Question 1

Ashley Company Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd,Inc.'s common stock for $60,000 on January 1,2010.During 2010,Judd declared a dividend of $5 per share and reported net income of $75,000.At the end of 2010 the market value of a share of Judd,Inc.stock has increased to $32 per share.
If Ashley Company accounts for the investment as a minority,passive and classifies the investment as an available-for-sale investment,Ashley will recognize what amount of 2010 income from the investment?

Accepted Answer

A)  $4,000 
B)  $10,000 
C)  $25,000 
D)  $15,000

Question 2

Which of the following is not a classification for a minority,passive investment?

Accepted Answer

A)  trading securities 
B)  equity securities 
C)  available-for-sale securities 
D)  held-to-maturity securities

Question 3

The following problem requires some of the following present value information:
  Bioco sold a patent on a new laser process to Agent Co.The sales agreement which was signed on January 1,2011 requires Agent Co.to pay Bioco $1 million immediately.In addition,Agent is required to pay $600,000 each December 31 for 20 years starting with December 31,2011.Agent and Bioco estimate that 10 percent is an appropriate interest rate for this arrangement.
Required:
a.Compute the present value of the receivable on Bioco's books on January 1,2011 immediately after receiving the $1 million down payment.
b.Compute the present value of the receivable on Biotech's books on December 31,2011.
c.Compute the present value of the receivable on Biotech's books on December 31,2012.

Accepted Answer

The answer of The following problem requires some of the...

Question 4

A key characteristic of asset measurement is best described as:

Accepted Answer

A)  average value based on all assets held by the company 
B)  disposal cost less depreciation 
C)  fair value at the acquisition date 
D)  fair value less depreciation

Question 5

Firms recognize an ______________________________ when the carrying amount of a fixed asset exceeds its fair value and is deemed not recoverable.

Accepted Answer

The answer of Firms recognize an ______________________________ when the carrying...

Question 6

Ashley Company Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd,Inc.'s common stock for $60,000 on January 1,2010.During 2010,Judd declared a dividend of $5 per share and reported net income of $75,000.At the end of 2010 the market value of a share of Judd,Inc.stock has increased to $32 per share.
If Ashley Company accounts for the investment as a minority,active investment and uses the equity method to account for the investment,Ashley will recognize what amount of 2010 income from the investment?

Accepted Answer

A)  $4,000 
B)  $10,000 
C)  $25,000 
D)  $15,000

Question 7

Unrealized holding gains or losses which are recognized in the income statement are from securities classified as

Accepted Answer

A)  trading 
B)  available for sale 
C)  held-to-maturity 
D)  equity

Question 8

U.S.GAAP requires firms to expense immediately all internal expenditures for R&D costs.Alternatively,U.S.GAAP could require firms to capitalize and subsequently amortize all internal expenditures on R&D that have future potential.
Required:
Why have standard setters chosen not to allow the capitalization alternative? How would analysts be better served if U.S.GAAP required capitalization of R&D costs?

Accepted Answer

The answer of U.S.GAAP requires firms to expense immediately all...

Question 9

The need to incur costs to reclaim a natural resource is an example of a(n)

Accepted Answer

A)  exploration cost. 
B)  asset retirement obligation. 
C)  development cost. 
D)  depletion cost.

Question 10

Solo Corp.purchased $500,000 of bonds for $515,000 as an investment.If Solo expects to hold the bonds until they mature the initial investment should be recorded at

Accepted Answer

A)  Investment in Bonds - $500,000 Additional Investment Expense - $15,000 
B)  Investment in Bonds - $515,000 
C)  Investment in Bonds - $500,000 Prepaid Interest Revenue - $15,000 
D)  Accumulated Other Comprehensive Investment - $500,000

Question 11

When a foreign entity has the foreign currency as its functional currency,it uses which exchange rate to translate revenues and expenses in the income statement?

Accepted Answer

A)  the average exchange rate during the period 
B)  the end of the period exchange rate 
C)  the historical exchange rate 
D)  the exchange rate on the date the asset or liability was obtained

Question 12

Managers are typically faced with all of the following primary choices and estimates when allocating acquisition costs of tangible assets and intangible assets to the periods benefited except:

Accepted Answer

A)  choosing an allocation method 
B)  estimating useful life 
C)  estimating salvage value 
D)  establishing a reserve for obsolescence

Question 13

Although the organizational structure and operating policies of a particular foreign unit determine its functional currency,discuss two actions that a management team might take to ensure that the foreign currency is the functional currency.

Accepted Answer

The answer of Although the organizational structure and operating policies...

Question 14

Examine the five following cases and determine if the functional currency of a U.S.parent's foreign unit is the foreign currency or the U.S.Dollar.

Accepted Answer

The answer of Examine the five following cases and determine...

Question 15

Which of the following terms is least consistent with the allocation of costs using a rational and systematic method?

Accepted Answer

A)  depreciation 
B)  amortization 
C)  depletion 
D)  upward revaluation

Question 16

Record Corporation CD Inc.acquires 100% of the outstanding shares of Record Corp.for $1,200,000 and accounts for the transaction using the purchase method.Record Corp's balance sheet at the date of acquisition appears below:
 Based on the information concerning Record Corp.what is the market value of the company's shareholders' equity at the acquisition date?

Accepted Answer

A)  $0 
B)  $908,000 
C)  $1,200,000 
D)  $1,458,000

Question 17

Snowflake Corp. Penguin,Inc.acquires 100% of the outstanding shares of Snowflake Corp.for $2,250,000 and accounts for the transaction using the purchase method.Snowflake's balance sheet at the acquisition date is as follows:
 Based on the information concerning Snowflake Corp.what is the market value of the company's shareholders' equity at the acquisition date?

Accepted Answer

A)  $1,775,000 
B)  $475,000 
C)  $2,250,000 
D)  $0

Question 18

The three types of costs incurred in coal production are acquisition costs (costs to acquire the coal rich lands plus the present value of future cash flows necessary to restore the sites minus the cost of the land),exploration costs (costs of mining),and development costs (pipes,roads,and so on,to extract and transport the coal to customers).
Required:
Should each of these costs be capitalized or expensed? Explain.

Accepted Answer

The answer of The three types of costs incurred in...

Question 19

Under IFRS,when an asset is revalued upwards,subsequent depreciation is based on

Accepted Answer

A)  the asset's fair value. 
B)  the asset's original cost. 
C)  the method used for determining depreciation on the company's tax returns. 
D)  the amount of future cash flows the asset is expected to generate.

Question 20

Using the information below calculate the average total depreciable life of the assets:

Accepted Answer

A)  5.8 years 
B)  10 years 
C)  2.9 years 
D)  5.3 years

Exam 7: Investing Activities