Intermediate Accounting 1 FINAL

Tessa won the lottery for $2,500,000 but due to a change in state laws she will not be able to collect it for three years. Ralph is willing to give her a lump sum today in return for the payment in three years. If current interest rates are 14% per year, how much will Tessa receive today? $1,687,430 $5,804,080 $2,500,000 $3,703,860

$1,687,430

Exhibit 7-3 Davis Co. had the following inventory activity during April: ​ ​ Unit ​ Units Cost Beginning inventory 100 $ 8 Purchase (April 3) 60 12 Sale (April 10) 80 ​ Purchase (April 18) 50 15 Purchase (April 23) 80 18 Sale (April 28) 100 ​ Refer to Exhibit 7-3. Assuming Davis uses a perpetual LIFO cost flow assumption, ending inventory at April 30 would be $880 $920 $1,090 $1,890

$1,090

Trainor Company estimates bad debt expense using a percentage of credit sales (5%). The company began its current year with an $8,500 balance in the allowance account. During the current year, $10,500 of accounts receivable were written off, and $1,200 of previously written off accounts were collected. Credit sales for the year were $255,000. The bad debt expense for the year was $12,750 $11,550 $10,500 $8,500

$12,750

Roberts Corporation purchased some equipment by issuing a $20,000 non-interest-bearing, four-year note when interest rates were 8%. Actuarial information for 8% and four periods follows: Future amount of 1 1.360 Present value of 1 0.735 In the entry to record this purchase, there would be a $20,000 debit to Equipment. $5,300.00 credit to Discount on Notes Payable. $27,210.88 credit to Notes Payable. $14,700.00 debit to Equipment.

$14,700.00 debit to Equipment.

On June 1, Dollar Hardware, Inc. had an inventory of 300 gas grills costing $100 each. Purchases and sales during June are as follows: Date Purchases Sales June 3 100 @ $125 each June 10 50 @ $110 each June 17 150 @ $130 each June 28 50 @ $120 each What is the cost of Dollar's inventory on June 30 using the FIFO method? $15,000 $16,000 $16,500 $18,000

$16,500

Exhibit 8-2 The Caldwell Company uses the gross profit method to estimate its inventory in interim financial statements. The markup on cost is 50%. The following information is available: January 1, 2016, inventory balance $12,500 Purchases 25,000 Sales during January 24,000 ​ ​ Refer to Exhibit 8-2. The estimated cost of goods sold at January 31, 2016, is $25,500 $21,500 $16,000 $12,000

$16000

In 2016, Western Maryland Company paid $3,000,000 for a mining tract with reserves of 100,000 tons of ore, which the company planned to mine over a 20-year period. The company spent $500,000 developing the mine. Western plans to spend $200,000 for reclamation when mining has been completed, after which the land will have an estimated value of $600,000. In 2016, Western mined and sold 8,000 tons of ore. What depletion should Western record for the year? $155,000 $248,000 $280,000 $296,000

$248000

The Alexandra Company uses the retail inventory method and the average cost flow assumption for preparation of its interim reports. Information about Alexandra's inventory in the second quarter of 2016 is shown below: Cost Retail Beginning inventory $255 $ 800 Purchases 600 1,400 Net markups 200 Net markdowns (500) Sales 1,300 What is the estimated cost of Alexandra's inventory on June 30, 2016? $270 $300 $585 $600

$270

Lucas Company provides a bonus compensation plan under which key employees receive bonuses equal to 10% of Lucas's income after deducting income taxes but before deducting the bonus. If income before income tax and the bonus is $400,000 and the income tax rate is 30%, the bonuses should total $27,160. $28,866. $36,400. $40,000.

$28,866.

Exhibit 7-5 Sullivan Produce Co. switched from FIFO to LIFO on January 1, 2015, for external reporting and income tax purposes, while retaining FIFO for internal reports. On that date, the FIFO inventory equaled $360,000. The ensuing three-year period resulted in the following: Inventory Cost Date Year-End Costs Index December 31, 2015 $438,000 1.05 December 31, 2016 460,000 1.15 December 31, 2017 520,000 1.25 Refer to Exhibit 7-5. The ending inventory at December 31, 2017, using the dollar-value LIFO method would be $422,000 $402,000 $426,000 $420,400

$422,000

For the period from 2016 through 2016, the Charlie Company had net sales of $500,000 and a gross profit of $200,000. During the first quarter of 2018, the company made purchases of $19,500 and recorded sales of $47,500. The inventory value at the beginning of the year was 15,500. What is the estimated cost of Charlie's inventory on March 31, 2018, using the gross profit method? $22,500 $15,000 $6,500 $6,000

$6,500

Ramirez Company made the following payments related to a land acquisition: Purchase price $7,500 Past due taxes 650 Title search 275 Cost of razing old building 1300 Interest (incurred after productive operations had begun) 160 Proceeds from salvage of old building 1875 What is the capitalizable cost of the land? $9,725 $8,010 $7,850 $7,500

$7,850

Exhibit 7-1 Edwards Co. purchased raw materials with a cost of $95,000 on March 2, 2015. Credit terms of 3/20, n/60 applied. Edwards paid for the purchase on March 18, 2015. Calculate the amount at which Edwards would record the inventory on March 2, 2015, the date of purchase, using the method given. Refer to Exhibit 7-1. Edwards uses a perpetual inventory system and the gross price method. $42,000 $76,000 $92,150 $95,000

$95,000

Which of the following is a purchase return? A company agrees to keep damaged inventory and receives a refund from the supplier. A customer agrees to keep damaged inventory and receives a partial refund of the selling price. A company returns inventory to the supplier and receives a refund of the purchase price. A customer returns inventory to a company and receives a refund of the purchase price.

A company returns inventory to the supplier and receives a refund of the purchase price.

Which of the following is a sales return? A supplier agrees to take back merchandise and provides a full refund. A customer returns merchandise for a refund. A customer keeps damaged merchandise and the company returns a portion of the selling price. A customer pays within the discount period.

A customer returns merchandise for a refund.

Which balance sheet account is usually reported at net realizable value? ​Investments ​Land. ​Accounts Receivable. ​Inventory.

Accounts Receivable.

How can service life be measured?

All of the above answer choices can be used to measure service life.

Wright Company has available-for-sale debt and equity securities that on December 31, 2017, had a cost of $110,000 and a market value of $108,000. The market value rose to $123,000 by December 31, 2018. What accounting action is required on December 31, 2018? -Allowance for Change in Fair Value of Investments should be credited for $15,000. -Unrealized Holding Gain/Loss-Available-for-Sale Securities should be debited for $13,000. -Allowance for Change in Fair Value of Investments should be debited for $15,000. -Unrealized Holding Gain/Loss-Available-for-Sale Securities should be credited for $13,000.

Allowance for Change in Fair Value of Investments should be debited for $15,000.

A retail firm would normally use an inventory account titled finished goods inventory merchandise inventory goods in process inventory raw materials inventory

merchandise inventory

A component of equity that arises when a parent company owns a majority of the common shares of a subsidiary company is known as​

noncontrolling interest.

Realized gains and losses on investments available-for-sale are reported

on the income statement.

What is the effect on net income for the current year if a company fails to record a purchase of materials in transit (FOB shipping point) but includes the materials in physical inventory at year-end? Net income is overstated. Net income is understated. Net income is unaffected. Not enough information is provided to determine the answer.

Net income is overstated.

Which of the following inventory cost flow assumptions produces the same ending inventory values under both the periodic and perpetual systems? FIFO LIFO weighted average dollar-value LIFO

FIFO

Which statement is false? -The general journal is still a necessity, even when special journals are used. -If a cash payments journal is in use, postings are usually made only at the end of the month. -All transactions involving the receipt of cash are recorded in the cash receipts journal. -A purchase of a desk calculator for the office should not be recorded in the purchases journal.

If a cash payments journal is in use, postings are usually made only at the end of the month

On October 1, 2015, Bob's Rentals & Storage borrowed $5,000 on a 12%, one-year note payable. Interest was payable semiannually. A correct adjusting entry was made on December 31, 2015, and a correct reversing entry was made on January 1, 2016. The entry that should be made on March 31, 2016, is Interest Payable 300 Cash 300 Interest Expense 150 Interest Payable 150 Cash 300 Interest Expense 150 Cash 150 Interest Expense 300 Cash 300

Interest Expense 300 Cash 300

Exhibit 8-3 The JSU Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule. The allowance method is used in applying the lower of cost or market rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: Date Cost Market December 31, 2016 $70,000 $70,000 December 31, 2017 56,000 46,000 December 31, 2018 64,000 58,000 ​ ​ Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2017, to apply the lower of cost or market rule to the valuation of inventory?

Loss Due to Market Valuation 10,000 Allowance to Reduce Inventory to Market 10,000

Given the following information for the Raquel Company: Date Cost Market December 31, 2016 $500 $500 December 31, 2017 700 650 December 31, 2018 800 730 ​ If the allowance method of recording lower of cost or market is in use, which December 31, 2018, journal entry is correct? Loss Due to Market Valuation 20 Allowance to Reduce Inventory to Market 20 Inventory 730 Income Summary 730 Loss Due to Market Valuation 70 Allowance to Reduce Inventory to Market 70 Allowance to Reduce Inventory to Market 800 Income Summary 800

Loss Due to Market Valuation 20 Allowance to Reduce Inventory to Market 20

A company transfers ownership control of accounts receivable in all of the following financing arrangements except

Pledging receivables.

Which of the following accounts would not be closed to Income Summary during the year-end closing process?

Prepaid Rent

Which one of the following is not an advantage of LIFO? In periods of rising prices, less income tax is paid. In periods of rising prices, less holding gains are reported in net income. Record keeping and financial statement preparation are easier. Conservative income statements and balance sheet disclosures result from rising prices.

Record keeping and financial statement preparation are easier.

If the net markdowns are excluded from the calculation of the cost-to-retail ratio in the retail inventory method, what is the effect on the cost-to-retail ratio? -The denominator of the ratio will be lower, which results in a higher cost-to-retail ratio. -The denominator of the ratio will be higher, which results in a lower cost-to-retail ratio. -The numerator of the ratio will be higher, which results in a higher cost-to-retail ratio. -The numerator of the ratio will be lower, which results in a lower cost-to-retail ratio.

The denominator of the ratio will be higher, which results in a lower cost-to-retail ratio.

Concerning application of the lower of cost or market method, which one of the following statements is true regarding the constraints on market value? -The upper constraint is estimated selling price less costs of completion and disposal. -The lower constraint is net realizable value less costs of completion and disposal. -The lower constraint is estimated selling price less a normal profit margin. -The upper constraint is estimated selling price less costs of completion and disposal and a normal profit margin.

The upper constraint is estimated selling price less costs of completion and disposal.

Which of the following would be included in cash and cash equivalents on the balance sheet?

Undeposited credit card sales receipts

Reversing entries should not be made for adjusting entries related to estimated items such as depreciation. adjusting entries that create accrued revenues to be collected in the next accounting period. adjusting entries that create accrued expenses to be paid in the next accounting period. adjusting entries related to prepayments of costs initially recorded as expenses.

adjusting entries related to estimated items such as depreciation.

Which of the following are components of the income statement? revenues results from discontinued operations income from continuing operations all of these

all of these

Adjusting journal entries are made at the beginning of the accounting period at the end of the accounting period when revenue is realized (or realizable) anytime we need to adjust an account

at the end of the accounting period

A subsequent event is an event that occurs after the annual report is issued. anytime after the end of the accounting period. between the end of the accounting period and the date the annual report is issued. anytime before the annual report is issued.

between the end of the accounting period and the date the annual report is issued.

Which of the following terms is not a common alternative for the term "property, plant, and equipment?" fixed assets operational assets plant assets capital investments

capital investments

An improvement made to a machine increased its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be recorded as an expense. debited to Accumulated Depreciation. capitalized in the machine account. allocated between Accumulated Depreciation and the machine account.

capitalized in the machine account.

The operating cycle is typically defined as the time it requires to convert cash to inventory to receivables. raw materials to finished goods. finished goods to receivables to cash. cash to inventory to receivables to cash.

cash to inventory to receivables to cash.

IFRS reporting requires all of the following items except

comprehensive income disclosure in a statement of shareholders' equity.

n the balance sheet, liabilities are generally classified as current or long-term. legal or nonlegal. material or immaterial. probable or estimated.

current or long-term.

The journal entry to recognize the impairment of a note receivable includes a debit to Bad Debt Expense credit to Notes Receivable credit to Interest Expense debit to Interest Income

debit to Bad Debt Expense

A negative balance for retained earnings due to cumulative net losses is called a(n) ​deficit. ​retained loss. ​retained debit. ​other comprehensive loss.

deficit.

​A deficit occurs when a company's

dividends and cumulative losses are greater than cumulative net income.

Which of the following is not a justification for valuing inventory above historical cost? Floor value above both market price and historical cost Interchangeability of the units of inventory each item, the total of inventory, or major categories of inventory Inability to determine appropriate prices

each item, the total of inventory, or major categories of inventory

Excise taxes to be paid on the purchase of factory equipment would be included in which of the following accounts? Equipment Deferred Taxes Excise Tax Expense Accumulated Depreciation−Equipment

equipment

Which of the following is not a derivative? equity contract futures contract option contract swap contract

equity contract

All of the following payroll taxes are levied against the employer except FICA taxes. federal unemployment taxes. state unemployment taxes. federal income taxes withheld.

federal income taxes withheld.

The ability of a company to adapt its resources to create change and react to change is called financial flexibility. return on investment . operating capability. risk .

financial flexibility.

When conducting an impairment test, a company must estimate future cash inflows from its use of the asset and eventual sale. future net cash flows from its use of the asset and eventual sale. total net flows from its use of the asset and eventual sale. total cash from its use of the asset and eventual sale.

future net cash flows from its use of the asset and eventual sale.

Advantages of using historical cost as the basis of valuation of property, plant, and equipment include all of the following except -it is representationally faithful. -gains and losses from holding the asset are recognized in the period of value change. -cost equals the fair market value at the date of acquisition. -it is consistent with the valuation of many other assets and liabilities.

gains and losses from holding the asset are recognized in the period of value change.

Which of the following errors will be detected by a trial balance? posting a credit to Sales instead of to Accounts Payable incorrectly computing the balance of the cash account failure to journalize a sales transaction at all forgetting to post a purchase transaction at all

incorrectly computing the balance of the cash account

All of the following are conditions for an ordinary annuity except periodic cash flows must be equal in amount the time periods between the cash flows are the same length the interest rate is constant for each time period interest is compounded in the middle of each time period

interest is compounded in the middle of each time period

In a perfectly matched hedge of fixed-rate debt using an interest rate swap, the effect of a change in fair value of the derivative on the income statement

is zero.

Which one of the following inventories may not be valued for balance sheet purposes at the inventory's selling price less distribution costs even if it is above the cost of the inventory? grain for an agricultural company crude oil for an oil company gold for a mining corporation laptops for a computer manufacturer

laptops for a computer manufacturer

Which of the following events would be classified as an operating activity in a statement of cash flows? receipt of a cash dividend from an equity investment sale of a long-term investment issuing notes payable payment of cash dividends

receipt of a cash dividend from an equity investment

When exchanging nonmonetary assets boot must be associated with the transaction in order to recognize a gain or loss. recognized gain or loss can occur depending on the fair value of the asset surrendered and the fair value of the asset received. a loss can be recognized only when the fair value of the asset received plus boot is greater than the book value of the asset surrendered. recognized gain or loss can occur depending on the book value of the asset surrendered and the fair value of the asset surrendered.

recognized gain or loss can occur depending on the book value of the asset surrendered and the fair value of the asset surrendered.

The Clementine Company agreed to purchase the Orange Company for $650,000. At the date of purchase, Orange had current assets with a fair market value of $400,000, noncurrent assets (including no marketable securities) with a fair market value of $700,000, and liabilities of $500,000. In accounting for this transaction, Clementine should record noncurrent assets at $650,000. record a debit of $50,000 as a loss on the purchase. record goodwill of $50,000 to be reviewed annually for impairment. record current assets at $550,000.

record goodwill of $50,000 to be reviewed annually for impairment.

The income statement reports revenues and expenses for a given point in time. revenues and expenses for a specific date. revenues, expenses, gains and losses for a specified period of time. revenues, expenses, gains and losses for a specific date.

revenues, expenses, gains and losses for a specified period of time.

Which of the following events would be classified as an investing activity on a statement of cash flows? payment of interest on a loan receipt of cash dividends on an available-for-sale investment purchase of inventory sale of an office building at a gain

sale of an office building at a gain

All of the following are examples of legal liabilities except notes payable. sales tax payable. sick pay payable (may be taken as time off). property taxes payable.

sick pay payable (may be taken as time off).

The statement of cash flows is least likely to help external users assess a company's ability to generate positive future cash flows. the amount of a company's future accrual-based sales revenue. a company's ability to meet its obligations and pay dividends. a company's need for external financing.

the amount of a company's future accrual-based sales revenue.

When pledging accounts receivable title to the receivables reverts to the lender. the pledges are usually made with recourse. the pledge arrangements become the new valuation methodology entered in the accounting records. collection responsibility reverts to the lender.

the pledges are usually made with recourse.

Conceptually, all liabilities should be reported on the balance sheet at the present value of the future outlays they require. their maturity value. face amount. their current cash equivalent amount.

the present value of the future outlays they require.

Costs for which of the following activities should not be included in research and development (R&D)? -modification of the formulation or design of a product or process -design of tools, jigs, molds, and dies involving new technology -design, construction, and testing of preproduction prototypes and models -trouble-shooting in connection with breakdowns during commercial production

trouble-shooting in connection with breakdowns during commercial production

The SEC requires disclosure of quarterly high and low market prices for two years. three years. four years. The SEC does not require disclosure of quarterly high and low market prices.

two years

The accountant for Angie Company made the following errors related to purchases of merchandise and ending inventory in 2016: 1. A $2,200 purchase of merchandise on credit was not recorded or included in ending inventory. 2. A $3,180 purchase of merchandise on credit was recorded, but it was inadvertently omitted from the end-of-year physical inventory count. ​ Assuming a periodic inventory system, Angie's Company's 2016 net income will be understated by $3,180. understated by $2,380. overstated by $5,380. overstated by $3,180.

understated by $3,180.

On January 1, 2017, Tolvin Company signed a contract to have Bob's Builders construct a office building at a cost of $30,000,000. It was estimated that it would take four years to complete the project. Also on January 1, 2017, to finance the construction cost, Tolvin borrowed $20,000,000 payable in five annual installments of $4,000,000 plus interest at the rate of 8%. During 2017, Tolvin made progress payments totaling $5,000,000 under the contract, and the average amount of accumulated expenditures was $6,000,000 for the year. The excess borrowed funds were invested in short-term securities, from which Tolvin realized investment income of $650,000. What amount should Tolvin report as capitalized interest at December 31, 2017? ​$ 400,000 ​$ 480,000 ​$ 650,000 ​$1,600,000

​$ 480,000

A company's operating cycle might be measured as ​Total asset turnover in days minus fixed asset turnover in days. Total asset turnover in days minus fixed asset turnover in days minus inventory turnover in days minus accounts receivable turnover in days. ​Inventory turnover in days plus accounts receivable turnover in days plus accounts payable turnover in days. ​Inventory turnover in days plus accounts receivable turnover in days minus accounts payable turnover in days.

​Inventory turnover in days plus accounts receivable turnover in days minus accounts payable turnover in days.