CFA Level I:FSA : Long-lived assets(Reading 30) 习题精选 assets

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1. On January 1, Year 1, a firm purchases a machine for $68,000 that has an estimated useful life of five years, at which time it will have a salvage value of $10,000. Using the double-declining balance method, Year 3 depreciation expense is closest to: A. $27,200 B.$16,320 C. $9,792		Ans: C Double-declining balance method does not consider salvage value when calculating depreciation. So depreciation expense on: Year 1= 2/5($68,000-0)= $27,200 Year 2= 2/5($68,000-27,200)=$16,320 Year 3= 2/5 ($68,000-27,200-16,320)=$9,792 A. $27,200 is Year 3 depreciation expense under double-declining balance method B. $16,320 is Year 2 depreciation expense under double-declining balance method

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54. Harding Corp. has a permanently impaired asset. The difference between its carrying value and the present value of its expected cash flow should be written down immediately and: A. reported as an operating loss. B. charged directly against retained earnings. C. reported as non-operating loss in other comprehensive income.

Ans: A. Impairment writedowns are reported losses “above the line” and are included in income from continuing operations.

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53. A company that capitalizes costs instead of expensing them will have: A. higher income variability and higher cash flows from operations. B. lower cash flows from investing and lower income variability. C. lower cash flows from operations and higher profitability in early years.

Ans: B. Capitalizing costs tends to smooth earnings and reduces investment cash flows. It will also increase cash flows from operating and increase profitability in the early years.

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52. East Company incurs $110,000 of costs to establish technological feasibility of a new software application it hopes to sell and $90,000 of costs to develop the application. West Company incurs $110,000 of research costs related to a new product and $90,000 of development costs for the product. If East reports under U.S.GAAP and West reports under IFRS, these projects will: A. increase East’s total assets more the West’s total assets. B. increase West’s total assets more the West’s total assets. C. have the same effects on East’s and West’s total assets.

Ans: C. Under U.S.GAAP, costs incurred to establish technological feasibility has been established must be capitalized. Under IFRS, research costs are expensed as incurred and development costs are capitalized. Thus, both East and West will capitalize $90,000 of development costs.

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51. A company takes a $10 million impairment charge on a depreciable asset in 2011. The most likely effect will be to: A. increase reported net income in 2012. B. decrease net income and taxes payable in 2011. C. increase return on equity and operating cash flow in 2012.

Ans: A. The impairment write-down in 2011 will reduce depreciation expense in 2012, which will increase 2012 EBIT and net income. Operating cash flow and taxes payable are not affected because an impairment cannot be deducted from income for tax reporting purposes until the asset is sold or otherwise disposed of.

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50. Two growing firms are identical except that A Company capitalizes costs for some long-lived assets that C Company expenses. For these two firms, which of the following financial statements effects is most likely? A Company will show higher: A. net income than C Company. B. working capital than C Company. C. investing cash flow than C Company.

Ans: A. For growing firms, capitalizing results in higher net income compared to expensing. A capitalizing company classifies the costs of the capitalized assets as CFI outflows, while a company that expenses these costs classifies them as CFO outflows. Thus, A Company’s CFO will be higher and CFI than C Company’s working capital is unaffected by the decision to capitalize or expense because the decision does not affect current assets or current liabilities.

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49. A reconciliation of beginning and ending carrying values for long-lived tangible assets is required for firms reporting under: A. IFRS. B. U.S.GAAP. C. both U.S.GAAP and IFRS.

Ans: A. The required disclosures for long-lived assets under IFRS are more extensive than they are under U.S.GAAP. IFRS requires a reconciliation of beginning and ending carrying values for classes of long-lived tangible assets, while U.S.GAAP does not.

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48. Bao Corp. purchased a new stamping machine for $100,000, paid $100,000 for shipping, and paid $5,000 to have it installed in their plant. Based on an estimated salvage value of $25,000 and an economic life of six years, the difference between straight-line depreciation and double-declining balance depreciation in the second year of the asset’s life is closest to: A. $7,220. B. $10,556. C. $16,666.

Ans: B. Straight line depreciation is: (100,000+10,000+5,000-25,000)/6=15,000each year. Double-declining balance depreciation is the second year is: 115,000(2/3)(1/3)=25,556. The difference is $10,556. Remember that salvage value is not part of the declining balance calculation.

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47. Which of the following statements about the role of depreciable lives and salvage values in the computation of depreciation expenses for financial reporting is least accurate? A. Estimates of the useful life of the same depreciable asset can differ between companies. B. Companies are required to disclose data about estimated salvage values in the footnotes to the financial statements. C. Depreciable lives and salvage values are chosen by management and allow for the possibility of income manipulation.

Ans: B. Companies typically do not disclose data about estimated salvage values, except when estimates are changed.

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46. As a result of a recent acquisition, Bao Inc. has placed the following items on their balance sheet as of the beginning of their fiscal year: Goodwill $30 million Patent $10 million Expires in 10 years. Trademark $15 million Expires in 15 years, renewable at minimal cost. If Bao amortizes intangible assets using the straight line method, the amortization expense on these assets for the fiscal year will be: A. $1 million. B. $2 million. C. $3 million.

Ans: A. Goodwill has an indefinite life and is not amortized. A trademark or other intangible asset that has an expiration date but is renewable at minimal cost, is treated as having an indefinite life, and is not amortized. The patent has a finite life and its cost will be amortized at the rate of $1 million each year over ten years under the straight-line method.