Question 1. 1. Kelly Corporation owns machinery with a book value of $380,000. It is estimated that the machinery will generate future cash flows of $350,000. The machinery has a fair value of $280,000. Kelly should recognize a loss on impairment of (Points : 4) $ -0-. $ 30,000. $100,000. $ 70,000. Question 2. 2. Quick Press Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should (Points : 4) recognize an extraordinary loss for the period. include a credit to the equipment accumulated depreciation account. include a credit to the equipment account. not be made if the equipment is still being used. Question 3. 3. Big Spoon Ice Cream Company purchased equipment for $12,000. Sales tax on the purchase was $950. Other costs incurred were freight charges of $200, installation costs of $250, and trial run costs of $100. In addition, repairs of $300 were made during the first few weeks of the equipment's operation. What is the cost of the equipment to be recorded by Big Spoon? (Points : 4) $13,500. $13,400. $12,950. $12,000. Question 4. 4. Baltimore Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and $6,000,000 on December 31. Baltimore Company borrowed $2,400,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable. What is the weighted-average interest rate used for interest capitalization purposes? (Points : 4) 10.5% 10.65% 10.85% 11% Question 5. 5. Which of the following is not a major characteristic of a plant asset? (Points : 4) Possesses physical substance Acquired for resale Acquired for use Yields services over a number of years Question 6. 6. Worthington Company acquired machinery on January 1, 2009 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2014, Worthington estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by Worthington? (Points : 4) As a prior period adjustment As the cumulative effect of a change in accounting principle in 2014 By setting future annual depreciation equal to one-sixth of the book value on January 1, 2014 By continuing to depreciate the machinery over the original fifteen year life Question 7. 7. On January 1, 2008, Egret Company purchased equipment at a cost of $130,000. The equipment was estimated to have a salvage value of $4,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2015? (Points : 4) $3,500 $3,611 $16,250 $15,750 Question 8. 8. If a company uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period will (Points : 4) be constant. vary with purchases. decrease at a constant rate. vary with production. Question 9. 9. Ellsworth Company purchased a new machine on May 1, 2006 for $352,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $16,000. The company has recorded monthly depreciation using the straight-line method. On March 1, 2015, the machine was sold for $48,000. What should be the loss recognized from the sale of the machine? (Points : 4) $0. $7,200. $16,000. $23,200. Question 10. 10. Assets that qualify for interest cost capitalization include (Points : 4) assets under construction for a company's own use. assets that are ready for their intended use in the earnings of the company. assets that are not currently being used because of excess capacity. All of these assets qualify for interest cost capitalization. Question 11. 11. Eagle Company purchased a depreciable asset for $800,000. The estimated salvage value is $40,000, and the estimated useful life is 10,000 hours. Eagle used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset? (Points : 4) $76,000 $83,600 $88,000 $760,000 12. Which of the following are true when using of the double-declining-balance method of depreciation? (Points : 4) It results in a decreasing charge to depreciation expense each year. The salvage value is not deducted in computing the depreciation base. The book value should not be reduced below salvage value. All of these answers are correct. 13. Fences and parking lots are reported on the balance sheet as (Points : 4) current assets. land. land improvements. property and equipment. Question 14. 14. Brookestone Company traded machinery with a book value of $720,000 and a fair value of $1,200,000. It received in exchange from Hoyte Company a machine with a fair value of $1,080,000 and cash of $120,000. Hoyte's machine has a book value of $1,140,000. What amount of gain should Brookestone recognize on the exchange (assuming lack of commercial substance)? (Points : 4) $ -0- $48,000 $120,000 $480,000 Question 15. 15. Mangrove Company purchased a new machine on July 1, 2014, at a cost of $95,000. The company estimated that the machine has a salvage value of $15,000. The machine is expected to be used for 50,000 working hours during its 8 year life. What is the depreciation expense for this machine under the straight-line method for 2014? (Points : 4) $11,875. $10,000. $ 5,938. $ 5,000.  |
