Ch 11 AC MC Pt 2 – Flashcards
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An impairment of property, plant, or equipment has occurred if
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the revised estimated useful life is less than the original estimated useful life.
*the expected future net cash flows is less than the asset's carrying value.*
the expected future cash outflows exceeds the asset's carrying value.
the estimated salvage value is less than the actual proceeds received on disposal.
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Erie Corporation owns machinery with a book value of $2,200,000. It is estimated that the machinery will generate future cash flows of $1,995,000. The machinery has a fair value of $1,915,000. The journal entry to record the impairment loss will
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include a $285,000 credit to the asset account.
reduce income from continuing operations by $205,000.
*credit the asset's Accumulated Depreciation account by $285,000.*
record an extraordinary loss of $80,000.
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Flannery Corporation owns machinery with a book value of $520,000. It is estimated that the machinery will generate future cash flows of $465,000. The machinery has a fair value of $415,000. Florence should recognize a loss on impairment of
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*$105,000.*
$55,000.
$ -0-.
$50,000.
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Cambodian Import Company purchased a depreciable asset for $160,000 on April 1, 2011. The estimated salvage value is $40,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on March 1, 2014 when the asset is sold?
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$72,000
$66,000
$186,667
*$70,000*
`($160,000 - $40,000) / 60 months results in a monthly depreciation of $2,000. For 35 months the accumulated depreciation is $70,000.
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Which one of the following statements regarding revision of depreciation rates is incorrect?
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Depreciation is computing by dividing the remaining book value less any salvage value by the remaining estimated life.
* Changes in estimate should be handled in the current period only.*
No entry is made at the time a revision of depreciation rates occurs.
Opening balances are not adjusted when a change in estimate occurs.
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Antigua Company purchased a depreciable asset for $45,000 on October 1, 2012. The estimated salvage value is $9,000, and the estimated useful life is 6 years. The straight-line method is used for depreciation. What is the book value on July 1, 2014 when the asset is sold?
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*$34,500*
$10,500
$15,750
$25,500
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When is the restoration of an impairment loss permitted?
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On all tangible assets whether held for use of disposal.
On assets that have been that have already been disposed.
* On assets being held for disposal.*
On assets held for use.
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An asset impairment occurs when the asset's carrying amount exceeds the:
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*expected future net cash flows.*
present value of expected future net cash flows.
asset's book value.
asset's fair value.
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Mains Corporation owns equipment with a cost of $290,000 and accumulated depreciation at December 31, 2014 of $150,000. It is estimated that the machinery will generate future cash flows of $165,000. The machinery has a fair value of $115,000. Mains should recognize a loss on impairment of
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$35,000.
$25,000.
* $0.*
$15,000.
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Depletion is normally calculated using the straight-line method.
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False
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The total cost of natural resources includes all of the following except:
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intangible development costs.
restoration costs.
*all of the options are included in the total cost.*
exploration costs.
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Depletion expense
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excludes intangible development costs from the depletion base.
includes tangible equipment costs in the depletion base.
excludes restoration costs from the depletion base.
* is usually part of cost of goods sold.*
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Natural resources include all of the following except:
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petroleum.
* land improvements.*
minerals.
timber.
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For 2014, Lassiter Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. Lassiter's 2014 asset turnover ratio is
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.23 times.
*1.25 times.*
.25 times.
1.14 times.
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A general description of the depreciation methods applicable to major classes of depreciable assets
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is needed in financial reporting when company policy differs from income tax policy.
*should be included in corporate financial statements or notes thereto.*
is not a current practice in financial reporting.
is not essential to a fair presentation of financial position.
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The rate of return on assets is computed by dividing:
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*net income by average total assets.*
net income by ending total assets.
net sales by ending total assets.
net sales by average total assets.
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The asset turnover ratio is computed by dividing:
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*net sales by average total assets.*
net income by average total assets.
net sales by ending total assets.
net income by ending total assets.
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All of the following statements are true regarding IFRS accounting for property, plant, and equipment except:
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under IFRS, a fair value test is used to measure impairment loss.
under IFRS, interest costs incurred during construction must be capitalized.
under IFRS, depreciation is viewed as an allocation of cost over an asset's life.
* under IFRS, units-of-production depreciation is not permitted.*
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IFRS accounting for impairments differs from GAAP in which of the following ways?
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IFRS uses a recoverability test in addition to the fair value test used by GAAP in testing for impairment.
IFRS prohibits write-ups for recoveries of impairments for assets held for sale.
*IFRS permits recoveries of impairment to be recorded for all tangible assets.*
The IFRS impairment test is less strict than that required by GAAP.
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Which of the following statements is correct?
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Both IFRS and GAAP permit revaluation of property, plant, and equipment.
* IFRS permits revaluation of property, plant, and equipment but not GAAP.*
Both IFRS and GAAP do not permit revaluation of property, plant, and equipment.
GAAP permits revaluation of property, plant, and equipment but not IFRS.
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Under IFRS, value-in-use is defined as:
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net realizable value.
fair value.
* future cash flows discounted to present value.*
total future undiscounted cash flows.
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Under both IFRS and U.S. GAAP, interest costs incurred during construction must be capitalized.
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True
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Unlike U.S. GAAP, interest costs incurred during construction are not capitalized under IFRS.
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False
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Asset revaluations are permitted under IFRS and U.S. GAAP.
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False
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IFRS permits the same depreciation methods as U.S GAAP, with the exception of the units-of-production method, which is not allowed under IFRS.
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False
