Question 1

Goodwill should be recorded in the accounting records only when

Accepted Answer

A)  it is purchased from another company. 
B)  it can be established that a definite benefit or advantage has resulted to a firm from some item such as a good name, capable staff, or reputation. 
C)  it is acquired through the purchase of another business entity. 
D)  a firm reports above normal earnings for five or more consecutive years.

Question 2

On July 31, 2011, Cleveland Company purchased for $4,000,000 cash all of the outstanding common stock of Gem Company when Gem's balance sheet showed net assets of $3,200,000. Gem's assets and liabilities had fair values different from the book values as follows:

As a result of the transaction, what amount will be shown as goodwill in the July 31, 2011, consolidated balance sheet of Cleveland Company and its wholly owned subsidiary, Gem Company?

Accepted Answer

A)  $350,000 
B)  $250,000 
C)  $750,000 
D)  $800,000

Question 3

Which of the following best describes the proper treatment of cash discounts on acquired machinery?

Accepted Answer

A)  The historical cost of the machinery should be the invoice price; the discount should be ignored. 
B)  The historical cost of the machinery should be the net-of-discount amount, regardless of whether the discount is actually taken. 
C)  The historical cost of the machinery should be the net-of-discount amount only if the discount is actually taken. 
D)  The historical cost of the machinery should be the invoice price plus the amount of the discount which is treated a interest capitalized on the purchase.

Question 4

On January 1, 2011, Sky Airlines contracted with Dover Aircraft to construct an aircraft to Sky's specifications at a cost of $2,000,000. During 2011, Sky paid Dover $400,000 on January 1, and another $250,000 on September 30. On January 1, Sky borrowed $360,000 at 13% to partially finance the construction, an obligation still outstanding at the end of 2011. The remaining amount paid to Dover was financed from available working capital. Sky has approximately $1,600,000 of additional debt outstanding at an average interest cost of 12%.
Required:
What is the total capitalized cost of the aircraft under construction at the end of 2011?

Accepted Answer

The answer of On January 1, 2011, Sky Airlines contracted...

Question 5

Which of the following research and development related costs should be capitalized and amortized over current and future periods?

Accepted Answer

A)  Labor and material costs incurred in building a prototype model. 
B)  Cost of testing equipment that will also be used in another separate research and development project scheduled to begin next year. 
C)  Administrative salaries allocated to research and development. 
D)  Research findings purchased from another company to aid a particular research project currently in process.

Question 6

Delb Company is an oil and gas exploration firm. During 2011, Delb engaged in five different exploration projects. The costs associated with these projects are as follows:
  
Only Projects 2 and 5 were successful. As of the end of the year, production had not yet started at either of these two sites.
Assuming that all exploration costs were paid for in cash, make the journal entry to record the expenditures for the year using

Accepted Answer

The answer of Delb Company is an oil and gas...

Question 7

If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as

Accepted Answer

A)  research and development expense in the period(s) of construction. 
B)  depreciation deducted as part of research and development costs. 
C)  depreciation or immediate write-off depending on company policy. 
D)  an expense at such time as productive research and development has been obtained from the facility.

Question 8

You have just been promoted to the position of senior accountant with the public accounting firm of Watts and Zimmerman. Your first audit client as senior accountant is to be the Delta Manufacturing Company. You have had a considerable amount of experience both in planning and conducting the audit procedures for current asset accounts such as cash, receivables, and inventory. This is your first experience, however, in planning the audit of the property, plant, and equipment accounts. Compare the nature of current assets with property, plant, and equipment, and describe how any differences might affect your audit generally.
The audit work required to verify the property, plant, and equipment accounts generally is substantially less than that required for current assets. This is due to the nature of the assets included in the property accounts.

Accepted Answer

The answer of You have just been promoted to the...

Question 9

An expenditure subsequent to acquisition of assembly-line manufacturing equipment benefits future periods. The expenditure should be capitalized if it is a

Accepted Answer

The answer of An expenditure subsequent to acquisition of assembly-line...

Question 10

RGW Industries purchased the net assets of SP Company for $1,100,000 cash . A schedule of the net assets of SP Company, as recorded on SP Company's books at the time of the acquisition, is as follows:

The following schedule shows the differences between the recorded costs and market values of the assets of SP Company at the date of the acquisition:
  
Prepare the journal entry to record this acquisition using the acquisition method prescribed by SFAS 141R,, "Business Combinations."

Accepted Answer

The answer of RGW Industries purchased the net assets of...

Question 11

Blocker Company recently acquired two items of equipment. The transactions are described below:
June 10:
Acquired a press at an invoice price of $5,000, subject to a 2% cash discount which was taken. Costs of freight and insurance during shipment were $120. Installation costs were $250.
November 12:
Acquired a welding machine at an invoice price of $4,000, subject to a 3% cash discount which was NOT taken. Additional welding supplies were acquired at a total cost of $200.
The increase in the equipment account as a result of the above transactions would be

Accepted Answer

A)  $9,150. 
B)  $9,270. 
C)  $9,370. 
D)  $9,570.

Question 12

Which of the following ordinarily would be treated as a revenue expenditure rather than a capital expenditure?

Accepted Answer

A)  Repair and maintenance on buildings 
B)  The replacement of a major component of a building 
C)  An addition to an existing building 
D)  Rearrangement costs that are identifiable, material, and are expected to provide discernable future benefits

Question 13

Broadcast rights are an example of which general category of intangible asset that should be recognized separately according to current generally accepted accounting principles?

Accepted Answer

A)  Marketing-related 
B)  Customer-related 
C)  Artistic-related 
D)  Contract-based

Question 14

The Callister Company exchanged 25,000 shares of its own $50 par value common stock for a turret lathe from Payne Company. The market value of the Callister Company stock was $68 per share at the date of exchange. The equipment had a carrying value of $1,625,000.
Record the exchange on the books of Callister Company in general journal form.

Accepted Answer

The answer of The Callister Company exchanged 25,000 shares of...

Question 15

Which of the following intangible assets does not have the characteristic of exchangeability?

Accepted Answer

A)  Patent 
B)  Copyright 
C)  Goodwill 
D)  Franchise

Question 16

The Oscar Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $180,000. At the time of acquisition, Oscar paid $12,000 to have the assets appraised. The appraisal disclosed the following values:

What cost should be assigned to the land, buildings, and equipment, respectively?

Accepted Answer

A)  $64,000, $64,000, and $64,000 
B)  $90,000, $60,000, and $30,000 
C)  $96,000, $64,000, and $32,000 
D)  $120,000, $80,000, and $40,000

Question 17

When a company replaces an old asphalt roof on its plant with a new fiberglass insulated roof, which of the following types of expenditure has occurred?

Accepted Answer

A)  Ordinary repairs and maintenance 
B)  Addition 
C)  Rearrangement 
D)  Betterment

Question 18

Which of the following most accurately describes the position taken by generally accepted accounting principles regarding the accounting for the costs of drilling dry wells in the oil and gas industry?

Accepted Answer

A)  Only the successful efforts method may be used. 
B)  Only the full cost method may be used. 
C)  Both the successful efforts and full-cost methods may be used. 
D)  Neither the successful efforts method nor the full cost method may be used pending the development by the Securities and Exchange Commission of its own approach to accounting for the costs of drilling dry wells.

Question 19

During the year just ended, Morton Company made the following expenditures relating to its plant building:

How much should be charged to repair and maintenance expense during the year just ended?

Accepted Answer

A)  $160,000 
B)  $216,000 
C)  $256,000 
D)  $328,000

Question 20

Which of the following is true regarding the traditional approach to estimating the fair value of an intangible asset?

Accepted Answer

A)  The traditional approach requires the use of the risk-free rate of interest. 
B)  The traditional approach requires the use of various possible outcomes and their probability of occurrence. 
C)  The traditional approach requires the use of judgment in determining a risk-adjusted rate of interest. 
D)  The traditional approach requires the assumption that cash flows occur at the beginning of each period (an annuity due).

Exam 10: Investments in Noncurrent Operating Assets-Acquisition