Acct 4356 Mizzou Exam 2 Spring 2024 - Howald

Net realizable value of receivables is gross receivables minus

A) provision for credit losses and sales returns.

B) provision for credit losses and estimated returns and allowances.

C) estimated provision for credit losses and estimated returns and allowances.

D) proven credit losses and estimated returns and allowances

c

estimated provision for credit losses and estimated returns and allowances.

Edsel Inc. has the following unadjusted year end trial balance information available for 20X1:

Credit sales $ 600,000

Ending accounts receivable balance $ 180,000

Ending allowance for credit losses balance $ 1,500

Estimated uncollectibles 2%

If Edsel uses the sales revenue approach for estimating the allowance for credit losses, the income statement should show an expense of

A) $10,000

B) $12,000

C) $14,000

D) $20,000

b

sales revenue approach: sales x expense rate = expense

$600,000 × 2% = $12,000

Edsel Inc. has the following unadjusted year end trial balance information available for 20X1:

Credit sales $ 600,000

Ending accounts receivable balance $ 180,000

Ending allowance for credit losses balance $ 1,500

Estimated uncollectibles 2%

If Edsel uses the gross accounts receivable approach for estimating the allowance for credit losses, the income statement will show an expense of

A) $2,100

B) $3,600

C) $5,100

D) $8,500

a

gross accounts receivable approach: A/R x rate - allowance balance = expense

$180,000 × 2% − $1,500 = $2,100

Edsel Inc. has the following unadjusted year end trial balance information available for 20X1:

Credit sales $ 600,000

Ending accounts receivable balance$ 180,000

Ending allowance for credit losses balance $ 1,500

Estimated uncollectibles 2%

If Edsel uses the sales revenue approach for estimating the allowance for credit losses, the allowance for credit losses, after the proper adjustments to the accounts are recorded, should show a balance of

A) $11,500

B) $13,500

C) $15,500

D) $21,500

b

Unadjusted balance of allowance account + Credit loss expense = Adjusted ending balance of allowance

1500 + 12000 = 13,500

Edsel Inc. has the following unadjusted year end trial balance information available for 20X1:

Credit sales $ 600,000

Ending accounts receivable balance $ 180,000

Ending allowance for credit losses balance $ 1,500

Estimated uncollectibles 2%

If Edsel uses the gross accounts receivable approach for estimating the allowance for credit losses, the allowance for credit losses account, after the proper adjustments to the accounts are recorded, should show a balance of

A) $2,600

B) $3,600

C) $5,600

D) $6,200

b

A/R x rate

$180,000 × 2% = $3,600

When a specific account receivable is written off, the entry

A) increases net income.

B) decreases net income.

C) can either decrease or increase net income.

D) has no effect on net income

d

has no effect on net income

Smith Company is a manufacturer of medical devices and has an excellent quality control department, thus defective product returns are rare. In 20X1, Smith reported sales of $276,344,000. The company did, however, have two returns in 20X1 related to the wrong product model being shipped. Smith's 20X1 journal entry to record a $37,500 return from a customer (Foxtrot Medical) would be:

A) DR Sales returns and allowances $37,500 CR Accounts receivable—Foxtrot Medical $37,500

B) DR Sales returns and allowances $37,500 CR Sales $37,500

C) DR Sales $37,500 CR Accounts receivable—Foxtrot Medical $37,500

D) DR Sales returns expense $37,500 CR Accounts receivable—Foxtrot Medical $37,500

a DONT STUDY

DR Sales returns and allowances $37,500

CR Accounts receivable—Foxtrot Medical $37,500

Research evidence suggests that

A) companies increase their allowance for credit losses when earnings are otherwise low and then decrease the provision when earnings are high.

B) companies reduce their allowance for credit losses when earnings are otherwise low and then increase the provision when earnings are high.

C) companies reduce their allowance for credit losses when earnings are otherwise high and then increase the provision when earnings are low.

D) companies increase their allowance for credit losses when earnings are otherwise high and then decrease the provision when earnings are low.

b

companies reduce their allowance for credit losses when earnings are otherwise low and then increase the provision when earnings are high.

Which one of the following is an example of an aggressive revenue recognition policy?

A) A firm recognizes revenue at time of collection.

B) A firm recognizes revenue at the expiration of the sales returns period.

C) A firm with a liberal sales return policy recognizes revenue at shipment.

D) A firm with a liberal sales return policy recognizes revenue at shipment with a corresponding allowance for returns and allowances.

c

A firm with a liberal sales return policy recognizes revenue at shipment.

The Palmer Corporation sells goods to its customers on a note basis with 10% credit terms and interest payable at the end of each quarter. All notes are due in one year. Palmer makes the following sales on July 1, 20X1:

Customer Note Maturity Interest Due Interest Rate

J.Perez $ 100,000 Quarterly 10%

P.Berg $ 100,000 — Negotiated

To encourage sales, Berg was given a special deal on interest.

What amount will Palmer use to record the sale to Berg?

A) $90,000

B) $90,595

C) $100,000

D) $110,382

b

fv = 100,000

i = 10%/4 = 2.5%

n = 4

cpt pv = $90,595

The Palmer corp sells goods to its customers on a note basis with 10% credit terms and interest payable at the end of each quarter. All notes are due in one year. Palmer makes the following sales on July 1, 20X1:

Customer Note Maturity Interest Due Interest Rate

J.Perez $ 100,000 Quarterly 10%

P.Berg $ 100,000 — Negotiated

To encourage sales, Berg was given a special deal on interest.

Future value of $100,000 in one year (quarterly interest) is $110,381.

Present value of $100,000 for one year (quarterly interest) is $90,595.

What amount will Palmer use to record the sale to Berg?

At the end of the first quarter, which one of the following entries will be made to record the interest earned by Palmer on the Berg note?

A) DR Cash $2,500 CR Interest income $2,500

B) DR Accrued interest receivable $2,500 CR Interest income $2,500

C) DR Notes receivable—Berg $2,265 CR Interest income $2,265

D) no entry

c DONT STUDY

DR Notes receivable—Berg $2,265

CR Interest income $2,265

Principal x rate x periods passed/total periods (3/12) = interest earned

$90,595 × 10% × 3/12 = $2,265

On January 2, 20X1, Jensen Corporation sells equipment it manufactured to Lewisburg Fabricators in exchange for an $80,000 note due in five years. The note bears no stated interest rate, but requires the entire $80,000 to be repaid at the end of five years. Jensen recently sold the same equipment to another company for $54,447. When Lewisburg Fabricators sought bank financing for this purchase the company was offered the funds at 8%, but decided to let Jensen hold the note. What amount will Jensen recognize as interest income during 20X2?

A) $4,356

B) $4,704

C) $5,111

D) $0

B

FOR 20X2 find beg bal for 20X2 first

54477 x 1.08 = 58803

$58,803 × 0.08 = $4,704

On January 2, 20X1, Jensen Corporation sells equipment it manufactured to Lewisburg Fabricators in exchange for an $80,000 note due in five years. The note bears no stated interest rate, but requires the entire $80,000 to be repaid at the end of five years. Jensen recently sold the same equipment to another company for $54,447. When Lewisburg Fabricators sought bank financing for this purchase the company was offered the funds at 8%, but decided to let Jensen hold the note. What will be the balance in the Notes Receivable—Lewisburg Fabricators account at the end of 20X2?

A) $54,447

B) $58,802

C) $63,507

D) $80,000

C

Note balance at end of 20X2 = Original note balance + 20X1 interest + 20X2 interest

$54,447 + (54,447 x 0.08) + ((54,447 + 4356) x 0.08) = 63507

54,447 + $4,356 + $4,704 = $63,507

The Fair value adjustment—accounts receivable account is an asset valuation account

A) that would be adjusted upward or downward as fair values change and as the receivables are collected.

B) that is created when fair value accounting is adopted but is not subsequently adjusted.

C) that can only be adjusted downward.

D) that is unaffected by the subsequent collection of receivables.

a

that would be adjusted upward or downward as fair values change and as the receivables are collected.

Frank Ritter, Inc. enters into an arrangement with Hisker Enterprises whereby Hisker will assume $100,000 of Ritter's receivables for a 6% fee. These receivables have a related allowance for credit losses of $3,500.

Assume that the transaction was a factoring arrangement with recourse and included a holdback of $6,000. If the fair value of the recourse obligation is equal to the allowance of $3,500, which entry will Ritter make?

A) DR Cash $100,000 DR Allowance for credit losses 3,500 CR Accounts receivable $100,000 CR Recourse obligation 3,500

B) DR Cash $88,000 DR Loss on sale of receivables 6,000 DR Allowance for credit losses 3,500 DR Due from Hisker Enterprises 6,000 CR Accounts receivable $100,000 CR Recourse obligation 3,500

C) DR Cash $88,000 DR Loss on sale of receivables 12,000 CR Accounts receivable $100,000

D) DR Cash $88,000 DR Loss on sale of receivables 12,000 CR Due to Hisker Enterprises $100,00

b DONT STUDY

DR Cash $88,000

DR Loss on sale of receivables 6,000

DR Allowance for credit losses 3,500

DR Due from Hisker Enterprises 6,000

CR Accounts receivable $100,000

CR Recourse obligation 3,500

Harry Jones accepted a six-month, 8%, $40,000 note receivable from a customer on July 1, 20X1. Jones has an arrangement with the National Bank to discount selected customer notes at 10% without recourse. On August 1, 20X1, Jones discounted the note under the arrangement with National Bank. What was the amount of proceeds Jones received from the discounted note?

A) $38,267

B) $39,867

C) $40,000

D) $41,600

b

Maturity value = Principal + Interest

$40,000 + ($40,000 × 8% × 6/12) = $41,600.

Proceeds = Maturity value − discount =

$41,600 − ($41,600 × .10 × 5/12 = $1,733) = $39,867

Jones Co. sells on credit and maintains an allowance for credit losses equal to 2% of the company's total $3,450,000 receivables balance as an estimate of accounts eventually becoming actually uncollectible. Due to cash shortfall, Jones sells $275,000 of its receivables with recourse to 9th National Bank and the bank withholds $12,000 from the factoring proceeds to cover possible noncollections. At the time of discounting, the $12,000 was agreed upon as a reasonable estimate and there was no recourse obligation recorded. If the noncollections eventually amount to $15,000, the entry would be:

A) DR Allowance for credit losses $3,000 CR Accounts receivable (specific customers) $3,000

B) DR Allowance for credit losses $15,000 CR Accounts receivable (specific customers) $15,000

C) DR Credit loss expense $3,000 CR Cash $3,000

D) DR Allowance for credit losses $15,000 CR Due from Ninth National Bank $12000 CR Cash 3000

d DONT STUDY

DR Allowance for credit losses $15,000

CR Due from Ninth National Bank $12000

CR Cash 3000

Regan, Inc. implemented a program to improve the collection of its receivables. Over the past two years, the company has collected 88% of its receivables, up from 80%. A review of the company's financial statements would be expected to show:

A) a reduction in the percentage of the allowance for credit losses to receivables.

B) an increase in the percentage of the allowance for credit losses to receivables.

C) no difference in the percentage of the allowance for credit losses to receivables.

D) None of these answer choices are correct.

a

a reduction in the percentage of the allowance for credit losses to receivables.

If a bank sells a mortgage portfolio at a price that yields the purchasers a return that is lower than the average yield on the mortgages in the portfolio, the selling price:

A) is equal to the carrying value of the mortgages on the bank's books.

B) is lower than the carrying value of the mortgages on the bank's books.

C) is higher than the carrying value of the mortgages on the bank's books.

D) cannot be determined by examining the carrying value of the mortgages on the bank's books because the selling price is determined purely by the market.

c

is higher than the carrying value of the mortgages on the bank's books

Corona Industries purchased a stamping machine on January 2, 20X1, for $100,000. It made an initial payment of $20,000 and financed the balance over 5 years at State Bank. The loan terms were for annual payments of $16,000 plus 10% interest, payable on December 31 each year. The year 20X4 proves to be a difficult year and on December 1, 20X4 Corona negotiates a debt restructuring with State Bank. The settlement calls for cash payment of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held by Corona that cost $15,000. The land has a current fair value of $22,000. On December 1, 20X4, how much interest is accrued on this loan?

A) $2,933

B) $3,200

C) $6,933

D) $18,933

a

Accrued interest @ 12/1/20X4 = Loan balance @ 1/1/20X1 × rate × time = ($100,000 − down payment $20,000 − payments ($16,000 × 3)) = $32,000 × 10% × 11/12 = $2,933

100,000 - 20,000 - 48,000 = 32,000

32,000 x 10% x 11/12 = 2933

Corona Industries purchased a stamping machine on January 2, 20X1, for $100,000. It made an initial payment of $20,000 and financed the balance over 5 years at State Bank. The loan terms were for annual payments of $16,000 plus 10% interest, payable on December 31 each year. The year 20X4 proves to be a difficult year and on December 1, 20X4 Corona negotiates a debt restructuring with State Bank. The settlement calls for cash payment of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held by Corona that cost $15,000. The land has a current fair value of $22,000. What is the amount of the restructuring gain or loss to Corona? 21) ______

A) $6,000 loss

B) $6,000 gain

C) $8,933 loss

D) $13,000 gain

b

Cash paid ($4,000 + $2,933) = 6933 + land $22,000 = $ 28,933

Less: loan $32,000 + interest due $2,933 = 34,933

$ 28,933 - 34,933 = 6000

Gain $ 6,000

The determining factor for accounting treatment of a troubled debt restructuring when there is a continuation with modification of terms is whether: 22) ______

A) there is a gain or loss on the transaction to the debtor.

B) there is a gain or loss on the transaction to the lender.

C) the undiscounted sum of the future cash flows under the restructured note is above or below the note's carrying value (including accrued interest) at the restructuring date.

D) the discounted sum of the future cash flows under the restructured note is above or below the note's carrying value (including accrued interest) at the restructuring date.

c

the undiscounted sum of the future cash flows under the restructured note is above or below the note's carrying value (including accrued interest) at the restructuring date.

Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus $8,000 accrued interest. On October 1, 20X1. Island and Mutual Bank execute an agreement whereby Island will pay Mutual $128,000 on the due date of the note on October 1, 20X3. Island will record this transaction to recognize: 23) ______

A) a debt restructuring gain of $20,000.

B) a debt restructuring loss of $20,000.

C) a debt restructuring gain of $8,000.

D) neither a gain nor a loss from debt restructuring.

d

Because the sum of future cash flows on the restructured note is greater than the carrying value of the original payable, Island will compute a new (and lower) effective interest rate for the restructured note and accrue interest at that new rate until the loan is fully paid.

Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus $8,000 accrued interest. On October 1, 20X1. Island and Mutual Bank execute an agreement whereby Island will pay Mutual $128,000 on the due date of the note on October 1, 20X3. 24) ______

what will be the new notereceivable balance for Mutual Bank?

A) $89,256

B) $105,786

C) $108,000

D) $128,000

b

fv = -128,000

n = 2

i = 10

pmt = 0

cpt pv = 105,786

Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus $8,000 accrued interest. On October 1, 20X1. Island and Mutual Bank execute an agreement whereby Island will pay Mutual $128,000 on the due date of the note on October 1, 20X3. What effective interest rate will Mutual Bank use for the restructured note?

A) 8.7%

B) 8.9%

C) 10.0%

D) 13.1%

c

fv = 128,000

pv = -105,786

n = 2

pmt = 0

cpt i = 10%

26) When troubled debt is restructured via continuation with modification of debt terms, the original loan is:

A) continued but interest and principal payments may be reduced or eliminated.

B) continued but the repayment schedule may be extended over a longer time period.

C) continued but the amount of collateral securing the loan is increased.

D) cancelled and a new loan agreement is signed.

d

cancelled and a new loan agreement is signed.

Which of the following statements is true regarding a troubled debt restructuring?

A) In a troubled debt restructuring, there is a lack of symmetry in the financial reporting of the borrower and lender.

B) A troubled debt restructuring can only be accomplished through a continuation with modification of debt terms including cancelation of the original loan and execution of a new loan agreement.

C) In a troubled debt restructuring, GAAP restructuring gains and losses for accounting are equal to real economic gains and losses for the companies involved.

D) All accounting aspects of a troubled debt restructuring are explicitly covered by IFRS

a

In a troubled debt restructuring, there is a lack of symmetry in the financial reporting of the borrower and lender.

Which of the following statements is true regarding sales returns and allowances? 28) ______

A) Ignoring estimated future returns and allowances has a minimal impact on reported earnings when the amount of actual returns and allowances is not material and does not vary greatly from year-to-year.

B) The sales returns and allowances account is a contra-asset account.

C) When sales returns occur, they should be debited to the sales account.

D) Estimated sales returns and allowances are often material in relation to accounts receivable.

a

Ignoring estimated future returns and allowances has a minimal impact on reported earnings when the amount of actual returns and allowances is not material and does not vary greatly from year-to-year.

Accounts receivables initially are recognized at 29) ______

A) the present value of the related future cash flows.

B) amortized cost.

C) net realizable value.

D) the future value

b

amortized cost.

ConConsistent with ASC topic 326, expected credit losses are recognized as 30) ______

A) a reduction of the related revenue.

B) an addition to cost of goods sold.

C) an aggregated expense.

D) a separately reported loss.

d

a separately reported loss.

Information about credit quality, amortization cost by credit quality indicator for the prior five years and in the aggregate, and the methodology for estimating credit losses must be disclosed for 31) ______

A) all receivables reported at amortized cost

B) only receivables expected to be collected within one year

C) only receivables expected to be collected over a period exceeding one year

D) only interest-bearing notes

a

all receivables reported at amortized cost

The major issue in inventory accounting is 32) ______

A) determining whether to take inventory using cycle counts instead of counting all inventory only at the end of the year.

B) deciding whether to maintain records on a periodic or perpetual basis.

C) determining what goods to include in inventory.

D) choosing the method for allocating goods available for sale to ending inventory and cost of goods sold.

d

choosing the method for allocating goods available for sale to ending inventory and cost of goods sold.

The carrying cost of inventory should include all the following costs except: 33) ______

A) purchase costs.

B) sales taxes and transportation costs paid by the purchaser.

C) general administrative costs associated with the purchase of inventory.

D) insurance and storage costs.

c

general administrative costs associated with the purchase of inventory.

Goods held on consignment are included in the inventory valuation of:

34) ______

A) the consignor.

B) the consignee.

C) both the consignor and the consignee.

D) neither the consignor nor the consignee

a

the consignor.

Analysts must be aware that with the use of absorption costing, as inventory absorbs more fixed costs, reported net income tends to: 35) ______

A) increase.

B) decrease.

C) remain the same.

D) become highly volatile

a

increase.

The mechanics of absorption costing can lead to year-to-year income changes: 36) ______

A) whenever inventory levels remain fairly constant.

B) if the productivity of factory workers improves.

C) if production and sales levels are not the same.

D) when raw material prices are increasing.

c

if production and sales levels are not the same.

Financial analysts recognize that the deficiency of the FIFO cost flow assumption is the failure to 37) ______

A) match current costs with current revenues.

B) match current costs with oldest revenues.

C) match oldest costs with current revenues.

D) match oldest costs with oldest revenues.

a

match current costs with current revenues.

38) The following information pertains to the Fan Company's inventory item B1008: March

1 - Inventory Balance 400 units @ $ 3.10

5 - Purchase 1,400 units @ $ 3.20

4 - Purchase 280 units @ $ 3.25

31 - Inventory Balance 520 units

In a periodic inventory system, the ending LIFO inventory is: 38) ______

A) $1,624.

B) $1,655.

C) $1,678.

D) $1,733.

a

Ending LIFO inventory:

400 @ $ 3.10 = $ 1,240

120 @ $ 3.20 = 384

1240 + 384 = $ 1,624

The following information pertains to the Fan Company's inventory item B1008: March

1 Inventory Balance 400 units @ $ 3.10

5 Purchase 1,400 units @ $ 3.20

14 Purchase 280 units @ $ 3.25

31 Inventory Balance 520 units

In a periodic inventory system, the LIFO cost of goods sold is: 39) ______

A) $4,952.

B) $4,967.

C) $4,993.

D) $5,006.

D

LIFO cost of goods sold:

400 + 1680 - x = 520

x = 1560

280 @ $ 3.25 = $ 910

(1560-280) = 1,280 @ $ 3.20 = 4,096

910 + 4096 = $ 5,006

The following information pertains to the Fan Company's inventory item B1008: March

1 Inventory Balance 400 units @ $ 3.10

5 Purchase 1,400 units @ $ 3.20

14 Purchase 280 units @ $ 3.25

31 Inventory Balance 520 units

In a periodic inventory system, the FIFO cost of goods sold is 40) ______

A) $4,952.

B) $4,967.

C) $4,993.

D) $5,006.

A

FIFO cost of goods sold:

400 @ $ 3.10 = $ 1,240

1,160 @ $ 3.20 = 3,712

1240 + 3712 = $ 4,952

The LIFO reserve disclosure is required because LIFO inventory costs are: 41) ______

A) higher than FIFO inventory costs.

B) lower than FIFO inventory costs.

C) equal to FIFO inventory costs.

D) usually of no consequence.

b

lower than FIFO inventory costs.

The conversion of a LIFO inventory to approximate the inventory at FIFO is accomplished through application of which one of the following formulas? 42) ______

A) FIFO inventory = LIFO inventory × LIFO reserve

B) FIFO inventory = LIFO inventory ÷ LIFO reserve

C) FIFO inventory = LIFO inventory − LIFO reserve

D) FIFO inventory = LIFO inventory + LIFO reserve

d

FIFO inventory = LIFO inventory + LIFO reserve

The Xano Company reported merchandise inventory at LIFO of $450,000 on the year-end financial statements. The company also reported a LIFO reserve of $34,000. An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is 43) ______

A) $382,000.

B) $416,000.

C) $461,000.

D) $484,000.

d

LIFO inventory + LIFO reserve = FIFO inventory

$ 450,000 + 34,000 = $ 484,000

The Mick Company reported a LIFO cost of goods sold for the year of $100,000. The LIFO reserve decreased by $30,000 for the year. An estimate of the cost of goods sold under FIFO is: 44) ______

A) $70,000.

B) $130,000.

C) $160,000.

D) $200,000.

b

LIFO cost of goods sold + Decrease in LIFO reserve = estimated FIFO COGS

$ 100,000 + 30,000 = $ 130,000

Inventory turnover distortion under LIFO inventory costing may be adjusted by: 45) ______

A) adding the LIFO reserve amounts to cost of goods sold and adjusting beginning and ending inventory for pre-tax LIFO liquidation profits whenever LIFO liquidation occurs.

B) subtracting the LIFO reserve amounts from cost of goods sold and adjusting beginning and ending inventory for pre-tax LIFO liquidation profits whenever LIFO liquidation occurs.

C) adding the LIFO reserve amounts to beginning and ending inventory and adjusting cost of goods sold for pre-tax LIFO liquidation profits whenever LIFO liquidation occurs.

D) subtracting the LIFO reserve amounts from beginning and ending inventory and adjusting cost of goods sold for pre-tax LIFO liquidation profits whenever LIFO liquidation occurs.

c

adding the LIFO reserve amounts to beginning and ending inventory and adjusting cost of goods sold for pre-tax LIFO liquidation profits whenever LIFO liquidation occurs.

As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO layers are matched against current sales dollars resulting in a profit margin that is: 46) ______

A) inflated.

B) deflated.

C) lower than normal.

D) always the same as under FIFO

a

inflated.

For a firm using LIFO, the numerator of the inventory turnover ratio is predominantly current period costs: 47) ______

A) and the denominator consists of old LIFO costs.

B) and it must be adjusted to conform to the old LIFO costs in the denominator.

C) and the denominator must be adjusted by adding the LIFO reserve to ending inventory.

D) and the denominator must be adjusted by subtracting the LIFO reserve from both beginning and ending inventory

a

and the denominator consists of old LIFO costs.

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the rapidity of the inventory turnover and the: 48) ______

A) change in accounts receivable turnover.

B) divergence of total asset turnover from previous periods.

C) severity of input cost change.

D) rapidity of fixed asset turnover

c

severity of input cost change.

The World Company's financial statements for 20X2 and 20X1 contain the following errors

20x2 ending inventory = 6000 overstated

20x2 insurance expense = 4000 understated

20x1 ending inventory = 16000 overstated

20x1 insurance expense = 12000 overstated

If no correcting entries were made at the end of 20X1, how much will retained earnings beoverstated or understated at the end of 20X2? (Ignore income tax.)49) ____

A) $2,000 understated

B) $2,000 overstated

C) $10,000 understated

D) $10,000 overstated

a

16000 - 12000 = 4000 over

16000 - 6000 - 4000 = 6000 under

6000 under + 4000 over = 2000 understated

TAD, Inc. uses the LIFO-lower of cost or market method to value inventory. If the inventory value is replacement cost, which one of the following statements is true? 50) ______

A) Historical cost is less than replacement cost.

B) Replacement cost is greater than net realizable value less a normal profit margin.

C) Replacement cost is greater than historical cost.

D) Net realizable value is greater than historical cost.

b

Replacement cost is greater than net realizable value less a normal profit margin.

The use of the lower of cost or net realizable value (LCNRV) method to value inventory for reporting purposes employs the accounting principle of: 51) ______

A) cost-benefit.

B) matching.

C) historical cost.

D) conservatism.

d

conservatism.

Konan, Inc. needs to determine its inventory value. The following information pertains to the individual products in ending inventory:

Product Cost Replacement Cost Selling Price Cost of Completion Normal Profit

L-19 40 38 50 2 11

M-23 52 40 60 10 8

N-05 20 24 30 2 6

Assuming Konan uses the LIFO method for costing its inventory, the maximum limit for market value of product L-19 is: 52) ______

A) $37.

B) $38.

C) $48.

D) $50.

c

Selling price - cost of completion = net realizable value

$50 − $2 = $48

Konan, Inc. needs to determine its inventory value. The following information pertains to the individual products in ending inventory:

Product Cost Replacement Cost Selling Price Cost of Completion Normal Profit

L-19 $40 $38 $50 $2 $11

M-23 52 40 60 10 8

N-05 20 24 30 2 6

Assuming Konan uses the LIFO method for costing its inventory, the minimum limit for market value of product M-23 is: 53) ______

A) $42.

B) $52.

C) $50.

D) $60.

A

Floor = selling price $60 − cost of completion $10 − normal profit $8 = $42

Konan, Inc. needs to determine its inventory value. The following information pertains to the individual products in ending inventory Product Cost Replacement Cost Selling Price Cost of Completion Normal Profit

L-19 $40 $38 $50 $2 $11

M-23 52 40 60 10 8

N-05 20 24 30 2 6

Assuming Konan uses the LIFO method for costing its inventory, the lower of cost or market for item M-23 is: 54) ______

A) $40.

B) $42.

C) $46.

D) $52

B

Cost = $52; market = $42 (replacement $40, ceiling (60-10) 50, floor (60-10-8) 42; LCM = $42

Konan, Inc. needs to determine its inventory value. The following information pertains to the individual products in ending inventory:

Product Cost Replacement Cost Selling Price Cost of Completion Normal Profit

L-19 $40 $38 $50 $2 $11

M-23 52 40 60 10 8

N-05 20 24 30 2 6

Assuming Konan uses the FIFO method for costing its inventory, the net realizable value for product L-19 is: 55) ______

A) $37.

B) $38.

C) $48.

D) $50.

C

Net realizable value = selling price $50 − cost of completion $2 = $48

Konan, Inc. needs to determine its inventory value. The following information pertains to the individual products in ending inventory:

Product Cost Replacement Cost Selling Price Cost of Completion Normal Profit

L-19 $40 $38 $50 $2 $11

M-23 52 40 60 10 8

N-05 20 24 30 2 6

Assuming Konan uses the FIFO method for costing its inventory, write-down of inventory value for item M-23 is 56) ______

A) $10.

B) $8.

C) $2.

D) $0.

C

Net realizable value = selling price − cost of completion

$60 - $10 = $50. Cost = $52.

LCNRV = $50. Write-down to reduce cost to NRV = $2.

Similarities between U.S. GAAP and IFRS include which of the following? 57) ______

A) Both U.S. GAAP and IFRS permit the same cost flow assumptions.

B) Inventory is carried at the lower of cost or net realizable value under both U.S. GAAP and IFRS.

C) Direct costing is required under both U.S. GAAP and IFRS.

D) The definition of inventory is similar in both U.S. GAAP and IFRS.

d

The definition of inventory is similar in both U.S. GAAP and IFRS

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on: 58) ______

A) the severity of input cost changes.

B) the rapidity of physical inventory turnover.

C) both the severity of input cost changes and the rapidity of physical inventory turnover.

D) the rate of inflation.

c

both the severity of input cost changes and the rapidity of physical inventory turnover.

Which of the following statements regarding inventory accounting is false? 59) ______

A) The choice of method for allocating the cost of goods available for sale between ending inventory and cost of goods sold represents the major issue in inventory accounting.

B) The input cost changes that occur after the purchase of inventory items in a current cost accounting system are recognized as unrealized holding gains.

C) If the cost of inventory never changed, the FIFO, LIFO and weighted average cost flow would produce the same financial statement result.

D) Although many firms use the LIFO cost flow assumption, there are no examples where the actual physical flow of units is also last-in, first-out.

d

Although many firms use the LIFO cost flow assumption, there are no examples where the actual physical flow of units is also last-in, first-out.

*A quarry with an inventory of rock piles could operate with a LIFO physical flow

Which of the following statements regarding inventory accounting is true? 60) ______

A) Analysts should be aware that when a company uses absorption costing, reported income tends to decrease as inventory absorbs more of the fixed costs.

B) Variable costing includes more than the variable costs of production in the valuation of inventory.

C) When physical inventory levels are decreasing and a company uses the absorption cost method, net income tends to increase.

D) When physical inventory levels are increasing and a company uses the absorption cost method, net income tends to increase.

d

When physical inventory levels are increasing and a company uses the absorption cost method, net income tends to increase.

61) Which of the following statements regarding inventory accounting is false? 61) ______

A) Under U.S. GAAP, the cost flow assumption does not need to conform to the actual flow of the goods.

B) Under U.S. GAAP, current cost (replacement cost) accounting may be used at the discretion of management with proper disclosure.

C) The FIFO method of inventory valuation assumes that the first unit purchased is the first unit sold.

D) The weighted average cost flow assumption generates numbers that are between the LIFO and FIFO assumptions.

b

Under U.S. GAAP, current cost (replacement cost) accounting may be used at the discretion of management with proper disclosure.

Which of the following statements regarding inventory accounting is true? 62) ______

A) FIFO charges the most recent costs against revenues on the income statement.

B) In the U.S., FASB prefers replacement cost accounting because it records holding gains on the financial statements as they arise.

C) The primary difference between FIFO and LIFO is that each method makes a different choice regarding which financial statement element is shown at the out-ofdate cost.

D) The specific identification method of inventory accounting is generally considered to be the most prevalent.

c

The primary difference between FIFO and LIFO is that each method makes a different choice regarding which financial statement element is shown at the out-ofdate cost.

Which of the following statements regarding inventory accounting is false? 63) ______

A) By charging the oldest costs to the income statement, LIFO automatically includes in income any holding gains on the units that are sold.

B) Under either FIFO or LIFO it is not possible to simultaneously reflect both the balance sheet inventory and cost of goods sold at current cost.

C) When purchases and sales occur continuously, the costs incurred most recently will be virtually identical to current replacement cost so LIFO provides a good match between current costs and current revenues.

D) To get the most recent prices into cost of goods sold, a company using LIFO will use the periodic inventory system, rather than a perpetual system, to compute its ending inventory and cost of goods sold.

a

By charging the oldest costs to the income statement, LIFO automatically includes in income any holding gains on the units that are sold.

Which of the following statements regarding inventory accounting is false? 64) ______

A) IFRS requires the use of absorption costing.

B) Both U.S. GAAP and IFRS apply lower of cost or market in the same manner when accounting for inventory.

C) IFRS permits inventory reductions due to lower of cost or market write-downs to be reversed if the market recovers.

D) Since the use of LIFO is not allowed under IFRS, inventory holding gains are included in income.

b

Both U.S. GAAP and IFRS apply lower of cost or market in the same manner when accounting for inventory.

Which of the following statements regarding inventory accounting is false? 65) ______

A) Firms that use LIFO must disclose the dollar magnitude of the difference between LIFO and FIFO cost.

B) The LIFO reserve disclosure requirement is intended to help investors compare LIFO versus FIFO firms in a meaningful manner.

C) The formula to convert the cost of goods sold under LIFO to an estimate of the cost of goods sold under FIFO is: LIFO cost of goods sold minus increase in LIFO reserve equals FIFO cost of goods sold.

D) U.S. GAAP prescribes a standardized format for disclosing the LIFO reserve.

d

U.S. GAAP prescribes a standardized format for disclosing the LIFO reserve.

Which one of the following is an example of the expected benefit approach for valuing longlived assets? 66) ______

A) Historical cost.

B) Current replacement value.

C) Salvage value.

D) Discounted present value

d

Discounted present value

The dominant method under GAAP for measuring long-lived assets is the: 67) ______

A) expected benefit approach.

B) discounted present value approach.

C) historical cost approach.

D) replacement cost approach.

c

historical cost approach.

Which one of the following items would be charged to the cost of a building rather than the cost of land? 68) ______

A) Architectural fees.

B) Grading of land.

C) Demolition of an existing structure.

D) Cost of hauling material from a demolished structure

a

Architectural fees.

In comparing firms in the same industry, which of the following does not present a challenge for analysts? 69) ______

A) Differences in estimates of useful lives.

B) The age of the companies being compared.

C) The use of different depreciation methods.

D) Each of these answer choices presents a challenge for analysts.

d

Each of these answer choices presents a challenge for analysts.

The Reid Co. acquired a piece of land for a new factory paying $100,000. Reid demolished the old building at a cost of $20,000, and sold scrapped material salvaged from the old building for $5,000. The architect's fees were $25,000, and the title insurance upon acquisition of the land was $1,000. The construction period interest was $8,000, and the contractor received $300,000 for the building. A pavement assessment made by the city cost Reid $2,000 at the purchase date. The cost of the building recorded by Reid Co. is: 70) ______

A) $300,000

B) $326,000

C) $333,000

D) $335,000

c

Architect fees $ 25,000

+ Construction interest 8,000

+ Building cost 300,000

= Total building cost $ 333,000

Kitty Co. broke ground on its new building on March 1, 20X1, and completed construction November 30, 20X1. Kitty made the following expenditures in conjunction with this project: Date Expenditure

April 1, 20X1 $ 450,000

June 1, 20X1 200,000

September 1, 20X1 400,000

November 30, 20X1 100,000

Kitty's cumulative weighted average expenditures on this project would be 71) ______

A) $287,500

B) $500,000

C) $508,333

D) $595,833

b

date x portion of year(time between date an expenditure made and date of projects completion) = weighted avg accumulated expenditure

April 1, 20X1 $ 450,000 × 8/12(apr-nov = 8months) = $ 300,000

June 1, 20X1 200,000 × 6/12(june-nov = 6months = 100,000

September 1, 20X1 400,000 × 3/12(sept-nov = 3 months) = 100,000

November 30, 20X1 100,000 × 0/12(0 months) = 0

300,000 + 100,000 + 100,000 = 500,000

XDoggy Co. began construction of a new cutter for the U.S. Coast Guard on January 1, 20X1 and completed construction of the ship on October 31, 20X2. To finance construction, Doggy took out an $8,000,000, 2-year, 6% construction loan on February 1, 20X1. Interest on the loan was to be paid annually on the anniversary date of the loan. Doggy has no other outstanding interest-bearing debt. Doggy made the following expenditures in conjunction with this construction project:

Date Amount

2/1/20X1 $ 1,050,000

3/31/20X1 900,000

6/1/20X1 750,000

10/1/20X1 1,000,000

12/31/20X1 600,000

3/1/20X2 900,000

9/1/20X2 250,000

How much interest should Doggy capitalize in 20X1 related to the cutter project? 72) ______

A) $129,000

B) $139,500

C) $440,000

D) $480,000

b

1050000 x 11/12 = 962500

900000 x 9/12 = 675000

750000 x 7/12 = 437500

1000000 x 3/12 = 250000

600000 x 0/12 = 0

do not include 20X2 expenditures when calculating 20X1 capitalization

962500 + 675000 + 437500 + 250000 = 2,325,000

2,325,000 x 6% = 139,500

Doggy Co. began construction of a new cutter for the U.S. Coast Guard on January 1, 20X1 and completed construction of the ship on October 31, 20X2. To finance construction, Doggy took out an $8,000,000, 2-year, 6% construction loan on February 1, 20X1. Interest on the loan was to be paid annually on the anniversary date of the loan. Doggy has no other outstanding interest-bearing debt. Doggy made the following expenditures in conjunction with this construction project: Date Amount

2/1/20X1 $ 1,050,000

3/31/20X1 900,000

6/1/20X1 750,000

10/1/20X1 1,000,000

12/31/20X1 600,000

3/1/20X2 900,000

9/1/20X2 250,000

What is the amount of Doggy's cumulative weighted average expenditures during 20X2 related to the cutter project? 73) ______

A) $2,966,667

B) $4,341,250

C) $4,941,667

D) $5,450,000

b

1050000 x 11/12 = 962500

900000 x 9/12 = 675000

750000 x 7/12 = 437500

1000000 x 3/12 = 250000

600000 x 0/12 = 0

4,439,500 x 10/12 = 3699583

900,000 x 8/12 = 600,000

250,000 x + 2/12 = 41,667

3699583 + 600,000 + 41,667 = 4,341,250

U.S. GAAP capitalizes expenditures to upgrade long-lived assets when the expenditure causes any of the following conditions except: 74) ______

A) The useful life of the asset is extended.

B) The capacity of the asset is increased.

C) The efficiency of the asset is increased.

D) There is an increase in the non-economic benefits associated with owning the asset (such as an increase in the appearance of the company's offices).

d

There is an increase in the non-economic benefits associated with owning the asset (such as an increase in the appearance of the company's offices).

U.S. GAAP for long-lived assets significantly impedes rate-of-return comparisons across companies unless the firms: 75) ______

A) apply the same depreciation methods and the same useful lives among similar groups of assets.

B) market their products to the same customers.

C) are of approximately the same size.

D) have similar operating cycles

a

apply the same depreciation methods and the same useful lives among similar groups of assets.

Research findings almost uniformly indicate that existing U.S. GAAP for both R&D and software development is: 76) ______

A) satisfactory as written.

B) objective.

C) conservative.

D) liberal.

c

conservative.

According to U.S. GAAP, technological feasibility is established when an entity has completed all of the following activities necessary to establish that a product can be produced, except:

77) ______

A) Coding.

B) Designing.

C) Measuring.

D) Planning.

c

Measuring.

Which of the following is an accurate statement regarding testing for impairments of tangible assets and amortizable intangible assets? 78) ______

A) Assets may be tested as a group if they are used in combination with other assets in the group.

B) Assets are to be tested only as individual assets.

C) Assets may be tested as a group only if they were purchased as a group.

D) Assets need not to be tested for impairment annually

a

Assets may be tested as a group if they are used in combination with other assets in the group.

At the end of y1, Henry's management believes the growing popularity of video content will reduce the demand for Henry's DVD players. The DVD players are manufactured using specialized equipment with a historical cost=3000000 and accumulated depreciation=1520000. The managers estimate the equipment has a remaining useful life of 4y and will generate the following undiscounted cash flows:

Y2 540000

Y3 420000

Y4 190000

Y5 125000

Salvage=50000

equipment sold today, sales price = $1600000. Is the equipment impaired?

A) Yes, the equipment is impaired. The undiscounted cash flows are lower than the carrying amount of the asset by $155,000.

B) No, the equipment is not impaired. The fair value of the equipment is greater than the carrying value of the asset by $120,000.

C) Yes, the equipment is impaired. The undiscounted cash flows are less than the fair value of the equipment by $275,000.

D) Cannot determine impair

a

COST = 3,000,000

ACC DEP = 1,520,000

CARRYING VALUE = 1,480,000

Y2 540,000

+ Y3 420,000

+ Y4 190,000

+ Y5 125,000

+ Salvage 50,000

sum = 1,325,000

1,480,000 - 1,325,000 = 155,000 (undiscounted lower than carrying amount)

An impairment loss is reported on the income statement as: 80) ______

A) part of income from continuing operations.

B) an extraordinary item.

C) part of income from discontinued operations.

D) an accounting change

a

part of income from continuing operations.

The Simon Company acquired equipment three years ago at a cost of $125,000. Two years later the equipment sustained impairment in value. At the time of the impairment, the fair value of the equipment was $25,000 and the carrying value was $50,000. The entry to record the impairment would be: 81) ______

A) DR Retained earnings 25,000 CR Accumulated depreciation 25,000

B) DR Impairment loss 25,000 CR Equipment 25,000

C) DR Equipment 25,000 CR Impairment loss 25,000

D) DR Retained earnings 25,000 CR Equipment 25,000

b DONT STUDY

DR Impairment loss 25,000

CR Equipment 25,000

Carrying value − fair value = impairment loss

$50,000 $25,000 = $25,000

Evaluation and testing for impairment assessments of indefinite-lived intangible assets: 82) ______

A) follows the same process as required for impairment evaluation and testing for tangible assets.

B) requires only assessment of qualitative factors.

C) requires a quantitative impairment test if, after a qualitative assessment, it is more likely than not that the asset is impaired.

D) requires a two-step process to be completed for all impairment assessments.

c

requires a quantitative impairment test if, after a qualitative assessment, it is more likely than not that the asset is impaired.

Which of the following does not represent guidance for assets held for sale? 83) ______

A) They are reported in the discontinued section of the income statement.

B) They are reported at the lower of book value or fair value.

C) They are expected to be sold within one year.

D) They are reported at the lower of book value or fair value less costs to sell.

b

They are reported at the lower of book value or fair value.

Deuce Company purchased a truck for $50,000 on January 2, 20X1. The asset has an expected salvage value of $5,000 at the end of its five-year useful life. How much is the depreciation expense in 20X2 if double-declining balance depreciation is used? 84) ______

A) $6,000

B) $9,000

C) $12,000

D) $15,000

c

straight-line % = 1/5(life) = 20%

double declining balance = 20% x 2 = 40%

20X1 50,000 x .4 = 20000 dep

50,000-20,000 = 30,000

20X2 30000 x .4 = 12000 dep

Deuce Company purchased a truck for $50,000 on January 2, 20X1. The asset has an expected salvage value of $5,000 at the end of its five-year useful life. How much is the depreciation expense in 20X5 if double-declining balance depreciation is used for 20X1-20X2 and there is a switch to straight-line in year 20X3? 85) ______

A) $4,333.33

B) $3,000

C) $9,000

D) $12,000

a

straight-line % = 1/(life) = 1/5 = 20%

double declining balance = 20% x 2 = 40%

20X1 50,000 x .4 = 20000 dep

50,000-20,000 = 30,000

20X2 30000 x .4 = 12000 dep

30,000 - 12000 = 18000

subtract salvage (5000) when switching to SL

20X3 (18000-5000) = 13,000 x 1/3 = 4,333.33

13,000 -4,333.33 = 8666.67

20X4 8666.67 X 1/2 = 4,333.33

8666.67 - 4,333.33= 4,333.33

20X5 4,333.33 X 1/1 = 4,333.33

When the differences in useful lives of long-lived assets reflect real economic differences, the attempt on the part of financial analysts to undo these differences may: 86) ______

A) impede profit and loss comparisons.

B) enhance profit comparisons.

C) enhance profit comparisons, but impede loss comparisons.

D) enhance profit and loss comparisons.

a

impede profit and loss comparisons

When a financial analyst adjusts a company's reported depreciation expense to improve comparisons of profitability with another firm that uses the same depreciation method, the analyst assumes all of the following to be true except that: 87) ______

A) the useful lives differences are "real".

B) the dollar breakdown within asset categories is similar for both firms (i.e., both have similar amounts of buildings vs. leasehold improvements, etc.).

C) salvage value proportions are roughly equivalent for both firms.

D) the useful life differences are artificial.

a

the useful lives differences are "real".

Financial analysts can make comparisons between the long-lived assets of two companies, both of which use straight-line depreciation, by computing the average useful life of assets with which one of the following formulas? 88) ______

A) Net depreciable property, plant, and equipment/average useful life.

B) Gross depreciable property, plant, and equipment/average useful life.

C) Gross depreciable property, plant, and equipment/straight-line depreciation expense.

D) Straight-line depreciation expense/net depreciable property, plant, and equipment.

c

Gross depreciable property, plant, and equipment/straight-line depreciation expense.

When firms dispose of a long-lived asset by selling it before the end of its useful life, the difference between the net book value of the asset and the disposition proceeds is a/an: 89) ______

A) cost of goods gain or loss.

B) gain or loss from continuing operations.

C) gain or loss from a discontinued item.

D) gain or loss from a prior period.

b

gain or loss from continuing operations.

Devine Company sold a machine for $6,000 that originally cost $34,000 and had accumulated depreciation of $27,000. Devine had a/an: 90) ______

A) gain of $1,000.

B) sales revenue of $6,000.

C) loss of $1,000.

D) cost of goods sold of $1,000.

c

Sales price − net book value = gain/loss

$6,000 - ($34,000 − $27,000) = -$1,000

In assessing whether an exchange transaction has commercial substance, the firm's future cash flows are expected to change significantly as a result of the exchange. Which item below does not describe whether a significant change in cash flow is expected? 91) ______

A) The risk, timing and amount of the future cash flows differs significantly from the future cash flows of the asset transferred.

B) The entity-specific value of the asset differs from that of the asset transferred.

C) The difference between the entity-specific value of the asset(s) received and the entity-specific value of the asset(s) transferred is significant in relation to the fair values of the assets.

D) Only the timing and amount of future cash flows is required to be significant - risk and entity-specific value are optional.

d

Only the timing and amount of future cash flows is required to be significant - risk and entity-specific value are optional.

When two companies exchange products to facilitate sales to customers and the exchange also includes a cash payment, which of the following is the proper treatment of the transaction by the recipient of the cash? 92) ______

A) No gain or loss is recorded.

B) A portion of any gain is recorded.

C) The inventory received is recorded at the same value as the inventory relinquished.

D) All the cash received is recognized as a gain.

b

A portion of any gain is recorded.

The Key Company sold a machine. The machine had accumulated depreciation of $50,000 and a salvage value of $6,000. If the machine sold for $16,000 and a gain of $4,000 is recognized, the original cost of the asset is: 93) ______

A) $54,000

B) $62,000

C) $66,000

D) $70,000

b

cost = acc dep + BV = 50,000 + 12,000 = 62,000

acc dep 50,000

BV = price sold -(+) gain(loss) = 16,000-4,000 = 12,000

sold = 16,000

gain = 4,000 (more than BV)

When certain kinds of assets are built that require public welfare and safety expenditures at the end of the asset's life, 94) ______

A) these estimated future expenditures are subtracted from the carrying value of the asset.

B) these "asset retirement" costs are expensed when asset retirement occurs.

C) this fact is only reported in the notes to the financial statements.

D) a liability simultaneously arises for those future expenditures.

d

a liability simultaneously arises for those future expenditures.

To preclude firms from generating artificial gains on exchange transactions being recorded at fair value, U.S. GAAP requires that the transaction: 95) ______

A) must possess commercial substance.

B) have future cash flows that remain substantially the same.

C) be reviewed and approved by the SEC.

D) All of these answer choice criteria must be met to book an exchange transaction at the fair value of the exchanged assets

a

must possess commercial substance.

Presume that an asset exchange transaction does not culminate an earning process and that the transaction does not involve cash. In such a case: 96) ______

A) a gain will be recognized only when the fair value of the acquired assets exceeds the book value of the relinquished assets.

B) a loss will be recognized only when the fair value of the acquired assets exceeds the book value of the relinquished assets.

C) the assets acquired are recorded at the book value of the assets relinquished.

D) a gain will be recognized only when the fair value of the acquired assets exceeds the fair value of the relinquished assets

c

the assets acquired are recorded at the book value of the assets relinquished.

Under IFRS, when an asset is revalued upward, subsequent depreciation is based on: 97) ______

A) the asset's original cost.

B) the method used for determining depreciation on the company's tax returns.

C) the asset's revaluation net book value which is the fair value at the time of revaluation.

D) the amount of future cash flows the asset is expected to generate

c

the asset's revaluation net book value which is the fair value at the time of revaluation.

Which of the following is not part of the IFRS revaluation rules for tangible long-lived assets? 98) ______

A) A company can elect to revalue individual assets.

B) If a company elects to revalue any assets, all assets of a similar class must be revalued.

C) Once assets are revalued, they must be kept up to date through regular reassessments.

D) If an asset is written up, the revaluation surplus account must be reclassified each year to retained earnings.

a

A company can elect to revalue individual assets.

When an asset's fair value has increased and a firm elects the revaluation method, 99) ______

A) the amount of the necessary write-up is credited to a contra-asset account called revaluation surplus.

B) subsequent depreciation is based on the asset's original cost.

C) under U.S. GAAP, the accumulated depreciation account is removed and the revalued amount becomes the new book value.

D) under IFRS, the accumulated depreciation account is removed and the revalued amount becomes the new book value

d

under IFRS, the accumulated depreciation account is removed and the revalued amount becomes the new book value

Which of the following is not a difference between U.S. GAAP and IFRS treatment of impaired assets? 100) ______

A) The use of discounted cash flow.

B) Due to differences, U.S. GAAP may trigger an impairment loss that would not be triggered by IFRS.

C) The right to reverse prior impairment losses when there is a change in the estimates used to measure the loss.

D) In determining the valuation, costs to sell are deducted from fair value.

b

Due to differences, U.S. GAAP may trigger an impairment loss that would not be triggered by IFRS.