ACCT 305 Midterm Exam

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 1.Question :(TCO 1) The acquisition costs of property, plant, and equipment do not include:
Student Answer: The ordinary and necessary costs to bring the asset to its desired condition and location for use.
 The net invoice price.
 Legal fees, delivery charges, installation, and any applicable sales tax.
 Maintenance costs during the first 30 days of use.


 2.Question :(TCO 3) Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.In Case A, Grand Forks would record the new equipment at:
Student Answer: $65,000.


 3.Question :(TCO 2) The exclusive right to benefit from a creative work, such as a film, is a:
Student Answer: Patent.


 4.Question :(TCO 4) Assuming an asset is used evenly over a four-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year?
Student Answer: Straight-line.
 Double-declining balance.
 Sum-of-the-year’s digits.


 5.Question : (TCO 4) On September 30, 2011, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service.  Depreciation for 2011, using double-declining balance, would be:
Student Answer: $40,000.


 6.Question :(TCO 4) Accounting for a change in the estimated service life of equipment:
Student Answer: Is handled prospectively.
 Requires retroactive restatement of prior year’s financial statements.
 Requires a prior period adjustment.
 Is handled currently as a change in accounting principle.


 7.Question :(TCO 5) The investment category for which the investor’s “positive intent and ability to hold” is important is:
Student Answer: Securities reported under the equity method.
 Trading securities.
 Securities classified as held-to-maturity.
 Securities available for sale.


 8.Question :(TCO 5) Consolidated financial statements are prepared when one company has:
Student Answer: Accounted for the investment using the equity method.
 Accounted for the investment as securities available for sale.
 Control over another company.
 None of the above is correct.


 9.Question :(TCO 4) Interest may be capitalized:
Student Answer: On routinely manufactured goods as well as self-constructed assets.
 On self-constructed assets from the date an entity formally adopts a plan to build a discrete project.
 Whether or not there is specific borrowing for the construction.
 Whether or not there are actual interest costs incurred.


 10.Question :(TCO 2) Software development costs are capitalized if they are incurred:
Student Answer: Prior to the point at which technological feasibility has been established.
 After commercial production has begun.
 After technological feasibility has been established but prior to the product availability date.
 None of the above is correct.


 11.Question :(TCO 4) The factors that need to be determined to compute depreciation are an asset’s:
Student Answer: Cost, residual value, and physical life.
 Cost, replacement value, and service life.
 Fair value, residual value, and economic life.
 Cost, residual value, and service life.


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


 13.Question :(TCO 1) The capitalized cost of land excludes:
Student Answer: Maintenance.
 Purchase price.
 Razing old buildings.
 Closing costs.


 14.Question :(TCO 3) When selling property, plant, and equipment for cash:
Student Answer: The seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.
 The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.
 The seller recognizes losses, but not gains.
 None of the above.


 15.Question :(TCO 2) Research and development (R&D) costs:
Student Answer: Generally pertain to activities that occur prior to the start of production.
 May be expensed or capitalized, at the option of the reporting entity.
 Must be capitalized and amortized.
 None of the above is correct.


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


 17.Question :(TCO 5) Trading securities are most commonly found in the books of:
Student Answer: Oil companies.
 Manufacturing companies.
 Foreign subsidiaries.


 18.Question :(TCO 5) All investments in debt and equity securities that don’t fit the definitions of the other reporting categories are classified as:
Student Answer: Trading securities.
 Securities available for sale.
 Held-to-maturity securities.
 Consolidated securities.


 19.Question :(TCO 5) When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded:
Student Answer: As a reduction in the investment account.
 As an increase in the investment account.
 As dividend income.
 As a contra item to stockholders’ equity.


 1.Question :(TCO 2) Briefly explain the differences between U.S. GAAP and International Financial Reporting Standards in accounting for research and development expenditures other than software development costs.
 2.Question :(TCO 5) Discuss the following questions.What securities must be classified within one of the three categories of held-to-maturity, available-for-sale, and trading? (Do not describe how to determine how securities are classified among these three categories.) Identify the four primary recording activities related to investments in securities.

 3.Question :(TCO 1) Please distinguish between tangible operational assets and intangible assets. Provide three examples of each.
 4.Question :(TCO 4) Briefly differentiate between activity-based and time-based allocation methods.


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