Fluent Essays

24. Which one of the following statements is true?One objective of depreciating an asset is to provide funds for replacement. GAAP requires the use of either straight-line or declining-balance depreciation. Straight-line depreciation results in a decreasing rate of return on total assets. Typically, the sum-of-the-years-digits method will result in less depreciation expense in the year of acquisition than will the double-declining-balance method. 26. When low-cost depreciable assets with similar characteristics, service lives, and residual values are acquired, which depreciation method should be used? composite depreciation impairment depreciation group depreciation such assets should not be depreciated 29. The amortization period for a patent is indefinite; patents should be reviewed for impairment annually 20 years 20 years or the expected useful life of the patent, whichever is longer 20 years or the expected useful life of the patent, whichever is shorter 30. In January 2010, the Remy Corporation purchased a patent for $231,000 from Nel Company that had a remaining legal life of 14 years. Remy estimated that the remaining economic life would be seven years. In January 2014, the company incurred $30,000 in legal costs to defend the patent from an infringement. Remy’s lawyers were successful, and the remaining years of benefit from the patent were estimated to be six years. The patent amortization expense for 2014 is $7,615 $9,923 $16,500 $21,500 31. Which of the following statements is not true with regard to international accounting standards for research and development costs?Some countries require research costs to be expensed and development costs to be capitalized. Some countries allow the capitalization of R&D costs. The universal practice with regard to R&D costs is to capitalize the expenditures. R&D costs are accounted for in different ways in different countries. 32. At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have no alternative future uses in research and development or other activities should be capitalized charged directly to retained earnings included in R&D expense immediately charged as a loss from continuing operations 33. Which of the following statements is true? No loss contingencies should be disclosed if there is just a reasonable possibility of a loss. Indirect guarantees should normally be accrued. In the case of loss contingencies, accrual can be made even if the exact payee and payment date are not known. Losses may be accrued for unasserted claims and other potential unfiled lawsuits. 34. Which of the following loss contingencies is not usually accrued?product warranty obligations premium offer obligations risk of loss from fire noncollectibility of receivables 36. Existing claims related to product warranties and litigation as of December 31, 2010 indicate that it is probable that a liability has been incurred. However, as of December 31, 2010, the amount of the obligation cannot be reasonably estimated. Based on these facts, an estimated loss contingency should be accrued disclosed but not accrued neither accrued nor disclosed classified as an appropriation of retained earnings 37. The Jung Company includes a premium in each box of its cereal. For four premiums plus $2.00, customers are entitled to a plastic doll that costs Jung $4.50 each. Jung expects 60\% of the premiums to be redeemed. In 2010, Jung sold 500,000 boxes of cereal and distributed 25,000 dolls. What is Jungs premium expense for 2010? $125,000 $187,500 $225,000 $337,500 39. On January 1, 2010, Lisa Co. issued $50,000 of 9\%, 10-year bonds at 98. Issuance costs amounted to $2,000. On July 1, 2015, all of the bonds were called at 103. What was the loss on bond retirement, assuming the use of straight-line amortization?$1,950 $2,500 $4,200 $4,750 40. Quail issued $200,000 of its 10-year 12\% bonds for $224,924 on October 1, 2010. The effective rate on the bonds was 10\% and interest is paid each October 1 and April 1. Assuming Quail uses the effective interest method, the adjusting entry on December 31, 2010, would include a debit to premium on bonds payable for $1,250 credit to interest payable for $5,623 credit to interest payable for $6,000 debit to interest expense for $6,62341. The proper procedure for computing the issuance price of a bond includes adding thematurity value of the bonds to the accrued interest maturity value of the bonds to the present value of the interest present value of the principal to the accrued interest present value of the principal to the present value of the interest 42. Bonds with a face value of $100,000 that are issued for $102,400 have a stated interest rate that is more than the yield rate that is less than the yield rate that is equal to the yield rate that may be more or less than the yield rate, but there is not enough information given to determine which 43. Mara Corporation issued $400,000 of its 6\%, 10-year bonds, dated January 1, 2010, at face value plus accrued interest on April 1, 2010. Interest is paid on January 1 and July 1. Mara uses the most common method to record the sale of the bonds between interest payment periods. The entry to record the payment of interest on July 1, 2010, would include acredit to bond interest expense for $6,000 debit to premium on bonds payable for $154 credit to cash for $12,000 debit to bond interest payable for $12,000 $97,000 $98,500 $102,000 $103,500 45. Under the equity method, dividends received by the investor should be recorded asa reduction in the carrying value of the investment an addition to the carrying value of the investment dividend revenue investment revenue 46. With the equity method, the investor recognizes its share of the earnings of the subsidiary when the investor sells the investment investee pays a cash dividend investee declares a cash dividend investee reports earnings on its income statement 47. Acquisition of greater than 20\% of the outstanding stock of a company normally suggests the use of the consolidation method equity method fair-value method straight-line method 48. The fair value method of accounting for investments was proposed to overcome which issues associated with the prior use of lower of cost or market?reliability and liquidity relevance and liquidity reliability and financial flexibility relevance and financial flexibility 49. Which of the following disclosures is not required for investments in securities by current GAAP? the proceeds from sales and the gross realized gains and losses from the sale of available-for-sale securities the circumstances leading to the decision to sell or transfer a trading security the contractual maturities of held-to-maturity debt securities the aggregate fair value of available-for-sale securities by major security type 50. All of the following statements regarding held-to-maturity debt securities are true except premiums and discounts must be amortized over the remaining life of the bonds the debt securities should be valued at market value the realized gain or loss is the difference between the original cost and the proceeds from their sale interest revenue may be debited at the time of acquisition