Question 1

To preclude firms from generating artificial gains on exchange transactions booked at fair value,GAAP requires that the transaction

Accepted Answer

A) must possess commercial substance. 
B) have future cash flows that remain substantially the same. 
C) be reviewed and approved by the SEC. 
D) All of these criteria must be met to book an exchange transaction at the fair value of the exchanged assets. 
A) must possess commercial substance. 
B) have future cash flows that remain substantially the same. 
C) be reviewed and approved by the SEC. 
D) All of these criteria must be met to book an exchange transaction at the fair value of the exchanged assets.

Question 2

Although IFRS allows two different models for accounting for long-lived tangible assets,most firms chose to use the cost method.

Accepted Answer

A) True 
 B)False

Question 3

Book value reflects the economic worth of an asset.

Accepted Answer

A) True 
 B)False

Question 4

Which one of the following items would be charged to the cost of land rather than the cost of the building?

Accepted Answer

A) Demolition of an existing structure. 
B) Capitalization of interest. 
C) Architectural fees. 
D) Cost of the foundation. 
A) Demolition of an existing structure. 
B) Capitalization of interest. 
C) Architectural fees. 
D) Cost of the foundation.

Question 5

Bonzo Co.owns a building in Pennsylvania.The historical cost of the building is $1,050,000 and $540,000 of accumulated depreciation has been recorded to date.During 2015,Bonzo incurred the following expenses related to the building:
$\begin{array}{lr}
\text { Repaired a broken water main } & \$ 81,500 \
\text { Major improvement to the HVAC system } & 75,000 \
\text { Added a 6,000 square foot employees' lounge } & 197,500 \
\text { Replaced the carpet in the purchasing department offices } & 21,300 \
\text { Repainted the building } & 25,000
\end{array}$ 
Required:
a.Which of the building related costs incurred by Bonzo Co.should be capitalized in 2015?
b.What is the subsequent carrying amount of the building?

Accepted Answer

@#IMG-DLM& Feedback:GAAP requires a company to cap

Question 6

When an asset retirement obligation is established,the offsetting debit goes to a contra-liability account.

Accepted Answer

A) True 
 B)False

Question 7

In January 2015,Rock Company purchased a copper mine for $8,500,000,with removable ore estimated at 2,400,000 tons.After it has extracted all the ore,Rock will be required by law to restore the land to its original condition at an estimated cost of $500,000.Rock believes it will be able to then sell the property for $200,000.During 2015,Rock incurred $750,000 of development costs to prepare the mine for production,and it removed and sold 80,000 tons of ore.
Required:
a.What amount should Rock capitalize as the cost of the mine?
b.What amount should Rock report as depletion expense in its 2015 income statement?

Accepted Answer

a.To determine the depletion base,we nee

Question 8

Depreciation is the apportionment of the cost of a long-lived tangible asset to the future periods in which it provides benefits.

Accepted Answer

A) True 
 B)False

Question 9

Roadrunner Co.is building a waste landfill in the desert near Phoenix,AZ.Roadrunner estimates that this landfill will be in operation for 4 years,will cost $175,000,000 to build,and will generate $600 million in revenues during its useful life.Federal law requires that Roadrunner decommission and decontaminate the site at the end of its useful life.A team of engineers has studied the decontamination procedure and has estimated that Roadrunner will have to spend $20,000,000 on the decommissioning process when the landfill is shut down four years from now.Roadrunner's credit-adjusted risk-free rate of interest is 10%;the PV factor for 4 periods at 10% equals 0.683013.
Required:
a.In accordance with U.S.GAAP,how should Roadrunner Co.account for the costs associated with the decommissioning process? Prepare the journal entry required and prepare an amortization table for the asset retirement obligation.
b.How are the costs associated with the decommissioning process reflected on the income statement? Explain how this accounting treatment improves the matching process.

Accepted Answer

a.GAAP requires companies to recognize a

Question 10

U.S.GAAP calls for capitalization of an expenditure on a long-lived asset when the capacity of the asset is decreased.

Accepted Answer

A) True 
 B)False

Question 11

Brick Company started construction on a new office building on January 1,2014,and moved into the finished building on July 1,2015.Of the building's $3,000,000 total cost,$2,000,000 was incurred in 2014 evenly throughout the year.The remaining $1,000,000 was paid in installments of $500,000 each on February 1,2015 and June 30,2015.Brick's incremental borrowing rate was 12% throughout the construction period and the total amount of interest incurred by Brick during 2014 and 2015 was $200,000 and $210,000 respectively.
Required:
a.What amount of capitalized interest should Brick report as part of its building account at December 31,2014?
b.What amount of capitalized interest should Brick report as part of its building account at December 31,2015?

Accepted Answer

a.The avoidable interest during 2014 is:

Question 12

A relatively new asset base makes it difficult for financial analysts to use trend analysis.

Accepted Answer

A) True 
 B)False

Question 13

The depreciation rate for the double declining balance method is double the straight-line rate.

Accepted Answer

A) True 
 B)False

Question 14

If the book value of an indefinite-lived intangible asset (e.g.,a brand name)exceeds the fair value,then the asset is considered impaired.

Accepted Answer

A) True 
 B)False

Question 15

IFRS guidelines can trigger an impairment loss that would not be triggered by U.S.GAAP.

Accepted Answer

A) True 
 B)False

Question 16

Under IFRS,research must be expensed but some development expenditures may be capitalized.To capitalize development expenditures,firms must demonstrate several factors that include all of the following except

Accepted Answer

A) technical feasibility. 
B) length of time the intangible asset is expected to provide benefits. 
C) ability to use or sell the asset. 
D) how the intangible asset will generate probable future economic benefits. 
A) technical feasibility. 
B) length of time the intangible asset is expected to provide benefits. 
C) ability to use or sell the asset. 
D) how the intangible asset will generate probable future economic benefits.

Question 17

For tax purposes,taxpayers would prefer not to capitalize interest payments.

Accepted Answer

A) True 
 B)False

Question 18

The dominant method under GAAP for measuring long-lived assets is the

Accepted Answer

A) expected benefit approach. 
B) discounted present value approach. 
C) historical cost approach. 
D) replacement cost approach. 
A) expected benefit approach. 
B) discounted present value approach. 
C) historical cost approach. 
D) replacement cost approach.

Question 19

Historically,GAAP did not require firms to record asset retirement obligations.

Accepted Answer

A) True 
 B)False

Question 20

If a long-lived asset's remaining expected future value falls below its net book value,the asset is considered to be a/an

Accepted Answer

A) extraordinary item. 
B) discontinued operation. 
C) valuable asset. 
D) impaired asset. 
A) extraordinary item. 
B) discontinued operation. 
C) valuable asset. 
D) impaired asset.

To preclude firms from generating artificial gains on exchange transactions booked at fair value,GAAP requires that the transaction

Although IFRS allows two different models for accounting for long-lived tangible assets,most firms chose to use the cost method.

Book value reflects the economic worth of an asset.

Which one of the following items would be charged to the cost of land rather than the cost of the building?

When an asset retirement obligation is established,the offsetting debit goes to a contra-liability account.

Depreciation is the apportionment of the cost of a long-lived tangible asset to the future periods in which it provides benefits.

U.S.GAAP calls for capitalization of an expenditure on a long-lived asset when the capacity of the asset is decreased.

A relatively new asset base makes it difficult for financial analysts to use trend analysis.

The depreciation rate for the double declining balance method is double the straight-line rate.

If the book value of an indefinite-lived intangible asset (e.g.,a brand name)exceeds the fair value,then the asset is considered impaired.

IFRS guidelines can trigger an impairment loss that would not be triggered by U.S.GAAP.

Under IFRS,research must be expensed but some development expenditures may be capitalized.To capitalize development expenditures,firms must demonstrate several factors that include all of the following except

For tax purposes,taxpayers would prefer not to capitalize interest payments.

The dominant method under GAAP for measuring long-lived assets is the

Historically,GAAP did not require firms to record asset retirement obligations.

If a long-lived asset's remaining expected future value falls below its net book value,the asset is considered to be a/an

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

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Exam 10: Long-Lived Assets

To preclude firms from generating artificial gains on exchange transactions booked at fair value,GAAP requires that the transaction

Although IFRS allows two different models for accounting for long-lived tangible assets,most firms chose to use the cost method.

Book value reflects the economic worth of an asset.

Which one of the following items would be charged to the cost of land rather than the cost of the building?

When an asset retirement obligation is established,the offsetting debit goes to a contra-liability account.

Depreciation is the apportionment of the cost of a long-lived tangible asset to the future periods in which it provides benefits.

U.S.GAAP calls for capitalization of an expenditure on a long-lived asset when the capacity of the asset is decreased.

A relatively new asset base makes it difficult for financial analysts to use trend analysis.

The depreciation rate for the double declining balance method is double the straight-line rate.

If the book value of an indefinite-lived intangible asset (e.g.,a brand name)exceeds the fair value,then the asset is considered impaired.

IFRS guidelines can trigger an impairment loss that would not be triggered by U.S.GAAP.

Under IFRS,research must be expensed but some development expenditures may be capitalized.To capitalize development expenditures,firms must demonstrate several factors that include all of the following except

For tax purposes,taxpayers would prefer not to capitalize interest payments.

The dominant method under GAAP for measuring long-lived assets is the

Historically,GAAP did not require firms to record asset retirement obligations.

If a long-lived asset's remaining expected future value falls below its net book value,the asset is considered to be a/an

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters