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Question 1. 1. (TCO 1) The acquisition costs of property, plant, and equipment do not include (Points : 6)
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. 2. (TCO 2) Under International Financial Reporting Standards, development expenditures are (Points : 6)
expensed in the period incurred.
expensed in the period they are determined to be unsuccessful.
capitalized if certain criteria are met.
None of the above
Question 3. 3. (TCO 2) An exclusive 20-year right to manufacture a product or use a process is a (Points : 6)
Question 4. 4. (TCO 3) Interest is eligible to be capitalized as part of an asset’s cost, rather than being expensed immediately (Points : 6)
on routinely manufactured goods as well as self-constructed assets.
on self-constructed assets from the date an entity formally adopts a plan to build a discrete project.
whether or not there is specific borrowing for the construction.
whether or not there are actual interest costs incurred.
Question 5. 5. (TCO 3) When selling property, plant, and equipment for cash (Points : 6)
the seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.
the seller recognizes losses but not gains.
the seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.
None of the above
Question 6. 6. (TCO 3) The legal life of a patent is (Points : 6)
the life of the author plus 50 years.
the life of the author plus 20 years.
the life of the author plus 70 years.
Question 7. 7. (TCO 4) Our company purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000. Using the straight-line method, depreciation for 2011 would be (Points : 6)
Question 8. 8. (TCO 4) The overriding principle for all depreciation methods is that the method must be (Points : 6)
conservative and economic.
consistent and conservative.
significant and material.
systematic and rational.
Question 9. 9. (TCO 5) Which category completely excludes equity securities? (Points : 6)
Question 10. 10. (TCO 5) Trading securities, by definition, are properly classified in the balance sheet as (Points : 6)
Question 11. 11. (TCO 5) Investments in securities available-for-sale are reported at (Points : 6)
discounted present value.
the lower of cost or market.
fair value on the reporting date.
Question 1. 1. (TCO 5) When the equity method of accounting for investments is used by the investor, the investment account is increased when (Points : 6)
a cash dividend is received from the investee.
the investor records additional depreciation related to the investment.
the investee reports a net loss for the year.
the investee reports a net income for the year.
Question 2. 2. (TCO 6) Which of the following is not a liability? (Points : 6)
A line of credit
Capital expansion fund
Estimated income taxes
Sales tax collected from customers
Question 3. 3. (TCO 6) Which of the following is not a current liability? (Points : 6)
A note payable due in two years
Accrued interest payable
Sales tax payable
Question 4. 4. (TCO 6) Which of the following is a contingency that should be accrued? (Points : 6)
The company offers a two-year warranty and the expenses can be reasonably estimated.
The company is being sued and a loss is reasonably possible and reasonably estimable.
The company deducts life insurance premiums from employees’ paychecks.
It is probable that the company will receive $100,000 in settlement of a lawsuit.
Question 5. 5. (TCO 6) When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be (Points : 6)
reported in the income statement and disclosed.
offset against shareholders’ equity.
disclosed but not recognized in the income statement.
neither recognized in the income statement nor disclosed.
Question 6. 6. (TCO 7) The interest rate that is printed on the bond certificate is not referred to as the (Points : 6)
Question 7. 7. (TCO 7) Our company issued callable bonds on January 1, 2011. The price of the bonds was $207,020, and the face value of the bonds is $200.000. Interest is paid semiannually. The cash interest payment at 6/30/2011 was $7,000. Interest expense for the 6 months ended June 30, 2011, was $6,211. Which is the annual stated interest rate on the bonds? (Points : 6)
None of the above
Question 8. 8. (TCO 7) When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, the cash paid is (Points : 6)
less than the effective interest.
more than the effective interest.
equal to the effective interest.
more than if the bonds had been sold at a premium.
Question 9. 9. (TCO 8) For the lessee to account for a lease as a capital lease, the lease must meet (Points : 6)
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 10. 10. (TCO 8) On December 31, 2013, our company signed a lease for some equipment having an eight-year useful life. The lease payments are made annually, beginning at the signing date. Title does not transfer to us, so the equipment will be returned to the lessor on December 31, 2020. There is no bargain purchase option. In this situation, our company (Points : 6)
is the lessee in a capital lease.
is the lessee in a sales-type lease.
is the lessor in a capital lease.
is the lessor in a sales-type lease.
Question 11. 11. (TCO 8) Recording a sales-type lease is similar to recording (Points : 6)
a purchase on account.
an exchange of assets.
a sale of merchandise on account.
a sale of a fixed asset.
Question 1. 1. (TCO 8) What are the two additional criteria for the lessor in a capital lease? How many of these criteria does the lease need to meet to be a capital lease? What happens if these criteria are not met? (Points : 30)
Question 2. 2. (TCO 6) Please identify and define the three classifications of loss contingencies. What is the appropriate accounting treatment for each category? (Points : 30)
Question 3. 3. (TCO 4) What are some examples of accelerated cost allocation methods? What is the rationale for using an accelerated method? (Points : 28)
Question 4. 4. (TCO 7) On January 1, Year 1, Acorn Financial Corp. issued 850 convertible bonds. Each $1,000 face value bond is convertible into five shares of common stock. The bonds have a 10-year term to maturity and pay interest semiannually. Acorn’s common stock has a par value of $20.00 per share. The bonds have a stated interest rate of 4% and pay interest semiannually. The convertible bonds were sold for $875,500. Bond issue costs of $50,000 will be subtracted from the bond sale proceeds to be received by Acorn. The bonds were sold to yield a market interest rate of 3%. Acorn will use the effective interest method to amortize the bond discount and/or premium. Round all amounts to the nearest dollar. (Points : 30)