Bookvalue

Skip to main contentAccessibility help

Accessibility feedback

Google

Bookvalue

Camera search

All

NewsImagesShoppingVideosMore

Tools

About 41,200,000 results (0.44 seconds)

Are you looking for Book Value

Book Value Defined: Meaning, Formula, and Exampleshttps://www.investopedia.com › Investing ›

Investing Basics

The book value of a company is the net difference between that company's total assets and total
liabilities, where book value reflects the total value of a ...

What Is Book Value? · Understanding Book Value · Book Value per Share

Book Value vs. Market Value: What's the Difference?https://www.investopedia.com › ... › Tools

Book value and market value are two financial metrics used to determine the valuation of a company
and whether the stock trades at a discount or premium.

People also ask

What do you mean by book value?

What is the formula of book value?

Is book value a good indicator?

Where can I find the book value?

Feedback
Book value definition - AccountingToolshttps://www.accountingtools.com › what-is-book-value

Jun 24, 2022 — Book value is an asset's original cost, less any accumulated depreciation and impairment
charges that have been subsequently incurred.

Book value - Wikipediahttps://en.wikipedia.org › wiki › Book_value

In accounting, book value is the value of an asset according to its balance sheet account balance. For
assets, the value is based on the original cost of ...

Asset book value · Net asset value · Corporate book value · Stock pricing book value

Book Value - Definition, Importance, and the Issue of Intangibleshttps://corporatefinanceinstitute.com

› ... › Accounting

Dec 4, 2020 — Book value is a company's equity value as reported in its financial statements. The book
value figure is typically viewed in relation to the ...

What Is Book Value? Definition, How to Calculate & FAQhttps://www.thestreet.com › DICTIONARY › B

Oct 3, 2022 — Book value is an accounting measure of the net value of a company. It's used to calculate
the valuation of a company based on its assets and ...

Book Value Definition | IG Internationalhttps://www.ig.com › ... › Glossary of trading terms

Book value, or net book value, is the term used to describe how much a business or asset is worth
according to its financials. For businesses, it is the ...

book value | Wex | US Law | LII / Legal Information Institutehttps://www.law.cornell.edu › Wex › book
value

Book value (also known as net asset value) is a way of measuring a business's value or worth (valuation)
using its tangible assets by taking the value of a ...

What is Book Value? | Definition | Xero MYhttps://www.xero.com › glossary › book-value

Book value is an accounting term used for both a measure of a business's equity and the value of an
asset as it appears on a balance sheet.

What is book value? | AccountingCoachhttps://www.accountingcoach.com › blog › book-value...

Book value of an asset is: the asset's cost minus the asset's accumulated depreciation. Book value of the
liability Bonds Payable is the combination of the ...

Related searches

Book value

Market value

Fair value

Liquidation value

See more

Feedback

book value formula

book value example

book value accounting

book value of an asset

book value of equity

what is book value in depreciation

book value per share formula

book value of share

10

Next

Image result for Bookvalue

Image result for Bookvalue

Image result for Bookvalue

Image result for Bookvalue

Image result for Bookvalue

More images

Book value

Home

Subjects

Expert solutions

Create

Study sets, textbooks, questions

Log in

Sign up

Social Science

Economics

Finance

acct 2 final

Flashcards

Learn

Test

Match

Term

1 / 183
Liabilities are the probable sacrifices of economic benefits arising from present obligations of a company
to transfer assets or provide future services to other entities as a result of past transactions or events. In
this context, "obligation" means all of the following except:

a. Duties imposed personally.

b. Duties imposed legally.

c. Duties imposed socially.

d. All of the choices are correct.

Click the card to flip 👆

Definition

1 / 183

a. Duties imposed personally.

Click the card to flip 👆

Created by

mdynn616

Terms in this set (183)

Liabilities are the probable sacrifices of economic benefits arising from present obligations of a company
to transfer assets or provide future services to other entities as a result of past transactions or events. In
this context, "obligation" means all of the following except:

a. Duties imposed personally.

b. Duties imposed legally.

c. Duties imposed socially.

d. All of the choices are correct.

a. Duties imposed personally.

Which of the following are characteristics of a liability?

I Are measured, recorded, and reported at their face amount.

II The liability transaction must have already occurred.

III The company has little or no discretion to avoid the future sacrifice of economic benefits.

a. I and III only.

b. II and III only.

c. I, II, and III.

d. I and II only.

b. II and III only.

One of the primary issues in accounting for current liabilities is:

a. Determining if there is a legal requirement for assets to be transferred.

b. Determining the identity of the recipient before the time of settlement.

c. Determining how to report the liability in the financial statements and related notes.

d. All of the choices are primary issues in accounting for current liabilities.

c. Determining how to report the liability in the financial statements and related notes

A company's operating cycle is:

I. Always one year.

II. Cash to inventory to receivables and back to cash.

a. I and II.

b. II only.

c. I only.

d. Neither I nor II.

b. II only.

Financial flexibility:

I. Involves the management of cash.

II. Refers to a company's ability to take advantage of opportunities.

a. I only.

b. I and II.

c. II only.

d. Neither I nor II.

b. I and II.

The materiality constraint is used to justify:

a. Not recording equitable and constructive liabilities since there is no legal requirement to pay.

b. Recording all liabilities as long-term for which the recipient is not identified.

c. Recording current liabilities at their face amount.

d. All of the choices are correct regarding the materiality constraint.

c. Recording current liabilities at their face amount.

The proceeds for a non-interest-bearing note are computed as:

a. Present value + (Face value x interest rate x fraction of year)

b. Present value + (Present value x interest rate x fraction of year)

c. Face value - (Face value x interest rate x fraction of year)

d. Face value + (Face value x interest rate x fraction of year)

c. Face value - (Face value x interest rate x fraction of year)

A company has $300,000 of 20-year bonds payable, which mature in the current year. How are these
liabilities classified on the company's balance sheet?

a. $300,000 is reported as current liability.

b. $150,000 is reported as current liability.

c. $150,000 is reported as long term liability.

d. $300,000 is reported as long term liability.

a. $300,000 is reported as current liability.

A long term debt, which is callable by the creditor within 1 year, is reported as current liability in the
debtor company's financial statements. The exceptions are:

I. The creditor has waived the right to request repayment for more than 1 year from the balance sheet
date.

II. It is probable that the company will resolve the violation within a specified grace period; thus,
preventing it from becoming callable.

III. The company follows a policy of reporting these amounts as long term liability.

a. II and III

b. I and III

c. I and II
d. I, II, and III

c. I and II

What two criteria must be met before a company can classify short-term debt that is expected to be
refinanced as a noncurrent liability?

a. Probable and reasonably estimable.

b. Intent and ability to refinance on a long-term basis.

c. Measurability and reportability.

d. Liquidity and financial flexibility.

b. Intent and ability to refinance on a long-term basis.

A company may demonstrate the ability to refinance currently maturing short-term debt by:

I. Actually refinancing the debt after the date of its balance sheet but before that balance sheet is
issued.

II. Entering into a long-term financing agreement before the balance sheet is issued.

a. I only.

b. II only.

c. Neither I nor II.

d. Both I and II.

d. Both I and II.

Donald Company operates a business in Orange County. While Donald uses a calendar fiscal year,
Orange County's fiscal year begins in October. How should Donald account for its property taxes
assessed by Orange County?

a. Donald will begin accruing a property tax liability in January based on its estimate and report it as a
current asset on its balance sheet.

b. Donald will begin accruing a property tax liability in October based on its estimate and report it as a
current liability on its balance sheet.

c. Donald will begin accruing a property tax liability in January based on its estimate and report it as a
current liability on its balance sheet.

d. Donald will begin accruing a property tax liability in October based on its estimate and report it as a
current asset on its balance sheet.

b. Donald will begin accruing a property tax liability in October based on its estimate and report it as a
current liability on its balance sheet.

Which of the following is not an employer liability relating to payroll?

a. Income taxes payable.

b. Employee withholdings for income taxes.

c. Union dues.

d. Federal Insurance Contribution Act (F.I.C.A.) taxes.

a. Income taxes payable.

Compensated absences include all of the following except:

a. Severance pay.

b. Illness.

c. Vacation.

d. All of the choices are types of compensated absences.

a. Severance pay.

Which of the following are included in the definition of a contingency?

I. Existing condition.

II. Ability to identify the recipient before the time of settlement.

III. Resolved when a future event occurs or fails to occur.

a. I and III only.

b. I, II, and III.

c. I and II only.

d. II and III only.

a. I and III only.

In order for a loss contingency to be reported in a company's financial statements:

I. The identity of the recipient must be known before the time of settlement.

II. It must be reasonably possible that a liability has been incurred or an asset has been impaired.

a. I only.

b. II only.

c. I and II.

d. Neither I nor II.

d. Neither I nor II.

The accountants for SFC Company are trying to decide whether the loss from an unfiled lawsuit must be
accrued in SFC's financial statements. Which of the following are required in order for SFC to accrue the
unfiled lawsuit?

I. The event resulting in the possible lawsuit must have occurred after the financial statements are
issued.

II. It is not probable that a lawsuit will be filed.

III. The amount of the loss can be reasonably estimated.

a. I, II, and III.

b. II only.

c. I and II only.

d. III only.

d. III only.

If a company that uses IFRS determines that a provision must be accrued and estimates a range of
possible outcomes between $60,000 and $100,000 with no one amount being more likely than another,
what amount should be accrued as a provision?

a. $100,000

b. $80,000

c. $60,000

d. Since no amount is more likely than another, no accrual is made until an amount can be determined.

b. $80,000

Which of the following paired statements is incorrect regarding the accounting for warranty costs under
the expense warranty accrual method, sales warranty accrual method, and modified cash basis?

a. Sales warranty accrual method - costs necessary to satisfy the warranty are expensed as incurred

b. Sales warranty accrual method - sales revenue is deferred and recognized on a straight-line basis over
the life of the contract

c. Modified cost basis - a liability is recognized in the period of sale for future performance

d. Expense warranty accrual method - warranty expense recorded when repairs are made

d. Expense warranty accrual method - warranty expense recorded when repairs are made

The balance in Ashwood Company's Accounts Payable account at December 31, 2016, was $1,200,000
before any necessary year-end adjustment relating to the following:
a. Goods were in transit from a vendor to Ashwood on December 31, 2016. The invoice cost was
$85,000, and the goods were shipped FOB shipping point on December 29, 2016. The goods were
received on January 2, 2017.

b. Goods shipped FOB shipping point on December 20, 2016, from a vendor to Ashwood were lost in
transit. The invoice cost was $40,000. On January 5, 2017, Ashwood filed a $40,000 claim against the
common carrier.

c. Goods shipped FOB destination on December 22, 2016, from a vendor to Ashwood were received on
January 6, 2017. The invoice cost was $20,000.

What amount should Ashwood report as accounts payable on its December 31, 2016, balance sheet?

a. $1,260,000

b. $1,325,000

c. $1,345,000

d. $1,285,000

b. $1,325,000

On September 1, 2016, a company borrowed cash and signed a 1-year, interest-bearing note on which
both the principal and interest are payable on September 1, 2017. How will the note payable and the
related interest be classified in the December 31, 2016, balance sheet?

a.

Note Payable Accrued Interest

Current liability Noncurrent liability

b.

Note Payable Accrued Interest

Noncurrent liability No entry

c.

Note Payable Accrued Interest

Noncurrent liability Current liability

d.

Note Payable Accrued Interest

Current liability Current liability

d.

Note Payable Accrued Interest

Current liability Current liability

When a company receives a deposit from a customer to protect itself against nonpayment for future
services, the deposit should be classified by the company as:

a. a liability

b. revenue

c. part of the allowance for doubtful accounts

d. a deferred credit deducted from accounts receivable

a. a liability

Bronson Apparel Inc. operates a retail store and must determine the proper December 31, 2016, year-
end accrual for the following expenses:

a. The store lease calls for fixed rent of $1,000 per month, payable at the beginning of the month, and
additional rent equal to 6% of net sales over $200,000 per calendar year, payable on January 31 of the
following year. Net sales for 2016 are $800,000.

b. Bronson has personal property subject to a city property tax. The city's fiscal year runs from July 1 to
June 30, and the tax is payable on June 30. Bronson estimates that its personal property tax will amount
to $6,000 for the city's fiscal year ending June 30, 2017.

In its December 31, 2016, balance sheet, Bronson should report accrued expenses of:

a. $39,000

b. $54,000

c. $42,000

d. $51,000

a. $39,000

Morgan Company determined that (1) it has a material obligation relating to employees' rights to
receive compensation for future absences attributable to employees' services already rendered, (2) the
obligation relates to rights that vest, and (3) payment of the compensation is probable. The amount of
Morgan's obligation as of December 31, 2016, is reasonably estimated for the following employee
benefits:

Vacation pay $100,000

Holiday pay 25,000

What total amount should Morgan report as its liability for compensated absences on its December 31,
2016, balance sheet?

a. $125,000

b. $100,000
c. $25,000

d. $0

a. $125,000

All of Rolf Co.'s employees are entitled to two weeks of paid vacation for each full year in Rolf's employ.
Unused vacation time can be accumulated and carried forward to succeeding years and will be
compensated at the salary in effect when the vacation is taken. Mary Beal started her employment with
Rolf on January 1, 2016. As of December 31, 2016, when Beal's salary was $500 per week, Beal had used
none of her vacation time. As of December 2016, Rolf expects to give its employees 10% raises in July
2017.

How much should Rolf report as a liability at December 31, 2016, for Beal's accumulated vacation time?

a. $1,100

b. $1,000

c. $0

d. $500

b. $1,000

Which of the following is classified as an accrued payroll liability?

a.

Federal Income

Tax Withheld Employee's Share

of F.I.C.A. Taxes

No Yes

b.

Federal Income

Tax Withheld Employee's Share

of F.I.C.A. Taxes

No No

c.

Federal Income

Tax Withheld Employee's Share

of F.I.C.A. Taxes
Yes No

d.

Federal Income

Tax Withheld Employee's Share

of F.I.C.A. Taxes

Yes Yes

d.

Federal Income

Tax Withheld Employee's Share

of F.I.C.A. Taxes

Yes Yes

Gain contingencies are usually recognized in the income statement when:

a. occurrence is probable and the amount can be reasonably estimated

b. the amount can be reasonably estimated

c. realized

d. occurrence is reasonably possible and the amount can be reasonably estimated

c. realized

How should a loss contingency that is reasonably possible and for which the amount can be reasonably
estimated be reported?

a.

Accrued Disclosed

Yes No

b.

Accrued Disclosed

No No

c.

Accrued Disclosed

Yes Yes

d.
Accrued Disclosed

No Yes

d.

Accrued Disclosed

No Yes

During 2016, Lawton Company introduced a new line of machines that carry a 3-year assurance type
warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at
2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and
actual warranty expenditures for the first 3-year period were as follows:

Sales Actual Warranty Expenditures

2016 $ 200,000 $ 3,000

2017 500,000 15,000

2018 700,000 45,000

$1,400,000 $63,000

What amount should Lawton report as a liability at December 31, 2018?

a. $0

b. $84,000

c. $21,000

d. $105,000

d. $105,000

Which of the following characteristics are necessary for a company to include an asset in the category of
property, plant, and equipment? The asset:

I. Has an expected life of more than 5 years

II. Is held for use in operations

III. Has physical substance

a. II and III only

b. I and III only.

c. I, II, and III

d. I and II only

a. II and III only

The book value of an asset is best described by:

a. Market value - accumulated depreciation.

b. Market value + accumulated depreciation.

c. Cost + accumulated depreciation.

d. Cost - accumulated depreciation.

d. Cost - accumulated depreciation.

The fair value of an asset:

I. Is equal to the acquisition cost on the acquisition date.

II. Due to market fluctuations and depreciation expense, the fair (or market) value is greater than the
book value throughout the asset's life.

a. II only.

b. I only.

c. I and II.

d. Neither I nor II.

b. I only

Chris Co. purchased a piece of equipment and incurred the following costs. Which of these costs is
properly capitalized and recorded as part of the cost of the equipment?

I. Freight charges to transport the equipment to the factory.

II. Assembly of the equipment at the factory.

III. Testing costs to ensure the equipment was properly installed.

IV. The manufacturer allowed a 3% discount for early payment, and Chris Co. paid in cash at delivery.

a. I, II, III, and IV

b. I, II, and IV only

c. I and IV only

d. I and II only

a. I, II, III, and IV

Chris Co. purchased land adjacent to its factory. Chris Co. plans to hold this land and sell it at some
future date, and hopes to earn a profit from holding the land. How should Chris Co. classify this land on
its balance sheet and why?
a. As property, plant, and equipment because if the land is sold at a profit the profit will be reported as
part of net income.

b. As an investment because it is not being used in the normal course of business.

c. As property, plant, and equipment because it provides the company with potential productive
capacity.

d. As an investment because the company cannot be assured that the land will eventually be sold at a
profit.

b. As an investment because it is not being used in the normal course of business.

When a company exchanges its own common stock for an asset, the acquisition cost of the asset is:

I. The par value of the common stock issued

II. The book value of the asset acquired

a. Neither I nor II.

b. Either I or II, whichever is more clearly evident and representationally faithful.

c. I only.

d. II only.

a. Neither I nor II.

Which of the following statements is not correct regarding accounting for property, plant, and
equipment under IFRS?

a. IFRS allow a company to subsequently value its property, plant, and equipment up to fair value if fair
value can be reliably measured.

b. If the fair value of the asset increases and then subsequently decreases, the decrease is always
recognized as an expense.

c. Revaluation surplus is accumulated in shareholders' equity.

d. If the property, plant, and equipment is increased to fair value, the increase is recognized in other
comprehensive income.

b. If the fair value of the asset increases and then subsequently decreases, the decrease is always
recognized as an expense.

When nonmonetary assets are exchanged, a company records the cost of the nonmonetary asset
acquired at:

a. The fair value of the nonmonetary asset surrendered plus cash received.

b. The fair value of the nonmonetary asset surrendered minus cash paid.

c. The fair value of the nonmonetary asset surrendered plus cash paid.
d. The book value of the asset received minus cash paid.

c. The fair value of the nonmonetary asset surrendered plus cash paid.

Which of the following methods of allocating fixed overhead costs during self-construction of an asset is
supported by the idea that the overhead would have been incurred whether or not the construction
takes place?

a. Include only incremental overhead in the cost of the self-constructed asset.

b. Allocate a portion of fixed overhead to the self-constructed asset.

c. Allocate the fixed overhead that could have been avoided to the self-constructed asset with all other
fixed overhead being expensed as incurred.

d. Allocate no fixed or incremental overhead to the self-constructed asset.

a. Include only incremental overhead in the cost of the self-constructed asset.

Under which of the following conditions may a company capitalize the interest incurred?

I. An asset that is ready for its intended use.

II. An asset being constructed as a discrete project for lease to another company.

a. I only.

b. II only.

c. I and II.

d. Neither I nor II.

b. II only.

The amount of interest a company may capitalize when it constructs an asset is:

I. The amount of the interest cost that could have been avoided if the construction had not occurred

II. The amount of interest computed by applying an interest rate to the weighted average accumulated
expenditures for the qualifying asset during the capitalization period

a. Neither I nor II.

b. I and II.

c. I only.

d. II only.

b. I and II.

A company borrows some money, which it uses to acquire a parcel of land on which it plans to construct
a building. Before construction of the building begins, a period of time passes while the company
obtains the necessary plans and permissions. May the company capitalize interest during this period? If
so, should it capitalize the interest to the Land or the Building account?

a. No capitalization is permitted during this period because construction has not started.

b. Interest may be capitalized, and it should be capitalized to the Land account.

c. Interest may be capitalized, and it should be capitalized to both the Land and the Building accounts in
relative proportions.

d. Interest may be capitalized, and it should be capitalized to the Building account.

d. Interest may be capitalized, and it should be capitalized to the Building account.

Which of the following are permitted under both IFRS and U.S. GAAP?

I. Capitalization of the total amount of interest related to specific construction loans.

II. Offsetting of interest revenue from the temporary investment of funds borrowed specifically for
construction.

a. I only.

b. Neither I nor II.

c. II only.

d. I and II.

b. Neither I nor II.

What method does a company use in accounting for improvement and replacement costs when the
company knows the book value of the asset being replaced?

a. Expenditure method.

b. Depreciation method.

c. Substitution method.

d. Nonreciprocal method.

c. Substitution method.

he Hickory Company made a lump-sum purchase of 3 pieces of machinery for $130,000 from an
unaffiliated company. At the time of acquisition, Hickory paid $5,000 to determine the appraised value
of the machinery. The appraisal disclosed the following values:

Machine A $70,000

Machine B $42,000

Machine C $28,000

What cost should be assigned to machines A, B, and C, respectively?

ABC

$45,000 $45,000 $45,000

ABC

$65,000 $39,000 $26,000

ABC

$70,000 $42,000 $28,000

ABC

$67,500 $40,500 $27,000

ABC

$67,500 $40,500 $27,000 last one

A donated plant asset should be recorded at an amount equal to its:

book value on books of donor

historical cost or fair value, whichever is more clearly determinable

fair value

historical cost

fair value

Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of
$5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%.

a The present value of an ordinary annuity of $1 at 15% for 5 periods is 3.35.

b The future amount of an ordinary annuity of $1 at 15% for 5 periods is 6.74.

c The present value of $1 at 15% for 5 periods is 0.5.

How much should Electro record as the cost of the machine?

$16,750

$33,700

$12,500

$25,000

$16,750

When a company purchases land with a building on it and immediately tears down the building so that
the land can be used for the construction of a plant, the costs incurred to tear down the building should
be:

Added to the cost of the land

Added to the cost of the plant

Amortized over the estimated time period between the tearing down of the building and the completion
of the plant

Expensed as incurred

Added to the cost of the land

Lyle Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay
$20,000 at the time of purchase and $20,000 at the end of each of the next 5 years. The plant assets
should be valued at:

present value of a $20,000 ordinary annuity for 5 years

$120,000 minus imputed interest

$120,000 plus imputed interest

$120,000

$120,000 minus imputed interest

Ashton Company exchanged a nonmonetary asset with a cost of $30,000 and accumulated depreciation
of $16,000 for another nonmonetary asset worth $12,000. Ashton also received $1,400 cash. In the
entry to record this exchange, Ashton should record a:

a. $2,000 gain

b. $600 loss

c. $2,000 loss

d. $600 gain
b. $600 loss

The following expenditures were among those incurred by Jensen Corporation during the year ended
December 31, 2016:

Replacement of tiles on portion of roof

that had been leaking $4,000

Overhaul of machinery that is

expected to extend its useful life for

another 2 years 6,000

How much should be charged to repairs and maintenance in 2016?

$0

$10,000

$4,000

$6,000

$4,000

When a company replaces an old asphalt roof on its plant with a new fiberglass insulated roof, which of
the following types of expenditure occurs?

Improvement

Rearrangement

Addition

Ordinary repair

Improvement

On January 2, 2016, Yuki Yogurt Company decided to replace its obsolete refrigeration system with a
more efficient one. The old system had a book value of $9,000 and a fair value of $1,000. Yuki's new
refrigeration system has a fair value of $190,000, for which Yuki paid $189,000 after permitting the
contractor to keep the old refrigeration equipment. How much should Yuki capitalize as the cost of the
new refrigeration system?

$198,000

$197,000

$189,000
$190,000

$190,000

Four factors are used to compute a company's periodic charge for depreciation. Which of the following
terms and definitions is incorrect?

a. Residual value - the present value of the amount the company expects to obtain from disposing of the
asset at some future date.

b. Asset cost - all the costs necessary to prepare the asset for use in order to obtain the benefits from
the asset.

c. Service life - may be measured in units of time or units of activity or output.

d. Method of cost allocation - the method of cost allocation should be "systematic and rational."

a. Residual value - the present value of the amount the company expects to obtain from disposing of the
asset at some future date.

Which of the following statements is correct?

a. Requiring companies to use the same depreciation method is an example of form over economic
substance.

b. When companies use the same depreciation method, differences in financial statements are reduced
or eliminated.

c. All companies in the same industry are required to use the same depreciation method.

d. All of the choices are correct.

a. Requiring companies to use the same depreciation method is an example of form over economic
substance.

Accelerated depreciation is appropriate when:

I. The asset is more productive in the earlier years of its life.

II. The service potential of the asset will be approximately constant each period.

III. The service potential of the asset will decline more quickly in the early periods of the asset's useful
life.

a. I and II only.

b. I, II, and III.

c. I and III only.

d. II and III only.

c. I and III only.

A company should select an accelerated depreciation method because:

I. There is a large decline in the fair value of an asset early in its life.

II. The usage and decline in service potential of the asset is greater in the early years.

a. I only.

b. II only.

c. I and II.

d. Neither I nor II.

b. II only.

Recording depreciation affects the financial statements in all of the following ways except:

a. Decreasing Income Tax Expense.

b. Increasing Accumulated Depreciation.

c. Increasing Retained Earnings.

d. Reducing Net Income.

c. Increasing Retained Earnings

The objective of accounting for depreciation is to:

I. Measure and report the fair value of an asset.

II. Value the asset at the market value of its remaining service potential.

a. I and II.

b. I only.

c. II only.

d. Neither I nor II.

d. Neither I nor II.

Which of the following statements regarding depreciation is incorrect?

a. Accumulated depreciation is the sum of all previous amounts of depreciation expense for the asset.

b. Deprecation is a method of cost allocation only.

c. Depreciation provides funds for the replacement of an asset.

d. Depreciation is computed using any systematic and rational method.

c. Depreciation provides funds for the replacement of an asset.

Under U.S. GAAP, in a year in which the fair value of an asset rises, a company should:

I. Not record depreciation since the asset's value and service potential have increased.
II. Record more depreciation expense to reflect the increase in the asset's service potential.

a. I or II depending on if the increase in fair value is objectively determinable.

b. I only.

c. II only.

d. Neither I nor II.

d. Neither I nor II.

The manager of a utility stated that since its transmission lines are kept in good condition by regular
repairs and maintenance and their efficiency remains constant, the lines do not depreciate. Under which
of the following circumstances might the manager be correct about no depreciation being recorded on
the transmission lines?

I. The lines have an unlimited useful life.

II. The lines have an estimated residual value greater than their cost.

a. I only

b. II only

c. I and II

d. Neither I nor II

c. I and II

Which of the following statements is incorrect?

a. Losses are recognized under the group method of depreciation, but all gains are deferred until each
individual asset is retired.

b. The group method of depreciation applies to homogeneous assets.

c. The composite method of depreciation recognizes no gains or losses until all the assets are retired.

d. The depreciation estimates used in the group method of depreciation are based on averages.

a. Losses are recognized under the group method of depreciation, but all gains are deferred until each
individual asset is retired.

Required disclosures for depreciation include all of the following except:

a. Depreciation expense for the period.

b. Fair value information for major classes of depreciable assets, by nature or function, at the balance
sheet date.

c. A general description of the method or methods used in computing depreciation.

d. Accumulated depreciation, either by major classes of depreciable assets or in total, at the balance
sheet date.

b. Fair value information for major classes of depreciable assets, by nature or function, at the balance
sheet date.

Companies may make changes and corrections with respect to depreciation. Which of the following is
incorrect regarding these changes and corrections?

a. If a company corrects an error in depreciation, it is accounted for prospectively.

b. If a company changes its depreciation method from straight-line to sum-of-the-years-digits, it is

accounted for prospectively.

c. If a company corrects an error in depreciation, it requires a correction to the amount in the

accumulated depreciation account.

d. If a company changes its estimate of the service life of an asset, it is accounted for prospectively.

a. If a company corrects an error in depreciation, it is accounted for prospectively.

Accounting for impaired assets requires a number of steps and procedures. Place the following steps or
procedures in their correct sequential order:

I. The impairment loss is reported as part of income from continuing operations.

II. Compare the estimated future net cash flows expected from the asset to the book value of the asset.

III. The difference between an asset's book value and its fair value are measured.

a. III, II, I.

b. I, II, III.

c. II, III, I.

d. III, I, II.

c. II, III, I.

Which of the following statements is incorrect regarding asset impairments under IFRS and U.S. GAAP?

a. IFRS require a company to annually assess whether indicators of impairment exist.

b. IFRS determine if an impairment exists by comparing the book value of an asset to the higher of the
asset's fair value (less costs to sell) or value in use.

c. U. S. companies will recognize impairment losses earlier than international companies.

d. U.S. GAAP requires an impairment assessment only when events or changes in circumstances indicate
that the book value of property, plant, and equipment may not be recoverable.

c. U. S. companies will recognize impairment losses earlier than international companies.

Which of the following statements is correct regarding the disposal of an asset at a loss?
a. A company normally reports the loss as a contra shareholders' equity account.

b. A company may dispose of property, plant, and equipment by involuntary conversion or

abandonment.

c. A loss results when the book value of the asset sold is less than the consideration received.

d. A company records the disposal by debiting cash and crediting the asset account for the remaining
book value.

b. A company may dispose of property, plant, and equipment by involuntary conversion or

abandonment.

The cost of a natural resource includes:

a. Acquisition costs.

b. Restoration costs.

c. Development costs.

d. All of the choices are correct.

d. All of the choices are correct.

A method that excludes residual value from the depreciation base for the calculation of depreciation is:

Double-declining-balance

Sum-of-the-years'-digits

activity

Straight-line

Double-declining-balance

Vorst Corporation's schedule of depreciable assets at December 31, 2016, was as follows:

Asset Cost Accumulated Depreciation Acquisition Date Residual Value

A $100,000 $ 64,000 2015 $20,000

B 55,000 36,000 2014 10,000

C 70,000 33,600 2014 14,000

$225,000 $133,600 $44,000

Vorst takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation
expense in the year of an asset's disposition. The estimated useful life of each depreciable asset is 5
years.
Vorst depreciates asset A on the double-declining balance method. How much depreciation expense
should Vorst record in 2017 for asset A?

$32,000

$14,400

$6,400

$25,600

$14,400

Vorst Corporation's schedule of depreciable assets at December 31, 2016, was as follows:

Asset Cost Accumulated Depreciation Acquisition Date Residual Value

A $100,000 $ 64,000 2015 $20,000

B 55,000 36,000 2014 10,000

C 70,000 33,600 2014 14,000

$225,000 $133,600 $44,000

Vorst takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation
expense in the year of an asset's disposition. The estimated useful life of each depreciable asset is 5
years.

Using the sum-of-the-years-digits method, how much depreciation expense should Vorst record in 2017
for Asset B?

$6,000

$12,000

$9,000

$11,000

$6,000

Vorst Corporation's schedule of depreciable assets at December 31, 2016, was as follows:

Asset Cost Accumulated Depreciation Acquisition Date Residual Value

A $100,000 $ 64,000 2015 $20,000

B 55,000 36,000 2014 10,000

C 70,000 33,600 2014 14,000

$225,000 $133,600 $44,000

Vorst takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation
expense in the year of an asset's disposition. The estimated useful life of each depreciable asset is 5
years.

Vorst depreciates Asset C by the straight-line method. On June 30, 2017, Vorst sold Asset C for $28,000
cash. How much gain (loss) should Vorst record in 2017 on the disposal of Asset C?

$(2,800)

$2,800

$(5,600)

$(8,400)

$(8,400)

A machine with a 4-year estimated useful life and an estimated 15% residual value was acquired on
January 1. Would depreciation expense using the sum-of-the-years'-digits method be higher or lower
than depreciation expense using the double-declining-balance method in the first and second years?

First Year Second Year

Higher Higher

First Year Second Year

Lower Lower

First Year Second Year

Higher Lower

First Year Second Year

Lower Higher
First Year Second Year

Lower Higher

At the end of the expected useful life of a depreciable asset with an estimated 15% residual value, the
accumulated depreciation would equal the original cost of the asset under which of the following
depreciation methods?

Straight-line Sum-of-the-Years'-Digits

No Yes

Straight-line Sum-of-the-Years'-Digits

Yes No

Straight-line Sum-of-the-Years'-Digits

No No

Straight-line Sum-of-the-Years'-Digits

Yes Yes

Straight-line Sum-of-the-Years'-Digits

No No

The composite depreciation method:

excludes residual value from the base of the depreciation calculation.

does not recognize gain or loss on the retirement of single assets in the group.

is applied to a group of homogeneous assets.

is an accelerated method of depreciation.

does not recognize gain or loss on the retirement of single assets in the group.

On July 1, 2015, Mundo Corporation purchased factory equipment for $50,000. Residual value was
estimated at $2,000. The equipment will be depreciated over 10 years using the double-declining
balance method. Counting the year of acquisition as one-half year, Mundo should record 2016
depreciation expense of:

$7,680

$9,000

$9,600

$10,000

$9,000

A fixed asset with a 5-year estimated useful life is sold during the second year. How would the use of the
straight-line method of depreciation instead of the double-declining-balance method of depreciation
affect the amount of gain or loss on the sale of the fixed asset?

Gain Loss

Decrease Increase

Gain Loss

Increase Decrease

Gain Loss

No effect No effect

Gain Loss

No effect Increase

Gain Loss

Decrease Increase

Crowder Company acquired a tract of land containing an extractable natural resource. Crowder is
required by the purchase contract to restore the land to a condition suitable for recreational use after it
has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be
5,000,000 tons and that the land will have a value of $1,000,000 after restoration. Relevant cost
information follows:

Land $9,000,000
Estimated restoration costs 1,500,000

If Crowder maintains no inventories of extracted material, what should be the depletion expense per
ton of extracted material?

$2.10

$1.60

$1.80

$1.90

$1.90

Intangible and tangible assets have which of the following characteristics in common?

a. Held for use in the course of business.

b. All of the choices are correct.

c. May be expensed by a company over several periods.

d. Have a useful life of more than 1 year.

All of the choices are correct.

Unidentifiable intangible assets:

a. Include customer lists and noncompete agreements.

b. Cannot be separated from the entity.

c. May be transferred or exchanged.

d. All of the choices are correct.

b. Cannot be separated from the entity.

Accounting for the cost of intangible assets involves all of the following except:

a. Distinguishing between those that are externally acquired and those that are internally developed.

b. Expensing as incurred all costs of internally developed intangible assets.

c. Reviewing for impairment purchased unidentifiable intangible assets.

d. Amortizing the cost of purchased intangible assets with a finite life.

b. Expensing as incurred all costs of internally developed intangible assets.

In estimating the useful life of an intangible asset, a company uses:

I. The level of maintenance costs required to obtain the expected future cash flows from the asset.

II. The effect of competition.

III. Contractual provisions the enable renewal or extension of the asset's legal or contractual life without
substantial economic cost.

a. III only.

b. II and III only.

c. I, II, and III.

d. I and III only.

c. I, II, and III.

Which of the following activities are excluded from R&D?

I. Design of tools, jigs, molds, and dies involving new technology.

II. Quality control and testing during commercial production.

III. Design, construction, and testing of preproduction prototypes and models.

a. I only.

b. I and III only.

c. II and III only.

d. II only.

d. II only.

Which of the following elements of R&D activities does a company include in R&D costs?

I. Personnel.

II. Contract services.

III. Intangible assets purchased from others.

a. II and III only.

b. I and II only.

c. I, II and III.

d. I and III only.

c. I, II and III.

Parker Company developed a patent that is currently valued at $100,000. The company paid $1,000 in
legal and filing fees. At what amount, if any, does Parker Company record the patent on its books?

a. $100,000.

b. $1,000.
c. $0

d. $101,000

b. $1,000.

Which of the following assets is amortized over the shorter of its expected useful life or 20 years?

I. Trademarks.

II. Patents.

a. I and II.

b. II only.

c. I only.

d. Neither I nor II.

b. II only.

Which of the following factors cause the market value of a company to be greater than the book value
of the company?

a. Many assets are listed on the balance sheet at amounts different from their fair market value.

b. Goodwill may exist but not be recognized.

c. The acquirer paid too much.

d. All of the choices are correct.

d. All of the choices are correct.

Internally developed goodwill is expensed as the costs are incurred because:

I. Internally developed goodwill is not separable from the other assets of a company.

II. Measuring the value of internally developed goodwill would be less representationally faithful than
measuring the value of identifiable intangible assets.

a. I only.

b. I and II.

c. II only.

d. Neither I nor II.

b. I and II.

When is goodwill amortized?

a. Whenever events or changes in circumstances occur that would indicate an impairment may exist.
b. When a company assesses qualitative factors and determines that it is more likely than not that the
fair value of the reporting unit is less than its carrying value.

c. When a company assesses qualitative factors and determines that the fair value of the reporting unit
is more likely than not greater than its carrying value.

d. Never.

d. Never.

Under IFRS, development costs

a. Are capitalized if purchased from an outside 3rd party.

b. Are expensed as incurred.

c. Are capitalized if technical and economic feasibility can be demonstrated.

d. Are capitalized once the legal rights to the product or process have been obtained.

c. Are capitalized if technical and economic feasibility can be demonstrated.

What is the proper time or time period over which to amortize an intangible asset if there is no
forseeable limit on the period of time over which the intangible assets is expected to be used in
operations?

a. 40 years

b. 50 years

c. not amortized

d. immediately

c. not amortized

The Plaza Company originated late in 2015 and began operations on January 2, 2016. Plaza is engaged in
conducting market research studies on behalf of manufacturers. Prior to the start of operations, the
following costs were incurred:

Attorney's fees in connection with

organization of Plaza $ 4,000

Improvements to leased offices prior to

occupancy 7,000

Meetings of incorporators, state filing

fees, and other company expenses 5,000

$16,000

What is the amount of expense recognized for 2016?

a. $7,000

b. $4,000

c. $9,000

d. $16,000

c. $9,000

Frye Company incurred R&D costs in 2016 as follows:

Equipment acquired for use in multiple

R&D projects $1,000,000

Depreciation on the equipment 150,000

Materials used 200,000

Wages and salaries of R&D personnel 500,000

Outside consulting fees 100,000

Appropriately allocated indirect costs 250,000

The total R&D costs reported in Frye's 2016 income statement should be:

a. $900,000

b. $1,800,000

c. $650,000

d. $1,200,000

d. $1,200,000

Which of the following assets typically are amortized?

a.

Patents Trademarks

No Yes

b.

Patents Trademarks

Yes Yes

c.

Patents Trademarks

Yes No
d.

Patents Trademarks

No No

c.

Patents Trademarks

Yes No

Which of the following amounts incurred in connection with a trademark should be capitalized?

a.

Cost of a

Successful Defense Registration

Fees

Yes No

b.

Cost of a

Successful Defense Registration

Fees

No Yes

c.

Cost of a

Successful Defense Registration

Fees

No No

d.

Cost of a

Successful Defense Registration

Fees

Yes Yes

d.

Cost of a
Successful Defense Registration

Fees

Yes Yes

A purchased patent has a remaining legal life of 15 years. It should be:

a. expensed in the year of acquisition

b. not amortized

c. amortized over 15 years regardless of its useful life

d. amortized over its useful life if less than 15 years

d. amortized over its useful life if less than 15 years

During 2012, Traco Machine Company spent $176,000 on R&D costs for an invention. This invention was
patented on January 2, 2013, at a nominal cost that was expensed in 2013. The patent had a legal life of
20 years and an estimated useful life of 8 years. In January 2017, Traco paid $16,000 for legal fees in a
successful defense of the patent. Amortization for 2017 should be:

a. $1,000

b. $0

c. $4,000

d. $26,000

c. $4,000

Sherwood Corporation incurred $68,000 of R&D costs in its laboratory to develop a patent that was
granted on January 2, 2016. Legal fees and other costs associated with registration of the patent totaled
$13,600. Sherwood estimates that the economic life of the patent will be 8 years. What amount should
Sherwood charge to patent amortization expense for the year ended December 31, 2016?

a. $0

b. $10,200

c. $800

d. $1,700

d. $1,700

Goodwill represents the excess of the purchase price of an acquired company over the:

a. Book value of an acquired company

b. Sum of the fair values assigned to intangible assets acquired minus liabilities assumed

c. Sum of the fair values assigned to identifiable assets acquired minus liabilities assumed
d. Sum of the fair values assigned to tangible assets acquired minus liabilities assumed

c. Sum of the fair values assigned to identifiable assets acquired minus liabilities assumed

Flint Corporation's general ledger as of December 31, 2016, includes the following accounts:

Corporation (start-up) costs $ 5,000

Deposits with advertising agency (will

be used to promote goodwill) 8,000

Discounts on bonds payable 15,000

Excess of purchase price over fair

value of the identifiable net assets of

acquired company 70,000

Trademarks 12,000

In the preparation of Flint's balance sheet as of December 31, 2016, what should be reported as total
intangible assets?

a. $110,000

b. $95,000

c. $82,000

d. $87,000

c. $82,000

On January 1, 2016, Weaver Company purchased as held-to-maturity debt securities $500,000 face
value of Park Corporation's 8% bonds for $456,200. The bonds were purchased to yield 10% interest and
pay interest annually. The bonds mature on January 1, 2021. Weaver uses the effective interest method
of amortization. What amount should Weaver report on its December 31, 2016, balance sheet as an
investment in held-to-maturity debt securities?

a. $456,200

b. $450,580

c. $466,200

d. $461,820

d. $461,820

On its December 31, 2015, balance sheet, Fay Company reported investments, classified as trading
securities, at a market value of $183,000. There was no change during 2016 in the composition of Fay's
portfolio of marketable equity securities classified as trading securities. Pertinent data are as follows:
Security Cost Market Value 12/31/15 Market Value 16

A $ 60,000 $ 62,000 $ 63,000

B 45,000 42,000 40,000

C 80,000 79,000 78,500

Totals $185,000 $183,000 $181,500

What amount of loss on these securities should be included in Fay's income statement for the year
ended December 31, 2016?

a. $0

b. $1,500

c. $3,500

d. $2,000

b. $1,500

During 2016, Anthony Company purchased securities as a long-term investment and classified them as
available-for-sale. Pertinent data are as follows:

Security Cost Market Value at 12/31/16

A $ 20,000 $ 18,000

B 40,000 30,000

C 90,000 93,000

Totals $150,000 $141,000

The amount of the holding gain or loss included in Anthony's year-end balance sheet should be:

a. $12,000

b. $9,000

c. $0

d. $3,000

b. $9,000

On July 1, 2016, Aldrich Company purchased as an available-for-sale security $200,000 face value, 9%
U.S. Treasury notes for $194,000. The notes mature July 1, 2017, and pay interest semiannually on
January 1 and July 1. The notes were sold on December 1, 2016, for $199,000. Aldrich normally uses
straight-line amortization on all of its notes. In its income statement for the year ended December 31,
2016, what amount should Aldrich report as a gain on the sale of the available-for-sale security?

a. $2,500
b. $6,000

c. $5,000

d. $3,500

a. $2,500

In 2015, Cromwell Corporation bought 30,000 shares of Fleming Corporation's listed stock for $300,000
and classified the investment as available-for-sale. In 2016, the market value declined to $200,000. In
2017, the market value of the Fleming stock rose to $230,000, and the stock was sold. How much should
Cromwell record as a realized gain or loss in its determination of net income for 2017?

a. $70,000 loss

b. $30,000 gain

c. $0

d. $100,000 loss

a. $70,000 loss

When the market value of a company's portfolio of available-for-sale securities is lower than its cost, the
difference should be:

a. Accounted for as a liability

b. Disclosed and described in a note to the financial statements but not accounted for

c. Accounted for as an addition in the shareholders' equity section of the balance sheet

d. Accounted for as a valuation allowance deducted from the asset to which it relates

d. Accounted for as a valuation allowance deducted from the asset to which it relates

A security in a portfolio of available-for-sale securities is transferred to the trading category. The security
should be transferred between the corresponding portfolios at:

a. book value at date of transfer if higher than the fair value at date of transfer

b. cost, regardless of the fair value at date of transfer

c. fair value at date of transfer, regardless of its cost

d. lower of its cost or fair value at date of transfer

c. fair value at date of transfer, regardless of its cost

On January 2, 2016, Portela Inc. bought 30% of the outstanding common stock of Bracero Corporation
for $258,000 cash. Portela accounts for this investment by the equity method. At the date of acquisition
of the stock, Bracero's property, plant, and equipment had a fair value in excess of its book value of
$150,000. Bracero's property, plant, and equipment has a remaining life of 10 years. Bracero's net
income for the year ended December 31, 2016, was $180,000. During 2016, Bracero declared and paid
cash dividends of $20,000. On December 31, 2016, Portela should have carried its investment in Bracero
in the amount of:

a. $312,000

b. $258,000

c. $301,500

d. $306,000

c. $301,500

Cash dividends declared out of current earnings were distributed to an investor. How will the investor's
investment account be affected by those dividends under each of the following accounting methods?

a.

Fair Value Method Equity Method

Decrease No effect

b.

Fair Value Method Equity Method

No effect Decrease

c.

Fair Value Method Equity Method

No effect No effect

d.

Fair Value Method Equity Method

Decrease Decrease

b.

Fair Value Method Equity Method

No effect Decrease

On January 1, 2016, Parke Company accepted a $36,000 non-interest-bearing 3-year note from a major
customer in exchange for used equipment. The equipment had originally cost Parke $200,000 and had a
book value of $20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the
present value of the note is $25,500 at January 1, 2016. Parke uses the effective interest rate. What is
the carrying value of the note receivable on Parke's December 31, 2016, balance sheet?

a. $29,000

b. $36,000
c. $32,500

d. $28,560

d. $28,560

A company owns a life insurance policy on which the company is the beneficiary. If the insurance policy
allows a portion of accumulated premiums to build up as a savings plan,

a. the portion of the yearly premium that does not increase the cash surrender value of the policy is
recorded as insurance expense.

b. the savings plan, or cash surrender value, is forfeited to the insurance company when the policy is
canceled.

c. the amount of cash surrender value of the life insurance policy is included as a long-term liability on
the balance sheet.

d. All of the choices are correct.

a. the portion of the yearly premium that does not increase the cash surrender value of the policy is
recorded as insurance expense.

A company receives a note in exchange for property and it cannot determine either the fair value of the
property or the fair value of the note. When will the borrower's incremental rate be used?

I. To apply the effective interest method to determine subsequent interest income

II. To determine the future value of the note

a. I only

b. II only

c. I and II

d. Neither I nor II

a. I only

A noninterest-bearing note receivable is exchanged for property for which there is no clearly
determinable fair value. The note also does not have a clearly determinable fair value. In this
circumstance, the note is recorded at its:

a. present value using the borrower's incremental interest rate.

b. future value using the borrower's incremental interest rate.

c. present value using the seller's incremental interest rate.

d. future value using the seller's incremental interest rate.

a. present value using the borrower's incremental interest rate.

When an investment in available-for-sale securities that a company classifies as current and has a fair
value in excess of cost, a disclosure must be provided that shows:

a. the allowance for change in fair value of investment.

b. the investment's fair value.

c. the investment's cost.

d. All of the choices are correct.

d. All of the choices are correct.

Morgan Inc. and Parker Company are considering entering into a joint venture arrangement. Under IFRS,
Morgan Inc. and Parker Company,

a. must account for the joint venture using the equity method.

b. may account for the joint venture using a proportionate consolidation.

c. may account for the joint venture using the fair value method, the equity method, or a proportionate
consolidation.

d. may account for the joint venture using the fair value method.

b. may account for the joint venture using a proportionate consolidation.

An impairment loss on an available-for-sale equity security:

I. May be reversed under IFRS

II. May be reversed under U.S. GAAP

III. Will not arise because available-for-sale securities are reported on the balance sheet at amortized
cost

a. I and II only

b. I only

c. II only

d. III only

b. I only

Under IFRS:

I. Unrealized gains and losses on investments measured at fair value are presented on the income
statement.

II. If an equity security is not held for trading, a company may, at initial recognition, elect to have
subsequent changes in fair value reported in other comprehensive income.

a. I and II
b. II only

c. I only

d. Neither I nor II

a. I and II

Under IFRS, minority passive investments are:

a. Classified based on the company's business model for managing financial assets and the
characteristics of the contractual cash flows of the financial asset.

b. Reported on the balance sheet only as long-term assets.

c. Divided into three categories including trading, measured at fair value, and amortized cost.

d. All of the choices are correct.

a. Classified based on the company's business model for managing financial assets and the
characteristics of the contractual cash flows of the financial asset.

When an investor acquires enough additional common stock during a year to change from using the fair
value method to using the equity method:

a. A retrospective adjustment is made by debiting the Investment account and crediting Retained
Earnings for its previous percentage of investee income (less dividends) for the period from the original
date of acquisition to the date that significant influence was obtained.

b. The Unrealized Holding Gain/Loss account is reported as part of net income in the year in which the
additional investment is made.

c. The investor applies the equity method prospectively from the beginning of the year in which the
additional investment is made.

d. The investment is still accounted for under the fair value method, but disclosures must be provided
which show the effect of using the equity method.

a. A retrospective adjustment is made by debiting the Investment account and crediting Retained
Earnings for its previous percentage of investee income (less dividends) for the period from the original
date of acquisition to the date that significant influence was obtained.

The method that recognizes that a material economic relationship exists between the investor and the
investee is:

a. The fair value method

b. The equity method

c. A consolidation

d. The amortized cost method

b. The equity method

Any unrealized holding gain or loss on the date of transfer will continue to be reported as a separate
component of accumulated other comprehensive income and amortized over the remaining life of the
security as an adjustment of interest income when an investment in a debt security is transferred:

a. From the available-for-sale category to the trading category.

b. From the trading category to the available-for-sale category.

c. From the held-to-maturity category to the available-for-sale category.

d. From the available-for-sale category to the held-to-maturity category.

d. From the available-for-sale category to the held-to-maturity category.

When an investment in available-for-sale securities is sold,

a. gains and losses are reported on the income statement.

b. any gain or loss is measured as the selling price plus the cost of an equity security or plus the
amortized cost of a debt security.

c. a reclassification adjustment is optional and may be done to reverse the cumulative balance in the
Allowance for Change in Fair Value of Investment.

d. all of the choices are correct.

a. gains and losses are reported on the income statement.

Willow Co. owns one security which is classified as an available-for-sale security. The investment was
purchased at the beginning of the year for $10,000. At December 31 of the current year the
investment's fair value is $9,200. Which of the following is correct regarding Willow's investment?

a. Willow will report a loss as part of its net income for the year.

b. Willow will debit an Unrealized Holding Loss account which is included in other comprehensive
income.

c. Willow will report the security at $10,000 in the December 31 balance sheet.

d. All of the choices are correct.

b. Willow will debit an Unrealized Holding Loss account which is included in other comprehensive
income.

When accounting for an investment in available-for-sale securities,

a. gains and losses on sales of investments are reported as a component of other comprehensive income
of the current period.

b. interest and dividend income are included in net income of the current period.

c. unrealized holding gains and losses resulting from changes in the fair value of the securities are
included in net income of the current period.
d. All of the choices are correct.

b. interest and dividend income are included in net income of the current period.

Willow Co. owns one security classified as a trading security. The investment was purchased at the
beginning of the year for $10,000. At December 31 of the current year the investment is valued at its fair
value of $9,200. Which of the following is correct regarding Willow's investment?

a. Willow may credit the Allowance for Change in Fair Value of Investment to reflect any change in fair
value.

b. Willow may credit the Investment in Trading Securities account to reflect any change in fair value.

c. Fair value was determined as the number of units of the security times the quoted selling price on a
stock exchange.

d. All of the choices are correct.

d. All of the choices are correct.

For investments in trading securities, which of the following items are included in net income of the
current period?

I Loss on sale

II Unrealized loss from change in fair value

III Dividend income

a. I, II, and III

b. I and II only

c. II only

d. I and III only

a. I, II, and III

Which of the following is correct regarding recognition of interest income and amortization of premium
and discounts on investments in bonds held to maturity?

I. Under the effective interest method, the current market rate of interest is multiplied by the face
amount of the bond investment at the beginning of the period to determine the amount of interest
income.

II The straight-line method may be used for financial reporting purposes if it is also used for tax reporting
purposes.

a. II only

b. I and II

c. I only
d. Neither I nor II

d. Neither I nor II

For investments in held-to-maturity debt securities:

I. Unrealized holding gains and losses are disclosed in the notes to the financial statements.

II. Interest income and realized gains and losses on sales are included in net income.

a. I and II

b. II only

c. I only

d. Neither I nor II

a. I and II

Investments reported on the balance sheet at amortized cost include:

I Held-to-maturity securities.

II Available-for-sale securities.

III Trading securities.

a. I and III only.

b. I only.

c. II only.

d. I and II only.

b. I only.

Companies purchase the securities of other corporations to:

I Improve its competitive position

II Obtain additional income by investing excess cash

a. I and II

b. II only

c. I only

d. Neither I nor II

a. I and II

The contract rate on a bond is frequently different from the effective rate, or yield, on the bond. Which
of the following is not a reason for this difference in rates?
a. There has been a change in economic conditions between the date the bonds were printed and sold.

b. The underwriter and the company disagree about the yield.

c. Economic conditions between the date the bonds were printed and sold and the underwriter and the
company disagreeing about the yield.

d. The company has adjusted the terms stated on the bond certificate, such as the maturity date.

d. The company has adjusted the terms stated on the bond certificate, such as the maturity date.

Bond discounts and bond premiums may arise at the time of sale.

Consider the following: CJ Company sells $500,000 of 10-year bonds on January 1. The bonds pay
semiannual interest with a contract rate of 6%. At the same date the effective interest rate is 9%. Which
of the following statements is correct?

a. The yield will be greater than the contract rate because CJ Company will receive less than $500,000,
will pay 9% interest, and will re-pay the full $500,000 at maturity.

b. The yield will be the same as the contract rate because CJ Company will receive $500,000, will pay 6%
interest, and will re-pay $500,000 at maturity.

c. The yield will be greater than the contract rate because CJ Company will receive less than $500,000,
will pay 6% interest, and will re-pay the full $500,000 at maturity.

d. The yield will be less than the contract rate because CJ Company will receive more than $500,000, will
pay 6% interest, and will only re-pay $500,000 at maturity

c. The yield will be greater than the contract rate because CJ Company will receive less than $500,000,
will pay 6% interest, and will re-pay the full $500,000 at maturity.

Which of the following is true when the issue date of a bond is between interest dates?

a. The company will normally collect from the investor the selling price less the interest accrued on the
bonds from the interest payment date prior to the date of sale.

b. The journal entry at the issue date generally includes a credit to interest expense.

c. The journal entry at the issue date generally includes a debit to interest payable.

d. On the next interest payment date, the company pays bondholders the exact number of months of
interest due to each bondholder.

b. The journal entry at the issue date generally includes a credit to interest expense.

When a company includes a call provision in its bond issue:

a. the company is trying to protect itself from the inability to take advantage of future favorable changes
in market conditions.

b. the company has issued bonds that allow creditors to ultimately become stockholders.
c. the call price is generally set below the issue price and a gain occurs when the company calls the debt.

d. the company is striving to allow investors flexibility regarding their investment choices.

a. the company is trying to protect itself from the inability to take advantage of future favorable changes
in market conditions.

On January 1, both Spa Company and Pool Company issued a large amount of convertible debt. Spa
Company follows IFRS while Pool Company uses U.S. GAAP for its external financial reporting. Assume
this is the only significant way in which Spa and Pool Company differ from each other. Which of the
following statements is true regarding this situation?

a. Spa Company will report the entire cash proceeds from the issuance as paid-in capital.

b. Pool Company will allocate a portion of the sales price to the conversion feature by crediting paid-in
capital.

c. Spa Company's debt-to-equity ratio will be higher than Pool Company's.

d. Spa Company's debt-to-equity ratio will be lower than Pool Company's.

d. Spa Company's debt-to-equity ratio will be lower than Pool Company's.

On January 1, Flower Company exchanged an $800,000, 3-year, non-interest-bearing note for cash. If
Flower had issued an interest-bearing note, the required interest rate would be 12%. The present value
of 1 factor for 3 periods at 12% is .71178 and the future value of 1 for 3 periods at 12% is 1.40493. The
carrying value (book value) of the note at the date of issuance is:

a. $800,000

b. $1,123,943

c. $569,424

d. $323,943

c. $569,424

On January 1, Dilbert Co. exchanges a $480,000 5-year, non-interest-bearing note payable for a tract of
land. For purposes of computing property taxes, the state has valued the land at $450,000. Dilbert Co.'s
incremental borrowing rate is 10%, the future value of $1 for 5 periods at 10% is $1.61051, and the
present value of $1 for 5 periods at 10% is $ .62092. At what amount should the land be recorded on the
January 1 purchase date?

a. $805,255

b. $480,000

c. $450,000

d. $298,042

d. $298,042
Quartz, Inc. issued long-term bonds 10 years ago at a discount. The bonds have now matured, and
Quartz, Inc. paid the required amount to retire the bonds. Which of the following statements is correct
regarding these bonds?

a. The total cash flows for the bonds, interest and principal, are recorded as cash outflows from
financing activities on Quartz, Inc.'s statement of cash flows.

b. In the year of the retirement, the face value of the bonds is reported as a cash outflow from financing
activities on Quartz Inc.'s statement of cash flows.

c. At the issue date, the face value of the bonds payable is reported as a cash inflow from financing
activities on Quartz Inc.'s statement of cash flows.

d. In the year of the retirement, the discounted value of the bonds is reported as a cash outflow from
financing activities on Quartz Inc.'s statement of cash flows.

b. In the year of the retirement, the face value of the bonds is reported as a cash outflow from financing
activities on Quartz Inc.'s statement of cash flows.

Firms have the option of disclosing interest payments in either the operating or financing activities
section of the cash flow statement under

a. IFRS

b. GAAP

c. both

d. none of these

a. IFRS

A troubled debt restructuring can be accomplished by all of the following except:

a. transfer of real estate from the debtor to the creditor to satisfy the debt.

b. modification of the terms of the debt such as an acceleration of the maturity date at a higher stated
interest rate than the current market rate for new debt with similar risk.

c. modification of the terms of the debt such as a reduction of the face amount or maturity amount of
the debt.

d. granting of an equity interest to the creditor by the debtor to satisfy a debt.

b. modification of the terms of the debt such as an acceleration of the maturity date at a higher stated
interest rate than the current market rate for new debt with similar risk.

On January 1, 2015, Bay Company issues bonds with a face value of $850,000 that pay 9% interest
semiannually and mature in 15 years. The market interest rate at the date of issuance is 8%. What is the
issue price of the bond?

a. $850,000.00
b. $923,491.41

c. $567,656.32

d. $815,386.52

b. $923,491.41

Should legal fees and underwriting costs associated with issuing bonds be expensed as incurred?

a.

Legal Fees Underwriting Costs

Yes No

b.

Legal Fees Underwriting Costs

Yes Yes

c.

Legal Fees Underwriting Costs

No yes

d.

Legal Fees Underwriting Costs

No No

d.

Legal Fees Underwriting Costs

No No

On April 1, 2016, Granville Corporation issued, at 98 plus accrued interest, 400 of its 10%, $1,000 bonds.
The bonds are dated January 1, 2016 and mature on January 1, 2023. Interest is payable semiannually
on January 1 and July 1. From the bond issuance Granville would realize net cash receipts of:

a. $392,000

b. $402,000

c. $382,000

d. $397,000

b. $402,000

When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June
1, the amount of cash received by the issuer will be:
a. decreased by accrued interest from June 1 to November 1.

b. increased by accrued interest from May 1 to June 1.

c. decreased by accrued interest from May 1 to June 1.

d. increased by accrued interest from June 1 to November 1.

b. increased by accrued interest from May 1 to June 1.

For the issuer of a 10-year term bond, the amount of amortization using the effective interest method
would increase each year if the bond was sold at a:

a.

Discount Premium

No No

b.

Discount Premium

No Yes

c.

Discount Premium

Yes No

d.

Discount Premium

Yes Yes

d.

Discount Premium

Yes Yes

On January 1, 2016, when the market rate for bond interest was 14%, Lenoir Corporation issued bonds
in the face amount of $500,000 with interest at 12% payable semiannually. The bonds mature on
December 31, 2023, and were issued at a discount of $53,180. How much of the discount should be
amortized by the effective interest method at July 1, 2016?

a. $1,277

b. $3,723

c. $2,659

d. $3,191
a. $1,277

When the issuer of bonds exercises the call provision to retire the bonds, the excess of the cash paid
over the carrying amount of the bonds should be recognized separately as a(n):

a. extraordinary gain

b. extraordinary loss

c. loss from continuing operations

d. loss from discontinued operations

c. loss from continuing operations

When the cash proceeds from a bond issued with detachable stock purchase warrants exceed the sum
of the par value of the bonds and the fair value of the warrants, the excess should be credited to:

a. Additional Paid-in Capital

b. Detachable Stock Warrants Outstanding

c. Retained Earnings

d. Premium on Bonds Payable

d. Premium on Bonds Payable

On December 31, 2015, Dare Corporation had outstanding 8%, $2,000,000 face value convertible bonds
maturing on December 31, 2019. Interest is payable annually on December 31. Each $1,000 bond is
convertible into 60 shares of Dare's $10 par value common stock. On January 2, 2017, when the
Premium on Bonds Payable account balance was $45,000, an individual holding 200 of the bonds
exercised the conversion privilege when the market value of Dare's common stock was $18 per share.
Using the book value method, Dare's entry to record the conversion should include a credit to Additional
Paid-In Capital of:

a. $125,000

b. $96,000

c. $84,500

d. $80,000

c. $84,500

On July 1, 2014, Rix Corporation had $10,000,000 of 9% bonds outstanding. The maturity date is June
30, 2019. Interest is paid semiannually every June 30 and December 31. All the bonds were redeemed
on July 1, 2014, at 98. At the time of the bond redemption, there was unamortized bond premium of
$60,000 and unamortized bond issue costs of $100,000. What is the amount of the gain on the bond
redemption?

a. $0
b. $240,000 gain

c. $80,000 gain

d. $160,000 gain

d. $160,000 gain

See more

Students also viewed

Acct ch. 10

23 terms

ebigred09

CFAS - CHAPTER 16

15 terms

jaycamille

CH 10

35 terms

alyssamiraglia1

accounting FINAL - Chapter 7

16 terms

jasminegn08

About us

About Quizlet

How Quizlet works

Careers

Advertise with us

News

Get the app

For students
Flashcards

Learn

Solutions

Quizlet Plus

For teachers

Live

Checkpoint

Blog

Be the Change

Quizlet Plus for teachers

Resources

Help center

Sign up

Honor code

Community guidelines

Privacy

Terms

Ad and Cookie Policy

Language

English (USA)

© 2022 Quizlet Inc.

COPPA Safe Harbor Certification seal

In accounting, book value is the value of an asset according to its balance sheet account balance. For
assets, the value is based on the original cost of the asset less any depreciation, amortization or
impairment costs made against the asset. Wikipedia

Calculation

Determination

Purpose
Differences

Feedback

Philippines

Commonwealth, Quezon City, Metro Manila - From your IP address - Update location

HelpSend feedbackPrivacyTerms