Sample Questions
Question 1
Easy
Which of the following intangible assets is NOT subject to amortization under U.S. GAAP?
Solution
A is correct.
Under ASC 350, intangible assets with indefinite useful lives are not amortized. Instead, they are tested for impairment at least annually. A trademark that can be renewed indefinitely at minimal cost and is expected to generate cash flows indefinitely is classified as an indefinite-lived intangible.
Under ASC 350, intangible assets with indefinite useful lives are not amortized. Instead, they are tested for impairment at least annually. A trademark that can be renewed indefinitely at minimal cost and is expected to generate cash flows indefinitely is classified as an indefinite-lived intangible.
Question 2
Medium
Which costs are included in the depletable base of a natural resource?
Solution
A is correct.
The depletable base includes the acquisition cost, exploration and development costs, and the present value of any asset retirement (restoration) obligation, reduced by the expected residual value of the land. Extraction equipment is a separate depreciable asset, and restoration is included at present value, not its undiscounted total. See ASC 930, Extractive Activities, and ASC 410-20 on asset retirement obligations.
The depletable base includes the acquisition cost, exploration and development costs, and the present value of any asset retirement (restoration) obligation, reduced by the expected residual value of the land. Extraction equipment is a separate depreciable asset, and restoration is included at present value, not its undiscounted total. See ASC 930, Extractive Activities, and ASC 410-20 on asset retirement obligations.
Question 3
Hard
In Year 1 a company extracts 120,000 tons of ore at a depletion rate of $6 per ton and sells 100,000 of those tons. How much of the Year 1 depletion reaches cost of goods sold?
Solution
A is correct.
Depletion attaches to extracted units and follows them into inventory, reaching cost of goods sold only as those units are sold.
| Item | Amount | Why |
|---|---|---|
| Depletion on units extracted | $720,000 | 120,000 tons x $6 |
| Stays in inventory (unsold) | ($120,000) | 20,000 tons x $6 |
| **Depletion in COGS** | **$600,000** | 100,000 tons sold x $6 |
The $120,000 on the 20,000 unsold tons remains in inventory until those tons are sold.
Depletion attaches to extracted units and follows them into inventory, reaching cost of goods sold only as those units are sold.
| Item | Amount | Why |
|---|---|---|
| Depletion on units extracted | $720,000 | 120,000 tons x $6 |
| Stays in inventory (unsold) | ($120,000) | 20,000 tons x $6 |
| **Depletion in COGS** | **$600,000** | 100,000 tons sold x $6 |
The $120,000 on the 20,000 unsold tons remains in inventory until those tons are sold.
