QUESTION: 2017

Which of the following correctly defines an element directly related to measuring the performance and status of a business entity?

Gains are increases in equity from transactions and other events and circumstances that result from revenues or investments by owners.
Equity is a residual interest.
Investments by owners are limited to receipts of assets and satisfaction or conversion of liabilities.
Revenues are inflows from peripheral or incidental transactions as well as the entity's ongoing major operations.
None of these answers.

Answer(s): B

Explanation:

Equity in a business is considered a residual interest and represents the ownership (total assets minus total liabilities) in the firm.

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A piece of equipment costs $200,000, has a useful life of 5 years and an estimated salvage value of $50,000. How much depreciation expense should the company recognize in year 4 if it is using the sum-of-the- years' digits method of depreciation?

$30,000
$80,000
$26,666.67
$20,000

Answer(s): D

Explanation:

Using the sum-of-the-years' digits the sum of the years is 15. In year 4 you would take 2/15 of the cost less the salvage value. 2/15 of $150,000 is equal to $20,000.

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QUESTION: 2019

In the successful effort method, oil firms:

are required to expense all oil-drilling costs resulting in dry holes.
II. can capitalize drilling costs which result in productive oil wells.
III. are required to capitalize all oil-drilling costs.
IV. are required to expense all oil-drilling costs.
I only
I & II
III & IV
II only

Answer(s): B

Explanation:

In extractive industries, firms are allowed to use either the full-cost method, in which all search and development costs can be capitalized, or the successful-efforts method, where all such costs are expensed unless they result in revenue-generating assets, in which case, they are capitalized. If an oil drilling firm uses the successful-efforts method, it expenses costs incurred on dry holes and capitalizes those resulting in oil- producing wells.

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QUESTION: 2020

MacDonald Inc. reported net income of $300,000 for 1996. Changes occurred in several balance sheet accounts as follows:

Equipment $25,000 increase
Accumulated depreciation 40,000 increase
Note payable 30,000 increase

Additional information:

During 1996, MacDonald sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.

In December 1996, MacDonald purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.

Depreciation expense for the year was $52,000.

In MacDonald's 1996 statement of cash flows, net cash used in investing activities is ________.

$12,000
$18,000
$20,000
$32,000
$2,000

Answer(s): E

Explanation:

The purchase and sale of equipment are investing activities. The firm spent $20,000 cash to buy equipment and received $18,000 cash (net book value was $13,000 plus $5,000 gain) by selling its old equipment.
Therefore, the net cash used in investing is $2,000. The issuance of a note payable is part of the acquisition price of equipment and is classified as a noncash financing and investing activity.

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Free CFA-Level-I Exam Braindumps (page: 505)

QUESTION: 2017

Explanation:

QUESTION: 2018

Explanation:

QUESTION: 2019

Explanation:

QUESTION: 2020

Explanation: