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Question(s) / Instruction(s):

An asset is impaired when the asset’s carrying (net book) value is:

a. greater than the sum of discounted expected cash flows.

b. less than the sum of discounted expected cash flows.

c. less than the sum of undiscounted expected cash flows.

d. greater than the sum of undiscounted expected cash flows.

e. none of the above

 

 

2.  The 2008 financial statements and notes for BNSF Railway report the following information:

Year ended December 31,           2008       2009

(In millions)                       

Depreciation and amortization expense                $1,395   $1,292

Property and equipment, net    30,838   29,560

Land (included in property and equipment, net)                 1,751     1,718

Accumulated depreciation and amortization         9,908     9,174

 

Which of the following estimates the property and equipment's percent-used-up at December 31, 2008?

 

a. 24.32%

b. 25.41%

c. 34.06%

d. 32.13%

e. None of the above

 

 

3.  The 2008 financial statements of Willamette Valley Vineyards include the following footnote:  Note 4. Property and Equipment.

 

                2008       2009

Land and improvements               $2,589,560           $   959,064

Winery building and hospitality center     4,969,758             4,848,249

Equipment            5,352,835             4,617,040

                12,912,153           10,424,353

Less accumulated depreciation  (6,842,745)          (6,224,198)

                $6,069,408           $4,200,155

                               

Depreciation Expense    $  620,180            $  576,515

 

The average useful life of Willamette's depreciable assets at the end of fiscal 2008 is:

a. 9.8 years

b. 10.4 years

c. 16.7 years

d. 20.8 years

e. None of the above

 

4.  Plastix Inc. bought a molding machine for $275,000 on June 1, 2007. The company expected to use this machine to extrude plastic toys for the next five (5) years, when the machine would be sold for $25,000. On June 1, 2009, their major customer, Wal-Mart, gave notification that they were terminating Plastix as a supplier. Plastix’ accountants estimate that the machine will generate $150,000 in future cash inflows from other customers and the fair value of the machine is $110,000. (Plastix uses straight-line depreciation). What is the impairment loss on June 1, 2009?

 

 

a. $0

b. $25,000

c. $65,000

d. $125,000

e. None of the above

 

 

5.  Bulldog Properties acquired three properties on June 15, 2009. Property #1 was acquired with $50,000 in cash. Property #2 was acquired by issuing a zero coupon note with a face value of $40,000 and a present value of $23,000. Property #3 was acquired by trading land acquired five years ago. The land was originally purchased for $10,000 and has a current fair value of $30,000. Property #3 and the land given to acquire it are similar and no clear business purpose is served by the swap. Bulldog should record the total property acquired at:

a. $83,000

b. $100,000

c. $103,000

d. $120,000

e. None of the above

 

6.  For which of the following types of intercorporate investments are unrealized gains reflected in the shareholders’ equity section of the investor’s balance sheet?

 

a. Equity method

b. Trading securities

c. Available-for-sale securities

d. b and c only

e. a, b and c

 

 

7.  Which of the following statements does NOT accurately describe the fair-value method of accounting?

a. Investments for which current, reliable fair values exist are accounted for using this method.

b. Held-to-maturity investments are not accounted for using this method.

c. Dividends and interest received are recognized in current income.

d. The investment is recorded on the balance sheet at its fair value.

e. None of the above

 

 

8.  When the fair value of a company’s portfolio of available-for-sale equity securities exceeds its book value, the difference should be:

a. Written off as an impairment

b. Added to stockholders' equity of the investee

c. Recorded on the company's income statement

d. Added to the investment account

e. None of the above

 

 

9.  In footnotes to its 2008 annual report, Bancfirst Corp. reported that held-to-maturity securities with an amortized cost of $34,468 thousand had an estimated fair value of $34,975 thousand. The balance sheet reported:

 

a. Held-to-maturity assets of $34,468 thousand

b. Held-to-maturity assets of $34,975 thousand

c. Accumulated other comprehensive income of $507 thousand related to held-to-maturity assets

d. Both a and c

e. Both b and c

 

 

10.  Starbuck’s Inc. reported that short-term investments consisted of the following (in millions):

 

                Amortized cost Fair value

September 28, 2008                       

Short-term investments -- available-for-sale securities  $  3.0      $  3.0

Short-term investments -- trading securities         58.2        49.5

Total short-term investments    $61.2     $52.5

 

Which of the follow is NOT true:

a. Starbuck’s 2008 balance sheet includes short-term investments of $52.5 million

b. Unrealized gains of $8.7 million on trading securities are included in 2008 income.

c. There are no net unrealized gains on available-for-sale securities.

d. Accumulated other comprehensive income included no unrealized gains or losses.

e. None of the above

 

11.  Principe holds a 10% equity investment in Del Fuego Inc. Clearwater Investments holds 40% of Del Fuego’s stock. On April 1, 2010, Del Fuego declares and pays dividends to its stockholders. How will the dividend affect each company’s balance sheet account: Del Fuego investment?

 

a. No effect on Principe’s Del Fuego investment account, decrease in Clearwater Investment’s Del Fuego investment account.

b. No effect on Principe’s Del Fuego investment account, no effect on Clearwater Investment’s Del Fuego investment account.

c. Decrease in Principe’s Del Fuego investment account, no effect on Clearwater Investment’s Del Fuego investment account.

d. Decrease in Principe’s Del Fuego investment account, decrease in Clearwater Investment’s Del Fuego investment account.

 

12.  Berlin Corporation purchases an investment in Best Pictures, Inc. at a purchase price of $3 million cash, representing 45% of the book value of Best Pictures. During the year, Best Pictures reports net income of $350,000 and pays $90,000 of cash dividends. At the end of the year, the market value of Berlin’s investment is $3.7 million. What is the year-end balance of the equity investment in Best Pictures?

 

a. $3,000,000

b. $3,117,000

c. $3,157,500

d. $3,260,000

e. $3,700,000

 

13.  Berlin Corporation purchases an investment in Best Pictures, Inc. at a purchase price of $3 million cash, representing 45% (at book value) of Best Pictures. During the year, Best Pictures reports net income of $350,000 and pays $90,000 of cash dividends. At the end of the year, the market value of Berlin’s investment is $3.7 million. What amount of equity earnings would be reported by Berlin Corporation?

 

a. $40,500

b. $117,000

c. $157,500

d. $817,000

e. None of the above

 

 

14.Significant influence is often presumed when the investor owns:

 

a. Greater than 20% of the voting stock of the investee

b. Greater than 50% of the voting stock of the investee

c. Between 20% and 50% of the voting stock of the investee

d. Greater than 20% of the voting stock or the fair value of the investee

e. None of the above

 

 

15.  Biblio Tech owns 40% of E-text Inc. and accounts for the investment using the equity method. During the year E-text reports a net loss of $1,320,000 and pays total dividends of $37,000. Which of the following describes the change in Biblio Tech’s investment in E-text during the year.

 

a. The investment increases by $513,200

b. The investment decreases by $14,800

c. The investment decreases by $528,000

d. The investment decreases by $542,800

e. None of the above

 

 

 

 

16.  Which of the following would NOT be considered an intangible asset?

 

a. Trademarks and Internet domain names

b. Plant, Property, and Equipment

c. Patents, computer software, databases and trade secrets

d. Customer lists, production backlog, and customer contracts

e. None of the above

 

17.  At the beginning of fiscal 2010, Williamsburg Trust Company acquired a small savings and loan association for $40 million. The book value of the assets of the acquired company were $100 million, its liabilities $65 million. An appraiser determined that the acquiree’s land had a fair value of $1 million in excess of its net book value. Williamsburg Trust also determined that the acquiree had an unrecorded liability of $3 million relating to a lawsuit. The book value of all other assets and liabilities approximated fair value. What did Williamsburg Trust record as goodwill for this acquisition?

 

a. $0

b. $4 million

c. $5 million

d. $7 million

e. None of the above

 

18.  On June 1, 2010, Precious Metals Corp. purchases 100% of Alberta Gold Company for $1.5 million. At the time of acquisition, the fair market value of Alberta Gold’s tangible net assets (excluding goodwill) is $1.2 million. Precious Metals ascribes the excess of $300,000 to goodwill. During the second half of the year, the fair value of Alberta Gold declines to $1.2 million and the fair value of Alberta Gold’s tangible net assets is estimated at $1.1 million as of December 31, 2010. This decline is deemed permanent. What impairment charge, if any, should Precious Metals report at December 31, 2010.

 

a. $0

b. $100,000

c. $200,000

d. $300,000

e. None of the above

 

 

19.  In 2008, Oracle Corp purchased 100% of the common stock of BEA Systems for a total purchase price of $8,573 million. On Oracle’s unconsolidated accounts, it uses the equity method to account for BEA. For public disclosure, Oracle consolidates the accounts of BEA Systems. Which of the following is true?

 

a. The consolidated shareholders’ equity exceeds the unconsolidated shareholders’ equity by $8.573 million

b. The consolidated total assets are greater than the unconsolidated total assets by $8.573 million

c. Net income is the same on the consolidated and unconsolidated financial statements

d. The consolidated net income is greater than the unconsolidated net income

e. None of the above

 

 

20.  In a 90% acquisition, the parent company consolidates

a. 100% of the assets and liabilities and recognizes no minority interest

b. 90% of the assets and liabilities and recognizes minority interest equal to 10% of consolidated net assets

c. 90% of the assets and liabilities and recognizes minority interest equal to 10% of subsidiary net assets

d. 100% of the assets and liabilities and recognizes minority interest equal to 10% of consolidated net assets

e. 100% of the assets and liabilities and recognizes minority interest equal to 10% of subsidiary net assets

 

 

 

 

 

 

 

 

 

 

 

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