Bakersfield CollegeACG 2021

Use the following to answer questions:

On June 1, 2015, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2016. Expenditures on the project were as follows ($ in millions):

 

 

July 1, 2015	54
October 1, 2015	22
February 1, 2016	30
April 1, 2016	21
September 1, 2016	20
October 1, 2016	6

 

On July 1, 2015, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2016. The company's only other interest-bearing debt was a long- term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2015 and 2016. The company's fiscal year-end is December 31.

 

1)What is the amount of interest that Crocus should capitalize in 2015, using the specific interest method?

1. 1. $1.90 million.
   2. $1.95 million.
   3. $2.96 million.
   4. None of these answer choices are correct.

 

 

 

 

2. In computing the capitalized interest for 2016, Crocus' average accumulated expenditures are:
   1. $ 46.30 million.
   2. $103.54 million.
   3. $122.30 million.
   4. $124.25 million.

 

 

 

3. What is the amount of interest that Crocus should capitalize in 2016, using the specific interest method (rounded to the nearest thousand dollars)?

a.     $7,248,000 (rounded).

b.     $7,283,000 (rounded).

c.     $8,740,000 (rounded).

d.     None of these answer choices are correct.

 

 

 

Use the following to answer questions:

 

On January 1, 2016, Kendall Inc. began construction of an automated cattle feeder system. The system was finished and ready for use on September 30, 2017. Expenditures on the project were as follows:

 

January 1, 2016	$200,000
September 1, 2016	$300,000
December 31, 2016	$300,000
March 31, 2017	$300,000
September 30, 2017	$200,000

 

Kendall borrowed $750,000 on a construction loan at 12% interest on January 1, 2016. This loan was outstanding throughout the construction period. The company had $4,500,000 in 9% bonds payable outstanding in 2016 and 2017.

 

4. Average accumulated expenditures for 2016 was: a.         $300,000.

b.     $350,000.

c.     $500,000.

d.     $400,000.

 

 

 

 

5. Interest capitalized for 2016 was: a.         $48,000.

b.     $42,000.

c.     $60,000.

d.     $36,000.

 

 

 

6. Average accumulated expenditures for 2017 was: a.     $ 536,000.

b.     $1,236,000.

c.     $1,200,000.

d.     $1,036,000.

 

 

 

7. Interest capitalized for 2017 was: a.         $104,625.

b.     $ 86,805

c.     $ 87,875.

d.     $ 67,500.

 

 

 

 

Use the following to answer questions

 

On January 1, 2016, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2017. Expenditures on the project were as follows:

 

January 1, 2016	$300,000
September 1, 2016	$450,000
December 31, 2016	$450,000
March 31, 2017	$450,000
September 30, 2017	$300,000

 

Dreamworld had $5,000,000 in 12% bonds outstanding through both years.

 

8. Dreamworld's average accumulated expenditures for 2016 was: a.         $300,000.

b.     $450,000.

c.     $525,000.

d.     $600,000.

 

 

 

 

9. Dreamworld's capitalized interest in 2016 was: a.         $72,000.

b.     $63,000.

c.     $54,000.

d.     $36,000.

 

 

 

 

10. The average accumulated expenditures for 2017 by the end of the construction period was: a.         $1,950,000.

b.     $1,554,000.

c.     $1,254,000.

d.     $ 975,000.

 

 

 

 

 

11. What was the final cost of Dreamworld's warehouse? a.         $2,154,480.

b.     $2,143,860.

c.     $1,950,000.

d.     $1,254,000.

 

 

 

 

12. Liddy Corp. began constructing a new warehouse for its operations during the current year. In the year Liddy incurred interest of $30,000 on a working capital loan, and interest on a construction loan for the warehouse of $60,000. Interest computed on the average accumulated expenditures for the warehouse construction was $50,000. What amount of interest should Liddy expense for the year?

a.     $ 30,000.

b.     $ 40,000.

c.     $ 90,000.

d.     $140,000.

 

 

 

 

13. Research and development costs for projects other than software development should be:
    1. Expensed in the period incurred.
    2. Expensed in the period they are determined to be unsuccessful.
    3. Deferred pending determination of success.
    4. Expensed if unsuccessful, capitalized if successful.

 

 

 

 

14. Software development costs are capitalized if they are incurred:
    1. Prior to the point at which technological feasibility has been established.
    2. After commercial production has begun.
    3. After technological feasibility has been established but prior to the product availability date.
    4. None of these answer choices are correct.

 

 

 

 

15. Research and development (R&D) costs:
    1. Generally pertain to activities that occur prior to the start of production.
    2. May be expensed or capitalized, at the option of the reporting entity.
    3. Must be capitalized and amortized.
    4. None of these answer choices are correct.

 

 

 

 

16. Research and development expense for a given period includes:
    1. The full cost of newly acquired equipment that has an alternative future use.
    2. Depreciation on a research and development facility.
    3. Research and development conducted on a contract basis for another entity.
    4. Patent filing and legal costs.

 

 

 

 

17. Amortization of capitalized computer software costs is:
    1. Either the percentage-of-revenue method or the straight-line method at the company's option.
    2. The greater of the percentage-of-revenue method or the straight-line method.
    3. The lesser of the percentage-of-revenue method or the straight-line method.
    4. Based on neither the percentage-of-revenue nor the straight-line method.

 

 

 

 

18. Axcel Software began a new development project in 2015. The project reached technological feasibility on June 30, 2016, and was available for release to customers at the beginning of 2017. Development costs incurred prior to June 30, 2016, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The 2017 revenues from the sale of the new software were $4,000,000, and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2017 amortization of the software development costs would be:

a.     $0.

b.     $ 350,000.

c.     $1,840,000.

d.     $ 560,000.

 

 

 

 

19. Under International Financial Reporting Standards, research expenditures are:
    1. Expensed in the period incurred.
    2. Expensed in the period they are determined to be unsuccessful.
    3. Capitalized if certain criteria are met.
    4. Expensed if unsuccessful, capitalized if successful.

 

 

 

 

20. Under International Financial Reporting Standards, development expenditures are:
    1. Expensed in the period incurred.

1. 2. Expensed in the period they are determined to be unsuccessful.
   3. Capitalized if certain criteria are met.
   4. All of these answer choices are incorrect.

 

 

 

21. Cromartie Ltd. prepares its financial statements according to International Financial Reporting Standards. During 2016 the company incurred $1,245,000 in research expenditures to develop a new product. An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2016 fiscal year. Sale of the product began in 2015. What amount of the above expenditures would Cromartie expense in its 2016 income statement?

a.     $2,001,000.

b.     $ 756,000.

c.     $1,245,000.

d.     $0.

 

 

 

22. In accounting for oil and gas exploration costs, companies:
    1. May not use the full-cost method.
    2. May use the successful efforts method.
    3. May use the slippery slope method.
    4. All of these answer choices are correct.

 

 

 

 

23. During 2016, the Longhorn Oil Company incurred $5,000,000 in exploration costs for each of 20 oil wells drilled in 2016 in west Texas. Of the 20 wells drilled, 14 were dry holes. Longhorn uses the successful efforts method of accounting. Assuming that none of the oil found is depleted in 2016, what oil exploration expense would Longhorn charge for this activity in its 2016 income statement?

a.     $0.

2. $ 30 million.
3. $ 70 million.
4. $100 million.

 

 

 

 

 

 

24. During 2016, Prospect Oil Corporation incurred $4,000,000 in exploration costs for each of 15 oil wells drilled in 2016. Of the 15 wells drilled, 10 were dry holes. Prospect uses the successful efforts method of accounting. Assuming that Prospect depletes 30% of the oil discovered in 2016, what amount of these exploration costs would remain in its 12/31/16 balance sheet?
    1. $ 6 million.
    2. $14 million.
    3. $20 million.
    4. $42 million.