Chapter 9
17. The floor to be used in applying the
lower-of-cost-or-market method to inventory is determined as the
a. net realizable value.
b. net realizable value less normal profit
margin.
c. replacement cost.
d. selling price less costs of completion and
disposal.
18. To
produce an inventory valuation which approximates the lower of cost or market
using the conventional retail inventory method, the computation of the ratio of
cost to retail should
a. include markups but not markdowns.
b. include markups and markdowns.
c. ignore both markups and markdowns.
d. include markdowns but not markups.
19. On
January 1, 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap, the merchandise inventory of Glaus, Inc. was $1,000,000.
During 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap Glaus purchased $2,000,000 of merchandise and recorded sales of
$2,500,000. The gross profit rate on these sales was 25%. What is the
merchandise inventory of Glaus at December 31, 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap?
a. $500,000.
b. $625,000.
c. $1,125,000.
d. $1,875,000.
20. Barker
Pet supply uses the conventional retail method to determine its ending
inventory at cost. Assume the beginning inventory at cost (retail) were
$531,200 ($653,800), purchases during the current year at cost (retail) were
$2,137,200 ($2,772,200), freight-in on these purchases totaled $127,800, sales
during the current year totaled $2,604,000, and net markups (markdowns) were
$4,000 ($192,600). What is the ending inventory value at cost?
a. $633,400.
b. $516,222.
c. $822,000.
d. $493,334.
21. The
2014: 2024 – Essay Writing Service. Custom Essay Services Cheap financial statements of Sito Company reported a beginning inventory of
$80,000, an ending inventory of $120,000, and cost of goods sold of $800,000
for the year. Sitoâs inventory turnover ratio for 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap is
a. 10.0 times.
b. 8.0 times.
c. 6.7 times.
d. 5.7 times.
22. In
no case can “market” in the lower-of-cost-or-market rule be more than
a. estimated selling price in the ordinary
course of business.
b. estimated selling price in the ordinary
course of business less reasonably predictable costs of completion and
disposal.
c. estimated selling price in the ordinary
course of business less reasonably predictable costs of completion and disposal
and an allowance for an approximately normal profit margin.
d. estimated selling price in the ordinary
course of business less reasonably predictable costs of completion and
disposal, an allowance for an approximately normal profit margin, and an
adequate reserve for possible future losses.
23. Which of the following is not a common
disclosure for inventories?
a. Inventory composition.
b. Inventory location.
c. Inventory financing arrangements.
d. Inventory costing methods employed.
24. (10
points)Following is data relative
to the 12/31/13 inventory ofJenner:
Original Net Net Realizable Appropriate
Cost Replacement Realizable Value Less Inventory
Item Per Unit Cost Value
Normal Profit
Value
A $
.65 $ .45
B .45 .40
C .70 .75
D .75 .65
E .90 .85
Selling
price is $1.00/unit for all items. Disposal costs amount to 10% of selling
price and a “normal” profit is 30% of selling price. There are 1,000
units of each item in the 12/31/13
inventory.
Instructions
(a) Complete the
last three columns in the 12/31/13 schedule above based upon the
lower-of-cost-or-market rules.
(b) Prepare the entry(ies)
necessary at 12/31/13 based on the data above.
Chapter 10:
25. Fences
and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.
26. When
computing the amount of interest cost to be capitalized, the concept of
“avoidable interest” refers to
a. the total interest cost actually incurred.
b. a cost of capital charge for stockholders’
equity.
c. that portion of total interest cost which
would not have been incurred if expenditures for asset construction had not
been made.
d. that portion of average accumulated
expenditures on which no interest cost was incurred.
27. Accounting
recognition should be given to some or all of the gain realized on a
nonmonetary exchange of plant assets except
when the exchange has
a. no commercial substance and additional cash
is paid.
b. no commercial substance and additional cash
is received.
c. commercial substance and additional cash is
paid.
d. commercial substance and additional cash is
received.
28. In accounting for plant assets, which of
the following outlays made subsequent to acquisition should be fully expensed
in the period the expenditure is made?
a. Expenditure made to increase the efficiency
or effectiveness of an existing asset
b. Expenditure made to extend the useful life of
an existing asset beyond the time frame originally anticipated
c. Expenditure made to maintain an existing
asset so that it can function in the manner intended
d. Expenditure made to add new asset services
Use the following information for questions 29 and 30.
Wilson Co. purchased land as a factory site for $800,000. Wilson paid
$80,000 to tear down two buildings on the land. Salvage was sold for $5,400.
Legal fees of $3,480 were paid for title investigation and making the purchase.
Architect’s fees were $31,200. Title insurance cost $2,400, and liability
insurance during construction cost $2,600. Excavation cost $10,440. The
contractor was paid $2,500,000. An assessment made by the city for pavement was
$6,400. Interest costs during construction were $170,000.
29. The
cost of the land that should be recorded by Wilson Co. is
a. $880,480.
b. $886,880.
c. $889,880.
d. $896,280.
30. The
cost of the building that should be recorded by Wilson Co. is
a. $2,503,800.
b. $2,504,840.
c. $2,513,200.
d. $2,514,240.
Use the following information to answer questions 31 – 35.
Arlington Company is constructing a building.
Construction began on January 1 and was completed on December 31. Expenditures
were $4,000,000 on March 1, $3,300,000 on June 1, and $5,000,000 on December 31.
Arlington Company borrowed $2,000,000 on January 1 on a 5-year, 12% note to
help finance construction of the building. In addition, the company had
outstanding all year a 10%, 3-year, $4,000,000 note payable and an 11%, 4-year,
$7,500,000 note payable.
31. What are the weighted-average accumulated expenditures?
a. $7,300,000
b. $5,258,333
c. $12,300,000
d. $6,150,000
32. What is the weighted-average interest rate used for interest
capitalization purposes?
a. 11%
b. 10.85%
c. 10.5%
d. 10.65%
33. What
is the avoidable interest for Arlington Company?
a. $240,000
b. $773,013
c. $273,802
d. $587,012
34. What is the actual interest for Arlington Company?
a. $1,465,000
b. $1,485,000
c. $1,225,000
d. $587,012
35. What amount of interest should be charged to expense?
a. $637,987
b. $1,225
c. $877,987
d. $691,987
36. (10 points) Rogers Co. had a sheet metal
cutter that cost $144,000 on January 5, 2008 – Affordable Custom Essay Writing Service | Write My Essay from Pro Writers. This old cutter had an estimated
life of ten years and a salvage value of $24,000. On April 3, 2013, the old
cutter is exchanged for a new cutter with a fair value of $72,000. The exchange
lacked commercial substance. Rogers also received $18,000 cash. Assume that the
last fiscal period ended on December 31, 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap, and that straight-line
depreciation is used.
Instructions
(a) Show the calculation of the amount of the
gain or loss to be recognized byRogers Co.
(b) Prepare all entries that are necessary on
April 3, 2013.
Chapter 11:
37. Which
of the following is not one of the basic questions that must be answered before
the amount of depreciation charge can be computed?
a. What is the depreciation base to use for the
asset?
b. What is the asset’s useful life?
c. What method of cost apportionment is best for
this asset?
d. What product or service is the asset related
to?
38. Under
MACRS, which one of the following is not
considered in determining depreciation for tax purposes?
a. Cost of asset
b. Property recovery class
c. Half-year convention
d. Salvage value
39. A
principal objection to the straight-line method of depreciation is that it
a. provides for the declining productivity of an
aging asset.
b. ignores variations in the rate of asset use.
c. tends to result in a constant rate of return
on a diminishing investment base.
d. gives smaller periodic write-offs than
decreasing charge methods.
40. For
the composite method, the composite
a. rate is the total cost divided by the total
annual depreciation.
b. rate is the total annual depreciation divided
by the total depreciable cost.
c. life is the total cost divided by the total
annual depreciation.
d. life is the total depreciable cost divided by
the total annual depreciation.
41. Depreciation
is normally computed on the basis of the nearest
a. full month and to the nearest cent.
b. full month and to the nearest dollar.
c. day and to the nearest cent.
d. day and to the nearest dollar.
42. A
change in estimate should
a. result in restatement of prior period
statements.
b. be handled in current and future periods.
c. be handled in future periods only.
d. be handled retroactively.
Ebert Inc. owns the following
assets:
Asset
Cost
Salvage
Estimated
Useful Life
A
$140,000
$14,000
10 years
B
75,000
7,500
5 years
C
164,000
8,000
12 years
43. What is the composite depreciation rate of
Ebert’s assets?
a. 14.0%
b. 10.3%
c. 12.9%
d. 11.1%
44. Newell,
Inc. purchased equipment in 2011 at a cost of $800,000. Two years later it
became apparent to Newell, Inc. that this equipment had suffered an impairment
of value. In early 2013, the book value of the asset is $480,000 and it is
estimated that the fair value is now only $320,000. The entry to record the
impairment is
a. No entry is necessary as a write-off violates the historical cost
principle.
b. Retained Earnings………………………………………………. 160,000
Accumulated
DepreciationâEquipment…… 160,000
c. Loss on Impairment of Equipment……………………….. 160,000
Accumulated
DepreciationâEquipment…… 160,000
d. Retained Earnings………………………………………………. 160,000
Reserve for Loss
on Impairment of Equipment 160,000
45. Robertson Inc. bought a machine on January
1, 2002 for $400,000. The machine had an expected life of 20 years and was
expected to have a salvage value of $40,000. On July 1, 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap, the company
reviewed the potential of the machine and determined that its undiscounted
future net cash flows totaled $200,000 and its discounted future net cash flows
totaled $140,000. If no active market exists for the machine and the company
does not plan to dispose of it, what should Robertson record as an impairment
loss on July 1, 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap?
a. $
0
b. $11,000
c. $20,000
d. $71,000
46. (9 points) A machine cost $800,000 on
April 1, 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap. Its estimated salvage value is $80,000 and its expected life is
eight years.
Instructions
Calculate
the depreciation expense (to the nearest dollar) by each of the following
methods, showing the figures used.
(a) Straight-line for 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap
(b) Double-declining balance for 2013
(c) Sum-of-the-years’-digits for 2013
Chapter 12
47. Companies should test indefinite life
intangible assets at least annually for:
a. recoverability.
b. amortization.
c. impairment.
d. estimated useful life.
48. When a company develops a trademark the
costs directly related to securing it should generally be capitalized. Which of
the following costs associated with a trademark would not be allowed to be
capitalized?
a. Attorney fees.
b. Consulting fees.
c. Research and development fees.
d. Design costs.
49. Goodwill may be recorded when:
a. it is identified within a company.
b. one company acquires another in a business
combination.
c. the fair value of a companyâs assets exceeds
their cost.
d. a company has exceptional customer relations.
50. Purchased
goodwill should
a. be written off as soon as possible against
retained earnings.
b. be written off as soon as possible as an
extraordinary item.
c. be written off by systematic charges as a
regular operating expense over the period benefited.
d. not be amortized.
51. A
loss on impairment of an intangible asset is the difference between the assetâs
a. carrying amount and the expected future net
cash flows.
b. carrying amount and its fair value.
c. fair value and the expected future net cash
flows.
d. book value and its fair value.
52. Which of the following costs incurred with
developing computer software for internal use should be capitalized?
a. Evaluation of alternatives.
b. Coding.
c. Training.
d. Maintenance.
53. Blue Sky Companyâs 12/31/12 balance sheet
reports assets of $7,500,000 and liabilities of $3,000,000. All of Blue Skyâs
assetsâ book values approximate their fair value, except for land, which has a
fair value that is $450,000 greater than its book value. On 12/31/12, Horace
Wimp Corporation paid $7,650,000 to acquire Blue Sky. What amount of goodwill
should Horace Wimp record as a result of this purchase?
a. $
-0-
b. $150,000
c. $2,700,000
d. $3,150,000
54. The
following information is available for Barkley Companyâs patents:
Cost $2,580,000
Carrying amount 1,290,000
Expected future net cash flows 1,200,000
Fair value 975,000
Barkley would record a loss on
impairment of
a. $
90,000.
b. $
315,000.
c. $1,290,000.
d. $1,380,000.
55. Negative goodwill arises when the
______________ of the net assets acquired is higher than the purchase price of
the assets.
a. useful
life
b. carrying
value
c. fair
value
d. excess
earnings
56.(12.5 points) Barkley
Corp. obtained a trade name in January 2011, incurring legal costs of $30,000.
The company amortizes the trade name over 8 years. Barkley successfully
defended its trade name in January 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap, incurring $9,800 in legal fees. At the
beginning of 2013, based on new marketing research, Barkley determines that the
fair value of the trade name is $24,000. Estimated total future cash flows from
the trade name are $26,000 on January 4, 2013.
Instructions
Prepare the
necessary journal entries for the years ending December 31, 2011, 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap, and
2013. Show all computations.
