Question

9. Rios, Inc. uses International Financial Reporting Standards (IFRS). In 2018, Rios, Inc. experienced a decline in the value of its inventory resulting in a write-down of its inventory from €240,000 to €200,000. The company used the loss method in 2018 to record the necessary adjustment and uses an allowance account to reduce inventory to NRV. In 2019, market conditions have improved dramatically and Rios, Inc.’s inventory increases to an NRV of €216,000. Which of the following will Rios, Inc. record in 2019? a. A debit to Recovery of Inventory Loss for €16,000. b. A credit to Recovery of Inventory Loss for €24,000. c. A debit to Allowance to Reduce Inventory to NRV of €16,000. d. A credit to Allowance to Reduce Inventory to NRV of €24,000.

10. Given the historical cost of product X was $10,000 in 2014. Presented below is information related to net realizable value of the product. Fiscal Year End: 2014 2015 2016 2017 2018 NRV : $8,000 $9,000 $9,500 $10,500 $11,000 During the fiscal period of 2014 to 2018, how many times did recovery of inventory loss occur under the lower-of-cost-or-net realizable value method? a. none b. two times c. three times d. four times

11. Plant assets may properly include a. deposits on machinery not yet received. b. idle equipment awaiting sale. c. land held for possible use as a future plant site. d. None of these answer choices are correct.

12. Which of the following is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for resale c. Acquired for use d. Long-term in nature

13. Assets that qualify for interest cost capitalization include a. assets under construction for a company's own use. b. assets that are ready for their intended use in the earnings of the company. c. assets that are not currently being used because of excess capacity. d. All of these assets qualify for interest cost capitalization.

14. The period of time during which interest must be capitalized ends when a. the asset is substantially complete and ready for its intended use. b. no further interest cost is being incurred. c. the asset is abandoned, sold, or fully depreciated. d. the activities that are necessary to get the asset ready for its intended use have begun.

15. Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is a. 8/8. b. 8/12. c. 9/12. d. 11/12.

16. Interest revenue earned on specific borrowings for qualifying assets a. reduces the cost of the qualifying asset. b. reduces interest expense reported on the income statement. c. increases equity in the period earned. d. None of these answer choices are correct.

17. Mendenhall Corporation constructed a building at a cost of €10,000,000. Average accumulated expenditures were €4,000,000, actual interest was €600,000, and avoidable interest was €300,000. If the salvage value is €800,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is a. €237,500. b. €245,000. c. €257,500. d. €337,500.

18. Messersmith Company is constructing a building. Construction began in 2019 and the building was completed 12/31/19. Messersmith made payments to the construction company of €1,000,000 on 7/1, €2,100,000 on 9/1, and €2,000,000 on 12/31. Average accumulated expenditures were a. €1,025,000. b. €1,200,000. c. €3,100,000. d. €5,100,000.

19. Huffman Corporation constructed a building at a cost of £20,000,000. Average accumulated expenditures were £8,000,000, actual interest was £1,200,000, and avoidable interest was £600,000. If the salvage value is £1,600,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is a. £475,000. b. £490,000. c. £$515,000. d. £675,000.

20. During 2019, Kimmel Co. incurred average accumulated expenditures of €400,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2019 was a €500,000, 10%, 5-year note payable dated January 1, 2017. What is the amount of interest that should be capitalized by Kimmel during 2019? a. €0. b. €10,000. c. €40,000. d. €50,000

Answer 1

9) Solution: A debit to Allowance to Reduce Inventory Loss to NRV of P16,000

Explanation: In 2019, Rios, Inc. record will be 216,000 - 200,000 = $16,000. Thus there will be a debit to Allowance to Reduce Inventory Loss to NRV of P16,000

　

10) Solution: three times

Explanation: Net realizable value refers to the value for which the asset can be sold. Thus in the given scenario the recovery of inventory loss incur three times from 2014 to 2016

　

11) Solution: None of these

Explanation: Plant assets considers all tangible long-lived assets used to generate the principal revenues of the entity

　

12) Solution: Acquired for resale

Explanation: Plant assets consider all tangible long-lived assets used to generate the principal revenues of the entity. Acquired for resale is not a main characteristic of a plant asset

　

13) Solution: assets under construction for a company's own use

Explanation: Assets which qualify for interest cost capitalization considers the assets under construction for a business own usage

　

14) Solution: the asset is substantially complete and ready for its intended use

Explanation: The time frame during which interest need to be capitalized ends when the asset is substantially ready and complete for its intended usage