ACC 563 Week 7 Quiz – Strayer NEW
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Week
7 Quiz 5: Chapters 9 and 10
Chapter
9
Multiple
Choice
1. When
a closely held corporation issues preferred stock for land, the land should be
recorded at the
a. Total par value of the stock issued
b. Total book value of the stock issued
c. Appraised
value of the land
d. Total
liquidating value of the stock issued
Answer
2.
A principal objection to the
straight-line method of depreciation is that it
a. Provides
for the declining productivity of an aging asset
b. Ignores
variations in the rate of asset use
c. Tends
to result in a constant rate of return on a diminishing investment base
d. Gives
smaller periodic write-offs than decreasing charge methods
Answer
3.
Property, plant, and equipment are
conventionally presented n the balance sheet at
a. Replacement
cost less accumulated depreciation
b. Historical
cost less salvage value
c. Original
cost adjusted for general price level changes
d. Acquisition
cost less depreciated portion thereof
Answer
4.
As generally used in accounting,
depreciation
a. Is
a process of asset valuation for balance sheet purposes
b. Applies
only to long-lived intangible assets
c. Is
used to indicate a decline in market value of a long-lived asset
d. Is
an accounting process that allocates long-lived asset cost to accounting
periods
Answer
5.
Lyle, Inc., purchased certain plant
assets under a deferred payment contract on December 31, 2011. The agreement
was to pay $20,000 at the time of purchase and $20,000 at the end of each of
the next five years. The plant assets should be valued at
a. The
present value of a $20,000 ordinary annuity for five years
b. $120,000
c. $120,000
less imputed interest
d. $120,000
plus imputed interest
Answer
6.
For income statement purposes,
depreciation is a variable expense if the depreciation method used for book
purposes is
a. Units
of production
b. Straight
line
c. Sum-of-the-year’s-digits
d. Declining
balance
Answer
7.
A method that excludes salvage value
from the base for the depreciation calculation is
a. Straight
line
b. Sum-of-the-year’s
digits
c. Double-declining
balance
d. Productive
output
Answer
8.
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 cost incurred to tear down the
building should be
a. Expensed
as incurred
b. Added
to the cost of the plant
c. Added
to the cost of the land
d. Amortized
over the estimated time period between the tearing down of the building and the completion of the plant
Answer
9.
A machine with a four-year estimated
useful life and an estimated 15 percent salvage value was acquired on January
1, 2010. On December 31, 2012, the accumulated depreciation using the
sum-of-year’s digits method would be
a. (Original
cost less salvage value) multiplied by 9/10
b. Original
cost multiplied by 9/10
c. Original
cost multiplied by 9/10 less total salvage value
d. (Original
cost less salvage value) multiplied by 1/10
Answer
10. The
theoretical justification for reporting depreciation expense is
a. Depreciation
expense represents a decrease in the value of the asset that has occurred
during the accounting period.
b. Depreciation
expense represents the impairment of the asset that has occurred during the
accounting period.
c. Depreciation
expense represents the unrealized loss that has been incurred by using the
asset during the accounting period.
d. Depreciation
expense represents the allocation of the historical cost of the asset that has
been applied to the accounting period.
Answer
11. 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
a. Original
cost of the truck
b. Original
cost of the truck less the insurance recovery received
c. Original
cost of the truck less depreciation on the truck to the date of retirement
d. Insurance
recovery received
Answer
12. When
equipment is retired, accumulated depreciation is debited for the original cost
less any residual recovery under which of the following depreciation methods?
Composite Group
Depreciation Depreciation
a. No
No
b. No
Yes
c. Yes No
d. Yes
Yes
Answer
13. Recognizing
depletion expense is an example of the accounting process of
AllocationAmortization
a. No No
b. No Yes
c. Yes Yes
d. Yes
No
Answer
14. 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
a. Incidental
costs incurred
b. Fair
value and incidental costs incurred
c. Book
value on books of donor and incidental costs incurred
d. Book
value on books of donor
Answer
Essay
1.
List the objectives of accounting for
property, plant and equipment.
2.
Describe how cost is assigned to
individual assets when they are acquired in a lump-sum group purchase.
3.
Discuss the three approaches to
allocating fixed overhead to a self-construction project.
4.
Discuss the issue of allocating interest
to self construction projects. That is, when should interest be allocated and
how much interest should be allocated?
5.
Explain the concept of commercial
substance originally outlined in SFAS No. 158.
6.
How did SFAS No. 116, now FASB ASC 605-10-15-3, change the accounting for
donated assets?
7.
Discuss the factors comprising the
depreciation process.
8.
Discuss the distinction between capital
and revenue expenditures for long-term assets.
9.
Define and discuss accounting for asset
retirement obligations under SFAS No. 14FASB ASC 410-20.
10.
Discuss the guidelines for accounting
for property, plant and equipment outlined in IAS No. 16.
11.
How does IAS no. 23 define borrowing
costs?
12.
Discuss accounting for the impairment of
assets as outlined in IAS No. 36.
EXAMPLE
TEST QUESTIONS
Chapter 10
Multiple
Choice
1. Under
the equity method of accounting for investments, an investor recognizes its
share of the earnings in the period in which the
a. Investor
sells the investment
b. Investee
declares a dividend
c. Investee
pays a dividend
d. Earnings
are reported by the investee in its financial statements
Answer
2. Pence
Corporation, which accounts for its investments in the common stock of Walsh
Company by the equity method, should ordinarily record a dividend received from
Walsh as
a. An
addition to the carrying value of the investment
b. Dividend
revenue
c. A
reduction of the carrying value of the investment
d. Revenue
from affiliate
Answer
3. On
January 15, 2002, a corporation was granted a patent on a product. On January
2, 2010, to protect its patent, the corporation purchased a patent on a
competing product the originally was issued on January 10, 2008. Because of its
unique plant, the corporation does not feel the competing patent can be used in
producing a product. The cost of the competing patent should be
a. Amortized
over a maximum period of 17 years
b. Amortized
over a maximum period of 13 years
c. Amortized
over a maximum period of 9 years
d. Expensed
in 2010
Answer
4. Pacer
Company purchased 300 of the 1, 000 outstanding shares of Queen Company’s
common stock for $80,000 on January 2, 2008. During 2009, Queen Company
declared dividends of $8,000 and reported earnings for the year of $20,000.
If
Pacer Company uses the equity method of accounting for its investment in Queen
Company, its Investment in Queen Company account at December 31, 2009 should be
a.
$100, 000
b.
$88,000
c.
$83,600
d.
$80,000
Answer
5. Refer
to the facts in problem (4). If Pacer Company uses the lower of cost or market
method of accounting for its investment in Queen Company, and the value of its
investment hasn’t changed, its Investment in Queen Company account on December
31, 2009, should be
a. $100,
000
b. $88,000
c. $80,000
d. $73,600
Answer
6. A
large, publicly held company developed and registered a trademark during 2010.
The cost of developing and registering the trademark should be accounted for by
a. Charging it to an asset account that should
not be amortized
b. Expensing it as incurred
c. Amortizing it over 25 years if in accordance
with management’s evaluation
d. Amortizing it over its useful life or 17
years, whichever is shorter
Answer
7. Goodwill
should be written off
a. As soon as possible against retrained earnings
b. When
there is evidence that its carrying value has been impaired
c. By
systematic charges against retained earnings over the period benefited, but
not more than 40 years
d. By
systematic charges to expense over the period benefited, but not more than
40 years
Answer
8. A
net unrealized loss on a company’s long-term portfolio of available for
sale securities should be reflected in
the current financial statements as
a. An
extraordinary item shown as a direct reduction from retained earnings
b. A
current loss resulting from holding marketable equity securities
c. A
footnote or parenthetical disclosure only
d. A component of other comprehensive income
Answer
9.
Changes in the fair value of a long-term
available for sale equity securities portfolio should be reported as a
component of
a. Other
comprehensive income
b. Noncurrent
assets
c. Noncurrent
liabilities
d. Net
income
Answer
10.
Cash dividends declared out of current
earnings are distributed to an investor. How will the investor’s investment
account be affected by those dividends under each of the following accounting
methods?
Fair Value Method Equity Method
a. Decrease No effect
b. Decrease Decrease
c. No effect Decrease
d. No effect No effect
Answer
11. An
activity that would be expensed currently as research and development costs is
the
a. Testing
in search for or evaluation of product or process alternatives
b. Adaptation
of an existing capability to a particular requirement or customer’s need as a
part of continuing commercial activity
c. Legal
work in connection with patent applications or litigation, and the sale or
licensing of patents
d. Engineering
follow-through in an early phase of commercial production
Answer
12. Should
the following fees associated with the registration of an internally developed
patent be capitalized?
Registration
Legal
fees fees
a. Yes
Yes
b. Yes
No
c. No
Yes
d. No
No
Answer
13. Which
of the following assets acquired in 2010 are amortizable?
GoodwillTrademarks
a. No
No
b. No
Yes
c. Yes
No
d. Yes
No
Answer
14. A
purchased patent has a remaining life of 15 years. It should be
a. Expensed
in the year of acquisition
b. Amortized
over 15 years regardless of its useful life
c. Amortized
over its useful life if less than 15 years
d. Amortized
over 40 years
Answer
15. Which
of the following amounts incurred in connection with a trademark should be
capitalized?
Cost of a
Registration
Successful defensefees
a. Yes
No
b. Yes
Yes
c. No
Yes
d. No
No
Answer
16. Zink Company owns 32% of Ace Company's outstanding
voting stock. Zink Company normally should account for its investment in Ace
Company using the
a.
Fair
value method.
b.
Cost
method.
c.
Consolidation
procedure.
d.
Equity
method.
Answer
1. An
investor purchased a bond as a long-term investment on January 1. Annual
interest was received on December 31. The investor’s interest income for the
year would be lowest if the bond was purchased at
a. A discount
b. A premium
c. Par
d. Face value
Answer
19. The
theoretical justification for expensing research and development (R&D) cost
as it is incurred is based on which of the following arguments?
a. R&D
costs provide no future benefits, thus it does not meet the definition of an
asset
b. R&D
costs are incurred to generate current period revenue, thus the matching
concept requires that it be expensed as incurred.
c. Whether
R&D costs that have been incurred will provide future benefit is uncertain,
thus it does not meet the definition of an asset.
d. Since
R&D costs have been incurred during the current period, they meet the
definition of an expense.
Answer
20. When
a patent is successfully defended in court, the cost of the lawsuit
a. Should
be expensed as incurred because it is a period cost.
b. Should
be added to the cost of the patent and depreciated over the remaining useful
life of the patent.
c. Should
be added to the cost of the patent which is then expensed as a period cost.
d. Has
already been expensed so there is no further action to take.
Answer
21. Goodwill
is an intangible asset
a. That
has a definite life and its cost should be amortized over its useful life.
b. That
is recorded when the company has projected earnings in excess of earnings
expected for an investment in a similar company in the same industry.
c. That
is reviewed for impairment when circumstances indicate that impairment may have
occurred.
d. That
is reviewed annually to determine whether impairment has occurred.
Answer
22. A
trading security is measured at fair value on the balance sheet date and
reported as
a. A
current asset, and changes in fair value are reported in earnings as unrealized
gains and losses.
b. A
current asset, and changes in fair value are reported in earnings as realized
gains and losses.
c. Either
a current or noncurrent asset depending on whether they meet the definition of
a current asset.
d. A
current asset, and changes in fair value are reported in accumulated other
comprehensive income as unrealized gains and losses.
Answer
23. Current
accounting for an available-for-sale (AFS) security is consistent with
a. The
financial capital maintenance concept of income because AFS security unrealized
gains and losses are reported in earnings.
b. The
financial capital maintenance concept of income because AFS security unrealized
gains and losses are reports in other comprehensive income.
c. The
physical capital maintenance concept of income because AFS security unrealized
gains and losses are reported in earnings.
d. The
physical capital maintenance concept of income because AFS security unrealized
gains and losses are reported in other comprehensive income.
Answer
24. The
physical capital maintenance concept of income would require that an investment
in the common stock of another entity be
a. Reported
in the balance sheet at historical cost and that only realized gains and losses
be reported in earnings.
b. Reported
in the balance sheet at historical cost and that unrealized gains and losses be
reported in earnings.
c. Reported
in the balance sheet at fair value and that unrealized gains and losses be
reported in earnings.
d. Reported
in the balance sheet at fair value and that unrealized gains and losses be
reported in other comprehensive income.
Answer
25. The
economic concept of income would require that an investment in the common stock
of another entity be
a. Reported
in the balance sheet at historical cost and that only realized gains and losses
be reported in earnings.
b. Reported
in the balance sheet at historical cost and that unrealized gains and losses be
reported in earnings.
c. Reported
in the balance sheet at fair value and that unrealized gains and losses be
reported in earnings.
d. Reported
in the balance sheet at fair value and that unrealized gains and losses be
reported in other comprehensive income.
Answer
26. Under the fair
value option, an investment in the common stock of another entity will be
a. Reported
as a current asset
b. Reported
as a noncurrent asset
c. Reported
as either a current or noncurrent asset depending on managerial intent.
d. Reported
as a current asset only if it was not previously reported as an equity method
investment.
Answer
27. When
a company reports goodwill in its balance sheet, we know that
a. It
was internally generated because the company has earnings in excess of those of
other companies in the industry.
b. The
company purchased it.
c. The
company will be reporting amortization expense for the goodwill.
d. The
company will not be reporting an impairment loss for the goodwill.
Answer
Essay
1.
How are income and balance sheet values
determined under the equity method?
2.
Discuss accounting for equity securities
under the cost method.
3.
Discuss accounting for equity securities
under the SFAS No. 115 now contained at FASB ASC 320.
4.
Summarize the accounting requirements
for investments in equity securities. That is, what methods are available and
when is each method appropriate?
5.
Discuss the use of the fair value option
originally described in SFAS No. 159 now contained at FASB ASC 825-10.
6.
Discuss accounting for investments in
debt securities.
7.
What is an intangible asset? How is the
cost of an intangible asset amortized?
8.
What is goodwill? How is goodwill
written off under the provisions of SFAS No. 142 now FASB ASC 350?
9.
Define research and development. How are research and development costs
recorded
10.
How does IAS No 39 define fair value?
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