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Acc 422 final exam 60#questions with answers correct 100%

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  • 1. ACC 422 Final Exam 60/60 Questions with Answers Click here to buy the TUTORIAL1) Which of the following is NOT considered cash for financial reporting purposes?A. Coin, currency, and available fundsB. Money orders, certified checks, and personal checksC. Petty cash funds and change fundsD. Postdated checks and I.O.U.s2) What is the preferable presentation of accounts receivable from officers, employees, or affiliatedcompanies on a balance sheet?A. As assets but separately from other receivables.B. As offsets to capital.C. As trade notes and accounts receivable if they otherwise qualify as current assets.D. By means of footnotes only.3) Which of the following is considered cash?A. Money market savings certificatesB. Certificates of deposit (CDs)C. Postdated checksD. Money market checking accounts4) If a company employs the gross method of recording accounts receivable from customers, then salesdiscounts taken should be reported asA. an item of "other expense" in the income statementB. a deduction from accounts receivable in determining the net realizable value of accounts receivableC. a deduction from sales in the income statementD. sales discounts forfeited in the cost of goods sold section of the income statement
  • 2. 5) Assuming that the ideal measure of short-term receivables in the balance sheet is the discountedvalue of the cash to be received in the future, failure to follow this practice usually does NOT make thebalance sheet misleading becauseA. the allowance for uncollectible accounts includes a discount elementB. the amount of the discount is NOT materialC. most short-term receivables are NOT interest-bearingD. most receivables can be sold to a bank or factor6) Which of the following methods of determining annual bad debt expense best achieves the matchingconcept?A. Direct write-offB. Percentage of average accounts receivableC. Percentage of ending accounts receivableD. Percentage of sales7) The accountant for the Orion Sales Company is preparing the income statement for 2007 and thebalance sheet at December 31, 2007. Orion uses the periodic inventory system. The January 1, 2007merchandise inventory balance will appearA. as an addition in the cost of goods sold section of the income statement and as a current asset on thebalance sheetB. only as an asset on the balance sheetC. only in the cost of goods sold section of the income statementD. as a deduction in the cost of goods sold section of the income statement and as a current asset on thebalance sheet8) Eller Co. received merchandise on consignment. As of January 31, Eller included the goods ininventory, but did NOT record the transaction. The effect of this on its financial statements for January31 would beA. net income, current assets, and retained earnings were understatedB. net income, current assets, and retained earnings were overstatedC. net income was correct and current assets were understated
  • 3. D. net income and current assets were overstated and current liabilities were understated9. If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods sold for2006, net income for 2006, and assets at December 31, 2007, respectively, areA. understatement, overstatement, no effectB. overstatement, understatement, overstatementC. overstatement, understatement, no effectD. understatement, overstatement, overstatement10) Assuming no beginning inventory, what can be said about the trend of inventory prices if cost ofgoods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold wheninventory is valued using the LIFO method?A. Price trend cannot be determined from information givenB. Prices decreasedC. Prices remained unchangedD. Prices increased11) Which method of inventory pricing best approximates specific identification of the actual flow ofcosts and units in most manufacturing situations?A. Base stockB. Average costC. First-in, first-outD. Last-in, first-out12) All of the following costs should be charged against revenue in the period in which costs are incurredEXCEPT forA. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventoryB. manufacturing overhead costs for a product manufactured and sold in the same accounting periodC. costs which will NOT benefit any future periodD. costs from idle manufacturing capacity resulting from an unexpected plant shutdown
  • 4. 13) In no case can "market" in the lower-of-cost-or-market rule be more thanA. estimated selling price in the ordinary course of business less reasonably predictable costs ofcompletion and disposal, an allowance for an approximately normal profit margin, and an adequatereserve for possible future lossesB. estimated selling price in the ordinary course of businessC. estimated selling price in the ordinary course of business less reasonably predictable costs ofcompletion and disposalD. estimated selling price in the ordinary course of business less reasonably predictable costs ofcompletion and disposal and an allowance for an approximately normal profit margin14) When the direct method is used to record inventory at marketA. the market value figure for ending inventory is substituted for cost and the loss is buried in cost ofgoods soldB. there is a direct reduction in the selling price of the product that results in a loss being recorded onthe income statement prior to the saleC. a loss is recorded directly in the inventory account by crediting inventory and debiting loss oninventory declineD. only the portion of the loss attributable to inventory sold during the period is recorded in thefinancial statements15) An item of inventory purchased this period for $15.00 has been incorrectly written down to itscurrent replacement cost of $10.00. It sells during the following period for $30.00, its normal sellingprice, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements isNOT true?A. Income of the following year will be understatedB. The cost of sales of the following year will be understatedC. The current years income is understatedD. The closing inventory of the current year is understated16) The retail inventory method is based on the assumption that theA. proportions of markups and markdowns to selling price are the sameB. final inventory and the total of goods available for sale contain the same proportion of high-cost andlow-cost ratio goods
  • 5. C. ratio of gross margin to sales is approximately the same each periodD. ratio of cost to retail changes at a constant rate17) A major advantage of the retail inventory method is that itA. provides a method for inventory control and facilitates determination of the periodic inventory forcertain types of companiesB. provides reliable results in cases where the distribution of items in the inventory is different from thatof items sold during the periodC. hides costs from competitors and customersD. gives a more accurate statement of inventory costs than other methods18) In 2006, Lucas Manufacturing signed a contract with a supplier to purchase raw materials in 2007 for$700,000. Before the December 31, 2006 balance sheet date, the market price for these materialsdropped to $510,000. The journal entry to record this situation at December 31, 2006 will result in acredit that should be reportedA. on the income statementB. as a valuation account to Inventory on the balance sheetC. as a current liabilityD. as an appropriation of retained earnings19) The cost of land typically includes the purchase price and all of the following costs EXCEPTA. assumption of any liens or mortgages on the propertyB. grading, filling, draining, and clearing costsC. street lights, sewers, and drainage systems costD. private driveways and parking lots20) Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located withthe plan to tear down the Holiday Hotel and build a new luxury hotel on the site. The cost of the HolidayHotel should beA. capitalized as part of the cost of the new hotelB. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down
  • 6. C. written off as an extraordinary loss in the year the hotel is torn downD. capitalized as part of the cost of the land21) If a corporation purchases a lot and building and subsequently tears down the building and uses theproperty as a parking lot, the proper accounting treatment of the cost of the building would depend onA. the intention of management for the property when the building was acquiredB. the length of time for which the building was held prior to its demolitionC. the significance of the cost allocated to the building in relation to the combined cost of the lot andbuildingD. the contemplated future use of the parking lot22) The period of time during which interest must be capitalized ends whenA. the activities that are necessary to get the asset ready for its intended use have begunB. no further interest cost is being incurredC. the asset is substantially complete and ready for its intended useD. the asset is abandoned, sold, or fully depreciated23) Which of the following assets do NOT qualify for capitalization of interest costs incurred duringconstruction of the assets?A. Assets NOT currently undergoing the activities necessary to prepare them for their intended useB. Assets intended for sale or lease that are produced as discrete projectsC. Assets under construction for an enterprises own useD. Assets financed through the issuance of long-term debt24) When computing the amount of interest cost to be capitalized, the concept of "avoidable interest"refers toA. that portion of average accumulated expenditures on which no interest cost was incurredB. a cost of capital charge for stockholders equityC. the total interest cost actually incurredD. that portion of total interest cost which would NOT have been incurred if expenditures for assetconstruction had NOT been made
  • 7. 25) The King-Kong Corporation exchanges one plant asset for a similar plant asset and gives cash in theexchange. The exchange is NOT expected to cause a material change in the future cash flows for eitherentity. If a gain on the disposal of the old asset is indicated, the gain willA. be credited directly to the owners capital accountB. effectively reduce the amount to be recorded as the cost of the new assetC. be reported in the Other Revenues and Gains section of the income statementD. effectively increase the amount to be recorded as the cost of the new asset26) When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properlymeasured by theA. market value of the stockB. stated value of the stockC. par value of the stockD. book value of the stock27) The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and theexchange has commercial substance is usually recorded atA. either the fair value of the asset given up or the asset received, whichever one results in the largestgain (smallest loss) to the companyB. the fair value of the asset given up, and a gain but NOT a loss may be recognizedC. the fair value of the asset given up, and a gain or loss is recognizedD. the fair value of the asset received if it is equally reliable as the fair value of the asset given up28) Which of the following principles best describes the conceptual rationale for the methods ofmatching depreciation expense with revenues?A. Partial recognitionB. Systematic and rational allocationC. Associating cause and effectD. Immediate recognition
  • 8. 29) If an industrial firm uses the units-of-production method for computing depreciation on its onlyplant asset, factory machinery, the credit to accumulated depreciation from period to period during thelife of the firm willA. vary with productionB. vary with unit salesC. be constantD. vary with sales revenue30) Which of the following most accurately reflects the concept of depreciation as used in accounting?A. An accounting concept that allocates the portion of an asset used up during the year to the contraasset account for the purpose of properly recording the fair market value of tangible assetsB. The process of allocating the cost of tangible assets to expense in a systematic and rational manner tothose periods expected to benefit from the use of the assetC. The process of charging the decline in value of an economic resource to income in the period in whichthe benefit occurredD. A method of allocating asset cost to an expense account in a manner which closely matches thephysical deterioration of the tangible asset involved31) Prentice Company purchased a depreciable asset for $200,000. The estimated salvage value is$20,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation.What is the depreciation base of this asset?A. $200,000B. $20,000C. $18,000D. $180,00032) Harrison Company purchased a depreciable asset for $100,000. The estimated salvage value is$10,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation.What is the depreciation base of this asset?A. $100,000B. $10,000C. $9,000D. $90,000
  • 9. 33) Starr Company purchased a depreciable asset for $150,000. The estimated salvage value is $10,000,and the estimated useful life is 8 years. The double-declining balance method will be used fordepreciation. What is the depreciation expense for the second year on this asset?A. $37,500B. $26,250C. $17,500D. $28,12534) Costs incurred internally to create intangibles areA. capitalizedB. expensed only if they have a limited lifeC. capitalized if they have an indefinite lifeD. expensed as incurred35) Factors considered in determining an intangible asset’s useful life include all of the following EXCEPTA. the expected use of the assetB. the amortization method usedC. any legal or contractual provisions that may limit the useful lifeD. any provisions for renewal or extension of the asset’s legal life36) The cost of purchasing patent rights for a product that might otherwise have seriously competedwith one of the purchasers patented products should beA. charged off in the current periodB. amortized over the remaining estimated life of the original patent covering the product whose marketwould have been impaired by competition from the newly patented productC. amortized over the legal life of the purchased patentD. added to factory overhead and allocated to production of the purchasers product37) Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2006for $10,000,000. It was expected to have a 10 year life and no residual value. Malrom uses straight-line
  • 10. amortization for patents. On December 31, 2007, the expected future cash flows expected from thepatent were expected to be $800,000 per year for the next eight years. The present value of these cashflows, discounted at Malrom’s market interest rate, is $4,800,000. At what amount should the patent becarried on the December 31, 2007 balance sheet?A. $10,000,000B. $4,800,000C. $8,000,000D. $6,400,00038) Mining Company acquired a patent on an oil extraction technique on January 1, 2006 for$5,000,000. It was expected to have a 10 year life and no residual value. Mining uses straight-lineamortization for patents. On December 31, 2007, the expected future cash flows expected from thepatent were expected to be $600,000 per year for the next eight years. The present value of these cashflows, discounted at Mining’s market interest rate, is $2,800,000. At what amount should the patent becarried on the December 31, 2007 balance sheet?A. $5,000,000B. $2,800,000C. $4,800,000D. $4,000,00039) General Products Company bought Special Products Division in 2006 and appropriately booked$250,000 of goodwill related to the purchase. On December 31, 2007, the fair value of Special ProductsDivision is $2,000,000 and it is carried on General Product’s books for a total of $1,700,000, includingthe goodwill. An analysis of Special Products Division’s assets indicates that goodwill of $200,000 existson December 31, 2007. What goodwill impairment should be recognized by General Products in 2007?A. $0B. $300,000C. $200,000D. $50,00040) The intangible asset goodwill may beA. capitalized only when purchasedB. written off directly to retained earnings
  • 11. C. capitalized either when purchased or created internallyD. capitalized only when created internally41) The reason goodwill is sometimes referred to as a master valuation account is becauseA. it represents the purchase price of a business that is about to be soldB. it is the only account in the financial statements that is based on value, all other accounts arerecorded at an amount other than their valueC. it is the difference between the fair market value of the net tangible and identifiable intangible assetsas compared with the purchase price of the acquired businessD. the value of a business is computed without consideration of goodwill and then goodwill is added toarrive at a master valuation42) GoodwillA. generated internally should NOT be capitalized unless it is measured by an individual independent ofthe enterprise involvedB. exists in any company that has earnings that differ from those of a competitorC. is easily computed by assigning a value to the individual attributes that comprise its existenceD. represents a unique asset in that its value can be identified only with the business as a whole43) If a short-term obligation is excluded from current liabilities because of refinancing, the footnote tothe financial statements describing this event should include all of the following information EXCEPTA. a general description of the financing arrangementB. the number of financing institutions that refused to refinance the debt, if anyC. the terms of the new obligation incurred or to be incurredD. the terms of any equity security issued or to be issued44) Stock dividends distributable should be classified on theA. income statement as an expenseB. balance sheet as an item of stockholders equityC. balance sheet as an assetD. balance sheet as a liability
  • 12. 45) Which of the following items is a current liability?A. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) duein three monthsB. Bonds to be refunded when due in eight months, there being no doubt about the marketability of therefunding issueC. Bonds due in three yearsD. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.46) A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2007.Historically, 10% of customers mail in the rebate form. During 2007, 4,000,000 packages of light bulbsare sold, and 140,000 $1 rebates are mailed to customers. What is the rebate expense and liability,respectively, shown on the 2007 financial statements dated December 31?A. $400,000; $400,000B. $140,000; $260,000C. $400,000; $260,000D. $260,000; $260,00047) A company offers a cash rebate of $1 on each $4 package of batteries sold during 2007. Historically,10% of customers mail in the rebate form. During 2007, 6,000,000 packages of batteries are sold, and210,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively,shown on the 2007 financial statements dated December 31?A. $600,000; $600,000B. $210,000; $390,000C. $600,000; $390,000D. $390,000; $390,00048) A company buys an oil rig for $1,000,000 on January 1, 2007. The life of the rig is 10 years and theexpected cost to dismantle the rig at the end of 10 years is $200,000 (present value at 10% is $77,110).10% is an appropriate interest rate for this company. What expense should be recorded for 2007 as aresult of these events?A. Depreciation expense of $120,000B. Depreciation expense of $100,000 and interest expense of $7,711
  • 13. C. Depreciation expense of $100,000 and interest expense of $20,000D. Depreciation expense of $107,710 and interest expense of $7,71149) A contingency can be accrued whenA. it is certain that funds are available to settle the disputed amountB. an asset may have been impairedC. the amount of the loss can be reasonably estimated and it is probable that an asset has beenimpaired or a liability incurredD. it is probable that an asset has been impaired or a liability incurred even though the amount of theloss cannot be reasonably estimated50) Mark Ward is a farmer who owns land which borders on the right-of-way of the Northern Railroad.On August 10, 2007, due to the admitted negligence of the Railroad, hay on the farm was set on fire andburned. Ward had had a dispute with the Railroad for several years concerning the ownership of a smallparcel of land. The representative of the Railroad has offered to assign any rights which the Railroadmay have in the land to Ward in exchange for a release of his right to reimbursement for the loss he hassustained from the fire. Ward appears inclined to accept the Railroads offer. The Railroads 2007financial statements should include the following related to the incident:A. recognition of a loss and creation of a liability for the value of the landB. recognition of a loss onlyC. creation of a liability onlyD. disclosure in note form only51) Which of the following contingencies need NOT be disclosed in the financial statements or the notesthereto?A. Probable losses NOT reasonably estimableB. Environmental liabilities that cannot be reasonably estimatedC. Guarantees of indebtedness of othersD. All of these must be disclosed52) The covenants and other terms of the agreement between the issuer of bonds and the lender areset forth in theA. bond indenture
  • 14. B. bond debentureC. registered bondD. bond coupon53) If bonds are issued initially at a premium and the effective-interest method of amortization is used,interest expense in the earlier years will beA. greater than if the straight-line method were usedB. greater than the amount of the interest paymentsC. the same as if the straight-line method were usedD. less than if the straight-line method were used54) Bonds that pay no interest unless the issuing company is profitable are calledA. collateral trust bondsB. debenture bondsC. revenue bondsD. income bonds55) Minimum lease payments may include aA. penalty for failure to renewB. bargain purchase optionC. guaranteed residual valueD. any of these56) An essential element of a lease conveyance is that theA. lessor conveys less than his or her total interest in the propertyB. lessee provides a sinking fund equal to one years lease paymentsC. property that is the subject of the lease agreement must be held for sale by the lessor prior to thedrafting of the lease agreementD. term of the lease is substantially equal to the economic life of the leased property
  • 15. 57) While only certain leases are currently accounted for as a sale or purchase, there is theoreticjustification for considering all leases to be sales or purchases. The principal reason that supports thisidea is thatA. [Answer Text]all leases are generally for the economic life of the property and the residual value ofthe property at the end of the lease is minimalB. at the end of the lease the property usually can be purchased by the lesseeC. a lease reflects the purchase or sale of a quantifiable right to the use of propertyD. during the life of the lease the lessee can effectively treat the property as if it were owned by thelessee58) In the earlier years of a lease, from the lessees perspective, the use of theA. capital method will enable the lessee to report higher income, compared to the operating method.B. capital method will cause debt to increase, compared to the operating methodC. operating method will cause income to decrease, compared to the capital methodD. operating method will cause debt to increase, compared to the capital method59) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned incomeA. should be amortized over the period of the lease using the interest methodB. should be amortized over the period of the lease using the straight-line methodC. does NOT ariseD. should be recognized at the leases expiration60) In order to properly record a direct-financing lease, the lessor needs to know how to calculate thelease receivable. The lease receivable in a direct-financing lease is best defined asA. the amount of funds the lessor has tied up in the asset which is the subject of the direct-financingleaseB. the difference between the lease payments receivable and the fair market value of the leasedpropertyC. the present value of minimum lease paymentsD. the total book value of the asset less any accumulated depreciation recorded by the lessor prior tothe lease agreement