ACC 304 Entire Course Flashcards
Strayer University ACC 304 Final Exam Part 1 (3 Sets) NEW
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This Tutorial contains 3 Set of Finals
ACC 304 Final Exam Part 1 (3 Sets) 1
1) Swing High Inc. offers its 100 employees to participate in an employee share-purchase plan. Under the terms of plan, employees are entitled to purchase 10 shares at 10% discount. The par values of shares were $10. Overall, 60 employees accepted the offer and each employee purchased six shares. The market price on purchase date was $100.
What is the compensation expense recorded by Swing High Inc.?
2) The interest rate written in the terms of the bond indenture is known as the
3) Which of the following methods of amortization is normally used for intangible assets?
4) If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will
5) The distribution of stock rights to existing common stockholders will increase paid-in capital at the
6) Treasury shares are shares
7) Which of the following is a contract-related intangible assets?
8) Which of the following taxes does not represent a common employee payroll deduction?
9) On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .627
Present value of 1 for 8 periods at 8% .540
Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652
The present value of the interest is
10) Which of the following would be considered research and development costs?
11) On January 1, 2015, Evans Company granted Tim Telfer, an employee, an option to buy 3,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $22,500. Telfer exercised his option on September 1, 2015, and sold his 1,000 shares on December 1, 2015. Quoted market prices of Evans Co. stock during 2015 were
January 1 $25 per share
September 1 $30 per share
December 1 $34 per share
The service period is for three years beginning January 1, 2015. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2015 on its books in the amount of
12) Presented below is information related to Hale Corporation:
Common Stock, $1 par $4,500,000
Paid-in Capital in Excess of Par―Common Stock 550,000
Preferred 8 1/2% Stock, $50 par 2,000,000
Paid-in Capital in Excess of Par―Preferred Stock 400,000
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000
The total paid-in capital (cash collected) related to the common stock is
13) On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.
Bond interest expense reported on the December 31, 2014 income statement of Macklin Corporation would be
14) Gannon Company acquired 10,000 shares of its own common stock at $20 per share on February 5, 2014, and sold 5,000 of these shares at $27 per share on August 9, 2015. The fair value of Gannon’s common stock was $24 per share at December 31, 2014, and $25 per share at December 31, 2015. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2015 to record the sale of 5,000 shares?
15) When computing diluted earnings per share, convertible bonds are
16) Jeff Corporation purchased a limited-life intangible asset for $225,000 on May 1, 2013. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2015?
17) A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $750,000. To extinguish this debt, the company had to pay a call premium of $250,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?
18) Slack Inc. borrowed $320,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31?
19) Venible newspapers sold 6,000 of annual subscriptions at $125 each on June 1. How much unearned revenue will exist as of December 31?
20) Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 5% convertible bonds outstanding during 2015. The preferred stock is convertible into 40,000 shares of common stock. During 2015, Hanson paid dividends of $.60 per share on the common stock and $2 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2015 was $400,000 and the income tax rate was 30%.
Basic earnings per share for 2015 is (rounded to the nearest penny)
21) Sealy Corporation had the following information in its financial statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $5,000
Net income for the year ended 2015 87,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,000,000
Common stockholders’ equity, 12/31/15 1,200,000
Outstanding shares, 12/31/15 100,000
Preferred dividends for the year ended 2015 10,000
What is the payout ratio for Sealy Corporation for the year ended 2015?
22) Jenks Corporation acquired Linebrink Products on January 1, 2015 for $8,000,000, and recorded goodwill of $1,500,000 as a result of that purchase. At December 31, 2015, Linebrink Products had a fair value of $6,800,000. The net identifiable assets of the Linebrink (excluding goodwill) had a fair value of $5,800,000 at that time. What amount of loss on impairment of goodwill should Jenks record in 2015?
23) On December 31, 2014, the stockholders’ equity section of Arndt, Inc., was as follows:
Common stock, par value $10; authorized 30,000 shares;
issued and outstanding 9,000 shares $90,000
Additional paid-in capital 116,000
Retained earnings 184,000
Total stockholders’ equity $390,000
On March 31, 2015, Arndt declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair value of the stock was $18 per share. For the three months ended March 31, 2015, Arndt sustained a net loss of $32,000. The balance of Arndt’s retained earnings as of March 31, 2015, should be
24) On September 1, 2014, Halley Co. issued a note payable to Fidelity Bank in the amount of $1,800,000, bearing interest at 10%, and payable in three equal annual principal payments of $600,000. On this date, the bank’s prime rate was 11%. The first payment for interest and principal was made on September 1, 2015. At December 31, 2015, Halley should record accrued interest payable of
ACC 304 Final Exam Part 1 (3 Sets) 2
1) We have also attached download of Chapter 12, 13, 14, 15, 16 (download it from my account section)
Please use those as well for your finals and please either use the question number or some data from question to search as they usually change the company keeping the data same
2) Convertible bonds
3) Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds?
4) Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2014. No common stock was issued during 2015. On January 1, 2015, Didde issued 200,000 shares of nonconvertible preferred stock. During 2015, Didde declared and paid $75,000 cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, 2015 was $465,000. What should be Didde’s 2015 earnings per common share?
5) Weiser Corp. on January 1, 2012, granted stock options for 40,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $420,000. The options are exercisable beginning January 1, 2015, provided those key employees are still in Weiser’s employ at the time the options are exercised. The options expire on January 1, 2016.
On January 1, 2015, when the market price of the stock was $29 per share, all 40,000 options were exercised. The amount of compensation expense Weiser should record for 2015 under the fair value method is
6) Carr Corporation retires its $300,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $311,235. The entry to record the redemption will include a
7) On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.
The entry to record the issuance of the bonds would include a credit of
8) Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
9) On its December 31, 2014 balance sheet, Emig Corp. reported bonds payable of $3,000,000 and related unamortized bond issue costs of $160,000. The bonds had been issued at par. On January 2, 2015, Emig retired $1,500,000 of the outstanding bonds at par plus a call premium of $35,000. What amount should Emig report in its 2015 income statement as loss on extinguishment of debt (ignore taxes)?
10) Feller Company issues $15,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
11) Where is debt callable by the creditor reported on the debtor’s financial statements?
12) Sawyer Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,500,000 per year. The company estimates that on average it will incur losses of $1,200,000 per year. During 2014, $525,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Sawyer Company for 2014?
13) A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should
14) On September 1, Horton purchased $13,300 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $280. Payment for the purchase was made on September 18. Assuming Horton uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as inventory from this purchase?
15) What is a discount as it relates to zero-interest-bearing notes payable?
16) Which of the following legal fees should be capitalized?
17) Which of the following costs of goodwill should be amortized over their estimated useful lives?
18) MaBelle Corporation incurred the following costs in 2015:
Acquisition of R&D equipment with a useful life of 4 years in R&D projects $800,000
Start-up costs incurred when opening a new plant 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full production stage 500,000
What amount should MaBelle record as research & development expense in 2015?
19) Jenks Corporation acquired Linebrink Products on January 1, 2015 for $8,000,000, and recorded goodwill of $1,500,000 as a result of that purchase. At December 31, 2015, Linebrink Products had a fair value of $6,800,000. The net identifiable assets of the Linebrink (excluding goodwill) had a fair value of $5,800,000 at that time. What amount of loss on impairment of goodwill should Jenks record in 2015?\
20) The general ledger of Vance Corporation as of December 31, 2015, includes the following accounts:
Copyrights $30,000
Deposits with advertising agency (will be used to promote goodwill) 27,000
Discount on bonds payable 70,000
Excess of cost over fair value of identifiable net assets of Acquired subsidiary 480,000
Trademarks 90,000
In the preparation of Vance’s balance sheet as of December 31, 2015, what should be reported as total intangible assets?
21) Sealy Corporation had the following information in its financial statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $5,000
Net income for the year ended 2015 87,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,000,000
Common stockholders’ equity, 12/31/15 1,200,000
Outstanding shares, 12/31/15 100,000
Preferred dividends for the year ended 2015 10,000
What is the rate of return on common stock equity for Sealy Corporation for the year ended 2015?
22) An entry is not made on the
23) The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the
24) Layne Corporation had the following information in its financial statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $10,000
Net income for the year ended 2015 83,000
Market price of stock, 12/31/14 10
Market price of stock, 12/31/15 12
Common stockholders’ equity, 12/31/14 1,600,000
Common stockholders’ equity, 12/31/15 1,980,000
Outstanding shares, 12/31/15 180,000
Preferred dividends for the year ended 2015 15,000
What is the book value per share for Layne Corporation for the year ended 2015?
25) The pre-emptive right of a common stockholder is the right to
ACC 304 Final Exam Part 1 (3 Sets)
1) Swing High Inc. offers its 100 employees to participate in an employee share-purchase plan. Under the terms of plan, employees are entitled to purchase 10 shares at 10% discount. The par values of shares were $10. Overall, 60 employees accepted the offer and each employee purchased six shares. The market price on purchase date was $100.
2) Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2014. No common stock was issued during 2015. On January 1, 2015, Didde issued 200,000 shares of nonconvertible preferred stock. During 2015, Didde declared and paid $75,000 cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, 2015 was $465,000. What should be Didde’s 2015 earnings per common share?
3) When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be
4) On July 1, 2014, an interest payment date, $90,000 of Parks Co. bonds were converted into 1,800 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $3,600 unamortized discount on the bonds. Using the book value method, Parks would record
5) Convertible bonds
6) Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a
7) Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to
8) When a business enterprise enters into what is referred to as off-balance-sheet financing, the company
9) When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be
10) On October 1, 2014 Macklin Corporation issued 5%, 10-year bonds with a face value of $4,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.
11) Which of the following taxes does not represent a common employee payroll deduction?
12) Which of the following is an example of a contingent liability?
13) Sawyer Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,500,000 per year. The company estimates that on average it will incur losses of $1,200,000 per year. During 2014, $525,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Sawyer Company for 2014?
14) Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2014 for the purchase of $250,000 of inventory. The face value of the note was $253,900. Greeson used a “Discount on Note Payable” account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2012 will include a
15) Presented below is information available for Marley Company. Current Assets Cash $ 4,000 Short-term investments 65,000 Accounts receivable 61,000 Inventories 110,000 Prepaid expenses 30,000 Total current assets $ 270,000 16) In accounting for internally generated intangible assets, U.S. GAAP requires that
17) One factor that is not considered in determining the useful life of an intangible asset is
18) In 2015, Edwards Corporation incurred research and development costs as follows:
Materials and equipment $110,000
Personnel 130,000
Indirect costs 150,000
$390,000
These costs relate to a product that will be marketed in 2016. It is estimated that these costs will be recouped by December 31, 2018. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2015?
19) The carrying value of an intangible is
20) Under current accounting practice, intangible assets are classified as
21) The statement of changes in equity has columns for each of the following except:
22) The pre-emptive right of a common stockholder is the right to
23) Total stockholders’ equity represents
24) The issuer of a 5% common stock dividend to common stockholders should transfer from retained earnings to paid-in capital an amount equal to the
25) Which of the following features of preferred stock makes it more like a debt than an equity instrument?
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Strayer University ACC 304 Final Exam Part 2 (2 Sets) NEW
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ACC 304 Final Exam Part 2 (2 Sets) 1
1) On January 1, 2015, Piper Co. issued ten-year bonds with a face value of $3,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 10 periods at 12% .322
Present value of 1 for 20 periods at 5% .377
Present value of 1 for 20 periods at 6% .312
Present value of annuity for 10 periods at 10% 6.145
Present value of annuity for 10 periods at 12% 5.650
Present value of annuity for 20 periods at 5% 12.462
Present value of annuity for 20 periods at 6% 11.470
2) Without prejudice to your solution in part (a), assume that the issue price was $2,652,000. Prepare the amortization table for 2015, assuming that amortization is recorded on interest payment dates using the effective-interest method.
3) The following information pertains to Parsons Co.:
Preferred stock, cumulative:
Par value per share $100
Dividend rate 8%
Shares outstanding 9,000
Dividends in arrears none
Common stock:
Par value per share $10
Shares issued 100,000
Dividends paid per share $2.00
Market price per share $47
Additional paid-in capital $480,000
Unappropriated retained earnings (after closing) $250,000
Retained earnings appropriated for contingencies $280,000
Common treasury stock:
Number of shares 9,000
Total cost $240,000
Net income $610,000
Compute (assume no changes in balances during the past year): (Round per share and ratios to 2 decimal places, e.g. $15.75 or 15.75%.)
(a) Total amount of stockholders’ equity in the balance sheet $
(b) Earnings per share of common stock $ per share (c) Book value per share of common stock $ per share (d) Payout ratio of common stock % (e) Return on common stock equity %
4) Sisco Co. purchased a patent from Thornton Co. for $620,000 on July 1, 2012. Expenditures of $119,000 for successful litigation in defense of the patent were paid on July 1, 2015. Sisco estimates that the useful life of the patent will be 20 years from the date of acquisition.
Prepare a computation of the carrying value of the patent at December 31, 2015.
5) On August 31, Latty Co. partially refunded $401,000 of its outstanding 10% note payable made one year ago to Dugan State Bank by paying $401,000 plus $40,100 interest, having obtained the $441,100 by using $126,240 cash and signing a new one-year $346,000 note discounted at 9% by the bank.
6) Make the entry to record the partial refunding. Assume Latty Co. makes reversing entries when appropriate. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
7) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
ACC 304 Final Exam Part 2 (2 Sets)
1) The following information pertains to Parsons Co.:
Preferred stock, cumulative:
Par value per share $100
Dividend rate 8%
Shares outstanding 9,000
Dividends in arrears none
Common stock:
Par value per share $10
Shares issued 100,000
Dividends paid per share $2.00
Market price per share $47
Additional paid-in capital $480,000
Unappropriated retained earnings (after closing) $250,000
Retained earnings appropriated for contingencies $280,000
Common treasury stock:
Number of shares 9,000
Total cost $240,000
Net income $610,000
Compute (assume no changes in balances during the past year): (Round per share and ratios to 2 decimal places, e.g. $15.75 or 15.75%.)
(a) Total amount of stockholders’ equity in the balance sheet $
(b) Earnings per share of common stock $
per share
(c) Book value per share of common stock $
per share
(d) Payout ratio of common stock
%
(e) Return on common stock equity
%
2) On January 1, 2015, Piper Co. issued ten-year bonds with a face value of $3,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 10 periods at 12% .322
Present value of 1 for 20 periods at 5% .377
Present value of 1 for 20 periods at 6% .312
Present value of annuity for 10 periods at 10% 6.145
Present value of annuity for 10 periods at 12% 5.650
Present value of annuity for 20 periods at 5% 12.462
Present value of annuity for 20 periods at 6% 11.470
3) Calculate the issue price of the bonds.
Issue price of bond
4) Without prejudice to your solution in part (a), assume that the issue price was $2,652,000. Prepare the amortization table for 2015, assuming that amortization is recorded on interest payment dates using the effective-interest method.
5) Sisco Co. purchased a patent from Thornton Co. for $620,000 on July 1, 2012. Expenditures of $119,000 for successful litigation in defense of the patent were paid on July 1, 2015. Sisco estimates that the useful life of the patent will be 20 years from the date of acquisition.
Prepare a computation of the carrying value of the patent at December 31, 2015.
6) On August 31, Latty Co. partially refunded $443,000 of its outstanding 10% note payable made one year ago to Dugan State Bank by paying $443,000 plus $44,300 interest, having obtained the $487,300 by using $134,220 cash and signing a new one-year $388,000 note discounted at 9% by the bank.
7) Make the entry to record the partial refunding. Assume Latty Co. makes reversing entries when appropriate. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
8) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Date Account Titles and Explanation Debit Credit
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Strayer university ACC 304 Week 1 Chapter 8 Homework NEW
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ACC 304 Week 1 Chapter 8 Homework
1) Matlock Company uses a perpetual inventory system. Its beginning inventory consists 50 units that cost $34 each. During June , (1) the company purchased units at $34 each, (2) returned 6 units for credit ,and (3) sold 125 unit at $50 each. Journalize the June transactions.
2) Amsterdam Company uses a periodic inventory system. For April, When the company sold 600 units, The following information is available. calculate weighted average cost per unit.
3) Arna, Inc. uses the dollar value LIFO method of computing its inventory. Data for the past 3 year follow. Compute the value of the 2014 and 2015 inventories using the dollar-value LIFE method.
4) Craig Company asks you to review its December 31, 2014, inventory values and prepare the necessary adjustments to the book. The following information is given to u. determine the proper inventory balance for Craig Company at December 31, 2014.
5) Prepare any correcting entries to adjust inventory to its proper amount at December 31, 2014. Assume the books have not been closed.
6) The net income per books of Linda Patrick Company was determined without knowledge of the errors indicated below. Prepare work sheet to show the adjusted net income figure for each of the 6 years after taking into account the inventory errors.
7) Presented below the information related to Dino Radja Company. Compute the ending inventory for Dino Radja Company for 2011 throw 2016 using the Dollar value LIFO method.
8) Under IFRS, an entity should initially recognize inventory when
9) With respect to accounting of inventories, which of the following is a difference that exists for IFRS, as opposed to U.S GAAP?
10) Some of the transactions of Torres Company during August are listed below. Torres uses the periodic inventory method.
11) Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken: prepare general journal entries to record the transactions
12) Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses: prepare general journal entries to record the transactions
13) Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses: prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time.
14) Under IFRS, which of the following would be included in the cost of inventories?
15) Under IFRS, inventories are classified as
16) Which of the following best describes the IFRS requirement for applying the same cost formula to all inventories?
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Strayer University ACC 304 Week 2 Chapter 8 Quiz (All Possible Questions) NEW
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ACC 304 Week 2 Quiz – Strayer NEW
CHAPTER 8
VALUATION OF INVENTORIES:A COST-BASIS APPROACH
IFRS questions are available at the end of this chapter.
TRUE FALSE—Conceptual
1. A manufacturing concern would report the cost of units only partially processed as inventory in the balance sheet.
2. Both merchandising and manufacturing companies normally have multiple inventory accounts.
3. When using a perpetual inventory system, freight charges on goods purchased are debited to Freight-In.
4. If a supplier ships goods f.o.b. destination, title passes to the buyer when the supplier delivers the goods to the common carrier.
5. If ending inventory is understated, then net income is understated.
6. If both purchases and ending inventory are overstated by the same amount, net income is not affected.
7. Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.
8. Purchase Discounts Lost is a financial expense and is reported in the “other expenses and losses” section of the income statement.
9. The cost flow assumption adopted must be consistent with the physical movement of the goods.
10. In all cases when FIFO is used, the cost of goods sold would be the same whether a perpetual or periodic system is used.
11. The change in the LIFO Reserve from one period to the next is recorded as an adjustment to Cost of Goods Sold.
12. Many companies use LIFO for both tax and internal reporting purposes.
13. LIFO liquidation often distorts net income, but usually leads to substantial tax savings.
14. LIFO liquidations can occur frequently when using a specific-goods approach.
15. Dollar-value LIFO techniques help protect LIFO layers from erosion.
16. The dollar-value LIFO method measures any increases and decreases in a pool in terms of total dollar value and physical quantity of the goods.
17. A disadvantage of LIFO is that it does not match more recent costs against current revenues as well as FIFO.
18. The LIFO conformity rule requires that if a company uses LIFO for tax purposes, it must also use LIFO for financial accounting purposes.
19. Use of LIFO provides a tax benefit in an industry where unit costs tend to decrease as production increases.
20. LIFO is inappropriate where unit costs tend to decrease as production increases.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
22. Where should raw materials be classified on the balance sheet?
a. Prepaid expenses.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
23. Which of the following accounts is not reported in inventory?
a. Raw materials.
b. Equipment.
c. Finished goods.
d. Supplies.
24. Why are inventories included in the computation of net income?
a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net income.
25. Which of the following is a characteristic of a perpetual inventory system?
a. Inventory purchases are debited to a Purchases account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less the change in inventory.
26. How is a significant amount of consignment inventory reported in the balance sheet?
a. The inventory is reported separately on the consignor’s balance sheet.
b. The inventory is combined with other inventory on the consignor’s balance sheet.
c. The inventory is reported separately on the consignee’s balance sheet.
d. The inventory is combined with other inventory on the consignee’s balance sheet.
27. Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
28. If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?
a. Overstate net income.
b. Understate net income.
c. No effect on net income.
d. Not sufficient information to determine effect on net income.
29. If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine effect on the current ratio.
30. What is consigned inventory?
a. Goods that are shipped, but title transfers to the receiver.
b. Goods that are sold, but payment is not required until the goods are sold.
c. Goods that are shipped, but title remains with the shipper.
d. Goods that have been segregated for shipment to a customer.
31. When using a perpetual inventory system,
a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
32. Goods in transit which are shipped f.o.b. shipping point should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
33. Goods in transit which are shipped f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
34. Which of the following items should be included in a company’s inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to call for at his or her convenience.
d. None of these.
Use the following information for questions 35 and 36.
During 2012 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2013. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2013 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.
35. This transaction is known as a(n)
a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.
36. On whose books should the cost of the inventory appear at the December 31, 2012 balance sheet date?
a. Carne Corporation
b. Nolan Corporation
c. Norwalk Bank
d. Nolan Corporation, with Carne making appropriate note disclosure of the transaction
37. Goods on consignment are
a. included in the consignee’s inventory.
b. recorded in a Consignment Out account which is an inventory account.
c. recorded in a Consignment In account which is an inventory account.
d. all of these
S38. Valuation of inventories requires the determination of all of the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consign¬ment from other companies.
d. the cost flow assumption to be adopted.
P39. The accountant for the Pryor Sales Company is preparing the income statement for 2012 and the balance sheet at December 31, 2012. Pryor uses the periodic inventory system. The January 1, 2012 merchandise inventory balance will appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the income statement.
c. as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet.
d. as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.
P40. If the beginning inventory for 2012 is overstated, the effects of this error on cost of goods sold for 2012, net income for 2012, and assets at December 31, 2013, respectively, are
a. overstatement, understatement, overstatement.
b. overstatement, understatement, no effect.
c. understatement, overstatement, overstatement.
d. understatement, overstatement, no effect.
S41. The failure to record a purchase of mer-chandise on account even though the goods are properly included in the physical inven¬tory results in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.
c. an understatement of cost of goods sold and liabilities and an overstatement of assets.
d. an understatement of liabilities and an overstatement of owners’ equity.
42. Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be
a. no effect.
b. net income was correct and current assets and current liabilities were overstated.
c. net income, current assets, and current liabilities were overstated.
d. net income and current liabilities were overstated.
43. Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be
a. net income, current assets, and retained earnings were overstated.
b. net income was correct and current assets were understated.
c. net income and current assets were overstated and current liabilities were understated.
d. net income, current assets, and retained earnings were understated.
44. Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be
a. net income, current assets, and retained earnings were understated.
b. net income was correct and current assets were understated.
c. net income was understated and current liabilities were overstated.
d. net income was overstated and current assets were understated.
45. On June 15, 2012, Wynne Corporation accepted delivery of merchandise which it pur-chased on account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2012 would be
a. assets and stockholders’ equity were overstated but liabilities were not affected.
b. stockholders’ equity was the only item affected by the omission.
c. assets, liabilities, and stockholders’ equity were understated.
d. none of these.
46. What is the effect of a $50,000 overstatement of last year’s inventory on current years ending retained earning balance?
a. Understated by $50,000.
b. No effect.
c. Overstated by $50,000.
d. Need more information to determine.
47. Which of the following is a product cost as it relates to inventory?
a. Selling costs.
b. Interest costs.
c. Raw materials.
d. Abnormal spoilage.
48. Which of the following is a period cost?
a. Labor costs.
b. Freight in.
c. Production costs.
d. Selling costs.
49. Which method may be used to record cash discounts a company receives for paying suppliers promptly?
a. Net method.
b. Gross method.
c. Average method.
d. a and b.
50. Which of the following is included in inventory costs?
a. Product costs.
b. Period costs.
c. Product and period costs.
d. Neither product or period costs.
51. Which of the following is correct?
a. Selling costs are product costs.
b. Manufacturing overhead costs are product costs.
c. Interest costs for routine inventories are product costs.
d. All of these.
52. All of the following costs should be charged against revenue in the period in which costs are incurred except for
a. manufacturing overhead costs for a product manufactured and sold in the same accounting period.
b. costs which will not benefit any future period.
c. costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
d. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.
53. Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as ships or real estate projects
c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis
d. All of these should be capitalized.
54. The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its
a. invoice price.
b. invoice price plus the purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken or not.
55. The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its
a. invoice price.
b. invoice price plus any purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken or not.
Use the following information for questions 56 and 57.
During 2012, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.
56. Which of the following recording procedures would result in the highest cost of goods sold for 2012?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under “other expenses” in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same cost of goods sold.
d. Cannot be determined from the information provided.
57. Which of the following recording procedures would result in the highest net income for 2012?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under “other expenses” in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same net income.
d. Cannot be determined from the information provided.
58. When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchased during the period
S59. Costs which are inventoriable include all of the following except
a. costs that are directly connected with the bringing of goods to the place of business of the buyer.
b. costs that are directly connected with the converting of goods to a salable condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department
P60. Which inventory costing method most closely approximates current cost for each of the following:
Ending Inventory Cost of Goods Sold
a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO
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Strayer University ACC 304 Week 2 Chapter 9 Homework NEW
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ACC 304 Week 2 Chapter 9 Homework
1) Floyd Corporation has the following four items in its ending inventory. Determine the final lower-of-cost-or-market inventory value for each item.
2) Bell, Inc. buys 1,000 computer game CDs from a distributor who is disconnecting those games. The purchase price for the lot is $8,000.Bell will group the CDs into three price categories for resale, as indicated bellow. Determine the cost per CD for each group, using the relative sales value method.
3) Boyne Inc. had beginning inventory of $12,000 at cost and $20,000 t retail. Net purchase were $12,000 at cost and $17,000 at retail. Net markups were $10,000; net markdowns were $7,000; and sales revenue was $147,000.compute ending inventory at cost using the conventional retail method.
4) Marvin Gaye Company has been having difficulty obtaining key raw materials for its manufacturing process. The Company therefore signed a long-term non cancelable purchase commitment with its largest supplier of this raw material on November 30, 2014,at an agreed price of $400,0000. At December 31, 2014, the raw material had declined in price to $365,000. What entry would you make on December 31, 2014, to recognize these facts?
5) Tim Legler requires an estimate of the cost of goods loat by fire on March 9. Merchandise on hand on January 1 was $38,000. Purchases since January 1 were $72,000; freight-in $3,400; purchases returns and allowances, $2,400. Sales are made at 33 1/3% above cost and totaled $100,000 to March 9. Goods coasting $10,900 were left undamaged by the fire; remaining goods were destroyed. (a). compute the cost goods destroyed. (b). compute the cost goods destroyed, assuming that the gross profit 33 1/3% of sales.
6) Presented below is information related to Ricky Henderson Company. Compute the inventory by the conventional retail inventory method.
7) The inventory section of Maddox’s balance sheet as of November 30,2014, including required foot notes, is presented below are the inventory section supporting calculations.
8) All of the following are key similarities between GAAP and IFRS with respect to accounting for inventories except:
9) Starfish Company (a Company using Gap and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish’s financials?
10) Assume that Darcy industry had the following inventory values.
1. Inventory cost (on December 31,2014)$1,500
2. Inventory sales value (on December 31,2014)$1,350
3. Inventory net realizable value (on December 31,2014)$1,320
Under IFRS, what is the inventory carrying value on December 31, 2014 ?
11) Under IFRS, agricultural activity results in which of the following types of assets?
1. Agricultural produce
2. Biological assets
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Strayer University ACC 304 Week 3 Chapter 9 Quiz (All Possible Questions) NEW
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ACC 304 Week 3 Chapter 9 Quiz (All Possible Questions) NEW
1. A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.
2. The lower-of-cost-or-market method is used for inventory despite being less conservative than valuing inventory at market value.
3. The purpose of the “floor” in lower-of-cost-or-market considerations is to avoid overstating inventory.
4. Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year.
5. GAAP requires reporting inventory at net realizable value, even if above cost, whenever there is a controlled market with a quoted price applicable to all quantities.
6. A reason for valuing inventory at net realizable value is that sometimes it is too difficult to obtain the cost figures.
7. In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative sales value.
8 A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.
9. Most purchase commitments must be recorded as a liability.
10. If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should record any expected losses on the commitment in the period in which the market decline takes place.
11. When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.
12. The gross profit method can be used to approximate the dollar amount of inventory on hand.
13. In most situations, the gross profit percentage is stated as a percentage of cost.
14. A disadvantage of the gross profit method is that it uses past percentages in determining the markup.
15. When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation.
16. In the retail inventory method, the term markup means a markup on the original cost of an inventory item.
17. In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.
18. The inventory turnover ratio is computed by dividing the cost of goods sold by the ending inventory on hand.
19. The average days to sell inventory represents the average number of days’ sales for which a company has inventory on hand.
*20. The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21 Which of the following is true about lower-of-cost-or-market?
a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income.
d. All of these.
22. The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their
a. selling price will be less than their replacement cost.
b. replacement cost will be more than their net realizable value.
c. cost will be less than their replacement cost.
d. future utility will be less than their cost.
23. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term “market”?
a. Net realizable value
b. Net realizable value less a normal profit margin
c. Current replacement cost
d. Discounted present value
24. 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.
25. Designated market value
a. is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin.
b. should always be equal to net realizable value.
c. may sometimes exceed net realizable value.
d. should always be equal to net realizable value less a normal profit margin.
26. Lower-of-cost-or-market
a. is most conservative if applied to the total inventory.
b. is most conservative if applied to major categories of inventory.
c. is most conservative if applied to individual items of inventory.
d. must be applied to major categories for taxes.
27. An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is not true?
a. The cost of sales of the following year will be understated.
b. The current year’s income is understated.
c. The closing inventory of the current year is understated.
d. Income of the following year will be understated.
S28. When the cost-of-goods-sold method is used to record inventory at market
a. there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale.
b. a loss is recorded directly in the inventory account by crediting inventory and debiting loss on inventory decline.
c. only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements.
d. the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.
29. Lower-of-cost-or-market as it applies to inventory is best described as the
a. drop of future utility below its original cost.
b. method of determining cost of goods sold.
c. assumption to determine inventory flow.
d. change in inventory value to market value.
30. 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.
31. What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory?
a. Prevents understatement of the inventory value.
b. Allows for a normal profit to be earned.
c. Allows for items to be valued at replacement cost.
d. Prevents overstatement of the value of obsolete or damaged inventories.
32. Why are inventories stated at lower-of-cost-or-market?
a. To report a loss when there is a decrease in the future utility.
b. To be conservative.
c. To report a loss when there is a decrease in the future utility below the original cost.
d. To permit future profits to be recognized.
33. Which of the following is not an acceptable approach in applying the lower-of-cost-or-market method to inventory?
a. Inventory location.
b. Categories of inventory items.
c. Individual item.
d. Total of the inventory.
34. Which method(s) may be used to record a loss due to a price decline in the value of inventory?
a. Cost-of-goods-sold.
b. Sales method.
c. Loss method
d. Both a and c.
35. Why might inventory be reported at sales prices (net realizable value or market price) rather than cost?
a. When there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal.
b. When there are no significant costs of disposal.
c. When a non-cancellable contract exists to sell the inventory.
d. When there is a controlled market with a quoted price applicable to all quantities.
S36. Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and
a. the ending inventory is determined by a physical inventory count.
b. a normal profit is not anticipated.
c. there is a controlled market with a quoted price applicable to all quantities.
d. the internal revenue service is assured that the practice is not used only to distort reported net income.
37. When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?
a. Sales price
b. Net realizable value
c. Historical cost
d. Net realizable value reduced by a normal profit margin
38. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.
39. If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is
a. net realizable value.
b. original cost.
c. market value.
d. net realizable value less a normal profit margin.
40. Inventory may be recorded at net realizable value if
a. there is a controlled market with a quoted price.
b. there are no significant costs of disposal.
c. the inventory consists of precious metals or agricultural products.
d. all of these.
41. If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,
a. this fact must be disclosed.
b. disclosure is required only if prices have declined since the date of the order.
c. disclosure is required only if prices have since risen substantially.
d. an appropriation of retained earnings is necessary.
42. The credit balance that arises when a net loss on a purchase commitment is recognized should be
a. presented as a current liability.
b. subtracted from ending inventory.
c. presented as an appropriation of retained earnings.
d. presented in the income statement.
P43. In 2012, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2013 for $700,000. Before the December 31, 2012 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2012 will result in a credit that should be reported
a. as a valuation account to Inventory on the balance sheet.
b. as a current liability.
c. as an appropriation of retained earnings.
d. on the income statement.
44. At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements?
a. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment.
b. No impact.
c. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment.
d. Disclose the existence of the purchase commitment.
45. At the end of the fiscal year, Apha Airlines has an outstanding purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.60 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.25, how would this situation be reflected in the annual financial statements?
a. Record unrealized gains of $350,000 and disclose the existence of the purchase commitment.
b. No impact.
c. Record unrealized losses of $350,000 and disclose the existence of the purchase commitment.
d. Disclose the existence of the purchase commitment.
46. How is the gross profit method used as it relates to inventory valuation?
a. Verify the accuracy of the perpetual inventory records.
b. Verity the accuracy of the physical inventory.
c. To estimate cost of goods sold.
d. To provide an inventory value of LIFO inventories.
S47. Which of the following is not a basic assumption of the gross profit method?
a. The beginning inventory plus the purchases equal total goods to be accounted for.
b. Goods not sold must be on hand.
c. If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand.
d. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
48. The gross profit method of inventory valuation is invalid when
a. a portion of the inventory is destroyed.
b. there is a substantial increase in inventory during the year.
c. there is no beginning inventory because it is the first year of operation.
d. none of these.
49. Which statement is not true about the gross profit method of inventory valuation?
a. It may be used to estimate inventories for interim statements.
b. It may be used to estimate inventories for annual statements.
c. It may be used by auditors.
d. None of these.
50. A major advantage of the retail inventory method is that it
a. provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period.
b. hides costs from competitors and customers.
c. gives a more accurate statement of inventory costs than other methods.
d. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
51. An inventory method which is designed to approximate inventory valuation at the lower of cost or market is
a. last-in, first-out.
b. first-in, first-out.
c. conventional retail method.
d. specific identification.
52. The retail inventory method is based on the assumption that the
a. final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods.
b. ratio of gross margin to sales is approximately the same each period.
c. ratio of cost to retail changes at a constant rate.
d. proportions of markups and markdowns to selling price are the same.
53. Which statement is true about the retail inventory method?
a. It may not be used to estimate inventories for interim statements.
b. It may not be used to estimate inventories for annual statements.
c. It may not be used by auditors.
d. None of these.
54. When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because
a. there may be no markdowns in a given year.
b. this tends to give a better approximation of the lower of cost or market.
c. markups are also ignored.
d. this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.
55. 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.
*56. When calculating the cost ratio for the retail inventory method,
a. if it is the conventional method, the beginning inventory is included and markdowns are deducted.
b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted.
c. if it is the LIFO method, the beginning inventory is included and markdowns are not deducted.
d. if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.
S57. Which of the following is not required when using the retail inventory method?
a. All inventory items must be categorized according to the retail markup percentage which reflects the item’s selling price.
b. A record of the total cost and retail value of goods purchased.
c. A record of the total cost and retail value of the goods available for sale.
d. Total sales for the period.
S58. Which of the following is not a reason the retail inventory method is used widely?
a. As a control measure in determining inventory shortages
b. For insurance information
c. To permit the computation of net income without a physical count of inventory
d. To defer income tax liability
- What condition is not necessary in order to use the retail method to provide inventory results?
a. Retailer keeps a record of the total costs of products sold for the period.
b. Retailer keeps a record of the total costs and retail value of goods purchased.
c. Retailer keeps a record of the total costs and retail value of goods available for sale.
d. Retailer keeps a record of sales for the period. - What method yields results that are essentially the same as those of the conventional retail method?
a. FIFO.
b. Lower-of-average-cost-or-market.
c. Average cost.
d. LIFO.
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Strayer University ACC 304 Week 3 Chapter 10 Homework NEW
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1) Hanson Company is constructing a building. Construction begins on February 1 and was completed on December 31. Expenditure were $1,800,000 on march 1, $1,200,000 on June 1, and $3,000,000 on December 31. Compute Hanson’s weighted-average accumulated expenditure for interest capitalization purposes.
2) Mehta Company traded a used welding machine (cost $9,000, accumulated depreciation $3,000) for office equipment with an estimated fair value of $5,000. Mehta also paid $3,000 cash in the transaction. Prepare the journal entry to record the exchange.
3) Ottawa Corporation owns machinery that cost $20,000 when purchased on July 1, 2011. Depreciation has been recorded at a rate of $2,400 per year, resulting in a balance is accumulated depreciation of $8,400 at December 31, 2014. The machinery is sold on September 1, 2015, for $10,500. Prepare journal entries to (a) update depreciation for 2015 and (b) record the sale.
4) Martin Buber co. purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Martin Buber paid $2,200 to an engineering firm for a land survey, and $68,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor’s charge for construction was $2,740,000. The company paid the contractor in two installments:$1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Martin Buberk Co. assumes that the land survey was for the building.
5) Ben Sisko Supply Company, a newly formed corporation, incurred the following expenditure related to land, to Buildings, and to machinery and equipment. Determine the amounts that should be debited to land, to buildings, and to machinery and equipment. Assume the benefits of capitalizing interest during construction exceed the cost of implementation.
6) On December 31, 2013, Main Inc. borrowed $3,000,000 at 12% payable annually to finance the construction of a new building. In 2014, the company made the following expenditures related to this building: March 1, $360,000; June 1, $600,000;$1,500,000; December 1, $1,500,000. The building was completed in February 2015. Additional information is provided as follows.
7) Determine the amount of interest to be capitalized in 2014 in relation to the construction of the building.
8) Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2014.
9) Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Busy town Corporation gave the machine plus $340 to Disk Business machine Company (dealer) in exchange for a new machine. Assume the following information about the machines. For each company, prepare the necessary journal entry to record the exchange.
10) Under IFRS, Sampson company, who has a non-current asset which has been classified as held-for-sale, should
11) Miller Company, a company who uses IFRS reporting standards, sells a non-current asset classified as held-for-sale. Which of the following statements is true regarding the treatment of a gain on a subsequent increase in the fair value less cost?
12) Damson Company, a company who uses IFRS reporting standards, has a non-current asset that has been classified as held-for-sale. When the asset no longer meets this definition, Danson should
13) Elton Industries, a company who uses IFRS reporting standards, has asset and liabilities of a disposal group classified as held-for-sale shown on its statement of financial position. Which of the following presents the best treatment for these?
14) Woodson Company, a company who uses IFRS reporting standards, has identified a group of plant assets for disposal. On January 1, 2014, the carrying value of these assets was $14.5 million. The assets were revalued to $13.5 million on January 5, 2014, when they were identified as property for the disposal group. In addition, Woodson thinks that it will cost $1.5 million to sell these assets. What carrying amount should these assets reflect for year-end financial statements to be prepared on January 10, 2014?
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Strayer University ACC 304 Week 4 Chapter 10 Quiz (All Possible Questions) NEW
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ACC 304 Week 4 Quiz – Strayer NEW
Week 4 Quiz 3: Chapter 10
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Assets classified as Property, Plant, and Equipment can be either acquired for use in operations, or acquired for resale.
2. Assets classified as Property, Plant, and Equipment must be both long-term in nature and possess physical substance.
3. When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building.
4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment.
5. Special assessments for local improvements such as street lights and sewers should be accounted for as land improvements.
6. Variable overhead costs incurred to self-construct an asset should be included in the cost of the asset.
7. Companies should assign no portion of fixed overhead to self-constructed assets.
8. When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included.
9. Assets under construction for a company’s own use do not qualify for interest cost capitalization.
10. Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset.
11. When a company purchases land with the intention of developing it for a particular use, interest costs associated with those expenditures qualify for interest capitalization.
12. Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.
13. Companies account for the exchange of nonmonetary assets on the basis of the fair value of the asset given up or the fair value of the asset received.
14. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or loss is recognized.
15. When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance.
16. Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits.
17 Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently used.
18. When an ordinary repair occurs, several periods will usually benefit.
19. Companies always treat gains or losses from an involuntary conversion as extraordinary items.
20. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset’s book value.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. Plant assets may properly include
a. deposits on machinery not yet received.
b. idle equipment awaiting sale.
c. land held for possible use as a future plant site.
d. none of these.
22. Which of the following is not a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for resale
c. Acquired for use
d. Yields services over a number of years
23. Which of these is not a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a plant asset.
24. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be
a. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.
b. written off as an extraordinary loss in the year the hotel is torn down.
c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new hotel.
25. The cost of land does not include
a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
26. The cost of land typically includes the purchase price and all of the following costs except
a. grading, filling, draining, and clearing costs.
b. street lights, sewers, and drainage systems cost.
c. private driveways and parking lots.
d. assumption of any liens or mortgages on the property.
27. If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on
a. the significance of the cost allocated to the building in relation to the combined cost of the lot and building.
b. the length of time for which the building was held prior to its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building was acquired.
28. The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all taxes other than those on income).
d. accumulated depreciation–machinery.
29. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.
S30. Historical cost is the basis advocated for recording the acquisition of property, plant, and equipment for all of the following reasons except
a. at the date of acquisition, cost reflects fair market value.
b. property, plant, and equipment items are always acquired at their original historical cost.
c. historical cost involves actual trans¬actions and, as such, is the most reliable basis.
d. gains and losses should not be anticipated but should be recognized when the asset is sold.
S31. To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be
a. allocated on the basis of lost production.
b. eliminated completely from the cost of the asset.
c. allocated on an opportunity cost basis.
d. allocated on a pro rata basis between the asset and normal operations.
32. Which of the following costs are capitalized for self-constructed assets?
a. Materials and labor only
b. Labor and overhead only
c. Materials and overhead only
d. Materials, labor, and overhead
33. Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets?
a. Assets under construction for an enterprise’s own use.
b. Assets intended for sale or lease that are produced as discrete projects.
c. Assets financed through the issuance of long-term debt.
d. Assets not currently undergoing the activities necessary to prepare them for their intended use.
34. Assets that qualify for interest cost capitalization include
a. assets under construction for a company’s own use.
b. assets that are ready for their intended use in the earnings of the company.
c. assets that are not currently being used because of excess capacity.
d. All of these assets qualify for interest cost capitalization.
35. 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.
36. The period of time during which interest must be capitalized ends when
a. the asset is substantially complete and ready for its intended use.
b. no further interest cost is being incurred.
c. the asset is abandoned, sold, or fully depreciated.
d. the activities that are necessary to get the asset ready for its intended use have begun.
37. Which of the following statements is true regarding capitalization of interest?
a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account.
b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred.
c. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized.
d. The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.
38. Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is
a. 8/8.
b. 8/12.
c. 9/12.
d. 11/12.
39. When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds not needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be
a. offset against interest cost incurred during construction.
b. used to reduce the cost of assets being constructed.
c. multiplied by an appropriate interest rate to determine the amount of interest to be capitalized.
d. recognized as revenue of the period.
40. Interest cost that is capitalized should
a. be written off over the remaining term of the debt.
b. be accumulated in a separate deferred charge account and written off equally over a 40-year period.
c. not be written off until the related asset is fully depreciated or disposed of.
d. none of these.
S41. Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset?
a. Interest cost is being incurred.
b. Expenditures for the assets have been made.
c. The interest rate is equal to or greater than the company’s cost of capital.
d. Activities that are necessary to get the asset ready for its intended use are in progress.
S42. Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?
a. Capitalize only the actual interest costs incurred during construction.
b. Charge construction with all costs of funds employed, whether identifiable or not.
c. Capitalize no interest during construction.
d. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.
S43. Which of the following nonmonetary exchange transactions represents a culmination of the earning process?
a. Exchange of assets with no difference in future cash flows.
b. Exchange of products by companies in the same line of business with no difference in future cash flows.
c. Exchange of assets with a difference in future cash flows.
d. Exchange of an equivalent interest in similar productive assets that causes the companies involved to remain in essentially the same economic position.
S44. When boot is involved in an exchange having commercial substance.
a. gains or losses are recognized in their entirely.
b. a gain or loss is computed by comparing the fair value of the asset received with the fair value of the asset given up.
c. only gains should be recognized.
d. only losses should be recognized.
S45. The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has commercial substance is usually recorded at
a. the fair value of the asset given up, and a gain or loss is recognized.
b. the fair value of the asset given up, and a gain but not a loss may be recognized.
c. the fair value of the asset received if it is equally reliable as the fair value of the asset given up.
d. either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company.
P46. Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will
a. be reported in the Other Revenues and Gains section of the income statement.
b. effectively reduce the amount to be recorded as the cost of the new asset.
c. effectively increase the amount to be recorded as the cost of the new asset.
d. be credited directly to the owner’s capital account.
47. Plant assets purchased on long-term credit contracts should be accounted for at
a. the total value of the future payments.
b. the future amount of the future payments.
c. the present value of the future payments.
d. none of these.
48. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the
a. par value of the stock.
b. stated value of the stock.
c. book value of the stock.
d. fair value of the stock.
49. When a closely held corporation issues preferred stock for land, the land should be recorded at the
a. total par value of the stock issued.
b. total book value of the stock issued.
c. total liquidating value of the stock issued.
d. fair value of the land.
50. 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.
51. For a nonmonetary exchange of plant assets, accounting recognition should not be given to
a. a loss when the exchange has no commercial substance.
b. a gain when the exchange has commercial substance.
c. part of a gain when the exchange has no commercial substance and cash is paid (cash paid/received is less than 25% of the fair value of the exchange).
d. part of a gain when the exchange has no commercial substance and cash is received (cash paid or received is less than 25% of the fair value of the exchange).
52. When an enterprise is the recipient of a donated asset, the account credited may be a
a. paid-in capital account.
b. revenue account.
c. deferred revenue account.
d. all of these.
53. A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer’s books at
a. the nominal cost of taking title to it.
b. its fair value.
c. one dollar (since the site cost nothing but should be included in the balance sheet).
d. the value assigned to it by the company’s directors.
54. In order for a cost to be capitalized (capital expenditure), the following must be present:
a. The useful life of an asset must be increased.
b. The quantity of assets must be increased.
c. The quality of assets must be increased.
d. Any one of these.
55. An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine’s useful life. The cost of the improvement should be
a. expensed.
b. debited to accumulated depreciation.
c. capitalized in the machine account.
d. allocated between accumulated depreciation and the machine account.
56. Which of the following is a capital expenditure?
a. Payment of an account payable
b. Retirement of bonds payable
c. Payment of Federal income taxes
d. None of these
57. Which of the following is not a capital expenditure?
a. Repairs that maintain an asset in operating condition
b. An addition
c. A betterment
d. A replacement
P58. 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
S59. An expenditure made in connection with a machine being used by an enterprise should be
a. expensed immediately if it merely extends the useful life but does not improve the quality.
b. expensed immediately if it merely improves the quality but does not extend the useful life.
c. capitalized if it maintains the machine in normal operating condition.
d. capitalized if it increases the quantity of units produced by the machine.
S60. When a plant asset is disposed of, a gain or loss may result. The gain or loss would be classified as an extraordinary item on the income statement if it resulted from
a. an involuntary conversion and the conditions of the disposition are unusual and infrequent in nature.
b. a sale prior to the completion of the estimated useful life of the asset.
c. the sale of a fully depreciated asset.
d. an abandonment of the asset.
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Strayer University ACC 304 Week 4 Chapter 11 Homework NEW
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ACC 304 Week 4 Chapter 11 Homework
1) Lockard Company purchased machinery on January 1, 2014, for $102,960. The machinery is estimated to have a salvage value of $10,296 after a useful life of 8 years.
2) Compute 2014 depreciation expense using the double-declining-balance method.
3) Compute 2014 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2014.
4) Everly Corporation acquires a coal mine at a cost of $452,000. Intangible development costs total $113,000. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $90,400), after which it can be sold for $180,800. Everly estimates that 4,520 tons of coal can be extracted.
5) In its 2011 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $6,276 million, end-of-the-year total assets of $6,862 million, total sales of $7,719 million, and net income of $805 million.
6) Compute Campbell’s asset turnover ratio. (Round answer to 3 decimal places, e.g. 4.871.)
Asset turnover ratio
7) Compute Campbell’s profit margin on sales. (Round answer to 2 decimal places, e.g. 4.87 or 4.87%.)
8) Compute Campbell’s return on assets using (1) asset turnover and profit margin and (2) net income. (Round answers to 2 decimal places, e.g. 4.87 or 4.87%.)
Return on assets
9) Rembrandt Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.
Year Straight-Line Sum-of-the-
Years'-Digits Double-Declining-
Balance
1 $11,970 $19,950 $26,600
2 11,970 15,960 15,960
3 11,970 11,970 9,576
4 11,970 7,980 5,746
5 11,970 3,990 1,968
Total $59,850 $59,850 $59,850
10) What is the cost of the asset being depreciated? (Round answer to 0 decimal places, e.g. 45,892.)
Cost of asset $
11) If there is any salvage value and the amount is unknown (as is the case here), the cost would have to be determined by looking at the data for the double-declining balance method.
12) What amount, if any, was used in the depreciation calculations for the salvage value for this asset? (Round answer to 0 decimal places, e.g. 45,892.)
13) Which method will produce the highest charge to income in Year 1?
The method that produces the highest charge to income in Year 1 is
14) Which method will produce the highest charge to income in Year 4?
The method that produces the highest charge to income in Year 4 is
15) Which method will produce the highest book value for the asset at the end of Year 3?
The method that produces the highest book value for the asset at the end of Year 3 is
16) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014. (If no entry is required, select “No entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
17) If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?
The method that will yield the highest gain (or lowest loss) on disposal of the asset if the asset is sold at the end of Year 3 is
18) Muggsy Bogues Company purchased equipment for $224,700 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $24,720. Estimated production is 39,600 units and estimated working hours are 20,200. During 2014, Bogues uses the equipment for 590 hours and the equipment produces 1,100 units.
Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31.
19) Presented below is information related to equipment owned by Suarez Company at December 31, 2014.
Cost $ 20,232,000
Accumulated depreciation to date 2,248,000
Expected future net cash flows 15,736,000
Fair value 10,790,400
Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $ 44,960 . As of December 31, 2014, the equipment has a remaining useful life of 4 years.
20) The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014.
Machinery
A B C D
Original cost $108,560 $120,360 $188,800 $188,800
Year purchased 2009 2010 2011 2013
Useful life 10 years 15,000 hours 15 years 10 years
Salvage value $7,316 $7,080 $11,800 $11,800
Depreciation method Sum-of-the-years’-digits Activity Straight-line Double-declining balance
Accum. depr through 2014* $73,632 $83,072 $35,400 $37,760
*In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the asset.
In the year an asset is retired or traded in, Eshkol, Inc. takes a full year’s depreciation on the asset.
21) Mandall Company constructed a warehouse for $280,000 on January 2, 2014. Mandall estimates that the warehouse has a useful life of 20 years and no residual value. Construction records indicate that $40,000 of the cost of the warehouse relates to its heating, ventilation, and air conditioning (HVAC) system, which has an estimated useful life of only 10 years. What is the first year of depreciation expense using straight-line component depreciation under IFRS?
22) Francisco Corporation is constructing a new building at a total initial cost of $10,000,000. The building is expected to have a useful life of 50 years with no residual value. The building’s finished surfaces (e.g., roof cover and floor cover) are 5% of this cost and have a useful life of 20 years. Building services systems (e.g., electric, heating, and plumbing) are 20% of the cost and have a useful life of 25 years. The depreciation in the first year using component depreciation, assuming straight-line depreciation with no residual value, is:
23) Which of the following statements is correct?
Both IFRS and GAAP permit revaluation of property, plant, and equipment.
IFRS permits revaluation of property, plant, and equipment but not GAAP.
Both IFRS and GAAP do not permit revaluation of property, plant, and equipment.
GAAP permits revaluation of property, plant, and equipment but not IFRS.
24) Hilo Company has land that cost $350,000 but now has a fair value of $500,000. Hilo Company decides to use the revaluation method specified in IFRS to account for the land. Which of the following statements is correct?
25) Under IFRS, value-in-use is defined as:
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Strayer University ACC 304 Week 5 Midterm Part 1 (Set 1) NEW
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ACC 304 Week 5 Midterm Part 1 (Set 1)
- The book value of a plant asset is
- The asset turnover ratio is computed by dividing
- On September 19, 2014, Markham Co. purchased machinery for $285,000. Salvage value was estimated to be $15,000. The machinery will be depreciated over eight years using the sum-of-the-years’-digits method. If depreciation is computed on the basis of the nearest full month, Markham should record depreciation expense for 2015 on this machinery of
- In 2014, Bargain shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $70 billion. What is Bargain shop’s asset turnover ratio?
- In 2006, Jarrett Company purchased a tract of land as a possible future plant site. In January, 2014, valuable sulphur deposits were discovered on adjoining property and Jarrett Company immediately began explorations on its property. In December, 2014, after incurring $800,000 in exploration costs, which were accumulated in an expense account, Jarrett discovered sulphur deposits appraised at $4,500,000 more than the value of the land. To record the discovery of the deposits, Jarrett should
- The primary IFRS related to property, plant and equipment is found in
- Ryan Distribution Co. has determined its December 31, 2014 inventory on a FIFO basis at $490,000. Information pertaining to that inventory follows:
- LF Corporation, a manufacturer of Mexican foods, contracted in 2014 to purchase 1,500 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2015. By 12/31/14, the price per pound of the spice mixture had dropped to $4.70 per pound. In 2014, LF should recognize
- Plank Co. uses the retail inventory method. The following information is available for the current year.
- Cost Retail
Beginning inventory $234,000 $366,000
Purchases 885,000 1,245,000
Freight-in 15,000 —
Employee discounts — 6,000
Net markups — 45,000
Net markdowns — 60,000
Sales revenue — 1,170,000 - Which of the following is true of normal shortages?
- Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value
- Which of the following is not a common disclosure for inventories?
- The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its
Hay Company had January 1 inventory of $180,000 when it adopted dollar-value LIFO. During the year, purchases were $1,080,000 and sales were $1,800,000. December 31 inventory at year-end prices was $227,700, and the price index was 110.
What is Hay Company’s gross profit
16. In the double-extension method, the value of the units in inventory is extended at:
17. Web World began using dollar-value LIFO for costing its inventory last year. The base year layer consists of $400,000. Assuming the current inventory at end of year prices equals $552,000 and the index for the current year is 1.10, what is the ending inventory using dollar-value LIFO?
18.
RF Company had January 1 inventory of $200,000 when it adopted dollar-value LIFO. During the year, purchases were $1,200,000 and sales were $2,000,000. December 31 inventory at year-end prices was $286,720, and the price index was 112.
What is RF Company’s gross profit?
19. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be
- Ecker Company purchased a new machine on May 1, 2006 for $352,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $16,000. The company has recorded monthly depreciation using the straight-line method. On March 1, 2015, the machine was sold for $48,000. What should be the loss recognized from the sale of the machine?
- Under IFRS, Sampson Company, who has a non-current asset which has been classified as held-for-sale, should
- The cost of land does not include
- Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset?
- Which of the following is not a major characteristic of a plant asset?
- Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will
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Strayer University ACC 304 Week 5 Midterm Part 1 (Set 2) NEW
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Multiple Choice Question 90
If Labor, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost $80,000 and have been used for 10 years are sold for $24,000?
Multiple Choice Question 102
Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:
Multiple Choice Question 110
In 2014, shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $70 billion. What is Bargain shop’s return on total assets?
Multiple Choice Question 106
In 2006, Jarrett Company purchased a tract of land as a possible future plant site. In January, 2014, valuable sulphur deposits were discovered on adjoining property and Jarrett Company immediately began explorations on its property. In December, 2014, after incurring $800,000 in exploration costs, which were accumulated in an expense account, Jarrett discovered sulphur deposits appraised at $4,500,000 more than the value of the land. To record the discovery of the deposits, Jarrett should
Multiple Choice Question 66
Grover Corporation purchased a truck at the beginning of 2014 for $93,600. The truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 21,000 miles in 2014 and 29,000 miles in 2015. What is the depreciation expense for 2015?
Multiple Choice Question 70
Halltown Company purchased a depreciable asset for $450,000. The estimated salvage value is $30,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?
Multiple Choice Question 78
Robust Inc. has the following information related to an item in its ending inventory. Product 66 has a cost of $812, a replacement cost of $775, a net realizable value of $800, and a normal profit margin of $50. What is the final lower-of-cost-or-market inventory value for product 66?
Multiple Choice Question 132
Ryan Distribution Co. has determined its December 31, 2014 inventory on a FIFO basis at $490,000. Information pertaining to that inventory follows:
Multiple Choice Question 50
A major advantage of the retail inventory method is that it
provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
Multiple Choice Question 116
The following data concerning the retail inventory method are taken from the financial records of
If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $108,000 at retail, the business has
Multiple Choice Question 76
Given the historical cost of product Dominoe is $22, the selling price of product Dominoe is $30, costs to sell product Dominoe are $5, the replacement cost for product Dominoe is $20, and the normal profit margin is 20% of sales price, what is the cost amount that should be used in the lower-of-cost-or-market comparison?
IFRS Multiple Choice Question 06
Which of the following statements is true regarding IFRS and inventories?
With respect to inventories, IFRS defines market as net realizable value.
Multiple Choice Question 74
In a period of falling prices, which inventory method generally provides the greatest amount of net income?
Multiple Choice Question 31
When using a perpetual inventory system,
all of these answer choices are correct. Multiple Choice Question 100 Niles Co. has the following data related to an item of inventory: Inventory, March 1 200 units @ $2.10 Purchase, March 7 700 units @ $2.20 Purchase, March 16 140 units @ $2.25 Inventory, March 31 260 units
The value assigned to ending inventory if Niles uses LIFO is
Multiple Choice Question 72
Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?
The cost flow matches the physical flow.
Multiple Choice Question 27
Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?
Not on the balance sheet.
Multiple Choice Question 135
The following information applied to Howe, Inc. for 2014:
IFRS Multiple Choice Question 08
Tram Industries, a company who uses IFRS reporting standards, is installing a new plant. The company has incurred the following costs
Multiple Choice Question 95
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $36,000 and a fair value of $45,000. The asset given up by Armstrong Co. has a book value of $60,000 and a fair value of $57,000. Boot of $12,000 is received by Armstrong Co.
What amount should Armstrong Co. record for the asset received?
Multiple Choice Question 53
A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer’s books at
IFRS Multiple Choice Question 10
All of the following are true regarding the revaluation model allowed under IFRS except
when an asset is revalued, any increase in carrying amount is reported as miscellaneous revenue.
Multiple Choice Question 119
Peterson Company purchased machinery for $800,000 on January 1, 2011. Straight-line depreciation has been recorded based on a $50,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2015 at a gain of $15,000. How much cash did Peterson receive from the sale of the machinery?
Multiple Choice Question 82
On January 2, 2014, Indian River Groves began construction of a new citrus processing plant. The automated plant was finished and ready for use on September 30, 2015. Expenditures for the
Indian River Groves borrowed $2,200,000 on a construction loan at 12% interest on January 2, 2014. This loan was outstanding during the construction period. The company also had $8,000,000 in 9% bonds outstanding in 2014 and 2015.
What were the weighted-average accumulated expenditures for 2014?
$800,000
Multiple Choice Question 50
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
no commercial substance and additional cash is paid.
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Strayer University ACC 304 Week 5 Midterm Part 1 (Set 3) NEW
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ACC 304 Week 5 Midterm Part 1 (Set 3)
1) Tongas Company applies revaluation accounting to plant assets with a carrying value of $1,600,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1,500,000.
The journal entry to adjust the plant assets to fair value and record revaluation surplus in year one will include a
2) Tongas Company applies revaluation accounting to plant assets with a carrying value of $1,600,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1,500,000.
The journal entry to adjust the plant assets to fair value and record revaluation surplus in year one will include a
3) A major objective of MACRS for tax depreciation is to
4) Sifton Company reported the following data:
2014 2015
Sales $3,000,000 $3,900,000
Net Income 300,000 400,000
Assets at year end 1,800,000 2,500,000
Liabilities at year end 1,100,000 1,500,000
What is Sifton’s asset turnover for 2015?
5) Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?
6) Slotkin Products purchased a machine for $39,000 on July 1, 2014. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2014 is
7) Tongas Company applies revaluation accounting to plant assets with a carrying value of $1,600,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1,500,000.
The financial statements for year one will include the following information
8) Tongas Company applies revaluation accounting to plant assets with a carrying value of $1,600,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $1,500,000.
9) Which of the following is not an acceptable approach in applying the lower-of-cost-or-market method to inventory?
10) The following data concerning the retail inventory method are taken from the financial records of Welch Company.
Cost Retail
Beginning inventory $ 147,000 $ 210,000
Purchases 672,000 960,000
Freight-in 18,000 —
Net markups — 60,000
Net markdowns — 42,000
Sales — 1,008,000
If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $108,000 at retail, the business has
11) Muckenthaler Company sells product 2005WSC for $40 per unit. The cost of one unit of 2005WSC is $36, and the replacement cost is $35. The estimated cost to dispose of a unit is $8, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
12) Muckenthaler Company sells product 2005WSC for $40 per unit. The cost of one unit of 2005WSC is $36, and the replacement cost is $35. The estimated cost to dispose of a unit is $8, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
13) 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 $2,704,000, and net markups (markdowns) were $4,000 ($192,600). What is the ending inventory value at cost?
14) 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 $2,704,000, and net markups (markdowns) were $4,000 ($192,600). What is the ending inventory value at cost?
15) Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value
16) Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value
17) During 2014, Larue Co., a manufacturer of chocolate candies, contracted to purchase 200,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2015. Because a record harvest is predicted for 2015, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2014.
Of the following journal entries, the one which would properly reflect in 2014 the effect of the commitment of Larue Co. to purchase the 200,000 pounds of cocoa is
18) During 2014, Larue Co., a manufacturer of chocolate candies, contracted to purchase 200,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2015. Because a record harvest is predicted for 2015, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2014.
19) Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?
20) Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 4,800 units that cost $12 each. During the month, the company made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers also sold 8,600 units during the month. Using the FIFO method, what is the ending inventory?
21) Groh Co. recorded the following data pertaining to raw material X during January 2014:
Units
Date Received Cost Issued On Hand
1/1/14 Inventory $6.00 3,200
1/11/14 Issue 1,600 1,600
1/22/14 Purchase 4,000 $7.05 5,600
The moving-average unit cost of X inventory at January 31, 2014 is
22) Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2013. Its inventory at that date was $550,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:
Date Inventory at
Current Prices Current
Price Index
December 31, 2014 $642,000 107
December 31, 2015 725,000 125
December 31, 2016 812,500 130
What is the cost of the ending inventory at December 31, 2014 under dollar-value LIFO?
23) Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2013. Its inventory at that date was $550,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:
Date Inventory at
Current Prices Current
Price Index
December 31, 2014 $642,000 107
December 31, 2015 725,000 125
December 31, 2016 812,500 130
What is the cost of the ending inventory at December 31, 2014 under dollar-value LIFO?
24) Goods in transit which are shipped f.o.b. destination should be
24) Milford Company had 400 units of “Tank” in its inventory at a cost of $6 each. It purchased 600 more units of “Tank” at a cost of $9 each. Milford then sold 700 units at a selling price of $15 each. The LIFO liquidation overstated normal gross profit by
26) Milford Company had 400 units of “Tank” in its inventory at a cost of $6 each. It purchased 600 more units of “Tank” at a cost of $9 each. Milford then sold 700 units at a selling price of $15 each. The LIFO liquidation overstated normal gross profit by
27) Huff Co. exchanged nonmonetary assets with Sayler Co. No cash was exchanged and the exchange had no commercial substance. The carrying amount of the asset surrendered by Huff exceeded both the fair value of the asset received and Sayler’s carrying amount of that asset. Huff should recognize the difference between the carrying amount of the asset it surrendered and
28) A machine cost $600,000, has annual depreciation of $100,000, and has accumulated depreciation of $450,000 on December 31, 2014. On April 1, 2015, when the machine has a fair value of $137,500, it is exchanged for a machine with a fair value of $675,000 and the proper amount of cash is paid. The exchange had commercial substance.
The gain to be recorded on the exchange is
29) Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $36,000 and a fair value of $45,000. The asset given up by Armstrong Co. has a book value of $60,000 and a fair value of $57,000. Boot of $12,000 is received by Armstrong Co.
What amount should Glen Inc. record for the asset received?
30) Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $36,000 and a fair value of $45,000. The asset given up by Armstrong Co. has a book value of $60,000 and a fair value of $57,000. Boot of $12,000 is received by Armstrong Co.
What amount should Glen Inc. record for the asset received?
31) Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and $6,000,000 on December 31. Arlington Company borrowed $2,400,000 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, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable.
What is the weighted-average interest rate used for interest capitalization purposes?
32) Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and $6,000,000 on December 31. Arlington Company borrowed $2,400,000 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, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable.
What is the weighted-average interest rate used for interest capitalization purposes?
33) Assets that qualify for interest cost capitalization include
34) Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,800,000 on March 1, $3,960,000 on June 1, and $6,000,000 on December 31. Arlington Company borrowed $2,400,000 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, $4,800,000 note payable and an 11%, 4-year, $9,000,000 note payable.
What are the weighted-average accumulated expenditures?
35) Which of the following is a capital expenditure?
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Strayer University ACC 304 Week 5 Midterm Part 2 NEW
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ACC 304 Week 5 Midterm Part 2
1) 1) A machine which cost $300,000 is acquired on October1, 2014. Its estimated salvage value is $30,000 and its expected life is eight years.
a) Calculate depreciation expense for 2014 and 2015 by double-declining balance
b) Calculate depreciation expense for 2014 and 2015 by sum-of-the-years-digits
c) At the end of 2015, which method results in the larger accumulated depreciation amount?
2) Assume in each case that the selling expenses are $8 per unit and that the normal profit is $5 per unit. Calculate the limits for each case. Then enter the amount that should be used for lower of cost or market
3) Purchased merchandise costing $2,500 with terms 2/10, n/30.
a) Inventory = ???
b) Payment was made thirty days after the purchase
4) A machine cost $221,400, has annual depreciation expense of $44,280, and has accumulated depreciation of $110,700 on December 31, 2014. On April 1, 2015, when the machine has a fair value of $87,070, it is exchanged for a similar machine with a fair value of $281,600 and the proper amount of cash is paid. The exchange lacked commercial substance.
Prepare all entries that are necessary at April 1, 2015. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
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Strayer University ACC 304 Week 6 Chapter 12 Homework NEW
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ACC 304 Week 6 Chapter 12 Homework
1) Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $400,000. The Johnson Division’s net assets, including the good well, have a carrying amount of $800,000. The fair value of the division is estimated to be $1,000,000.prepare Water’s journal entry to record impairment of the goodwill.
2) Treasure Land Corporation incurred the following costs in 2014. Prepare the necessary 2014 journal entry or entries for Treasure Land.
3) Sinise Industries acquired two copyrights during 2014. One copy right related to a text book that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2014, the date it was published. The second copy right (a history research textbook) was purchased from University press on December 1, 2014, for $24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2014?
4) Alatorre purchased a patent from Vaina Co. for $1,000,000 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2014?
5) Alatorre bought a franchise from Alexandar Co. on January 1, 2013, for $400,000. The carrying amount of the franchise on Alexandar’s books on January 1, 2013, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2015, it is unlikely that franchise will be retained beyond 2022.what amount should be amortized for the year ended December 31, 2014?
6) On January 1, 2014, alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2014?
7) Alatorre purchased the license for distribution of a popular consumer product on January 1, 2014, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2014?
8) Tones Industries has the following patents on its December 31, 2013, balance sheet. The following events occurred during the year ended December 31, 2014. The proper discount rate to be used for these flow is 8%. ( assume that the cash flow occur at the end of the year.) Compute the total carrying amount of tones’ patents on its December 31, 2013, balance sheet.
9) Compute the total carrying amount of tones’ patents on its December 31, 2014, balance sheet.
10) Presented below is information related to copyrights owned by Walter de la Mare Company at December 31, 2014. Assume that Walter de la Mare Company will continue to use this copyright in the future. As of December 31, 2014, the copyright is estimated to have a remaining useul life of 10 years.
11) Prepare the journal entry ( if any ) to record the impairment of the asset at December 31, 2014. The company does not use accumulated amortization accounts.
12) Prepare the journal entry to record amortization expense for 2015 related to the copyrights.
13) The fair value of the copyright at December 31, 2015, is $3, 20,000. Prepare journal entry ( if any) necessary to record the increase in fair value.
14) During 2012, Robin Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was started in 2012. The building was completed on December 31, 2013, at a cost of $320,000 and was placed in service on January 2, 2014. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated residual value. Management estimates that about 50% of the projects of the research and development group will result in long-term benefits ( i.e., at least 10 years ) to the corporation. The remaining projects and the direct costs incurred in conjunction with the research and development activities for 2014 appears below. Upon recommendation of the research and development group, Robin Wright Tool Company acquired a patent for manufacturing rights at a cost of $88,000. The patent was acquired on April 1, 2013, and has an economic life 10 years. If generally accepted accounting principles were followed, how would the item above relating to research and development activities be reported on the following financial statements?
15) All of the following are key similarities between GAAP and IFRS with respect to accounting for intangible assets except:
16) Research and development costs are:
17) Which of the following statements is correct?
18) A loss on impairment of an intangible asset under IFRS is the asset’s?
19) Recovery of impairment is recognized for all the following except:
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Strayer University ACC 304 Week 7 Chapter 12 Quiz (All Possible Questions) NEW
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ACC 304 Week 7 Quiz – Strayer NEW Week 7 Quiz 4: Chapter 12 INTANGIBLE ASSETS IFRS questions are available at the end of this chapter. TRUE-FALSE—Conceptual
1. Intangible assets derive their value from the right (claim) to receive cash in the future.
2. Internally created intangibles are recorded at cost.
3. Internally generated intangible assets are initially recorded at fair value.
4. Amortization of limited-life intangible assets should not be impacted by expected residual values.
5. Some intangible assets are not required to be amortized every year.
6. Limited-life intangibles are amortized by systematic charges to expense over their useful life.
7. The cost of acquiring a customer list from another company is recorded as an intangible asset.
8. The cost of purchased patents should be amortized over the remaining legal life of the patent.
9. If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent. 10. In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible assets, with the remainder recorded as goodwill. 11. Internally generated goodwill should not be capitalized in the accounts. 12. Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received. 13. All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs. 14. If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized. 15. If market value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period. 16. The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles. 17. Periodic alterations to existing products are an example of research and development costs. 18. Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent. 19. Research and development costs are recorded as an intangible asset if it is felt they will provide economic benefits in future years. 20. Contra accounts must be reported for intangible assets in a manner similar to accumu-lated depreciation and property, plant, and equipment. True False Answers—Conceptual MULTIPLE CHOICE—Conceptual 21. Which of the following does not describe intangible assets? a. They lack physical existence. b. They are financial instruments. c. They provide long-term benefits. d. They are classified as long-term assets. 22. Which of the following characteristics do intangible assets possess? a. Physical existence. b. Claim to a specific amount of cash in the future. c. Long-lived. d. Held for resale. 23. Which characteristic is not possessed by intangible assets? a. Physical existence. b. Short-lived. c. Result in future benefits. d. Expensed over current and/or future years. 24. Costs incurred internally to create intangibles are a. capitalized. b. capitalized if they have an indefinite life. c. expensed as incurred. d. expensed only if they have a limited life. 25. Which of the following costs incurred internally to create an intangible asset is generally expensed? a. Research and development costs. b. Filing costs. c. Legal costs. d. All of the above. 26. Which of the following methods of amortization is normally used for intangible assets? a. Sum-of-the-years'-digits b. Straight-line c. Units of production d. Double-declining-balance 27. The cost of an intangible asset includes all of the following except a. purchase price. b. legal fees. c. other incidental expenses. d. all of these are included. 28. Factors considered in determining an intangible asset’s useful life include all of the following except a. the expected use of the asset. b. any legal or contractual provisions that may limit the useful life. c. any provisions for renewal or extension of the asset’s legal life. d. the amortization method used 29. Under current accounting practice, intangible assets are classified as a. amortizable or unamortizable. b. limited-life or indefinite-life. c. specifically identifiable or goodwill-type. d. legally restricted or goodwill-type. 30. Companies should test indefinite life intangible assets at least annually for: a. recoverability. b. amortization. c. impairment. d. estimated useful life. S31. One factor that is not considered in determining the useful life of an intangible asset is a. salvage value. b. provisions for renewal or extension. c. legal life. d. expected actions of competitors. 32. Which intangible assets are amortized?
Limited-Life Indefinite-Life
a. Yes Yes
b. Yes No c. No Yes
d. No No 33. The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser's patented products should be a. charged off in the current period. b. amortized over the legal life of the purchased patent. c. added to factory overhead and allocated to production of the purchaser's product. d. amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product. 34. Broadway Corporation was granted a patent on a product on January 1, 2001. To protect its patent, the corporation purchased on January 1, 2012 a patent on a competing product which was originally issued on January 10, 2008. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be a. amortized over a maximum period of 20 years. b. amortized over a maximum period of 16 years. c. amortized over a maximum period of 9 years. d. expensed in 2012. 35. Wriglee, Inc. went to court this year and successfully defended its patent from infringe-ment by a competitor. The cost of this defense should be charged to a. patents and amortized over the legal life of the patent. b. legal fees and amortized over 5 years or less. c. expenses of the period. d. patents and amortized over the remaining useful life of the patent. 36. Which of the following is not an intangible asset? a. Trade name b. Research and development costs c. Franchise d. Copyrights 37. Which of the following intangible assets should not be amortized? a. Copyrights b. Customer lists c. Perpetual franchises d. All of these intangible assets should be amortized. 38. When a patent is amortized, the credit is usually made to a. the Patent account. b. an Accumulated Amortization account. c. a Deferred Credit account. d. an expense account. 39. 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. 40. In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as: a. other assets. b. indirect costs. c. goodwill. d. direct costs. 41. 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 company’s assets exceeds their cost. d. a company has exceptional customer relations. 42. When a new company is acquired, which of these intangible assets, unrecorded on the acquired company’s books, might be recorded in addition to goodwill? a. A brand name. b. A patent. c. A customer list. d. All of the above 43. Which of the following intangible assets could not be sold by a business to raise needed cash for a capital project? a. Patent. b. Copyright. c. Goodwill. d. Brand Name. 44. The reason goodwill is sometimes referred to as a master valuation account is because a. it represents the purchase price of a business that is about to be sold. b. it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business. c. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. d. it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value. 45. Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. Proper accounting treatment by Easton is to report the excess amount as a. a gain. b. part of current income in the year of combination. c. a deferred credit and amortize it. d. paid-in capital. 46. 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. 47. The intangible asset goodwill may be a. capitalized only when purchased. b. capitalized either when purchased or created internally. c. capitalized only when created internally. d. written off directly to retained earnings. 48. A loss on impairment of an intangible asset is the difference between the asset’s 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. 49. The recoverability test is used to determine any impairment loss on which of the following types of intangible assets? a. Indefinite life intangibles other than goodwill. b. Indefinite life intangibles. c. Goodwill. d. Limited life intangibles. 50. Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are)
Recoverability Test Fair Value Test a. Yes Yes b. Yes No c No Yes d. No No 51. The carrying amount of an intangible is a. the fair value of the asset at a balance sheet date. b. the asset's acquisition cost less the total related amortization recorded to date. c. equal to the balance of the related accumulated amortization account. d. the assessed value of the asset for intangible tax purposes. 52. Which of the following research and development related costs should be capitalized and depreciated over current and future periods? a. Research and development general laboratory building which can be put to alternative uses in the future b. Inventory used for a specific research project c. Administrative salaries allocated to research and development d. Research findings purchased from another company to aid a particular research project currently in process 53. Which of the following principles best describes the current method of accounting for research and development costs? a. Associating cause and effect b. Systematic and rational allocation c. Income tax minimization d. Immediate recognition as an expense 54. how should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement? a. Must be capitalized when incurred and then amortized over their estimated useful lives. b. Must be expensed in the period incurred. c. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable. 55. Which of the following would be considered research and development? a. Routine efforts to refine an existing product. b. Periodic alterations to existing production lines. c. Marketing research to promote a new product. d. Construction of prototypes. 56. Which of the following costs should be capitalized in the year incurred? a. Research and development costs. b. Costs to internally generate goodwill. c. Organizational costs. d. Costs to successfully defend a patent. 57. Research and development costs a. are intangible assets. b. may result in the development of a patent. c. are easily identified with specific projects. d. all of the above. 58. Which of the following is considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Translation of research findings or other knowledge into a plan or design for a new product or process. c. Translation of research findings or other knowledge into a significant improvement of an existing product. d. all of the above. 59. Which of the following is considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Translation of research findings or other knowledge into a plan or design for a new product or process. c. Neither a nor b. d. Both a and b 60. Which of the following costs should be excluded from research and development expense? a. Modification of the design of a product b. Acquisition of R & D equipment for use on a current project only c. Cost of marketing research for a new product d. Engineering activity required to advance the design of a product to the manufacturing stage
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