FAR Final

Thompson TV and Appliance reported the following in its 2016 financial statements: 2016 Sales $420,000 Cost of goods sold: Inventory, January 1 82,000 Net purchases 340,000 Goods available for sale 422,000 Inventory, December 31 86,000 Cost of goods sold 336,000 Gross profit $ 84,000 Thompson's 2016 gross profit ratio is:

20%.

Under the retail inventory method:

A company measures inventory on its balance sheet by converting retail prices to cost.

Donated assets are recorded at:

Fair value.

In a perpetual inventory system, the cost of purchases is debited to:

Inventory.

Average accumulated expenditures:

Is an approximation of the average debt a firm would have outstanding if it financed all construction through debt.

On June 1st, Lucy & Bros. received an order for 500 cupcakes. Lucy delivered the cupcakes to the client on June 25th. A $50 deposit was received on June 5th and the remaining $450 was paid on June 30th. Lucy likely would recognize revenue on

June 25th.

A company that prepares its financial statements according to International Financial Reporting Standards can use each of the following inventory valuation methods except:

LIFO.

Inventory is valued at:

Lower of cost and net realizable value.

The acquisition costs of property, plant, and equipment do not include:

Maintenance costs during the first 30 days of use.

Under International Financial Reporting Standards (IFRS), inventory is valued at the lower of cost and:

Net realizable value.

On February 1st, H&B Bank originated a loan for $50,000 at an interest rate of 7.2%. On March 15th, an interest payment of $300 was received. Which of the following best describes when interest revenue should be recognized?

Over time

Under which of the following circumstances is it most appropriate to use the residual method to estimate stand-alone selling prices?

The seller hasn't previously sold the product and hasn't determined a price for it.

Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively. Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) o

$0.

In 2015, Antle Inc. had acquired Demski Co. and recorded goodwill of $245 million as a result. The net assets (including goodwill) from Antle's acquisition of Demski Co. had a 2016 year-end book value of $580 million. Antle assessed the fair value of Demski at this date to be $700 million, while the fair value of all of Demski's identifiable tangible and intangible assets (excluding goodwill) was $550 million. The amount of the impairment loss that Antle would record for goodwill at the end of 2016 is:

$0.

Short Corporation acquired Hathaway, Inc., for $52,000,000. The fair value of all Hathaway's identifiable tangible and intangible assets was $48,000,000. Short will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?

$0.

On June 1, 2015, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2016. Expenditures on the project were as follows ($ in millions): July 1, 2015 54 October 1, 2015 22 February 1, 2016 30 April 1, 2016 21 September 1, 2016 20 October 1, 2016 6 On July 1, 2015, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2016. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2015 and 2016. The company's fiscal year-end is December 31. What is the amount of interest that Crocus should capitalize in 2015, using the specific interest method?

$1.95 million.

Northwest Fur Co. started 2016 with $94,000 of merchandise inventory on hand. During 2016, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system. What is ending inventory assuming Northwest uses the gross method to record purchases? .

$112,550.

Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is expected to have a five-year life and a residual value of $6,000. Using the straight-line method, depreciation for 2017 and the equipment's book value at December 31, 2017, would be:

$13,200 and $45,600.

Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is expected to have a five-year life and a residual value of $6,000. Using the sum-of-the-years'-digits method, depreciation for 2017 and book value at December 31, 2017, would be:

$17,600 and $32,400.

Data related to the inventories of Costco Medical Supply are presented below: Surgical Equipment Surgical Supplies Rehab Equipment Rehab Supplies Selling price $260 $100 $340 $165 Cost 170 90 250 162 Costs to sell 30 15 25 10 In applying the lower of cost and net realizable value rule, the inventory of surgical equipment would be valued at:

$170.

Grab Manufacturing Co. purchased a 10-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included $200 for insurance in transit. Installation costs totaled $12,000, which included $4,000 for taking out a section of a wall and rebuilding it because the press was too large for the doorway. The capitalized cost of the 10-ton draw press is:

$187,600.

Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is expected to have a five-year life and a residual value of $6,000. Using the sum-of-the-years'-digits method, depreciation for 2016 and book value at December 31, 2016, would be:

$22,000 and $50,000.

Harvey's Junk Jewelry started business January 1, 2016, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2016: Cost Retail Beginning inventory $15,000 $23,000 Purchases 49,000 78,000 Freight-in 2,500 Purchase returns 1,700 2,600 Net markups 2,000 Net markdowns 4,100 Net sales 70,600 Employee discounts 700 The estimated ending inventory at retail is:

$25,000.

Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is expected to have a five-year life and a residual value of $6,000. Using the double-declining balance method, depreciation for 2016 and the book value at December 31, 2016, would be:

$28,800 and $43,200.

On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available: Sales, January 1 through July 8 $700,000 Inventory, January 1 130,000 Purchases, January 1 through July 8 640,000 Gross profit ratio 30% What is the estimated inventory on July 8 immediately prior to the fire?

$280,000.

The Mateo Corporation's inventory at December 31, 2016, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following: • Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on December 30, 2016, was received on January 5, 2017. • Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2016, was received on January 3, 2017. • Merchandise costing $38,000 was shipped to a customer f.o.b. destination on December 28, arrived at the customer's location on January 6, 2017. • Merchandise costing $12,000 was being held on consignment by Traynor Company. What amount should Mateo Corporation report as inventory in its December 31, 2016, balance sheet?

$405,000.

Inventory records for Herb's Chemicals revealed the following: March 1, 2016, inventory: 1,000 gallons @ $7.20 = $7,200 Purchases: Sales: Mar. 10 600 gals @ $7.25 Mar. 5 400 gals Mar. 16 800 gals @ $7.30 Mar. 14 700 gals Mar. 23 600 gals @ $7.35 Mar. 20 500 gals Mar. 26 700 gals Ending inventory assuming LIFO in a perpetual inventory system would be:

$5,060.

Inventory records for Herb's Chemicals revealed the following: March 1, 2016, inventory: 1,000 gallons @ $7.20 = $7,200 Purchases: Sales: Mar. 10 600 gals @ $7.25 Mar. 5 400 gals Mar. 16 800 gals @ $7.30 Mar. 14 700 gals Mar. 23 600 gals @ $7.35 Mar. 20 500 gals Mar. 26 700 gals The ending inventory under a periodic inventory system assuming average cost (rounding unit cost to three decimal places) is:

$5,087.

Inventory records for Herb's Chemicals revealed the following: March 1, 2016, inventory: 1,000 gallons @ $7.20 = $7,200 Purchases: Sales: Mar. 10 600 gals @ $7.25 Mar. 5 400 gals Mar. 16 800 gals @ $7.30 Mar. 14 700 gals Mar. 23 600 gals @ $7.35 Mar. 20 500 gals Mar. 26 700 gals

$5,140.

On April 1st, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is guaranteed to receive a base fee of $5,000 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 30% of the base fee if the project finished 2 weeks early and 10% if the project finished a week early. The probability of finishing 2 weeks early is 30% and the probability of finishing a week early is 60%. What is the expected transaction price with variable consideration estimated as the most likely amount?

$5,500

On April 1st, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is guaranteed to receive a base fee of $5,000 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 30% of the base fee if the project finished 2 weeks early and 10% if the project finished a week early. The probability of finishing 2 weeks early is 30% and the probability of finishing a week early is 60%. What is the expected transaction price with variable consideration estimated as the expected value?

$5,750

Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:

$5,880.

Juliana Corporation purchased all of the outstanding stock of Caldwell Inc., paying $2,700,000 cash. Juliana assumed all of the liabilities of Caldwell. Book values and fair values of acquired assets and liabilities were: Book Value Fair Value Current assets (net) $420,000 $450,000 Property, plant, & equip. (net) 1,600,000 2,250,000 Liabilities 500,000 600,000 Juliana would record goodwill of:

$600,000

Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively. Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of:

$8,000.

On November 1, 2016, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $4,800 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2017. Taylor should recognize revenue in 2016 in the amount of

$800.

Data related to the inventories of Costco Medical Supply are presented below: Surgical Equipment Surgical Supplies Rehab Equipment Rehab Supplies Selling price $260 $100 $340 $165 Cost 170 90 250 162 Costs to sell 30 15 25 10 In applying the lower of cost and net realizable value rule, the inventory of surgical supplies would be valued at:

$85.

On July 15, 2016, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goods and services separately, it would charge $60,000 for the scales, $10,000 for the software, and $30,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2016, and the calibration service commenced on that date. How many performance obligations exist in this contract?

2

Anthony Thomas Candies (ATC) reported the following financial data for 2016 and 2015: 2016 2015 Sales $305,000 $284,000 Sales returns and allowances 9,000 6,000 Net sales $296,000 $278,000 Cost of goods sold: Inventory, January 1 43,000 36,000 Net purchases 152,000 146,000 Goods available for sale 195,000 182,000 Inventory, December 31 57,000 43,000 Cost of goods sold 138,000 139,000 Gross profit $158,000 $139,000 ATC's inventory turnover ratio for 2016 is:

2.76.

The legal life of a patent is:

20 years.

Which of the following is not a performance obligation? A good that the seller could sell separately and that is separately identifiable from other goods and services in the contract. A right of return. An option for a customer to purchase goods under terms that are more advantageous than those enjoyed by other customers. An extended warranty.

A right of return.

Interest is eligible to be capitalized as part of an asset's cost, rather than being expensed immediately, when: The interest is incurred during the construction period of the asset. The asset is a discrete construction project for sale or lease. The asset is self-constructed, rather than acquired. All of these answer choices are correct.

All of these answer choices are correct.

Depreciation, depletion, and amortization:

All refer to the process of allocating the cost of long-term assets used in the business over future periods.

Which of the following applies to a seller who is an agent?

Charges a commission for each transaction

When using the gross profit method to estimate ending inventory, it is not necessary to know:

Cost of goods sold.

The factors that need to be determined to compute depreciation are an asset's:

Cost, residual value, and service life.

Which of the following is not one of the five steps for recognizing revenue? -Recognize revenue when (or as) each performance obligation is satisfied. -Determine the transaction price. -Allocate the transaction price to each performance obligation. -Estimate variable consideration.

Estimate variable consideration.

In a period when costs are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:

FIFO.

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

FIFO.

Which of the following is not an approach for estimating stand-alone selling prices? Adjusted market assessment approach Expected cost plus margin approach Residual approach Fair market appraisal approach

Fair market appraisal approach

The amount of impairment loss is the excess of book value over:

Fair value.

Consider the following three scenarios: I. ABC Lawncare performed lawn maintenance services for Drake Inc. on June 1st, and received payment of $500 for those services. II. On June 1st, Melly Corp. received payment for 100 pounds of raw material to be delivered to Drake Inc. in 6 months III. Lodo, LLC collected cash on June 1st for services rendered on May 1st. Given these scenarios, revenue can not be recognized on June 1st for

II, III only

Under the net method, purchase discounts lost are:

Included in interest expense.

Asset retirement obligations: Increase the balance in the related asset account. Are measured at fair value in the balance sheet. Are liabilities associated with the restoration of a long-term asset. All of these answer choices are correct.

Increase the balance in the related asset account. Are measured at fair value in the balance sheet. Are liabilities associated with the restoration of a long-term asset. All of these answer choices are correct.

Under the LIFO retail method, the denominator in the cost-to-retail percentage includes:

Net markups and net markdowns.

Under the conventional retail method, the denominator in the cost-to-retail percentage includes:

Net markups, but not net markdowns.

Simpson and Homer Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be: Building Land Fixtures a. $1,300,000 $ 780,000 $520,000 b. $1,200,000 $ 720,000 $480,000 c. $ 720,000 $1,200,000 $480,000 d. None of these answer choices are correct.

Option B

In a periodic inventory system, the cost of purchases is debited to:

Purchases.

Binz Company provides cleaning services and sells garbage bins to office clients. On June 1st, Binz delivered 100 garbage bins to a client, and also entered into a 5-year contract for Binz to provide cleaning services to that client. Which of the following is most likely to be true?

Revenue for the garbage bins is recognized on June 1st and revenue for the cleaning service is recognized over the 5 years as those services are performed.

For contracts that include more than one separate performance obligation:

The contract price is allocated to each performance obligation in proportion to the obligations' stand-alone selling prices.

Goodwill is:

The excess of the fair value of a business over the fair value of all net identifiable assets.

In a nonmonetary exchange of equipment, if the exchange has commercial substance, a gain is recognized if:

The fair value of the equipment surrendered exceeds the book value of the equipment given up.

When selling property, plant, and equipment for cash:

The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.

Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result, Poppy's cost of goods sold for this year was:

Understated by $31,000.

Recognition of impairment for property, plant, and equipment is required if book value exceeds:

Undiscounted expected cash flows.

Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Boomerang has a long history selling these computers under this returns policy and can provide precise estimates of the amount of returns associated with each sale. Boomerang most likely should recognize revenue:

When Boomerang delivers a computer to a customer, in an amount that is reduced by the expected returns.