WGU D104 Objective Assessment V1 – Intermediate Accounting II Guide (Latest 2026/ 2027 Update) 100% Verified Questions & Answers | Grade A

WGU D104 Objective Assessment V1 – Intermediate Accounting II Guide (Latest 2026/ 2027 Update) 100% Verified Questions & Answers | Grade A Question: Watauga Company had the following events: Purchase of equipment on July 1, 2017 for $70,000 Sales tax on the purchase was $700 Other costs of freight charges of $800 Insurance during shipping of $150 Repairs of $1,300 for damage during installation Installation costs of $1,050 What is the cost of the equipment? The cost of a piece of equipment includes all expenditures incurred in acquiring the equipment and preparing it for use. Therefore the cost includes the cost of $70,000, sales tax of $700, freight charges of $800, insurance of $ 150, and installation costs of $1,050. The repair costs of $1,300 are expensed and not included in the capitalized cost of the equipment. The reasons the the repairs of damage during installation are not included in the capitalized costs include such repairs should either be warrantied by the company performing the installation and therefore would be reimbursable from that company or those repairs could be reimbursable by the company's or the suppliers insurance policy. Cost of equipment: $72,700 Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. How should the cost of the Emporia Hotel be treated? If a company purchases land with an old building on it, then the cost of demolition less its salvage value is a cost of getting the land ready for its intended use and relates to the land rather than to the new building. Therefore, the cost of the Emporia hotel is capitalized as part of the cost of the land. How are fences and parking lots reported on the balance sheet? Improvements with limited lives, such as driveways, walks, fences, and parking lots are classified on the balance sheet as Land Improvements and depreciated over their estimated lives. Reported on the balance sheet as "Land Improvements" Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. 'How should the proceeds from the sale of the building be treated? If a company purchases land with an old building on it, then the cost of demolition less its salvage value is a cost of getting the land ready for its intended use and relates to the land rather than to the new building. Therefore, the proceeds from the sale of the old building is deducted from the cost of the land. So, the proceeds should be deducted from the cost of the land. Wilson Co. purchased land as a factory site for $1,350,000. Wilson paid $120,000 to tear down two buildings on the land. Salvage was sold for $8,100. Legal fees of $5,220 were paid for title investigation and making the purchase. Architect's fees were $46,800. Title insurance cost $3,600, and liability insurance during construction cost $3,900. Excavation cost $15,660. The contractor was paid $4,200,000. An assessment made by the city for pavement was $9,600. At what cost should Wilson Co record the land? Removal of old buildings—clearing, grading, and filling—is a land cost because this activity is necessary to get the land in condition for its intended purpose. Architect Fees, liability insurance, and excavation are included in the cost of the building. Therefore, the cost of the land is calculated as: $1,350,000 + $120,000 - $8,100 + $5,220 + $3,600 + $9,600 = $1,480,320. The excavation cost of $15,660 is a cost related to the building, not to the acquisition of the land, as the excavation cost is directly related to building the building on the land. So, the Wilson Co should record the cost of land at $1,480,320 How does GAAP recommend accounting for interest costs incurred during construction? Using this approach ignores the implicit interest cost associated with the use of the cash. GAAP requires only the actual interest costs incurred during construction be capitalized. This method follows the historical cost principle. So you should capitalize the actual interest cost for the period incurred during the period. What assets qualify for interest cost capitalization? For the purposes of interest cost capitalization, qualifying assets must require a period of time to get the asset ready for their intended purposes. Assets that do not qualify include assets that are currently in use, assets that are ready for their intended use, or assets that are not in use due to excess capacity or obsolescence. So, assets that are under construction for a company's own use. When computing the amount of interest cost to be capitalized, What does the concept of "avoidable interest" refer to? Avoidable interest is the amount of interest cost during the period that a company could theoretically avoid if it had not made the decision to purchase the asset in the first place. So, avoidable interest refers to that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made What best describes the correct treatment of the interest costs capitalized during the period of construction when a company purchases land as a site for a plant? Interest costs may only be included in the cost of qualifying assets, or assets that are constructed for the company's own use and those assets intended to be sold/leased. Interest costs are not allocated to assets that are ready for their intended use already or assets that are not used in the company's earnings activities, such as land or assets otherwise not in use. So the capitalized interest costs during the period of construction should be regarded as a cost of the plant. 1 / 1 On January 2, 2020, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2021. Expenditures for the construction were as follows: January 2, 2020 $ 600,000 September 1, 2020 $1,800,000 December 31, 2020 $1,800,000 March 31, 2021 $1,800,000 September 30, 2021 $1,200,000 Indian River Groves borrowed $3,300,000 on a construction loan at 12% interest on January 2, 2020. This loan was outstanding during the construction period. What were the weighted-average accumulated expenditures for 2020? The weighted-average accumulated expenditures for 2020 is calculated as: ($600,000 × 12/12) + ($1,800,000 × 4/12) + ($1,800,000 × 0/12) = $1,200,000. On January 2, 2020, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2021. Expenditures for the construction were as follows: January 2, 2020 $ 600,000 September 1, 2020 $1,800,000 December 31, 2020 $1,800,000 March 31, 2021 $1,800,000 September 30, 2021 $1,200,000 Indian River Groves borrowed $3,300,000 on a construction loan at 12% interest on January 2, 2020. This loan was outstanding during the construction period. What was the capitalized interest for 2020? The amount of interest to capitalize is based on the weighted-average of the accumulated expenditures. Step 1: The weighted-average accumulated expenditures for 2020 is calculated as: ($600,000 × 12/12) + ($1,800,000 × 4/12) + ($1,800,000 × 0/12) = $1,200,000. Step 2: Capitalized interest is calculated as: $1,200,000 × 12% = $144,000." What is the cost of property acquired by the issuance of securities, which are actively traded on an organized exchange, equal to? The market value of the securities is used to determine the fair market value of the property. So, the cost of property acquired vis security issuances is equal to the market value of the securities. Burchell Company purchased land and a building for a lump sum cost of $420,000. The land has a fair market value of $160,000 and the building has a fair market value of $320,000. What is the cost assigned to the land? When a purchase is made at a lump-sum price, the company allocates the cost based on the relative fair values of the assets. The land has a fair value of $160,000/($160,000 + $320,000) or 33.333333%. The cost allocated to the land is $420,000 x 33.3333333% or $140,000. At what value should assets acquired in a lump sum purchase be recorded? When a purchase is made at a lump-sum price, the company allocates the cost based on the relative fair values of the assets. So, relative market values. How are expenditures that extend the useful life of a plant asset without improving its quantity or quality accounted for? If an expenditure increases the life of an asset, but does not increase the quality nor quantity, a debit to the accumulated deprecation account is needed as the useful life of the asset has been extended. So, a debit to accumulated depreciation. In accounting for plant assets, what outlay, made subsequent to acquisition, should be fully expensed in the period the expenditure is made? Repairs, ordinary costs to maintain or return an asset to its existing level of service, however, are expensed. So, repairs, ordinary costs to maintain or return an asset to its existing level of service, however, are expensed. On January 2, 2020, York Corp. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler $150,000 Carrying amount of old boiler $10,000 Fair value of old boiler $4,000 Installation cost of new boiler $20,000 The old boiler was sold for $4,000. What amount should York capitalize as the cost of the new boiler? When an asset is replaced, the cost and accumulated depreciation of the old asset is removed and any gain or loss is recognized. The new piece of equipment is recorded as a new asset. The cost of the new boiler is $150,000 + $20,000 Installation = $170,000. Delta River Company sold manufacturing equipment with a cost of $44,000 and accumulated depreciation of $32,000 for $9,000. What should be included in the journal entry to record this transaction? When an asset is sold, the asset account and the accumulated depreciation (contra-asset) account are "zeroed-out" and the resulting difference is the cost basis of the asset to determine if the asset was sold at a gain or a loss. In this example, the book basis was $44,000 (original value) less $32,000 (accumulated depreciation = $12,000. Since the asset was sold for $9,000, the journal entry must include a debit to the loss on the sale of asset account. The complete journal entry would be: Debit Cash $9,000, Debit Accumulated Depreciation $32,000, Debit Loss $3,000, Credit Equipment $44,000. So, a debit to a loss account for $3,000 Bogle Company purchased machinery for $320,000 on January 1, 2014. Straight-line depreciation has been recorded based on a $20,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2018 at a gain of $6,000. How much cash did Bogle receive from the sale of the machinery? Typically a company will record depreciation for the period of time in the current year prior the date of sale. The depreciable basis of the asset is $320,000 less the $20,000 salvage value, or $300,000. Annual depreciation expense is $300,000 / 5 years = $60,000 / year. Accumulated Depreciation = $60,000 (2014) + $60,000 (2015) + $60,000 (2016) + $60,000 (2017) + $20,000 [60,000 x (4 month / 12 month)] = $260,000 Book Value = $320,000 (original cost) - $260,000 (accumulated depreciation) = $60,000. Sales Price - Book Value = Gain/Loss Sales Price - $60,000 = $6,000; Sales Price = $66,000 Which term is used to describe the termination of an asset's service due to theft, fire, etc.? The term involuntary conversion is used to describe the loss of an asset due to theft, fire, natural disaster, etc. So, involuntary conversion On February 1, 2020, Nelson Corporation purchased a parcel of land as a factory site for $320,000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2020. Costs incurred during this period are listed below: Demolition of old building $ 20,000 Architect's fees $35,000 Legal fees for title investigation and purchase contract $5,000 Construction costs $1,390,000 (Salvaged materials resulting from demolition were sold for $10,000.) How should Nelson record the costs of the land and building, respectively? Removal of old buildings is a land cost because this activity is necessary to get the land in condition for its intended purpose. The architect fees are included in the cost of the building. Therefore, the cost of the land is calculated as: $320,000 + $20,000 + $5,000 - $10,000 salvage = $335,000. The cost of the building is calculated as: $35,000 + $1,390,000 = $1,425,000. Mendenhall Corporation constructed a building at a cost of $14,000,000. Weighted-average accumulated expenditures were $5,600,000 Actual interest was $560,000 Avoidable interest was $280,000. If the salvage value is $1,120,000, and the useful life is 40 years, what is the depreciation expense for the first full year using the straight-line method? The cost of the building includes the historical cost and the lower of the actual or avoidable interest less any salvage value. Therefore, the cost of the building is calculated as: $14,000,000 + $280,000 - $1,120,000 = $13,160,000. The straight-line depreciation expense is calculated as: $13,160,000 / 40 years = $329,000 per year. Jamison Company purchased the assets of Booker Company at an auction for $5,600,000. An independent appraisal of the fair value of the assets is listed below: Land $1,900,000 Building $2,800,000 Equipment $2,100,000 Trucks $3,400,000 Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the trucks? When a purchase is made at a lump-sum price, the company allocates the cost based on the relative fair values of the assets. Therefore, the value allocated to the trucks is: $5,600,000 x [ $3,400,000 / ($1,900,000 + $2,800,000 + $2,100,000 + $3,400,000)] = $1,866,667. On September 10, 2020, Jenks Co. incurred the following costs for one of its printing presses: Purchase of attachment $55,000 Installation of attachment $5,000 Replacement parts for renovation of press $18,000 Labor and overhead in connection with renovation of press $7,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized? If an improvement, or renovation, increases the the output or quality of an asset, all of the costs associated with the addition or improvement should be capitalized. Therefore, the costs that should be capitalized is: $55,000 + $5,000 + $18,000 + $7,000 = $85,000 Ecker Company purchased a new machine on May 1, 2012 for $528,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $24,000. The company has recorded monthly depreciation using the straight-line method. On March 1, 2021, the machine was sold for $72,000. What should be the loss recognized from the sale of the machine? Depreciable Basis = $528,000 less $24,000 (salvage value) = $504,000 Depreciation = $504,000 / 10 years = 50,400 / year = $4,200 / month depreciation. Book Basis = $528,000 - (4,200 x 106 months) = $82,800 Sales Price - Book Basis = Gain/Loss $72,000 - 82,800 = $10,800 Loss Which method should be used to handle the interest incurred during financing the construction of property, plant, and equipment? Capitalize the lower of the amount of actual interest incurred or the avoidable interest during construction Which statement describes an involuntary conversion? Involuntary conversions can be the result of destruction caused by fire. Company X purchased the assets of Company Y at an auction for $5,600,000. An independent appraisal of the fair value of the assets is listed below: Land: $1,900,000 Building: 2,800,000 Equipment: 2,100,000 Trucks: 3,400,000 Company X allocates the purchase price on the basis of the relative fair values. Which amount will be allocated to the land? The relative fair value of the land is $1,043,137. The relative fair value is found by dividing the appraised fair value of the land divided by the sum of all of the appraised values of all the assets multiplied by the lump sum purchase price at the auction. (($1,900,000/$10,200,000) x $5,600,000)) = $1,043,137 Which item is considered a research and development (R&D) activity? Laboratory research aimed at discovery of new knowledge Research and development are expensed because it is required by GAAP. Which approach should be used to treat interest costs that are incurred before construction is completed? The interest cost will be capitalized during construction at the lower actual or avoidable interest. So, capitalize the lower of the actual or avoidable interest during construction. Which costs should be expensed for plant assets? Expenses that are used to maintain the asset Expenses for maintenance are expensed in the period in which they occur. Company X sold manufacturing equipment with a cost of $44,000 and accumulated depreciation of $32,000 for $9,000. Which part of the journal entry should record the sale of the equipment? The accumulated depreciation - equipment account would need to be reduced by $32,000 because the equipment had been sold. On September 10, Year 5, Company X incurred the following costs for one of its printing presses: Purchase of attachment: $55,000 Installation of attachment: $5,000 Replacement parts for renovation of press: $18,000 Labor and overhead in connection with renovation of press: $7,000 Training costs for operators to learn how to use new attachment: $2,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. Which amount of costs should be expensed in the month of September, excluding any changes in depreciation or amortization? Training costs are expensed in the month that they occur. So, $2000 A company began constructing an asset at the beginning of Year 1, and it is being entirely financed with specific new borrowing. Construction expenditures were made in Years 1, 2, and 3. What is the basis for calculating the interest cost to be capitalized for Year 3? The total expenditures, plus capitalized interest from the previous years, plus the weighted average expenditures for Year 3 will be used as the basis for calculating the interest cost to be capitalized for Year 3. Which cost should be capitalized for constructing a building? The interest cost during construction can be capitalized. A company recently constructed a building that cost $8,000,000. Weighted average accumulated expenditures were $2,500,000; actual interest was $300,000; and avoidable interest was $150,000. The salvage value is $600,000, and the useful life is 25 years. The company is using the straight-line method. What is the depreciation expense for the first full year? The depreciable base is the cost + avoidable interest less salvage value. ($8,000,000 - $600,000 + $150,000)/25 = $302,000 On January 1, a company began construction on a new building. The company made a payment of $8,000,000 on January 1 and another payment for $14,000,000 on August 1. Construction was finished on December 31. The company had an outstanding loan with a 6% interest rate. What were the weighted-average accumulated expenditures for the year? (5/12 x $14,000,000) + ($8,000,000) = 13,833,333 What is true regarding a purchased limited-life intangible asset? Limited-life intangible assets are amortized and are tested regularly for impairment using the recoverability and fair value tests. So, it is amortized; tested for recoverability test, and fair value tested. Which is true concerning intangible assets? Intangible assets derive their value from the rights and privileges granted to the company using them and are classified as a long-term asset. Intangible assets do not include notes, receivable obligations, or other financial instruments. So, intangible assets derive their value from the rights and privileges granted to the company using them. Which characteristic do intangible assets possess? Intangible assets lack physical existence, are not financial instruments, and provide benefits over a period of years. So, long-lived. How are costs incurred internally to create intangibles treated? Because costs of creating intangibles internally cannot easily be associated with a specific intangible, these costs are expensed as incurred. So, they are expensed as incurred. What would marketing-related intangibles include? A trade name Company names, domain names, trademarks, or trade names are examples of a marketing-related intangible asset. Tiburon Corporation purchased a patent for $1,850,000 on November 30, 2018. It has a remaining legal life of 18 years. Tiburon estimates that the remaining useful life of the patent is 15 years. What balance will be reported on the December 31, 2020 balance sheet for the patent (if necessary, round your answer to the nearest dollar)? Patents are amortized using the straight-line method over the shorter of the useful life and the legal life of the asset. On December 31, 2020, the asset would be amortized for 25 months [1 month in 2018 + 12 months in 2019 + 12 months in 2020]. $1,850,000 / 180 months = monthly amortization of $10,277.78 x 25 months = $256,944.50 total amortization expense. The book value at December 31, 2020 is $1,593,056 ($1,850,000 - $256,944.50). What is a federally granted right? Copyrights Copyrights are a federally granted right given for artistic-related intangible assets. On July 1, 2020, Adele Company bought a patent from Robert, Inc. for $2,750,000. An independent research company estimated that the remaining useful life of the patent was 10 years. Its unamortized cost on Robert's books was $1,600,000. In Adele's 2020 income statement, what amount should be reported as amortization expense? The seller's book value is not relevant and is ignored. Intangible assets like patents are amortized generally using the straight-line method over the the useful life or the legal life of the patent, whichever is shorter. $2,750,000 / 10 years = $275,000 per year X 1/2 a year = $137,500. St. Sebastian Company and A. Jamison Company were combined in a purchase transaction. St. Sebastian was able to acquire Jamison at a bargain price. The fair market value of Jamison's net assets exceeded the price paid by St. Sebastian to acquire the company. How would St. Sebastian report the excess fair value over purchase price? When a company purchases another company and the fair value of the assets is lower than the purchase price, Goodwill is created and recorded on the purchaser's balance sheet. However, when a company receives assets that have a greater value than the amount paid for those assets, a gain is recognized and recorded on the purchaser's income statement. In this case, St. Sebastian acquired the assets of Jamison at a bargain price. (The value of the assets exceeds the price paid). Therefore, the excess amount is recorded as a gain by St. Sebastian. In a business combination, companies record identifiable intangible assets that they can reliably measure. What are all other intangible assets, too difficult to identify or measure, recorded as? When a company purchases another company and the fair value of the assets is lower than the purchase price, Goodwill is created and recorded on the purchaser's balance sheet. So, recorded as Goodwill. Which intangible asset cannot be sold by a business to raise needed cash for a capital project? Goodwill is a "plug" or "gap filler" between the purchase price of a business and the fair value of the assets purchased. Goodwill is not an individually identifiable asset. What is true about the intangible asset, goodwill? Because no objective transaction with outside parties takes place, internally created goodwill cannot be capitalized. Only purchased goodwill may be capitalized. On which type of intangible assets is the recoverability test used to determine any impairment loss? Only limited-life intangible assets are tested regularly for impairment using the recoverability and fair value tests. Because Indefinite-life intangibles, including goodwill, very easily meet the recoverability test, only a fair value test is used to test for impairment. So, limited life intangibles Which of the following intangible assets should be shown as a separate item on the balance sheet? Goodwill The notes to the financial statements should include information about acquired intangible assets, and aggregate amortization expense for how many succeeding years? The notes to the financial statements should include information about acquired intangible assets, including the aggregate amortization expense for each of the succeeding five years. If separate accumulated amortization accounts are not used, accumulated amortization should also be disclosed in the notes. So, 5 years How is the total amount of patent cost amortized to date usually reported on the balance sheet? Typically, accumulated amortization for intangible assets are recorded directly in the asset's account as a credit (reducing the book value of the asset). Accumulated amortization of intangible assist is typically not shown in a separate contra account. So, it is shown as credits in the Patents account and not in a contra account. Which principle best describes the current method of accounting for research and development costs? Due to the difficulties of associating costs with particular projects and determining the life of such activities, the FASB has determined that R&D costs must be immediately expensed as incurred. So, immediate recognition as an expense. Which research and development costs may be capitalized? Only costs associated with assets that have alternative future uses may be capitalized. Direct costs such as contract services and personnel are expensed as incurred. Indirect overhead costs are allocated to R&D expense, but are not capitalized. So, costs for assets with alternative future uses. If a company constructs a laboratory building to be used as a research and development facility, what would the cost of the laboratory building be matched against earnings as? A building has an alternative future use, either in other research & development projects or other general use. Therefore, the building is capitalized and depreciated over the useful life of the asset. This depreciation expense is included in the research and development costs of the activity. So, depreciation expensed as part of research and development costs. The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. How should these costs be treated? Similar to R&D costs, FASB has determined that start-up costs and costs of organization are never capitalized. So, instead they are expensed as incurred. Truffle Inc. acquired a patent on January 1, 2018 for $7,800,000. It was expected to have a 10 year life and no residual value. Truffle uses straight-line amortization for its patents. On December 31, 2021, the expected future cash flows from the patent are $518,000 per year for the next six years. The present value of these cash flows, discounted at Truffle's market interest rate, is $2,120,000. What amount, if any, of impairment loss will be reported on Truffle's 2021 income statement? A patent is a limited-life intangible asset. Therefore, Truffle must first perform a recoverability test to determine if an impairment exists. To calculate if an impariment exists, the company must compare the "undiscounted" sum of future cash flows to the current book value. Book value of the patent is calculated as: $7,800,000 - ($780,000 x 4) = $4,680,000. Sum of expected cash flows is $3,108,000 ($518,000 x 6 years). Since an impairment exists, Truffle must now measure the impairment using the fair value test. The amount of impairment loss is the difference between the fair value of the asset and the carrying value of the asset. The fair value is the present "discounted" value of future cash flows. The impairment loss is calculated as: $4,680,000 - $2,120,000 = $2,560,000. Coral Corporation began operating as a business in 2020. During January 2020, the company paid $300,000 in design costs to develop its trademark and $250,000 in legal and registration fees to secure the trademark. During October 2020, the company successfully defended its trademark, paying an additional $150,000 in legal fees during the process. At what amount should Coral Corporation report its trademark on its December 31, 2020 balance sheet? Direct costs associated with an internally developed intangible assets are capitalized, but not amortized. These costs include attorney fees, registration fees, design costs, consulting fees, and legal defense costs. Therefore, Coral should report the value of the trademark at $700,000 ($300,000 + $250,000 + $150,000). Bryson Corporation purchased a limited-life intangible asset for $1,162,500 on May 1, 2018. It has a remaining useful life of 15 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2020 (if necessary, round your answer to the nearest dollar)? Intangible assets are amortized using the straight-line method over the useful life of the asset. On December 31, 2020, the asset would be amortized for 32 months [8 month in 2018 + 12 months in 2019 + 12 months in 2020]. $1,162,500 / 180 months = monthly amortization of $6,458.33 x 32 months = $206,667 total amortization expense. Which method of amortization is normally used for intangible assets? Amortization is typically calculated using the straight-line method over the useful life of the asset. So, Straight-Line method Easton Company and Lofton Company were combined as result of a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost of acquiring Easton. How will Easton report the excess amount? When a company purchases another company and the fair value of the assets is lower than the purchase price, Goodwill is created and recorded on the purchaser's balance sheet. However, when a company receives assets that have a greater value than the amount paid for those assets, a gain is recognized and recorded on the purchaser's income statement. In this case, Easton acquired the assets of Lofton at a bargain price. (The value of the assets exceeds the price paid). Therefore, the excess amount is recorded as a gain by Easton. Learn More You can also click on terms or definitions to blur or reveal them