Transactions - PPE

Question 1

A company with a June 30 fiscal year-end entered into a $3,000,000 construction project on April 1 to be completed on September 30. The cumulative construction-in-progress balances at April 30, May 31, and June 30 were $500,000, $800,000, and $1,500,000, respectively. The interest rate on company debt used to finance the construction project was 5% from April 1 through June 30 and 6% from July 1 through September 30. Assuming that the asset is placed into service on October 1 and all additional amount spent is at the beginning of the month, what amount of interest should be capitalized to the project on June 30?

Answer 1

Find the additional amount spent:

6,250 = 500,000 x .05 X 3/12

2,500 = 300,000 (800,000 - 500,000) X .05 X 2/12

2,917 = 700,000 (1,500,000 - 800,000) X .05 X 1/12

11,667 = 6,250 + 2,500 + 2,917

Question 2

Isle Co. owned a copy machine that cost $5,000 and had accumulated depreciation of $2,000. Isle exchanged the copy machine for a computer that cost $4,000. Isle’s future cash flows are not expected to change significantly as a result of the exchange. What amount of gain or loss should Isle report and at what amount should it record the asset?

Answer 2

Carrying value difference gets calculated on the balance sheet:

5,000 - 2,000 = 3,000

Question 3

What is a capital expenditure?

Answer 3

Betterment (or improvement); of an asset opposed to maintain or maintenance of an asset (revenue expenditure).

This upgrade needs to capitalized and depreciated throughout the assets life since it will last that long.

Question 4

What is a revenue expenditure?

Answer 4

Recurring expenditures that do not add to the service potential of a plant asset; they serve merely to maintain a given level of services. Revenue expenditures should be expensed when incurred.

Question 5

An expenditure to install an improved electrical system is a

Answer 5

Capital Expenditure not a revenue expenditure

Question 6

Finch Co. reported a total asset retirement obligation of $257,000 in last year’s financial statements. This year, Finch acquired assets subject to unconditional retirement obligations measured at undiscounted cash flow estimates of $110,000 and discounted cash flow estimates of $68,000. Finch paid $87,000 toward the settlement of previously recorded asset retirement obligations and recorded an accretion expense of $26,000. What amount should Finch report for the asset retirement obligation in this year’s balance sheet?

Answer 6

Total asset retirement obligation + discounted cash flow - previously paid + accretion expense.

264,000 = 257,000 + 68,000 - 87,000 + 26,000

Question 7

Cole Co. began constructing a building for its own use in January of the current year. During the year, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during the year was $40,000. What amount of interest cost should Cole capitalize?

Answer 7

40K

Question 8

The sum of year digits is line graph looks like what?

Answer 8

Straight line going from Y Axis to the X axis \

Question 9

The double declining graph looks like what?

Answer 9

Like half of an upside bell curve

Question 10

During the year, Bay Co. constructed machinery for its own use and for sale to customers. Bank loans financed these assets both during construction and after construction was complete. How much of the interest incurred should be reported as interest expense in the year-end income statement?

Interest incurred for machinery for own use
Interest incurred for machinery held for sale

Answer 10

Interest incurred for machinery for own use interest incurred after completion

Interest incurred for machinery held for sale all interest incurred

Question 11

What is the double declining depreciation method formula?

Answer 11

Depreciation = (Historical Cost - Accumulated Depreciation) / Life x 2

Question 12

On January 1, Nick Co. purchased a delivery truck for $60,000. The truck’s salvage value is $2,000, and its estimated useful life is 10 years. The productive life of the truck is estimated to be 100,000 miles. During the first year, the truck was driven 19,000 miles. Nick uses the double-declining balance method of depreciation. What amount of depreciation expense should Nick record for the first year?

Answer 12

(60,000 - 0) / 10 X 2

6,000 X 2 = 12,000

Question 13

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 be capitalized?

Building modification costs Production line rearrangement cost

Answer 13

Yes for booth since the reduced costs which will be utilized for the assets life cycle.

Question 14

n year 1, a company purchased equipment that cost $70,000. The equipment has a useful life of seven years and no salvage value. The company used the straight-line method to depreciate the equipment and reported $10,000 of depreciation expense in years 1 and 2. At the beginning of year 3, the company determines that the equipment will last for only three more years (five years total) and changes the depreciable life of the asset accordingly. What amount of depreciation expense should the company report in year 3?

Answer 14

70,000 / 7 = 10,000 although it is given.

70,000 - 20,000 = 50,000

50,000 / 3 = 16,667

Question 15

On July 1, one of Rudd Co.’s delivery vans was destroyed in an accident. On that date, the van’s carrying amount was $2,500. On July 15, Rudd received and recorded a $700 invoice for a new engine installed in the van in May, and another $500 invoice for various repairs. In August, Rudd received $3,500 under its insurance policy on the van, which it plans to use to replace the van. What amount should Rudd report as gain (loss) on disposal of the van in its year-end income statement?

Answer 15

The maintaince repairs is excluded since this is always needed but the new engine can be used for the life span of the asset.

2,500 + 700 = 3,200

3,500 - 3,200 = 300 gain

Question 16

A company issued a purchase order on December 15, year 1, for a piece of capital equipment that costs $100,000. The capital equipment was shipped from the vendor on December 31, year 1, and received by the company on January 5, year 2. The equipment was installed and placed in service on February 1, year 2. On what date should the depreciation expense begin?

Answer 16

February 1, year 2.

Question 17

A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?

Answer 17

Never it would equal the depreciable base other wise it would be depreciated past its salvage value

Question 18

A company using the composite depreciation method for its fleet of trucks, cars and campers, retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts would be decreased by the

Answer 18

Cash proceeds received

as no gain or loss is recognized upon the retirement of a plant asset.

Question 19

Quick Co. acquired the following assets from a liquidating competitor for a $200,000 lump-sum purchase price:

Competitor Carry Value:
Inventory 70K
Land 40K
Building 110K

FV:
Inventory 50K
Land 50K
Building 150K

How much was paid for the building?

Answer 19

Take the lump sump multiplied by the asset purchased divided by the total

120,000 = (200,000 X 150,000) / 250,000

Question 20

Restorations of carrying value for long-lived assets are permitted if an asset’s fair value increases subsequent to recording an impairment loss for which of the following?

Held for use
Held for disposal

Answer 20

Held for use no
Held for disposal only when held for disposal.

Question 21

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 a salvage value of $15,000. What amount represents the depreciable base used by the new owners?

Answer 21

135,000 - 15,000 = 120,000

What the new owners purchased it for.

Question 22

Weir Co. uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consisted of the following:

Y1:
Land 25K
Buildings 195K
Machinery and equipment 695K
Acc Dep -400K

Y2:
Land 25K
Buildings 195K
Machinery and equipment 650K
Acc Dep -370K

Weir’s depreciation expense for year 2 and year 1 was $55,000 and $50,000, respectively. What amount was debited to accumulated depreciation during year 2 because of property, plant, and equipment retirements?

Answer 22

Find the Acc dep account increase amount

30K increase = 400,000 - 370,000

Subtract this from the depreciation expense for year 2

55,000 - 30,000 = 25,000

Question 23

On April 1, West Co. purchased a tract of land as a factory site for $500,000. An old building on the site was razed, and materials salvaged from the demolition were sold. Additional costs incurred and salvage proceeds realized during April were as follows:

Costs to raze old building $60,000
Legal fees for purchase contract and to record ownership $12,000
Title guarantee insurance $14,000
Proceeds from sale of salvaged materials $9,000

In its April 30 balance sheet, what amount should West report as land?

Answer 23

Everything

77,000 = 60,000 + 12,000 + 14,000 - 9,000

577,000 = 500,000 + 77,000

Question 24

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?

Answer 24

None of the interest is expensed; it is all capitalized. Assets qualifying for interest capitalization include assets constructed or produced for self-use on a repetitive basis, assets acquired for self-use through arrangements requiring down payments or progress payments, and assets constructed or produced as discrete projects for sale or lease (e.g., ships or real estate developments).

Question 25

Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the Straight-line method Production or use method

Answer 25

Yes for both see formulas as example to why: Straight Line: Historical cost - Estimated salvage value / Estimated useful life in time Production or use method: (Historical cost - Estimated salvage value / Estimated productive output) x current output

Question 26

Which of the following is an example of an asset that qualifies for interest cost capitalization? Asset constructed or produced as a discrete project for sale or lease, such as a ship Item of inventory routinely manufactured on a repetitive basis Asset in use or ready for use Asset not in use and not being prepared for use

Answer 26

Asset constructed or produced as a discrete project for sale or lease, such as a ship

Question 27

At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and $300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%. The only other outstanding debt the company had was a 10% interest rate, long-term mortgage of $800,000, which had been outstanding the entire year. What amount of interest should Cann capitalize as part of the cost of the plant addition?

Answer 27

Find the excess in borrowings Allocate the loan amount by months 200,000 = 200,000 X 12/12 400,000 = 600,000 X 8/12 25,000 = 300,000 X 1/12 625,000 = 200,000 + 400,000 + 25,000 Subtract the borrow amount by the capital expenditures 125,000 = 625,000 - 500,000 Multiply by the interest rate 125,000 X .10 = 12,500 500,000 X .12 = 60,000 Add them together 60,000 + 12,500 = 72,500

Question 28

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

Answer 28

Total units to be produced can be estimated.

Question 29

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(an):

Answer 29

Part of continuing operations. The sale of the warehouse by the company is in the ordinary course of business and its proceeds are used to acquire a new warehouse. Therefore, the gain from the proceeds over the carrying value of the warehouse will be reported in the income from continuing operations under non-operating Items.

Question 30

When equipment is retired, accumulated depreciation is debited for the original cost less any residual recovery under which of the following depreciation methods? Composite depreciation Group depreciation

Answer 30

Yes to booth

Question 31

Town Company purchased for $540,000 a warehouse building and the land on which it is located. The following data were available concerning the property: Sellers Cost Current appraised value 140K Seller's original cost 280K Current Appraisal Value: Current appraised value 200K Seller's original cost 300K

Answer 31

Find the percentage of the total for appriasal amount 0.40 = 200,000 / 500,000 216,000 = 540,000 X 0.40

Question 32

During the previous year, Yvo Corp. installed a production assembly line to manufacture furniture. In the current year, 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 the current year?

Answer 32

147,000 = $75,000 + $14,000 + $40,000 + $18,000

Question 33

Lex Corp. was a development stage enterprise from October 10, year 1 (inception), to December 31, year 2. The year ended December 31, year 3, is the first year in which Lex is an established operating enterprise. The following are among the costs incurred by Lex: Y2 Leasehold improvements, equipment, and furniture 1M Security deposits 60K Research and development 750K Laboratory operations 175K General and administrative 225K Depreciation 25K Y3 Leasehold improvements, equipment, and furniture 300K Security deposits 30K Research and development 900K Laboratory operations 550K General and administrative 685K Depreciation 115K From its inception through the period ended December 31, year 3, what is the total amount of costs incurred by Lex that should be charged to operations?

Answer 33

Research and development ($750,000 + $900,000) $1,650,000 Laboratory operations ($175,000 + $550,000) 725,000 General and administrative ($225,000 + $685,000) 910,000 Depreciation ($25,000 + $115,000) 140,000 $3,425,000 = 1,650,000 + 725,000 + 910,000 + 140,000 Lex should capitalize both the cost of the leasehold improvements, equipment, and furniture and the cost of the security deposits.

Question 34

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

Answer 34

Deducted from the cost of the land

Question 35

Which of the following is true regarding depreciation? Depreciation accounting recognizes only the physical decline of an asset. Property, plant, and equipment are reduced by depreciation, and then, written up to reflect appraisal, market, or current values above cost. The depreciation process matches the depreciable cost of the asset with revenues generated from its use. None of the above.

Answer 35

The depreciation process matches the depreciable cost of the asset with revenues generated from its use.

Question 36

Are finance costs capitalized into the purchase price of an asset?

Answer 36

No debt issuance costs are not

Question 37

A corporation issued debt to purchase 10 acres of land for development purposes. Expenditures related to this purchase are as follows: Purchase Price 1M Real estate taxes in arrears 15K Debt issuance costs 2K Attorney fee title search on land 5K The company should record its acquisition of the land in its financial statements at a value of

Answer 37

1,020,000 = 1,000,000 + 15,000 + 5,000

Question 38

The following information pertains to the transfer of real estate pursuant to a troubled debt restructuring by Knob Co. to Mene Corp. in full liquidation of Knob's liability to Mene. Carrying amount of liability liquidated 150K Carrying amount of real estate transferred 100K Fair value of real estate transferred 90K At what amount should Mene record the real estate transferred?

Answer 38

FV of real estate 90K

Question 39

What is the weighted average formula?

Answer 39

Weighted-Average Interest Rate = Total Interest / Total Principal

Question 40

Ask Co. contracted with a company to have a building constructed for $3,600,000. Ask financed $2,700,000 of the cost with a 10%, 13-month note and $900,000 of the cost with a 9%, one-year note. Both notes were outstanding for the entire year. What is the weighted-average interest rate to be used in capitalizing interest on the construction for the entire year?

Answer 40

Calculate the interest for each loan 2,700,000 X 10% = 270,000 900,000 X .09 = 81,000 Add the interest together 351,000 / 3,600,000 = 9.75

Question 41

Ichor Co. reported equipment with an original cost of $379,000 and $344,000, and accumulated depreciation of $153,000 and $128,000, respectively, in its comparative financial statements for the years ended December 31, year 5, and year 4. During year 5, Ichor purchased equipment costing $50,000, and sold equipment with a carrying value of $9,000. What amount should Ichor report as depreciation expense for year 5.

Answer 41

Add equipment cost back to year 4 344,000 + 50,000 = 394,000 Subtract the equipment cost for year 5 15,000 = 394,000 - 379,000 Subtract out the carrying value of the sold equipment 6,000 = 15,000 - 9,000 Subtract the acc depreciation from both years: 122,000 = 128,000 - 6,000 31,000 = 122,000 - 153,000

Question 42

Theoretically, which of the following costs incurred in connection with a machine purchased for use in a company's manufacturing operations would be capitalized? Insurance on machine while in transit Testing and preparation of machine for use

Answer 42

The acquisition cost of a machine for use in a company's manufacturing operations includes all costs reasonably necessary to bring the asset to the location where it is to be used and to make it ready for its intended use, including insurance while in-transit and test runs.

Question 43

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?

Answer 43

154,125 = 2,500 + 625 + 135,000 + 16,000

Question 44

When should a long-lived asset be tested for recoverability?

Answer 44

When events or changes in circumstances indicate that its carrying amount may not be recoverable.

Question 45

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 future cash flows of $100,000, and a market value of $105,000. What amount of impairment loss should be reported?

Answer 45

An impairment loss shall be recognized only if the carrying amount of a long-lived asset, or asset group, is not recoverable and exceeds its fair value. The carrying amount (book value) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The amount of an impairment loss is the difference between an asset’s book and fair value The $120,000 carrying value of the company’s longlived does not exceed the $130,000 undiscounted future cash flows expected to result from the asset so there is no impairment loss.

Question 46

What is the double declining depreciation formula

Answer 46

The DDB formula is (2 / estimated useful life) × (historical cost - accumulated depreciation).

Question 47

Carr, Inc. purchased equipment for $100,000 on January 1, year 2. 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 3 income statement, what amount should Carr report as depreciation expense for the equipment?

Answer 47

Divide 2 by useful life Y2: 2 / 10 = 20% Y3: 2 / 10 = 20% Multiply the double declining percentage by the purcahse amount - an acc dep: 20% X 100,000 = 20,000 100,000 - 20,000 = 80,000 20% X 80,000 = 16,000

Question 48

A fixed asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-ofthe- years'-digits method of depreciation instead of the double-declining-balance method of depreciation affect a gain or loss on the sale of the fixed asset? Gain Loss

Answer 48

Gain = Decrease Loss = Increase Inverse relationship

Question 49

What do building cost include?

Answer 49

Purchase price and construction costs Alterations and improvement costs Architect fees Repair charges neglected by the previous owner, now incurred (‘deferred maintenance’) Capitalized interest (during construction period before occupancy begins)

Question 50

Pine Co. purchased land for $450,000 as a factory site. An existing building on the site was razed before construction began. Additional information is as follows: Cost of razing old building 60K Title insurance and legal fees to purchase land 30K Architect's fees 95K New building construction cost 1.850M What amount should Pine capitalize as the cost of the completed factory building? What amount should Pine capitalize as the cost of the completed with the land.

Answer 50

Architect's fees 95K New building construction cost 1.850M 1,945,000 completed factory building Cost of razing old building 60K Title insurance and legal fees to purchase land 30K Purchase land of 450K

Question 51

________________ is(are) allocated to inventory by the application of depletion charges because these resources are subject to exhaustion through extraction

Answer 51

Natural resources, such as mineral, gas, and oil deposits, and standing timber, are subject to exhaustion through extraction and their costs must be allocated to inventory by the application of depletion charges.

Question 52

A state government condemned Cory Co.'s parcel of real estate. Cory will receive $750,000 for this property, which has a carrying amount of $575,000. Cory incurred the following costs as a result of the condemnation: Appraisal fees to support a $750,000 value $2,500 Attorney fees for the closing with the state 3,500 Attorney fees to review contract to acquire replacement property 3,000 Title insurance on replacement property 4,000 What amount of cost should Cory use to determine the gain on the condemnation?

Answer 52

575,000 + 2,500 + 3 ,500 = 581,000 The attorneys fees and title insurance are for replacement for the new property.

Question 53

On April 1, West Co. purchased a tract of land as a factory site for $500,000. An old building on the site was razed, and materials salvaged from the demolition were sold. Additional costs incurred and salvage proceeds realized during April were as follows: Costs to raze old building 60K Legal fees for purchase contract and to record ownership 12K Title guarantee insurance 14K Proceeds from sale of salvaged materials 9K In its April 30 balance sheet, what amount should West report as land?

Answer 53

577,000 = 500,000 + 60,000 + 12,000 + 14,000 - 9,000

Question 54

Fountain Co. is constructing an office building for its own use. Fountain started the two-year construction project on April 1, year 1, at which point the interest capitalization period began. Fountain made the following payments in year 1 related to the construction of the building: 4/1 Payment to architect for building plans 30K 7/1 Progress payment to contractor 60K 10/1 Progress payment to contractor 150K For the purpose of capitalizing interest, what is Fountain's weighted-average accumulated expenditures for the year ended December 31, year 1?

Answer 54

(9/12) = 0.75 X 30,000 = $22,500 (6/12) = 0.5 X $60,000 = 30,000 (3/12) = 0.25 X 150,000 = $37,500 90,000K total interest

Question 55

On January 3, Quarry Co. purchased a manufacturing machine for $864,000. The machine had an estimated eight-year useful life and a $72,000 estimated salvage value. Quarry expects to manufacture 1,800,000 units over the life of the machine. During the year, Quarry manufactured 300,000 units. Quarry uses the units-of-production depreciation method. In its December 31 balance sheet, what amount of accumulated depreciation should Quarry report for the machine?

Answer 55

Find the salvage value 792,000 = 864,000 - 72,000 0.44 = 792,000 / 1,800,000 132,000 = 0.44 X 300,000

Question 56

Gold Co. purchased equipment from Marshall Co. on July 1. Gold paid Marshall $10,000 cash and signed a $100,000 noninterest-bearing note payable, due in three years. Gold recorded a $24,868 discount on notes payable related to this transaction. What is the acquired cost of the equipment on July 1?

Answer 56

75,132 = 100,000 - 24,868 85,132 = 75,132 + 10,000

Question 57

A company recently moved to a new building. The old building is being actively marketed for sale, and the company expects to complete the sale in four months. Each of the following statements is correct regarding the old building, except: It will be reclassified as an asset held for sale. It will be classified as a current asset. It will no longer be depreciated. It will be valued at historical cost.

Answer 57

It will be valued at lower of cost or market value not hostorical

Question 58

Criteria to determine when long-lived assets are held for sale include requirements that:

Answer 58

Prompt and available for sale, sale completion within 12 months, reclassified as a current asset, measured at the lower of cost or market value, depreciation/amortization discontinued.

Question 59

What is the sum of the years formula

Answer 59

Asset Cost - Yearly (asset cost - salvage) X (lease term accumulated to date / 10)

Question 60

Spiro Corp. uses the sum-of-the-years'-digits method to depreciate equipment purchased in January of the current year for $20,000. The estimated salvage value of the equipment is $2,000 and the estimated useful life is four years. What should Spiro report as the asset's carrying amount as of December 31 in the third year?

Answer 60

The asset cost gets subtracted by each year without salvage value but salvage value is in the yearly portion formula: Year 1 = 7,200 = (20,000 - 2,000) X (4/10) Year 2 = 5,400 = (20,000 - 2,000) X (3/10) Year 3 = 3,600 = (20,000 - 2,000) X (2/10) 3,800 = 20,000 - 16,200

Question 61

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?

Answer 61

24,980 = 4,000 + 15,480 + 2,000 + 3,500

Question 62

What are FV valuation techniques appropriate for measuring FV of equipment?

Answer 62

Cost, Market, Income

Question 63

A company performing its long-lived asset impairment testing is reviewing the fair value of equipment. Each of the following valuation techniques may be appropriate for measuring the fair value of the equipment, except the Market approach. Income approach. Cost approach. Net realizable value approach.

Answer 63

Net realizable value approach.

Question 64

A company has experienced operating losses from its appliances division for the past five years. The division is the lowest level of identifiable cash flows. Having determined the division is the lowest level of identifiable cash flows, the company's next step in performing its impairment test is to

Answer 64

Perform a recoverability test on the carrying amount of the division's assets

Question 65

At the beginning of the year, the carrying value of an asset was $1,000,000 with 20 years of remaining life. The fair value of the liability for the asset retirement obligation was $100,000. At year end, the carrying value of the asset was $950,000. The risk-free interest rate was 5%. The credit-adjusted riskfree interest rate was 10%. What was the amount of accretion expense for the year related to the asset retirement obligation?

Answer 65

100,000 X 10% = 10,000

Question 66

A company obtained a $300,000 loan with a 10% interest rate on January 1, year 1, to finance the construction of an office building for its own use. Building construction began on January 1, year 1, and the project was not completed as of December 31, year 1. The following payments were made in year 1 related to the construction project: January 1 Purchased land for $120,000 September 1 Progress payment to contractor for $150,000 What amount of interest should be capitalized for the year ended December 31, year 1?

Answer 66

$120,000 × 12/12 $120,000 150,000 × 4/12 50,000 Average expenditures 170,000 Specific borrowing rate 10% Capitalized interest expense $ 17,000

Question 67

On January 1, year 1, a company acquires machinery for $60,000 and depreciates it using the straight-line method with a half-year convention and an estimated useful life of five years. The company estimates that the machinery will have no salvage value. During year 3, the company determines that the machinery has appreciated and has a value of $65,000. What amount should the company report as depreciation expense for the year ended December 31, year 3, for the machinery?

Answer 67

Since GAAP mandates the value being depreciated at historical value the appreciations has no effect. The yearly depreciation value would be 12K

Question 68

In January, Vorst Co. purchased a mineral mine for $2,640,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Vorst will be required by law to restore the land to its original condition at an estimated cost of $180,000. Vorst believes it will be able to sell the property afterwards for $300,000. During the year, Vorst incurred $360,000 of development costs preparing the mine for production and removed and sold 60,000 tons of ore. In its year-end income statement, what amount should Vorst report as depletion?

Answer 68

2,640,000 + 180,000 + 360,000 - 300,000 = 2,880,000 60,000 / 1,200,000 = 0.05 2,880,000 X 0.05 = 144,000

Question 69

A company using the composite depreciation method for its fleet of trucks, cars and campers, retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts would be decreased by the

Answer 69

Debit: Cash 3K ACC Dep 15K Credit: Truck 18K

Question 70

Rally Co. purchased some real estate to build a parking lot. It paid a purchase price of $35,000, real estate commission of $2,100, and delinquent property taxes of $3,000. The company tore down a shed on the land at a cost of $2,500 and sold the salvage lumber for $500. Paving the land cost $4,000. At what value should the land be recorded?

Answer 70

42,100 = 35,000 + 2,100 + 3,000 + 2,000 Paving the land is an improvement not apart of the cost for acquisition.

Question 71

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?

Answer 71

The amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount. The replacement becomes the new carrying value amount