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Exam 9: Reporting and Interpreting Liabilities

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Question 81

True/False

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When Ford Motor Company expenses a $200 tool used in manufacturing,instead of capitalizing its cost as an asset,it does so because of the conservatism convention.

A) True
B) False

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Question 82

Multiple Choice

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Trumble Company purchased a machine on January 1,20B,for $10,000.The company bookkeeper incorrectly used a 6-year life instead of a 5-year life to depreciate the machine.What would be the effect of this error on the 20B financial statements?

A) Overstatement of assets offset by an understatement of shareholders' equity.
B) Overstatement of assets offset by an understatement of retained earnings.
C) Overstatement of assets,profit,and shareholders' equity.
D) Overstatement of assets and an understatement of liabilities.

E) A) and D)
F) None of the above

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Question 83

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What is the term used for matching the cost of an intangible asset with the revenues generated through the use of the asset?

Under what conditions would a company most likely adopt the double declining-balance method for financial reporting?

Use of straight-line depreciation will lead to reporting a higher fixed asset turnover in the early years of an asset's life in comparison to using an accelerated depreciation method.

Only the actual acquisition cost,the estimated useful life,and the method of depreciation of an operational asset are required to compute the depreciation expense for a period.

Helm Corporation purchased a machine with an initial cost of $80,000,a residual value of $5,000,and an estimated useful life of 10 years.At the beginning of the fifth year,Helm spent $10,000 for an extraordinary repair.Following the repair,Helm estimated that the machine had a remaining useful life of 8 years,and that the residual value was unchanged.Calculate depreciation expense on the machine for the fifth year,assuming that Helm uses the straight-line method.

The cost principle should be applied in recording the acquisition of natural resources and intangible assets.

The fixed asset turnover ratio measures how much profit is generated by use of operational (fixed)assets.

The cost allocation method utilized affects the amount of net property,plant,and equipment that is used in the computation of the fixed asset turnover ratio.

Operational assets do not include which of the following kinds of assets?

The fixed asset turnover ratio is computed by dividing profit by the average fixed assets amount.