Accounting Midterm Exam

Week 4 : Investments – Acct305_032015_Midterm_R1
1. Property, plant, and equipment and intangible assets are (Points : 9)
long-term revenue-producing assets.
created by the normal operation of the business and include accounts receivable.
all assets except cash and cash equivalents.
current and long-term assets used in the production of either goods or services.

2. (TCO 3) Our company 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 the exchange lacks commercial substance, which amount is correct? (Points : 9)
Debit Land-old $90,000
Credit Land-old $90,000
Debit Land-old $95,000
Credit Land-old $95,000

3. (TCO 2) The exclusive right to benefit from a creative work, such as a film, is a (Points : 9)

4. (TCO 4) Assuming an asset is used evenly over a 4-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year? (Points : 9)
Sum-of-the-years’ digits
Double-declining balance

5. (TCO 4) On September 30, 2013, our company purchased a machine for $100,000. The estimated service life is 10 years, with a $10,000 residual value. Our company records partial-year depreciation based on the number of months in service. Depreciation for 2014, using double-declining balance, would be (Points : 9)

6. (TCO 4) A change in the estimated useful life and residual value of machinery in the current year is handled as (Points : 9)
a prospective change from the current year through the remainder of its useful life, using the new estimates.
a retrospective change back to the date of acquisition as though the current estimated life and residual value had been used all along.
a cumulative adjustment to income in the current year for the difference in depreciation under the new versus old estimates.
None of the above

7. (TCO 5) Fair value and appreciation of the investee are not as relevant for investments in which of the following categories? (Points : 9)
Securities reported under the equity method
Held-to-maturity securities
Trading securities
Securities available-for-sale

8. (TCO 5) Consolidated financial statements are prepared when one company has (Points : 9)
accounted for the investment using the equity method.
control over another company.
accounted for the investment as securities available-for-sale.
None of the above

9. (TCO 4) Interest is not capitalized for (Points : 9)
inventories routinely and repetitively produced in large quantities.
assets that are constructed as discrete projects for sale or lease.
assets constructed for a company’s own use.
None of the above

10. (TCO 2) Software development costs are capitalized if they are incurred (Points : 9)
prior to the point at which technological feasibility has been established.
after technological feasibility has been established but prior to the product availability date.
after commercial production has begun.
None of the above

11. (TCO 4) The factors that need to be determined to compute depreciation are an asset’s (Points : 9)
cost, residual value, and service life.
cost, replacement value, and service life.
fair value, residual value, and economic life.
cost, residual value, and physical life.

12. (TCO 5) Which of the following types of securities only includes debt securities? (Points : 9)
Securities available-for-sale
Held-to-maturity securities
Trading securities
Consolidated securities

13. (TCO 1) The capitalized cost of equipment excludes (Points : 9)
sales tax.
insurance for the first year.

14. (TCO 3) The basic principle used to value an asset acquired in a nonmonetary exchange is to value it at (Points : 9)
the book value of the asset given plus any cash or other monetary consideration received.
the fair value of the asset(s) given up.
the fair value or book value, whichever is smaller.
the book value of the asset given.

15. (TCO 2) Research and development (R & D) costs (Points : 9)
generally pertain to activities that occur after 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

16. (TCO 4) The depreciable base for an asset is (Points : 10)
its service life.
the excess of its cost over residual value.
the difference between its replacement value and cost.
the amount allowable under MACRS.

17. (TCO 5) Securities that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as (Points : 10)
trading securities.
securities available-for-sale.
consolidating securities.
held-to-maturity securities.

18. (TCO 5) Accumulated Other Comprehensive Income in the shareholders’ equity section of the balance sheet reflects changes in the fair value of securities for which type of securities? (Points : 10)
Securities available-for-sale
Trading securities
Consolidated securities
Held-to-maturity securities

19. (TCO 5) The equity method of accounting for investments in voting common stock is appropriate when (Points : 10)
the investor has voting control over the investee.
the investor intends to hold the common stock indefinitely.
the investor is assured of a continued supply of a valuable raw material.
the investor can significantly influence the investee

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