ACC/422 Final Exam ANSWERS ARE HERE Quality and inexpensive:1) A cash equivalent is a short-term, highly liquid investment that is readily convertible intoknown amounts of cash and A. has a current market value that is greater than its original cost. B. bears an interest rate that is at least equal to the prime rate of interest at the date ofliquidation. C. is so near its maturity that it presents insignificant risk of changes in interest rates. D. is acceptable as a means to pay current liabilities.2) Which of the following is NOT considered cash for financial reporting purposes? A. Money orders, certified checks, and personal checks B. Coin, currency, and available funds C. Postdated checks and I.O.U.s D. Petty cash funds and change funds3) Which of the following items should NOT be included in the Cash caption on the balancesheet? A. Checks from other parties presently in the cash register B. Amounts on deposit in checking account at the bank C. Postage stamps on hand D. Coins and currency in the cash register4) If a company employs the gross method of recording accounts receivable from customers,then sales discounts taken should be reported as A. an item of "other expense" in the income statement. B. a deduction from accounts receivable in determining the net realizable value ofaccounts receivable. C. sales discounts forfeited in the cost of goods sold section of the income statement. D. a deduction from sales in the income statement.5) The advantage of relating a companys bad debt expense to its outstanding accountsreceivable is that this approach A. best relates bad debt expense to the period of sale.
B. is the only generally accepted method for valuing accounts receivable. C. makes estimates of uncollectible accounts unnecessary. D. gives a reasonably correct statement of receivables in the balance sheet.6) Which of the following is a generally accepted method of determining the amount of theadjustment to bad debt expense? A. A percentage of sales NOT adjusted for the balance in the allowance B. A percentage of accounts receivable NOT adjusted for the balance in the allowance C. An amount derived from aging accounts receivable and NOT adjusted for the balancein the allowance D. A percentage of sales adjusted for the balance in the allowance7) If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods soldfor 2006, net income for 2006, and assets at December 31, 2007, respectively, are A. overstatement, understatement, no effect. B. overstatement, understatement, overstatement. C. understatement, overstatement, no effect. D. understatement, overstatement, overstatement.8) Valuation of inventories requires the deter¬mination of all of the following EXCEPT A. the physical goods to be included in inventory. B. the costs to be included in inventory. C. the cost flow assumption to be adopted. D. the cost of goods held on consign¬ment from other companies.9) Eller Co. received merchandise on consignment. As of January 31, Eller included the goodsin inventory, but did NOT record the transaction. The effect of this on its financial statements forJanuary 31 would be A. net income was correct and current assets were understated. B. net income, current assets, and retained earnings were overstated. C. net income, current assets, and retained earnings were understated. D. net income and current assets were overstated and current liabilities wereunderstated.10) Assuming no beginning inventory, what can be said about the trend of inventory prices ifcost of goods sold computed when inventory is valued using the FIFO method exceeds cost ofgoods sold when inventory is valued using the LIFO method? A. Prices remained unchanged. B. Prices decreased. C. Price trend cannot be determined from information given. D. Prices increased.11) Which method of inventory pricing best approximates specific identification of the actual flowof costs and units in most manufacturing situations?
A. First-in, first-out B. Average cost C. Base stock D. Last-in, first-out12) All of the following costs should be charged against revenue in the period in which costs areincurred EXCEPT for A. costs which will NOT benefit any future period. B. manufacturing overhead costs for a product manufactured and sold in the sameaccounting period. C. costs of normal shrinkage and scrap incurred for the manufacture of a product inending inventory. D. costs from idle manufacturing capacity resulting from an unexpected plant shutdown.13) When the direct method is used to record inventory at market A. a loss is recorded directly in the inventory account by crediting inventory and debitingloss on inventory decline. B. the market value figure for ending inventory is substituted for cost and the loss isburied in cost of goods sold C. only the portion of the loss attributable to inventory sold during the period is recordedin the financial statements. D. there is a direct reduction in the selling price of the product that results in a loss beingrecorded on the income statement prior to the sale.14) An item of inventory purchased this period for $15.00 has been incorrectly written down toits current replacement cost of $10.00. It sells during the following period for $30.00, its normalselling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the followingstatements is NOT true? A. The current years income is understated. B. Income of the following year will be understated. C. The closing inventory of the current year is understated. D. The cost of sales of the following year will be understated.15) 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 less reasonably predictablecosts of completion and disposal. B. estimated selling price in the ordinary course of business less reasonably predictablecosts of completion and disposal, an allowance for an approximately normal profit margin, andan adequate reserve for possible future losses. C. estimated selling price in the ordinary course of business less reasonably predictablecosts of completion and disposal and an allowance for an approximately normal profit margin. D. estimated selling price in the ordinary course of business.16) The gross profit method of inventory valuation is invalid when
A. there is a substantial increase in inventory during the year. B. none of these. C. there is no beginning inventory because it is the first year of operation. D. a portion of the inventory is destroyed.17) Which of the following is NOT a basic assumption of the gross profit method? A. Goods NOT sold must be on hand. B. The total amount of purchases and the total amount of sales remain relativelyunchanged from the comparable previous period. C. If the sales, reduced to the cost basis, are deducted from the sum of the openinginventory plus purchases, the result is the amount of inventory on hand. D. The beginning inventory plus the purchases equal total goods to be accounted for.18) In 2006, Lucas Manufacturing signed a contract with a supplier to purchase raw materials in2007 for $700,000. Before the December 31, 2006 balance sheet date, the market price forthese materials dropped to $510,000. The journal entry to record this situation at December 31,2006 will result in a credit that should be reported A. as a current liability. B. on the income statement. C. as an appropriation of retained earnings. D. as a valuation account to Inventory on the balance sheet.19) The cost of land typically includes the purchase price and all of the following costs EXCEPT A. street lights, sewers, and drainage systems cost. B. assumption of any liens or mortgages on the property. C. private driveways and parking lots. D. grading, filling, draining, and clearing costs.20) The cost of land does NOT include A. costs of removing old buildings. B. costs of improvements with limited lives. C. costs of grading, filling, draining, and clearing. D. special assessments.21) Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it islocated with the plan to tear down the Holiday Hotel and build a new luxury hotel on the site.The cost of the Holiday Hotel should be A. written off as an extraordinary loss in the year the hotel is torn down. B. capitalized as part of the cost of the land. C. depreciated over the period from acquisition to the date the hotel is scheduled to betorn down. D. capitalized as part of the cost of the new hotel.22) To be consistent with the historical cost principle, overhead costs incurred by an enterprise
constructing its own building should be A. eliminated completely from the cost of the asset. B. allocated on an opportunity cost basis. C. allocated on the basis of lost production. D. allocated on a pro rata basis between the asset and normal operations.23) Which of the following costs are capitalized for self-constructed assets? A. Labor and overhead only B. Materials and overhead only C. Materials and labor only D. Materials, labor, and overhead24) Which of the following assets do NOT qualify for capitalization of interest costs incurredduring construction of the assets? A. Assets intended for sale or lease that are produced as discrete projects. B. Assets financed through the issuance of long-term debt. C. Assets under construction for an enterprises own use. D. Assets NOT currently undergoing the activities necessary to prepare them for theirintended use.25) The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset andthe exchange has commercial substance is usually recorded at A. the fair value of the asset given up, and a gain but NOT a loss may be recognized. B. the fair value of the asset received if it is equally reliable as the fair value of the assetgiven up. C. the fair value of the asset given up, and a gain or loss is recognized. D. either the fair value of the asset given up or the asset received, whichever one resultsin the largest gain (smallest loss) to the company.26) Construction of a qualifying asset is started on April 1 and finished on December 1. Thefraction used to multiply an expenditure made on April 1 to find weighted-average accumulatedexpenditures is A. 8/12. B. 9/12. C. 8/8. D. 11/12.27) When a plant asset is acquired by issuance of common stock, the cost of the plant asset isproperly measured by the A. par value of the stock. B. stated value of the stock. C. book value of the stock. D. market value of the stock.28) 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 recognition29) For income statement purposes, depreciation is a variable expense if the depreciationmethod used is A. units-of-production. B. straight-line. C. sum-of-the-years-digits. D. declining-balance.30) If an industrial firm uses the units-of-production method for computing depreciation on itsonly plant asset, factory machinery, the credit to accumulated depreciation from period to periodduring the life of the firm will A. be constant. B. vary with unit sales. C. vary with sales revenue. D. vary with production.31) Lennon Company purchased a depreciable asset for $200,000. The estimated salvagevalue is $10,000, and the estimated useful life is 10,000 hours. Lennon used the asset for 1,100hours in the current year. The activity method will be used for depreciation. What is thedepreciation expense on this asset? A. $19,000 B. $20,900 C. $22,000 D. $190,000