Accounting Theory 1 Final Exam

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What is not a major characteristic of a plant asset?

Acquired for resale

What is not a characteristic of intangible assets?

They are all subject to amortization.

What are 3 characteristics of intangible assets?

Has no physical characteristics, is reported on financial reports, and can be created internally or externally.

If a company acquires intangibles for stock or in exchange for other assets, the cost of the intangible is the fair value of the consideration given or the fair value of the intangible received, whichever is more clearly evident. True or False?

True

What costs would not be included in the cost of a patent?

Research and development costs related to product development.

Costs incurred internally to create intangibles are _____

expensed as incurred.

Assets classified as Property, Plant, and Equipment can be either acquired for use in operations, or acquired for resale. True or False?

False

What is not a major characteristic of a plant asset?

Acquired for resale

Assets that qualify for interest cost capitalization include ___

assets under construction for a company's own use.

Internally created intangibles are recorded at cost. True or False?

False

What does not describe intangible assets?

They are financial instruments.

What characteristic is not possessed by intangible assets?

Physical existence.

What costs incurred internally to create an intangible asset are generally expensed?

Research and development costs.

A nonmonetary asset acquired in an exchange that has commercial substance is usually recorded at the:

fair value of the asset given up, unless fair value of the asset received is more clearly evident.

Assets that qualify for interest cost capitalization include

assets under construction for a company's own use.

The period of time during which interest must be capitalized ends when ___

the asset is substantially complete and ready for its intended use.

Which of the following is not an example of a limited-life intangible asset? Copyright, franchise, patent or goodwill?

Goodwill

Depreciation is a means of adjusting an assets cost to its fair value. True of False?

False

The major limitation of the straight-line method is that it is inappropriate in situations in which depreciation is a function of time instead of activity. True or False?

False

Depreciation is a means of cost allocation, not a matter of valuation. True of False?

True

The cost of an asset less its salvage value is its depreciation base. True or False?

True

The following is true of depreciation accounting.

It is not a matter of valuation.
It is part of the matching of revenues and expenses.
It retains funds by reducing income taxes and dividends.
All of these is the answer.

The term "depreciable base," or "depreciation base," as it is used in accounting, refers to

the total amount to be charged (debited) to expense over an asset's useful life.

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

False

Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

True

Which of the following may be a current liability?

Withheld Income Taxes
Deposits Received from Customers
Deferred Revenue
All of these is the answer.

The presentation of current and non-current liabilities in the balance sheet:

is shown on both GAAP and IFRS balance sheets.

The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.

True

What tax does not represent a payroll deduction a company may incur?

State unemployment taxes.

What is the proper way to report a gain contingency?

As a disclosure only.

IFRS uses the term "contingent" for assets and liabilities not recognized in the financial statement.

True

If the market rate is greater than the coupon rate, bonds will be sold at a premium.

False

The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond.

False

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be ___

greater than if the straight-line method were used.

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to

the market rate multiplied by the beginning-of-period carrying amount of the bonds.

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as

a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

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