ACC 210 Test #3 Practice

For a particular asset, a company may not use the straight-line depreciation method for financial reporting while using the double-declining-balance (DDB) method for its tax return.

False

If a company uses its land to generate revenue, it should record depreciation on the land.

False

On the balance sheet date, the book value (or carrying value) of an asset should be the same as the asset's fair value.

False

The LIFO Conformity Rule states that if the LIFO method is used for income tax purposes, it can not be used for financial statement purposes.

False

The amount called "net purchases" is calculated as follows: Purchases + Freight In + Freight Out - Purchase Discounts - Purchase Returns and Allowances.

False

When compared to the straight-line depreciation method, the double-declining-balance method (DDB) will yield a lower depreciation expense in the depreciable asset's earlier years but higher in its later years.

False

Mitchell Inc. buys and sells merchandise sold on a local college campus. It uses the perpetual inventory system. On Jan 5, Mitchell sold inventory for $900 cash. The original cost of this inventory was $250.

Jan 5: Cash-$900 (debit) Sales Revenue-$900 (credit) Cost of Goods Sold-$250 (debit) Inventory-$250 (credit)

When input prices (cost of purchased goods) are rising, which inventory valuation method will produce highest cost of goods sold?

LIFO

Our company invests cash in bounds issued by another corporation. These bonds matured in 2 years and can easily be sold at any time. Is this a cash equivalent?

This is not a cash equivalent

For financial accounting purposes, depreciation represents the allocation of an asset's cost, as opposed to its fair market value, over the time periods in which the asset is used to generate revenue.

True

One of the advantages of the perpetual inventory system is the company's increased ability to keep better records with respect to the quantity and cost of the inventory on hand at a given point in time.

True

The value of purchased goodwill as opposed to internally created goodwill should be listed as an intangible asset on the company's balance sheet.

True

A physical count of inventory is only required for companies that

Use either periodic or perpetual inventory system

For goods acquired that are in transit at year-end,

We would include these goods in our inventory if they were shipped at FOB shipping point

Amortization:

allocating the cost of intangible assets

Which of the following ratios measures how many sales dollars are generated for each dollar invested in assets?

asset turnover

Indicate whether each of the following costs should be capitalized or expensed as incurred. The cost to purchase a copyright. Legal costs to successfully defend a patent. Research and development costs which eventually result in a patent for a product.

capitalized capitalized expense as incurred

An account whose balance is reported on the asset side of the balance sheet and reduces total assets as its balance increases is called a:

contra-asset account

The "depreciable cost" of equipment used in a company's business is equal to the asset's:

cost minus salvage value.

At the end of a depreciable asset's useful life, the "Accumulated Depreciation" account balance should equal the asset's _____________.

depreciable cost.

Use of prenumbered checks in disbursing cash...

documentation procedures

Purchase discounts.....

encourage prompt payments

Allocating the cost of an operating asset, such as machinery, to the time periods in which it helps the company earn revenues is an application of the ____________.

expense recognition (or matching)

All else being equal, as a company's inventory turnover ratio decreases, the average number of days in inventory will ___________.

increase

From the corporation's perspective, the purchase and sale of property, plant, and equipment used in its business is an example of which type of business activity?

investing

This inventory system computes and records cost of goods sold only at the end of the period.

periodic system only

This inventory system computes and records cost of goods sold at the time of sale.

perpetual system only

When a company returns inventory back to its supplier, it is called a

purchase return

When a company accepts a return of inventory from one of its customers, it is called a

sales return

When inventory is shipped F.O.B. shipping point and we are doing the accounting from the standpoint of the seller of these goods, title passes at the ______________ and our company ______________ be responsible for the freight charges.

shipping point; should not

Calculate Year One depreciation for equipment bought for $300,000 with a 5-year useful life and a salvage value of $50,000 using DDB depreciation.

$120,000

In 2017, Wolfpack Corp. bought land and incurred these costs: purchase price, $500,000; real estate commission, $20,000; title fee, $10,000; 2017 current property taxes, $2,000. How much will be capitalized?

$530,000

On 1/1/X1, Branson Inc. purchased equipment with a total cost of $120,000. They originally estimated the machine would have a four-year useful life and a salvage value of $15,000. At the beginning of year four (1/1/X4) of the asset's life, management decided to revise its estimate of the salvage value to $8,000 as well as extend the useful life until 12/31/X8. Assuming the straight-line depreciation method is used, how much depreciation expense should be recorded in 20X4?

$6650

Holden Mills purchased a new machine for its factory. The following lists shows the various expenditures for the machine during its first year: Base purchase price, $75,000 Sales tax incurred at the time of purchase, $4,000 Installation charges for the machine, $700 Insurance costs incurred while the machine was being shipped, $200 Insurance costs for the first year of the machine's service life, $500 Repairs and maintenance costs during the first year of the machine's service life, $1,200 What should be the capitalized cost of the machine?

$79900

In 2017, PackCorp had an error in its ending. It was overstated by $50,000. Ignoring taxes, which of the following is true?

2017 net income was overstated by $50,000

On April 1, Buckless Corp provided consulting services on account to a customer for $9,000, terms 3/15, n/45. On April 8, the customer paid the amount owed. In the journal below, prepare Buckless's April 8 journal entry. Assume the April 1st entry was previously recorded.

4/8: Cash-$8730 (debit) Sales Discounts-$270 (debit) Accounts Receivable-$9000 (credit)

Peters Inc. purchased a machine to use in its business. The machine is estimated to have an economic life of 9 (nine) years before it becomes obsolete. The company expects to use the machine for 5 (five) years before it sells the machine to another company. Peters uses the straight-line depreciation method. Over how many years should Peters depreciate this asset over?

5 years

Below are three possible useful lives of operating assets. Assume a company has chosen the double-declining balance (DDB) depreciation method. For each useful life, indicate the correct DDB rate to be used in the depreciation calculation. If the useful life is 4 years, the DDB rate is If the useful life is 5 years, the DDB rate is If the useful life is 10 years, the DDB rate is

50% 40% 20%

Layno Inc. is a merchandiser which uses the perpetual inventory system. It had the following transactions occur during June: June 1: Purchased inventory costing $3,000 on account, terms 2/15, n/30. June 10: Paid for the inventory previously purchased on June 1.

6/1: Inventory - $3000 (debit) Accounts Payable - $3000 (credit) 6/10: Accounts Payable - $3000 (debit) Cash - $2940 (credit) Inventory - $60 (credit)

On a bank reconciliation, a customer check returned stamped "NSF" would be:

A deduction from the book balance

Net sales revenue equals

Sales made during the year less any returns, allowances, and discounts taken by customers

For each of the following accounts, indicate the financial statement where the account balance should be found for financial reporting purposes. In addition, if the account balance should be found on the balance sheet, further indicate if it is found in the asset section, liability section, or owners' equity section. Machinery Depreciation Expense Repairs and Maintenance Expense Accumulated Depreciation Patents Building Gain on Sale of Machinery

Balance sheet (asset section) Income statement Income statement Balance sheet (asset section) Balance sheet (asset section) Balance sheet (asset section) Income statement

Goodwill is an intangible asset that:

Companies record whenever they purchase another company and pay more than the estimated fair value of the acquired company's net assets.

At the end of its calendar year, a company has determined it should record depreciation expense of $10,000 related to a machine. In the general journal below, complete the year-end entry to record depreciation.

Depreciation Expense- $10,000 (debit) Accumulated Depreciation- $10,000 (credit)

The cost flow method that most often parallels the actual physical flow of merchandise:

FIFO

For each of the following statements, indicate whether the correct answer is FIFO, LIFO, or neither. When inventory costs are rising, this method yields the highest cost of ending inventory. When inventory costs are rising, this method yields the lowest gross margin. When inventory costs are declining, this method yields the highest cost of goods sold. When inventory costs are rising, this method yields the highest income tax expense. When inventory costs are rising, this method yields the highest sales revenue.

FIFO LIFO FIFO FIFO neither

A company is permitted to regularly switch its inventory costing method from year to year.

False

A just-in-time inventory management system increases inventory carrying costs as well as the risk of obsolescence.

False

All else being equal, a decrease in a company's profit margin will result in an increase in its return on assets.

False

Lopez Corp. and Gilmartin Inc. are in the same industry and are of similar size. During 20X5, Lopez and Gilmartin had inventory turnover ratios of 9 times and 12 times, respectively. Based on this information, which of the following statements is most likely true when comparing these two companies?

Gilmartin is better at managing its inventory.

Bonds that are issued at a discount

Have a coupon rate that is less than the market rate on the issue date

______________ occurs when inventory costs are rising over time whereas ____________ occurs when inventory costs are declining over time.

Inflation; deflation

Gross profit:

Is a line item on a multiple-system income statement only

From a merchandiser's perspective, the purchase and sale of its inventory is an example of which type of business activity?

Operating

SOX applies to

Public companies only

Whereas a merchandiser usually has one inventory account, a manufacturer has which of the following?

Raw materials inventory Work-in-process inventory Finished goods inventory

Inventory still on hand at December 31 would be

Reported on the Balance Sheet as a current asset

The LIFO Conformity Rule

Requires that firms who use LIFO for tax must also use LIFO for financial reporting

Assume that due to an error during the count of its physical inventory, a company overstated the cost of its ending inventory at the end of 20X5. As a result of this error, indicate how each of the following items are affected on the company's 20X5 income statement and balance sheet. Its ending retained earnings balance for 20X5 will: Its cost of goods sold for 20X5 will: Its net income for 20X5 will:

be overstated. be understated. be overstated.

This inventory system computes and records sales revenue at the time of sale.

both the perpetual and periodic systems.

This inventory system requires that a physical inventory count be made at the end of the period.

both the perpetual and periodic systems.