1. A gain is recognized on the disposal of plant assets when:

A) The sales price is greater than the residual value but less than the book value.

B) The sales price is less than both the book value and the residual value.

C) The sales price is greater than the book value and greater than the residual value.

D) The sales price is greater than the book value and less than the residual value.

2. Expenditures for research and development intended to lead to new products of commercial value:

Answer

A) Should be recorded as intangible assets and amortized during the years in which benefits are expected.

B) Should be charged to expense when incurred.

C) Should be capitalized only if patents are expected to be granted.

D) Should be classified as deferred charges.

3. The legal life of most patents is:

A) 5 years.

B) 20 years.

C) 40 years.

D) 50 years.

4. Silverado Company purchased equipment having an invoice price of $21,100. The terms of sale were 4/10, n/30, and Silverado paid within the discount period. In addition, Silverado paid a $155 delivery charge, $225 installation charge, and $947 sales tax. The amount recorded as the cost of this equipment is:

A) $21,583.

B) $20,636

C) $22,427

D) $21,480

5. Land and a warehouse were acquired for $890,000. What amounts should be recorded in the accounting records for land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse?

A) $400,000 for land; $490,000 for warehouse.

B) $400,000 for land; $700,000 for warehouse.

C) $323,960 for land; $566,040 for warehouse.

D) $240,000 for land; $700,000 for warehouse.

6. On March 2, 2009, Farlow Industries purchased a fleet of automobiles at a cost of $660,000. The cars are to be depreciated by the straight-line method over six years with no salvage value. Farlow uses the half-year convention to compute depreciation for fractional periods. The book value of the fleet of automobiles at December 31, 2010, will be:

A) $495,000.

B) $440,000.

C) $385,000

D) $400,000

7. Which of the following would not be amortized?:

A) Oil well

B) Copyright

C) Franchise fee

D) Patent

8. Del Rey Imports sold a depreciable plant asset for cash of $25,000. The accumulated depreciation amounted to $60,000, and a loss of $5,000 was recognized on the sale. Under these circumstances, the original cost of the asset must have been:

A) $55,000

B) $65,000

C) $80,000

D) $90,000

9. Total stockholders' equity of Concord Company is $3,000,000. The fair market value of Concord's net identifiable assets (assets less liabilities) is $4,000,000. Wheeler Corporation makes an offer to purchase Concord's entire business for $4,800,000. In this situation:

A) Concord Company should report goodwill of $800,000 in its balance sheet.

B) Concord Company should report goodwill of $1,800,000 in its balance sheet.

C) Wheeler Corporation is willing to pay $1,800,000 for goodwill generated by Concord, and Wheeler will report this goodwill in its balance sheet if the purchase is finalized.

D) Wheeler Corporation is willing to pay $800,000 for goodwill generated by Concord, and Wheeler will report this goodwill in its balance sheet if the purchase is finalized.

10. Armstrong Company recently acquired a new computer system. Which of the following costs associated with the computer should not be debited to the Equipment account?

A. Insurance coverage purchased by United to cover the computer during shipment from the manufacturer

B. Wages paid to system programmers hired to prepare the new computer for use

C. Replacement of several circuit boards damaged during installation

D. Installation of new electrical power supplies required for the computer

11. The gain or loss on the disposal of a depreciable asset reported in financial statements often differs from that reported for income tax purposes. The principal reason for the difference is:

A. The cost of the asset is different for financial reporting and income tax purposes

B. The sales price of the asset is different for financial reporting and income tax purposes

C. Different depreciation methods have been used in financial statements and in income tax returns

D. The company has made an error-the same amount of gain or loss should appear in the income tax return as in the financial statements.

12. If an asset is determined to be impaired, it should be:

A. depreciated only using the straight-line method

B. written up to its historical cost

C. reclassified as a liability

D. written down to its fair market value

13. Responsibility for selection of the depreciation methods used in financial reporting rests with:

A. The FASB

B. The CPA firm that audits the company's financial statements

C. Company management

D. The IRS

14. An accelerated depreciation method:

A. Results in reporting higher earnings every year

B. Depreciates an asset over a shorter life than does the straight-line method

C. Recognizes more depreciation expense in the early years of an asset's useful life and less in the later years

D. Is required for assets that become technologically obsolete before they physically wear out

On April 30, 2009, Charter Products purchased machinery for $88,000. The useful life of this machinery is estimated at 8 years, with an $8,000 residual value.

15. Refer to the above data. Assume that in its financial statements, Charter Products uses straight-line depreciation and the half-year convention. Depreciation expense recognized on this machinery in 2009 and 2010 will be:

A. $7,500 in 2009 and $11,000 in 2010.

B. $6,000 in 2009 and $12,000 in 2010

C. $5,000 in 2009 and $10,000 in 2010

D. $5,500 in 2009 and $11,000 in 2010