Capitalizing interest on self constructed assets

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Reference no: EM13920831

1. A problem using the direct write-off method for uncollectible accounts receivable is

A. it understates the future amount of receivables expected to be collected (future cash inflow) on the balance sheet.

B. it overstates the future amount of receivables expected to be collected (future cash inflow) on the balance sheet

C. it is the GAAP preferred method for recording uncollectible accounts

D. it allows for earnings management when estimating uncollectible accounts

2. When capitalizing interest on self-constructed assets

A. only the actual interest on debt and equity securities can be capitalized

B. only the avoidable interest on debt and equity securities can be capitalized

C. only the lesser of the actual or avoidable interest can be capitalized

D. only the greater of the actual or avoidable interest can be capitalized

3. When exchanging a nonmonetary asset for another nonmonetary asset

A. gains and losses should always be recognized on the exchange only if there is commercial substance

B. gains should only be recognized on the exchange

C. losses should only be recognized on the exchange if there is commercial substance

D. losses should always be recognized on the exchange

4. There are three theoretical methods for the accounting of temporary investments. The FASB adopted the fair value method when accounting for securities classified as trading securities and available-for-sale securities. The difference between the accounting for unrealized holding gains and losses for these two securities is:

A. classifying the unrealized holding gain/loss as other comprehensive income for trading securities

B. classifying the unrealized holding gain/loss as other gains/losses on the income statement for available-for-sale securities

C. classifying the unrealized holding gain loss as other comprehensive income for available-for sale securities

D. classifying the unrealized holding gain/loss as other gains/losses on the income statement for both trading and available-for-sale securities

5. One of the problems analyzing a company's working capital position when LIFO is used to value the inventory is

A. an understatement of the current ratio

B. an overstatement of the amount of working capital

C. an understatement of the working capital and an overstatement of the current ratio

D. an overstatement of both the current ratio and working capital

6. When recording an asset retirement obligation

A. an asset is recorded for the future value of the expected disposal cost of the long-term asset

B. a liability is established at the present value of the expected disposal cost of the long-term asset

C. both an asset and liability are recorded at the future value of the expected disposal cost of the long-term asset

D. any future changes made to the initial amount of the recorded asset and liability are treated as an error correction

7. When incurring subsequent costs (costs after the initial purchase) for assets correctly classified as property, plant, and equipment, these costs should be capitalized if

A. the costs increase the estimated salvage value of the asset

B. the costs are incurred as part of routine maintenance

C. the costs increase the output of the asset

D. the costs are material in dollar amount

8. Ten years ago the King Lebrun Company issued $10,000,000 of bonds payable that are coming due in the current year. They are currently classified as a long-term liability and their payment (extinguishment) will come from a bond sinking fund that is properly classified as an investment. The King Lebrun Company should

A. classify the bonds payable as a current liability

B. classify the bond sinking fund as a contra-liability to the bonds payable account

C. classify the bond sinking fund as a cash equivalent

D. not do anything and keep the bonds payable classified as a long-term liability

9. When estimating the value of inventory on-hand for interim reporting purposes

A. the gross profit method should be used

B. the retail inventory method should be used

C. the gross profit or the retail inventory methods can be used

D. a physical inventory is required under GAAP for interim reporting purposes

10. Financial accounting (GAAP) does not allow the use of MACRS for calculating depreciation expense for financial reporting. The straight-line method of calculating depreciation expense is by far the most popular method. A likely reason for this is

A. that since calculating depreciation expense is based on estimates anyway, we use straight-line as it is the easiest method to use

B. straight-line does the best job at matching revenues and expenses (expense recognition)

C. GAAP refers to the straight-line method as being the most systematic and rational allocation method

D. straight does a better job of approximating fair value of the asset with its book value.

Reference no: EM13920831

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