Accounting Theory Exam #2

Multiple Choice – 1 point each

1. As generally used in accounting, depreciation

a. Is a process of asset valuation for balance sheet purposes

b. Applies only to long-lived intangible assets

c. Is used to indicate a decline in market value of a long-lived asset

d. Is an accounting process that allocates long-lived asset cost to accounting periods

2. A company using the group depreciation method for its delivery trucks retired one of its delivery trucks due to damage before the average service life of the group was reached. An insurance recovery was received. The net book value of these group asset accounts would be decreased by the

a. Original cost of the truck

b. Original cost of the truck less the insurance recovery received

c. Original cost of the truck less depreciation on the truck to the date of retirement

d. Insurance recovery received

3. Pence Corporation, which accounts for its investments in the common stock of Walsh Company by the equity method, should ordinarily record a dividend received from Walsh as

a. An addition to the carrying value of the investment

b. Dividend revenue

c. A reduction of the carrying value of the investment

d. Revenue from affiliate

4. Pacer Company purchased 300 of the 1, 000 outstanding shares of Queen Company’s common stock for $80,000 on January 2, 2008. During 2009, Queen Company declared dividends of $8,000 and reported earnings for the year of $20,000.

If Pacer Company uses the equity method of accounting for its investment in Queen Company, its Investment in Queen Company account at December 31, 2009 should be

a. $100, 000

b. $88,000

c. $83,600

d. $80,000

5. A net unrealized loss on a company’s long-term portfolio of available for sale securities should be reflected in the current financial statements as

a. An...