Question 1

Which of the following costs would be excluded from the acquisition cost of equipment purchased from a supplier?

Accepted Answer

A)  Cost to install the equipment. 
B)  A purchases discount offered by the supplier. 
C)  The cost of freight paid to get the equipment to our factory. 
D)  The cost to widen an entrance in the building to bring the equipment into the facilities.

Question 2

Under what conditions would a company most likely adopt the double-declining-balance method for financial reporting?

Accepted Answer

A)  They expect the asset to lose its value more rapidly in the first few years of its life. 
B)  They have high technology, robotic equipment in their plant that have a long usable life. 
C)  They expect the asset to lose its value in a huge portion after some years of its use. 
D)  They have a fleet of trucks where repair costs increase annually as the fleet ages.

Question 3

When an asset is retired, a gain or loss must be recorded.

Accepted Answer

A) True 
 B)False

Question 4

Research costs are an example of intangible assets.

Accepted Answer

A) True 
 B)False

Question 5

Intangible assets include which of the following?

Accepted Answer

A)  Trade receivables, franchises, and trademarks. 
B)  Copyrights, licences, and land. 
C)  Buildings, patents, and trademarks. 
D)  Leaseholds, patents, and copyrights.

Question 6

If an acquired franchise or licence is for an indefinite time period, then the cost of the asset should not be amortized.

Accepted Answer

A) True 
 B)False

Question 7

An item of property, plant, and equipment is considered to be impaired if its carrying amount exceeds its recoverable amount.

Accepted Answer

A) True 
 B)False

Question 8

What are operational assets that have physical substance called?

Accepted Answer

A)  Tangible assets. 
B)  Current assets. 
C)  Intangible assets. 
D)  Long-term investments.

Question 9

An impairment loss is credited to accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 10

The book value of an operational asset initially declines less rapidly under the straight-line method than under the declining-balance method.

Accepted Answer

A) True 
 B)False

Question 11

Tangible assets include which of the following?

Accepted Answer

A)  Land, buildings, and leaseholds. 
B)  Land, buildings, and equipment. 
C)  Licences, trademarks, and land. 
D)  Natural resources, buildings, and franchises.

Question 12

Give the required adjusting entry at December 31, 20F, the end of the annual accounting period for the three items below. If no entry is required, explain why.
A. Web Company acquired a patent that cost $4,260 on January 1, 20F. The patent was registered on January 1, 20A. The legal life of a patent is 17 years from registration. Web expects to use the patent the remaining legal life.
B. Web Company acquired a gravel pit on January 1, 20F, that cost $24,000. The company estimates that 30,000 tons of gravel can be extracted economically. During 20F 4,000 tons were extracted and sold.
C. On January 1, 20F, Web Company acquired a dump truck that cost $6,000 to use hauling gravel. The company estimated a residual value of 10% of cost and a useful life 4 years. The company uses straight-line depreciation.

Accepted Answer

The answer of Give the required adjusting entry at December...

Question 13

All of the following statements are true, except:

Accepted Answer

A)  Copyrights extend for the life of the creator plus 10 years. 
B)  The cost of a copyright consists of the cost of acquiring and defending it. 
C)  A copyright gives the owner the exclusive right to reproduce and sell an artistic or published work. 
D)  A copyright is amortized over its useful life.

Question 14

Fraser Ltd. has decided to change the estimate of the useful life of an asset that has been in service for two years. Which of the following statements describes the proper way to revise a useful life estimate?

Accepted Answer

A)  Both the current and future years will be affected by the revision. 
B)  Retroactive changes must be made to correct previously recorded depreciation. 
C)  Only future years will be affected by the revision. 
D)  Revisions in useful life are permitted if approved by Canada Revenue Agency.

Question 15

If an accountant calculates depreciation expense on an asset without taking into account the asset's residual value of $5,000, depreciation expense for the periods will be lower than it should have been.

Accepted Answer

A) True 
 B)False

Question 16

Land improvements are not a depreciable asset.

Accepted Answer

A) True 
 B)False

Question 17

How should an expenditure for an ordinary repair to factory equipment be recorded?

Accepted Answer

A)  Debited to accumulated depreciation. 
B)  Debited to an asset account and depreciated over the current and future years. 
C)  As an expense in the period incurred. 
D)  Debited to an asset account but not depreciated over future years.

Question 18

Belton Corporation uses straight-line depreciation and, for assets acquired during the fiscal year, follows the policy of recording a full month's depreciation for all assets acquired on or before the 15th of the month. No depreciation is recorded for the month if an asset is acquired after the 15th. On May 22, 20A, Belton purchased a car that cost $22,000 which had an estimated residual value of $2,000 and an estimated useful life of five years. To the nearest dollar, what is the amount of depreciation that should be recorded on the car for 20A?

Accepted Answer

A)  $2,333 
B)  $2,000 
C)  $2,667 
D)  $4,000

Question 19

Barnes Company purchased a machine on April 4, 2011, for $210,000. The machine had an estimated useful life of five years and a salvage value of $30,000. The machine is being depreciated using the double-declining-balance method. Barnes depreciates its assets from the first day of the month nearest the date of purchase. The asset balance, net of accumulated depreciation, at December 31, 2012, should be:

Accepted Answer

A)  $105,600 
B)  $75,600 
C)  $88,200 
D)  $94,800

Question 20

Trumble Company purchased a machine on January 1, 20B, for $10,000. The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine. What would be the effect of this error on the 20B financial statements?

Accepted Answer

A)  Overstatement of assets, profit, and shareholders' equity. 
B)  Overstatement of assets offset by an understatement of retained earnings. 
C)  Overstatement of assets offset by an understatement of shareholders' equity. 
D)  Overstatement of assets and an understatement of liabilities.

Exam 9: Reporting and Interpreting Liabilities

Which of the following costs would be excluded from the acquisition cost of equipment purchased from a supplier?

Under what conditions would a company most likely adopt the double-declining-balance method for financial reporting?

When an asset is retired, a gain or loss must be recorded.

Research costs are an example of intangible assets.

Intangible assets include which of the following?

If an acquired franchise or licence is for an indefinite time period, then the cost of the asset should not be amortized.

An item of property, plant, and equipment is considered to be impaired if its carrying amount exceeds its recoverable amount.

What are operational assets that have physical substance called?

An impairment loss is credited to accumulated depreciation.

The book value of an operational asset initially declines less rapidly under the straight-line method than under the declining-balance method.

Tangible assets include which of the following?

All of the following statements are true, except:

Fraser Ltd. has decided to change the estimate of the useful life of an asset that has been in service for two years. Which of the following statements describes the proper way to revise a useful life estimate?

If an accountant calculates depreciation expense on an asset without taking into account the asset's residual value of $5,000, depreciation expense for the periods will be lower than it should have been.

Land improvements are not a depreciable asset.

How should an expenditure for an ordinary repair to factory equipment be recorded?

Trumble Company purchased a machine on January 1, 20B, for $10,000. The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine. What would be the effect of this error on the 20B financial statements?