Accounting: Exam 1

Which of the following is not considered an acceptable inventory cost method according to generally accepted accounting principles (GAAP)?

First-in, last-out

Gross Profit Rate is equal to:

Gross profit divided by net sales

In the fixed-percentage-of-declining-balance depreciation method, the book value of the asset is multiplied by:

A constant depreciation rate

The cost of a new windshield wiper on a delivery vehicle would be classified as:

A revenue expenditure

The primary reason a physical inventory is taken is to:

Adjust the perpetual inventory record for unrecorded shrinkage losses.

Which of the following is not a capital expenditure?

Advertising expenditures to introduce a new product line

Capital expenditures are recorded as:

An asset

When the last-in, first-out (LIFO) costing method is in use, the seller:

Assumes that the most recently acquired units are sold first.

Which of the following inventory valuation methods is only an estimate of actual costs?

Both retail and gross profit methods are only estimations

Ina periodic inventory system, the cost of goods sold is determined as follows:

Cost of goods available for sale during the year, less the ending inventory.

Book value represents the cost of an asset that has already been allocated to expense.

False

Once the estimated life is determined for a depreciable asset it can never be changed.

False

Sum-of-the-years' digits is a decelerated method of depreciation which produces less depreciation expense in the early years of the asset's life and more expense in the later years.

False

The book value of an asset is equal to its cost plus its accumulated depreciation

False

The retail method requires a company to state inventory on the year-end balance sheet at its retail value.

False

Which of the following statements about Modified Accelerated Cost Recovery System (MACRS) is not correct?

If a company uses Modified Accelerated Cost Recovery System (MACRS) in its income tax returns, it also must use Modified Accelerated Cost Recovery System (MACRS) in its financial statements

Which of the following is generally not true about inventory?

Inventory must be managed on a unit-by-unit (i.e., specific identification) method

Which of the following assets is not subject to depreciation and does not decline in usefulness over time?

Land

In a periodic inventory system, recording a sale on account involves debiting which of the following accounts?

Only Accounts Receivable

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

Specific identification

The term "accumulated depreciation" as used in accounting is best defined as:

The portion of a plant asset recognized as expense since the asset was acquired

Maintenance and fuel costs are types of revenue expenditures

True

Straight-line is the most widely used depreciation method in financial statements, and Modified Accelerated Cost Recovery System (MACRS) is the most widely used method in federal income tax returns.

True

The half-year convention permits a company to take six months depreciation during the first year of an asset's life even if the asset was purchased on January 25th.

True