ACCY 501 - HW Questions (2)

Which of the following inventory valuation methods produce(s) the same dollar amount as the balance in ending inventory under both periodic and perpetual inventory systems? FIFO LIFO a. Yes Yes b. No Yes c. Yes No d. No No

c. Yes No

At the end of year 1, Rome Inc. held debt securities classified as available-for-sale securities. The securities were carried at market value of $57,320 with a cumulative unrealized loss of $12,350. What was the historical cost of the debt securities available for sale? -$57,320 -$69,670 -$44,970 -$63,495

-$69,670

Murgatroyd Co. purchased equipment on January 1, 2019, for $830,000, estimating a five-year useful life and $80,000 residual value. In 2019 and 2020, Murgatroyd depreciated the asset using the double-declining-balance method. In 2021, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2021 on this equipment? (Do not round your depreciation rate.) -$ 72,933 -$108,000 -$101,333 -$160,000

-$ 72,933

Company X originally paid $5 million to acquire a trademark from Company Y. At the end of the current year, the fair value of the trademark was $6 million, and the trademark would create $4.5 million in future cash flows for the company. What amount of impairment loss should Company X recognize? -$0 -$0.5 million -$1 million -$1.5 million

-$0

Which of the following is the proper method for valuing property, plant, and equipment according to IFRS? -Report PP&E at book value, or can revalue PP&E and report it at fair value -Report PP&E at book value -Report PP&E at historical cost -Report PP&E at historical cost, then account for depreciation throughout its useful life

-Report PP&E at book value, or can revalue PP&E and report it at fair value

Company X purchased a coal mine on March 31, 2017, for $5,000,000. Company X estimates that the mine has a useful life of 6 years and is estimated to produce 1,000,000 tons of coal. 200,000 tons were produced in 2017. What is the depletion expense for 2017? -$750,000 -$777,666 -$833,333 -$1,000,000

-$1,000,000 Calculate depletion expense per unit by dividing the purchase price of $5,000,000 by the estimated total tons to be produced by the coal mine of 1,000,000. This gives a depletion expense per unit of $5. Multiply this by the 200,000 tons extracted in 2017 to get the depletion expense for the year.

Company X uses a periodic inventory system. On January 1, 2016, Company X had a beginning inventory of $5,000. During January, Company X purchased $8,000 worth of inventory. On January 31, 2016, Company X had inventory of $3,000. What is Company X's cost of goods sold for January? -$3,000 -$10,000 -$13,000 -$16,000

-$10,000

Company X has reason to believe that the value of machinery could be impaired. The machinery was originally purchased for $500,000 and had accumulated depreciation of $100,000. The future cash flows over the remaining useful life of the machinery will be $380,000, and the machinery's fair value is $390,000. What amount of impairment loss should Company X record? -$0 -$10,000 -$20,000 -$110,000

-$10,000 In order to determine if impairment is necessary, compare the book value ($400,000) to the future cash flows ($380,000), which is less than the book value. In order to calculate the amount of impairment, subtract the fair value ($390,000), from the current book value ($400,000).

At January 1, 20X7, Gear Co. had a credit balance of $180,000 in its Allowance for Doubtful Accounts. Based on past experience, 3% of Gear's credit sales have been uncollectible. During 20X7, Gear wrote off $210,000 of uncollectible accounts. Credit sales for 20X7 were $4,500,000. In its December 31, 20X7 balance sheet, what amount should Gear report as Allowance for Doubtful Accounts? -$135,000 -$105,000 -$320,000 -$210,000

-$105,000 180 - 210 + (4500x.03=135) = 105

Company X had the following information related to its bank reconciliation on December 31. December 31 bank balance: $10,450 NSF check: $1,040 Service charge: $50 Deposits outstanding: $2,300 Outstanding checks: $1,670 What is the corrected cash balance on December 31? -$9,360 -$9,820 -$9,990 -$11,080

-$11,080 In order to adjust the bank balance to the proper cash balance, add deposits outstanding and subtract outstanding checks.

On June 30, 2015 Castille Corp. purchases, for $600,000, land upon which a building and a dilapidated shed are situated. Castille plans to use the building as-is for operations but immediately razes the shed at a cost of $5,000 minus scrap recovery of $1,000. A recent tax appraisal of the property allocated $100,000 to the land and $400,000 to the building. In the entry to record the acquisition of the property, at what amount will Castille debit Land? -$124,000 -$120,800 -$120,000 -$100,000

-$120,800

Company X incurred the following expenditures due toa self-constructed asset during 2018. February 28: $50,000 May 31: $75,000 June 30:$60,000 October 31:$75,000 What is Company X's weighted-average accumulated expenditures for 2018? -$115,835 -$127,917 -$129,764 -$133,852

-$127,917

On January 1, 2022, Orange and Blue purchased $200,000 of 12% bonds. Management classified these as available for sale. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. The fair value on July 1, 2022 is $208,000. Management decides to sell the bonds on July 1, 2022. What is the amount of the fair value adjustment? -$5,249 -$13,249 -$12,000 -$13,000

-$13,249 The fair value adjustment is the difference between the fair value and the amortized cost ($208,000 - $194,751 = $13,249)

A wholesaler which prepares its financial statements according to International Financial Reporting Standards (IFRS) has the following per-unit costs for one of its products: Cost$18.00 Net realizable value$15.00 Net realizable value less normal profit margin$14.40 Current replacement cost$14.70 In accordance with IFRS, what is the per-unit carrying value of inventory in the statement of financial positions? -$14.70 -$15.00 -$12.00 -$14.40

-$15.00

On January 2, 2011, X Company purchased equipment for $240,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $30,000. The equipment is being depreciated using the double-declining balance method. What will be the balance in accumulated depreciation at December 31, 2012? -$84,000 -$96,000 -$109,200 -$153,600

-$153,600 240 96 144 57.6 = 153.6

On June 2, 2021, Tabitha Co. purchased a franchise for $563,000 by signing a five-year contract. At the end of the five years, the franchise right reverts back to the seller. On September 1, 2023, Tabitha decides to sell the franchise right for $326,000. The company amortizes intangible assets using the straight-line method and records partial-year amortization based on the number of months in service. Assuming the company has a December 31 year-end, what is the gain or loss recorded on the sale of the patent? -$16,350 gain -$11,800 loss -$237,000 loss -$100,800 gain

-$16,350 gain

Company X incurred three expenditures during 2018 due to a self-constructed asset. The first came on January 31 for $100,000, the second came on April 30, and the final came on August 31 for $300,000. Company X's weighted-average accumulated expenditures for 2018 were $300,000. What was the amount of the expenditure on April 30? -$109,427 -$131,969 -$138,425 -$162,500

-$162,500 Each expenditure is weighted based on the fraction of the year remaining when the expenditure is incurred. To find the total expenditure incurred, work backwards starting with the WAAE. Determine the weighted expenditure on April 30 first, and divide this amount by the fraction of the year remaining to find the amount of the expenditure.

Zwick Company bought 25,000 shares of the voting common stock of Handy Corporation in January 2021. In December, Handy announced $202,900 net income for 2021 and declared and paid a cash dividend of $7.00 per share on all 200,500 shares of its outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2021 would be: -$ 0. -$25,299. -$175,000. -None of these answer choices are correct.

-$175,000.

Company X uses the Balance Sheet approach for estimating bad debt. At the beginning of the year, allowance for uncollectible accounts had a credit balance of $2,000, and there were no write-offs during the year. Company X had the following age groups of accounts receivable: Age Group - Amount - Estimated Percent of Uncollectible 0-60 - $300,000 - 3% 61-90 - $40,000 - 10% 91-120 - $10,000 - 25% Over 120 - $5,000 - 50% What is the balance at the end of the year in the allowance for uncollectible accounts? -$9,000 -$16,000 -$18,000 -$20,000 What is the bad debt expense recognized for the year by Company X? -$9,000 -$16,000 -$18,000 -$20,000

-$18,000 -$16,000

Company X purchased goods from Company Y at an initial price of $20,000. Additionally, Company Y gave Company X a trade discount of 10% due to the volume of the order. The goods were shipped f.o.b. shipping point for $1,000, and the costs to prepare the inventory were $500. Payment terms were 3/10, n/30, but Company X did not pay within the discount period. What is the cost of the goods on Company X's books recorded with the gross method? -$18,500 -$18,915 -$19,500 -$21,500

-$19,500 The purchase price is reduced by the trade discount of 10%. The shipping costs and costs to prepare the inventory are included. $20,000 - ($20,000 x 10%) = $18,000 + $1,000 + $500 = $19,500

Company X recently acquired stocks worth 40% of Company Y. Company Y had purchased equipment with no salvage value and a useful life of 5 years for $50,000. The fair value of the equipment on the date of acquisition was $60,000. How will this affect Company X's net income? -$2,000 increase -$2,000 decrease -$10,000 increase -$10,000 decrease

-$2,000 decrease Depreciation for Company Y would be $10,000 per year, but depreciation for Company X would be $12,000 per year. Because the depreciation expense for Company X is greater, it decreases net income by $2,000.

Company X acquired all common stock from Company Y for $5,000,000. The following book values and fair values for Company Y on the date of purchase are listed below. For what amount should Company X record goodwill? Book Value Fair Value Assets $4,000,000 $4,500,000 Liabilities $2,000,000 $1,500,000 -$2,000,000 -$3,000,000 -$5,000,000 -$9,500,000

-$2,000,000 Company X should record goodwill at the value of the acquisition price ($5,000,000) less the fair value of the net assets acquired ($4,500,000-$1,500,000).

Company X purchased equipment on April 1, 2016, for $50,000. The equipment has a useful life of 10 years with an estimated residual value of $5,000. Company X uses the half year convention. What is the depreciation expense for 2016? -$2,250 -$3,375 -$4,500 -$5,000

-$2,250

At the beginning of 2015, Company X had a normal balance of $1,200 in its allowance for uncollectible accounts. During 2015, Company X had credit sales of $100,000, and estimates 2% of credit sales will be uncollectible. Company X also had write-offs of $900 in 2015. What would be the balance in the allowance for uncollectible accounts at the end of 2015? -$100 debit -$100 credit -$2,300 debit -$2,300 credit

-$2,300 credit The normal balance for allowance for uncollectible accounts is a credit. Company X started the year with $1,200 credit, then credited $2,000 for the bad debt expense on credit sales. Finally, Company X wrote off $900 of uncollectable accounts, so $900 would be debited in the allowance for uncollectible accounts

Hexaco Corp. exchanged a piece of land that was being held for investment purposes for an oil rig that it will use in its drilling operations. The land had a carrying value of $230,000 and a fair value of $250,000 on the date of the exchange. The oil rig received in exchange had a fair value of $200,000 and, as a result, Hexaco received an additional $50,000 in cash in the transaction. How much gain, if any, will Hexaco recognize on the exchange? -$50,000 -$20,000 -$4,000 -$0

-$20,000

Company X purchased goods from Company Y for $10,000.Payment terms were 2/10, n/30, and Company X paid within the discount period. What is the amount of the purchase discount that Company X takes on this transaction? -$200 -$2,000 -$8,000 -$9,800

-$200 The terms above indicate that Company X receives a 2% discount if it pays within 10 days. These terms are met, so the purchase discount is 2% of the purchase price of $10,000.

Question 4 Company X purchased a building for $100,000. It estimates the building will have a useful life of 5 years, and a residual value of $15,000. Company X uses the sum of the year's digits method to calculate depreciation on the building. What is the Year 2 depreciation expense? -$17,000 -$22,667 -$26,667 -$28,333

-$22,667 The correct answer is $22,667. The Year 2 depreciation rate is 4/15. Multiply this rate by the depreciable base of the building to calculate the Year 2 expense.

Use the following information to answer questions 6-7. Company X traded old equipment with Company Y for new equipment. The old equipment was originally purchased for $200,000 and had accumulated depreciation of $150,000. The fair value of the old equipment is $60,000. In order to equalize the fair values, Company X also paid $200,000 in cash. What is the fair value of the new equipment? -$200,000 -$250,000 -$260,000 -$400,000 What will Company X record as the amount of the gain/loss on the transaction? -$0 -$10,000 -$50,000 -$200,000

-$260,000 -$10,000

On January 1, 2016, Company X originally purchased inventory from Company Y for $300. On January 1, 2017, Company X estimates that it could sell the product for $320, with 15% of the price going towards shipping costs. On January 1, 2017, what should Company X value the inventory at on its books? -$272 -$300 -$320 -It depends on whether Company X uses LIFO or FIFO

-$272 Inventory is recorded at the lower of historical cost or net realizable value. Net realizable value is the selling price of the product less costs of completion, disposal, and transportation. The net realizable value in this case is $272 ($320*85%), which is less than the historical cost of $300.

Company X sold goods to Company Y on April 1, 2017. Company Y sent Company X a $300,000, 4-month, non-interest bearing note with a discount rate of 8% as payment for the goods. What amount should Company X record as sales revenue on April 1, 2017? -$270,000 -$276,000 -$292,000 -$300,000

-$292,000 In this case, sales revenue would be $300,000 - ($300,000 x 8% x (4/12)). Essentially, it is the value of the note receivable less the discount.

At the end of year 8, Shore Co. held trading securities that cost $17,500 and which had a year-end market value of $19,000. All of these securities were sold during year 9 for $22,000. For the year ended on December 31, year 9, Shore should report a gain of -$0 -$1,500 -$3,000 -$4,500

-$3,000

Company X had the following transactions affecting inventory during April 2018. All units are sold for $50, and Company X uses a periodic inventory system. Apr. 1 Beginning Balance: 200 units @ $15 Apr. 10 Purchase: 300 units @ $18 Apr. 19 Purchase: 100 units @ $20 Apr. 25 Sale: 400 units Assume Company X uses the LIFO inventory method. What is Company X's ending balance in inventory? -$7,400 -$3,800 -$3,000 -$8,000

-$3,000 Under the LIFO method, the oldest goods purchased the first goods sold. 400 total units were sold in April, so 100 come from the April 19 purchase, and the remaining 300 come from the April 10 purchase. The only remaining inventory is the beginning balance of 200 units purchased for $15 each. This is the ending balance in inventory.

Question 3 Company X purchased a truck for $50,000. It estimates that has a useful life of 6 years, and that it will drive 200,000 miles over this time. In the first year of its useful life, the truck drove 15,000 miles. Company X uses the units of production method to calculate depreciation on the truck. What is the Year 1 depreciation expense? -$3,435 -$3,750 -$6,192 -$8,333

-$3,750 The correct answer is $3,750. First, compute the depreciation rate per mile by taking the total cost of the truck and dividing it by the total estimated miles the truck will drive. This gives a rate of $0.25 per mile. Then, multiply this rate by the number of miles actually driven in Year 1 to calculate the depreciation expense.

Company X sold goods to Company Y and received a $500,000, 9-month, non-interest bearing note in payment, which has a discount rate of 8%. What amount would Company X recognize as the discount on the note when it records this transaction? -$0 -$10,000 -$30,000 -$40,000

-$30,000

Company X has the following property, plant, and equipment, which it depreciates each year using various methods. Asset - Historical Cost - Useful Life - Residual Value Building - $500,000 - 15 years - $50,000 Truck - $100,000 - 5 years - $10,000 Machine - $150,000 - 8 years - $15,000 Equipment - $80,000 - 5 years - $10,000 Assume that Company X uses the straight line method to calculate depreciation on the building. What is the Year 1 depreciation expense? -$25,000 -$27,666 -$30,000 -$33,333 Assume that Company X uses the units of production method to calculate depreciation on the truck. Company X estimates that the truck will drive 150,000 miles over its useful life. It actually drove 20,000 miles in Year 2. What is the Year 2 depreciation expense? -$12,000 -$15,000 -$16,000 -$90,000 Assume that Company X uses the sum of the year's digits method to calculate depreciation on the machine. What is the Year 3 depreciation expense? -$22,500 -$28,000 -$29,000 -$30,000 Assume that Company X uses the double declining balance method to calculate depreciation on the equipment. What is the Year 2 depreciation expense? -$18,700 -$19,200 -$21,500 -$29,600

-$30,000 -$12,000 -$22,500 -$19,200

On February 12, 2021, Forest Incorporated purchased the right to remove timber from a 17,000-acre tract of land over the next four years, and the company estimates no residual value. The timber is to be sold as lumber for new home construction. The cost of the timber rights was $205,000, with estimated salable timber feet of 820,000. During 2021 and 2022, Forest harvested and sold 680,000 feet of timber. What is the book value of the timber rights at the end of 2022, assuming the company uses the units-of-production method? -$35,000 -$51,250 -$157,000 -$170,000

-$35,000

In 20X1, X Company recognized an impairment loss on the trade name for its beverage product, reducing the carrying value from $485,000 to $350,000. At December 31, 20X3, while preparing its financial statements, X Company has determined that the fair value of the trade name has risen and it is now worth $500,000. What amount will be reported for the trade name on X Company's December 31, 20X3 balance sheet? -$350,000 -$485,000 -$500,000 -Cannot be determined without information about the trade name's useful life.

-$350,000

Company X purchased machinery for $150,000 with a useful life of 5 years and a residual value of $30,000. Company X uses the double declining balance method to calculate depreciation on the machinery. What is the Year 2 depreciation expense? -$36,000 -$54,000 -$60,000 -$90,000

-$36,000

Company X has the following information regarding inventory at cost and retail for 2016. Assume that retail prices increased by 10% during the year. Cost Retail Beginning Inventory $25,000 $40,000 Net Purchases $70,000 $110,000 Net Markups $20,000 Net Markdowns $5,000 Net Sales $100,000 What is Company X's ending inventory at cost under the dollar-value LIFO retail method? -$36,760 -$38,957 -$39,490 -$41,636

-$36,760 The beginning cost-to-retail percentage is 62.5% ($25,000/$40,000). Then, calculate the cost-to-retail percentage excluding beginning inventory, which is 56% ($70,000/$125,000). Then, calculate ending inventory at retail, which is $65,000 ($165,000-$100,000). Then, convert this to the base year retail price of $59,091 ($65,000/1.10), due to the increase in prices by 10% during the year. Then, multiply $40,000, the beginning inventory at retail, by 62.5%, and the remaining $19,091 by 56% and also by 1.1 to convert to cost. The summation of these results in ending inventory at cost of $36,760.

Company X had the following transactions affecting inventory during January 2017. All units are sold for $20, and Company X uses a periodic inventory system. Jan. 1 Beginning Balance: 100 units @ $12 Jan. 12 Purchase: 600 units @ $14 Jan. 13 Sale: 300 units Jan. 20 Purchase: 200 units @ $16 Assume Company X uses the FIFO inventory method. What is Company X's cost of goods sold? -$4,000 -$4,600 -$8,200 -$8,800

-$4,000 Under a periodic inventory system, COGS using the FIFO method is calculated using the costs of the oldest goods purchased. In this case, 300 units were sold in January. Thus 100 units at $12 come from the beginning balance, and the other 200 units at $14 come from the January 12 purchase. The summation of the costs of these 300 units is $4,000

On January 1, 2021, Nana Company paid $100,000 for 7,300 shares of Papa Company common stock. The ownership in Papa Company is 10%. Nana Company does not have significant influence over Papa Company. Papa reported net income of $62,000 for the year ended December 31, 2021. The fair value of the Papa stock on that date was $56 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2021? -$348,800. -$363,800. -$333,800. -$408,800.

-$408,800.

Use the following information regarding Company X to answer questions 6-7. Accounts Receivable 2015 $350 2016 $450 Net Sales (only 2016) $1,400 What is Company X's receivables turnover ratio for 2016? -3.11 times -3.5 times -4.0 times -4.22 times What is Company X's average collection period and how does it compare to the industry average of 100 days? -104.28 days; slower -104.28 days; quicker -117.36 days; quicker -117.36 days; slower

-3.5 times -> 1400 / 400 - 3.5 -104.28 days; slower

Company X had a book balance of $50,000 in its cash account on December 31, 2018. However, it had multiple outstanding checks totaling $6,500, a bank service charge of $100, and a NSF check for $2,300. What is Company X's reconciled cash balance on December 31, 2018? -$43,500 -$45,900 -$47,600 -$49,400

-$47,600 In order to reconcile its book balance, Company X must take into account both the service charge and the NSF check. The outstanding checks would only affect the reconciliation of the bank balance, as it would already be accounted for in the book balance. Therefore, Company X subtracts the service charge and the NSF check from its current balance in order to determine the corrected cash balance at the end of the year.

Company X sold machinery for $10,000 that was originally purchased for $15,000. Company X had already recorded depreciation of $10,000 on the machinery. What is the value of Company X's gain/loss on the disposal, and would it be a debit or a credit in the sale entry? -$5,000 gain; credit -$5,000 gain; debit -$5,000 loss; credit -$5,000 loss; debit

-$5,000 gain; credit Calculate the amount by deducting the book value ($15,000- $10,000) from the sales price. This gives a gain of $5,000 because the sales price is greater than the book value. Gains are always credited because it is an equity account that increases equity.

On January 1, 2022, Orange and Blue purchased $200,000 of 12% bonds. Management classified these as available for sale. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. The fair value on July 1, 2022 is $208,000. Management decides to sell the bonds on July 1, 2022. When the bonds are sold, how much, if any, will be debited to the discount on bonds account? -$13,249 -$8,000 -$0 -$5,249

-$5,249

X Company acquired land in Costa Rica for a total cost of $45,000,000. Engineers conducted a study at an additional cost of $500,000 to determine that there were oil reserves that should yield approximately 1,000,000 barrels of oil. The purchase agreement includes a requirement that the land be restored when the oil has been extracted, which is expected to cost $1,300,000, after which the land is expected to be worth $4,500,000. In 2012, X Company incurred $200,000 in development costs and extracted and sold 130,000 barrels of oil. How much depletion will X Company recognize during 2012? -$6,110,000 -$5,525,000 -$5,499,000 -$5,434,000

-$5,525,000

Company X arranges a deal to sell an asset held for sale to Company Y for $5,000. Company X had originally purchased the asset for $4,000. The cost for Company X to sell the asset is $1,500. What should Company X record as impairment loss on the asset? -$0 -$500 -$1,000 -$1,500

-$500 Measure impairment for assets held for sale when the book value is greater than the fair value less costs to sell. In this case, book value is $4,000, fair value is $5,000, and costs to sell are $1,500. The impairment loss is equal to book value minus fair value minus costs to sell.

Company X originally purchased inventory for $500 on January 1, 2018. On January 1, 2019, Company X estimates that the product could be sold for $560, with $50 of costs to sell the product. What should Company X value the inventory at on its books? -$450 -$500 -$510 -$560

-$500 The correct answer is $500. Inventory is recorded at the lower of cost and net realizable value. Net realizable value is the selling price of the product less the costs to sell the product. Therefore, the NRV in this problem is $510, or $560 -$50. This is greater than the historical cost of $500, so the historical cost remains the appropriate cost for Company X to record the inventory on its books.

Company X replaced the plumbing system at its building, which originally cost $400,000 but had $200,000 of accumulated depreciation. The new plumbing system cost $600,000. Parts from the old system were sold for $100,000. Under the capitalization of new costs method, for what amount should cash be credited? -$400,000 -$500,000 -$600,000 -None of the above

-$500,000 Under the capitalization of new cost method, the difference between the disposition of the old system and acquiring of the new system is credited to cash.

Company X incurred the following expenditures due to a self-constructed asset during 2017. March 31: $200,000 May 31: $500,000 Sept. 30: $300,000 Nov. 30: $100,000 What is Company X's weighted-average accumulated expenditures (WACC) for 2017? -$350,000 -$525,000 -$655,000 -$715,000

-$525,000 Each expenditure must be weighted based on the fraction of the year remaining when the expenditure is incurred. For example, the $100,000 incurred on November 30 must be multiplied by 1/12 because only one month remains in 2017.

Use the following information to answer questions 8-9. Company X performed a bank reconciliation on December 31 using the following information: December 31 book balance: $6,780 Service charge: $30 Deposits outstanding: $1,450 Outstanding checks: $750 Nonsufficient funds (NSF) check: $500 What is Company X's corrected cash balance on December 31? -$5,500 -$6,250 -$7,480 -$8,230 What was the bank balance on December 31 before adjustments? -$5,550 -$6,780 -$6,950 -$8,180

-$6,250 -$5,550 (using 6250 - 1450 + 750 : have to use opposite add/sub to find it)

A fire destroyed most of the inventory in Mick's warehouse on September 1. After the fire, Mick's accounting records showed the following: Inventory, January 1$55,000 Purchases, January 1 through September 1$310,000 Sales, January 1 through September 1$370,000 Inventory not damaged by fire$45,000 Gross profit percentage on sales 30% What amount of inventory was lost in the fire? -$55,000 -$61,000 -$259,000 -$106,000

-$61,000 Beginning inventory 55,000 Add: Net Purchases 310,000 Cost of goods available 365,000 Net sales 370,000 Less: Gross profit 111000= 370,000*30% Cost of goods sold 259,000 Estimated ending inventory 106,000 Less: Inventory not damaged by fire 45,000 Amount of inventory lost 61,000 Amount of inventory lost = $61,000

On January 1, 2016, Company X had an inventory balance of $200,000. During the year, Company X had net purchases of $1,000,000 and net sales of $900,000. Historically, Company X's gross profit ratio has been 40%. Using the gross profit method, what is Company X's estimated ending inventory balance? -$300,000 -$450,000 -$540,000 -$660,000

-$660,000 In order to calculate the cost of goods sold, multiply the gross profit ratio by the net sales (40%*$900,000) to calculate the gross profit. Then, subtract this amount from net sales to calculate the cost of goods sold. Subtract the cost of goods sold from the goods available for sale ($1,200,000) to get the ending inventory balance.

Company X had the following transactions affecting inventory during January 2016. All sales are made for $25, and Company X uses a periodic inventory system. Jan. 1 Beginning Balance: 200 units @ $15 Jan. 6 Purchase: 400 units @ $18 Jan. 11 Sale: 300 units Jan. 17 Purchase: 200 units @ $20 Jan. 25 Sale: 100 units What is Company X's ending inventory balance under the average cost inventory method? -$6,800 -$7,100 -$7,600 -$8,300 What is Company X's cost of goods sold under the FIFO inventory method? -$5,200 -$5,900 -$6,600 -$7,300 What is Company X's ending inventory balance under the LIFO inventory method? -$4,900 -$6,600 -$7,900 -$8,300

-$7,100 -$6,600 -$6,600

Company X purchased equipment for $30,000 with a useful life of 5 years. The equipment has a residual value of $5,000, and Company X uses the double declining balance method. What will be the Year 2 depreciation expense on the machinery? -$4,800 -$7,200 -$12,000 -$18,000

-$7,200 To calculate Year 1 depreciation expense, multiply the original book value ($30,000) by the depreciation rate (40%). To calculate the book value at the beginning of Year 2, subtract the Year 1 depreciation expense from the original value. Then, multiply the new book value by the depreciation rate to get the Year 2 depreciation expense.

Company X exchanged equipment with a fair value of $50,000 and book value of $30,000 for newer equipment. Company X also gave $25,000 in cash in addition to the old equipment. What should Company X record the new equipment at on its balance sheet? -$30,000 -$50,000 -$55,000 -$75,000

-$75,000 The correct answer is $75,000. The new equipment is recorded at an amount equal to the fair value of the old equipment plus any cash given. In this case, the old equipment had a fair value of $50,000, and Company X also gave $25,000 in cash.

On September 30, 2021, Bricker Enterprises purchased a machine for $209,000. The estimated service life is 10 years with a $24,000 residual value. Bricker records partial-year depreciation based on the number of months in service.Depreciation (to the nearest dollar) for 2021, using sum-of-the-years'-digits method, would be: (Do not round intermediate calculations.) -$9,500 -$28,947 -$32,164 -$8,409

-$8,409

Company X acquired a building as well as the surrounding land for a lump sum of $20,000,000. The fair values of the building, land, and land improvements were $15,000,000, $12,000,000, and $7,000,000, respectively. What is the value of the building on Company X's books? -$7,619,209 -$7,659,454 -$8,435,910 -$8,823,529

-$8,823,529

In 2018, Company X had a beginning balance of $800 in its allowance for uncollectible accounts. During 2018, it had credit sales of $60,000, and estimates 3% of credit sales will be uncollectible. At the end of the year, Company X has a balance in its allowance for uncollectible accounts of $1,800. How much did Company X write-off in 2018? -$600 -$800 -$1,400 -$1,800

-$800 Company X began the year with $800 in its allowance for uncollectible accounts. It then credited $1,800 ($60,000 x 3%) to its allowance for uncollectible expense for bad debt expense. Since the ending balance is $1,800, there must be a debit for write-offs of $800.

Orange & Blue Corporation made an investment in BIF Corporation. Below are transactions related to this investment: May 18, 2022 - Purchase 40% of common stocks for $30,000,000 December 31, 2022 - Record an increase in BIF's fair value in the amount of $800,000 December 31, 2022 - Net income of $2,000,000 December 31, 2022 - Total cash dividend declared and paid of $400,000 How much investment revenue is recorded for this investment in BIF? -$805,000 -$2,000,000 -$1,200,000 -$800,000

-$800,000 Ownership in common stock is 40%, which qualifies as significant influence (>20%), thus the equity method is used. Investment revenue in equity affiliate is equal to the ownership percentage times the net income of the affiliate (40%*$2,000,000)

Cook Co. determined that the net value of its accounts receivable at December 31, 20X4, based on an aging of the receivables, was $235,000. Additional information is as follows: Allowance for doubtful accounts - 1/1/X4$40,000 Uncollectible accounts written off during 20X4$22,000 Uncollectible accounts recovered during 20X4$8,000 Accounts receivable at 12/31/X4$270,000 How much was recognized as bad debt expense? -$14,000 -$22,000 -$9,000 -$26,000

-$9,000 40 - 22 + 8 = 26 270 - 235 = 35 Diff b/w 26 and 35 = 9

Company X purchased a building and land, which included some land improvements, for a lump-sum price of $20,000,000. The fair values of each were $12,000,000, $9,000,000, and $5,000,000, respectively. What amount should the building be recorded at on Company X's balance sheet? -$9,230,769 -$10,145,787 -$10,397,060 -$12,000,000

-$9,230,769 The correct answer is $9,230,769. The lump-sum purchase price should be allocated based on the relative fair values of each of the assets. The total fair value of the three assets was $26,000,000. The fair value of the building was $12,000,000, meaning it should be allocated 46.1% of the overall purchase price of $20,000,000.

Company X has the following information from the Balance Sheet and Income Statement relating to the years 2016 and 2017. Balance Sheet 2016 - 2017 Cash $1,000 - $800 Inventory $500 - $600 PP&E $1,200 - $1,400 Income Statement 2016 - 2017 Sales $2,000 - $2,500 NI $500 - $700 What is Company X's fixed asset turnover ratio for 2017? -1.09 -1.33 -1.56 -1.92

-1.92 2500 / 1300

The following costs pertain to Pete Co.'s purchase of inventory in 2014, Pete Co.'s first year of operations: 1200 units of product X -- 12,500 Insurance cost during transit of purchased goods -- 200 Freight-in -- 350 Cost of labor to bring product X to saleable condition -- 3,200 Total 16,250 None of the inventory was sold during 2014. What will be the ending balance in Pete Co.'s inventory? -12,500 -16,250 -13,050 -15,700

-16,250 12500 + 200 + 350 + 3200= 16250

Inventory 2015 $200 2016 $400 Net sales $2,000 Gross profit $1,200 What is Company X's inventory turnover ratio for 2016? -1.67 -2.00 -2.67 -6.67

-2.67

Company X purchased a building for $500,000 on January 1, 2018. The building has a residual value of $50,000. Company X uses the straight-line method to compute depreciation, and records depreciation expense of $22,500 annually. What is the estimated useful life of the building? -15 years -16 years -20 years -22 years

-20 years

What does 3/15, n/60 mean? -15% trade discount, unless payment is not paid within 60 days -3% discount if paid in 15 days, or else full payment due in 60 days -3% discount if paid in 15 days, unknown discount if paid in 60 days -None of the above

-3% discount if paid in 15 days, or else full payment due in 60 days 3/15, n/60 signifies that there will be a cash discount of 3% if payment is made in 15 days. Otherwise, full payment should be made within 60 days.

On January 1, year 4, Griffin, Inc. purchased 12% of Hydra Co.'s common stock. At that time Griffin did not have the ability to exert significant influence over Hydra. On September 1, year 4, Griffin purchased additional Hydra shares, bringing its ownership up to 35% of Hydra's common stock outstanding. During December year 4, Hydra declared and paid a cash dividend on all of its outstanding common stock. Griffin uses the equity method to account for its investment in Hydra. How much income from the Hydra investment should Griffin's year 4 income statement report? -12% of Hydra's income for January 1 to August 31, year 4, plus 35% of Hydra's income for September 1 to December 31, year 4. -35% of Hydra's income for September 1 to December 31, year 4 only. -35% of Hydra's year 4 income. -Amount equal to dividends received from Hydra.

-35% of Hydra's income for September 1 to December 31, year 4 only.

When the allowance method of recognizing uncollectible accounts is used, which of the following statements is true regarding the impact a collection of an account previously written off would have on Accounts Receivable and Allowance for Doubtful Accounts balances? -Accounts Receivable would not change and Allowance for Doubtful Accounts would decrease. -Accounts Receivable would not change and Allowance for Doubtful Accounts would increase. -Accounts Receivable would increase and Allowance for Doubtful Accounts would decrease. -Accounts Receivable would increase and Allowance for Doubtful Accounts would not change.

-Accounts Receivable would not change and Allowance for Doubtful Accounts would increase.

Which of the following would not be considered a cash equivalent? -Treasury bills -Commercial paper -Accounts receivable -Money market funds

-Accounts receivable Although accounts receivable is a current asset, it is not considered a cash equivalent. Cash equivalents must be short-term investments that are not risky and are readily convertible to cash.

Which of the following costs would not be classified as research or development? -Labor costs -Allocation of overhead for indirect costs related to R&D -Cost of materials used in projects -All of the above would be classified as R&D costs

-All of the above would be classified as R&D costs

Which of the following is not true regarding notes payable with implied interest rates? -Although interest rates are implied, the company paying the note does not actually make any regular interest payments. -In the original journal entry, the note payable account is credited for the full value of the non-interest bearing note. -The discount on the notes payable account is originally debited before being reduced, or credited, in future periods. -Although interest rates are implied, the company paying the note does not actually make any regular interest payments. AND In the original journal entry, the note payable account is credited for the full value of the non-interest bearing note.

-Although interest rates are implied, the company paying the note does not actually make any regular interest payments. The company will incur interest expense in each subsequent period equal to the implied interest rate multiplied by the difference between the discount and note payable accounts at the end of the period.

Crick Co. purchased bonds at a premium on the open market as an investment and intends to hold these bonds to maturity. Crick should account for these bonds at -Lower of cost or market -Cost -Fair value -Amortized cost

-Amortized cost

Under the revaluation model allowed under IFRS for the accounting for identifiable intangible assets: -Assets are periodically revalued and adjusted to their fair values and are amortized in between revaluation dates. -Assets are periodically revalued and adjusted to their fair values and are not amortized between revaluation dates. -Assets are revalued and adjusted to their fair values annually and are amortized between revaluation dates. -Assets are revalued and adjusted to their fair values annually and are not amortized between revaluation dates.

-Assets are periodically revalued and adjusted to their fair values and are amortized in between revaluation dates.

Accumulated other comprehensive income (AOCI) in the shareholders' equity section of the balance sheet reflects changes in the fair value of securities for which type of securities? -Trading securities -Consolidated securities -Available-for-sale securities -Held-to-maturity securities

-Available-for-sale securities The balance sheet reflects the changes in fair value of available-for-sale securities in accumulated other comprehensive income.

Which of the following will require an adjusting entry in order to correct account balances? -Error in same accounting period -Error discovered in subsequent accounting period -Both an error in same accounting period AND an error discovered in subsequent accounting period -It depends on the severity of the error

-Both an error in same accounting period AND an error discovered in subsequent accounting period Although the correction of an error discovered in a subsequent accounting period requires other corrections, it still requires adjusting journal entries to correct balances. Errors discovered in the same period simply require entries to correct account balances.

Which of the following is the proper way to handle interest costs for self-constructed assets per GAAP? -Interest costs are recognized over time as interest expense. -Interest costs are expensed immediately when incurred. -There are not any interest costs associated with self-constructed assets. -Capitalize interest costs, and then depreciate over time.

-Capitalize interest costs, and then depreciate over time. According to U.S. GAAP, interest costs are capitalized when incurred, and then depreciated over time.

When the investor's level of influence changes, it may be necessary to change to the equity method from another method. When the level of ownership rises from less than 20% to a range of 20% to 50%, the equity method typically would become appropriate and the investment account balance should be: -Retrospectively adjusted to the balance that would have existed if the equity method had been in effect for prior years. -Carried over as is with no adjustment necessary. -Carried over at the fair value that exists on date of transfer. -Adjusted to reflect amortized cost.

-Carried over at the fair value that exists on date of transfer.

Which inventory costing method will result in the highest cost of goods sold in a period of rising costs? -FIFO -LIFO -Average cost -Not enough information

-LIFO In a period of rising costs, the goods that are most recently purchased will have the highest cost. LIFO stipulates that the most recent purchases are also the first ones sold. Therefore, the goods sold will have the highest possible cost.

On January 1, 2022, Orange & Blue company purchased $200,000 of 12% bonds. Management intended to hold the bonds until maturity. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. What is the journal entry Orange & Blue will record on July 1, 2022 for the interest received? -Cash $12,000 Interest revenue $12,000 -Interest revenue $12,000 Discount on bond $1,526 Cash $13,526 -Cash $12,000 Discount on bond $2,000 Cash $10,00 -Cash $12,000 Discount on bonds $1,526 Interest revenue $13,526

-Cash $12,000 Discount on bonds $1,526 Interest revenue $13,526

On January 1, 2022, Orange and Blue purchased $200,000 of 12% bonds. Management indented to use these for trading purposes. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. The fair value on July 1, 2022 is $208,000. Management decides to sell the bonds on July 1, 2022. What is the journal entry Orange and Blue will enter to record the sale? -Cash $208,000 Investment in bonds $208,000 -Cash $208,000 Discount in bond $5,249 Investment in bonds $200,000 Fair value adjustment $13,249 -Cash $200,000 Discount in bond $8,000 Investment in bonds $200,000 Fair value adjustment $8,000 -Cash $208,000 Discount in bond $6,774 Investment in bonds $200,000 Fair value adjustment $14,774

-Cash $208,000 Discount in bond $5,249 Investment in bonds $200,000 Fair value adjustment $13,249

On January 1, 2022, Orange & Blue company purchased $200,000 of 12% bonds. Interest of $12,000 is payable semiannually. Management intended to hold the bonds until maturity. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. The company decided to sell the debt investment for 208,000 on July 1, 2022. What is the journal entry for the sale of the bonds? -Cash $208,000 Interest revenue $208,000 -Cash $208,000 Discount in bond $5,249 Investment in bonds $200,000 Gain on sale of investment $13,249 -Cash $200,000 Discount in bond $8,000 Investment in bonds $200,000 Gain on sale of investment $8,000 -Cash $208,000 Discount in bond $6,774 Investment in bonds $200,000 Gain on sale of investment $14,774

-Cash $208,000 Discount in bond $5,249 Investment in bonds $200,000 Gain on sale of investment $13,249

Which of the following assets should be amortized over time? -Copyrights -Land -Buildings -Machinery

-Copyrights

Which of the following is the proper formula to calculate the inventory turnover ratio? -Purchases/ Cost of Goods Sold -Gross Profit/ Average Inventory -Average Inventory/ 365 -Cost of Goods Sold/ Average Inventory

-Cost of Goods Sold/ Average Inventory The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory over a period of time. A higher ratio typically indicates a more profitable company.

Which of the following is the proper journal entry to account for a write-off of accounts receivable? -Debit Unearned Revenue -Credit Allowance for Uncollectible Accounts -Debit Allowance for Uncollectible Accounts -Credit Accounts Receivable -Debit Bad Debt Expense -Credit Accounts Receivable -Debit Bad Debt Expense -Credit Allowance for Uncollectible Accounts

-Debit Allowance for Uncollectible Accounts -Credit Accounts Receivable The balance of allowance for uncollectible accounts (a contra asset) is reduced with a debit, and the balance for accounts receivable (an asset) is reduced with a credit.

Company X incorrectly recorded a cash disbursement on accounts payable for $540 when the correct amount was $450. Which of the following would be the proper journal entry to correct this error? -Debit Accounts Receivable: $90 -Credit Cash: $90 -Debit Accounts Payable: $90 -Credit Cash: $90 -Debit Cash: $90 -Credit Accounts Receivable: $90 -Debit Cash: $90 -Credit Accounts Payable: $90

-Debit Cash: $90 -Credit Accounts Payable: $90

Which of the following is the appropriate entry to record an increase in the difference between inventories valued internally using FIFO and inventory valued for external reporting using LIFO? -Debit Inventory -Credit Accounts Payable -Debit Cost of Goods Sold -Credit Inventory -Debit Inventory -Credit Deferred Revenue -Debit Cost of Goods Sold -Credit LIFO Reserve

-Debit Cost of Goods Sold -Credit LIFO Reserve

On January 1, 2016, Company X purchased a coal mine. What is the proper December 31, 2016, journal entry to reduce the value of the coal mine? -Debit Depreciation Expense Credit Coal Mine -Debit Depletion Expense Credit Coal Mine -Debit Depreciation Expense Credit Accumulated Depletion -Debit Depletion Expense Credit Accumulated Depletion

-Debit Depletion Expense Credit Coal Mine Natural resources are not depreciated but are depleted. The value of the natural resource is directly reduced when depletion is recognized.

On December 24, 2016, Company X ordered goods from Company Y. On December 30, 2016, Company Y shipped the goods to Company X. On January 4, 2017, Company X received the goods shipped by Company Y. On January 6, 2017, Company X paid Company Y for the goods. On what date can Company X record the goods on its books if the goods were shipped f.o.b. shipping point? -December 24, 2016 -December 30, 2016 -January 4, 2017 -January 6, 2017

-December 30, 2016

How would an outstanding check be treated when performing a bank reconciliation? -Add to bank balance -Deduct from book balance -Deduct from bank balance -Add to book balance

-Deduct from bank balance Outstanding checks should be deducted from the bank balance because they are checks that the company has already written, and, therefore, already deducted from the book balance.

Which of the following is the proper way to account for intangible assets with indefinite useful lives? -Amortize on a straight line basis -Amortize using an accelerated depreciation method -Amortize using an accelerated depreciation method if useful life is over 10 -years, otherwise use straight line -Do not amortize these assets

-Do not amortize these assets Intangible assets with indefinite useful lives, such as goodwill, are never amortized.

Question 2 How should legal costs to defend a challenge of rights subsequent to acquisition be treated? -Legal costs should be capitalized as long as they do not exceed $10,000,000 -Expense legal costs -Legal costs were capitalized prior to 2009, but now must be expensed when incurred -Legal costs are capitalized if the company wins but expensed if the company loses

-Legal costs are capitalized if the company wins but expensed if the company loses Legal costs to defend a challenge to your rights are capitalized and then amortized only if the defense is successful, but are expensed if the defense is unsuccessful because the asset is probably impaired.

Orange and Blue Corporation made an investment in BIF Corporation. Below are the transactions related to this investment: May 18, 2022 - Purchase 40% of common stocks for $30,000,000 December 31, 2022 - Record an increase in BIF's fair value in the amount of $800,000 December 31, 2022 - Net income of $2,000,000 December 31, 2022 - Total cash dividend declared and paid of $400,000 What will the entry to record the cash dividend be for Orange & Blue Corporation? -Dr. Cash $160,000; cr. Investment in equity affiliate $160,000 -Dr. Investment in equity affiliate $160,000; cr. Cash $160,000 -Dr. Revenue receivable $400,000; cr. Investment in equity affiliate $400,000 -Dr. Cash $400,000; cr. Investment in equity affiliate $160,000

-Dr. Cash $160,000; cr. Investment in equity affiliate $160,000

On January 1, 2022, Orange and Blue purchased $200,000 of 12% bonds. Management classified these as available for sale. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. The fair value on July 1, 2022 is $208,000. Management decides to sell the bonds on July 1, 2022. What is the journal entry to record the fair value adjustment? -Dr. Fair value adjustment $13,249; cr. Unrealized holding gain on AFS investment - OCI $13,249 -Dr. Fair value adjustment $8,000; cr. Unrealized holding gain on AFS investment - OCI $8,000 -Dr. Gain on AFS investment $8,000; cr. Fair value adjustment $8,000 -Dr. Fair value adjustment $12,000; cr. Gain on AFS investment $12,000

-Dr. Fair value adjustment $13,249; cr. Unrealized holding gain on AFS investment - OCI $13,249

Orange and Blue Corporation made an investment in BIF Corporation. Below are the transactions related to this investment: April 11, 2022 - Purchase common stocks for $25,000,000 December 31, 2022 - Record an increase in the fair value in the amount of $500,000 December 31, 2022 - Received cash dividend of $150,000 January 10, 2023 - Sell the investment for $24,000,000 What is the entry for recording the fair value adjustment on December 31, 2022? -Dr. Gain on investments $500,000; cr. Fair value adjustments $500,000 -Dr. Loss on investments $600,000; cr. Fair value adjustments $600,000 -Dr. Fair value adjustments $500,000; cr. Gain on investments $500,000 -Dr. Investment in equity securities $500,000; cr. Gain on investments $500,000

-Dr. Fair value adjustments $500,000; cr. Gain on investments $500,000

On January 1, 2022, Orange and Blue purchased $200,000 of 12% bonds. Management classified these as available for sale. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. The fair value on July 1, 2022 is $208,000. Management decides to sell the bonds on July 1, 2022. What is the journal entry Orange and Blue will record on January 1, 2022 to record the purchase? -Dr. Investment in bonds -AFS $2,000,000; cr. Accounts payable $2,000,000 -Dr. Cash $200,000; cr. Investment in bonds - AFS $200,000 -Dr. Investment in bonds - AFS $200,000; cr. Cash $200,000 -Dr. Investment in bonds - AFS $2,000,000; cr. Cash $2,000,000

-Dr. Investment in bonds - AFS $200,000; cr. Cash $200,000

Orange & Blue Corporation made an investment in BIF Corporation. Below are transactions related to this investment: May 18, 2022 - Purchase 40% of common stocks for $30,000,000 December 31, 2022 - Record an increase in BIF's fair value in the amount of $800,000 December 31, 2022 - Net income of $2,000,000 December 31, 2022 - Total cash dividend declared and paid of $400,000 What entry does Orange & Blue record for the purchase of this equity investment? -Dr. Investment in equity affiliate; cr. Accounts payable -Dr. Cash; cr. Investment in equity affiliate -Dr. Investment in equity affiliate; cr. Cash -Dr. Cash; cr. Investment revenue

-Dr. Investment in equity affiliate; cr. Cash Debit investment in equity affiliate and credit Cash for amount paid for the investment.

Company X sold equipment for $5,000 that was originally purchased for $10,000. Company X had already recorded depreciation of $2,000 on the machinery. Which of the following accounts would be credited in Company X's journal entry for this transaction? -Loss on disposal of equipment -Gain on disposal of equipment -Equipment -Accumulated depreciation

-Equipment This transaction would require a debit to cash for $5,000 (the amount the equipment was sold for), a debit to accumulated depreciation for $2,000 (to reverse the previous depreciation), and a debit to loss on disposal for $3,000 (the difference between the selling price and the carrying value). Equipment would be credited for $10,000, which was the amount it was originally purchased for.

Which of the following is not an objective of a typical investor? -Earn a return due to increases in the market price of the security -Earn a return from dividends paid by the company -Develop a long-term relationship with the company -Exhibit significant influence over the ownership of the company

-Exhibit significant influence over the ownership of the company Investors do seek a return on their investment from either dividends or interest. Investors also want to develop a beneficial relationship with the company in which they invest.

Which of the following is the proper treatment of expenditures related to developing a company's own intangible assets internally? -Costs related to intangible assets can be either capitalized or expensed. -Expense any research and development costs related to intangible assets developed internally. -Capitalize costs that are necessary for development. -Only capitalize costs that can be directly related to development of intangible assets.

-Expense any research and development costs related to intangible assets developed internally.

In a period of declining costs, which inventory method would a company use if it wished to pay the least amount of taxes possible? -FIFO -LIFO -Average cost -It depends

-FIFO

In a non-cash transaction, what should the assets typically be recorded at? -Fair value -Historical cost -Carried-over book value -Net realizable value

-Fair value The correct answer is "Fair Value". In non-cash transactions, assets are typically recorded at their fair values.

Capital budgeting decisions primarily involve which of the following? -Long-term decisions -Cash inflows/outflows for the current year -Short-term planning situations -Emergency situations

-Long-term decisions Capital budgeting involves long-term decisions related to the purchase of long-lived assets. All of the other choices involve short-term items.

On January 1, 2022, Orange and Blue purchased $200,000 of 12% bonds. Management indented to use these for trading purposes. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. The fair value on July 1, 2022 is $208,000. What is the journal entry Orange and Blue will record on July 1, 2022 to account for the fair value? -Unrealized holding gain $8,000 Investment in bonds $8,000 -Fair value adjustment $13,249 Unrealized holding gain $13,249 -Unrealized holing gain $13,249 Fair value adjustment $13,249 -Fair value adjustment $8,000 Unrealized holding gain $8,000

-Fair value adjustment $13,249 Unrealized holding gain $13,249 The fair value adjustment is determined by the difference between the fair value $208,000 and the amortized cost of the debt investment on that date, $194,751($193,226 cost of bonds + $1,526 amortization of the discount)

Investments in debt securities available-for-sale are reported at: -Fair value on the reporting date. -Lower of cost or market. -Historical cost. -Discounted present value

-Fair value on the reporting date.

Which of the following is the correct formula used to determine the cost-to-retail percentage? -Net purchases at cost divided by net purchases at retail -Cost of goods sold at cost divided by cost of goods sold at retail -Net sales at cost divided by net sales at retail -Goods available for sale at cost divided by goods available for sale at retail

-Goods available for sale at cost divided by goods available for sale at retail The formula for the cost-to-retail percentage is goods available for sale at cost divided by goods available for sale at retail.

Which of the following intangible assets does not have to be amortized? -Patent -Copyright -Goodwill -All of the above should be amortized

-Goodwill

What are the three types of investments? -Available for Sale, Long-term, and Trading -Held to Maturity, Trading, and Available for Sale -Trading, Held to Maturity, and Saving -Held to Maximum, Available for Sale, and Trading

-Held to Maturity, Trading, and Available for Sale The three types of investments are: held to maturity, trading, and available for sale.

Choose the statement(s) regarding inventory that are true: I. For a merchandising company, the cost of goods available for sale minus the cost of goods sold will equal ending inventory. II. The LIFO inventory cost flow assumption is preferable to FIFO for a company wishing to maximize profits during a period of declining costs. III. A company which ships finished goods FOB destination will keep the inventory in its accounting records up until the point that the goods are delivered to a common carrier acting as an agent for the buyer. -II and III only. -I and II only. -I and III only. -I, II, and III.

-I and II only.

Which of the following expenditures subsequent to acquisition should be capitalized? I. Repairs and Maintenance II. Additions III. Improvements -II only -I and II -III only -II and III

-II and III

Which of the following appropriately defines the LIFO Conformity Rule? -Financial statements using the LIFO method must conform to certain standards set by GAAP -U.S. firms in the manufacturing industry are required to use LIFO as their inventory costing method -If LIFO is used on the tax return, LIFO must also be used for financial statements -If a firm elects to use the LIFO inventory costing method, that firm is required to use LIFO for a minimum of 3 years before having the option to elect another method

-If LIFO is used on the tax return, LIFO must also be used for financial statements The LIFO Conformity Rule states that any company that uses LIFO for taxes must also use LIFO for financial reporting. This prevents managers from deducting more expenses on their tax returns while showing a significantly higher net income on financial statements.

Which account would the seller use to recognize discounts not taken by the customer under the net method? -Interest revenue -Discount revenue -Sales revenue -Deferred revenue

-Interest revenue

Which of the following is the best method to use in choosing whether capital budget projects meet pre-established return criteria? -Net present value method -Internal rate-of-return method -Highest cash flow method -Lowest cost method

-Internal rate-of-return method

Which of the following is not a long-term asset? -Equipment -Inventory -Land -Patents

-Inventory

Which of the following is not a valid method of applying LCNRV? -Individual inventory items -The entire inventory -Logical categories of inventory (i.e., product line) -Inventory items to be sold within the next year

-Inventory items to be sold within the next year The LRNRV method can be applied to the individual items, logical categories, or the total inventory. The timing of sale of the inventory is not a factor.

On January 1, 2022, Orange & Blue company purchased $200,000 of 12% bonds. Management intended to hold the bonds until maturity. Interest of $12,000 is payable semiannually. The bonds mature in two years, on December 31, 2023. The market interest rate for bonds of similar risk and maturity is 14%. What is the journal entry Orange & Blue will make to record the purchase on January 1, 2022? -Investment in Bonds $200,000 Cash $200,000 -Cash $200,000 Discount on bond $6,774 Investment in Bonds $193,226 -Investment in Bonds $200,000 Discount on bond $6,774 Cash $193,226 Investment in Bonds $200,000 Premium on bonds $6,774 Cash $206,774

-Investment in Bonds $200,000 Discount on bond $6,774 Cash $193,226 The present value of interest payments plus the face value payment at maturity is $193,226. The difference between the face value and this present value is $6,774 ($200,000 - $193,226). This difference represents the discount on the bonds due to the difference between the stated interest rate of 12% and the market rate of 14%.

On December 21, 2016, Company X ordered goods from Company Y. On December 29, 2016, Company Y shipped the goods to Company X. On January 1, 2017, Company X received the goods shipped by Company Y. On January 5, 2017, Company X paid Company Y for the goods. On what date can Company X record the goods on its books if the goods were shipped f.o.b. destination? -December 21, 2016 -December 29, 2016 -January 1, 2017 -January 5, 2017

-January 1, 2017 Under f.o.b. destination, the company ownership of the goods transfers upon arrival of the shipped goods at the destination.

Orange and Blue Corporation made an investment in BIF Corporation. Below are the transactions related to this investment: April 11, 2022 - Purchase common stocks for $25,000,000 December 31, 2022 - Record an increase in the fair value in the amount of $500,000 December 31, 2022 - Received cash dividend of $150,000 January 10, 2023 - Sell the investment for $24,000,000 What is the gain or loss on this investment and when is it recorded? -Gain $1,500,000; when realized upon sale -Loss $1,000,000; end of reporting period -Loss $500,000; when realized upon sale -Loss $1,500,000; when realized upon sale

-Loss $1,500,000; when realized upon sale The loss of $1,500,000 (carrying value at time of sale $25,500,000 - sale price $24,000,000). The loss is debited to loss on investments and credited to fair value adjustment accounts.

Which of the following is false regarding the dollar-value LIFO retail method? -Each layer year has its own unique cost-to-retail percentage. -Markdowns are excluded from the calculation of the cost-to-retail percentage. -Ending inventory at year-end prices is converted to base year prices. -All inventory layers are eventually converted from retail to cost.

-Markdowns are excluded from the calculation of the cost-to-retail percentage. Markdowns are only excluded from the calculation of the cost-to-retail percentage when using the conventional retail method.

Which of the following is not an advantage of the dollar-value LIFO method? -Acquiring new items is viewed as replacing the dollar value of old items -Minimizes the probability of the liquidation of LIFO inventory layers -Simplifies recordkeeping -Minimizes tax liability

-Minimizes tax liability Dollar-value LIFO is used to simplify recordkeeping, minimize the probability of liquidation of inventory layers, and to use new items to replace the value of old items. Dollar-value LIFO does not decrease the tax liability.

During the year, Carter Co. wrote off a customer's account receivable using the allowance method for uncollectible accounts. Which statement is true about the impact the write-off had on Carter's net income and total assets? -Net income did not change and net assets decreased. -Net income decreased and net assets decreased. -Net income did not change and net assets did not change. -Net income decreased and net assets did not change.

-Net income did not change and net assets did not change.

Which of the following is the proper formula for determining the fixed asset turnover ratio? -Cost of goods sold/Average fixed assets -Average fixed assets/Net income -Average fixed assets/Long-term liabilities -Net sales/Average fixed assets

-Net sales/Average fixed assets The fixed asset turnover ratio indicates the level of sales generated by the company's investment in fixed assets.

Which of the following concerning non-interest bearing notes is false? -Non-interest bearing notes are always short-term notes. -There is interest associated with non-interest bearing notes. -The discount on the note receivable account is a contra account to the note receivable account. -Non-interest bearing notes are always short-term notes AND there is interest associated with non-interest bearing notes.

-Non-interest bearing notes are always short-term notes. Non-interest bearing notes can be short term or long term.

Company X has $5,000 in restricted cash on the Balance Sheet. It is being held in order to pay off a long-term note. How would Company X classify restricted cash on the Balance Sheet? -Current asset -Current liability -Noncurrent liability -Noncurrent asset

-Noncurrent asset

Which of the following increases the investment account under the equity method of accounting? -Decreases in the market price of the investee's stock. -Dividends paid by the investee that were declared in the previous year. -Net loss of the investee company. -None of these answer choices are correct.

-None of these answer choices are correct.

For trading securities, unrealized holding gains and losses are included in net income: -Only at the end of the fiscal year. -Only when they exceed 10% of the underlying investment. -On each reporting date. -Based on a vote of the board of directors.

-On each reporting date.

Company X purchased a patent on January 1, 2018. When the patent incurs one year of amortization expense on December 31, 2018, which account should Company X credit in the journal entry? -Patent -Amortization Expense -Accumulated Depreciation -Accumulated Amortization

-Patent The correct answer is "Patent". When intangible assets are amortized, the corresponding asset account is reduced. There is not a contra asset account, such as accumulated depreciation, for amortization.

West Co. recorded the following inventory information during the month of February: Units Unit Cost Total Balance on 2/1 800 $2 Purchased on 2/8 1,000 $3 Sold on 2/14 1,500 Purchased on 2/17 2,000 $1 Sold on 2/23 1,600 Purchased on 2/28 800 $4 West uses the LIFO method to cost inventory. What amount should West report as inventory at the end of February under each of the following methods of recording inventory? -Perpetual: $3,700, Periodic: $4,200 -Perpetual: $4,200, Periodic: $3,700 -Perpetual: $3,700, Periodic: $3,700 -Perpetual: $4,200, Periodic: $4,200

-Perpetual: $4,200, Periodic: $3,700 perpetual 300 * 2 + 400 * 1 + 800 * 4 = 4200 periodic 800 * 2 + 700 * 3 = 3700

What are the three steps in financial accounting for an economic transaction? -Recognize, report, then measure -Measure, recognize, then report -Recognize, measure, then report -Measure, adjust, then report

-Recognize, measure, then report In financial accounting an economic transaction must be recognized, measured, and then reported.

Which of the following costs would not be capitalized upon purchasing property, plant, and equipment? -Transportation costs -Installation costs -Repair costs one year later -Purchase price

-Repair costs one year later The only costs that should be capitalized are the purchase price and those that are necessary to bring the equipment to its desired condition and location for use.

The original cost of an item of inventory is above its replacement cost. The item's replacement cost is below its net realizable value but is higher than its net realizable value minus a normal profit. Under the lower of cost or market method, the inventory item should be valued at -Net realizable value -Original cost -Replacement cost -Net realizable value less normal profit margin

-Replacement cost

Which of the following is the proper method for valuing property, plant, and equipment according to IFRS? -Report PP&E at historical cost, then account for depreciation throughout its useful life -Report PP&E at historical cost -Report PP&E at book value -Report PP&E at book value, or can revalue PP&E and report it at fair value

-Report PP&E at book value, or can revalue PP&E and report it at fair value According to IFRS, a company can report PP&E at book value, or can revalue the PP&E and report at fair value. If revaluation is utilized, all assets within that PP&E class must be revalued regularly.

What is indicated by a declining gross profit ratio? -Sales prices are remaining stable, and costs are declining -Sales prices are increasing, and costs are remaining stable -Sales prices are increasing, and costs are declining -Sales prices are declining, and costs are remaining stable

-Sales prices are declining, and costs are remaining stable The gross profit ratio declines as the gross profit per sale decreases. This happens when sales prices decline more than costs decline, or when costs rise more than sales price increases.

Which is true regarding an impairment test for PP&E? -Step 1 is comparing the asset's book value to the undiscounted sum of the asset's estimated future cash flows. -Impairment is indicated if the asset's fair value is greater than its book value. -The amount of any impairment loss is the difference between the asset's book value and the undiscounted sum of the asset's estimated future cash flows. -None of the above

-Step 1 is comparing the asset's book value to the undiscounted sum of the asset's estimated future cash flows.

Assuming the asset is most productive in its early years, which of the following depreciation methods should a company use if it wants to have the highest possible net income in the early years of an asset's life? -Units of production -Sum of the year's digits -Double declining balance -Straight-line

-Straight-line

Which of the following is false regarding correction of an inventory error discovered in a later period? -A correction of retained earnings is reported as a prior period adjustment to beginning balance in the Statement of Shareholders Equity -Must include a disclosure note describing the nature of the error and its impact -Take a prospective approach to reflecting the error in financial statements -Account balances are corrected by a journal entry

-Take a prospective approach to reflecting the error in financial statements An inventory error that is discovered in a later accounting period must be accounted for by correcting the previous years' financial statements on a retrospective basis.

The fixed-asset turnover ratio provides: -The rate of replacement of fixed assets -The rate of decline in asset lives -The decline in book value of fixed assets compared to capital expenditures -The amount of sales generated per average dollar of fixed assets

-The amount of sales generated per average dollar of fixed assets

A company that maintains its books and records under IFRS is applying the revaluation model to a certain fixed asset. In previous years, the value of the asset had declined. In the current year, however, the asset has appreciated in value by an amount that is greater than the cumulative decrease that had occurred previously. How will the company report the asset on the year-end balance sheet for the current year? -The asset will be valued at its new fair value and the entire increase will be reported in income. -Previous declines will be recovered but the remaining increase in value will not be recognized. -The asset will be valued at its new fair value and the entire increase will be reported in other comprehensive income. -The asset will be valued at its new fair value with the increase, up to the cumulative decrease in previous periods, recognized income and with the remainder recognized in other comprehensive income.

-The asset will be valued at its new fair value with the increase, up to the cumulative decrease in previous periods, recognized income and with the remainder recognized in other comprehensive income.

Which of the following indicates that there must be an impairment of goodwill? -The discounted future cash flows of the reporting unit are less than the book value of the reporting unit. -The fair value of the reporting unit is less than the book value of the reporting unit. -The undiscounted future cash flows of the reporting unit are less than the book value of the reporting unit. -The undiscounted future cash flows of the reporting unit are less than the fair value of the reporting unit.

-The fair value of the reporting unit is less than the book value of the reporting unit.

How should a consignee record goods held on consignment? -The goods should be included in cost of goods sold of the consignee as soon as they are transferred from consignor to consignee. -The goods should be included in cost of goods sold of the consignee only once sold. -The goods should be included in ending inventory of the consignee as soon as they are transferred from the consignor to the consignee. -The goods should not be recorded as inventory or cost of goods sold by the consignee at any point during the consignment arrangement.

-The goods should not be recorded as inventory or cost of goods sold by the consignee at any point during the consignment arrangement.

Which of the following is false regarding the gross profit and retail inventory methods? -The gross profit method is used to prepare annual financial statements. -The gross profit method calculates an estimate of cost of goods sold using the gross profit ratio. -The retail inventory method determines the cost-to-retail percentage by dividing cost by the selling price. -The retail inventory method is typically a more accurate valuation than the gross profit method.

-The gross profit method is used to prepare annual financial statements. The retail inventory method can be used to prepare annual financial statements, whereas the gross profit method cannot be used per GAAP.

Which of the following is not a difference between periodic and perpetual inventory systems? -The perpetual system does not require a physical count of inventory, whereas a periodic system requires a physical count to determine ending inventory and COGS. -The perpetual system allocates cost of goods available for sale between ending inventory and COGS at the end of each period, whereas the periodic system allocates the cost of goods available for sale by decreasing inventory and increasing COGS for each transaction. -The perpetual system is expensive to implement, whereas the periodic system is less expensive. -The perpetual system requires tracking of both inventory quantities and costs, whereas the periodic system only requires tracking inventory quantities.

-The perpetual system allocates cost of goods available for sale between ending inventory and COGS at the end of each period, whereas the periodic system allocates the cost of goods available for sale by decreasing inventory and increasing COGS for each transaction. The perpetual system allocates by decreasing inventory and increasing COGS with each transaction, and the periodic system allocates between ending inventory and COGS at the end of the period.

Which of the following is false regarding the fair value option? -The fair value option is an acceptable alternative to the equity method. -This method is used for securities held to maturity. -The fair value option requires a fair value adjustment at the end of the year. -Once elected, the decision to use the fair value method is irrevocable.

-This method is used for securities held to maturity. The fair value option is an alternative method to the equity option that is irrevocable, requires a fair value adjustment, and is used when the investor has significant influence.

Which of the following statements is correct regarding donated assets? Multiple Choice -Donated assets are not recorded on a company's balance sheet if the donor requests that the gift remain anonymous. -Donated assets are recorded at historical cost on a company's balance sheet. -Under GAAP the donation of an asset will result in a credit to either revenue or gain. -Under GAAP no gain can be recorded on a donated asset until and unless it is sold to a third party.

-Under GAAP the donation of an asset will result in a credit to either revenue or gain.

Which of the following is not one of the reasons that a firm would use the FIFO or average cost method to maintain internal records? -Recordkeeping costs of LIFO can be high. -Using LIFO for internal recording goes against U.S. GAAP. -FIFO or average cost are used for pricing decisions. -Bonus plans calculate net income with FIFO or average cost.

-Using LIFO for internal recording goes against U.S. GAAP.

Which of the following correctly explains when an expenditure subsequent to acquisition should be capitalized? -When the amount of the expenditure is greater than a threshold set internally by the company -When the company already has a net loss for the fiscal year -When the expenditure occurs in the first half of the fiscal year -When the expenditure increases the expected future benefits of the asset

-When the expenditure increases the expected future benefits of the asset Expenditures subsequent to acquisition are capitalized when they increase the expected future benefits of the asset.

Sylvester Co. takes out a 12% loan of $500,000 on 1/1/2014 to finance construction of a building for the company's own use. Construction begins immediately, and $600,000 is spent on the construction at an even pace during 2014. Another $400,000 is spent at an even pace during 2015, with construction completed on 12/31/2015. No other construction loans are taken out. Sylvester incurred unrelated interest expenses of $10,000 and $15,000 in 2014 and 2015, respectively, on loans that bear interest at 10%. How much interest can Sylvester capitalize in 2014 and 2015? 2014 2015 -a.$60,000 $96,000 -b.$36,900 $96,000 -c.$60,000 $60,000 -d.$36,000 $75,000

-d. $ 36,000 $ 75,000 Explanation:- 2014 Weighted avergae expenditure = $600000*0.5 = $300,000Interest to be capitalise = $300,000*12% = $36,000 2015 Weighted avergae expenditure = $600000+ ($400,000*0.5)= $800,000 Interest to be capitalise: Interest on loan = $500,000*12% = $60,000 Add: unrealted 300000*10%*0.5 =$15,000Total interest = $75,000

Choose the correct statement(s) below regarding the direct write-off method for calculating bad debt expense. 1. It is not normally consistent with GAAP and accrual accounting. 2. Its use tends to result in an overstatement of accounts receivable on the balance sheet. 3. Under this method, bad debt expense is recognized when a specific account is determined to be uncollectible. Multiple Choice III only. I and III only. II only. I, II and III.

I, II and III.