B. highest if the company uses the straight - line method.

C. highest if the company uses the double - declining balance method.

10. Bobcat Company ’ s balance sheet shows PP & E valued at a historical cost of $22,983 million

and accumulated depreciation of $7,879 million. Depreciation expense in the most

recent year was $2,459 million. What is the average remaining useful life of Bobcat ’ s

assets?

A. 3.2 years.

B. 6.1 years.

C. 9.3 years.

11. Francis Acana is comparing the property and equipment disclosures for three airline

companies, as summarized in the following table:

Airline A Airline B Airline C

Historical cost, aircraft $17,239 £ 23,584 € 45,266

Accumulated depreciation,

aircraft

6,584 13,654 21,745

Net cost, aircraft 10,655 9,930 23,521

Annual depreciation expense 575 786 1,509

Acana fi nds that the average fl eet age is

A. lowest for Airline A.

B. lowest for Airline B.

C. lowest for Airline C.

12. Relative to assets with fi nite lives, an intangible asset determined to have an indefi nite

life will result in lower reported

A. assets.

B. net income.

C. amortization expense.

13. With regard to intangible assets, a company ’ s reported profi t margin the year the asset is

acquired will be highest if it estimates a

A. six - year useful life and no salvage value.

B. six - year useful life and a positive salvage value.

C. fi ve - year useful life and a positive salvage value.

14. With regard to intangible assets, the company ’ s cash fl ow from operating activities the

year the asset is acquired will most likely be highest if it estimates a

A. fi ve - year useful life and no salvage value.

B. six - year useful life and a positive salvage value.

C. fi ve - year useful life and a positive salvage value.

15. When a company is able to estimate the future costs it will incur when an asset is retired,

it is least likely to

A. increase the carrying value of the asset.

B. decrease the carrying value of the liability through an accretion charge.

C. decrease the carrying value of the asset over time through an accretion charge.

16. Compared to an asset that will not require a retirement obligation, an asset that will

require a retirement obligation is most likely to result in a

A. one - time charge at the time of retirement.

B. rising debt/equity ratio as the retirement date approaches.

C. declining debt/equity ratio as the retirement date approaches.

17. A credit analyst reviewing a company with asset retirement obligations (ARO) would

least likely adjust

A. interest expense by the amount of accretion.

B. shareholders ’ equity by the amount of the ARO.

C. the reported ARO by the amount of any related trust funds or escrow.

18. Fisherman Enterprises purchased $1 million of equipment with an estimated 10 - year

useful life and a $100,000 expected salvage value. The company uses the straight - line

method of depreciation. At the end of fi ve years it sells the equipment for $500,000.

Fisherman ’ s income statement will include a $50,000

A. loss recorded as a separate line item.

B. gain recorded as a separate line item.

C. offset to depreciation and amortization.

19. A company that has decided to sell an asset is least likely to record a

A. gain at the time the asset is sold.

B. loss at the time the decision is made.

Date: 2016-03-03; view: 789