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Account Exam 3
Quiz Questions
Question | Answer |
---|---|
How are start up costs accounted for? | Expensed in the period incurred |
An exclusive 20-year right to manufacture a product or use a process is called? | Patent |
How are assets acquired in a lump-sum purchase valued? | Based on their relative fair value |
The exclusive right to benefit from a creative work is called? | Copyright |
In a monetary exchange of equipment, if the exchange has commercial substance, how is the new equipment recorded? | At fair value of the old equipment given plus any cash paid |
When may interest be capitalized on projects? | Whether or not there is specific borrowing for construction |
What costs are not included in the acquisition of PPE? | Maintenance costs during the first 30 days of use |
When are software development costs capitalized? | If they are incurred after technological feasibility has been established but prior to the product availability date |
Under current GAAP, is fair value used to measure the components of all nonmonetary exchanges? | False/No |
What does the capitalized cost of land exclude? | Property taxes for the first year owned |
What does research and development expense for a given period include? | Depreciation on a research and development facility |
How should research and development costs (other than software development) be accounted for? | Expensed in the period incurred |
What are donated assets recorded at? | Fair Value |
How is goodwill reported? | Reported as an asset in the balance sheet only when it is purchased in connection with the acquisition control over another company |
In computing capitalized interest, how are average accumulated expenditures determined? | By time-weighting individual expenditures made during the asset construction period |
What are characteristics of asset retirement obligations? | They are liabilities associated with a long-term asset that are measured at fair value in the balance sheet, and increase the balance in the related asset account |
What is interest not capitalized for? | Inventories routinely and repetitively produced in larger quantities |
In a nonmonetary exchange of equipment, if the exchange has commercial substance, when is a gain recognized? | When the fair value of the equipment given exceeds the book value of the equipment given |
What is the basic principle used to value an asset acquired in a nonmonetary exchange? | Fair value of the asset given |
In a normal monetary exchange of assets, is a gain recorded if the book value of the asset is greater than its fair value? | False/No |
What typically refers to the process of allocating the cost of long-term intangible assets used in the business over future periods? | Amortization |
How is a change from straight-line method to double-declining balance method handled? | As a prospective change from the current year through the remainder of its service life |
How is the amount of impairment loss calculated? | Excess of book value over fair value |
What types of subsequent expenditures are normally capitalized? | Additions, improvements and rearrangements |
How is a change in estimated service life and the residual value of machinery in the current year handled? | As a prospective change from the current year through the remainder of its service life, using the new estimates |
Why is an activity-based method usually used to allocate the cost of natural resources over its service life? | Usefulness of natural resources generally is directly related to the amount of resources extracted |
How are natural resources that have been harvested but not yet sold accounted for? | As inventory |
What kind of cost is depreciation? | A product or period cost depending on the use of the asset |
What effect does an impairment loss have? | Reducing total assets |
Where does the gain on cash sales of PPE come from? | The excess of cash proceeds over the book value of the assets sold |
Which method of depreciation will always result in the largest amount of depreciation in the first year, assuming an asset is used evenly over a four year service life. | Double-declining balance method |
Which expenditures following after acquisition is the cost of an engine tune-up an example of? | Maintenance |
What is the process of allocating the cost of natural resources over their service life called? | Depletion |
When is recognition of impairment of PPE required? | When book value exceeds undiscounted expected cash flows |
What are the factors that need to be determined to compute an asset's depreciation? | Cost, residual value and service life |
What is the value today of receiving an amount in the future called? | Present value of a single amount |
If Anna Beth wants to save $10,000 by the time she finishes college and is trying to calculate how much she should invest today, what does she not need? | Future value factor |
Does compound interest include interest earned on interest? | True/Yes |
What is a series of equal periodic payments that start more than one period after the agreement called? | Deferred annuity |
What is the name of the concept that interest causes the value of money received today to be greater than the value of money received in the future? | Time value of money |
Tammy wants to buy a car that costs $10,000 and wishes to know the amount of monthly payments, which will be made at the first of the month, with interest of 12% on the unpaid balance. What should her calculation involve? | Present value of an annuity due |
What is a series of equal periodic payments in which that first payment is made one compounding period after the date of the contract called? | Ordinary Annuity |
How is simple interest calculated? | The interest rate times the initial investment only |
With all things equal, will the future value of an annuity due be more than the future value of an ordinary annuity? | True/Yes |
Is the discount rate the rate at which someone is willing to give up current dollars for future dollars? | True/Yes |
If the rate of compounding is more frequent, will there be more interest earned on previous interest resulting in a higher future value? | True/Yes |
In the present value of an annuity due, is the first payment not discounted? | True/Yes |
Is the value of $1 worth more than $1 one year from now? | True/Yes |
What is a series of equal periodic payments called? | An annuity |
Mattison is trying to decide how much an investment of $10,000 today will grow to be in the future. What will she not need to calculate that amount? | Present value factor |
If it was concluded that an investment originally classified as held-to-maturity would now more appropriately be classified as available for sale, what would happen? | The investment would be reclassified as AFS and immediately recognize in AOCI any unrealized gain or loss on the reclassification date |
How are investments in debt securities AFS reported? | At fair value on reporting date |
Under GAAP, how are all investment securities initially recorded? | At cost |
How are trading securities classified in the balance sheet? | As current assets |
AOCI in the shareholder's equity section reflects changes in the fair value of which type of security? | Available for Sale |
When should a gain be reported in the income statement if a debt security is AFS? | Only when the security is sold |
What investment category does the positive intent and ability to hold apply to? | Held-to-Maturity securities |
Fair value for investment in equity securities applies to what percentage of ownership? | Less than 20% |
What investment security is not reported at fair value in the balance sheet? | Held-to-Maturity |
If the fair value of securities are not determinable and the equity method is not appropriate, how should the securities be reported? | At cost |
How are bonds that are purchased with the intent of selling them in the near future to take advantage of price changes classified? | As trading securities |
How can the fair value of debt securities not regularly traded be most reasonably approximated? | By calculating the discounted present value of the principal and interest payments |
When using the equity method, how should dividends received be recorded? | As a reduction in the investment account |
All investments in debt-securities that don't fit the definition of reporting categories are classified as what? | Available for Sale |
When is the equity method for investments in voting common stock appropriate? | When the investor can significantly influence the investee |
What category of debt-securities is presented on the balance sheet at amortized cost? | Held-to-Maturity |
If an AFS is sold with unrealized gains in AOCI, how does a reclassification adjustment affect OCI? | Reducing OCI for the amount of unrealized holding gains in AOCI |
When are unrealized holding gains and losses included in net income for trading securities? | On each reporting date |
If an investor owns 15% of a company, how would they record dividends? | As investment revenue |
Why are unrealized holding gains and losses on trading securities included in net income? | Because they measure the success or failure of taking advantage of price changes |
In the statement of cash flows, how are inflows and outflows of cash from buying and selling AFS considered? | As investing activities |