Economics

software development costs are capitalized if they are incurred:

A. Prior to the point at which technological feasibility has been established.

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B. After commercial production has begun.

C. After technological feasibility has been established but prior to the product availability date.

D. None of the above is correct.

 

19.  Interest is eligible to be capitalized as part of an asset’s cost, rather than being expensed immediately, when:

A. The interest is incurred during the construction period of the asset.

B. The asset is a discrete construction project for sale or lease.

C. The asset is self-constructed, rather than acquired.

D. All of the above are correct.

 

20.  Research and development expense for a given period includes:

A. The full cost of newly acquired equipment that has an alternative future use.

B. Depreciation on a research and development facility.

C. Research and development conducted on a contract basis for another entity.

D. Patent filing and legal costs.

 

21.  Cromartie Ltd. prepares its financial statements according to International Financial Reporting Standards. During 2013 the company incurred $1,245,000 in research expenditures to develop a new product. An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2013 fiscal year. Sale of the product began in 2012. What amount of the above expenditures would Cromartie expense in its 2013 income statement?

A. $2,001,000.

B. $756,000.

C. $1,245,000.

D. $0.

 

22.  Assuming an asset is used evenly over a four-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year?

A. Straight-line.

B. Units-of-production.

C. Double-declining balance.

D. Sum-of-the-year’s digits.

 

Cutter Enterprises purchased equipment for $72,000 on January 1, 2013. The equipment is expected to have a five-year life and a residual value of $6,000.

 

23.  Using the straight-line method, the book value at December 31, 2013, would be:

A. $57,600.

B. $51,600.

C. $58,800.

D. $52,800.

 

24.  Using the double-declining balance method, depreciation for 2013 and the book value at December 31, 2013, would be:

A. $26,400 and $45,600.

B. $28,800 and $43,200.

C. $28,800 and $37,200.

D. $26,400 and $36,600.

 

Archie Co. purchased a framing machine for $45,000 on January 1, 2013. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years.

 

25.  Using the straight-line method, depreciation for 2013 and book value at December 31, 2013, would be:

A. $10,000 and $30,000.

B. $11,250 and $28,750.

C. $10,000 and $35,000.

D. $11,250 and $33,750.

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