Reference no: EM132526128

Problem 1: If a company chooses to use time as its basis for a depreciation method, an item should be depreciated over:

a) Its useful life. That is, the time period the company will actually use the item.

b) Its economic life. That is, the time period over which the item will provide value to some party.

Problem 2: CVN corp purchases a new machine. The machine costs $10,000. They incur another $1,000 to bolt the machine into the floor and connect it to their electrical system. The machine will last for 8 years, but CVN plans to use it for 4 years and then upgrade to a more efficient item (energy standards continue to get better for these machines). At the end of the 4 years, CVN believes they will be able to sell the item for $3,000. CNN uses straight-line deprecation for all items. How much depreciation should they recognize in the first year?

Problem 3: CVN corp also has an automated shelf storage system. They paid $100,000 for the system completely installed. It will be used for 20 years and then scrapped. CVN does not anticipate receiving payment for it at the time of scrapping, but the raw materials are worth enough that the installer will remove it for free. What amount would show up on the face of CVN's balance sheet at the end of the 4th year of use?

Problem 4: CVN purchased a truck three years ago. They paid $20,000 and expected to use the truck for five years, then sell it for $5,000. At the beginning of year three, they decide the truck is still running well, so they will use it for 8 years and sell it for $2,000. How much will the truck depreciate in year three?

Problem 5: CVN corp. has a car they have used for two years for their supervisor to drive. They paid $32,000 for the car with the plan of driving it for 8 years and then donating it to charity (that is, scrapping it with no expected salvage value). However, at the beginning of the third year the supervisor has told them she hates the car and it makes her back hurt. They have asked her to drive it for one more year, they they will sell it. They expect to be able to sell it for $15,000. How much depreciation will they recognize for year 3?

Problem 6: CVN sold a forklift that was purchased for $40,000 and had accumulated depreciation of $26,000. They sold it for $16,000 in cash. How much gain or loss should they recognize?

a) $16,000 Gain

b) $2,000 Loss

c) None of the above

d) $2,000 Gain

e) $14,000 Loss

Problem 7: CVN sold an industrial oven. They had paid $60,000 for the oven and depreciated it in total by $32,000. When they sold it they recorded a loss of $5,000. For how much did they sell the oven?

Problem 8: When compared to long-lived tangible assets, long-lived intangible assets generally are:

a) About the same for accountants who want to capture the economics in any given period.

b) More difficult for accountants who want to capture the economics in any given period.

c) Less difficult for accountants who want to capture the economics in any given period.

Problem 9: When accountants use the term "amortization" it is:

a) A way to communicate that the related assets are less important than long-lived tangible assets.

b) A mistake. That term is no longer allowed in financial statements.

c) Conceptually similar to the term depreciation.

d) An admission that the measurement error is so large the number may not be meaningful.

Problem 10: Goodwill is the accounting term for "synergy"

a) True

b) False

Problem 11: CVN corp purchased CK corp for $200,000 cash. As part of the deal, CVN agreed to assume CK's debt, which CK had recorded with a bookvalue of $30,000. CVN received all of CK's assets, which CV had recorded with a total bookvalue $165,000. CVN had hired valuation experts who said the fairvalue of the debt was $32,000 and the fairvalue of the assets was $180,000. How much (if any) goodwill would CVN place on their books for this transaction?

Problem 12: CVN corp had also acquired SC corp. They recognized $18,000 of goodwill on the CVN books. They had given the SC corp owners $50,000 of cash and assumed debt with a bookvalue of $20,000 (which was also its fair value). How much identifiable asset did CVN receive in the transaction?

Problem 13: CVN corp had recently learned that two of their most popular products were no longer demanded in the market place. They have decided to stop making the products and repurpose all of the raw materials into more demanded products. Unfortunately, they have a reasonable amount of finished product. For Product A, the market price has dropped from $50 per unit to $20 per unit. They have 100 units with a bookvalue of $25 per unit. For Product B, the market price has also dropped from $50 per unit to $20 per unit. They have 50 of these items with a bookvalue of $18 per unit. How much (if any) of an impairment should they recognize in this periods financial statement?

Problem 14: Your friends Zach and Adam are arguing. They own a company together, which Zach manages. Zach has pointed out that every piece of equipment he has sold in the last three years has resulted in a gain for the firm. He says this shows he is a great bargainer. Adam argues Zach is just a bad accountant. Who is correct?

a) Zach

b) Adam

Problem 15: Tobi runs a film and design company. They are planning for a big project in Vancouver. The project will not occur until next fiscal year. They have contacted several hotels and made reservations for rooms as well as set up dining reservations. They are not sure exactly when they will be there, but all reservations can be canceled and this way they have the option to stay if needed. Tobi just summed all the reservations and realized it will cost her $12,500. How much, if any, liability should Tobi's company show on the financial statements at year end?

Problem 16: Caitlin owns a pet store, Caitlin's Critters (CC). Recently an employee failed to properly secure the cages for their rats, gerbils and hamsters properly. When Caitlin came in the next morning, there were animals all over her store. They had also spread into other stores in the mall. She and her employees spent the day capturing animals. They know they did not catch some of them.

The mall had an exterminator come in and set traps. The exterminator said they would have to monitor for 30 days to determine if the animals had begun to breed, which would require a more extensive program. The exterminator believes it is likely they will have to go to midlevel program, which would cost $15,000. However, it is possible that the animals are so spread out that they will not need further treatment. In that case, Caitlin will just be billed $2,000 for the first treatment and monitoring. There is also a small possibility that the rats will mix with domestic rats and create a large infestation problem. In that case, Caitlin would have to pay $50,000 or more.

The escape occurred in the last three days of the fiscal year. Choose the option that best describes the impact on Caitlin's financial statements in the current year.

a) $15,000 liability and expense.

b) $2,000 liability and expense.

c) $15,000 liability, no expense this year.

d) $50,000 liability and expense.

e) $50,000 liability, $2,000 expense.

Problem 17: Caitlin had a customer come in the last day of the year who purchased a large saltwater tank and fish for $750. They also ordered several exotic snails for their salt water aquarium. Since these snails are not commonly requested, Caitlin required the customer to pay the entire $100 for the snails in advance. They will cost Caitlin $30, so it is a nice profit. She has ordered the snails and they should be delivered within a few days.

Caitlin has:

a) Revenue of $850 and no liability.

b) Revenue of $750 and a liability of $100.

C) Revenue of $850 and a liability of $100.

d) A liability of $850 and no revenue.

e) Revenue of $920 and a liability of $30.

f) Revenue of $850 and a liability of $30.

Problem 18: Ignacio has been reviewing his company's financial situation. He has been monitoring a chemical spill that happened two years ago. The long-term impact is still not clear. While he does not think it is probable that they will have to do more clean up, it is possible. He is trying to decide if he should include this in his report to his shareholders in some way.

a) Yes, he should include an explanation in the footnotes to his financial statements.

b) He should include the amount on his balance sheet, but he does not have to include it on his income statement until he is more sure that it will happen.

c) No, there is nothing that needs to be done.

d) Yes, he should estimate the amount he would have to spend if a cleanup is required and reflect that on his income statement and balance sheet for this year.

Problem 19: During the current year, Warren's company sold 10,000 shares of no par value common stock for $20,000. They also had a net income of $40,000 and paid dividends of $8,000. By how much, if any, did their shareholder's contributed capital change?

Problem 20: During the current year, Warren's company sold 10,000 shares of no par value common stock for $20,000. His friend Milen's company also sold 10,000 shares of common stock for $20,000, but those shares had a $.50 per share par value. The difference between the two is that:

a) Warren's company would have to return the entire investment to owners whenever they ask for it, but Milen's company can keep the $5,000 for as long as they like.

B) There really is no difference. Milen's company would break out the amounts received on their balance sheet to show par value, but that is it.

c) Warren's company can invest the entire amount as they see fit, but Milen's company must keep $5,000 in liquid cash or some other very liquid investment.

Problem 21: During the year, Fabian's company sold some treasury stock it had. They had paid $240,000 for the stock two years ago. They resold it for $290,000. What, if any, would the impact be on the current year net income?

Problem 22: During the year, Jessica's firm had net income of $700,000. It was a record year, but most of the sales were on credit and have not yet been paid. In fact, there are still $400,000 waiting for collection. Management believes they will be paid, but some of the terms allow almost a year before that occurs. The firms also paid a dividend of $4,000. How much, if at all, did retained earnings change this year?

Problem 23: Treasury stock is the term used to describe investments in other firm's stock. It is called that because it is one of the investments that firm's use to manage their wealth.

a) False

b) True