QUESTION: 1589

Accounting rules differentiate research and development activities from activities not considered research and development. Which one of the following is not considered a research and development activity?

Periodic design changes to existing products.
Testing in search of product processing alternatives.
Modification of the design of a process.
None of these answers.
Laboratory research intended for the discovery of a new product.

Answer(s): A

Explanation:

R&D costs must be expensed as incurred. Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or process or in bringing a significant improvement in an existing product or process. Development is the translation of research findings into a plan or design. Seasonal or other periodic design changes in existing products do not meet either of these definitions.

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QUESTION: 1590

An asset is estimated to have a total life of 8 years. Its acquisition cost is 16,000 and a salvage value of 4,000. The firm follows the double declining method of depreciation. In the second year, the rate of depreciation for the firm's asset is closest to ________.

25%
17%
9.5%
12.5%

Answer(s): A

Explanation:

In DDM depreciation, depreciation expense = (2/n)*book value. Thus, depreciation rate = 2/n = 2/8 = 25%.
Remember that in the later years, DDM has to switch to a different depreciation method to avoid depreciating below the salvage value.

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QUESTION: 1591

Under inflationary conditions and stable inventories, the COGS under Average Cost method:

lower than FIFO COGS.
could be greater or less than FIFO COGS.
higher than FIFO COGS.
is higher than LIFO COGS.

Answer(s): C

Explanation:

When prices are rising, the Average cost during the period is higher than the FIFO costs. Therefore, COGS under Average Cost method will be higher than the FIFO COGS (but lower than the LIFO COGS).

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QUESTION: 1592

Why do the corporation's directors declare stock dividends?

all of these answers
to increase the number of shares outstanding
to provide tangible evidence of management's confidence in the company's strong performance
to keep the market value of the company's stock affordable

Answer(s): A

Explanation:

Declaring a stock dividend will increase the number of shares outstanding and thereby keep the per share price low enough to be an attractive investment. Stock dividends may also show the company management's confidence in the present and future performance of the company.

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