1. (TCO 1/3) The capitalized cost of equipment excludes: (Points: 5) Maintenance. Sales tax. Shipping. Installation 2. (TCO 2) Goodwill is: (Points: 5) Amortized over the greater of its estimated life or forty years. Only recorded by the seller of a business. The excess of the fair value of a business over the fair value of all net identifiable assets. Applicable only for income tax purposes. 3. (TCO 2) An exclusive 20-year right to manufacture a product or use a process is a: (Points: 5) Patent. Copyright. Trademark. Franchise. 4. (TCO 4) The factors that need to be determined to compute depreciation are an asset's: (Points: 5) Cost, residual value, and physical life. Cost, replacement value, and service life. Fair value, residual value, and economic life. Cost, residual value, and service life. 5. (TCO 4) The overriding principle for all depreciation methods is that the method must be: (Points: 5) Conservative and economic. Systematic and rational. Consistent and conservative. Significant and material 6. (TCO 4) A major expenditure increased a truck's life beyond the original estimate of life. GAAP permits the expenditure to be debited to: (Points: 5) Repairs. Accumulated depreciation. Major repairs. Leasehold improvements. 7. (TCO 4) In testing for recoverability of an operational asset, an impairment loss is required if the: (Points: 5) Asset's book value exceeds the undiscounted sum of expected future cash flows. Undiscounted sum of its expected future cash flows exceeds the asset's book value. Present value of expected future cash flows exceeds its book value. The government has enacted new safety requirements under OSHA. 8. (TCO 5)Securities that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as: (Points: 5) Securities available for sale. Consolidating securities. Held-to-maturity securities. Trading securities. 9. (TCO 5) If Dizbert Company concluded that an investment originally classified as available for sale would now more appropriately be classified as held to maturity, Dizbert would: (Points: 5) not reclassify the investment, as original classifications are irrevocable. reclassify the investment as held to maturity and immediately recognize in net income any unrealized gain or loss on the reclassification date. reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as the investment's amortized cost basis for future amortization. need to restate earnings, as the original classification was in error. 10. (TCO 5) For trading securities, unrealized holding gains and losses are included in earnings: (Points: 5) Only at the end of the fiscal year. On each reporting date. Only when they exceed 10% of the underlying investment. Based on a vote of the board of directors. 11. (TCO 6) The most common type of liability is: (Points: 5) One that comes into existence due to a loss contingency. One that must be estimated. One that comes into existence due to a gain contingency. One to be paid in cash and for which the amount and timing are known. 12. (TCO 6) Classifying liabilities as either current or long-term helps creditors assess: (Points: 5) Profitability. The relative risk of a firm's liabilities. The degree of a firm's liabilities. The amount of a firm's liabilities. 13. (TCO 6) M Corp. has an employee benefit plan for compensated absences that gives employees 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2009, M's unadjusted balance of liability for compensated absences was $30,000. M estimated that there were 200 vacation days available at December 31, 2009. M's employees earn an average of $150 per day. In its December 31, 2009, balance sheet, what amount of liability for compensated absences is M required to report? (Points: 5) $ 0. $ 30,000. $225,000. $450,000. 14. (TCO 7) The method used to pay interest depends on whether the bonds are: (Points: 5) Registered or coupon. Mortgaged or unmortgaged. Indentured or debentured. Callable or redeemable. 15. (TCO 7) An amortization schedule for bonds issued at a premium: (Points: 5) Summarizes the amortization of the premium, a contra-asset account with a credit balance. Is reported in the balance sheet. Is a schedule that reflects the changes in the debt over its term to maturity. Is reported on the income statement. 16. (TCO 7) To evaluate the risk and quality of an individual bond issue, savvy investors rely heavily on: (Points: 5) Bond ratings provided by financial investment services such as Moody's. Newspaper articles. Bond interest payments. The company's audit report. 17. (TCO 8) Which of the following statements characterizes a leveraged lease? (Points: 5) The lessor borrows part of the acquisition price of the leased asset from a third party lender. The lessor treats the lease as an operating lease. The lessee makes lease payments to the lessor's lender. The lessor's interest rate is always higher because the lease is leveraged. 18. (TCO 8) The appropriate asset value reported in the balance sheet by the lessee for an operating lease is: (Points: 5) Present value of the minimum lease payments. Sum of the minimum lease payments. Fair value of the asset at the inception of the lease. Zero, unless a prepayment or accrual is involved. 19. (TCO 8) Which of the following statements characterizes an operating lease? (Points: 5) The lessee records depreciation and interest. The lessor records depreciation and lease revenue. The lessor transfers title at the end of the lease term. The lessee records a leased asset. 20. (TCO 8) Like other assets, the cost of a leasehold improvement is allocated as depreciation expense over its useful life to the lessee, which will be: (Points: 5) The shorter of the physical life of the asset or the lease term. The physical life of the asset. The lease term. A time period determined by management. 1. (TCO 2) PeopleSoft recorded capitalized software amortization, included in Cost of license fees in the accompanying consolidated statements of operations, of $36.8 million in 2003, $14.4 million in 2002 and $6.5 million in 2001. PeopleSoft accounts for the development cost of software intended for sale in accordance with Statement of Financial Accounting Standards No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, (SFAS 86). SFAS 86 requires product development costs to be charged to expense as incurred until technological feasibility is attained. Technological feasibility is attained when the Company s software has completed system testing and has been determined viable for its intended use. The time between the attainment of technological feasibility and completion of software development has been short with immaterial amounts of development costs incurred during this period. Accordingly, the Company did not capitalize material amounts of development costs in 2003 or 2002, other than product development costs acquired through business combinations or purchased from third parties. The Company capitalizes software acquired through technology purchases and business combinations if the related software under development has reached technological feasibility or if there are alternative future uses for the software. Describe how software companies like PeopleSoft treat software development costs differently from the typical GAAP treatment of research and development costs in other industries. Why is this the case? 2.Briefly explain how a change in depreciation method is accounted for? 3. Jaycom Enterprises has invested its excess cash in the stock of several different companies and desires to maximize income over the short-run. Jaycom is unsure about the appropriate investment policy and thus reporting practice to follow. What classification procedure and subsequent classification could Jaycom follow in order to meet its objective? How will Jaycom justify its choice to their auditors? 4. Identify and define the three classifications prescribed by SFAS No. 5 to identify the range of possibilities for the likelihood of a confirming event for contingent liabilities. Describe the accounting action to be taken for each term. 5. In its 2009 annual report to shareholders, Bare Sturns Group Inc. disclosed the following: On October 28, 2009, the Company issued $475,000,000 aggregate principal amount of 9-1/4% Senior Notes Due 2014 ("Senior Notes") and $618,670,000 aggregate principal amount at maturity of 10-1/4% Senior Discount Notes Due 2014 ("Senior Discount Notes" and collectively the "Notes") in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act. Gross proceeds from the offering amounted to $850,000,000. The discount on the Senior Discount Notes is being accreted under the effective interest method. Explain the last sentence of the disclosure to clarify what accounting was necessary and why? 6. What is a bargain purchase option and when do the parties to a lease know if it exists