what amount should Cart record the building?

$600,00

98

Which of the following is an example of activities that would typically be excluded in research and development costs?
a. Laboratory research aimed at discovery of new knowledge.
b. Testing in search for, or evaluation of, product or process alternatives.
c. Design, construction, and testing of preproduction prototypes and models.
d. Quality control during commercial production, including routine testing of products.

Quality control during commercial production, including routine testing of products.

99

Which of the following accurately describes the appropriate accounting for goodwill acquired through a business combination?
a. It should be recorded at cost and tested for impairment on an annual basis and more often if certain events occur.
b. It should be recorded at cost and amortized over a 40-year period.
c. It should be recorded at cost and tested for impairment every three years.
d. It should be recorded at cost and amortized over a 10-year period.

It should be recorded at cost and tested for impairment on an annual basis and more often if certain events occur.

100

An impairment loss for long-lived assets which are to be held and used should be reported on the income statement as a

Component of income from continuing operations before income taxes.

101

On September 1, year 3, Bertz, Inc. exchanged a delivery truck for a parcel of land. Bertz bought this truck in year 1 for $10,000. At September 1, year 3, the truck
had a book value of $6,500 and a fair market value of $5,000. Bertz gave $6,000 in cash in addition to the truck as part of this transaction. It is expected that the
cash flows from the assets will be significantly different. The previous owner of the land had listed the land for sale at $12,000. At what amount should Bertz record
the land?

$11,000

102

The test for recoverability of operational assets per ASC Topic 360 uses

Undiscounted cash inflows less related outflows.

103

May Co. and Sty Co. exchanged nonmonetary assets. The exchange did not result in a significant difference in cash flows for either company. May paid cash to Sty
in connection with the exchange. To the extent that the amount of cash exceeds a proportionate share of the carrying amount of the asset surrendered, a realized
gain on the exchange should be recognized by
a. May and Sty
b. May
c. Sty
d. Neither

Sty

104

Lawson Corp. uses IFR.S and the cost model for intangible assets. On March 1, year 1, Lawson acquired intangible assets with an indefinite life for $100,000. On December 31, year 1, it was determined that the recoverable amount for these intangible assets was $90,000. On December 31, year 2, it was determined that the intangible assets had a recoverable amount of $94,000. What is the impairment gain or loss recognized in year 1 and year 2 on the income statement?
Year I Year 2
a. $10,000 loss $6,000 loss
b. $10,000 loss $4,000 gain
c. $10,000 loss $0
d. $0 $0

$10,000 loss $4,000 gain

105

Lawson Corp. uses IFRS and the revaluation model for intangible assets. On March 1, year 1, Lawson acquired intangible assets with an indefinite life for $100,000.
On December 31, year 1, it was determined that the recoverable amount for these intangible assets was $90,000. On December 31, year 2, it was determined that
the intangible assets had a recoverable amount of $94,000. What is the impairment gain or loss recognized in year 1 and year 2 on the income statement?
Year I Year 2
a. $10,000 loss $6,000 loss
b. $10,000 loss $4,000 gain
c. $10,000 loss $0
d. $0 $0

$10,000 loss $4,000 gain

106

Frye Company incurred research and development costs in year 1 as follows:
Equipment acquired for use
in research and development
projects $1,000,000
Depreciation on the above equipment 150,000
Materials used 200,000
Compensation costs of personnel 500,000
Outside consulting fees 100,000
Indirect costs appropriately allocated 250,000
The total research and development costs charged in Frye’s year 1 income statement should be

$1,200,000

107

Theoretically, which of the following costs incurred in connection with a machine purchased for use in a company’s manufacturing operations would be capitalized?
a. Insurance on machine while in transit and Testing and preparation of machine for use.
b. Insurance on machine while in transit
c. Testing and preparation of machine for use.
d. Neither

Insurance on machine while in transit and Testing and preparation of machine for use.

108

When the fair value is determinable, a nonreciprocal transfer of a nonmonetary asset to another entity should be recorded at the

Fair value of the asset transferred, and a gain or loss should be recognized on the disposition of the asset.

109

Last year, Katt Co. reduced the carrying amount of its long-lived assets used in operations from $120,000 to $100,000, in connection with its annual impairment
review. During the current year, Katt determined that the fair value of the same assets had increased to $130,000. What amount should Katt record as restoration of
previously recognized impairment loss in the current year’s financial statements?

$0

110

During November year 1, Ball Company determined, as a result of a plant rearrangement, that there had been a significant change in the manner in which its machinery was going to be used in its manufacturing process. In December year 1, Ball’s analysis of the future cash flows related to the machinery resulted in the following information:
Expected future cash inflows from
use of the machinery $350,000
Expected future cash outflows from
use of the machinery 75,000
Expected future cash proceeds from
sale of the machinery at the disposal date 50,000
For purposes of determining whether or not Ball should recognize an impairment loss in year 1, what is the amount of expected future cash flows that would be used
for Ball’s machinery?

$325,000

111

The provisions of ASC Subtopic 720-15, Start-Up Costs, as they relate to onetime activities include
I Cost of long lived asset addition
II Salary-related expenses of new employees
III Development costs of software systems

Salary-related expenses of new employees

112

Legal fees incurred in successfully defending a patent suit should be capitalized when the patent has been
a. Internally developed
b. Internally developed and Purchased from an inventor
c. Purchased from an inventor
d. Neither

Internally developed and Purchased from an inventor

113

The Plaza Company was organized late in year 1 and began operations on January 1, year 2. 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 organization expenses 5,000
16,000
Under generally accepted accounting principles, what is the amount of organization costs charged to income for year 2?

$9,000

114

Oak Co., a newly formed corporation, incurred the following expenditures related to land and building:
County assessment for sewer lines $ 2,500
Title search fees 625
Cash paid for land with a building to
be demolished 135,000
Excavation for construction of
basement 21,000
Removal of old building $21,000 less
salvage of $5,000 16,000
At what amount should Oak record the land?

$154,125

115

A donated fixed asset for which the fair value has been determined should be recorded as a debit to fixed assets and a credit to

Other income

116

During year 1, Fox Company made the following expenditures relating to plant machinery and equipment:
. Renovation of a group of machines at a cost of $50,000 to secure greater efficiency in production over their remaining 5-
year useful lives. The project was completed on December 31, year 1.
. Continuing, frequent, and low-cost repairs at a cost of $35,000.
. A broken gear on a machine was replaced at a cost of $5,000.
What total amount should be charged to repairs and maintenance in year 1?

$40,000

117

A method which excludes salvage value from the base for the depreciation calculation is

Double-declining balance.

118

A purchased patent has a remaining legal life of 15 years. It should be

Amortized over its useful life if less than 15 years.

119

On January 2 of the current year, Cruises, Inc. borrowed $3 million at a rate of 10% for three years and began construction of a cruise ship. The note states that
annual payments of principal and interest in the amount of $1.3 million are due every December 31. Cruises used all proceeds as a down payment for construction of
a new cruise ship that is to be delivered two years after start of construction. What should Cruise report as interest expense related to the note in its income statement for the second year?

$0

120

Which of the following is true about IFRS accounting for the development costs of the company?
a. Development costs may be capitalized as an intangible asset in very restrictive situations.
b. Development costs must be expensed.
c. Development costs are recorded in other comprehensive income.
d. Development costs are always deferred and expensed against future revenues.

Development costs may be capitalized as an intangible asset in very restrictive situations.

121

Johan Co. has an intangible asset, which it estimates will have a useful life of 10 years, while Abco Co. has goodwill, which has an indefinite life. Which company should report amortization in its financial statements?
a. Johan and Abco
b. Johan
c. Abco
d. Neither

Johan

122

Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be

Deducted from the cost of the land.

123

Which of the following does not accurately describe the appropriate accounting for goodwill?
a. The costs of internally developing goodwill should be recognized as expense as incurred.
b. Goodwill can only be recorded as the result of a business combination.
c. Goodwill should be examined at least annually for impairment.
d. Goodwill should be amortized over 40 years.

Goodwill should be amortized over 40 years.

124

During the current year, Beta Motor Co. incurred the following costs related to a new solar-powered car:
Salaries of laboratory employees
researching how to build the new car $250,000
Legal fees for the patent application
for the new car 20,000
Engineering follow-up during the early
stages of commercial production (the
follow-up occurred during the current year) 50,000
Marketing research to promote the new car 30,000
Design, testing, and construction of a
prototype 400,000
What amount should Beta Motor report as research and development expense in its income statement for the current year?

$650,000

125

A company using the group depreciation method for its delivery trucks retired one of its delivery trucks due to damage before the average service life of the group
was reached. An insurance recovery was received. The net book value of these group asset accounts would be decreased by the

Insurance recovery received.

126

Watson Co. began constructing a building for its own use in January year 4. During year 4, Watson incurred interest of $50,000 on specific construction debt, and
$10,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during year 4 was $40,000. What
amount of interest cost should Watson capitalize?

$40,000

127

Slate Co. and TaIse Co. exchanged similar plots of land with fair values in excess of carrying amounts. In addition, Slate received cash from TaIse to compensate for
the difference in land values. The cash flows of the plots of land are not expected to be significantly different. As a result of the exchange, Slate should recognize

A gain in an amount determined by the ratio of cash received to total consideration.

128

On January 1, Feld traded a delivery truck and paid $10,000 cash for a tow truck owned by Baker. The delivery truck had an original cost of $140,000, accumulated depreciation of $80,000, and an estimated fair value of $90,000. Feld estimated the fair value of Baker’s tow truck to be $100,000. The transaction had commercial substance. What amount of gain should be recognized by Feld?

$30,000

129

Mellow Co. depreciated a $12,000 asset over five years, using the straight-line method with no salvage value. At the beginning of the fifth year, it was determined
that the asset will last another four years. What amount should Mellow report as depreciation expense for year 5?

$600

130

Which of the following statements is(are) correct about the carrying amount of a long-lived asset after an impairment loss has been recognized? Assume the long-lived asset is being held for use in the business and that the asset is depreciable.
I. The reduced carrying amount of the asset may be increased in subsequent years if the impairment loss has been recovered.
II. The reduced carrying amount of the asset represents the amount that should be depreciated over the asset’s remaining useful life.

II. The reduced carrying amount of the asset represents the amount that should be depreciated over the asset’s remaining useful life.

131

Saba Co. bought a tract of land, paying $800,000 in cash and assuming an existing mortgage of $200,000. The municipal tax bill disclosed an assessed valuation of $700,000. How much should Saba record as an asset for this land acquisition?

$1,000,000

132

Deficits accumulated during the development stage of a company should be

Reported as a part of stockholders’ equity.

133

A schedule of machinery owned by Lester Manufacturing Company is presented below.
Estimated Estimated
Total cost salvage value life in years
Machine A $550,000 $50,000 20
Machine B $200,000 20,000 15
Machine C $ 40,000 5
Lester computes depreciation on the straight-line method. Based upon the information presented, the composite life of these assets (in years) should be

16.0

134

On January 1, year 1, Parr, Inc. purchased a machine for $600,000 and established an annual depreciation charge of $100,000 over a 6-year life. During year 3,
after issuing its year 2 financial statements, Parr performed the undiscounted future cash flow recovery test and concluded that the machine’s operational value was impaired. It also concluded that $120,000 is a reasonable estimate of the fair value. The machine will be used during the period January 1, year 3, through
December 31, year S. In Parr’s December 31, year 3 balance sheet, the machine should be reported at a carrying amount of

$ 80,000

135

A depreciable asset has an estimated 15% salvage value. Under which of the following methods, properly applied, would the accumulated depreciation equal the
original cost at the end of the asset’s estimated useful life?
a. Straight-line and Double-declining balance
b. Straight-line
c. Double-declining balance
d. Neither

Neither

136

Which of the following expenditures qualifies for asset capitalization?
a. Legal costs associated with obtaining a patent on a new product.
b. Salaries of engineering staff developing a new product.
c. Cost of materials used in prototype testing.
d. Costs of testing a prototype and modifying its design.

Legal costs associated with obtaining a patent on a new product.

137

Cantor Co. purchased a coal mine for $2,000,000. It cost $500,000 to prepare the coal mine for extraction of the coal. It was estimated that 750,000 tons of coal
would be extracted from the mine during its useful life. Cantor planned to sell the property for $100,000 at the end of its useful life. During the current year, 15,000
tons of coal were extracted and sold. What would be Cantor’s depletion amount per ton for the current year?

$3.20

138

On January 1, year 1, an intangible asset with a 50-year estimated useful life was acquired. On January 1, year 6, a review was made of the estimated useful life, and
it was determined that the intangible asset had an estimated useful life of 30 more years. As a result of the review, the amount to be amortized should be

The unamortized cost on January 1, year 6, allocated equally over a 30-year life.

139

Frank Corporation has investment property that is held to earn rental income. Frank prepares its financial statements in accordance with IFRS. Frank uses the fair value model for reporting the investment property. Which of the following is true?
a. Changes in fair value are reported as other comprehensive income for the period.
b. Changes in fair value are reported as an extraordinary gain on the income statement.
c. Changes in fair value are reported as deferred revenue for the period.
d. Changes in fair value are reported as profit or loss in the current period.

Changes in fair value are reported as profit or loss in the current period.

140

In October year 1 Ewing Company exchanged an old packaging machine, which cost $120,000 and was 50% depreciated, for a dissimilar used machine and paid a
cash difference of $16,000. The market value of the old packaging machine was determined to be $70,000. The two machines are expected to have significantly
different cash flows. For the year ended December 31, year 1, what amount of gain or loss should Ewing recognize on this exchange?

$10,000 gain.

141

Alpha Company is in the process of determining whether the carrying amounts of the long-lived assets and identifiable intangibles acquired in a business combination are recoverable. Alpha accounted for the business combination under the acquisition method and allocated par-t of the acquisition price to goodwill. In determining the recoverability of the long-lived assets and the identifiable intangibles acquired in the business combination, the goodwill should be

Allocated to the long-lived assets and identifiable intangible assets.
Allocated

142

The composite depreciation method

Does not recognize gain or loss on the retirement of single assets in the group.

143

Grey Company purchased a machine on January 1, year 1, for $500,000. The machine has an estimated useful life of 5 years and a salvage value of $50,000. Depreciation was computed by the 150% declining balance method. The accumulated depreciation balance at December 31, year 2, should be

$255,000

144

On January 2, year 1, Parke Corp. replaced its boiler with a more efficient one. The following information was available on that date:
Purchase price of new boiler $60,000
Carrying amount of old boiler 5,000
Fair value of old boiler 2,000
Installation cost of new boiler 8,000
The old boiler was sold for $2,000. What amount should Parke capitalize as the cost of the new boiler?

$68,000

145

On June 30, year 2, a fire in R.uffing Company’s plant caused a total loss to a production machine. The machine had a book value of $80,000 at December 31, year 1,
and was being depreciated at an annual rate of $10,000. The machine had a fair value of $110,000 at the date of the fire, and Ruffing received insurance proceeds of
$100,000 in October year 2. The same month Ruffing purchased a replacement machine for $130,000. Ignoring income taxes, what amount should Ruffing report on
its year 2 income statement as involuntary conversion gain or loss?

$25,000 gain.

146

Paisley Corporation presents its financial statements in accordance with IFRS. What valuation model should Paisley use to value its plant, property, and equipment?

The cost model or the revaluation model.

147

Shaw Company purchased a machine on January 1, year 1, for $350,000. The machine has an estimated useful life of 5 years and a salvage value of $50,000. The
machine is being depreciated using the double-declining balance method. The asset balance net of accumulated depreciation at December 31, year 2, should be

$126,000

148

Stam Co. incurred the following research and development project costs during the current year:
Equipment purchased for current
and future projects $100,000
Equipment purchased for current
projects only $200,000
Research and development salaries
for current projects 400,000
Legal fees to obtain patent 50,000
Material and labor costs for
prototype product 600,000
The equipment has a five-year useful life and is depreciated using the straight-line method. What amount should Stam recognize as research and development
expense at year-end?

$1,220,000

149

Which of the following is not relevant to estimating the useful life of an intangible asset?
a. Legal provisions that might limit or extend the useful life.
b. The expected use.
c. The cost of the asset.
d. The expected useful life of assets related to the intangible asset.

The cost of the asset.

150

Standard Co. spent $10,000,000 on its new software package that is to be used only for internal use. The amount spent is for costs after the application development stage. The economic life of the product is expected to be three years. The equipment on which the package is to be used is being depreciated over five years. What amount of expense should Standard report on its income statement for the first full year?

$3,333,333

151

Which of the following depreciation methods is computed in the same way as depletion is computed?
a. Productive-output.
b. Double-declining balance.
c. Straight-line.
d. Sum-of-the-years’ digits.

Productive-output.