WGU Wiley Quizzes Intermediate Accounting I

Assume that Darcy Industries had the following inventory values.1. Inventory cost (on December 31, 2014) $1,5002. Inventory sales value (on December 31, 2014) $1,3503. Inventory net realizable value (on December 31, 2014) $1,320Under IFRS, what is the inventory carrying value on December 31, 2014?

$1,320.

Josie Corporation reported the following information for 2014: Sales revenue$1,000,000Cost of goods sold700,000Operating expenses110,000Unrealized holding gain on available-for-sale securities40,000Cash dividends received on the securities4,000 For 2014, Josie would report comprehensive income of

$234,000. Calculations:

Franco Company uses IFRS and owns property, plant, and equipment with a historical cost of $5,000,000. At December 31, 2013, the company reported a valuation reserve of $690,000. At December 31, 2014, the property, plant, and equipment was appraised at $5,325,000. The valuation reserve will show what balance at December 31, 2014?

$325,000. Calculations: PPE appraisal value - PPE historical cost value

Harper Company's average collection period is 45 days and its average accounts receivable are $600,000. What is the estimated amount of Harper Company's net credit sales for the period?

$4,860,000 Solution: Dividing net sales by average receivables (net) produces the accounts receivable turnover ratio. The average collection period is computed as 365 days / the accounts receivable turnover ratio. In this case, 365/x = 45 days. So, the accounts receivable turnover ratio is 8.1. Sales/$600,000 = 8.1. So, net sales are $4,860,000.

The replacement cost of an inventory item is $75. Net realizable value is $82.50. Net realizable value less a normal profit margin is $69. The cost of the item is $76.50. The inventory item would be valued at:

$75.

erhart Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2014 was $120,000. The balance in the same account at the end of 2015 is $180,000. Everhart's Cost of Goods Sold account has a balance of $900,000 from sales transactions recorded during the year. What amount should Everhart report as Cost of Goods Sold in the 2015 income statement?

$960,000. $900,000 + ($180,000 - $120,000) = $960,000.

Which of the following is a limitation of the balance sheet?

(All correct.) Current fair value is not reported. Many items that are of financial value are omitted. Judgments and estimates are used.

Which of the following statements about the conceptual framework is correct?

(All correct.) It is a coherent system of concepts that flow from an objective. It should allow the accounting profession to quickly solve new and emerging practical problems. It increases financial statement users' understanding of and confidence in financial reporting.

A soundly developed conceptual framework of concepts and objectives should

(All correct.) increase financial statement users' understanding of and confidence in financial reporting. allow new and emerging practical problems to be more quickly solved. enhance comparability among companies' financial statements.

A note receivable

(All correct.) is supported by a formal promissory note. is a negotiable instrument. always contains an interest element.

Which of the following is not a disadvantage of the LIFO method?

(All.) Tax consequences when involuntary liquidation occurs. Understated inventory reported on the balance sheet. Lower earnings relative to the FIFO method.

The __________ requires that members prepare financial statements in accordance with GAAP.

AICPA's Code of Professional Conduct.

When market is lower than cost, and the indirect method of recording the write-down is used, what account is credited?

Allowance to Reduce Inventory to Market.

Which statement is correct regarding IFRS?

An advantage of the nature-of-expense method is that it is simple to apply because allocations of expense to different functions are not necessary. Incorrect answers: The function-of-expense approach never requires arbitrary allocations. An advantage of the function-of-expense method is that allocation of costs to the varying functions is rarely arbitrary. IFRS requires use of the nature-of-expense approach.

A business whose inventory consists of similar items would be most likely to use which of the following cost flow assumptions?

Average.

Which of the following statements about the IASB and FASB conceptual frameworks is not correct?

IFRS does not allow use of fair value as a measurement basis. Correct statements: The IASB conceptual framework does not identify the element comprehensive income. The existing IASB and FASB conceptual frameworks are organized in similar ways. The FASB and IASB agree that the objective of financial reporting is to provide useful information to investors and creditors.

Which of the following statements is correct regarding income reporting under IFRS?

IFRS provides the same options for reporting comprehensive income as GAAP. Incorrect answers: IFRS does not permit revaluation of property, plant, and equipment, and intangible assets. Companies must classify expenses by nature. IFRS provides a definition for all items presented in the income statement.

In solving single-sum problems, which of the following values can be calculated?

Future value, present value, number of periods and interest rate.

Which assumption makes the current - noncurrent classification of assets and liabilities on the balance sheet useful?

Going concern assumption.

Which of the following should be not included in a company's ending inventory?

Goods held on consignment.

Under IFRS, agricultural activity results in which of the following types of assets? I. Agricultural produce II. Biological assets

I and II.

Which of the following statements related to the LIFO method is incorrect?

LIFO is appropriate where prices tend to lag behind costs. Correct answers: LIFO is not appropriate in situations where specific identification is traditional. LIFO is preferable if revenues have been increasing faster than costs. LIFO is preferable in situations where it has been traditional.

In a period of rising prices, the inventory method that produces the lowest ending inventory is the:

LIFO periodic method.

On March 1, 2014, Beijing Pasta Company assigns $1,400,000 of its accounts receivable to Bank of China as collateral for a $1,000,000 note. Bank of China assesses a finance charge of 1 percent of the accounts receivable and interest on the note of 12 percent. Which of the following is correct regarding this transaction?

On March 1, 2014, Beijing Pasta Company will debit Interest Expense for $14,000.

Which of the following investments will result in the smallest future amount?

One that offers annual compounding.

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

Prices decreased.

All of the following accounts are used under a perpetual inventory system except:

Purchase Discounts Lost.

Which cost flow assumption would be most appropriate when a relatively small number of costly, easily distinguishable items are sold?

Specific identification.

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?

The cost flow matches the physical flow.

Which of the following is not an assumption made when using the gross profit method?

The cost ratio is computed after markups (and markup cancellations) but before markdowns.

Which of the following is not true with regard to the fair value option?

The fair value option must be elected at the time the financial instrument is originally recognized.

When is the relative sales value method used?

When purchasing a group of varying units.

Which of the following statements is true regarding IFRS and inventories?

With respect to inventories, IFRS defines" market" as net realizable value.

Which of the following is not an acceptable way of displaying the components of other comprehensive income under IFRS?

Within the statement of retained earnings. Acceptable ways: Second income statement. Combined statement of comprehensive income.

A company considers a loan receivable impaired when it is probable, based on current information and events, that it will not collect all amounts due (both principal and interest).

True

Companies may value inventories at net realizable value if cost is too difficult to determine.

True

One of the primary advantages of the single-step income statement is the absence of any implication that one type of revenue or expense has priority over another.

True

Short-term investments with original maturities of three months or less are classified as cash equivalents.

True

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

True

Which of the following statements is incorrect?

Under IFRS, cash and receivables are generally reported in the noncurrent assets section of the balance sheet. Correct answers: Under IFRS, bank overdrafts are generally reported as cash. The international standard related to the fair value option is subject to certain qualifying criteria not in the U.S. standard. IFRS sometimes refers to the allowance for doubtful accounts as a provision.

Which of the following statements is false?

Under IFRS, there are the same number of financial statement elements as in GAAP. True statements: The monetary unit assumption is used under IFRS. Under IFRS, companies may use fair value for property, plant, and equipment. The FASB and IASB are working on a joint conceptual framework project.

Which of the following measurements is considered the most subjective?

Unobservable inputs. Other answers: Inputs that are observable either directly or through corroboration with observable data. Observable inputs that reflect quoted prices for identical assets or liabilities. Historical cost.

Which of the following is included in comprehensive income?

Unrealized gains on available-for-sale securities

An implicit assumption of financial reporting is that

Users need reasonable knowledge of business and financial accounting matters.

A company has purchased a tract of land and expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. Under IFRS, the land should be reported as:

a long-term investment.

Krista Company prepares a consolidated income statement that includes its subsidiary, Edward Co. Krista's income statement shows $23,500 of net income attributable to the noncontrolling interest which is presented as

an allocation of net income.

Balance sheet information is useful for all of the following except to

analyze cash inflows and outflows for the period. Useful to: assess future cash flows. compute rates of return. evaluate capital structure.

The gross profit method of estimating ending inventory is not acceptable for:

annual financial statements.

The inventory turnover ratio is computed by dividing:

cost of goods sold by average inventory.

Expenses include all of the following except:

dividends. Does include: cost of goods sold. taxes. depreciation.

Classification as an extraordinary item on the income statement would be appropriate for the

gain from condemnation settlement.

Companies use ____________ to make a specific amount of cash available for a limited purpose:

imprest bank accounts.

Current assets under IFRS are listed generally:

in the reverse order of their expected conversion to cash.

Other comprehensive income

is non-owner changes in equity that bypass the income statement.

Enhancing qualities include all of the following except

materiality. (Materiality is an ingredient of a fundamental quality, not an enhancing quality.) Correct answers: timeliness. comparability. verifiability.

Companies that use IFRS:

may report non-current assets before current assets on the statement of financial position.

Companies that use IFRS:

may report property, plant, and equipment and natural resources at fair value.

Earnings per share

measures the number of dollars earned by each share of common stock.

On December 30, Kessler Co. accepted delivery of merchandise which it purchased on account. As of December 31, Kessler had recorded the purchase, but did not include the merchandise in its physical count of ending inventory. The effect of this on its financial statements for December 31 would be

net income, current assets, and retained earnings were understated. Solution: Through excessive cost of goods sold the net income is understated, therefore retained earnings is understated, and by the omission of the merchandise, inventory is also understated, a current asset.

Medi Corporation, a manufacturer of ethnic foods, contracted in 2013 to purchase 2,000 pounds of a spice mixture at $5.15 per pound, delivery to be made in May of 2014. By December 31, 2013, the price per pound of the spice mixture had risen to $5.65 per pound. In 2013, Medi should recognize

no gain or loss.

Gains and losses that bypass net income but affect stockholders' equity are referred to as:

other comprehensive income.

Simple interest is expressed in which of the following formulas?

p x i x n.

The balance sheet is useful for analyzing all of the following except

profitability. Correct answers: solvency. financial flexibility. liquidity.

In the gross method of recording cash discounts, sales discounts are:

recorded when payment is received within the discount period.

The balance sheet format listing liabilities and stockholders' equity directly below assets is called the:

report form.

The non-controlling interest section of the income statement is:

required under IFRS and GAAP.

Receivables may be classified as all of following except:

restricted or unrestricted.

The issues that the FASB and IASB must address in developing a common conceptual framework include all of the following except:

should the role of financial reporting focus on internal decision-making as well as providing information to assist users in decision-making? Correct questions: should the characteristic of relevance be traded-off in favor of information that is verifiable? should a single measurement method such as historical cost be used? should the common framework lead to standards that are principles-based or rules-based?

An inventory method that makes it possible to manipulate net income is the:

specific identification method.

In applying Lower-of-Cost-or-Market, the designated market value is

the middle value of replacement cost, net realizable value and net realizable value less a normal profit margin.

Under the dollar-value LIFO method, increases and decreases in an inventory pool are determined and measured in terms of:

total dollar value.

Intraperiod tax allocation is used for all of the following except:

unusual gains/losses. Used for: changes in accounting principle. discontinued operations. extraordinary items.

Atlantic Company had 500 units of "CL-10" in its inventory at a cost of $12 each. It purchased, for $8,400, 300 more units of "CL-10". Atlantic then sold 400 units at a selling price of $30 each, resulting in a gross profit of $4,800. The cost flow assumption used by Atlantic is

weighted average.

With respect to the converged FASB/IASB conceptual framework:

work is being conducted on the framework in phases, and completed parts will be issued as completed.

Which of the following is an element that describes amounts of resources or claims to resources at a moment in time?

Equity.

Which of the following is not reported in an income statement under IFRS?

Extraordinary items. Other answers: Discontinued operations. Cost of goods sold. Income tax.

The ending inventory and cost of goods sold will be the same whether a perpetual or periodic system is used under the:

FIFO method.

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

FIFO.

Designated market value is the lower of replacement cost or net realizable value less a normal profit margin.

False

Money market savings certificates and certificates of deposit (CDs) are classified as cash.

False

The first level of the conceptual framework is the recognition, measurement, and disclosure concepts.

False

An erosion of LIFO inventory layers is referred to as a LIFO allowance.

False Correct answer: LIFO liquidation

If a potential investor wants to assess the ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities, the investor is assessing:

Financial flexibility.

The failure of financial reports to provide information on customer satisfaction indexes, reject rates, and company sustainability efforts describes the financial reporting challenge of

Nonfinancial measurements.

Alonzo Company in Italy prepares its financial statements in accordance with IFRS. In 2014, it reported cost of goods sold of €600 million and average inventory of €100 million. What is Alonzo's average days to sell inventory?

60.8 days

Which inventory costing method most closely approximates current cost for each of the following:

Ending Inventory: FIFO Cost of Goods Sold: LIFO

Which of the following describes the use of present value concepts applied to environmental liabilities?

Determining the fair value of future obligations for asset retirements.

Which of the following best describes the idea that the FASB operates in full view of the public and gives interested parties ample opportunity to make their views known?

Due process.

Starfish Company (a company using GAAP and the LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?

During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to GAAP and LIFO.

Which of the following is not included in the operating section of a multiple-step income statement?

Income tax expense. Does include: Cost of goods sold. Administrative expenses. Sales.

Which of the following would be reported as a long-term investment at December 31, 2014?

Land held for speculative purposes.

Which of the following would be included in the balance sheet of a merchandiser?

Merchandise Inventory.

Which of the following is a correct definition for one of the variables fundamental to all compound interest problems?

The present value is the value today for a future sum or sums discounted assuming compound interest.

Which of the following statements about IFRS and GAAP accounting and reporting requirements for the balance sheet is not correct?

The presentation formats required by IFRS and GAAP for the balance sheet are similar. Correct answers: Both IFRS and GAAP distinguish between current and non-current assets and liabilities. Both IFRS and GAAP require that comparative information be reported. One difference between the reporting requirements under IFRS and those of the GAAP balance sheet is that an IFRS balance sheet may list long-term assets first.

Which of the following is prohibited under IFRS?

The presentation of extraordinary items. Allowed: Classifying expenses by nature. A single-step income statement.

All of the following are key differences between GAAP and IFRS with respect to accounting for inventories except the:

average-cost method is prohibited under IFRS. Key differences: definition of the lower-of-cost-or-market test for inventory valuation differs between GAAP and IFRS. inventory basis determination for write-downs differs between GAAP and IFRS. guidelines are more principles-based under IFRS than they are under GAAP.

The percentage-of-receivables method for estimating uncollectible accounts is often referred to as the:

balance sheet approach.