Alexandria University
Faculty of Commerce
2nd Grade
Trial Exam June 2020
Intermediate Accounting (2)
Choose the best answer for each of the following:
Use the following information for questions 1 through 2.
On March 1, 2015, Newton Company purchased land for an office site by paying
$540,000 cash. Newton began construction on the office building on March 1. The
following expenditures were incurred for construction:
Date
Expenditures
March 1, 2015
$ 360,000
April 1, 2015
504,000
May 1, 2015
900,000
June 1, 2015
1,440,000
The office was completed and ready for occupancy on July 1. To help pay for
construction, $720,000 was borrowed on March 1, 2015 on a 9%, 3-year note
payable. Other than the construction note, the only debt outstanding during 2015 was
a $300,000, 12%, 6-year note payable dated January 1, 2015.
1. The weighted-average accumulated expenditures on the construction project
during 2015 were
a. $384,000.
b. $2,934,000.
c. $312,000.
d. $696,000.
2. The actual interest cost incurred during 2015 was
a. $90,000.
b. $100,800.
c. $50,400.
d. $84,000.
3. The cost of land does not include
a. Costs of grading, filling, draining, and clearing.
b. Costs of removing old buildings.
c. Costs of improvements with limited lives.
d. Encumbrances
4. In non-monetary exchange of assets, accounting recognition should not be given to
a. a loss when the exchange has no commercial substance.
b. a gain when the exchange has commercial substance.
c. a gain when the exchange has no commercial substance.
d. a loss when the exchange has commercial substance.
1
Use the following information for questions 5 through 6.
On January 1, 2019, Altman’s Corp. replaced its steamer with a more efficient one.
The following information was available on that date:
Purchase price of new steamer
Carrying amount of old steamer
Fair value of old steamer
Installation cost of new steamer
$150,000
10,000
4,000
20,000
The old steamer was sold for $4,000.
5. What amount should Altman capitalize as the cost of the new steamer?
a.
b.
c.
d.
$170,000.
$166,000.
$160,000.
$150,000.
6. Which of the following is TRUE:
a. Altman paid cash of 150,000
b. Altman paid cash of 170,000
c. Altman paid cash of 166,000
d. Altman paid cash of 146,000
7. Insurance on equipment purchased, while the equipment is in transit, is
a. Considered as a part of the cost of the equipment.
b. Considered as an insurance expense.
c. Considered as an insurance premium.
d. None of the above.
Use the following information for questions 8 through 11.
Zara Company exchanged equipment used in its operations plus $6,000 in cash for
similar equipment used in the operations of D&G Company. The exchange lacks
commercial substance. The following information pertains to the exchange.
Zara Co.
Equipment (cost)
84,000
Accumulated depreciation
57,000
Fair value of equipment
40,500
8. For financial reporting purposes, Zara Company:
a. Recognized gain at 13,500.
b. Recognized loss at 13,500.
c. Recognized gain at Zero
d. Recognized loss at Zero.
9. Zara Company:
a. Recorded the new equipment at $46,500
b. Recorded the new equipment at $33,000
c. Paid cash of 46,500
d. Received cash of 6,000
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D&G Co.
$84,000
30,000
46,500
10. D&G Company:
a. Recognized loss at 7,500
b. Recognized gain at $13,500
c. Recognized loss at $13,500
d. Recognized gain at $7,500
11. D&G Company:
a. Recorded the new equipment at $46,500
b. Paid cash of 6,000
c. Recorded the new equipment at $40,500
d. Received cash of 16,000
12. Zimmer Company is constructing a building. Construction began in 2019 and the
building was completed on December 31, 2019. Zimmer made payments to the
construction company of $1,500,000 on July 1, $3,300,000 on September1, and
$3,000,000 on December 31. Average accumulated expenditures were
a. $1,575,000
b. $1,850,000.
c. $4,800,000.
d. $7,800,000.
13. Alex Co. constructed a building at a cost of $20,000,000. Average accumulated
expenditures were $8,000,000, actual interest was $1,200,000, and avoidable
interest was $600,000. If the salvage value is $1,600,000, and the useful life is 40
years, depreciation expense for the first full year using the straight-line method is
a. $475,000.
b. $490,000.
c. $515,000.
d. $675,000.
14. When land with an old building is purchased as a future building site, the cost of
removing the old building is
a. Deducted from the cost of the land.
b. Part of the cost of the new building.
c. Part of the cost of the land.
d. Deducted from the cost of the new building.
15. On February 1, 2018, Misr Corporation purchased land as a factory site for
$200,000. An old building on the property was demolished, and construction
began on a new building which was completed on November 1, 2018. Costs
incurred during this period are listed below:
Demolition of old building
Architect's fees
Legal fees for title investigation and purchase contract
Construction costs
(Salvaged materials resulting from demolition were sold for
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$ 20,000
35,000
5,000
1,090,000
$10,000.)
Misr should record the cost of the land and new building, respectively, as
a. $225,000 and $1,115,000.
b. $210,000 and $1,130,000.
c. $210,000 and $1,125,000.
d. $215,000 and $1,125,000.
16. Warranties that the product meets agreed-upon specifications in the contract at the
time the product is sold are referred to as
a. Agreed-type warranties
b. Assurance-type warranties.
c. Service-type warranties.
d. Specifications Warranties.
17. Alex Co. borrowed $175,000 on April 1, 2018. The note requires interest at 12%
and principal to be paid in one year. How much interest is recognized at
December 31, 2018?
a. $0.
b. $21,000.
c. $5,250.
d. $15,750.
Use the following information to answer questions 18 & 19
Hans Co. borrowed $175,000 on October 1, 2017 and is required to pay $180,000 on
March 1, 2018.
18. What amount is the note payable recorded on October 1?
a. $185,000
b. $175,000.
c. $180,000
d. $170,000
19. How much interest is recognized at December 31, 2017?
a. Zero
b. $3,000
c. $2,000
d. $5,000
20. LG Company begins production of a new machine in July 2017 and sold 100 of
these machines for $5,000 cash by year-end. Each machine is under assurance
warranty for one year. LG estimates that the warranty cost will average $200 per
unit. Further, as a result of parts replacements and services performed in
compliance with machinery warranties, it incurs $4,000 in warranty costs in 2017.
The journal entry to record this transaction would include:
a. Sales of $520,000
b. Unearned warranty revenue $20,000
c. Warranty Liability $2,000
d. Warranty Expense $20,000
4
21. Lenovo Co. sells computers for $2,000 each and also gives each customer a 2-year
assurance warranty that requires the company to perform periodic services and to
replace defective parts. During 2014, the company sold 1,000 computers. Based
on past experience, the company has estimated the total 2-year warranty costs as
$40 for parts and $60 for labor. In 2015, Lenovo incurred actual warranty costs
relative to 2014computer sales of $10,000 for parts and $20,000 for labor. The
company should record
a. at 2015, Warranty Expense $ 30,000
b. at 2014, Unearned warranty revenue $ 200,000
c. at 2015, Warranty Liability $ 30,000
d. at 2015, Warranty Revenue $ 100,000
22. Lamar Equipment Company sold 500 machines during 2015 at $600 each. During
2015, Lamar spent $9,000 servicing the warranties that accompany the sold
machines. Assuming that the company offers a service - type warranties for two
years. Assume that $16,000 relates to sales of warranty contracts. At 2015 the
company should record.
a. Sales of $ 284,000
b. Unearned warranty revenue $ 8,000
c. Warranty Liability $16,000
d. Warranty Expense $9,000
23.
The term "depreciable base," or "depreciation base," as it is used in
accounting, refers to
a. the total amount to be charged (debited) to expense over an asset's
useful life.
b. the cost of the asset less the related depreciation recorded to date.
c. the estimated fair value of the asset at the end of its useful life.
d. the acquisition cost of the asset.
24.
Which of the following is not one of the basic questions that must be answered
before the amount of depreciation charge can be computed?
a.
b.
c.
d.
25.
What depreciable base is to be used for the asset?
What is the asset's useful life?
What method of cost apportionment is best for this asset?
What product or service is the asset related to?
Use of the sum-of-the-years'-digits method
a. results in residual value being ignored.
b. means the denominator is the years remaining at the beginning of
the year.
c. means the book value should not be reduced below residual value.
d. All of these answer choices are correct.
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26. Sun Products purchased a computer for $13,000 on July 1, 2015. The
company intends to depreciate it over 4 years using the double-declining balance
method. Residual value is $1,000. Depreciation for 2016 is
a. $6,500
27-
b. $20,900
$565,000
d.
$3,000
c. $22,000
d. $190,000
b. $ 445,000
c.$435,555
d.
$414,750
$40,903.
$38,845.
$38,750.
$35,000.
On January 1, 2013, Mountain Co. purchased machinery for 420,000.
The machinery has an estimated useful life of eight years. The
depreciation applicable to this machinery was $65,000 for 2015,
computed by the sum-of-the-years'-digits method. The estimated residual
value of the machinery was
a. $30,000
31.
$4,875
On September 19, 2014, McCoy Co. purchased machinery for $190,000.
Residual value was estimated to be $10,000. The machinery will be
depreciated over eight years using the sum-of-the-years'-digits method. If
depreciation is computed on the basis of the nearest full month, McCoy
should record depreciation expense for 2015 on this machinery of
a.
b.
c.
d.
30-
c.
On January 1, 2014, Green Company purchased a new machine for
$700,000. The new machine has an estimated useful life of nine years and
the residual value was estimated to be $25,000. Depreciation was
computed on the sum-of-the-years'-digits method. What amount should
be shown in Green's balance sheet at December 31, 2015, net of
accumulated depreciation, for this machine?
a.
29.
$3,250
King Company purchased a depreciable asset for $200,000. The estimated
residual value is $10,000, and the estimated useful life is 10,000 hours.
King used the asset for 1,100 hours in the current year. The activity
method will be used for depreciation. What is the depreciation expense on
this asset?
a. $19,000
28-
b.
b.
$20,000.
c. $0.
d. $10,000.
Rollins Company purchased a depreciable asset for $300,000 on April 1,
2012. The estimated residual value is $30,000, and the estimated total
useful life is 5 years. The straight-line method is used for depreciation.
What is the balance in accumulated depreciation on May 1, 2015 when
the asset is sold?
a.
c.
$118,000
$148,500
b. $126,000
d. $166,500
6
32.
Rivera Company purchased a tooling machine on January 3, 2008 for
$500,000. The machine was being depreciated on the straight-line method
over an estimated useful life of 10 years, with no residual value. At the
beginning of 2015, the company paid $125,000 to overhaul the machine.
As a result of this improvement, the company estimated that the useful
life of the machine would be extended an additional 5 years (15 years
total). What should be the depreciation expense recorded for the machine
in 2015?
a.
c.
33-
$34,375
$50,000
$41,667
$55,000
Valley Corporation purchased a depreciable asset for $300,000 on
January 1, 2012. The estimated residual value is $30,000, and the
estimated useful life is 9 years. The straight-line method is used for
depreciation. In 2015, Valley changed its estimates to a total useful life of
5 years with a salvage value of $50,000. What is 2015 depreciation
expense?
a. $30,000
34.
b.
d.
b. $50,000
c. $80,000
d. $90,000
Kohlman Corporation owns machinery with a book value of $190,000.
The machinery has a fair value less costs to sell of $175,000, and its valuein-use is $170,000. Kohlman should recognize a loss on impairment of
a.
b.
c.
d.
$ -0-.
$5,000.
$15,000.
$20,000.
35.On January 1, 2015, W. Poon Inc. purchased equipment with a cost of
HK$4,668,000 a useful life of 12 years and no salvage value. The company
uses straight-line depreciation. At December 31, 2015, the company
determines that impairment indicators are present. The fair value less
cost to sell the asset is estimated to be Hk$4,620,000. The asset’s value-inuse is estimated to be HK$4,305,000. There is no change in the asset’s
useful life or salvage value. The 2015 income statement will report Loss on
Impairment of
a.
b.
c.
d.
36.
HK$0.
HK$26,000.
HK$48,000.
HK$341,000.
Of the following costs related to the development of mineral resources,
which one is not a part of depletion cost?
a. Acquisition cost of the mineral resource deposit
b. Exploration costs
c. Tangible equipment costs associated with machinery used to extract
the mineral resource
d. Intangible development costs such as drilling costs, tunnels, and
shafts
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37.During 2015, Eldred Corporation acquired a mineral mine for $1,500,000 of
which $200,000 was ascribed to land value after the mineral has been
removed. Geological surveys have indicated that 10 million units of the
mineral could be extracted. During 2015, 1,500,000 units were extracted
and 1,200,000 units were sold. What is the amount of depletion expensed
for 2015?
a.
b.
c.
d.
38.
Which of the following characteristics do intangible assets possess?
a.
b.
c.
d.
39.
capitalized.
capitalized if they have an indefinite life.
expensed as incurred.
expensed only if they have a limited life.
In a business combination, the excess of the cost of the purchase over the
fair value of the identifiable net assets purchased is
a.
b.
c.
d.
42.
Physical existence.
Identifiable.
Result in future benefits.
Expensed over current and/or future years.
Costs incurred internally to create intangibles are
a.
b.
c.
d.
41.
Physical existence.
Claim to a specific amount of cash in the future.
Long-lived.
Held for resale.
Which characteristic is not possessed by intangible assets?
a.
b.
c.
d.
40.
$130,000.
$156,000.
$180,000.
$195,000.
other assets.
indirect costs.
goodwill.
a bargain purchase.
A loss on impairment of an intangible asset is the difference between the
asset’s
a.
b.
c.
d.
carrying amount and the expected future net cash flows.
carrying amount and its recoverable amount.
recoverable amount and the expected future net cash flows.
book value and its fair value.
43. Contreras Corporation acquired a patent on May 1, 2015. Contreras paid
cash of $35,000 to the seller. Legal fees of $900 were paid related to the
acquisition. What amount should be debited to the patent account?
a.
b.
c.
d.
$900
$34,100
$35,000
$35,900
8
44. Rich Corporation purchased a limited-life intangible asset for $270,000
on May 1, 2013. It has a useful life of 10 years. What total amount of
amortization expense should have been recorded on the intangible asset
by December 31, 2015?
a.
b.
c.
d.
$ -0-.
$54,000
$72,000
$81,000
45. ELO Corporation purchased a patent for $135,000 on September 1, 2013.
It had a useful life of 10 years. On January 1, 2015, ELO spent $33,000 to
successfully defend the patent in a lawsuit. ELO feels that as of that date,
the remaining useful life is 5 years. What amount should be reported for
patent amortization expense for 2015?
a.
b.
c.
d.
$30,900.
$30,000.
$28,200.
$23,400.
46. Floyd Company purchases Haeger Company for $840,000 cash on
January 1, 2016. The book value of Haeger Company’s net assets, as
reflected on its December 31, 2015 statement of financial position is
$620,000. An analysis by Floyd on December 31, 2015 indicates that the
fair value of Haeger’s tangible assets exceeded the book value by $60,000,
and the fair value of identifiable intangible assets exceeded book value by
$45,000. How much goodwill should be recognized by Floyd Company
when recording the purchase of Haeger Company?
a.
b.
c.
d.
47.
$ -0$220,000
$160,000
$115,000
On June 2, 2015, Olsen Inc. purchased a trademark with a cost
€2,360,000. The trademark is classified as an indefinite-life intangible
asset. At December 31, 2015 and December 31, 2016, the following is
available for impairment testing:
12/31/2015
€2,280,000
€2,340,000
Fair value less costs to sell
Value-in-use
12/31/2016
€2,265,000
€2,390,000
The 2016 income statement will report
a.
b.
c.
d.
48.
no Impairment Loss or Recovery of Impairment.
Impairment Loss of €20,000.
Recovery of Impairment of €20,000.
Recovery of Impairment of €50,000.
The third step in the process for revenue recognition is to
a.
b.
c.
d.
determine the transaction price.
identify the separate performance obligations in the contract.
allocate transaction price to the separate performance obligations.
recognize revenue when each performance obligation is satisfied.
9
Use the following information for questions 115 and 116.
49.
Horner Construction Co. uses the percentage-of-completion method. In
2015, Horner began work on a contract for €16,500,000; it was completed
in 2016. The following cost data pertain to this contract:
Year Ended December 31
2015
2016
Cost incurred during the year
€5,850,000 €4,200,000
Estimated costs to complete at the end of year
3,900,000
—
The amount of gross profit to be recognized on the income statement for
the year ended December 31, 2016 is
a.
b.
c.
d.
50.
€2,400,000.
€2,580,000.
€2,700,000.
€6,450,000.
If the cost-recovery method of accounting was used, the amount of gross
profit to be recognized for years 2015 and 2016 would be
a.
b.
c.
d.
2015
€6,750,000.
€6,450,000.
€0.
€0.
2016
€0.
€(300,000).
€6,450,000.
€6,750,000.
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