Question 1

Depreciation and amortization is a measure of the decline in economic value of a long-lived asset.

Accepted Answer

A) True 
 B)False

Question 2

The Allen Company has decided to construct its own warehouse facility.The construction will be partially financed through a construction loan and the remainder will be financed from internally generated funds.The company's accountants have collected the following information concerning the construction.
 $\begin{array}{llll}
& \text { Average Balance } & \text { Construction } & \text { Other } \
\text { Year } & \text { ConstructionAccount } & \text { Debt } @ 14 \% & \text { Debt } @ 10 \%\
1 & \$ 1,000,000 & \$ 1,000,000 & \$ 1,500,000 \
2 & \$ 2,000,000 & \$ 1,700,000 & \$ 1,700,000 \
3 & \$ 2,500,000 & \$ 2,000,000 & \$ 1,300,000
\end{array}$ Required:
Determine the amount, if any, of capitalized interest cost for each year.
 
a.	Year 1
b.	Year 2
c.	Year 3

Accepted Answer

a.Year 1 $140,000 ($1,000,000

Question 3

Recording periodic depreciation and amortization results in a

Accepted Answer

A) debit to an expense account, only 
B) debit to a product cost account, only. 
C) debit to either an expense account or a product cost account. 
D) credit to either an expense account or a product cost account. 
E) credit to an expense account, only. 
A) debit to an expense account, only 
B) debit to a product cost account, only. 
C) debit to either an expense account or a product cost account. 
D) credit to either an expense account or a product cost account. 
E) credit to an expense account, only.

Question 4

How are long-lived assets analyzed?

Accepted Answer

PROPERTY, PLANT, AND EQUIPMENT
The finan

Question 5

Springfield Company purchases new factory equipment.Per the terms of the contract, Springfield must pay the freight charges, will receive a manufacturer's discount off the invoice price on the equipment, and will have some setup expenses to pay. As a result, the acquisition cost of equipment recorded on Springfield's books will be the sum of the invoice price

Accepted Answer

A) less any discounts, plus transportation costs, installation charges, and any other costs incurred before the equipment is ready for use. 
B) less any discounts and transportation costs, plus installation charges and any other costs incurred after the equipment is ready for use. 
C) plus transportation costs, installation charges, and any other costs incurred before the equipment is ready for use. 
D) less transportation costs, installation charges, and any other costs incurred after the equipment is ready for use. 
E) less any discounts and installation charges, plus transportation charges and any other costs incurred after the equipment is ready for use. 
A) less any discounts, plus transportation costs, installation charges, and any other costs incurred before the equipment is ready for use. 
B) less any discounts and transportation costs, plus installation charges and any other costs incurred after the equipment is ready for use. 
C) plus transportation costs, installation charges, and any other costs incurred before the equipment is ready for use. 
D) less transportation costs, installation charges, and any other costs incurred after the equipment is ready for use. 
E) less any discounts and installation charges, plus transportation charges and any other costs incurred after the equipment is ready for use.

Question 6

Market-to-book-value ratios tend to be large for firms that make substantial expenditures on internally developed assets, including research and development, advertising, and employee development.

Accepted Answer

A) True 
 B)False

Question 7

Depreciation of factory buildings and equipment used in manufacturing operations become(s)

Accepted Answer

A) part of the cost of work-in-process inventories. 
B) part of the cost of finished goods inventories. 
C) product costs. 
D) all of the above. 
E) none of the above. 
A) part of the cost of work-in-process inventories. 
B) part of the cost of finished goods inventories. 
C) product costs. 
D) all of the above. 
E) none of the above.

Question 8

A firm purchased an office machine for $4,600, estimated that it will use the machine for 15 years, and estimated a salvage value of $100.On December 31 of the sixth year, before closing the books for the year, the firm analyzed its estimates of useful life and salvage value.In light of new information, the firm estimated that the machine will have a total useful life of only 10 years, and the salvage estimate of $100 remains reasonable. The new estimate of the remaining life is five years (the year just ended plus the next four).The depreciation entry on December 31 of the sixth year and each year thereafter is:

Accepted Answer

A) Depreciation Expense............ 300 
Accumulated Depreciation ......................300 
B) Depreciation Expense...................... 600 
Accumulated Depreciation ...................600 
C) Accumulated Depreciation .................300 
Depreciation Expense........................... 300 
D) Accumulated Depreciation ...................600 
Depreciation Expense......................... 600 
E) none of the above 
A) Depreciation Expense............ 300 
Accumulated Depreciation ......................300 
B) Depreciation Expense...................... 600 
Accumulated Depreciation ...................600 
C) Accumulated Depreciation .................300 
Depreciation Expense........................... 300 
D) Accumulated Depreciation ...................600 
Depreciation Expense......................... 600 
E) none of the above

Question 9

Genesis acquires a machine for $177,600.It expects the machine to last six years and to operate for 30,000 hours during that time.Estimated salvage value is $9,600 at the end of the machine's useful life.Calculate the depreciation charge for each of the first three years using each of the following methods:
a. The straight-line (time) method.
b. The straight-line (use) method, with the following operating times: first year, 4,500 hours; second year, 5,000 hours; third year, 5,500 hours.

Accepted Answer

Genesis calculations for various depreci

Question 10

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is either the fair value of the consideration given or the fair value of the asset received, depending on which value the firms can more reliably measure.

Accepted Answer

A) True 
 B)False

Question 11

Evers Company's balance sheet shows a trade name acquired as part of a business combination with a carrying value of $60 million.The trade name has an indefinite life and therefore Evers does not amortize it.Negative publicity regarding the product carrying the trade name has reduced its fair value to $48 million and its value in use to $44 million.The entry is as follows:

Accepted Answer

A) Loss on Impairment ..................................16,000,000 
Trade Name ............................................16,000,000 
B) Loss on Impairment ...................................12,000,000 
Trade Name ............................... .............12,000,000 
C) Loss on Impairment ...................................8,000,000 
Trade Name ..............................................8,000,000 
D) Trade Name ........................................12,000,000 
Loss on Impairment .......................................12,000,000 
E) Trade Name ........................................16,000,000 
Loss on Impairment ...................................... .16,000,000 
A) Loss on Impairment ..................................16,000,000 
Trade Name ............................................16,000,000 
B) Loss on Impairment ...................................12,000,000 
Trade Name ............................... .............12,000,000 
C) Loss on Impairment ...................................8,000,000 
Trade Name ..............................................8,000,000 
D) Trade Name ........................................12,000,000 
Loss on Impairment .......................................12,000,000 
E) Trade Name ........................................16,000,000 
Loss on Impairment ...................................... .16,000,000

Question 12

The Work-in-Process Inventory account is _____.Product costs accumulate in the Work-in-Process Inventory account until the firm completes the goods and transfers them to _____.

Accepted Answer

A) an asset; Finished Goods Inventory 
B) a liability; Finished Goods Inventory 
C) an asset; Cost of Goods Sold 
D) a liability; Cost of Goods Sold 
E) produced capital; Cost of Goods Sold 
A) an asset; Finished Goods Inventory 
B) a liability; Finished Goods Inventory 
C) an asset; Cost of Goods Sold 
D) a liability; Cost of Goods Sold 
E) produced capital; Cost of Goods Sold

Question 13

The _____ of a long-lived asset is the cost of a series of future services.

Accepted Answer

A) present value of future cash flows 
B) acquisition cost 
C) current fair market value 
D) liquidation value 
E) current cost 
A) present value of future cash flows 
B) acquisition cost 
C) current fair market value 
D) liquidation value 
E) current cost

Question 14

Wheaton Company Wheaton Company owns an apartment building that originally cost $40 million and by the end of the current period has accumulated depreciation of $10 million, with net carrying value of $30 million.Wheaton Company had originally expected to collect rentals of $3.34 million each year for 30 years before selling the building for $16 million.Unanticipated placement of a new shopping center has caused Wheaton Company to reassess the future rentals.Wheaton Company expects the building to provide rentals for only 15 more years before Wheaton will sell it.Wheaton Company uses a discount rate of 8% per year in discounting expected rentals from the building.
Wheaton now expects to receive annual rentals of $1,200,000 per year for 15 years and to sell the building for $6.0 million after 15 years; these payments, in total, have a present value of $12.2 million when discounted at 8% per year.The building's fair value is $11.0 million today and costs to sell are $600,000.
Under IFRS, Wheaton recognizes

Accepted Answer

A) no impairment loss. 
B) an impairment loss of $17.8 million. 
C) an impairment loss of $19.0 million. 
D) an impairment loss of $18.7 million. 
E) an impairment loss of $30.0 million. 
A) no impairment loss. 
B) an impairment loss of $17.8 million. 
C) an impairment loss of $19.0 million. 
D) an impairment loss of $18.7 million. 
E) an impairment loss of $30.0 million.

Question 15

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is

Accepted Answer

A) the fair value of the asset received, only. 
B) the fair value of the consideration given, only. 
C) either the fair value of the consideration given or the fair value of the asset received, depending on which amount is lower. 
D) either the fair value of the consideration given or the fair value of the asset received, depending on which the firms can more reliably measure. 
E) either the fair value of the consideration given or the fair value of the asset received, depending on which amount is higher. 
A) the fair value of the asset received, only. 
B) the fair value of the consideration given, only. 
C) either the fair value of the consideration given or the fair value of the asset received, depending on which amount is lower. 
D) either the fair value of the consideration given or the fair value of the asset received, depending on which the firms can more reliably measure. 
E) either the fair value of the consideration given or the fair value of the asset received, depending on which amount is higher.

Question 16

The Perma Company spent $300,000 on research and development during Year 8 to generate new product lines.One of the three projects looks like it will ultimately be technologically feasible while the other two projects resulted in unsuccessful efforts.For the project which may become technologically feasible, a total of $125,000 was incurred during Year 8.Under U.S.GAAP, how much of the $300,000 should be recognized as an expense in Year 8?

Accepted Answer

A) $300,000 
B) $225,000 
C) $175,000 
D) $50,000 
E) $0 
A) $300,000 
B) $225,000 
C) $175,000 
D) $50,000 
E) $0

Question 17

Macon Company Macon Company owns an apartment building that originally cost $40 million and by the end of the current period has accumulated depreciation of $10 million, with net carrying value of $30 million.Macon Company had originally expected to collect rentals of $3.34 million each year for 30 years before selling the building for $16 million.Unanticipated placement of a new shopping center has caused Macon Company to reassess the future rentals.Macon Company expects the building to provide rentals for only 15 more years before Macon will sell it.Macon Company uses a discount rate of 8% per year in discounting expected rentals from the building.
Macon now expects to receive annual rentals of $2.7 million per year for 15 years and to sell the building for $10.0 million after 15 years; these payments, in total, have a present value of $26.2 million when discounted at 8% per year.The building's fair value is $25 million today.Costs to sell are estimated at $1,000,000.
Using the Macon Company data, the application of IFRS indicates:

Accepted Answer

A) no impairment loss has occurred. 
B) an impairment loss has occurred in the amount of $3.8 million. 
C) an impairment loss has occurred in the amount of $6 million. 
D) an impairment gain has occurred in the amount of $6 million. 
E) an impairment gain has occurred in the amount of $3.8 million. 
A) no impairment loss has occurred. 
B) an impairment loss has occurred in the amount of $3.8 million. 
C) an impairment loss has occurred in the amount of $6 million. 
D) an impairment gain has occurred in the amount of $6 million. 
E) an impairment gain has occurred in the amount of $3.8 million.

Question 18

What happens when the original depreciation or amortization schedule for long-lived assets requires changing?

Accepted Answer

CHANGES IN SERVICE LIVES OR SALVAGE VALU

Question 19

Intangible assets make up 40 percent of the total assets of a particular firm.This firm is most likely to be:

Accepted Answer

A) a pharmaceutical firm that invests in internal research and development to create new drugs. 
B) a consumer products company that invests in advertising to create brand recognition. 
C) an information processing company that develops computer software to use in its business. 
D) a restaurant business that has grown by acquiring other restaurant chains. 
E) All of these answer choices are correct. 
A) a pharmaceutical firm that invests in internal research and development to create new drugs. 
B) a consumer products company that invests in advertising to create brand recognition. 
C) an information processing company that develops computer software to use in its business. 
D) a restaurant business that has grown by acquiring other restaurant chains. 
E) All of these answer choices are correct.

Question 20

Expenditures for maintenance or repair of tangible long-lived assets are treated as asset improvements and subsequently depreciated.

Accepted Answer

A) True 
 B)False

Depreciation and amortization is a measure of the decline in economic value of a long-lived asset.

Recording periodic depreciation and amortization results in a

How are long-lived assets analyzed?

Market-to-book-value ratios tend to be large for firms that make substantial expenditures on internally developed assets, including research and development, advertising, and employee development.

Depreciation of factory buildings and equipment used in manufacturing operations become(s)

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is either the fair value of the consideration given or the fair value of the asset received, depending on which value the firms can more reliably measure.

The Work-in-Process Inventory account is _.Product costs accumulate in the Work-in-Process Inventory account until the firm completes the goods and transfers them to _.

The _____ of a long-lived asset is the cost of a series of future services.

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is

What happens when the original depreciation or amortization schedule for long-lived assets requires changing?

Intangible assets make up 40 percent of the total assets of a particular firm.This firm is most likely to be:

Expenditures for maintenance or repair of tangible long-lived assets are treated as asset improvements and subsequently depreciated.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 10: Long-Lived Tangible and Intangible Assets

Depreciation and amortization is a measure of the decline in economic value of a long-lived asset.

Recording periodic depreciation and amortization results in a

How are long-lived assets analyzed?

Market-to-book-value ratios tend to be large for firms that make substantial expenditures on internally developed assets, including research and development, advertising, and employee development.

Depreciation of factory buildings and equipment used in manufacturing operations become(s)

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is either the fair value of the consideration given or the fair value of the asset received, depending on which value the firms can more reliably measure.

The Work-in-Process Inventory account is _____.Product costs accumulate in the Work-in-Process Inventory account until the firm completes the goods and transfers them to _____.

The _____ of a long-lived asset is the cost of a series of future services.

Firms sometimes acquire assets by exchanging an asset other than cash or by issuing common stock.In these cases, acquisition cost is

What happens when the original depreciation or amortization schedule for long-lived assets requires changing?

Intangible assets make up 40 percent of the total assets of a particular firm.This firm is most likely to be:

Expenditures for maintenance or repair of tangible long-lived assets are treated as asset improvements and subsequently depreciated.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

The Work-in-Process Inventory account is _.Product costs accumulate in the Work-in-Process Inventory account until the firm completes the goods and transfers them to _.