20 MCQ The dominant method under GAAP for measuring long-liv

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..Question 1 of 20
5.0 Points
The dominant method under GAAP for measuring long-lived
assets is the __________ approach.
A. discounted present value
B. expected benefit
C. historical cost
D. replacement cost
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Question 2 of 20
5.0 Points
A primary concern of auditors and analysts is that
numbers on the financial statements be objective.
Objectivity means that the numbers are:
A. accurate.
B. qualitative.
C. subjective.
D. verifiable.
Question 3 of 20
5.0 Points
Expenditures included in the cost of a long-lived asset
are:
A. capitalized.
B. charged off.
C. expensed.
D. intangible.
Question 4 of 20
5.0 Points
Which one of the following items would be charged to the
cost of land rather than the cost of the building?
A. Architectural fees
B. Capitalization of interest
C. Cost of foundation
D. Demolition of existing structure
Question 5 of 20
5.0 Points
Capitalization of interest for the construction of
long-lived assets is limited to interest arising from
actual borrowings from:
A. outsiders.
B. owners.
C. stockholders.
D. the board of directors.
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Question 6 of 20
5.0 Points
The Burrell Company acquired a tract of land for a new
restaurant paying $150,000. Burrell removed the old
building at a cost of $20,000, and sold scrapped
material salvaged from the old building for $5,000. The
architect’s fees were $25,000, and the title insurance
on the land was $1,000. The construction period interest
was $8,000, and the contractor received $300,000 for the
building. The land should be recorded by Burrell at a
cost of:
A. $150,000.
B. $165,000.
C. $166,000.
D. $175,000.
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Question 7 of 20
5.0 Points
Refer to the information give in question 6. The new
building should be recorded by Burrell at a cost of:
A. $300,000.
B. $326,000.
C. $333,000.
D. $334,000.
Question 8 of 20
5.0 Points
Tim Enterprises purchased a machine for $130,000. The
seller paid $450 freight to deliver the machine. Tim
used $2,300 of staff mechanics’ time to install the
machine and employee training cost $3,500. The state
charged a 2% sales tax on the invoice price. The
capitalized cost of the machine is:
A. $130,000.
B. $135,800.
C. $136,250.
D. $138,400.
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Question 9 of 20
5.0 Points
Clermont Company started construction of a new office
building on January 1, 2000, and moved into the finished
building on July 1, 2002. Of the building’s $2,500,000
total cost, $2,000,000 was incurred by 12/31/2000 in
even increments throughout the year. Clermont’s weighted
average borrowing rate was 12% throughout 2000, and the
actual amount of interest incurred by Clermont during
2000 was $135,000. What amount should Clermont report as
capitalized interest at 12/31/2000?
A. $120,000
B. $135,000
C. $150,000
D. $240,000
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Question 10 of 20
5.0 Points
The FASB requires that virtually all costs incurred for
research and development of an internally generated
patent be:
A. amortized for not more than 40 years.
B. capitalized.
C. expensed.
D. ignored.
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Question 11 of 20
5.0 Points
The Get Rich Drilling Company purchased an oil well
lease for $8,000,000 at the beginning of Year 7. During
Year 7, it drilled 10 oil wells at a cost of $9,000,000
each. Three of the wells were economically feasible
wells and the remaining wells were dry holes. If Get
Rich uses the full-cost approach to determine the asset
cost, the capitalized cost is:
A. $8,000,000.
B. $27,000,000.
C. $68,600,000.
D. $98,000,000.
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Question 12 of 20
5.0 Points
The Get Rich Drilling Company purchased an oil well
lease for $8,000,000 at the beginning of Year 7. During
Year 7, it drilled 10 oil wells at a cost of $9,000,000
each. Three of the wells were economically feasible
wells and the remaining wells were dry holes. If Get
Rich uses the successful-efforts approach to determine
the asset cost, the capitalized cost is:
A. $9,000,000.
B. $27,000,000.
C. $35,000,000.
D. $98,000,000.
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Question 13 of 20 5.0 Points
The Windmill Company acquired a long-lived asset 10
years ago at a cost of $800,000. Three years later the
asset sustained an impairment in value. At the time of
the impairment, the fair value of the asset was $400,000
and the carrying (book) value was $600,000. Which of the
following entries would be made to record the
impairment?
OPTION B
A.
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B.
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C.
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D.
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Question 14 of 20
5.0 Points
Brunson Corporation acquired a new machine on January 2,
Year 1, at a cost of $63,000. The machine had an
expected life of 4 years and a salvage value of $3,000.
If Brunson uses the sum-of-the-years’-digits method of
depreciation, the depreciation expense recorded in Year
3 is:
A. $8,000.
B. $12,000.
C. $16,000.
D. $20,000.
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Question 15 of 20
5.0 Points
Brunson Corporation acquired a new machine on January 2,
Year 1, at a cost of $63,000. The machine had an
expected life of 4 years and a salvage value of $3,000.
If Brunson uses the straight-line method of
depreciation, the depreciation expense recorded in Year
4 is:
A. $8,000.
B. $12,000.
C. $15,000.
D. $20,000.
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Question 16 of 20
5.0 Points
Brunson Corporation acquired a new machine on January 2,
Year 1, at a cost of $63,000. The machine had an
expected life of 4 years and a salvage value of $3,000.
If Brunson uses the double-declining balance method of
depreciation, the depreciation expense recorded in Year
2 is:
A. $11,813.
B. $15,000.
C. $15,750.
D. $31,500.
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Question 17 of 20
5.0 Points
The Clean Water Company sold equipment that originally
cost $50,000 for $12,000. The asset had accumulated
depreciation of $30,000 at the end of the previous
fiscal year. Depreciation expense to the date of the
sale for the current fiscal year is $4,000. Which of the
following line items related to this sale would appear
in the income statement for Clean Water Company in the
current fiscal year?
A. Extraordinary gain of $8,000
B. Extraordinary loss of $8,000
C. Ordinary gain of $4,000
D. Ordinary loss of $4,000
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Question 18 of 20
5.0 Points
The Daniel Company sold a machine. The machine had
accumulated depreciation of $25,000 and a salvage value
of $3,000. If the machine sold for $8,000 and a gain of
$2,000 is recognized on the sale, the original cost of
the machine was:
A. $27,000.
B. $31,000.
C. $33,000.
D. $35,000.
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Question 19 of 20
5.0 Points
The Lee Co. purchased a new piece of machinery early in
January of the current fiscal year for $35,000. The
company spent $1,000 for freight on the equipment and
$3,000 to have the machine installed. The company
estimated the salvage value of the machine to be $3,000
and the useful life to be 10 years. Using the straight-
line method of depreciation, the expense for the current
fiscal year would be:
A. $3,100.
B. $3,200.
C. $3,400.
D. $3,600.
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Question 20 of 20
5.0 Points
In France, financial reporting must conform to:
A. a specified format of tax measurement rules.
B. French GAAP.
C. Standards from the International Accounting Standards
Board.
D. U.S. GAAP.


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