III: Subsequent Costs

All these should be explained in detailed.

1. An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be a. expensed.

b. debited to accumulated depreciation.

c. capitalized in the machinery account.

d. allocated between accumulated depreciation and the machinery account. 2. Which of the following is a capital expenditure?

a. Payment of an account payable

b. Retirement of bonds payable

c. Payment of income taxes

d. Payment to overhaul an asset that extends its estimated useful life. 3. Which of the following is not a capital expenditure?

a. Repairs that maintain an asset in operating condition

b. An addition or extension

c. A betterment

d. A replacement

4. A change in accounting estimate shall be:

a. Applied retrospectively.

b. Applied in previous and current periods only.

c. Applied in current and future periods.

d. Applied in current period only.

5. In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made?

a. Expenditure made to increase the efficiency or effectiveness of an existing asset b. Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated

c. Expenditure made to maintain an existing asset so that it can function in the manner intended d. Expenditure made to add new asset services

6. An expenditure made in connection with a machine being used by a company should be a. expensed immediately if it merely extends the useful life but does not improve the quality. b. expensed immediately if it merely improves the quality but does not extend the useful life. c. capitalized if it maintains the machine in normal operating condition. d. capitalized if it increases the quantity of units produced by the machine

IV: Impairment Loss and Impairment Reversal (Recovery)

1. Lynch Printing Company determines that a printing press used in its operations has suffered an impairment in value because of technological changes. An entry to record the impairment should a. recognize extra depreciation expense for the period.

b. include a credit to the equipment accumulated depreciation account. c. include a credit to the equipment account.

d. not be made if the equipment is still being used.

2. All of the following are true with regard to impairment testing of long-lived assets except: a. If impairment indicators are present, the company must conduct an impairment test. b. The impairment test compares the asset's carrying value with the lower of its fair value less cost to sell and its value-in-use.

c. If the recoverable amount is lower than the carrying value, an impairment loss will be reported on the period's income statement.

d. If either the fair value less cost to sell or the value-in-use is higher than the carrying amount, no impairment loss will be recorded.

3. All of the following are true of the recoverable amount used in the impairment test of a long-lived asset except:

a. An asset's recoverable amount is the lower of its value-in-use and its fair value less cost to sell.

b. An asset's recoverable amount is the higher of its fair value less cost to sell and its value-in-use. c. The recoverable amount is calculated as the asset's value in use less costs to sell. d. If an asset's recoverable amount is higher than the carrying amount, no impairment loss will be reported on the period's income statement.