ACG 3131 Final Exam Questions and
Correct Answers
During 2017, Bay Co. constructed machinery for its own use and for sale to customers.
Bank loans financed these assets both during construction and after construction was
complete.
How much of the interest incurred should be reported as interest expense in the 2017
Income Statement?
Interest incurred for machinery for own use
Interest incurred for machinery held for sale✅held for own use - interest incurred afte
completion
(capitalized until construction complete...so not expense until after)
held for sale - all interest incurred (Interest is capitalized on the construction of assets
for sale only if the assets are large, individual, discrete projects, such as ships or real
estate developments. The equipment constructed for sale does not appear to be a
discrete item in that sense and, thus, none of the interest is capitalized. It is all
expensed.)
expense or capitalize?
debt for purchase
debt during construction✅debt for purchase: expense
debt during construction: capitalize
Average accumulated expenditures for year five on a construction project amounted to
$70,000. The total cash invested in the project by the end of year five, was $160,000.
During year six, the firm spent another $240,000 (total) on the project, uniformly
throughout the year. Compute average accumulated expenditures for year
six.✅$280,000 is correct. Average accumulated expenditures is the amount of debt for
the annual period that could have been avoided. In this case, the firm has $160,000
already invested in the project at the beginning of year six. That amount represents
$160,000 in debt, that could have been avoided for year six if the firm had not been
involved in the construction project. The expenditures during year six were incurred
evenly. Average accumulated expenditures therefore = $160,000(12/12) + $240,000/2 =
$280,000. Also, [$160,000 + ($160,000 + $240,000)]/2 = $280,000.
On June 18, 2017, Dell Printing Co. incurred the following costs for one of its printing
presses:
Purchase of collating and stapling attachment
$84,000
, Installation of attachment
36,000
Replacement parts for overhaul of press
26,000
Labor and overhead in connection with overhaul
14,000
The overhaul resulted in a significant increase in production. Neither the attachment nor
the overhaul increased the estimated useful life of the press. What amount of the above
costs should be capitalized?✅$160,000 is correct. All four costs should be capitalized
because they result in an increase in the productivity of the asset. Costs that increase
EITHER the life OR productivity are capitalized. Either type of increase results in
enhanced asset values. $160,000 is the sum of the four costs listed.
Zahn Corp.'s comprehensive Balance Sheet at December 31, 2017 and 2016 reported
accumulated depreciation balances of $800,000 and $600,000, respectively. Property
with a cost of $50,000 and a carrying amount of $40,000 was the only property sold in
2017.
Depreciation charged to operations in 2017 was:✅$210,000 is correct. The
accumulated depreciation on the property sold was $10,000 ($50,000 cost less $40,000
carrying value). The sale of property requires that the accumulated depreciation on the
property be removed from the accounts. Thus, the $10,000 amount is a decrease in
accumulated depreciation. With an overall increase of $200,000 in accumulated
depreciation during the period ($800,000-$600,000), depreciation must have been
$210,000 ($200,000 + $10,000).
A manufacturing firm purchased used equipment for $135,000. The original owners
estimated that the residual value of the equipment was $10,000. The carrying amount of
the equipment was $120,000 when ownership transferred. The new owners estimate
that the expected remaining useful life of the equipment was 10 years, with a salvage
value of $15,000. What amount represents the depreciable base used by the new
owners?✅120k
FV of asset is 135k - 15k salvage
What factor must be present to use the units of production (activity) method of
depreciation?✅Total units to be produced can be estimated is correct. Without an
estimate for total units to be produced, depreciation could not be computed. Annual
depreciation under this method is: [(Cost-salvage value)/(Total estimated production)] ×
(units produced year).The quantity in square brackets is the rate of depreciation per
unit.
(WTF)
Which of the following uses the straight-line depreciation method? (answer yes/no)
group depreciation
