FA Chapter 9

Question 1

Valuation at Lower of Cost or Market

Answer 1

Ending inventory is reported at the lower of cost or market (LCM).

Question 2

“Market”=

Answer 2

Replacement cost

Question 3

A higher turnover ratio indicates that

Answer 3

inventory moves more quickly thus reducing storage and obsolescence costs.

Question 4

Acquisition cost includes

Answer 4

the purchase price and all expenditures needed to prepare the asset for its intended use.

Question 5

Acquisition cost does not include

Answer 5

financing charges and cash discounts.

Question 6

Is land depreciated?

Answer 6

NO

Question 7

Straight Line Method (Depreciation)

Answer 7

Depreciation Expense Per Year = Cost (including freight, installation, etc) - Residual Value/ Useful life in years

Question 8

Units of Production Method

Answer 8

1. )Depreciation Rate= Cost-residual value/Life in Units of production
2. ) Depreciation Expense= Depreciation Rate X Number of units produced for the year

Question 9

Double Declining Balance Method

Answer 9

1. )Annual Depreciation Expense= Net Book Value (cost-accumlated deprec) x 2/Useful Life in years
2. )Annual computation ignores residual value.

Question 10

book value

Answer 10

what its worth up to this point

Question 11

Definite Life:

Answer 11

Use straight-line method.

Question 12

Indefinite Life

Answer 12

• Not amortized.
• Tested at least annually for possible impairment, and book value is reduced to fair value if impaired.

Amortization is a cost allocation process similar to depreciation and depletion.

Question 13

Goodwill is not

Answer 13

amortized