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Lesson 6 - Intermediate Accounting 1 A04B

1.In France, financial reporting must conform to :

a. a specific format of tax measurement rules.

b. French GAAP.

c. standards from the International Accounting Standards Board.

d. U.S. GAAP.

2.The Lee Co. Purchased a new piece of machinery early in January of the current fiscal year for $35,000. The company spent $1,000 for freight on the equipment and $3,000 to have the machine to be $3,000 and the useful life to be 10 years . Using the straight-line method of depreciation, the expense for the current fiscal year would be:

a. $3,100

b. $3,200

c. $3,400

d. $3,600

3.The Daniel Company sold a machine. The machine had accumulated depreciation of $25,000 and a salvage value of $3,000 . If the machine sold for $8,000 and a gain of $2,000 is recognized on the sale, the original cost of the machine was

a. $27,000

b. $31,000

c. $33,000

d. $35,000

4.The clean water company sold equipment that originally cost $50,000 for $12,000. The asset had accumulated depreciation of $30,000 at the end of the previous fiscal year. Depreciation expense to the date of the sale for the current fiscal year is $4,000. Which of the following line items related to this sale would appear in the income statement for Clean Water Company in the current fiscal year?

a.Extraordinary gain of $8,000

b. Extraordinary loss of $8,000

c. Ordinary gain of $4,000

d. Ordinary loss of $4,000

5.Brunson Corporation acquired a new machine on January 2, Year 1, at a cost of $63,000. The machine had an expected life of 4 years and a salvage value of $3,000. If Brunson uses the double-declining balance method of depreciation, the depreciation expense recorded in a Year 2 is :

a. 11,813

b.15 000

c. 15,750

d. 31,500

6.The Windmill Company acquired a long-lived asset 10 years ago at a cost of $800,000. Three years later the asset sustained an impairment in value. At the time of the impairment , the fair value of the asset was $400,000 and the carrying (book) value was $600,000. Which of the following entries would be made to record the impairment

a.DR Extraordinary Loss/ Impairment 200,000

CR Retained Earnings 200,000

b.DR Loss on Equipment Impairment 200,000

CR Accumulated Depreciation 200,000

c.DR Retained Earnings 200,000

CR Accumulated Depreciation 200,000

d.DR retained Earnings 200,000

CR Extraordinary Loss/Impairment 200,000

7.The Get Rich Drilling Company purchased an oil well lease for $8,000,000 at the beginning of year 7. During the year 7, it drilled 10 wells at a cost of $9,000,000 each. Three of the wells were economically feasible wells and the remaining were dry holes. If Get Rich uses the uses the full-cost approach to determine the asset cost, the capitalized cost is:

a. $8,000,000

b.$27,000,000

c.$68,600,000

d.$98,000,000

8.The Get Rich Drilling Company purchased an oil well lease for $8,000,000 at the beginning of year 7. During the year 7, it drilled 10 wells at a cost of $9,000,000 each. Three of the wells were economically feasible wells and the remaining were dry holes. If Get Rich uses the successful-efforts approach to determine the asset cost, the capitalized cost is:

a. $9,000,000

b.$27,000,000

c.$35,000,000

d. $98,000,000

9.The FASB requires that virtually all costs incurred for research and development of an internally generated patent be:

a.amortized for not more than 40 years

b.Capitalized

c.Expensed

d. ignored

10.Clermont Company started construction of a new office building on January 1,2000, and moved into the finished building on July 1, 2002. Of the building's $2,500,000 total cost , $2,000,000 was incurred by 12/31/2000 in even increments throughout the year. Clermont's weighted average borrowing rate was 12% throughout 2000, and the actual amount of interest incurred by Clermont during 2000 was $135,000. What amount should Clermont report as capitalized interest at 12/31/2000?

a. $120,000

b.$135,000

c.$150,000

d.$240,000

11.Tim Enterprises purchased a machine for $130,000. The seller paid $450 freight to deliver the machine. Tim used $2,300 of staff mechanics time to install the machine and employee training cost $3,500 . The state charged a 2% sales tax on the invoice price. The capitalized cost of the machine.

a.$130,000

b.$135,800

c.$136,250

d.$138,400

12.The Burrell Company acquired a tract of land for a new restaurant paying $150,000. Burrell removed the old building at a cost of $20,000 and sold scrapped material salvaged from the old building for $5,000. The architect's fees were $25,000 and the title insurance on the land was $1,000. The construction period interest was $8,000 and the contractor received $300,000 for the building. The land should be recorded by Burrell at a cost of:

a.$150,000

b.$165,000

c. $166,000

d.$175,000

13.Refer to the information given in question 11. The new building should be recorded by Burrell at a cost of :

a.$300,000

b.$326,000

c.$333,000

d.$334,000

14.Brunson Corporation acquired a new machine on January 2, Year 1, at a cost of $63,000. The machine had an expected life of 4 years and a salvage value of $3,000. If Brunson uses the sum-of-the-years' digits method of depreciation, the depreciation expense recorded in a Year 3 is:

a. 8,000

b.12,000

c. 16,000

d. 20,000

15.Brunson Corporation acquired a new machine on January 2, Year 1, at a cost of $63,000. The machine had an expected life of 4 years and a salvage value of $3,000. If Brunson uses the straight-line method of depreciation, the depreciation expense recorded in a Year 4 is:

a. 8,000

b.12,000

c. 15,000

d. 20,000

16.A primary concern of auditors and analysts is that numbers on the financial statements be objective. Objectivity means that the numbers are:

a. accurate

b. Qualitative

c. Subjective

d. Verifiable

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

a. discounted present value

b.expected benefit

c. Historical cost

d. replacement cost

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

a.Architectural fees

b.Capitalization of interest

c.Cost of foundation

d.Demolition of existing structure

19.Capitalization of interest for the construction of long-lived assets is limited to interest arising from actual borrowings from:

a.outsiders

b.owners

c.stockholders

d.the board of directors

20.Expenditures included in the cost of a long-lived asset are:

a.capitalized

b.Charged off

c.expensed

d.intangible

Lesson 6 - Intermediate Accounting 1 A04B 1. In France, financial reporting must conform to : a. a specific format of tax measurement rules. b. French GAAP. c. standards from the International Accounting Standards Board. d. U.S. GAAP. 2. The Lee Co. Purchased a new piece of machinery early in January of the current fiscal year for $35,000. The company spent $1,000 for freight on the equipment and $3,000 to have the machine to be $3,000 and the useful life to be 10 years . Using the straightline method of depreciation, the expense for the current fiscal year would be: a. $3,100 b. $3,200 c. $3,400 d. $3,600 3. The Daniel Company sold a machine. The machine had accumulated depreciation of $25,000 and a salvage value of $3,000 . If the machine sold for $8,000 and a gain of $2,000 is recognized on the sale, the original cost of the machine was a. $27,000 b. $31,000 c. $33,000 d. $35,000 4. The clean water company sold equipment that originally cost $50,000 for $12,000. The asset had accumulated depreciation of $30,000 at the end of the previous fiscal year. Depreciation expense to the date of the sale for the current fiscal year is $4,000. Which of the following line items related to this sale would appear in the income statement for Clean Water Company in the current fiscal year? a. Extraordinary gain of $8,000 b. Extraordinary loss of $8,000 c. Ordinary gain of $4,000 d. Ordinary loss of $4,000 5. Brunson Corporation acquired a new machine on January 2, Year 1, at a cost of $63,000. The machine had an expected life of 4 years and a salvage value of $3,000. If Brunson uses the doubledeclining balance method of depreciation, the depreciation expense recorded in a Year 2 is : a. 11,813 b. 15 000 c. 15,750 d. 31,500 6. The Windmill Company acquired a longlived asset 10 years ago at a cost of $800,000. Three years later the asset sustained an impairment in value. At the time of the impairment , the fair value of the asset was $400,000 and the carrying (book) value was $600,000. Which of the following entries would be made to record the impairment a. DR Extraordinary Loss/ Impairment 200,000 CR Retained Earnings 200,000 b. DR Loss on Equipment Impairment 200,000 CR Accumulated Depreciation 200,000 c. DR Retained Earnings 200,000 CR Accumulated Depreciation 200,000 d. DR retained Earnings 200,000 CR Extraordinary Loss/Impairment 200,000 7. The Get Rich Drilling Company purchased an oil well lease for $8,000,000 at the beginning of year 7. During the year 7, it drilled 10 wells at a cost of $9,000,000 each. Three of the wells were economically feasible wells and the remaining were dry holes. If Get Rich uses the uses the fullcost approach to determine the asset cost, the capitalized cost is: a. $8,000,000 b. $27,000,000 c. $68,600,000 d. $98,000,000 8. The Get Rich Drilling Company purchased an oil well lease for $8,000,000 at the beginning of year 7. During the year 7, it drilled 10 wells at a cost of $9,000,000 each. Three of the wells were economically feasible wells and the remaining were dry holes. If Get Rich uses the successfulefforts approach to determine the asset cost, the capitalized cost is: a. $9,000,000 b. $27,000,000 c. $35,000,000 d. $98,000,000 9. The FASB requires that virtually all costs incurred for research and development of an internally generated patent be: a. amortized for not more than 40 years b. Capitalized c. Expensed d. ignored 10. Clermont Company started construction of a new office building on January 1,2000, and moved into the finished building on July 1, 2002. Of the building's $2,500,000 total cost , $2,000,000 was incurred by 12/31/2000 in even increments throughout the year. Clermont's weighted average borrowing rate was 12% throughout 2000, and the actual amount of interest incurred by Clermont during 2000 was $135,000. What amount should Clermont report as capitalized interest at 12/31/2000? a. $120,000 b. $135,000 c. $150,000 d. $240,000 11. Tim Enterprises purchased a machine for $130,000. The seller paid $450 freight to deliver the machine. Tim used $2,300 of staff mechanics time to install the machine and employee training cost $3,500 . The state charged a 2% sales tax on the invoice price. The capitalized cost of the machine. a. $130,000 b. $135,800 c. $136,250 d. $138,400 12. The Burrell Company acquired a tract of land for a new restaurant paying $150,000. Burrell removed the old building at a cost of $20,000 and sold scrapped material salvaged from the old building for $5,000. The architect's fees were $25,000 and the title insurance on the land was $1,000. The construction period interest was $8,000 and the contractor received $300,000 for the building. The land should be recorded by Burrell at a cost of: a. $150,000 b. $165,000 c. $166,000 d. $175,000 13. Refer to the information given in question 11. The new building should be recorded by Burrell at a cost of : a. $300,000 b. $326,000 c. $333,000 d. $334,000 14. Brunson Corporation acquired a new machine on January 2, Year 1, at a cost of $63,000. The machine had an expected life of 4 years and a salvage value of $3,000. If Brunson uses the sumoftheyears' digits method of depreciation, the depreciation expense recorded in a Year 3 is: a. 8,000 b. 12,000 c. 16,000 d. 20,000 15. Brunson Corporation acquired a new machine on January 2, Year 1, at a cost of $63,000. The machine had an expected life of 4 years and a salvage value of $3,000. If Brunson uses the straightline method of depreciation, the depreciation expense recorded in a Year 4 is: a. 8,000 b. 12,000 c. 15,000 d. 20,000 16. A primary concern of auditors and analysts is that numbers on the financial statements be objective. Objectivity means that the numbers are: a. accurate b. Qualitative c. Subjective d. Verifiable 17. The dominant method under GAAP for measuring longlived assets is the _____approach. a. discounted present value b. expected benefit c. Historical cost d. replacement cost 18. Which one of the following items would be charged to the cost of land rather than the cost of the building? a. Architectural fees b. Capitalization of interest c. Cost of foundation d. Demolition of existing structure 19. Capitalization of interest for the construction of long-lived assets is limited to interest arising from actual borrowings from: a. outsiders b. owners c. stockholders d. the board of directors 20. Expenditures included in the cost of a long-lived asset are: a. capitalized b. Charged off c. expensed d. intangible