Long-lived Assets

10 questions

1. 1. A company decides to expense its development costs instead of capitalizing it. In this regard, which of the following statements is inaccurate?
   Net income will be lowerAsset turnover will be higherDebt to equity ratio will be lower
2. 2. Under U.S. GAAP, restorations of carrying value for long-lived assets are permitted if an asset's fair value increases subsequent to recording an impairment loss for which of the following?
   Held for use: Yes, Held for sale: YesHeld for use: Yes, Held for sale: NoHeld for use: No, Held for sale: Yes
3. 3. A firm has borrowed funds for the construction of a long-lived asset. Which of the following is the correct treatment of the interest accrued during the period of construction?
   The interest is capitalized and added to asset cost in the balance sheet.The interest is expensed and shown on the income statement.In the cash flow statement, the interest is shown as an outflow under operating activities.
4. 4. A firm is developing software for its own use. Which of the following is the correct treatment of the software development cost under US GAAP?
   Expense all costs as incurredCapitalize all costsExpense costs till technical feasibility is established, and capitalize thereon.
5. 5. Alpha Co. purchased a long-lived asset on January 1, four years ago at a price of $500,000, with no salvage value. The estimated useful life of the asset was 10 years. The company used straight-line method to calculate depreciation expense on the asset. At the end of the fourth year, an impairment loss of $60,000 was recognized on the asset. Assuming no change in the useful life of the asset, what amount should the company report as depreciation expense in its income statement for the 5th year?
   $40,000 $44,000 $50,000
6. 6. Which of the following statements with respect to depreciation accounting is FALSE?
   Depreciation expense is shown in the income statement.Over the life of an asset subject to depreciation, the accelerated method will result in more Depreciation Expense in total than the total Depreciation Expense using the straight-line method.If a company continues to use equipment past the useful life that was assumed in determining the depreciation, then there will be no depreciation expense in the additional years.
7. 7. A company purchases a 10-acre parcel of land and a building located on the land. What is the correct treatment for depreciating the asset?
   The company will depreciate the entire cost over the useful life of the building.Part of the purchase will be allocated to land and the remaining cost assigned to building is depreciated.There will be no depreciation on these assets.
8. 8. A company purchased a new truck on January 1, for $50,000. The truck has a useful life of 10 years, or 200,000 miles. By the end of the year the truck has driven 15,000 miles.

   Calculate the amount of depreciation expense the company should record using the double-declining method.

   3,0005,00010,000
9. 9. A company purchased a new truck on January 1, for $50,000. The truck has a useful life of 10 years, or 200,000 miles. The truck has a salvage value of $10,000. By the end of the year the truck has driven 15,000 miles.

   Calculate the amount of depreciation expense the company should record using the double-declining method.

   $3,000$5,000$10,000
10. 10. A company uses revaluation model to report assets on the financial statements. In year 1, the company had purchased a machinery at the beginning of the year for $100,000. At the of year 1, the fair value of the machinery was $90,000. In year 2, the machinery's fair value is $105,000. What amount will the company recognize in the income statement in year 2?
    $0$10,000$15,000