Question 1

In an exchange of plant assets that has commercial substance, any difference between the fair value and the book value of the old plant asset is

Accepted Answer

Any difference between the fair value and the book value of the old plant asset in an exchange of plant assets with commercial substance is recorded as a gain or loss. This is because the exchange has commercial substance, meaning that the future cash flows of the company will be affected by the new plant asset received in the exchange. As a result, any difference between the fair value and book value is a real economic gain or loss and should be recognized in the financial statements.

Question 2

Intangible assets

Accepted Answer

Intangible assets are non-physical assets that are expected to provide future benefits to the business. They include items such as patents, trademarks, copyrights, and goodwill. These assets should be reported as a separate classification on the statement of financial position, as they are not included in Property, Plant, and Equipment and are not current assets.

Question 3

Losses on an exchange of plant assets that has commercial substance are

Accepted Answer

Losses on an exchange of plant assets that has commercial substance are recognized immediately under Generally Accepted Accounting Principles (GAAP). This means that the loss is recorded in the same period as the exchange takes place, and it reduces the gain or increases the loss on the transaction.

Question 4

The cost of a new asset acquired in an exchange that has commercial substance is the cash paid plus the

Accepted Answer

According to the cost principle in accounting, the cost of a new asset acquired in exchange that has commercial substance is equal to the fair value of the old asset plus any cash paid. This is because the fair value represents the true economic value of the asset being exchanged, while the cash paid is the actual outflow of resources. Therefore, the correct answer is B, the fair value of the old asset.

Question 5

The asset turnover ratio

Accepted Answer

The asset turnover ratio is computed by dividing net sales by average total assets, as stated in option A. Option B is incorrect because the asset turnover ratio measures how efficiently a company is using its total assets, not just fixed assets. Option C is also incorrect because it describes the fixed asset turnover ratio, not the asset turnover ratio.

Question 6

During 2014, Rathke Corporation reported net sales of $3,000,000, net income of $1,440,000, and depreciation expense of $120,000. Rathke also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $960,000, and accumulated depreciation of $600,000. Rathke's asset turnover ratio is

Accepted Answer

Asset turnover ratio = Net sales / Average total assets
Average total assets = (Beginning total assets + Ending total assets) / 2
Average total assets = ($1,000,000 + $1,500,000) / 2 = $1,250,000
Asset turnover ratio = $3,000,000 / $1,250,000 = 2.4 times. Therefore, the answer is B.

Question 7

Mehring Company reported net sales of $450,000, net income of $90,000, beginning total assets of $240,000, and ending total assets of $360,000. What was the company's asset turnover ratio?

Accepted Answer

Asset turnover ratio = Net sales / Average total assets
Average total assets = (Beginning total assets + Ending total assets) / 2 
Average total assets = ($240,000 + $360,000) / 2 = $300,000 
Asset turnover ratio = $450,000 / $300,000 = 1.5. Therefore, the answer is C.

Question 8

Gains on an exchange of plant assets that has commercial substance are

Accepted Answer

Gains on an exchange of plant assets that has commercial substance are recognized immediately. This means that the gain is reported as income in the period in which the exchange takes place. This is in accordance with the accounting principle of realization, which requires that revenues and gains be recognized when they are earned, regardless of when the cash is received.

Question 9

Given the following account balances at year end, compute the total intangible assets on the balance sheet of Kepler Enterprises. $\begin{array}{lr}
\text { Cash } & £ 1,500,000 \
\text { Accounts Receivable } & 4,000,000 \
\text { Trademarks } & 1,000,000 \
\text { Goodwill } & 3,500,000 \
\text { Research Costs } & 2,000,000
\end{array}$

Accepted Answer

Intangible assets include Trademarks (£1,000,000) and Goodwill (£3,500,000), totaling £4,500,000. Research costs are not capitalized as intangible assets.

Question 10

Which of the following statements concerning IFRS and U.S. GAAP is true?

Accepted Answer

Under both IFRS and U.S. GAAP, gains on exchange of assets when the exchange has commercial substance are recognized. Option A is incorrect because while IFRS does permit revaluation of some intangible assets, U.S. GAAP does allow revaluation, albeit with certain restrictions. Option C is incorrect because under U.S. GAAP, changes in depreciation method are reported in current and future periods, similar to IFRS. Therefore, option B is the only correct statement.

Question 11

A company decides to exchange its old machine and ¥1,540,000 cash for a new machine. The old machine has a book value of ¥1,260,000 and a fair value of ¥1,400,000 on the date of the exchange. The cost of the new machine would be recorded at

Accepted Answer

The cost of the new machine would be the fair value of the old machine plus the cash paid, which is ¥1,400,000 + ¥1,540,000 = ¥2,940,000.

Question 12

During 2014, Stein Corporation reported net sales of $5,000,000 and net income of $2,250,000. Stein also reported beginning total assets of $1,000,000 and ending total assets of $1,500,000. Stein's asset turnover ratio is

Accepted Answer

The answer of During 2014, Stein Corporation reported net sales...

Question 13

A term that is not synonymous with property, plant, and equipment is

Accepted Answer

Intangible assets are not synonymous with property, plant, and equipment. Property, plant, and equipment refers to tangible assets such as buildings, equipment, and land, while intangible assets are non-physical assets like patents, trademarks, and goodwill.

Question 14

A company exchanges its old office equipment and $60,000 for new office equipment. The old office equipment has a book value of $42,000 and a fair value of $30,000 on the date of the exchange. The cost of the new office equipment would be recorded at

Accepted Answer

In an exchange transaction, the cost of the new asset is determined by the fair value of the asset given up, which in this case is $30,000, plus any additional amount paid or received. Therefore, the cost of the new office equipment would be $30,000 + $60,000 = $90,000. The book value of the old equipment is irrelevant in this calculation.

Question 15

The cost of land includes all of the following except

Accepted Answer

Parking lots are not considered part of the land itself, but rather a separate improvement made to the land. The other options listed are typically included in the overall cost of acquiring land.

Question 16

A company has the following assets:  The total amount reported under Property, Plant, and Equipment would be

Accepted Answer

The answer of A company has the following assets: ...

Question 17

Which of the following is disclosed in the statement of financial position or the notes to the financial statements?

Accepted Answer

The answer of Which of the following is disclosed in...

Question 18

Under U.S. GAAP

Accepted Answer

The answer of Under U.S. GAAP
...

Question 19

Rooney Company incurred $420,000 of research costs in its laboratory to develop a patent granted on January 1, 2014. On July 31, 2014, Rooney paid $63,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2014, should be:

Accepted Answer

The answer of Rooney Company incurred $420,000 of research costs...

Question 20

Natural resources are generally shown on the statement of financial position under

Accepted Answer

Natural resources, also known as tangible assets, are shown under Property, Plant, and Equipment, as they have a physical presence and are used in the production process. Intangibles refer to assets that do not have a physical form, such as patents or intellectual property, and investments refer to assets held for the purpose of generating income or capital appreciation. Equity refers to the ownership interest in a company, and is not directly related to natural resources.

Quiz 9: Plant Assets, Natural Resources, and Intangible Assets