FinRep 1 Exam 3 MC

79. Robust Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $79, a replacement cost of $61, a net realizable value of $70, and a normal profit margin of $3. What is the final lower-of-cost-or-market inventory value for Packit? a. $67. b. $79. c. $61. d. $70.

A, LO: 2, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

62. What is the effect of freight-in on the cost-to-retail ratio when using the conventional retail method? a. Increases the cost-to-retail ratio. b. No effect on the cost-to-retail ratio. c. Depends on the amount of the net markups. d. Decreases the cost-to-retail ratio.

A, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

55. To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should a. include markups but not markdowns. b. include markups and markdowns. c. ignore both markups and markdowns. d. include markdowns but not markups.

A, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

11. When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

2. GAAP requires reporting inventory at net realizable value, even if above cost, whenever there is a controlled market with a quoted price applicable to all quantities.

F, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

8. A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

9. According to FASB concepts statement No.6, purchase commitments include only the right to receive assets.

F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

13. In most situations, the gross profit percentage is stated as a percentage of cost.

F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

15. When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation.

F, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

16. A markup cancellation can exceed the original markup but a markdown cancellation cannot exceed the original markdown.

F, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

18. The inventory turnover is computed by dividing the cost of goods sold by the ending inventory on hand.

F, LO: 6, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

52. The retail inventory method is based on the assumption that the a. final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. b. ratio of gross margin to sales is approximately the same each period. c. ratio of cost to retail changes at a constant rate. d. proportions of markups and markdowns to selling price are the same.

A, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

59. What condition is not necessary in order to use the retail method to provide inventory results? a. Retailer keeps a record of the total costs of products sold for the period. b. Retailer keeps a record of the total costs and retail value of goods purchased. c. Retailer keeps a record of the total costs and retail value of goods available for sale. d. Retailer keeps a record of sales for the period.

A, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

S57. Which of the following is not required when using the retail inventory method? a. All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price. b. A record of the total cost and retail value of the goods purchased. c. A record of the total cost and retail value of the goods available for sale. d. Total sales amount for the period.

A, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

P65. The average days to sell inventory is computed by dividing a. 365 days by the inventory turnover. b. the inventory turnover by 365 days. c. net sales by the inventory turnover. d. 365 days by cost of goods sold.

A, LO: 6, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

78. Robust Inc. has the following information related to an item in its ending inventory. Product 66 has a cost of $162, a replacement cost of $155, a net realizable value of $160, and a normal profit margin of $10. What is the final lower-of-cost-or-market inventory value for product 66? a. $160. b. $155. c. $162. d. $152.

B, LO: 2, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

69. Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40% of selling price. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market? a. $12. b. $24. c. $26. d. $27.

B, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

70. Lexington Company sells product 1976NLC for $20 per unit. The cost of one unit of 1976NLC is $18, and the replacement cost is $17. The estimated cost to dispose of a unit is $4, and the normal profit is 40% of selling price. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market? a. $8. b. $16. c. $17. d. $18.

B, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

75. Given the historical cost of product Z is $20, the selling price of product Z is $25, costs to sell product Z are $3, the replacement cost for product Z is $21, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method? a. $18. b. $20. c. $21. d. $22.

B, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

36. When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at? a. Sales price b. Net realizable value c. Historical cost d. Net realizable value reduced by a normal profit margin

B, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

34. The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the a. net realizable value. b. net realizable value less normal profit margin. c. replacement cost. d. selling price less costs of completion and disposal.

B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

107. Barton Corporation acquires a coal mine at a cost of $1,800,000. Intangible development costs total $360,000. After extraction has occurred, Barton must restore the property (estimated fair value of the obligation is $180,000), after which it can be sold for $210,000. Barton estimates that 6,000 tons of coal can be extracted. What is the amount of depletion per ton? a. $355 b. $320 c. $390 d. $300

A, LO :4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

77. On January 1, 2014, Forrest Company purchased equipment at a cost of $390,000. The equipment was estimated to have a salvage value of $12,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2021? a. $10,500 b. $10,833 c. $48,750 d. $47,250

A, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

31. For income statement purposes, depreciation is a variable expense if the depreciation method used is a. units-of-production. b. straight-line. c. sum-of-the-years'-digits. d. declining-balance.

A, LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

25. The major difference between the service life of an asset and its physical life is that a. service life refers to the time an asset will be used by a company and physical life refers to how long the asset will last. b. physical life is the life of an asset without consideration of salvage value and service life requires the use of salvage value. c. physical life is always longer than service life. d. service life refers to the length of time an asset is of use to its original owner, while physical life refers to how long the asset will be used by all owners.

A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

26. The term "depreciable base," or "depreciation base," as it is used in accounting, refers to a. the total amount to be charged (debited) to expense over an asset's useful life. b. the cost of the asset less the related depreciation recorded to date. c. the estimated market value of the asset at the end of its useful life. d. the acquisition cost of the asset.

A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

30. The activity method of depreciation a. is a variable charge approach. b. assumes that depreciation is a function of the passage of time. c. conceptually associates cost in terms of input measures. d. all of these answers are correct.

A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

28. The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to a. the machinery account. b. a separate deferred charge account. c. miscellaneous tax expense (which includes all taxes other than those on income). d. accumulated depreciation--machinery.

A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

34. Assets that qualify for interest cost capitalization include a. assets under construction for a company's own use. b. assets that are ready for their intended use in the earnings of the company. c. assets that are not currently being used because of excess capacity. d. All of these assets qualify for interest cost capitalization.

A, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

36. The period of time during which interest must be capitalized ends when a. the asset is substantially complete and ready for its intended use. b. no further interest cost is being incurred. c. the asset is fully depreciated. d. the activities that are necessary to get the asset ready for its intended use have begun.

A, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

91. Dodson Company traded in a manual pressing machine for an automated pressing machine and gave $40,000 cash. The old machine cost $465,000 and had a net book value of $355,000. The old machine had a fair value of $300,000. Which of the following is the correct journal entry to record the exchange assuming commercial substance? a. Equipment 340,000 Loss on Disposal 55,000 Accumulated Depreciation 110,000 Equipment 465,000 Cash 40,000 b. Equipment 304,000 Equipment 200,000 Cash 40,000 c. Cash 40,000 Equipment 300,000 Loss on Disposal 55,000 Accumulated Depreciation 110,000 Equipment 505,000 d. Equipment 615,000 Accumulated Depreciation 110,000 Equipment 465,000 Cash 40,000

A, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

94. Torque Co. has equipment with a carrying amount of $2,400,000. The expected future net cash flows from the equipment are $2,445,000, and its fair value is $2,040,000. The equipment is expected to be used in operations in the future. What amount (if any) should Torque report as an impairment to its equipment? a. No impairment should be reported. b. $360,000 c. $45,000 d. $405,000

A, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

96. Hart Corporation owns machinery with a book value of $570,000. It is estimated that the machinery will generate future cash flows of $600,000. The machinery has a fair value of $420,000. Hart should recognize a loss on impairment of a. $ -0-. b. $30,000. c. $150,000. d. $180,000.

A, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

97.Jamison Company purchased the assets of Booker Company at an auction for $5,600,000. An independent appraisal of the fair value of the assets is listed below: Land $1,900,000 Building 2,800,000 Equipment 2,100,000 Trucks 3,400,000 Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Trucks? a. $1,866,667 b. $2,800,000 c. $3,360,000 d. $3,400,000

A, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

45. The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when the exchange has commercial substance is usually recorded at a. the fair value of the asset given up, and a gain or loss is recognized. b. the fair value of the asset given up, and a gain but not a loss may be recognized. c. the fair value of the asset received if it is equally reliable as the fair value of the asset given up. d. either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company.

A, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

50. Accounting recognition should be given to some or all of the gain realized on a nonmonetary exchange of plant assets except when the exchange has a. no commercial substance and additional cash is paid. b. no commercial substance and additional cash is received. c. commercial substance and additional cash is paid. d. commercial substance and additional cash is received.

A, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

44. When boot is involved in an exchange having commercial substance a. gains or losses are recognized in their entirety. b. a gain or loss is computed by comparing the fair value of the asset received with the fair value of the asset given up. c. only gains should be recognized. d. only losses should be recognized.

A, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

104. The inventory account of Irick Company at December 31, 2020, included the following items: Inventory Amount Merchandise out on consignment at sales price (including markup of 40% on selling price) $60,000 Goods purchased, in transit (shipped f.o.b. shipping point) 48,000 Goods held on consignment by Irick 62,000 Goods out on approval (sales price $30,400, cost $25,600) 30,400 Based on the above information, the inventory account at December 31, 2020, should be reduced by a. $90,800. b. $90,400. c. $138,800. d. $102,800.

A, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

103. On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available: Sales, January 1 through April 15 $600,000 Inventory, January 1 100,000 Purchases, January 1 through April 15 500,000 Markup on cost 25% The amount of the inventory loss is estimated to be a. $120,000. b. $60,000. c. $150,000. d. $100,000.

A, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

130. On January 2, 2020, York Corp. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler $150,000 Carrying amount of old boiler 10,000 Fair value of old boiler 4,000 Installation cost of new boiler 20,000 The old boiler was sold for $4,000. What amount should York capitalize as the cost of the new boiler? a. $170,000. b. $164,000. c. $160,000. d. $150,000.

A, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

57. Which of the following is not a capital expenditure? a. Repairs that maintain an asset in operating condition b. An addition c. A betterment d. A replacement

A, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: FSA,

49. Depletion expense a. is usually reported as cost of goods sold when the resource is sold. b. includes tangible equipment costs in the depletion base. c. excludes intangible development costs from the depletion base. d. excludes restoration costs from the depletion base.

A, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

115. The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost-to-retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of a. $1,116,000 and $1,640,000. b. $1,116,000 and $1,584,000. c. $1,116,000 and $1,560,000. d. $1,092,000 and $1,560,000.

A, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

127. Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 The approximate cost of the ending inventory by the conventional retail method is a. $383,600. b. $379,680. c. $392,000. d. $409,920.

A, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

110. In 2020, Bargain Shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $75 billion. What is Bargain shop's return on assets? a. 7.6% b. 28.7% c. 23.3% d. 13.2%

A, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

110. Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $390,000 ($594,000), purchases during the current year at cost (retail) were $2,055,000 ($3,300,000), freight-in on these purchases totaled $129,000, sales during the current year totaled $3,000,000, and net markups (markdowns) were $72,000 ($108,000). What is the ending inventory value at cost? a. $556,842. b. $567,138. c. $580,206. d. $858,000.

A, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

119. Drake Corporation had the following amounts, all at retail: Beginning inventory $ 3,600 Purchases $145,000 Purchase returns 6,000 Net markups 18,000 Abnormal shortage 4,000 Net markdowns 2,800 Sales revenue 77,000 Sales returns 1,800 Employee discounts 1,600 Normal shortage 2,600 What is Drake's ending inventory at retail using the conventional retail method? a. $74,400. b. $76,000. c. $77,600. d. $78,400

A, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

120. Goren Corporation had the following amounts, all at retail: Beginning inventory $ 3,600 Purchases $120,000 Purchase returns 6,000 Net markups 18,000 Abnormal shortage 4,000 Net markdowns 2,800 Sales 77,000 Sales returns 1,800 Employee discounts 1,600 Normal shortage 2,600 What is Goren's ending inventory at retail? a. $49,400. b. $51,000. c. $52,600. d. $53,400

A, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

60. Each of the following is an example of an asset's involuntary conversion except a. the sale of a fully depreciated asset. b. a condemnation of property. c. a fire damaging an asset. d. a theft of the asset.

A, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

*129. Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 Assuming that the LIFO inventory method is used, that the beginning inventory is the base inventory when the index was 100, and that the index at year end is 112, the ending inventory at dollar-value LIFO retail cost is a. $321,838. b. $371,028. c. $383,600. d. $409,920.

A, LO: 7, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*131. Eaton Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2020: Cost Retail Inventory, 1/1/20 $ 282,000 $420,000 Net purchases 1,134,000 1,686,000 Net markups 204,000 Net markdowns 90,000 Net sales 1,590,000 Assuming that the price index was 105 at December 31, 2020 and 100 at January 1, 2020, what is the cost of Eaton's inventory at December 31, 2020 under the dollar-value-LIFO retail method? a. $401,070. b. $416,745. c. $420,915. d. $395,400.

A, LO: 7, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

80. On January 2, 2018, Wang Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $45,000. The depreciation applicable to this equipment was $210,000 for 2021, computed under the sum-of-the-years'-digits method. What was the acquisition cost of the equipment? a. $1,605,000 b. $1,695,000 c. $1,650,000 d. $1,625,000

B, LO: 1, Bloom: AN, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

73. On July 1, 2020, Nowton Co. purchased machinery for $240,000. Salvage value was estimated to be $10,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Nowton should record depreciation expense for 2021 on this machinery of a. $41,400. b. $43,200. c. $43,700. d. $38,400.

B, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

63. Slotkin Products purchased a machine for $65,000 on July 1, 2020. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $5,000. Depreciation for 2020 is a. $32,500. b. $8,125. c. $14,219. d. $15,000.

B, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

Wilson Co. purchased land as a factory site for $1,350,000. Wilson paid $120,000 to tear down two buildings on the land. Salvage was sold for $8,100. Legal fees of $5,220 were paid for title investigation and making the purchase. Architect's fees were $46,800. Title insurance cost $3,600, and liability insurance during construction cost $3,900. Excavation cost $15,660. The contractor was paid $4,200,000. An assessment made by the city for pavement was $9,600. Interest costs during construction were $255,000. 63. The cost of the land that should be recorded by Wilson Co. is a. $1,470,720. b. $1,480,320. c. $1,484,820. d. $1,494,420.

B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

119. On April 1, 2019, Verlin Co. purchased new machinery for $450,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-theyears'-digits method. The accumulated depreciation on this machinery at March 31, 2021, should be a. $300,000. b. $270,000. c. $180,000. d. $150,000.

B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

65. Grover Corporation purchased a truck at the beginning of 2020 for $109,200. The truck is estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It was driven 21,000 miles in 2020 and 29,000 miles in 2021. What is the depreciation expense for 2020? a. $19,845 b. $18,375 c. $25,375 d. $43,750

B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

67. Carson Company purchased a depreciable asset for $560,000. The estimated salvage value is $28,000, and the estimated useful life is 10,000 hours. Carson used the asset for 1,500 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset in the current year? a. $53,200 b. $79,800 c. $88,200 d. $532,000

B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

72. Klayton Corporation purchased factory equipment that was installed and put into service January 2, 2020, at a total cost of $150,000. Salvage value was estimated at $10,000. The equipment is being depreciated over four years using the double-declining balance method. For the year 2021, Klayton should record depreciation expense on this equipment of a. $35,000. b. $37,500. c. $70,000. d. $75,000.

B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

74. Ramos Co. purchased machinery that was installed and ready for use on January 3, 2020, at a total cost of $230,000. Salvage value was estimated at $30,000. The machinery will be depreciated over five years using the double-declining balance method. For the year 2021, Ramos should record depreciation expense on this machinery of a. $48,000. b. $55,200. c. $60,000. d. $92,000.

B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

76. On January 1, 2020, Garden Company purchased a new machine for $4,200,000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $150,000. Depreciation was computed using the sum-of-the-years'-digits method. What amount should be shown in Garden's balance sheet at December 31, 2021, net of accumulated depreciation, for this machine? a. $3,390,000 b. $2,670,000 c. $2,613,331 d. $2,488,500

B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

124. Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be a. classified as other income. b. deducted from the cost of the land. c. netted against the costs to clear the land and expensed as incurred. d. netted against the costs to clear the land and amortized over the life of the plant.

B, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

36. A principal objection to the straight-line method of depreciation is that it a. provides for the declining productivity of an aging asset. b. ignores variations in the rate of asset use. c. tends to result in a constant rate of return on a diminishing investment base. d. gives smaller periodic write-offs than decreasing charge methods.

B, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

30. Historical cost is the basis advocated for recording the acquisition of property, plant, and equipment for all of the following reasons except a. at the date of acquisition, cost reflects fair value. b. property, plant, and equipment items are always acquired at their original historical cost. c. historical cost involves actual transactions and, as such, is the most reliable basis. d. gains and losses should not be anticipated but should be recognized when the asset is sold.

B, LO: 1, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

24. Which of the following most accurately reflects the concept of depreciation as used in accounting? a. The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred. b. The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. c. A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the tangible asset involved. d. An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the purpose of properly recording the fair market value of tangible assets.

B, LO: 1, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

22. Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? a. Associating cause and effect b. Systematic and rational allocation c. Immediate recognition d. Partial recognition

B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

29. Fences and parking lots are reported on the balance sheet as a. current assets. b. land improvements. c. land. d. property and equipment.

B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

22. Which of the following is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for resale c. Acquired for use d. Yields services over a number of years

B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

37. Each year a company has been investing an increasingly greater amount in machinery. Since there is a large number of small items with relatively similar useful lives, the company has been applying straight-line depreciation at a uniform rate to the machinery as a group. The ratio of this group's total accumulated depreciation to the total cost of the machinery has been steadily increasing and now stands at .75 to 1.00. The most likely explanation for this increasing ratio is the a. company should have been using one of the accelerated methods of depreciation. b. estimated average life of the machinery is less than the actual average useful life. c. estimated average life of the machinery is greater than the actual average useful life. d. company has been retiring fully depreciated machinery that should have remained in service.

B, LO: 2, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

92 Exiter Inc. owns the following assets: Asset Cost Salvage Estimated Useful Life A $420,000 $42,000 10 years B 225,000 22,500 5 years C 492,000 24,000 12 years What is the composite depreciation rate of Exiter's assets? a. 14.0% b. 10.3% c. 12.9% d. 11.1%

B, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

37. Which of the following statements is true regarding capitalization of interest? a. Interest cost capitalized in connection with the purchase of land to be used as a building site should be debited to the land account and not to the building account. b. The amount of interest cost capitalized during the period should not exceed the actual interest cost incurred. c. When excess borrowed funds not immediately needed for construction are temporarily invested, any interest earned should be offset against interest cost incurred when determining the amount of interest cost to be capitalized. d. The minimum amount of interest to be capitalized is determined by multiplying a weighted average interest rate by the amount of average accumulated expenditures on qualifying assets during the period.

B, LO: 2, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

S41. When depreciation is computed for partial periods under a decreasing charge depreciation method, it is necessary to a. charge a full year's depreciation to the year of acquisition. b. determine depreciation expense for the full year and then prorate the expense between the two periods involved. c. use the straight-line method for the year in which the asset is sold or otherwise disposed of. d. use a salvage value equal to the first year's partial depreciation charge.

B, LO: 2, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

42. Depreciation is normally computed on the basis of the nearest a. full month and to the nearest cent. b. full month and to the nearest dollar. c. day and to the nearest cent. d. day and to the nearest dollar.

B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

44. A change in estimate should a. result in restatement of prior period statements. b. be handled in current and future periods. c. be handled in future periods only. d. be handled retroactively.

B, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

102. On August 1, 2020, Hayes Corporation purchased a new machine on a deferred payment basis. A down payment of $18,000 was made and 4 monthly installments of $15,000 each are to be made beginning on September 1, 2020. The cash equivalent price of the machine was $72,000. Hayes incurred and paid installation costs amounting to $3,000. The amount to be capitalized as the cost of the machine is a. $72,000. b. $75,000. c. $78,000. d. $81,000.

B, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

22. Research and development costs are reported as intangible assets if they will provide economic benefits in future years.

F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

46. Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will a. be reported in the Other Revenues and Gains section of the income statement. b. effectively reduce the amount to be recorded as the cost of the new asset. c. effectively increase the amount to be recorded as the cost of the new asset. d. be credited directly to the owner's capital account.

B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

53. A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at a. the nominal cost of taking title to it. b. its fair value. c. one dollar (since the site cost nothing but should be included in the balance sheet). d. the value assigned to it by the company's directors.

B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

108. A machine cost $1,200,000, has annual depreciation of $200,000, and has accumulated depreciation of $950,000 on December 31, 2020. On April 1, 2021, when the machine has a fair value of $275,000, it is exchanged for a machine with a fair value of $1,350,000 and the proper amount of cash is paid. The exchange had commercial substance. The gain to be recorded on the exchange is a. $0. b. $25,000 c. $50,000 d. $150,000

B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

45. Lamar Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should a. recognize an unusual loss for the period. b. include a credit to the equipment accumulated depreciation account. c. include a credit to the equipment account. d. not be made if the equipment is still being used.

B, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

52. When a company is the recipient of a donated asset, the account credited may be a a. paid-in capital account. b. revenue account. c. deferred revenue account. d. All of these answers are correct.

B, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

49. A company should immediately recognize: a. any gain when it makes a bargain purchase. b. any loss when it ignorantly pays too much for a monetary asset originally. c. any gain when it constructs a piece of equipment at a cost savings. d. any gain when a company receives no cash for a monetary asset received in an exchange.

B, LO: 3, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

104. During 2020, Logan Corporation acquired a mineral mine for $4,000,000 of which $400,000 was ascribed to land value after the mineral has been removed. Geological surveys have indicated that 10 million units of the mineral could be extracted. During 2020, 1, 500,000 units were extracted and 1,250,000 units were sold. What is the amount of depletion expensed for 2020? a. $400,000. b. $450,000. c. $300,000. d. $540,000.

B, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

102. For 2020, cost of goods available for sale for Tate Corporation was $4,500,000. The gross profit rate on sales was 20%. Sales for the year were $4,000,000. What was the amount of the ending inventory? a. $0. b. $1,300,000. c. $900,000. d. $800,000.

B, LO: 4, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

106. In 2013, Jarrett Company purchased a tract of land as a possible future plant site. In January, 2021, valuable sulphur deposits were discovered on adjoining property and Jarrett Company immediately began explorations on its property. In December, 2021, after incurring $480,000 in exploration costs, which were accumulated in an expense account, Jarrett discovered sulphur deposits appraised at $2,700,000 more than the value of the land. To record the discovery of the deposits, Jarrett should a. make no entry. b. debit $480,000 to an asset account. c. debit $2,700,000 to an asset account. d. debit $3,180,000 to an asset account.

B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

112. Barker Pet supply uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $796,800 ($980,700), purchases during the current year at cost (retail) were $3,205,800 ($4,158,300), freight-in on these purchases totaled $191,700, sales during the current year totaled $4,056,000, and net markups (markdowns) were $6,000 ($288,900). What is the ending inventory value at cost? a. $800,100. b. $652,082. c. $1,083,000. d. $882,645.

B, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

113. Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year: Cost Retail Beginning inventory $ 30,000 $ 45,000 Purchases 190,000 260,000 Freight-in 2,500 — Net markups — 8,500 Net markdowns — 10,000 Employee discounts — 1,000 Sales revenue — 205,000 If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-toretail ratio? a. $222,500 ÷ $305,000 b. $222,500 ÷ $313,500 c. $220,000 ÷ $315,000 d. $222,500 ÷ $303,500

B, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

114. The following data concerning the conventional retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 The ending inventory at retail should be a. $296,000. b. $240,000. c. $256,000. d. $168,000.

B, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

116. The following data concerning the conventional retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $144,000 at retail, the business has a. realized a windfall gain. b. sustained a loss. c. no gain or loss as there is close coincidence of the inventories. d. sustained a deferred gain.

B, LO: 5, Bloom: C, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

54. The book value of a plant asset is a. the fair market value of the asset at a balance sheet date. b. the asset's acquisition cost less the total related depreciation recorded to date. c. equal to the balance of the related accumulated depreciation account. d. the assessed value of the asset for property tax purposes.

B, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

53. Which of the following disclosures is not required in the financial statements regarding depreciation? a. Accumulated depreciation, either by major classes of depreciable assets or in total. b. Details demonstrating how depreciation was calculated. c. Depreciation expense for the period. d. Balances of major classes of depreciable assets, by nature and function.

B, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

123. The 2020 financial statements of Sito Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $700,000 for the year. Sito's inventory turnover for 2020 is a. 8.8 times. b. 7.0 times. c. 5.8 times. d. 4.8 times.

B, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*130. Eaton Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2020: Cost Retail Inventory, 1/1/20 $ 282,000 $420,000 Net purchases 1,134,000 1,686,000 Net markups 204,000 Net markdowns 90,000 Net sales 1,590,000 Assuming stable prices (no change in the price index during 2020), what is the cost of Eaton's inventory at December 31, 2020? a. $384,300. b. $414,300. c. $408,000. d. $396,900.

B, LO: 7, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*117. The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 Assuming no change in the price level if the LIFO inventory method were used in conjunction with the data, the ending inventory at cost would be a. $170,800. b. $168,000. c. $163,400. d. $172,600.

B, LO: 7, Bloom: AP, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

6. If a company develops a trademark, it should expense the costs related to attorney fees, registration fees, and design costs.

F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

75. A plant asset has a cost of $40,000 and a salvage value of $10,000. The asset has a three-year life. If depreciation in the third year amounted to $5,000, which depreciation method was used? a. Straight-line b. Declining-balance c. Sum-of-the-years'-digits d. Cannot tell from information given

C, LO: 1, Bloom: AN, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

61. Falcon Company purchased a depreciable asset for $175,000. The estimated salvage value is $14,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset? a. $16,100 b. $17,500 c. $161,000 d. $175,000

C, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

62. Henry Company purchased a depreciable asset for $360,000. The estimated salvage value is $33,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset? a. $33,000 b. $36,000 c. $327,000 d. $360,000

C, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

64. Slotkin Products purchased a machine for $65,000 on July 1, 2020. The company intends to depreciate it over 8 years using the double-declining balance method. Salvage value is $5,000. Depreciation for 2021 to the closest dollar is a. $32,500. b. $8,125. c. $14,219. d. $12,500.

C, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

24. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be a. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down. b. written off as a loss in the year the hotel is torn down. c. capitalized as part of the cost of the land. d. capitalized as part of the cost of the new hotel.

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

66. Worthington Chandler Company purchased equipment for $40,000. Sales tax on the purchase was $2,400. Other costs incurred were freight charges of $600, repairs of $350 for damage during installation, and installation costs of $675. What is the cost of the equipment? a. $40,000 b. $42,400 c. $43,675 d. $44,025

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

67. Fogelberg Company purchased equipment for $30,000. Sales tax on the purchase was $1,500. Other costs incurred were freight charges of $400, repairs of $700 for damage during installation, and installation costs of $450. What is the cost of the equipment? a. $30,000. b. $31,500. c. $32,350. d. $33,050.

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

19. The asset turnover is computed by dividing net sales by ending total assets.

F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

\ 123. On December 1, 2020, Hogan Co. purchased a tract of land as a factory site for $780,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2020 were as follows: Cost to raze old building $70,000 Legal fees for purchase contract and to record ownership 10,000 Title guarantee insurance 16,000 Proceeds from sale of salvaged materials 8,000 In Hogan 's December 31, 2020 balance sheet, what amount should be reported as land? a. $806,000. b. $842,000. c. $868,000. d. $876,000.

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

66. Grover Corporation purchased a truck at the beginning of 2020 for $109,200. The truck is estimated to have a salvage value of $4,200 and a useful life of 120,000 miles. It was driven 21,000 miles in 2020 and 29,000 miles in 2021. What is the depreciation expense for 2021? a. $27,405 b. $7,000 c. $25,375 d. $43,750

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

68. Jasmine Company purchased a depreciable asset for $375,000. The estimated salvage value is $25,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? a. $43,750 b. $65,625 c. $70,313 d. $93,750

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

70. Halltown Company purchased a depreciable asset for $600,000. The estimated salvage value is $40,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? a. $70,000 b. $105,000 c. $112,500 d. $150,000

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

78. On September 19, 2020, Markham Co. purchased machinery for $475,000. Salvage value was estimated to be $25,000. The machinery will be depreciated over eight years using the sum-of-the-years'-digits method. If depreciation is computed on the basis of the nearest full month, Markham should record depreciation expense for 2021 on this machinery of a. $102,257. b. $97,111. c. $96,875. d. $87,500.

C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

35. A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn? a. Vertically and sloping down to the right b. Vertically and sloping up to the right c. Horizontally and sloping down to the right d. Horizontally and sloping up to the right

C, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

34. Use of the sum-of-the-years'-digits method a. results in salvage value being ignored. b. means the denominator is the years remaining at the beginning of the year. c. means the book value should not be reduced below salvage value. d. all of these answers are correct.

C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

25. The cost of land does not include a. costs of grading, filling, draining, and clearing. b. costs of removing old buildings. c. costs of improvements with limited lives. d. special assessments.

C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

23. Each of the following are physical factors affecting depreciation except a. casualties. b. decay. c. obsolescence. d. wear and tear.

C, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

26. The cost of land typically includes the purchase price and all of the following costs except a. grading, filling, draining, and clearing costs. b. street lights, sewers, and drainage systems cost. c. private driveways and parking lots. d. assumption of any liens or mortgages on the property.

C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

89. Falcon Corporation purchased a depreciable asset for $840,000 on January 1, 2018. The estimated salvage value is $84,000, and the estimated total useful life is 9 years. The straight-line method is used for depreciation. In 2021, Falcon changed its estimates to a total useful life of 5 years with a salvage value of $140,000. What is 2021 depreciation expense? a. $84,000 b. $140,000 c. $224,000 d. $252,000

C, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

93 Exiter Inc. owns the following assets: Asset Cost Salvage Estimated Useful Life A $420,000 $42,000 10 years B 225,000 22,500 5 years C 492,000 24,000 12 years What is the composite life of Exiter's assets? a. 14.0 years b. 9.7 years c. 8.9 years d. 10.3 years

C, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

38. When a company purchases land as a site for a plant, interest costs capitalized during the period of construction are part of the: a. period cost. b. cost of acquisition. c. cost of the plant. d. cost of the land.

C, LO: 2, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

39. Worley Truck Rental uses the group depreciation method for its fleet of trucks. When it retires one of its trucks and receives cash from a salvage company, the carrying value of property, plant, and equipment will be decreased by the a. original cost of the truck. b. original cost of the truck less the cash proceeds. c. cash proceeds received. d. cash proceeds received and original cost of the truck.

C, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

43. McDonald Company acquired machinery on January 1, 2015 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2020, McDonald estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by McDonald? a. As a prior period adjustment b. As the cumulative effect of a change in accounting principle in 2020 c. By setting future annual depreciation equal to one-sixth of the book value on January 1, 2020 d. By continuing to depreciate the machinery over the original fifteen year life

C, LO: 2, Bloom: C, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

35. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to a. the total interest cost actually incurred. b. a cost of capital charge for stockholders' equity. c. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made. d. that portion of weighted-average accumulated expenditures on which no interest cost was incurred.

C, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

101. Horner Company buys a delivery van with a list price of $70,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes amount to $930 and the company paid an extra $700 to have a special device installed. What should be the recorded cost of the van? a. $58,310. b. $59,907. c. $59,940. d. $59,240.

C, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

99. On December 1, Miser Corporation exchanged 6,000 shares of its $25 par value common stock held in treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by Miser at a cost of $40 per share, and on the exchange date the common shares of Miser had a fair value of $50 per share. Miser received $18,000 for selling scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at a. $148,000. b. $240,000. c. $282,000. d. $300,000.

C, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

101. Norton, Inc. purchased equipment in 2019 at a cost of $900,000. Two years later it became apparent to Norton, Inc. that this equipment had suffered an impairment of value. In early 2021, the book value of the asset is $585,000 and it is estimated that the fair value is now only $360,000. The entry to record the impairment is a. No entry is necessary as a write-off violates the historical cost principle. b. Retained Earnings ........................................................ 225,000 Accumulated Depreciation—Equipment ............ 225,000 c. Loss on Impairment of Equipment ................................ 225,000 Accumulated Depreciation—Equipment ............ 225,000 d. Retained Earnings ........................................................ 225,000 Reserve for Loss on Impairment of Equipment .. 225,000

C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

97. King Corporation owns machinery with a book value of $760,000. It is estimated that the machinery will generate future cash flows of $700,000. The machinery has a fair value of $560,000. King should recognize a loss on impairment of a. $ -0-. b. $ 60,000. c. $200,000. d. $ 140,000.

C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

51. For a nonmonetary exchange of plant assets, accounting recognition should not be given to a. a loss when the exchange has no commercial substance. b. a gain when the exchange has commercial substance. c. part of a gain when the exchange has no commercial substance and cash is paid (cash paid/received is less than 25% of the fair value of the exchange). d. part of a gain when the exchange has no commercial substance and cash is received (cash paid or received is less than 25% of the fair value of the exchange).

C, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

47. Plant assets purchased on long-term credit contracts should be accounted for at a. the total value of the future payments. b. the future amount of the future payments. c. the present value of the future payments. d. None of these answers are correct.

C, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

25. Periodic alterations to existing products are an example of research and development costs.

F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

103. In January, 2020, Yager Corporation purchased a mineral mine for $5,100,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $300,000 after the ore has been extracted. The company incurred $1,500,000 of development costs preparing the mine for production. During 2020, 600,000 tons were removed and 480,000 tons were sold. What is the amount of depletion that Yager should expense for 2020? a. $1,152,000 b. $1,440,000 c. $1,512,000 d. $2,016,000

C, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

109. On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $6,600,000. From January 1 through the time of the fire, the company made purchases of $2,732,000, incurred freight-in of $312,000, and had sales of $4,840,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed? a. $8,192,000. b. $5,944,000. c. $6,256,000. d. $9,644,000.

C, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

105. The sales price for a product provides a gross profit of 20% of sales price. What is the gross profit as a percentage of cost? a. 17%. b. 20%. c. 25%. d. Not enough information is provided to determine.

C, LO: 4, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

106. Gamma Ray Corp. has annual sales totaling $1,170,000 and an average gross profit of 20% of cost. What is the dollar amount of the gross profit? a. $234,000. b. $175,500. c. $195,000. d. $292,500.

C, LO: 4, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

101. On January 1, 2020, the merchandise inventory of Glaus, Inc. was $1,600,000. During 2020 Glaus purchased $3,200,000 of merchandise and recorded sales of $4,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2020? a. $800,000. b. $1,000,000. c. $1,800,000. d. $3,000,000.

C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

102. Porter Resources Company acquired a tract of land containing an extractable natural resource. Porter is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,500,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land $7,500,000 Estimated restoration costs 1,500,000 If Porter maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? a. $2.60 b. $3.00 c. $3.20 d. $3.60

C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

55. An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be a. expensed. b. debited to accumulated depreciation. c. capitalized in the machine account. d. allocated between accumulated depreciation and the machine account.

C, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

52. Of the following costs related to the development of natural resources, which one is not a part of depletion cost? a. Acquisition cost of the natural resource deposit b. Exploration costs c. Tangible equipment costs associated with machinery used to extract the natural resource d. Intangible development costs such as drilling costs, tunnels, and shafts

C, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

58. In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made? a. Expenditure made to increase the efficiency or effectiveness of an existing asset b. Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated c. Expenditure made to maintain an existing asset so that it can function in the manner intended d. Expenditure made to add new asset services

C, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

109. In 2020, Bargain Shop reported net income of $5.7 billion, net sales of $175 billion, and average total assets of $75 billion. What is Bargain shop's asset turnover? a. 0.29 times b. 0.08 times. c. 2.33 times. d. 13.2times.

C, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

112. For 2020, Hammer Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,000,000, and net income of $200,000. The return on assets for Hammer in 2020 is a. 16.0%. b. 18.2%. c. 20.0%. d. 22.2%.

C, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

111. Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $393,500 ($594,000), purchases during the current year at cost (retail) were $3,408,000 ($5,193,600), freight-in on these purchases totaled $159,500, sales during the current year totaled $4,666,000, and net markups were $414,000. What is the ending inventory value at cost? a. $1,535,600. b. $1,082,850. c. $981,248. d. $1,050,350.

C, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

62. Which of the following statements about involuntary conversions is false? a. An involuntary conversion may result from condemnation or fire. b. The gain or loss from an involuntary conversion may be reported as other revenues and gains or other expenses and losses. c. The gain or loss from an involuntary conversion should not be recognized when the enterprise reinvests in replacement assets. d. All of these answers are correct.

C, LO: 5, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

121. Fry Corporation's computation of cost of goods sold is: Beginning inventory $ 60,000 Add: Cost of goods purchased 530,000 Cost of goods available for sale 590,000 Less: Ending inventory 90,000 Cost of goods sold $500,000 The average days to sell inventory for Fry are a. 46.2 days. b. 51.4 days. c. 54.5 days. d. 65.2 days.

C, LO: 6, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

122. East Corporation's computation of cost of goods sold is: Beginning inventory $ 60,000 Add: Cost of goods purchased 482,000 Cost of goods available for sale 542,000 Ending inventory 70,000 Cost of goods sold $472,000 The average days to sell inventory for East are a. 44.0 days. b. 47.4 days. c. 50.0 days. d. 54.0 days.

C, LO: 6, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

58.A major objective of MACRS for tax depreciation is to a. reduce the amount of depreciation deduction on business firms' tax returns. b. assure that the amount of depreciation for tax and book purposes will be the same. c. help companies achieve a faster write-off of their capital assets. d. require companies to use the actual economic lives of assets in calculating tax depreciation.

C, LO: 6, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

*128. Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 If the ending inventory is to be valued at approximately LIFO cost, the calculation of the cost ratio should be based on cost and retail amounts of a. $1,512,000 and $2,208,000. b. $1,512,000 and $1,128,000. c. $1,200,000 and $1,640,000. d. $1,200,000 and $1,720,000.

C, LO: 7, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*118. The following data concerning the retail inventory method are taken from the financial records of Welch Company. Cost Retail Beginning inventory $ 196,000 $ 280,000 Purchases 896,000 1,280,000 Freight-in 24,000 — Net markups — 80,000 Net markdowns — 56,000 Sales — 1,344,000 Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost-to-retail ratio would a. exclude both markups and markdowns and include beginning inventory. b. include markups and exclude both markdowns and beginning inventory. c. include both markups and markdowns and exclude beginning inventory. d. exclude markups and include both markdowns and beginning inventory.

C, LO: 7, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

88. Rock Company purchased a depreciable asset for $600,000 on April 1, 2018. The estimated salvage value is $60,000, and the estimated total useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2021 when the asset is sold? a. $234,000 b. $252,000 c. $297,000 d. $333,000

D, LO :2, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

65. On February 1, 2020, Nelson Corporation purchased a parcel of land as a factory site for $320,000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2020. Costs incurred during this period are listed below: Demolition of old building $ 20,000 Architect's fees 35,000 Legal fees for title investigation and purchase contract 5,000 Construction costs 1,390,000 (Salvaged materials resulting from demolition were sold for $10,000.) Nelson should record the cost of the land and new building, respectively, as a. $345,000 and $1,415,000. b. $330,000 and $1,430,000. c. $330,000 and $1,425,000. d. $335,000 and $1,425,000.

D, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

68. During self-construction of an asset by Samuelson Company, the following were among the costs incurred: Fixed overhead for the year $1,000,000 Portion of $1,000,000 fixed overhead that would be allocated to asset if it were normal production 90,000 Variable overhead attributable to self-construction 50,000 What amount of overhead should be included in the cost of the self-constructed asset? a. $ -0- b. $50,000 c. $90,000 d. $140,000

D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

Wilson Co. purchased land as a factory site for $1,350,000. Wilson paid $120,000 to tear down two buildings on the land. Salvage was sold for $8,100. Legal fees of $5,220 were paid for title investigation and making the purchase. Architect's fees were $46,800. Title insurance cost $3,600, and liability insurance during construction cost $3,900. Excavation cost $15,660. The contractor was paid $4,200,000. An assessment made by the city for pavement was $9,600. Interest costs during construction were $255,000. 64. The cost of the building that should be recorded by Wilson Co. is a. $4,205,700. b. $4,207,260. c. $4,219,800. d. $4,521,360.

D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

32. If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will a. be constant. b. vary with unit sales. c. vary with sales revenue. d. vary with production.

D, LO: 1, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

121. A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Straight-line Productive Output a. Yes No b. Yes Yes c. No Yes d. No No

D, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

33. Use of the double-declining balance method a. results in a decreasing charge to depreciation expense each year. b. requires that salvage value is not deducted in computing the depreciation base. c. requires that the book value not be reduced below salvage value. d. all of these answers are correct.

D, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

27. If a corporation purchases land and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on a. the significance of the cost allocated to the building in relation to the combined cost of the land and building. b. the length of time for which the building was held prior to its demolition. c. the contemplated future use of the parking lot. d. the intention of management for the property when the building was acquired.

D, LO: 1, Bloom: K, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

32. Which of the following costs are capitalized for self-constructed assets? a. Materials and labor only b. Labor and overhead only c. Materials and overhead only d. Materials, labor, and overhead

D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

21. Which of the following is true of depreciation accounting? a. It is not a matter of valuation. b. It is part of the matching of revenues and expenses. c. It is the process of cost allocation. d. All of these answers are correct.

D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

27. Economic factors that shorten the service life of an asset include a. obsolescence. b. supersession. c. inadequacy. d. all of these answers are correct.

D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

23. Which of these is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for use in operations c. Yields services over a number of years d. All of these are major characteristics of a plant asset.

D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

31. To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be a. allocated on the basis of lost production. b. eliminated completely from the cost of the asset. c. allocated on an opportunity cost basis. d. allocated on a pro rata basis between the asset and normal operations.

D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

28. Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be computed? a. What is the depreciation base to use for the asset? b. What is the asset's useful life? c. What method of cost apportionment is best for this asset? d. What product or service is the asset related to?

D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

29. Which of the following is a realistic assumption of the straight-line method of depreciation? a. The asset's economic usefulness is the same each year. b. The repair and maintenance expense is essentially the same each period. c. The rate of return analysis is enhanced using the straight-line method. d. Depreciation is a function of time rather than a function of usage.

D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

21. Plant assets may properly include a. deposits on machinery not yet received. b. idle equipment awaiting sale. c. land held for possible use as a future plant site. d. None of these answers are correct.

D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

33. Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets? a. Assets under construction for an enterprise's own use. b. Assets intended for sale or lease that are produced as discrete projects. c. Assets financed through the issuance of long-term debt. d. Assets not currently undergoing the activities necessary to get them ready for use.

D, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

105. Siegle Company exchanged 3,000 shares of Guinn Company common stock, which Siegle was holding as an investment, for equipment from Mayo Company. The Guinn Company common stock, which had been purchased by Siegle for $50 per share, had a quoted market value of $58 per share at the date of exchange. The equipment had a recorded amount on Mayo's books of $157,500. What journal entry should Siegle make to record this exchange? a. Equipment .......................................................................... 150,000 Investment in Guinn Co. Common Stock ................... 150,000 b. Equipment .......................................................................... 157,500 Investment in Guinn Co. Common Stock ................... 150,000 Gain on Disposal of Investment ................................. 7,500 c. Equipment .......................................................................... 157,500 Loss on Disposal of Investment ......................................... 16,500 Investment in Guinn Co. Common Stock ................... 174,000 d. Equipment .......................................................................... 174,000 Investment in Guinn Co. Common Stock ................... 150,000 Gain on Disposal of Investment ................................. 24,000

D, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

95. Regis Inc. bought a machine on January 1, 2011 for $800,000. The machine had an expected life of 20 years and was expected to have a salvage value of $80,000. On July 1, 2021, the company reviewed the potential of the machine and determined that its future net cash flows totaled $400,000 and its fair value was $280,000. If the company does not plan to dispose of it, what should Regis record as an impairment loss on July 1, 2021? a. $ 0 b. $22,000 c. $40,000 d. $142,000

D, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

103. On April 1, Mooney Corporation purchased for $1,620,000 a tract of land on which a warehouse and office building was located. The following data were collected concerning the property: Current Assessed Valuation Vendor's Original Cost Land $600,000 $550,000 Warehouse 400,000 370,000 Office building 800,000 680,000 $1,800,000 $1,600,000 What are the appropriate amounts that Mooney should record for the land, warehouse, and office building, respectively? a. Land, $550,000; warehouse, $370,000; office building, $680,000. b. Land, $600,000; warehouse, $400,000; office building, $800,000. c. Land, $556,875; warehouse, $374,625; office building, $688,500. d. Land, $540,000; warehouse, $360,000; office building, $720,000.

D, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

109. A machine cost $1,200,000, has annual depreciation of $200,000, and has accumulated depreciation of $950,000 on December 31, 2020. On April 1, 2021, when the machine has a fair value of $275,000, it is exchanged for a machine with a fair value of $1,350,000 and the proper amount of cash is paid. The exchange had commercial substance. The new machine should be recorded at a. $1,075,000. b. $1,225,000. c. $1,325,000. d. $1,350,000.

D, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

98. Jamison Company purchased the assets of Booker Company at an auction for $5,600,000. An independent appraisal of the fair value of the assets is listed below: Land $1,900,000 Building 2,800,000 Equipment 2,100,000 Trucks 3,400,000 Assuming that specific identification costs are impracticable and that Jamison allocates the purchase price on the basis of the relative fair values, what amount would be allocated to the Building? a. $2,118,920 b. $2,800,000 c. $5,100,000 d. $1,537,255

D, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

48. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the a. par value of the stock. b. stated value of the stock. c. book value of the stock. d. market price of the stock.

D, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

107. On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $1,920,000. Since June 30 until the time of the hurricane, the company made purchases of $510,000 and had sales of $1,500,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed? a. $1,920,000. b. $1,089,000. c. $1,230,000. d. $1,530,000.

D, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

108. On October 31, a fire destroyed PH Inc.'s entire retail inventory. The inventory on hand as of January 1 totaled $2,720,000. From January 1 through the time of the fire, the company made purchases of $660,000 and had sales of $1,440,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed? a. $2,720,000. b. $2,692,000. c. $1,940,000. d. $2,516,000.

D, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

105. In March, 2020, Mallory Mines Co. purchased a coal mine for $8,000,000. Removable coal is estimated at 1,500,000 tons. Mallory is required to restore the land at an estimated cost of $960,000, and the land should have a value of $840,000. The company incurred $2,000,000 of development costs preparing the mine for production. During 2020, 360,000 tons were removed and 240,000 tons were sold. The total amount of depletion that Mallory should record for 2020 is a. $1,465,600. b. $1,619,200. c. $2,198,400. d. $2,428,800.

D, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

129. On September 10, 2020, Jenks Co. incurred the following costs for one of its printing presses: Purchase of attachment $55,000 Installation of attachment 5,000 Replacement parts for renovation of press 18,000 Labor and overhead in connection with renovation of press 7,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized? a. $0. b. $67,000. c. $78,000. d. $85,000.

D, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

46. Which of following is not a similarity in the accounting treatment for depreciation and depletion? a. The estimated life is based on economic or productive life. b. Assets subject to either are reported in the same classification on the balance sheet. c. The rates may be changed upon revision of the estimated productive life used in the original rate computations. d. Both depreciation and depletion are based on time.

D, LO: 4, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

56. Which of the following is a capital expenditure? a. Payment of an account payable b. Retirement of bonds payable c. Payment of Federal income taxes d. None of these answers are correct.

D, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

54. In order for a subsequent expenditure cost to be capitalized, the following must be present: a. The useful life of an asset must be increased. b. The quantity of assets must be increased. c. The quality of assets must be increased. d. Any of these answers are correct.

D, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

50. Usually, companies compute depletion for accounting purposes using a a. percentage depletion method. b. decreasing charge method. c. straight-line method. d. units-of-production method.

D, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

125. Plank Co. uses the retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 If the ending inventory is to be valued at approximately lower of average cost or market, the calculation of the cost ratio should be based on cost and retail of a. $1,200,000 and $1,720,000. b. $1,200,000 and $1,712,000. c. $1,492,000 and $2,200,000. d. $1,512,000 and $2,208,000.

D, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

126. Plank Co. uses the conventional retail inventory method. The following information is available for the current year. Cost Retail Beginning inventory $ 312,000 $488,000 Purchases 1,180,000 1,660,000 Freight-in 20,000 — Employee discounts — 8,000 Net markups — 60,000 Net markdowns — 80,000 Sales revenue — 1,560,000 The ending inventory at retail should be a. $640,000. b. $600,000. c. $576,000. d. $560,000.

D, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

111. For 2020, Hammer Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,000,000, and net income of $200,000. Hammer's 2020 asset turnover is a. 0.18 times. b. 0.20 times. c. 0.91 times. d. 1.00 times.

D, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

61. Termination of an asset's service due to theft, fire, etc., is called: a. special assessment. b. nonreciprocal transfers. c. speculation. d. involuntary conversion.

D, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

56. The asset turnover is computed by dividing a. net income by ending total assets. b. net income by average total assets. c. net sales by ending total assets. d. net sales by average total assets.

D, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

57. The return on total assets is computed by dividing a. Net income by ending total assets. b. Net sales by average total assets. c. Net sales by ending total assets. d. Net income by average total assets.

D, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA,

55. A general description of the depreciation methods applicable to major classes of depreciable assets a. is not a current practice in financial reporting. b. is not essential to a fair presentation of financial position. c. is needed in financial reporting when company policy differs from income tax policy. d. should be included in corporate financial statements or notes thereto.

D, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

124. Boxer Inc. reported inventory at the beginning of the current year of $360,000 and at the end of the current year of $411,000. If net sales for the current year are $4,429,200 and the corresponding cost of sales totaled $3,321,900, what is the inventory turnover for the current year? a. 11.49. b. 8.08. c. 10.78. d. 8.62.

D, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*59. Under MACRS, which one of the following is not considered in determining depreciation for tax purposes? a. Cost of asset b. Property class c. Half-year convention d. Salvage value

D, LO: 6, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting,

9. An accelerated depreciation method is appropriate when the asset's economic usefulness is the same each year.

F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

5. Special assessments for local improvements such as street lights and sewers should be accounted for as land improvements.

F, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

1. Intangible assets derive their value from the right (claim) to receive cash in the future.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

2. Depreciation is based on the decline in the fair market value of the asset.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

2. Internally generated intangible assets are initially recorded at fair value.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

5. The three factors involved in the depreciation process are the depreciation base, the useful life, and the risk of obsolescence.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

6. Inadequacy is the replacement of one asset with another more efficient and economical asset.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

7. Companies should assign no portion of fixed overhead to self-constructed assets.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

8. The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

1. Assets classified as Property, Plant, and Equipment can be either acquired for use in operations, or acquired for resale.

F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

3. When land with an old building is purchased as a future building site, the cost of removing the old building is part of the cost of the new building.

F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

4. Amortization of limited-life intangible assets should not be affected by expected residual values.

F, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

12. Companies frequently use the composite approach when the assets are similar in nature and have approximately the same useful lives.

F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

8. The cost of a purchased patent should be amortized over the remaining legal life of the patent.

F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

8. When capitalizing interest during construction of an asset, an imputed interest cost on stock financing must be included.

F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

9. Companies should always offset interest revenue against interest cost when determining the amount of interest to be capitalized as part of the construction cost of assets.

F, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

11. Goodwill is considered a master valuation account because it measures the value of specifically identifiable intangible assets.

F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

14. If a nonmonetary exchange lacks commercial substance, and cash is received, a partial gain or loss is recognized.

F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

13. Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.

F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

14. An impairment loss is the amount by which the carrying amount of the asset exceeds the sum of the expected future net cash flows from the use of that asset.

F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

15. When a company exchanges nonmonetary assets and a loss results, the company recognizes the loss only if the exchange has commercial substance.

F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

18. If fair value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.

F, LO: 4, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

17. Normally, companies compute depletion on a straight-line basis.

F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

18. When an ordinary repair occurs, several periods will usually benefit.

F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

20. Contra accounts must be reported for intangible assets in a manner similar to accumulated depreciation and property, plant, and equipment.

F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

17. The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment.

F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

19. The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.

F, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

21. Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

F, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

19. Companies always treat gains or losses from an involuntary conversion as comprehensive income.

F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

23. GAAP requires start-up costs and initial operating losses during the early years to be capitalized.

F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

4. Insurance on equipment purchased, while the equipment is in transit, is part of the cost of the equipment.

T, LO: 1, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

1. Depreciation is a means of cost allocation, not a matter of valuation.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

10. The declining-balance method does not deduct the salvage value in computing the depreciation base.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

3. Depreciation, depletion, and amortization all involve the allocation of the cost of a longlived asset to expense.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

4. The cost of an asset less its salvage value is its depreciation base.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

5. Some intangible assets are not required to be amortized.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

6. Variable overhead costs incurred to self-construct an asset should be included in the cost of the asset.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

7. The major objection to the straight-line method is that it assumes the asset's economic usefulness and maintenance repair expense are the same each year.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

2. Assets classified as Property, Plant, and Equipment must be both long-term in nature and possess physical substance.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

3. Limited-life intangibles are amortized by systematic charges to expense over their useful lives.

T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

11. Gains or losses on disposals of assets do not distort periodic income when the group or composite method is used to compute depreciation.

T, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

10. Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset.

T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

11. When a company purchases land with the intention of developing it for a particular use, interest costs associated with those expenditures qualify for interest capitalization.

T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

13. Changes in estimates are handled prospectively by dividing the asset's book value less any salvage value by the remaining estimated life.

T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

7. The cost of acquiring a customer list from another company is recorded as an intangible asset.

T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

9. If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent.

T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

12. Assets purchased on long-term credit contracts should be recorded at the present value of the consideration exchanged.

T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

12. Internally generated goodwill should not be capitalized in the accounts.

T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

10. In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible net assets, with the remainder recorded as goodwill.

T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

13. When a company makes an unconditional promise to pledge an asset in the future, the company should report the contribution expense and related payable immediately.

T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

15. The first step in determining whether an impairment has occurred is to estimate the future net cash flows expected from the use of that asset and its eventual disposition.

T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

16. Impaired assets held for disposal should be reported at the lower of cost or net realizable value.

T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

16. After an impairment loss is recorded for a limited-life intangible asset, the carrying amout becomes the basis for the impaired asset and is used to calculate amortization in future periods.

T, LO: 4, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

18. Intangible development costs and restoration costs are part of the depletion base.

T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

16. Costs incurred subsequent to the acquisition of an asset are capitalized if they provide future benefits.

T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

17. Improvements are often referred to as betterments and involve the substitution of a better asset for the one currently used.

T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

14. All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs.

T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

15. If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized.

T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

20. The profit margin on sales is a measure for analyzing the use of property, plant, and equipment.

T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

24. Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.

T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

20. If a company scraps an asset without any cash recovery, it recognizes a loss equal to the asset's book value.

T, LO: 5, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

28. Which characteristic is not possessed by intangible assets? a. Physical existence. b. Long-lived. c. Result in future benefits. d. Expensed over current and/or future years.

a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

30. Which of the following costs incurred internally to create an intangible asset is generally expensed? a. Research and development costs. b. Filing costs. c. Legal costs. d. All of these answer choices are correct.

a, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

36. One factor that is not considered in determining the useful life of an intangible asset is a. salvage value. b. provisions for renewal or extension. c. legal life. d. expected actions of competitors.

a, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

50. John Thomas has recently entered into an agreement with Longman Inc. Under this agreement, John will sell its products using the trade name of Longman in a specified geographical location. What type of intangible asset is this agreement between John Thomas and Longman Inc.? a. contract-related intangible assets b. artistic-related intangible assets c. marketing-related intangible assets d. customer-related intangible assets

a, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

43. When a patent is amortized, the credit is usually made to a. the Patents account. b. an Accumulated Amortization account. c. a Deferred Credit account. d. an expense account.

a, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

46. The right granted to all authors, painters, musicians, sculptors, and other artists for their creations and expressions is termed as a a. copyright b. trademark c. patent d. franchise

a, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

56. Easton Company and Lofton Company were combined as result of a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost of acquiring Easton. Easton will report the excess amount as a. a gain. b. part of current income in the year of combination. c. a deferred credit and amortize it. d. paid-in capital.

a, LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

58. The intangible asset goodwill may be a. capitalized only when purchased. b. capitalized either when purchased or created internally. c. capitalized only when created internally. d. written off directly to retained earnings.

a, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

102. General Products Company bought Special Products Division in 2020 and appropriately recorded $750,000 of goodwill related to the purchase. On December 31, 2021, the fair value of Special Products Division is $6,000,000 and it is carried on General Product's books for a total of $5,100,000, including the goodwill. What goodwill impairment should be recognized by General Products in 2021? a. $0. b. $900,000. c. $750,000. d. $150,000.

a, LO: 4, Bloom: AP, Difficulty: Easy, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

78. Which of the following research and development related costs should be capitalized and depreciated over current and future periods? a. Research and development general laboratory building which can be put to alternative uses in the future b. Inventory used for a specific research project c. Administrative salaries allocated to research and development d. Research findings purchased from another company to aid a particular research project currently in process

a, LO: 5, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

74. Operating losses incurred during the start-up years of a new business should be a. accounted for and reported like the operating losses of any other business. b. written off directly against retained earnings. c. capitalized as a deferred charge and amortized over five years. d. capitalized as an intangible asset and amortized over a period not to exceed 20 years.

a, LO: 5, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

76. Which of the following would not be considered an R & D activity? a. Adaptation of an existing capability to a particular requirement or customer's need. b. Searching for applications of new research findings. c. Laboratory research aimed at discovery of new knowledge. d. Conceptual formulation and design of possible product or process alternatives.

a, LO: 5, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

71. Which of the following is considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Research costs incurred under contract with another company. c. Commissions to sales staff marketing a new product. d. Cost of marketing research to promote a new product.

a, LO: 5, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

91. Thompson Company incurred research and development costs of $100,000 and legal fees of $40,000 to develop a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year? a. $ -0-. b. $ 4,000. c. $ 7,000. d. $14,000.

b, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

37. Which intangible assets are amortized? Limited-Life Indefinite-Life a. Yes Yes b. Yes No c. No Yes d. No No

b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

31. Which of the following methods of amortization is normally used for intangible assets? a. Sum-of-the-years'-digits b. Straight-line c. Units of production d. Double-declining-balance

b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

26. Which of the following does not describe intangible assets? a. They lack physical existence. b. They are financial instruments. c. They provide long-term benefits. d. They are classified as long-term assets.

b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

34. Under current accounting practice, intangible assets are classified as a. amortizable or unamortizable. b. limited-life or indefinite-life. c. specifically identifiable or goodwill-type. d. legally restricted or goodwill-type.

b, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

92. ELO Corporation purchased a patent for $135,000 on September 1, 2019. It had a useful life of 10 years. On January 1, 2021, ELO spent $33,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2021? a. $30,900. b. $30,000. c. $28,200. d. $23,400.

b, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

93. Danks Corporation purchased a patent for $405,000 on September 1, 2019. It had a useful life of 10 years. On January 1, 2021, Danks spent $99,000 to successfully defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2021? a. $92,700. b. $90,000. c. $84,600. d. $70,200.

b, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

96. Day Company purchased a patent on January 1, 2020 for $640,000. The patent had a remaining useful life of 10 years at that date. In January of 2021, Day successfully defends the patent at a cost of $288,000, extending the patent's life to 12/31/32. What amount of amortization expense would Day record in 2021? a. $64,000 b. $72,000 c. $77,000 d. $96,000

b, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

41. Which of the following is not an intangible asset? a. Trade name b. Research and development costs c. Franchise d. Copyrights

b, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting,

47. Which of the following types of intangible assets result from interactions and relationships with outside parties? a. Marketing-related intangible assets b. Customer-related intangible assets c. Contract-related intangible assets d. Artistic-related intangible assets

b, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

59. When the purchaser in a business combination pays less then the fair value of the identifiable net assets, such a situation is referred to as a: a. goodwill purchase. b. bargain purchase. c. residual purchase. d. blanket purchase.

b, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

55. Goodwill a. represents the purchase price of a business that is about to be sold. b. is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business. c. generated internally should be capitalized in the year it occurs. d. is the only account in the financial statements that is based on fair value, all other accounts are recorded at an amount other than their fair value.

b, LO: 3, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

52. Goodwill may be recorded when a. it is identified within a company. b. one company acquires another in a business combination. c. the fair value of a company's assets exceeds their cost. d. a company has exceptional customer relations.

b, LO: 3, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

106. The following information is available for Barkley Company's patents: Cost $3,440,000 Carrying amount 1,920,000 Expected future net cash flows 1,600,000 Fair value 1,300,000 Barkley would record a loss on impairment of a. $ 320,000. b. $ 620,000. c. $1,920,000. d. $1,840,000.

b, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

60. A loss on impairment of an intangible asset is the difference between the asset's a. carrying amount and the expected future net cash flows. b. carrying amount and its fair value. c. fair value and the expected future net cash flows. d. book value and its fair value.

b, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

63. The carrying amount of an intangible is a. the fair value of the asset at a balance sheet date. b. the asset's acquisition cost less the total related amortization recorded to date. c. equal to the balance of the related accumulated amortization account. d. the assessed value of the asset for intangible tax purposes.

b, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

73. If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as a. research and development expense in the period(s) of construction. b. depreciation expensed as part of research and development costs. c. depreciation or immediate write-off depending on company policy. d. an expense at such time as productive research and development has been obtained from the facility.

b, LO: 5, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

83. Research and development costs a. are intangible assets. b. may result in the development of a patent. c. are easily identified with specific projects. d. All of these answer choices are correct.

b, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

89. Jeff Corporation purchased a limited-life intangible asset for $375,000 on May 1, 2019. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2021? a. $ -0- b. $75,000 c. $100,000 d. $112,500

c, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

90. Rich Corporation purchased a limited-life intangible asset for $450,000 on May 1, 2019. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2021? a. $ -0-. b. $90,000 c. $120,000 d. $135,000

c, LO: 1, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

87. Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.'s $5 par value common stock and $90,000 cash. When the patent was initially issued to Maxi Co., Mini Corp.'s stock was selling at $7.50 per share. When Mini Corp. acquired the patent, its stock was selling for $9 a share. Mini Corp. should record the patent at what amount? a. $102,500 b. $108,750 c. $112,500 d. $90,000

c, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

35. Companies should test indefinite life intangible assets at least annually for a. recoverability. b. amortization. c. impairment. d. estimated useful life.

c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

27. Which of the following characteristics do intangible assets possess? a. Physical existence. b. Claim to a specific amount of cash in the future. c. Long-lived. d. Held for resale.

c, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

29. Costs incurred internally to create intangibles are a. capitalized. b. capitalized if they have an indefinite life. c. expensed as incurred. d. expensed only if they have a limited life.

c, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

39. Broadway Corporation was granted a patent on a product on January 1, 2007. To protect its patent, the corporation purchased on January 1, 2018 a patent on a competing product which was originally issued on January 10, 2014. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing the product. The cost of the competing patent should be a. amortized over a maximum period of 20 years. b. amortized over a maximum period of 16 years. c. amortized over a maximum period of 9 years. d. expensed in 2018.

c, LO: 2, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

44. When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark would not be capitalized? a. Attorney fees. b. Consulting fees. c. Research and development costs. d. Design costs.

c, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

49. Trademarks, newspaper mastheads, and internet domain names are all examples of a. contract-related intangible assets b. artistic-related intangible assets c. marketing-related intangible assets d. customer-related intangible assets

c, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

45. Which of the following is a contract-related intangible assets? a. Trademark b. Copyright c. Franchise d. Patent

c, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

42. Which of the following intangible assets should not be amortized? a. Copyrights b. Customer lists c. Perpetual franchises d. All of these intangible assets should be amortized.

c, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

105. Dennis Company purchases Miles Company for $4,200,000 cash on January 1, 2021. The book value of Miles Company's net assets reported on its December 31, 2020 financial statement was $3,600,000. An analysis indicated that the fair value of Miles's tangible assets exceeded the book value by $600,000, and the fair value of identifiable intangible assets exceeded book value by $320,000. What amount of gain or goodwill is recognized by Dennis? a. $920,000 gain. b. $600,000 goodwill. c. $320,000 gain. d. $320,000 goodwill.

c, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

99. Blue Sky Company's 12/31/21 balance sheet reports assets of $7,000,000 and liabilities of $2,800,000. All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $420,000 greater than its book value. On 12/31/21, Horace Wimp Corporation paid $7,140,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase? a. $ -0- b. $140,000 c. $2,520,000 d. $2,940,000

c, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

51. In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as a. other assets. b. indirect costs. c. goodwill. d. direct costs.

c, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

54. Which of the following intangible assets cannot be sold by a business to raise needed cash for a capital project? a. Patent. b. Copyright. c. Goodwill. d. Brand Name.

c, LO: 3, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

68. Intangible assets are reported on the balance sheet a. with an accumulated depreciation account. b. in the property, plant, and equipment section. c. as a separate classification in the assets section. d. None of these answer choices are correct.

c, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

67. The total amount of patent cost amortized to date is usually a. shown in a separate Accumulated Patent Amortization account which is shown contra to the Patents account. b. shown in the current income statement. c. shown as credits in the Patents account. d. reported as a contra property, plant and equipment item.

c, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

113. Loazia Inc. incurred the following costs during the year ended December 31, 2021: Laboratory research aimed at discovery of new knowledge $270,000 Costs of testing prototype and design modifications 75,000 Quality control during commercial production, including routine testing of products 270,000 Construction of research facilities having an estimated useful life of 6 years but no alternative future use 360,000 The total amount to be classified and expensed as research and development in 2021 is a. $675,000. b. $975,000. c. $705,000. d. $405,000.

c, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

112. Hall Co. incurred research and development costs in 2021 as follows: Materials used in research and development projects $ 950,000 Equipment acquired that will have alternate future uses in future research and development projects 3,000,000 Depreciation for 2021 on above equipment 500,000 Personnel costs of persons involved in research and development projects 750,000 Consulting fees paid to outsiders for research and development projects 300,000 Indirect costs reasonably allocable to research and development projects 225,000 $5,725,000 The amount of research and development costs charged to Hall's 2021 income statement should be a. $2,000,000. b. $2,200,000. c. $2,725,000. d. $5,000,000.

c, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

72. Which of the following costs should be excluded from research and development expense? a. Modification of the design of a product b. Acquisition of R & D equipment for use on a current project only c. Cost of marketing research for a new product d. Engineering activity required to advance the design of a product to the manufacturing stage

c, LO: 5, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

85. Lynne Corporation acquired a patent on May 1, 2020. Lynne paid cash of $90,000 to the seller. Legal fees of $2,000 were paid related to the acquisition. What amount should be debited to the patent account? a. $2,000 b. $88,000 c. $90,000 d. $92,000

d, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

86. Contreras Corporation acquired a patent on May 1, 2020. Contreras paid cash of $35,000 to the seller. Legal fees of $1,500 were paid related to the acquisition. What amount should be debited to the patent account? a. $1,500 b. $33,500 c. $35,000 d. $36,500

d, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

88. Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $280,000. The patents were carried on Shaq's books as follows: Patent AA: $5,000; Patent BB: $2,000; and Patent CC: $3,000. When Alonzo acquired the patents their fair values were: Patent AA: $20,000; Patent BB: $240,000; and Patent CC: $60,000. At what amount should Alonzo record Patent BB? a. $93,333 b. $186,666 c. $2,000 d. $210,000

d, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

32. The cost of an intangible asset includes all of the following except a. purchase price. b. legal fees. c. other incidental expenses. d. All of these choices are included.

d, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

33. Factors considered in determining an intangible asset's useful life include all of the following except a. the expected use of the asset. b. any legal or contractual provisions that may limit the useful life. c. any provisions for renewal or extension of the asset's legal life. d. the amortization method used.

d, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

40. Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to a. patents and amortized over the legal life of the patent. b. legal fees and amortized over 5 years or less. c. expenses of the period. d. patents and amortized over the remaining useful life of the patent.

d, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

48. Which of the following is a type of technology-related intangible asset? a. Copyright b. Franchise c. License d. Patent

d, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting,

38. The cost of successfully defending a patent suit should be a. charged off in the current period. b. capitalized and amortized over the legal life of the purchased patent. c. added to factory overhead and allocated to production of the product. d. capitalized and amortized over the remaining estimated useful life of the patent.

d, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

101. Floyd Company purchases Haeger Company for $2,400,000 cash on January 1, 2021. The book value of Haeger Company's net assets, as reflected on its December 31, 2020 balance sheet is $1,860,000. An analysis by Floyd on December 31, 2020 indicates that the fair value of Haeger's tangible assets exceeded the book value by $180,000, and the fair value of identifiable intangible assets exceeded book value by $135,000. How much goodwill should be recognized by Floyd Company when recording the purchase of Haeger Company? a. $ -0- b. $540,000 c. $360,000 d. $225,000

d, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

57. Purchased goodwill should a. be written off as soon as possible against retained earnings. b. be written off as soon as possible as an extraordinary item. c. be written off by systematic charges as a regular operating expense over the period benefited. d. not be amortized.

d, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: 5Reporting,

53. When a new company is acquired, which of these intangible assets, unrecorded on the acquired company's books, might be recorded in addition to goodwill? a. A brand name. b. A patent. c. A customer list. d. All of these answer choices are correct.

d, LO: 3, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

69. Which of the following is often reported as part of operating expenses? a. Loss on sale of patent. b. Impairment losses for intangible assets other than goodwill. c. Impairment losses on goodwill. d. Amortization expense.

d, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

70. Which of the following is not reported as part of income from continuing operations? a. Amortization expense. b. Impairment losses for intangible assets. c. Research and development costs. d. Goodwill.

d, LO: 4, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

61. The recoverability test is used to determine any impairment loss on which of the following types of intangible assets? a. Indefinite life intangibles other than goodwill. b. Indefinite life intangibles. c. Goodwill. d. Limited life intangibles.

d, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

66. Which of the following is not reported under the "Other Expenses and Losses" section of the income statement? a. Goodwill impairment losses. b. Loss on sale of patent. c. Patent impairment losses. d. Trade name amortization expense.

d, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

84. Which of the following is not considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Translation of research findings or other knowledge into a plan or design for a new product or process. c. Translation of research findings or other knowledge into a significant improvement of an existing product. d. Cost of marketing research to promote a new product.

d, LO: 5, Bloom: C, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

77. Which of the following research and development expenditures should be capitalized and depreciated? a. Engineering costs incurred to advance the new product to a production stage b. Cost of marketing research to promote a new product c. Material, labor, and overhead costs incurred in developing a new product d. Acquisition of machinery that can also be used for future R&D projects

d, LO: 5, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

75. The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. These costs should be a. capitalized and never amortized. b. capitalized and amortized over 40 years. c. capitalized and amortized over 5 years. d. expensed as incurred.

d, LO: 5, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: Reporting,

79. Which of the following principles best describes the current method of accounting for research and development costs? a. Associating cause and effect b. Systematic and rational allocation c. Income tax minimization d. Immediate recognition as an expense

d, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

80. According to a Financial Accounting Standards Board Statement, how are research and development costs accounted for? a. They must be capitalized when incurred and then amortized over their estimated useful lives. b. They must be expensed in the period incurred. c. They may be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. They must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable.

d, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

82. Which of the following costs should be capitalized in the year incurred? a. Research and development costs. b. Costs to internally generate goodwill. c. Organizational costs. d. Costs to successfully defend a patent.

d, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: Reporting,

25. Which of the following is not an acceptable approach in applying the lower-of-cost-and net realizable value method to inventory? a. Inventory location. b. Categories of inventory items. c. Individual item. d. Total of the inventory.

A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

23. Lower-of-cost or net realizable value as it applies to inventory is best described as the a. drop of future utility below its original cost. b. method of determining cost of goods sold. c. assumption to determine inventory flow. d. change in inventory value to market value.

A, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

46. How is the gross profit method used as it relates to inventory valuation? a. To verify the accuracy of the perpetual inventory records. b. To verify the accuracy of the physical inventory. c. To estimate cost of goods sold. d. To provide an inventory value of LIFO inventories.

A, LO: 4, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

68. Oslo Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows: Product #1 Product #2 Historical cost $10 $ 18 Replacement cost 11 14 Estimated cost to dispose 3 7 Estimated selling price 20 33 In pricing its ending inventory using the lower-of-cost-or-market, what unit values, rounded to the nearest dollar, should Oslo use for products #1 and #2, respectively? a. $10 and $16. b. $13 and $16. c. $13 and $15. d. $11 and $14.

A, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

37. If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is a. net realizable value. b. original cost. c. market value. d. net realizable value less a normal profit margin.

A, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

31. The designated market value a. is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin. b. should always be equal to net realizable value. c. may sometimes exceed net realizable value. d. should always be equal to net realizable value less a normal profit margin.

A, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

88. Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 3? a. $0.48. b. $0.23. c. $0.72. d. $0.54.

A, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

89. During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Jeremiah agreed to purchase $2.0 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $1.6 million. What is the journal entry at the end of the current fiscal year? a. Debit Unrealized Holding Gain or Loss for $400,000 and credit Estimated Liability on Purchase Commitment for $400,000. b. Debit Estimated liability on Purchase Commitments for $400,000 and credit Unrealized Holding Gain or Loss for $400,000. c. Debit Unrealized Holding Gain or Loss for $1,600,000 and credit Estimated Liability on Purchase Commitments for $1,600,000. d. No journal entry is required.

A, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

38. Why might inventory be reported at sales prices (net realizable value or market price) rather than cost? a. When there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal. b. When there are no significant costs of disposal. c. When a non-cancellable contract exists to sell the inventory. d. When there is a controlled market with a quoted price applicable to all quantities.

A, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

42. In hedging, the purchaser in the purchase commitment simultaneously enters into a contract in which it agrees to sell in the future: a. the same quantity of the same goods at a fixed price. b. a higher quantity of the same goods at a higher price. c. a lower quantity of the same goods at a fixed price. d. same quantity of different goods at a lower price.

A, LO: 3, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

41. If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices, a. this fact must be disclosed. b. disclosure is required only if prices have declined since the date of the order. c. disclosure is required only if prices have since risen substantially. d. an appropriation of retained earnings is necessary.

A, LO: 3, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

98. Reyes Company had a gross profit of $620,000, total purchases of $840,000, and an ending inventory of $480,000 in its first year of operations as a retailer. Reyes's sales in its first year must have been a. $980,000. b. $1,120,000. c. $360,000. d. $1,100,000.

A, LO: 4, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

99. A markup of 25% on cost is equivalent to what markup on selling price? a. 20% b. 25% c. 75% d. 80%

A, LO: 4, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

94. The following information is available for October for Barton Company. Beginning inventory $350,000 Net purchases 1,050,000 Net sales 2,100,000 Percentage markup on cost 66.67% A fire destroyed Barton's October 31 inventory, leaving undamaged inventory with a cost of $21,000. Using the gross profit method, the estimated ending inventory destroyed by fire is a. $119,000. b. $539,000. c. $560,000. d. $700,000.

A, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

95. The following information is available for October for Norton Company. Beginning inventory $400,000 Net purchases 1,200,000 Net sales 2,400,000 Percentage markup on cost 66.67% A fire destroyed Norton's October 31 inventory, leaving undamaged inventory with a cost of $24,000. Using the gross profit method, the estimated ending inventory destroyed by fire is a. $136,000. b. $616,000. c. $640,000. d. $800,000.

A, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

6. The purpose of the "floor" in lower-of-cost-or-market considerations is to avoid overstating inventory.

F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

21. Which of the following accounts is credited in the loss method of writing-down of inventory to its net realizable value if no allowance account is used? a. Allowance to Reduce Inventory to NRV b. Loss Due to Decline of Inventory to NRV c. Cost of Goods Sold d. Inventory

D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

72. Given the acquisition cost of product ALPHA is $21, the net realizable value for product ALPHA is $20, the normal profit for product ALPHA is $1.50, and the market value (replacement cost) for product ALPHA is $18, what is the proper per unit inventory value for product ALPHA applying LCM? a. $21.00. b. $18.50 c. $18.00. d. $20.00.

B, LO: 2, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

30. In no case can "market" in the lower-of-cost-or-market rule be more than a. estimated selling price in the ordinary course of business. b. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal. c. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. d. estimated selling price in the ordinary course of business, less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.

B, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

86. Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 1? a. $0.16. b. $0.10. c. $0.12. d. $0.23.

B, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

P43. In 2020, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2021 for $700,000. Before the December 31, 2020 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2020 will result in a credit that should be reported a. as a valuation account to Inventory on the balance sheet. b. as a current liability. c. as an appropriation of retained earnings. d. on the income statement.

B, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: FSA,

83. Turner Corporation acquired two inventory items at a lump-sum cost of $120,000. The acquisition included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for $30 per unit, and 1B for $10 per unit. If Turner sells 1,000 units of LF, what amount of gross profit should it recognize? a. $2,500 b. $7,500. c. $20,000. d. $24,500.

B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

84. Robertson Corporation acquired two inventory items at a lump-sum cost of $96,000. The acquisition included 3,000 units of product CF, and 7,000 units of product 3B. CF normally sells for $27 per unit, and 3B for $9 per unit. If Robertson sells 1,000 units of CF, what amount of gross profit should it recognize? a. $3,000. b. $9,000. c. $18,000. d. $24,000.

B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

93. LF Corporation, a manufacturer of Mexican foods, contracted in 2020 to purchase 2,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2021. By 12/31/20, the price per pound of the spice mixture had dropped to $4.70 per pound. In 2020, LF should recognize a a loss of $10,000. b. a loss of $600. c. no gain or loss. d. a gain of $600.

B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

100. Kesler, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available: Inventory, March 1 $550,000 Purchases 430,000 Purchase returns 20,000 Sales during March 750,000 The estimate of the cost of inventory at March 31 would be a. $210,000. b. $360,000. c. $397,500. d. $280,000.

B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

49. Which statement is true about the gross profit method of inventory valuation? a. It may be used to estimate inventories for annual statements. b. It may be used to estimate inventories for interim statements. c. It eliminates the need for physical inventories. d. When calculated on selling price, it will always be more than the related percentage based on cost.

B, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*56. When calculating the cost ratio for the retail inventory method, a. if it is the conventional method, the beginning inventory is included and markdowns are deducted. b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted. c. if it is the LIFO method, the beginning inventory is included and markdowns are not deducted. d. if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.

B, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

54. When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because a. there may be no markdowns in a given year. b. this tends to give a better approximation of the lower of cost or market. c. markups are also ignored. d. this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.

B, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

P64. Which of the following statements is false regarding an assumption of inventory cost flow? a. The cost flow assumption need not correspond to the actual physical flow of goods. b. The assumption selected may be changed each accounting period. c. The FIFO assumption uses the earliest acquired prices to cost the items sold during a period. d. The LIFO assumption uses the earliest acquired prices to cost the items on hand at the end of an accounting period.

B, LO: 6, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

63. Which of the following is not a common disclosure for inventories? a. Inventory composition. b. Inventory location. c. Inventory financing arrangements. d. Inventory costing methods employed.

B, LO: 6, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

26. Which method(s) may be used to record a loss due to a price decline in the value of inventory? a. The cost-of-goods-sold method. b. The sales method. c. The loss method d. Both the cost-of-goods-sold method and the loss method.

D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

24. Why are inventories stated at lower-of-cost and net realizable value? a. To report a loss when there is a decrease in the future utility. b. To keep track of the market value of the inventory. c. To report a loss when there is a decrease in the future utility below the original cost. d. To permit future profits to be recognized.

C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

73. Given the acquisition cost of product Dominoe is $20, the net realizable value for product Dominoe is $17, the normal profit for product Dominoe is $2, and the market value (replacement cost) for product Dominoe is $18, what is the proper per unit inventory price for product Dominoe applying LCM? a. $18. b. $15. c. $17. d. $20

C, LO: 2, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

80. Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost of $25, a replacement cost of $23, a net realizable value of $27, and a normal profit margin of $3. What is the final lower-of-cost-or-market inventory value for Acer Top? a. $23. b. $25. c. $24. d. $27.

C, LO: 2, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

74. Given the historical cost of product Z is $20, the selling price of product Z is $25, costs to sell product Z are $3, the replacement cost for product Z is $21, and the normal profit margin is 40% of sales price, what is the market value that should be used in the lower-ofcost-or-market comparison? a. $18. b. $20. c. $21. d. $22.

C, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

77. Given the historical cost of product Dominoe is $12, the selling price of product Dominoe is $15, costs to sell product Dominoe are $2, the replacement cost for product Dominoe is $11, and the normal profit margin is 20% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method? a. $13. b. $12. c. $11. d. $10.

C, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

29. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"? a. Net realizable value b. Net realizable value less a normal profit margin c. Replacement cost, Net realizable value, or Net realizable value less a normal profit margin. d. Discounted present value

C, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

32. Lower-of-cost-or-market a. is most conservative if applied to the total inventory. b. is most conservative if applied to major categories of inventory. c. is most conservative if applied to individual items of inventory. d. must be applied to major categories for taxes.

C, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

81. Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $200,000. The total selling price is $560,000, and estimated costs of disposal are $20,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet? a. $180,000. b. $200,000. c. $540,000. d. $560,000.

C, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

82. Rodriguez Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $315,000. The total selling price is $840,000, and estimated costs of disposal are $15,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet? a. $300,000. b. $315,000. c. $825,000. d. $840,000.

C, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

90. During the prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $2.0 million of raw materials. Jeremiah paid the $2.0 million to acquire the raw materials when the raw materials were only worth $1.6 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase? a. Debit Inventory for $1,600,000, and credit Cash for $1,600,000. b. Debit Inventory for $1,600,000, debit Unrealized Holding Gain or Loss for $400,000, and credit Cash for $2,000,000. c. Debit Inventory for $1,600,000, debit Estimated Liability on Purchase Commitments for $400,000 and credit Cash for $2,000,000. d. Debit Inventory for $2,000,000, and credit Cash for $2,000,000.

C, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

45. At the end of the fiscal year, Apha Airlines has an outstanding purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.60 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.25, how would this situation be reflected in the annual financial statements? a. Record unrealized gains of $350,000 and disclose the existence of the purchase commitment. b. No impact. c. Record unrealized losses of $350,000 and disclose the existence of the purchase commitment. d. Only disclose the existence of the purchase commitment.

C, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: FSA,

85. At a lump-sum cost of $69,000, Pratt Company recently purchased the following items for resale: Item No. of Items Purchased Resale Price Per Unit M 4,000 $3.75 N 2,000 12.00 O 6,000 6.00 The appropriate cost per unit of inventory is: M N O a. $3.75 $12.00 $6.00 b. $3.38 $10.80 $5.40 c. $3.45 $11.04 $5.52 d. $5.75 $5.75 $5.75

C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

91. During 2020, Larue Co., a manufacturer of chocolate candies, contracted to purchase 250,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2021. Because a record harvest is predicted for 2021, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2020. Of the following journal entries, the one which would properly reflect in 2020 the effect of the commitment of Larue Co. to purchase the 250,000 pounds of cocoa is a. Cocoa Inventory ........................................................... 1,000,000 Accounts Payable ............................................. 1,000,000 b. Cocoa Inventory ........................................................... 825,000 Loss on Purchase Commitments .................................. 175,000 Accounts Payable ............................................. 1,000,000 c. Unrealized Holding Gain or Loss-Income...................... 175,000 Estimated Liability on Purchase Commitments.. 175,000 d. No entry would be necessary in 2020

C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

92. RS Corporation, a manufacturer of ethnic foods, contracted in 2020 to purchase 600 pounds of a spice mixture at $3.00 per pound, delivery to be made in spring of 2021. By 12/31/20, the price per pound of the spice mixture had risen to $3.25 per pound. In 2020, RS should recognize a. a loss of $1,800. b. a loss of $150. c. no gain or loss. d. a gain of $150.

C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

S39. Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and a. the ending inventory is determined by a physical inventory count. b. a normal profit is not anticipated. c. there is a controlled market with a quoted price applicable to all quantities. d. the internal revenue service is assured that the practice is not used only to distort reported net income.

C, LO: 3, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

51. An inventory method which is designed to approximate inventory valuation at the lower of cost or market is a. last-in, first-out. b. first-in, first-out. c. conventional retail method. d. specific identification.

C, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

60. Which of the following is true of normal shortages? a. They do not include theft and shrinkage. b. They are deducted from both the cost and retail columns. c. These goods are no longer available for sale. d. This loss is considered in calculating cost-to-retail ratio.

C, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*67. When using dollar-value LIFO retail method, if the incremental layer was added last year, it should be multiplied by a. last year's cost ratio and this year's index. b. this year's cost ratio and this year's index. c. last year's cost ratio and last year's index. d. this year's cost ratio and last year's index.

C, LO: 7, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

27. Net realizable value is a. acquisition cost plus costs to complete and sell. b. selling price. c. selling price plus costs to complete and sell. d. selling price less costs to complete, sell, and transport

D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

S22. When the cost-of-goods-sold method is used to record inventory at net realizable value a. there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale. b. a loss is recorded directly in the inventory account by crediting Inventory and debiting Loss on Inventory Decline. c. only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements. d. the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.

D, LO: 1, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

33. An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is not true? a. The cost of sales of the following year will be understated. b. The current year's income is understated. c. The closing inventory of the current year is understated. d. Income of the following year will be understated.

D, LO: 2, Bloom: AN, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

71. Given the acquisition cost of product Z is $27, the net realizable value for product Z is $24, the normal profit for product Z is $2, and the market value (replacement cost) for product Z is $25, what is the proper per unit inventory value for product Z applying LCM? a. $27. b. $25. c. $22. d. $24.

D, LO: 2, Bloom: AP, Difficulty: Easy, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

76. Given the historical cost of product Dominoe is $12, the selling price of product Dominoe is $15, costs to sell product Dominoe are $2, the replacement cost for product Dominoe is $11, and the normal profit margin is 20% of sales price, what is the cost amount that should be used in the lower-of-cost-or-market comparison? a. $13. b. $10. c. $11. d. $12.

D, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

35. What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory? a. Prevents understatement of the inventory value. b. Allows for a normal profit to be earned. c. Allows for items to be valued at replacement cost. d. Prevents overstatement of the value of obsolete or damaged inventories.

D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

28. Which of the following statements is incorrect regarding the lower-of-cost-or-market rule? a. It is inconsistent because losses are recognized but not gains. b. It usually understates assets. c. It can increase future income if the expected reductions do not materialize. d. It incorporates both gains and losses in value that occur during the course of business.

D, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

87. Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 2? a. $0.23. b. $0.36. c. $0.22. d. $0.24.

D, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

44. At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements? a. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment. b. No impact. c. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment. d. Only disclose the existence of the purchase commitment.

D, LO: 3, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Prob. Solving, IMA: FSA,

40. Which of the following statements regarding the recording of inventory at net realizable value is inaccurate? a. GAAP permits recording of inventory at net realizable value when there is a controlled market with a quoted price applicable to all quantities. b. GAAP permits net realizable value for inventory when there are no significant costs of disposal involved. c. GAAP permits net realizable value in cases where the product is available for immediate delivery. d. GAAP is not similar to IFRS regarding the use of net realizable values for agricultural and mineral products.

D, LO: 3, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

96. Miles Company, a wholesaler, budgeted the following sales for the indicated months: June July August Sales on account $2,700,000 $2,760,000 $2,850,000 Cash sales 270,000 300,000 390,000 Total sales $2,970,000 $3,060,000 $3,240,000 All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. The cost of goods sold for the month of June is anticipated to be a. $2,109,375. b. $2,320,310. c. $2,165,625. d. $2,475,000.

D, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

97. Miles Company, a wholesaler, budgeted the following sales for the indicated months: June July August Sales on account $2,700,000 $2,760,000 $2,850,000 Cash sales 270,000 300,000 390,000 Total sales $2,970,000 $3,060,000 $3,240,000 All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. Merchandise purchases for July are anticipated to be a. $2,390,625. b. $3,243,750. c. $2,550,000. d. $2,595,000.

D, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

48. The gross profit method of inventory valuation is invalid when a. a portion of the inventory is destroyed. b. there is a substantial increase in inventory during the year. c. there is no beginning inventory because it is the first year of operation. d. applying a blanket gross profit rate to merchandise that have widely varying rates of gross profit.

D, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

5. The lower-of-cost-or-market method is used for inventory despite being less conservative than valuing inventory at market value.

F, LO: 2, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

S47. Which of the following is not a basic assumption of the gross profit method? a. The beginning inventory plus the purchases equal total goods to be accounted for. b. Goods not sold must be on hand. c. If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand. d. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.

D, LO: 4, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

61. What is the effect of net markups on the cost-retail ratio when using the conventional retail method? a. Increases the cost-to-retail ratio. b. No effect on the cost-to-retail ratio. c. Depends on the amount of the net markdowns. d. Decreases the cost-to-retail ratio.

D, LO: 5, Bloom: AN, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

50. A major advantage of the retail inventory method is that it a. provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. b. hides costs from competitors and customers. c. gives a more accurate statement of inventory costs than other methods. d. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.

D, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

53. Which statement is true about the retail inventory method? a. It may not be used to estimate inventories for interim statements. b. It may not be used to expedite physical inventory counts. c. It may not be used by auditors. d. There are different versions of the retail inventory method.

D, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

S58. Which of the following is not a reason the retail inventory method is used widely? a. As a control measure in determining inventory shortages b. For insurance information c. To permit the computation of net income without a physical count of inventory d. To defer income tax liability

D, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*66. The reason for eliminating the price change in inventory under the dollar value LIFO retail method is: a. to measure the dollar increase in inventory. b. to increase profits of a company. c. to increase the cost of inventory. d. to measure the real increase in inventory.

D, LO: 7, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.

T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

4. Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year.

T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

10. If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should record any expected losses on the commitment in the period in which the market decline takes place.

T, LO: 3, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

3. A reason for valuing inventory at net realizable value is that sometimes it is too difficult to obtain the cost figures.

T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

7. In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative sales value.

T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

12. The gross profit method can be used to approximate the dollar amount of inventory on hand.

T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

14. A disadvantage of the gross profit method is that it uses past percentages in determining the markup.

T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

17. In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.

T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

19. The average days to sell inventory represents the average number of days' sales for which a company has inventory on hand.

T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,

*20. The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period.

T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Prob. Solving, IMA: FSA,