D104 Intermediate Accounting II - Set 1 - Part 2

Correct Answer: Straight-line method

The straight-line method spreads the depreciation expense evenly over the useful life of the asset, based on the passage of time, rather than usage.

Correct Answer: Declining balance method

The declining balance method is an accelerated depreciation method that results in higher depreciation expense in the earlier years and lower expense in the later years.

Correct Answer: Group depreciation method

The group depreciation method is used when a group of assets is similar in nature and has about the same useful life, allowing for a combined depreciation calculation.

Correct Answer: Composite depreciation method

The composite depreciation method is used when the assets are dissimilar and have different useful lives, allowing for depreciation to be calculated on an aggregate basis.

Correct Answer: Hybrid

Hybrid depreciation methods combine aspects of both the straight-line and activity-based approaches, providing flexibility in depreciation calculation.

Correct Answer: Expected future net cash flows

When assessing for impairment, the sum of the expected future net cash flows is used to compare against the carrying amount of the asset to determine whether an impairment loss should be recognized.

Correct Answer: Fair value

The impairment loss is calculated as the difference between the carrying amount of the asset and its fair value, which represents its recoverable amount.

Correct Answer: Depletion base

The depletion base for natural resources includes the costs associated with acquiring, exploring, developing, and restoring the resource, which are then used to calculate depletion expense.

Correct Answer: $16,988

In the double-declining balance method, the depreciation rate is twice the straight-line rate (2/9 = 0.2222). For the second year, depreciation is applied to the remaining book value, resulting in $76,180 * 0.2222 = $16,988.

Correct Answer: 125 times

Asset turnover ratio is calculated as net sales divided by average total assets. Average total assets = ($900,000 + $1,100,000) / 2 = $1,000,000. Asset turnover = $1,250,000 / $1,000,000 = 125 times.

Correct Answer: $0

There is no impairment loss because the undiscounted future cash flows ($165,000) exceed the carrying amount of the asset ($140,000 after depreciation).

Correct Answer: Divide net income by average total assets

Return on total assets is calculated by dividing net income by average total assets, which measures how effectively the company is using its assets to generate profit.

Correct Answer: $48,363

Total sales tax collected = $754,350 / 1.07 = $704,070. Sales tax payable = ($754,350 - $704,070) * 98% = $48,363.

Correct Answer: Liquidation of current liabilities is reasonably expected within the companys operating cycle or one year, if less.

Current liabilities are obligations expected to be settled within the company's operating cycle or one year, whichever is shorter.

Correct Answer: Discount

When bonds are sold for less than their face value, they are sold at a discount because the effective interest rate is higher than the stated rate.

Correct Answer: Par value

Face value, or par value, is the stated value of a bond, which is the amount the bondholder receives upon maturity.

Correct Answer: Zero-coupon bond

A zero-coupon bond does not make periodic interest payments but is sold at a discount, with the full face value paid upon maturity.

Correct Answer: $1,120,000

The redemption price is $7,140,000 ($7,000,000 * 102%). The carrying amount is $7,000,000 - $980,000 = $6,020,000. Loss on redemption = $7,140,000 - $6,020,000 = $1,120,000.

Correct Answer: Credit of $18,750 to Discount on Bonds Payable

The carrying value is less than the redemption price, so there is no gain. The credit to Discount on Bonds Payable represents the unamortized portion.

Correct Answer: Unamortized discount

The carrying value of a bond is calculated as the face value minus any unamortized discount, which affects the gain or loss on redemption.