20 MCQ The dominant method under GAAP for measuring long-lived assets is the

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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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