02 Jan Amortization Expense

Week 1 quiz

1. Question :

(TCO 1) The acquisition costs of property, plant, and equipment do not include

the ordinary and necessary costs to bring the asset to its desired condition and location for use.

the net invoice price.

legal fees, delivery charges, installation, and any applicable sales tax.

maintenance costs during the first 30 days of use.

Question 2. Question :

(TCO 1) Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $8,000,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be which of the following?

Building

Land

Fixtures

a.

$ 4,500,000

$ 3,000,000

$ 2,500,000

b.

$ 4,500,000

$ 3,000,000

$ 500,000

c.

$ 3,600,000

$ 2,400,000

$ 2,000,000

d.

None of the above

Option a

Option b

Option c

Option d

Question 3. Question :

(TCO 3) The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at

fair value of the asset(s) given up.

the book value of the asset given plus any cash or other monetary consideration received.

fair value or book value, whichever is smaller.

the book value of the asset given.

Question 4. Question :

(TCO 1) Interest is eligible to be capitalized as part of an asset’s cost, rather than being expensed immediately, when

the interest is incurred during the construction period of the asset.

the asset is a discrete construction project for sale or lease.

the asset is self-constructed, rather than acquired.

All of the above

Question 5. Question :

(TCO 3) Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively. Assuming that the exchange has commercial substance, Horton would record land-new at and record a gain/(loss) of

Land Gain\(Loss)

a. $105,000. $0

b. $105,000. $10,000

c. $95,000 $0

d. $95,000 $10,000

Option a

Option b

Option c

Option d

Quiz 2

1. Question :

(TCO 2) The exclusive right to benefit from a creative work, such as a film, is a

patent.

copyright.

trademark.

franchise.

Question 2. Question :

(TCO 2) Our company purchased all of the outstanding stock of another company, paying $2,700,000 cash. Our company assumed all of the liabilities of the other company. Book values and fair values of acquired assets and liabilities were as follows.

Book Value

Fair Value

Current assets, net

$ 420,000

$ 450,000

Property, plant and equipment, net

$ 1,600,000

$ 2,250,000

Liabilities

$ 500,000

$ 600,000

Our company would record goodwill of

$1,180,000.

$600,000.

$880,000.

$100,000.

Question 3. Question :

(TCO 2) Research and development (R & D) costs

generally pertain to activities that occur prior to the start of production.

may be expensed or capitalized, at the option of the reporting entity.

must be capitalized and amortized.

None of the above

Question 4. Question :

(TCO 2) Under International Financial Reporting Standards, research expenditures are

expensed in the period incurred.

expensed in the period they are determined to be unsuccessful.

capitalized if certain criteria are met.

expensed if unsuccessful, capitalized if successful.

Question 5. Question :

(TCO 2) Goodwill is

IN amortized over the greater of its estimated life, or 40 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.

None of the above

Quiz 3

Question 1. Question :

(TCO 4) In the first year of an asset’s life, which of the following methods has the largest depreciation?

Straight-line

Double declining balance

Sum-of-the-years’ digits

Composite or group

Question 2. Question :

(TCO 4) Amortization refers to the cost allocation for

a patent.

a building.

land.

IN a silver mine.

Question 3. Question :

(TCO 4) Depreciation, depletion, and amortization

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

all generally utilize the same methods of cost allocation.

are all handled the same in arriving at taxable income.

All of the above

Question 4. Question :

(TCO 4) Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a 5-year life and a residual value of $6,000. Using the straight-line method, depreciation for 2011 would be

$13,200.

$14,400.

$72,000.

IN None of the above

Question 5. Question :

(TCO 4) A change from the straight-line method to the sum-of-years’ digits method of depreciation is handled as

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

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

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

None of the above

Quiz 5

1. Question :

(TCO 6) Which of the following is not a current liability?

Wages payable

A note payable due in 3 months

Accrued sales taxes

Prepaid insurance

Question 2. Question :

(TCO 6) Each of the following but one represents collections for third parties. Which one of the following is not a collection for a third party?

Sales tax payable

Customer deposits

Employee insurance deductions

Social Security taxes deductions

Question 3. Question :

(TCO 6) Which of the following is the best definition of a current liability?

An obligation payable within 1 year

An obligation payable within 1 year of the balance sheet date

An obligation payable within 1 year or within the normal operating cycle, whichever is longer

An obligation expected to be satisfied with current assets or by the creation of other current liabilities

Question 4. Question :

(TCO 6) A company should accrue a loss contingency only if the likelihood that a liability has been incurred is

more likely than not and the amount of the loss is known.

at least reasonably possible and the amount of the loss is known.

at least reasonably possible and the amount of the loss can be reasonably estimated.

probable and the amount of the loss can be reasonably estimated.

Question 5. Question :

(TCO 6) In the current year, our company reported warranty expense of $190,000 and the warranty liability account increased by $20,000. Which were warranty expenditures during the year?

$190,000

$170,000

$210,000

$0

Quiz 7

1. Question :

(TCO 8) For the lessee to account for a lease as a capital lease, the lease must meet

all four of the criteria specified by GAAP regarding accounting for leases.

any one of the six criteria specified by GAAP regarding accounting for leases.

any two of the criteria specified by GAAP regarding accounting for leases.

any one of the four criteria specified by GAAP regarding accounting for leases.

Question 2. Question :

(TCO 8) GAAP requires that some lease agreements be accounted for as purchases. The theoretical justification for this treatment is that a lease of this type

complies with the concept of form over substance.

reflects the relationship of cause and effect.

satisfies the concept of historical cost.

conveys most of the risks and benefits of property ownership.

Question 3. Question :

(TCO 8) One of the four criteria for a capital lease specifies that the lease term be equal to or greater than

75% of the expected economic life of the leased property.

90% of the expected economic life of the leased property.

80% of the expected economic life of the leased property.

50% of the expected economic life of the leased property.

Question 4. Question :

(TCO 8) On February 1, 2011, our company became the lessee of equipment under a five-year, noncancelable lease. The estimated economic life of the equipment is eight years. The fair value of the equipment was $600,000. The lease does not meet the definition of a capital lease in terms of a bargain purchase option, transfer of title, or the lease term. However, we must classify this as a capital lease if the present value of the minimum lease payments is at least

$600,000.

$540,000.

$450,000.

$405,000.

Question 5. Question :

(TCO 8) Which of the following would a lessee not record in connection with a lease?

Lease Revenue

Amortization Expense

IN Interest Revenue

Lease Expense