# Question: The following questions are adapted from a variety of sources

The following questions are adapted from a variety of sources including questions developed by the AICPA Board of Examiners and those used in the Kaplan CPA Review Course to study property, plant, and equipment and intangible assets while preparing for the CPA examination. Determine the response that best completes the statements or questions.
1. Slovac Company purchased a machine that has an estimated useful life of eight years for \$7,500. Its salvage value is estimated at \$500. What is the depreciation for the second year of the asset’s life, assuming Slovac uses the double-declining balance method of depreciation?
a. \$1,406
b. \$1,438
c. \$1,875
d. \$3,750
2. Calculate depreciation for year 2 based on the following information:
Historical cost \$40,000
Useful life 5 years
Salvage value \$3,000
Year 1 depreciation \$7,400
a. \$7,000
b. \$7,400
c. \$8,000
d. \$8,600
3. A company pays \$20,000 for the rights to a well with 5 million gallons of water. If the company extracts 250,000 gallons of water in the first year, what is the total depletion in year 1?
a. \$ 400
b. \$1,000
c. \$1,250
d. \$5,000
4. Black, Inc., purchased another company for \$5,000,000. The fair value of all identifiable tangible and intangible assets was \$4,500,000. Black will amortize any goodwill over the maximum number of years allowed.
What is the annual amortization of goodwill for this acquisition?
a. \$12,500
b. \$20,000
c. \$25,000
d. 0
5. On January 2, 2013, Rafa Company purchased a franchise with a useful life of 10 years for \$50,000. An additional franchise fee of 3% of franchise operating revenues also must be paid each year to the franchisor. Revenues during 2013 totaled \$400,000. In its December 31, 2013, balance sheet, what net amount should Rafa report as an intangible asset-franchise?
a. \$33,000
b. \$43,800
c. \$45,000
d. \$50,000
6. JME acquired a depreciable asset on January 1, 2011, for \$60,000 cash. At that time JME estimated the asset would last 10 years and have no salvage value. During 2013, JME estimated the remaining life of the asset to be only three more years with a salvage value of \$3,000. If JME uses straight-line depreciation, what is the depreciation for 2013?
a. \$ 6,000
b. \$12,000
c. \$15,000
d. \$16,000
7. The following information concerns Franklin Inc.’s stamping machine:
Acquired: January 1, 2007
Cost: \$22 million
Depreciation: straight-line method
Estimated useful life: 12 years
Salvage value: \$4 million
As of December 31, 2013, the stamping machine is expected to generate \$1,500,000 per year for five more years and will then be sold for \$1,000,000. The stamping machine is
a. Impaired because expected salvage value has declined.
b. Not impaired because annual expected revenue exceeds annual depreciation.
c. Not impaired because it continues to produce revenue.
d. Impaired because its book value exceeds expected future cash flows.
8. During 2012, Yvo Corp. installed a production assembly line to manufacture furniture. In 2013, Yvo purchased a new machine and rearranged the assembly line to install this machine. The rearrangement did not increase the estimated useful life of the assembly line, but it did result in significantly more efficient production. The following expenditures were incurred in connection with this project:
Machine .............. \$75,000
Labor to install machine ....... 14,000
Parts added in rearranging the assembly
line to provide future benefits ..... 40,000
Labor and overhead to rearrange the
assembly line .......... 18,000
What amount of the above expenditures should be capitalized in 2013?
a. \$ 75,000
b. \$ 89,000
c. \$107,000
d. \$147,000
Beginning in 2011, International Financial Reporting Standards are tested on the CPA exam along with U.S. GAAP. The following questions deal with the application of IFRS.
9. On January 1, 2013, D Company acquires for \$100,000 a new machine with an estimated useful life of 10 years and no residual value. The machine has a drum that must be replaced every five years and costs \$20,000 to replace. The company uses straight-line depreciation. Under IFRS, what is depreciation for 2013?
a. \$10,000.
b. \$10,800.
c. \$12,000.
d. \$13,200.
10. Under IFRS, when a company chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct?
a. When an asset is revalued, the entire class of property, plant, and equipment to which the asset belongs must be revalued.
b. When an asset is revalued, individual assets within a class of property, plant, and equipment to which that asset belongs can be revalued.
c. Revaluations of property, plant, and equipment must be made every three years.
d. An increase in an asset’s carrying value as a result of the first revaluation must be recognized as a component of profit and loss.
11. Under IFRS, the initial revaluation of equipment when book value exceeds fair value results in
a. An increase in net income.
b. A decrease in net income.
c. An increase in other comprehensive income.
d. A decrease in other comprehensive income.
12. Under IFRS, a company that acquires an intangible asset may use the revaluation model for subsequent measurement only if
a. The useful life of the intangible asset can be readily determined.
b. An active market exists for the intangible asset.
c. The cost of the intangible asset can be measured reliably.
d. The intangible asset is a monetary asset.
13. The management of Clayton LTD. determined that the cost of one of its factories may be impaired. Below are data related to the assets of the factory (\$ in millions):
Book value ................... \$400
Undiscounted sum of future estimated cash flows ..... 420
Present value of future cash flows ......... 320
Fair value less costs to sell (determined by appraisal) .. 330
Under IFRS, what amount of impairment loss, if any, should Clayton recognize?
a. \$90 million.
b. \$80 million.
c. \$70 million.
d. No impairment loss is required.
14. Blankbank Corporation has \$150 million of goodwill on its books from the 2011 acquisition of Walsh Technology. Walsh is considered a cash-generating unit under IFRS. At the end of its 2013 fiscal year, management provided the following information for its annual goodwill impairment test (\$ in millions):
Fair value of Walsh less costs to sell ........... \$455
Fair value of Walsh’s net assets (excluding goodwill) .... 400
Book value of Walsh’s net assets (including goodwill) ...... 500
Present value of estimated future cash flows ......... 440
Under IFRS, what amount of goodwill impairment loss, if any, should Blankbank recognize?
a. \$100 million.
b. \$60 million.
c. \$50 million.
d. \$45 million.

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