Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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In an exchange of assets where the transaction is deemed to lack commercial
substance for all parties:
a. | Gains and losses are not recognized. | b. | Gains are recognized if the fair value of
assets surrendered is less than the fair value of assets received. | c. | Gains are recognized
in all cases where fair values exceed book values. | d. | Losses are recorded whenever fair value of
assets relinquished is less than their book value. |
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2.
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Tiger Development Corp. purchased a 5-acre tract of land for a building site for
$720,000. On the land was a building with an appraised value of $120,000. The company demolished the
old building at a cost of $15,000, but was able to sell scrap from the building for $1,500. The cost
of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes
paid were $3,000, of which $250 covered the period subsequent to the purchase date. The capitalized
cost of the land is:
a. | $604,150. | b. | $737,650. | c. | $739,150. | d. | $739,400. |
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Below are listed data relative to an exchange of nonmonetary assets by Foosball
Corporation: | | Old
Equipment | | | | | book value | | fair value | | cash
paid | | Case A | | 50,000 | | 60,000 | | 15,000 | | Case B | | 40,000 | | 35,000 | | 8,000 | | | | | | | |
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3.
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Which of the following choices would be correct for Foosball in Case
A if the transaction lacked commecial substance?
Record new equipment at & record
a gain/(loss) of:
equipment gain(loss)
a. | $65,000 $ 0 | b. | $75,000 $ 10,000 | c. | $50,000 $ (5,000) | d. | $65,000 $ (5,000) |
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4.
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Which of the following choices would be correct for Foosball in case B if the
transaction was deemed to have commercial substance?
Record new equipment at & record a
gain/(loss) of:
equipment gain (loss)
a. | $48,000 $ 5,000 | b. | $40,000 $ 3,000 | c. | $43,000 $(5,000) | d. | $40,000 $(3,000) |
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5.
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The overriding principles 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. |
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6.
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Recognition of impairment for tangible operational assets is required if book
value exceeds:
a. | Market value. | b. | Present value of expected cash
flows. | c. | Undiscounted expected cash flows. | d. | Accumulated
depreciation. |
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7.
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An activity that would be expensed currently as research and development costs
is the
a. | Adaptation of an existing capability to a particular requirement or customer's
need as a part of continuing commercial activity. | b. | Legal work in connection with patent
applications or litigation, and the sale or licensing of patents. | c. | Engineering
follow-through in an early phase of commercial production. | d. | Testing in search
for or evaluation of product or process alternatives. |
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8.
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Which of the following principles best describes the current method of
accounting for research and development costs?
a. | Immediate recognition as an expense. | b. | Associating cause and
effect. | c. | Systematic and rational allocation. | d. | Income tax
minimization. |
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On January 3, 2004, Friendly Farms Inc. began
construction of an automated cattle feeder system. The system was finished and ready for use on
September 30, 2004. Expenditures on the project were as follows:
| January 3, 2004 | $
800,000 | | March 31, 2004 | 600,000 | | September 30, 3004 | 200,000 | | |
The company
borrowed $750,000 on a construction loan at 12% interest on January 3, 2004. This loan was
outstanding throughout the construction period. The company had $4,500,000 in 9% bonds outstanding in
2004.
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9.
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Average accumulated expenditures for 2004 was:
a. | $1,600,000. | b. | $1,400,000. | c. | $1,300,000. | d. | $1,200,000. |
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10.
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Interest capitalized for 2004 was:
a. | $136,500. | b. | $97,875. | c. | $
90,000. | d. | $67,500. |
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