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University of California Los Angeles ESL 32 1)The factors that need to be determined to compute depreciation are an assets: a

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University of California Los Angeles

ESL 32

1)The factors that need to be determined to compute depreciation are an assets:

a.Cost, residual value, and physical life.

b.            Cost, replacement value, and service life.

c.             Fair value, residual value, and economic life.

 d.           Cost, residual value, and service life.

2.            The allocation base for an asset is:

a.            Its service life.

b.            The excess of its cost over residual value.

c.             The difference between its replacement value and cost.

d.            The amount allowable under MACRS

3.            An asset that has an estimated physical life of six years and an estimated service life of four years should be depreciated over:

a.            Four years.

b.            Five years.

c.             Six years.

d.            Any of these choices can be chosen by management.

4.            Depreciation, depletion, and amortization:

a.            All refer to the process of allocating the cost of long-term assets used in the business over future periods.

b.            All generally use the same methods of cost allocation.

c.             Are all handled the same in arriving at taxable income.

d.            All of these answer choices are correct.

5.            Which of the following typically refers to the process of allocating the cost of long-term intangible assets used in the business over future periods?

a.            Depreciation. b.                Amortization.

c.             Depletion.

d.            Impairment.

6.            Which of the following typically would cause the service life of an asset to be less than its physical life?

a.            The company no longer provides the products or services associated with the use of the asset.

b.            Suppliers may develop new technologies that are more efficient.

c.             The expected rate of technological change may shorten service life. d.  All of these answer choices are correct.

7.            The allocation base of an asset refers to which of the following?

a.            The asset’s initial capitalized cost.

b.            The number of years over which the asset’s cost will be allocated. c.       The asset’s initial capitalized cost minus residual value.

d.            The method used to allocate the asset’s cost across years.

8.            The overriding principle for all depreciation methods is that the method must be:

a.            Conservative and economic. b.  Systematic and rational.

c.             Consistent and conservative.

d.            Significant and material.

9.            Depreciation:

a.            Is always considered a period cost.

b.            Could be a product cost or a period cost depending on the use of the asset.

c.             Is usually based on the declining-balance method.

d.            Per books is usually higher than MACRS in the early years of an asset's life.         

 

10.          Assuming an asset is used evenly over a four-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year?

a.            Straight-line.

b.            Units-of-production.

c.             Double-declining balance.

d.            Sum-of-the-year's digits.

11.          In the first year of an asset's life, which of the following methods has the smallest depreciation? a. Straight-line.

b.            Declining balance.

c.             Sum-of-the-years' digits.

d.            Composite or group.

12.          An asset acquired January 1, 2018, for $15,000 with an estimated 10-year life and no residual value is being depreciated in an equipment group asset account that has an average service life of eight years. The asset is sold on December 31, 2019, for $6,000. The entry to record the sale would be:

 

 

a.            Cash      6,000    

Loss on sale of equipment Equipment

b.            Cash Equipment               9,000

 

6,000    

15,000

 

6,000

c.             Cash      6,000    

Accumulated depreciation           3,750    

Loss on sale of equipment Equipment

d.            Cash      5,250

 

6,000    

15,000

Accumulated depreciation

                Equipment          9,000    

15,000

 

 

13.          Using the straight-line method, depreciation for 2018 would be: a.           $13,200.

b.            $14,400.

c.             $72,000.

d.            None of these answer choices are correct.

14.          Using the straight-line method, the book value at December 31, 2018, would be: a.         $57,600.

b.   $51,600. c.   $58,800. d. $52,800.

15.          Using the straight-line method, depreciation for 2019 and the equipment’s book value at December 31, 2019, would be: a. $14,400 and $43,200.

b.     $28,800 and $37,200.

c.   $13,200 and $39,600. d.     $13,200 and $45,600.

16.          Using the double-declining balance method, depreciation for 2018 and the book value at December 31, 2018, would be: a. $26,400 and $45,600.

b.   $28,800 and $43,200. c.     $28,800 and $37,200.

d.     $26,400 and $36,600.

17.          Using the double-declining balance method, depreciation for 2019 would be: a. $28,800.

b.            $18,240. c.           $17,280.

d.            None of these answer choices are correct.

18.          Using the double-declining balance method, the book value at December 31, 2019, would be: a.                $14,400.

b.            $24,960.

c.             $27,360. d.          $25,920.

19.          Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be: a.       $22,000 and $44,000.

b.            $22,000 and $50,000. c.  $24,000 and $48,000.

d.            $24,000 and $42,000.

20.          Using the sum-of-the-years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be: a.       $19,200 and $30,800.

b.            $17,600 and $26,400.

c.             $19,200 and $28,800. d. $17,600 and $32,400.

 

21.          Prego would report depreciation in 2018 of: a.   $36,000.

b.            $43,900.

c.             $18,000.

d.            $21,950.

22.          Prego would report depreciation in 2019 of: a.   $135,230.

b.            $126,000. c.         $108,000.

d.            $105,000.

23.  Using the straight-line method, depreciation for 2018 and book value at December 31, 2018, would be: a.                $10,000 and $30,000.

b.   $11,250 and $28,750. c.   $10,000 and $35,000. d.     $11,250 and $33,750.

24. Using the straight-line method, depreciation for 2019 and book value at December 31, 2019, would be: a. $10,000 and $20,000.

b.   $10,000 and $25,000. c.     $11,250 and $17,500.

d.     $11,250 and $22,500.

25.          Using the double-declining balance method, depreciation for 2018 and book value at December 31, 2018, would be: a. $22,500 and $22,500.

b.            $22,500 and $17,500.

c.             $20,000 and $25,000.

d.            $20,000 and $20,000.

26.          Using the double-declining balance method, depreciation for 2019 and book value at December 31, 2019, would be: a.       $10,000 and $5,000.

b.            $10,000 and $10,000.

c.             $11,250 and $6,250. d.    $11,250 and $11,250.

27.          Using the sum-of-the-years'-digits method, depreciation for 2018 and book value at December 31, 2018, would be: a.       $18,000 and $27,000.

b.            $16,000 and $29,000. c.  $16,000 and $24,000.

d.            $18,000 and $22,000.

28.          Using the sum-of-the years'-digits method, depreciation for 2019 and book value at December 31, 2019, would be a.        $13,500 and $13,500.

b.            $13,500 and $8,500. c.    $12,000 and $17,000. d. $12,000 and $12,000.

 

29.          Depreciation for 2018, using the straight-line method is: a. $13,500.

b.   $15,000. c.     $ 4,500.

d.     $ 5,000.

30.          Depreciation for 2018, using the double-declining balance method, would be: a. $40,000.

b.   $10,000. c.     $36,000.

d.     $ 9,000.

31.          Depreciation for 2019, using the double-declining balance method, would be: a. $32,000.

b.   $34,000. c.   $38,000. d. $40,000.

32.          Depreciation (to the nearest dollar) for 2018, using sum-of-the-years' digits method, would be:

 

a.            $ 9,091.

b.            $24,545.

c.             $27,273. d.          $ 8,182.

33.          Depreciation (to the nearest dollar) for 2019, using sum-of-the-years' digits method, would be: a.                $31,909.

b.            $29,455.

c.             $35,456.

d.            $54,000.

34.          Jennings Advertising Inc. reported the following in its December 31, 2018, balance sheet: Equipment                $500,000

Less: Accumulated depreciation—equipment    $135,000

 

In a disclosure note, Jennings indicates that it uses straight-line depreciation over 10 years and estimates salvage value at 10% of cost. What is the average age of the equipment owned by Jennings?

a.            2.7 years. b.        3 years.

c.             7 years.

d.            7.3 years.

35.          Gulf Consulting Co. reported the following on its December 31, 2018, balance sheet: Equipment (at cost)…..$700,000

 

In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf's equipment averages 3.5 years at December 31, 2018. What is the book value of Gulf's equipment at December 31, 2018?

a.            $490,000.

b.   $441,000. c.   $259,000. d.     $210,000.

36.          Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What would the accumulated depreciation be at the end of year five under the sum-of-the-years' digits method?

a.            $ 4.5 million.

b.            $8.25 million. c. $ 12 million.

d.            None of these answer choices are correct.

37.          When selling property, plant, and equipment for cash:

a.            The seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.

b.            The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.

c.             The seller recognizes losses, but not gains.

d.            None of these answer choices are correct.

 

38.Gains on the cash sales of property, plant, and equipment:

a.            Are the excess of the book value over the cash proceeds.

b.            Are part of cash flows from operations.

c.             Are reported on a net-of-tax basis if material.

d.            Are the excess of the cash proceeds over the book value of the assets sold.

39.          Losses on the cash sales of property, plant, and equipment:

a.            Are the excess of the book value over the cash proceeds.

b.            Are part of cash flows from operations.

c.             Are reported on a net-of-tax basis if material.

d.            Are the excess of the cash proceeds over the book value of the assets sold.      

40. An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on December 31, 2020, for $5,000.

a.            $500 gain.

b.            $3,000 loss.

c.             $1,500 gain.

d.            $500 loss.

41.          Equipment was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Record the gain or loss if the equipment was sold on December 31, 2020, for

$5,000.

 

                a.            Cash      5,000    

                                Accumulated Depreciation          10,500  

                                Equipment                          15,000

                                Gain                       500

                b.            Cash      5,000    

                                Equipment                          4,500

                                Gain                       500

                c.             Cash      5,000    

                                Equipment                          3,500

                                Gain                       1,500

                d.            Cash      5,000    

                                Accumulated Depreciation          7,000    

                                Loss       3,000    

                                Equipment                          15,000

42.          An asset was acquired on August 1, 2018, for $22,000 with an estimated 5-year life and $2,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on April 30, 2020, for $13,000. Partial-year depreciation is calculated based on the number of months the asset is in service.

a.            $3,000 gain. b.   $2,000 loss.

c.             $6,000 gain.

d.            $4,000 loss.

43.          An asset was acquired on October 1, 2018, for $78,000 with an estimated 5-year life and $13,000 residual value. The company uses units-of-production depreciation and expects the asset to produce 20,000 units. Calculate the gain or loss if the asset was sold on March 31, 2021, for $58,000. Actual production was: 2018=500 units; 2019=3,000 units; 2020=3,500 units; 2021=1,000 units.

a.            $11,200 gain.

b.            $19,000 gain. c.  $6,000 gain.

d.            $12,500 gain.

44.          An asset was acquired on September 30, 2018, for $100,000 with an estimated 5-year life and $20,000 residual value. The company uses double-declining-depreciation. Calculate the gain or loss if the asset was sold on December 31, 2019, for $50,000. Partial-year depreciation is to be calculated.

a.            $1,200 gain.

b.            $14,000 gain.

c.             $16,000 loss. d.  $4,000 loss.

45.          The process of allocating the cost of natural resources over their useful life is known as:

a.            Depreciation. b.                Depletion.

c.             Amortization.

d.            Consumption.

46.          An activity-based method is most often used to allocate the cost of natural resources over its useful life because:

a.            This method generally results in the highest amount of assets in the earlier years.

b.            This is the simplest method, and natural resource activity is hard to estimate.

c.             The usefulness of natural resources generally is directly related to the amount of the resources extracted.

d.            This method generally results in the highest amount of assets in the later years.

47.          The cost of natural resources is expensed in the period:

a.            The resource is harvested and becomes ready for sale.

b.            The resource is acquired. c.         The resource is sold.

d.            The resource is paid for.

48.          Natural resources that have been harvested but not yet sold are accounted for as:

a.            Property, plant and equipment.

b.            Cost of goods sold.

c.             Operating expense. d.   Inventory.

49.          Clark Oil and Gas incurred costs of $15.3 million for the rights to extract resources from a natural gas deposit. The company expects to extract 8 million cubic feet of natural gas during a six-year period. Natural gas extracted during years 1 and 2 were 800,000 and 1,600,000 cubic feet, respectively. What was total depletion for year 1 and year 2, assuming the company uses the units-of-production method?

a.            $5.10 million.

b.            $3.06 million.

 

c.             $8.00 million. d. $4.59 million.

.

 

50.          Belotti would record depletion in 2018 of: a. $41,000.

b.   $32,800. c.     $30,750.

d.     $24,600.

51.          Belotti would record depletion in 2019 of: a. $54,667.

b.   $65,600. c.   $52,480. d. $55,760.

52.          On February 12, 2018, Forest Incorporated purchased the right to remove timber from a 10,000-acre tract of land over the next three years, and the company estimates no residual value. The timber is to be sold as lumber for new home construction. The cost of the timber rights was $240,000, with estimated salable timber feet of 750,000. During 2018 and 2019, Forest harvested and sold 600,000 feet of timber. What is the book value of the timber rights at the end of 2019, assuming the company uses the units-of-production method?

a.            $48,000. b.          $80,000.

c.             $160,000.

d.            $192,000.

53.          Foreman Mining purchased land containing a copper deposit for $2,300,000 on January 7, 2018. The company expects to mine 600,000 tons of copper over the next 10 years, and the land is expected to have a residual value of $1,400,000. The company has also purchased mining equipment for $400,000 that will be used only at this site over the 10 years with an estimated residual value of $52,000. By the end of the first year, the company has mined and sold 50,000 tons of copper. What is the cost attributed to copper inventory for 2018, assuming the company uses the units-of-production method?

a.    $109,800.

b.   $124,800. c.   $104,000. d. $75,000.

54.          On April 23, 2018, Trevors Mining entered into an agreement with the state of California to obtain the rights to operate a mineral mine in California for $12 million. Additional costs and purchases included the following:

Preparation of site for excavation            $4,800,000 Mining equipment                    360,000

Construction of various structures on site             240,000

After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $60,000. The structures will be torn down. The mine is expected to produce 1,400,000 tons of ore. After the ore is removed, the land will revert back to the state of California. During 2018, Trevors extracted 210,000 tons of ore from the mine. What total amount would be charged to depletion of the mine and depreciation of the mining equipment and structures for 2018, assuming that Trevors uses the units-of-production method for both depletion and depreciation? (Round your final calculations to the nearest whole thousand dollars.)

a.            $2,601,000.

b.            $2,520,000.

c.             $2,610,000.

d.            $2,565,000.

55.          The legal life of a patent is:

a.            40 years. b.         20 years.

c.             Life of the inventor plus 50 years.

d.            Indefinite.

56.          If an intangible asset has a legal life of eight years but contractually the usefulness is limited to six years, a company will amortize the cost over:

a.            Eight years. b.    Six years.

c.             Seven years.

 

d.            Either six or eight years is allowed.

57.          Intangible assets that have an indefinite useful life:

a.            Are those with no foreseeable limit on the period of time over which the asset is expected to contribute to the cash flows of the entity.

b.            Are those with no legal, contractual, or economic factors that are expected to limit their useful life to a company.

c.             Are those whose acquisition costs is not amortized over their useful life. d.         All of these answer choices are correct.

58.          Short Corporation acquired Hathaway, Inc., for $52,000,000. The fair value of all Hathaway’s identifiable tangible and intangible assets was $48,000,000. Short will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?

a.            $100,000.

b.            $400,000.

c.             $200,000.

d.            $0.

 

59.          Granite Enterprises acquired a patent from Southern Research Corporation on January 1, 2018, for $4 million. The patent will be used for 5 years, even though its legal life is 20 years. Rocky Corporation has made a commitment to purchase the patent from Granite for $200,000 at the end of five years. Compute Granite's patent amortization for 2018, assuming the straight-line method is used.

a.     $380,000.

b.   $400,000. c.   $760,000. d.     $800,000.

 

60.          In January 2018, Vega Corporation purchased a patent at a cost of $200,000. Legal and filing fees of $50,000 were paid to acquire the patent. The company estimated a 10-year useful life for the patent and uses the straight-line amortization method for all intangible assets. In January, 2021, Vega spent $40,000 in legal fees for an unsuccessful defense of the patent and the patent is no longer usable. The amount charged to income (expense and loss) in 2021 related to the patent should be:

a.     $ 40,000.

b.    $ 65,000. c.   $215,000. d.    $ 25,000.

 

61.          On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchase equipment related to production of the new clothing for $140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment only over the patent’s service life and then sell it for an estimated $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2021 related to the patent and equipment should be:

a.     $40,000.

b.   $38,000. c.   $45,000. e.    $31,000.

 

62.          Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The franchise agreement is for a period of six years. Russell uses straight-line to amortize all intangible assets. What would be the reported book value of the franchise two years after the purchase?

a.     $300,000.

b.   $250,000. c.   $200,000. d.     $100,000.

63.          On January 3, 2018, Tracer Incorporated purchased a patent for $450,000 to manufacture a new type of chair. The patent has a remaining legal life of 12 years. Tracer plans to manufacture the chair for eight years and then sell the patent for $50,000. The company amortizes intangible assets using the straight-line method. On December 29, 2020, Tracer decides to sell the patent for $325,000. Assuming the company has a December 31 year end, what is the gain or loss recorded on the sale of the patent?

a.            $12,500 gain.

b.            $25,000 gain.

c.             $58,333 loss. d.  $25,000 loss.

 

64.          On June 2, 2018, Tabitha Co. purchased a franchise for $560,000 by signing a five-year contract. At the end of the five years, the franchise right reverts back to the seller. On September 1, 2020, Tabitha decides to sell the franchise right for $323,000. The company amortizes intangible assets using the straight-line method and records partial-year amortization based on the number of months in service. Assuming the company has a December 31 year end, what is the gain or loss recorded on the sale of the patent?

a.            $15,000 gain.

b.            $13,000 loss.

c.             $237,000 loss.

d.            $99,000 gain.

65.          Accounting for a change in the estimated service life of equipment: a.   Is handled prospectively.

b.            Requires retroactive restatement of prior year's financial statements.

c.             Requires a prior period adjustment.

d.            Is handled currently as a change in accounting principle.

66.          A change in the estimated useful life and residual value of machinery in the current year is handled as:

a.            A retrospective change back to the date of acquisition as though the current estimated life and residual value had been used all along.

b.            A prospective change from the current year through the remainder of its useful life, using the new estimates.

c.             A cumulative adjustment to income in the current year for the difference in depreciation under the new versus old estimates.

d.            All of these answer choices are incorrect.

67.          Tatsuo Corporation purchased farm equipment on January 1, 2016, for $280,000. In 2016 and 2017, Tatsuo depreciated the asset on a straight-line basis with an estimated useful life of five years and a $90,000 residual value. In 2018, due to changes in technology, Tatsuo revised the residual value to $30,000 but still plans to use the equipment for the full five years. What depreciation would Tatsuo record for the year 2018 on this equipment?

a.   $52,000. b.   $58,000. c.     $50,000.

d.     $28,000.

68.          Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017, Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $80,000 residual value. In 2018, Herman has started to change its business strategy and now believes that the equipment will be used for only another two years (five years total) but does not believe the residual value has changed. What depreciation would Herman record for the year 2018 on this equipment?

a.            $150,000. b.        $175,000.

c.             $124,000.

d.            $96,000.

69.          Nanki Corporation purchased equipment on January 1, 2016, for $650,000. In 2016 and 2017, Nanki depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $10,000 residual value. In 2018, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2018 on this equipment?

a.            $108,333.

b.            $106,667. c.         $122,500.

d.            None of these answer choices are correct.

70.          Fellingham Corporation purchased equipment on January 1, 2016, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2018, Fellingham reassessed the equipment's condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2018?

a.            $24,000.

b.            $27,333.

c.             $36,000. d.          $41,000.

 

71.          A change from the straight-line method to the sum-of-years'-digits method of depreciation is handled as:

a.            A retrospective change back to the date of acquisition as though the current estimated life had been used all along.

b.            A cumulative adjustment to income in the current year for the difference in depreciation under the new versus old useful life estimate.

c.             A prospective change from the current year through the remainder of its useful life.

d.            None of these answer choices are correct.

 

72.          Murgatroyd Co. purchased equipment on January 1, 2016, for $500,000, estimating a four-year useful life and no residual value. In 2016 and 2017, Murgatroyd depreciated the asset using the sum-of-years'-digits method. In 2018, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2018 on this equipment?

a.            $ 75,000. b.         $125,000.

c.             $150,000.

d.            None of these answer choices are correct.

73.          Broadway Ltd. purchased equipment on January 1, 2016, for $800,000, estimating a five-year useful life and no residual value. In 2016 and 2017, Broadway depreciated the asset using the straight-line method. In 2018, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2018 on this equipment?

a.            $120,000.

b.            $160,000.

c.             $200,000. d.        $240,000.

74.          On January 1, 2016, Al's Sporting Goods purchased store fixtures at a cost of $180,000. The anticipated service life was 10 years with no residual value. Al's has been using the double-declining balance method, but in 2018 adopted the straight-line method because the company believes it provides a better measure of income. Al's has a December 31

year-end. The journal entry to record depreciation for 2018 is:

a.            Depreciation expense   23,040  

Accumulated depreciation                           23,040

b.            Depreciation expense   14,400  

                Accumulated depreciation                           14,400

c.             Accumulated depreciation           28,800  

Retained earnings                           28,800

d.            No entry                             

75.          A major addition to equipment should have been capitalized in the year 2018 but was incorrectly expensed. Which of the following is (are) true?

a.            Income in 2018 is understated.

b.            Income in future years is overstated.

c.             Assets in 2018 are understated.

d.            All of these answer choices are true.

76.          If a material error is discovered in an accounting period subsequent to the period in which the error is made:

a.            No adjustments are made.

b.            No prior years’ financial statements are restated but corrections are made in future years.

c.             Any previous years’ financial statements are retrospectively restated to reflect the correction.

d.            No prior years’ financial statements are restated but prior effects are corrected in the current balance of retained earnings.

77.          An asset should be written down if there has been an impairment of value that is:

a.            Relevant and objectively determined.

b.            Material and market driven.

c.             Unplanned and sudden. d.          Significant.

78.          Recognition of impairment for property, plant, and equipment is required if book value exceeds:

a.            Fair value.

b.            Present value of expected cash flows. c.               Undiscounted expected cash flows.

d.            Accumulated depreciation.

79.          Which of the following represents an event that indicates an asset’s book value may not be recoverable?

a.            A significant adverse change in how the asset is being used or in its physical condition.

b.            A significant adverse change in legal factors or in the business climate.

c.             A realization that the asset will be disposed of significantly before the end of its estimated useful life. d.                All of these answer choices are correct.

80.          The amount of impairment loss is the excess of book value over:

a.            Amortized cost.

b.            Undiscounted future cash flows. c.          Fair value.

d.            Future revenues. 102.Accounting for impairment losses:

a.            Involves a two-step process for recoverability and measurement.

b.            Applies only to depreciable assets.

 

c.             Applies only to assets with finite lives.

d.            All of these answer choices are correct.

81.          In testing for recoverability of property, plant, and equipment, an impairment loss is required if the: a.                Asset's book value exceeds the undiscounted sum of expected future cash flows.

b.            Undiscounted sum of its expected future cash flows exceeds the asset's book value.

c.             Present value of expected future cash flows exceeds its book value.

d.            All of these answer choices are incorrect.

82.          An impairment loss has the effect of: a. Reducing total assets.

b.            Increasing liabilities.

c.             Reducing total revenues.

d.            None of these answer choices are correct.

83.          At the end of its 2018 fiscal year, a triggering event caused Janero Corporation to perform an impairment test for one of its manufacturing facilities. The following information is available:

Book value          $65 million

Estimated undiscounted future cash flows           60 million

Fair value             50 million

 

The manufacturing facility is:

a.            Impaired because its book value exceeds undiscounted future cash flows.

b.            Not impaired because its book value exceeds undiscounted future cash flows.

c.             Not impaired because it continues to produce revenue.

d.            Impaired because its book value exceeds fair value.

84.          Fryer Inc. owns equipment for which it paid $90 million. At the end of 2018, it had accumulated depreciation on the equipment of $27 million. Due to adverse economic conditions, Fryer's management determined that it should assess whether an impairment loss should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment’s fair value at that point is $40 million. Under these circumstances, Fryer:

a.            Would record no impairment loss on the equipment.

b.            Would record a $3 million impairment loss on the equipment. c.                Would record a $23 million impairment loss on the equipment.

d.            None of these answer choices are correct.

85.          Wilson Inc. owns equipment for which it paid $70 million. At the end of 2018, it had accumulated depreciation on the equipment of $12 million. Due to adverse economic conditions, Wilson's management determined that it should assess whether an impairment loss should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment’s fair value at that point is $50 million. Under these circumstances, Wilson:

a.            Would record no impairment loss on the equipment.

b.            Would record an $8 million impairment loss on the equipment.

c.             Would record a $20 million impairment loss on the equipment.

d.            None of these answer choices are correct.

86.          Alou Corporation reported the following information at year-end:

 

                Book Value         Estimated Cash Flows    Fair Value

Building                $500,000              $380,000              $360,000

Patent  $35,000 $40,000 $38,000

Copyright            $40,000 $38,000 $39,000

Machine              $100,000              $120,000              $85,000

 

Based on the above information, what is the total amount of impairment loss that Alou should record at year end?

 

a.            $141,000. b.        $126,000.

c.             $123,000.

d.            $122,000.

87.          Oak Inc. has the following information regarding its assets:

 

                Book Value         Estimated Cash Flows    Fair Value

 

Equipment          $35,000 $30,000 $28,000

Building                $68,000 $70,000 $65,000

Patent  $30,000 $34,000 $32,000

 

What amount of loss should be recorded due to asset impairments?

 

a.            $10,000.

b.            $9,000.

c.             $8,000.

d.            $7,000.

88.          Jung Inc. owns a patent for which it paid $66 million. At the end of 2018, it had accumulated amortization on the patent of $16 million. Due to adverse economic conditions, Jung's management determined that it should assess whether an impairment loss should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total $43 million, and the patent’s fair value at that point is $35 million. Under these circumstances, Lester:

a.            Would record no impairment loss on the patent.

b.            Would record a $7 million impairment loss on the patent. c.         Would record a $15 million impairment loss on the patent.

d.            Would record a $31 million impairment loss on the patent.

 

89.          In 2017, Antle Inc. had acquired Demski Co. and recorded goodwill of $245 million as a result. The net assets (including goodwill) from Antle's acquisition of Demski Co. had a 2018 year-end book value of $580 million. Antle assessed the fair value of Demski at this date to be $700 million, while the fair value of all of Demski’s identifiable tangible and intangible assets (excluding goodwill) was $550 million. The amount of the impairment loss that Antle would record for goodwill at the end of 2018 is:

a.            $150 million.

b.            $ 95 million. c.    $0.

d.            None of these answer choices are correct.

90.          Which of the following types of subsequent expenditures normally is capitalized?

a.            Additions.

b.            Improvements.

c.             Rearrangements.

d.            All of these answer choices are normally capitalized.

91.          Which of the following types of subsequent expenditures normally is capitalized?

a.            An extension of the useful life of the asset.

b.            An increase in the operating efficiency of the asset.

c.             An increase in the quality of the goods or services produced by the asset.

e.            All of these answer choices are normally capitalized.

92.          A major expenditure increased a truck's life beyond the original estimate of life. GAAP permits the expenditure to be debited to:

a.            Repairs.

b.            Accumulated depreciation.

 

93.          Adding a refrigeration unit to a delivery truck that previously did not have this capability is an example of:

a.            Repairs and maintenance.

b.            Improvement.

c.             Rearrangement. d.          Addition.

94.          The replacement of a major component increased the productive capacity of production equipment from 10 units per hour to 18 units per hour. The expenditure should be debited to:

a.            Repairs expense.

b.            Maintenance expense. c.             Equipment.

d.            Gain from repairs.

95.          The cost of an engine tune-up is an example of which of the following expenditures taking place after acquisition of the asset:

a.            Additions.

b.            Improvements. c.            Maintenance.

d.            Rearrangements.

96.          Ryan Company purchased a building on January 1, 2018, for $250,000. In addition, during 2018 the following costs related

 

to the building have been incurred:

Utilities $12,000

Property tax       4,000

Expansion of the building             53,000

New air conditioning system       28,000

General maintenance    $19,000

 

 

The amount of expenditures to capitalize for the year (not including the initial purchase of the building) is: a.                $35,000.

b.            $85,000. c.           $81,000.

d.            $

97.          Calloway Shoes purchased a delivery truck on September 30, 2018, for $32,000. The estimated useful life of the truck is 10 years with no residual value. After five years, the refrigeration unit will need to be replaced. The $8,000 cost of the unit is included in the cost of the truck. Calloway uses the straight-line depreciation method. Depreciation for 2018 under

U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is:

 

a.            $3,200.  $3,200.

b.            $ 800.    $ 800. c.                $ 800.    $1,000. d.             $3,200.  $4,000.

98.          Robertson Inc. prepares its financial statements according to International Financial Reporting Standards (IFRS). At the end of its 2018 fiscal year, the company chooses to revalue its equipment. The equipment cost $540,000, had accumulated depreciation of $240,000 at the end of the year after recording annual depreciation, and had a fair value of

$330,000. After the revaluation, the accumulated depreciation account will have a balance of: a.               $240,000.

b.            $264,000. c.         $270,000.

d.            None of these answer choices are correct.

99.          Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below is information related to the plant’s assets ($ in millions):

Book value          $190

Undiscounted sum of future estimated cash flows           210

Present value of future cash flows           175

Fair value less cost to sell (determined by appraisal)        180

The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is:

 

a.            $10 million.         $10 million.

b.            $15 million.         $15 million. c.     $0.          $10 million.

d.            There is no impairment under both U.S. GAAP and IFRS.

 

a.            $45 million.         $45 million.

b.            $55 million.         $45 million.

c.             $0.          $30 million. d.    $40 million.         $30 million.

100.        According to International Financial Reporting Standards (IFRS), the revaluation of equipment when fair value exceeds book value, results in:

a.            An increase in net income.

b.            A decrease in net income.

c.             An increase in other comprehensive income.

d.            A decrease in other comprehensive income.

101.        According to International Financial Reporting Standards (IFRS), biological assets are valued at:

a.            Cost less accumulated depreciation. b.  Fair value less estimated costs to sell.

c.             Cost less accumulated depletion.

d.            None of these answer choices are correct.

 

102.        According to International Financial Reporting Standards (IFRS), the impairment loss for property, plant, and equipment is the difference between book value and:

a.            The undiscounted sum of estimated future cash flows.

b.            The present value of future cash flows.

c.             Fair value less costs to sell.

d.            The higher of the present value of estimated future cash flows and the fair value less costs to sell.

103.        According to International Financial Reporting Standards (IFRS), the level of testing for goodwill impairment is the:

a.            Reporting unit.

b.            Subsidiary companies. c.               Cash-generating unit.

d.            None of these answer choices are correct.

104.        The normal treatment of litigation costs to successfully defend an intangible right under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is:

a.            Capitalize; expense.

 

a.            U.S. GAAP           IFRS

 

Capitalize             Expense

 

b.            Capitalize             Capitalize

c.             Expense               Capitalize

d.            Expense               Expense

105.        Canliss Mining uses the retirement method to determine depreciation on its office equipment. During 2016, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages four years and no salvage value is anticipated. In 2018, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2018 depreciation of:

a.            $3,500.

b.            $4,400.

c.             $5,400.

d.            None of these answer choices are correct.

106.        Canliss Mining uses the replacement method to determine depreciation on its office equipment. During 2016, its first year of operations, office equipment was purchased at a cost of $14,000. Useful life of the equipment averages four years and no salvage value is anticipated. In 2018, equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000. Canliss would record 2018 depreciation of:

a.            $3,500.

b.            $4,400.

c.             $5,400.

d. None of these answer choices are correct