Question 1

Identify and briefly describe the four factors involved in determining the dollar amount of a firm's periodic charge to depreciation?

Accepted Answer

1. Acquisition cost: The purchase price

Question 2

Under what circumstances does derecognition of an asset occur?

Accepted Answer

Companies remove or derecogniz

Question 3

Briefly explain the half-year convention for recognizing depreciation.

Accepted Answer

The half-year convention is a method to

Question 4

Frank's Bus Lines exchanged four of Ford buses for four GM buses. The carrying value and fair value of each fleet of vehicles on the date of the exchange are as follows:
 $$\begin{array} { | l | r | r | r | r | } 
\hline \text { Asset } & \text { Cost } & \begin{array} { c } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { Carrying Value } & \text { Fair Value } \
\hline \text { Ford Buses (Assets Given Up) } & \$ 900,000 & \$ 310,000 & \$ 590,000 & \$ 620,000 \
\hline \text { GM Buses (Assets Received) } & \$ 880,000 & \$ 260,000 & \$ 620,000 & \$ 595,500 \
\hline
\end{array}$$
 Frank's received cash of $40,000 and the GM buses in exchange for the Ford buses. It is expected that the future cash flows of Frank's business will not change significantly as a result of this exchange.
What amount of gain would be recognized as a result of this transaction?

Accepted Answer

The total potential gain is equal to $30

Question 5

Only finite-life intangible assets are subject to amortization.

Accepted Answer

A) True 
 B)False

Question 6

Scrap value reduces the depreciable base of an asset.

Accepted Answer

A) True 
 B)False

Question 7

Property, plant, and equipment include both tangible and intangible fixed assets.

Accepted Answer

A) True 
 B)False

Question 8

A production machine which cost $2,200,000 is acquired on October 1, 2018. Its estimated residual value is $200,000 and its expected life is 10 years or about 80,000 operating hours. During 2018, the machine was used to produce products for 3,000 operating hours during 2018 and 8,100 operating hours during 2019. Lorny does not use the half-year convention for depreciating any assets.
Calculate depreciation expense for 2018 and 2019 for each of the following methods:
(a) Straight-line method
(b) Double-declining balance method
(c) Units-of-output method

Accepted Answer

a.
2018: ($2,200,000 -$200,000) / 10 yea

Question 9

Fixed asset turnover ratio is computed as total sales revenue divided by ________.

Accepted Answer

A)  average net fixed assets 
B)  ending net fixed assets 
C)  average gross fixed assets 
D)  ending gross fixed assets 
A)  average net fixed assets 
B)  ending net fixed assets 
C)  average gross fixed assets 
D)  ending gross fixed assets

Question 10

Following U.S. GAAP, companies commonly report the carrying value of property, plant, and equipment in total or by major class of long-term assets on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 11

Assets that qualify for interest cost capitalization include ________.

Accepted Answer

A)  assets under construction for a company's own use 
B)  assets not currently being used because of excess capacity 
C)  assets that are ready for their intended use and acquired through issuance of long-term debt 
D)  All of the above. 
A)  assets under construction for a company's own use 
B)  assets not currently being used because of excess capacity 
C)  assets that are ready for their intended use and acquired through issuance of long-term debt 
D)  All of the above.

Question 12

Gabraile Company acquired Itsy Inc. for a price that was substantially less than the fair value of the identifiable net assets acquired. The difference between the fair value of the net identifiable assets and the bargain purchase price is ________.

Accepted Answer

A)  recorded as negative goodwill 
B)  reported as a gain that increases income from continuing operations 
C)  allocated to reduce carrying value for each purchased asset 
D)  reported as a gain that increases other comprehensive income 
A)  recorded as negative goodwill 
B)  reported as a gain that increases income from continuing operations 
C)  allocated to reduce carrying value for each purchased asset 
D)  reported as a gain that increases other comprehensive income

Question 13

Lunar Products purchased a computer for $13,000 on July 1, 2018. The company intends to depreciate it over 4 years using the double-declining balance method. Residual value is $4,000. What is depreciation for 2019?

Accepted Answer

A)  $2,250 
B)  $3,250 
C)  $3,375 
D)  $4,875 
A)  $2,250 
B)  $3,250 
C)  $3,375 
D)  $4,875

Question 14

Following U.S. GAAP, acquired in-process research and development costs for projects that are not yet commercially viable should be capitalized as an indefinite-life intangible asset until the project is completed.

Accepted Answer

A) True 
 B)False

Question 15

A high fixed asset turnover ratio indicates a company is generating a large amount of revenue for each dollar invested in fixed assets.

Accepted Answer

A) True 
 B)False

Question 16

Companies derecognize tangible fixed assets from their accounts when they abandon the assets.

Accepted Answer

A) True 
 B)False

Question 17

Finite-life intangible assets are reported on the balance sheet at their ________.

Accepted Answer

A)  net realizable value 
B)  replacement cost 
C)  acquisition cost 
D)  carrying value 
A)  net realizable value 
B)  replacement cost 
C)  acquisition cost 
D)  carrying value

Question 18

U.S. GAAP requires that firms expense costs during a research phase but allows firms to capitalize development-phase costs under certain conditions.

Accepted Answer

A) True 
 B)False

Question 19

IFRS requires companies to reconcile the carrying value of property, plant and equipment at the beginning of the period with the carrying value at the end of the period.

Accepted Answer

A) True 
 B)False

Question 20

The costs required to return property (from which a natural resource is extracted) to its original condition after the removal of the natural resource is not included in the cost of the natural resource in the books of the company.

Accepted Answer

A) True 
 B)False

Exam 11: Long-Term Operating Assets: Acquisition, Cost Allocation

Identify and briefly describe the four factors involved in determining the dollar amount of a firm's periodic charge to depreciation?

Under what circumstances does derecognition of an asset occur?

Briefly explain the half-year convention for recognizing depreciation.

Only finite-life intangible assets are subject to amortization.

Scrap value reduces the depreciable base of an asset.

Property, plant, and equipment include both tangible and intangible fixed assets.

Fixed asset turnover ratio is computed as total sales revenue divided by ________.

Following U.S. GAAP, companies commonly report the carrying value of property, plant, and equipment in total or by major class of long-term assets on the balance sheet.

Assets that qualify for interest cost capitalization include ________.

Gabraile Company acquired Itsy Inc. for a price that was substantially less than the fair value of the identifiable net assets acquired. The difference between the fair value of the net identifiable assets and the bargain purchase price is ________.

Lunar Products purchased a computer for $13,000 on July 1, 2018. The company intends to depreciate it over 4 years using the double-declining balance method. Residual value is $4,000. What is depreciation for 2019?

Following U.S. GAAP, acquired in-process research and development costs for projects that are not yet commercially viable should be capitalized as an indefinite-life intangible asset until the project is completed.

A high fixed asset turnover ratio indicates a company is generating a large amount of revenue for each dollar invested in fixed assets.

Companies derecognize tangible fixed assets from their accounts when they abandon the assets.

Finite-life intangible assets are reported on the balance sheet at their ________.

U.S. GAAP requires that firms expense costs during a research phase but allows firms to capitalize development-phase costs under certain conditions.

IFRS requires companies to reconcile the carrying value of property, plant and equipment at the beginning of the period with the carrying value at the end of the period.

The costs required to return property (from which a natural resource is extracted) to its original condition after the removal of the natural resource is not included in the cost of the natural resource in the books of the company.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

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