Practice Accounting Chapter 7&8

Under what method(s) of depreciation is an asset's net book value the depreciable base (the amount to be depreciated)? a. Straight-line method b. Declining-balance method c. Units-of-production method e. All of the above

b.. Declining-balance method

Consider the following information: beginning inventory 10 units @ $20 per unit; first purchase 35 units @ $22 per unit; second purchase 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the LIFO method of inventory costing? a. $1,090 b. $1,060 c. $1,180 d. $1,200

c. $1,180

Consider the following information: ending inventory, $24,000; sales, $250,000; beginning inventory, $30,000; selling and administrative expenses, $70,000; and purchases, $90,000. What is cost of goods sold? a. $86,000 b. $94,000 c. $96,000 d. $84,000

c. $96,000

Which of the following regarding the lower of cost or market rule for inventory are true? (1) The lower of cost or market rule is an example of the historical cost principle. (2) When the replacement cost of inventory drops below the cost shown in the financial records, net income is reduced. (3) When the replacement cost of inventory drops below the cost shown in the financial records, total assets are reduced. a. (1) b. (2) c. (2) and (3) d. All three

c. (2) and (3)

An increasing inventory turnover ratio a. Indicates a longer time span between the ordering and receiving of inventory. b. Indicates a shorter time span between the ordering and receiving of inventory. c. Indicates a shorter time span between the purchase and sale of inventory. d. Indicates a longer time span between the purchase and sale of inventory.

c. Indicates a shorter time span between the purchase and sale of inventory.

Which inventory method provides a better matching of current costs with sales revenue on the income statement and outdated values for inventory on the balance sheet? a. FIFO b. Average cost c. LIFO d. Specific identification

c. LIFO

(Supplement) Irish Industries purchased a machine for $65,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of $3,000. At the beginning of the sixth year, a major overhaul was made costing $5,000, and the total estimated useful life was extended to 13 years. Depreciation expense for year 6 is: a. $1,885 b. $2,000 c. $3,250 d. $3,625 e. $4,500

e. $4,500

Consider the following information: beginning inventory 10 units @ $20 per unit; first purchase 35 units @ $22 per unit; second purchase 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the FIFO method of inventory costing? a. $1,090 b. $1,060 c. $1,180 d. $1,200

a. $1,090

Which of the following is not a component of the cost of inventory? a. Administrative overhead b. Direct labor c. Raw materials d. Factory overhead

a. Administrative overhead

If the ending balance in accounts payable decreases from one period to the next, which of the following is true? a. Cash payments to suppliers exceeded current period purchases. b. Cash payments to suppliers were less than current period purchases. c. Cash receipts from customers exceeded cash payments to suppliers. d. Cash receipts from customers exceeded current period purchases

a. Cash payments to suppliers exceeded current period purchases.

What assets should be amortized using the straight-line method? a.Intangible assets with definite lives b. Intangible assets with indefinite lives c. Natural resources d. All of the above

a. Intangible assets with definite lives

Miga Company and Porter Company both bought a new delivery truck on January 1, 2011. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of December 31, 2014, the net book value of Miga's truck was less than Porter Company's net book value for the same vehicle. Which of the following is an acceptable explanation for the difference in net book value? a. Miga Company estimated a lower residual value, but both estimated the same useful life and both elected straight-line depreciation. b. Both companies elected straight-line depreciation, but Miga Company used a longer estimated life. c. Because GAAP specifies rigid guidelines regarding the calculation of depreciation, this situation is not possible. d. Miga Company is using the straight-line method of depreciation, and Porter Company is using the double-declining-balance method of depreciation.

a. Miga Company estimated a lower residual value, but both estimated the same useful life and both elected straight-line depreciation.

Which of the following is false regarding a perpetual inventory system? a. Physical counts are not needed since records are maintained on a transaction-by-transaction basis. b. The balance in the inventory account is updated with each inventory purchase and sale transaction. c. Cost of goods sold is increased as sales are recorded. d. The account Purchases is not used as inventory is acquired.

a. Physical counts are not needed since records are maintained on a transaction-by-transaction basis.

How many of the following statements regarding goodwill are true? Goodwill is not reported unless purchased in an exchange. Goodwill must be reviewed annually for possible impairment. Impairment of goodwill results in a decrease in net income. a. Three b. Two c. One d. None

a. Three.

Hunton, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2014 and had an estimated useful life of 25 years and a residual value of $20,000. The company's depreciation expense for 2014 was $15,000 on the building. What was the original cost of the building? a. $395,000 b. $500,000 c. $520,000 d. Cannot be determined from the information given.

a.$395,000

Company X is going to retire equipment that is fully depreciated with no residual value. The equipment will simply be disposed of, not sold. Which of the following statements is false? a. Total assets will not change as a result of this transaction. b. Net income will not be impacted as a result of this transaction. c. This transaction will not impact cash flow. d. All of the above statements are true.

d. All of the above statements are true.

The inventory costing method selected by a company will affect a. The balance sheet. b. The income statement. c. The statement of retained earnings. d. All of the above.

d. All of the above.

A company wishes to report the highest earnings possible for financial reporting purposes. Therefore, when calculating depreciation, a. It will follow the MACRS depreciation tables prescribed by the IRS. b. It will select the shortest lives possible for its assets. c. It will select the lowest residual values for its assets. d. It will estimate higher residual values for its assets.

d. It will estimate higher residual values for its assets.

When recording depreciation, which of the following statements is true? a. Total assets increase and stockholders' equity increases. b. Total assets decrease and total liabilities increase. c. Total assets decrease and stockholders' equity increases. d. None of the above are true.

d. None of the above are true.

Maks, Inc., uses straight-line depreciation for all of its depreciable assets. Maks sold a used piece of machinery on December 31, 2015, that it purchased on January 1, 2014, for $10,000. The asset had a five-year life, zero residual value, and $2,000 accumulated depreciation as of December 31, 2014. If the sales price of the used machine was $7,500, the resulting gain or loss upon the sale was which of the following amounts? a. Loss of $500 b. Gain of $500 c. Loss of $1,500 d. Gain of $1,500 e. No gain or loss upon the sale.

d.No gain or loss upon the sale