ACCT322 – Intermediate Accounting
Study Guide for Test 2, Chapters 10-11
You may bring a 3" by 5" card or any piece of paper that size with as much information as you can squash on both sides (3” by 5” double-sided or 6” by 5” single-sided). Better yet, bring a brain with both halves packed with relevant information.
Chapter 10
1.
Know the definition of PP&E. Is property held for sale classified as PP&E?
2.
What does capitalize mean? What accounting principle is being followed when a cost is deferred and amortized in periods of usage?
3.
Review the specific items that are to be capitalized. What is a capitalization cut-off policy? How does the materiality principle affect a capitalization cut-off policy?
4.
What is the difference between land and land improvements? Why is the distinction important?
5.
For self-constructed assets, why does variable overhead usually become part of the constructed asset? Should a portion of fixed overhead become part of the cost basis of the asset?
6.
Which assets under construction qualify for interest costs to be capitalized? When does the capitalization period begin?
7.
Know how to calculate the weighted-average amount of accumulated expenditures.
8.
What is avoidable interest and how is it calculated? Can capitalized interest ever be greater than the actual interest?
9.
Usually a building will be purchased together with the land that it's on. You, as the accountant, have no precise way of knowing how much of the purchase price to apply toward the building or the land. For tax purposes, would a person tend to allocate more towards the land or building? What if the goal was to maximize current profits? What are the ethical issues here? What might be one source of information that could possibly help you objectively allocate the cost between the land account and building account?
10.
Review the rules on non-monetary exchanges and be able to do similar problems to the homework.
11.
Can you distinguish between additions, improvements, replacements, rearrangements, reinstallations, and ordinary or major repairs? What is the accounting treatment of each of these types of expenditures? How is the cost of re-painting handled?
12.
Are costs generally capitalized if they extend an asset’s originally-assigned life? Are costs generally capitalized if they help an asset be more productive or effective?
13.
When plant assets are sold or retired, are all gains and losses recognized?
14.
When a non-cash asset is donated by your company, at what value should the donation be recorded? What account should be debited?
15.
If the loss of some property in Walla Walla is involuntary because of an earthquake, where in the financial statements would the loss appear?
Chapter 11
1.
How did Worldcom’s accounting fraud affect the balance sheet and income statement?
What was Bernie Ebber’s defense? How was he punished?
2.
Distinguish between depreciation, depletion, and amortization. What does depreciation mean to an accountant? To a car salesman? Why might a museum not record depreciation on its works of art? Why might a church not want to depreciate its cathedral?

3.
Be able to calculate depreciation charges using the following methods: 1) activity 2) straight-line 3) sum-of-years'-digits 4) declining balance
4.
What are the objectives, advantages, and disadvantages of each method listed above?
Which depreciation method is a function of time? Which one is a function of use?
Which method tends to be used the most? Which method was used by the companies on the depreciation survey we did?
5.
Which method does not deduct salvage value in order to calculate depreciation expense?
Why?
6.
When are the group and composite methods appropriate? Why is no gain or loss on disposal recorded under these methods?
7.
Why might a company use straight-line for the books and accelerated depreciation for tax purposes? Is this allowed?
8.
What are some of the ways in which we can make the calculation of depreciation for partial periods simpler? Unless stipulated otherwise, which method is to be assumed?
9.
When depreciation rates are revised, should prior years' depreciation be restated? How are changes in accounting estimates, such as salvage value and useful life, treated?
10.
What are impairments, and when and how should a loss be recorded? How does it differ depending on whether the asset will be used or disposed? Review the flowchart and homework dealing with impairments.
11.
What four types of costs are included in the depletion base of natural resources?
12.
When natural resources are depleted but not sold, should the depletion be recorded as an expense or as inventory?
13.
Concerning the accounting for exploration costs in the oil and gas industry, what can be learned from the controversy?
14.
Be able to do exercises concerning depletion similar to the homework.
15.
What is MACRS? When does accelerated depreciation switch to straight-line under
MACRS? Is the straight-line method an acceptable alternative to MACRS? Does tax depreciation consider salvage value? How do the objectives of GAAP and tax-rules differ when it comes to depreciation?
16.
How do international accounting standards differ from U.S. standards regarding the accounting and reporting of PP&E and natural resources?