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ACC 304 Final Exam Part 1 (3 Sets)
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ACC 304 Final Exam Part 1 (3 Sets) 1
1) Swing High Inc. offers its 100 employees to participate in an
employee share-purchase plan. Under the terms of plan, employees
are entitled to purchase 10 shares at 10% discount. The par values of
shares were $10. Overall, 60 employees accepted the offer and each
employee purchased six shares. The market price on purchase date
was $100.
What is the compensation expense recorded by Swing High Inc.?
2) The interest rate written in the terms of the bond indenture is
known as the
3) Which of the following methods of amortization is normally
used for intangible assets?
4) If bonds are initially sold at a discount and the straight-line
method of amortization is used, interest expense in the earlier years
will
5) The distribution of stock rights to existing common
stockholders will increase paid-in capital at the

6) Treasury shares are shares
7) Which of the following is a contract-related intangible assets?
8) Which of the following taxes does not represent a common
employee payroll deduction?
9) On January 1, 2014, Ellison Co. issued eight-year bonds with a
face value of $4,000,000 and a stated interest rate of 6%, payable
semiannually on June 30 and December 31. The bonds were sold to
yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .627
Present value of annuity for 8 periods at 6%
6.210
5.747
12.561
11.652
The present value of the interest is
10) Which of the following would be considered research and
development costs?
11) On January 1, 2015, Evans Company granted Tim Telfer, an
employee, an option to buy 3,000 shares of Evans Co. stock for $25
per share, the option exercisable for 5 years from date of grant. Using
a fair value option pricing model, total compensation expense is
determined to be $22,500. Telfer exercised his option on September 1,
2015, and sold his 1,000 shares on December 1, 2015. Quoted market
prices of Evans Co. stock during 2015 were

January 1 $25 per share
September 1 $30 per share
December 1 $34 per share
The service period is for three years beginning January 1, 2015. As a
result of the option granted to Telfer, using the fair value method,
Evans should recognize compensation expense for 2015 on its books
in the amount of
12) Presented below is information related to Hale Corporation:
Common Stock, $1 par $4,500,000
Paid-in Capital in Excess of Par―Common Stock 550,000
Preferred 8 1/2% Stock, $50 par 2,000,000
Paid-in Capital in Excess of Par―Preferred Stock 400,000
Retained Earnings 1,500,000
Treasury Common Stock (at cost) 150,000
The total paid-in capital (cash collected) related to the common stock
is
13) On October 1, 2014 Macklin Corporation issued 5%, 10-year
bonds with a face value of $4,000,000 at 104. Interest is paid on
October 1 and April 1, with any premiums or discounts amortized on
a straight-line basis.
Bond interest expense reported on the December 31, 2014 income
statement of Macklin Corporation would be
14) Gannon Company acquired 10,000 shares of its own common
stock at $20 per share on February 5, 2014, and sold 5,000 of these
shares at $27 per share on August 9, 2015. The fair value of Gannon's
common stock was $24 per share at December 31, 2014, and $25 per
share at December 31, 2015. The cost method is used to record
treasury stock transactions. What account(s) should Gannon credit in
2015 to record the sale of 5,000 shares?

15) When computing diluted earnings per share, convertible bonds
are
16) Jeff Corporation purchased a limited-life intangible asset for
$225,000 on May 1, 2013. It has a useful life of 10 years. What total
amount of amortization expense should have been recorded on the
intangible asset by December 31, 2015?
17) A corporation called an outstanding bond obligation four years
before maturity. At that time there was an unamortized discount of
$750,000. To extinguish this debt, the company had to pay a call
premium of $250,000. Ignoring income tax considerations, how
should these amounts be treated for accounting purposes?
18) Slack Inc. borrowed $320,000 on April 1. The note requires
interest at 12% and principal to be paid in one year. How much
interest is recognized for the period from April 1 to December 31?
19) Venible newspapers sold 6,000 of annual subscriptions at $125
each on June 1. How much unearned revenue will exist as of
December 31?
20) Hanson Co. had 200,000 shares of common stock, 20,000 shares
of convertible preferred stock, and $1,000,000 of 5% convertible
bonds outstanding during 2015. The preferred stock is convertible
into 40,000 shares of common stock. During 2015, Hanson paid
dividends of $.60 per share on the common stock and $2 per share on
the preferred stock. Each $1,000 bond is convertible into 45 shares of
common stock. The net income for 2015 was $400,000 and the
income tax rate was 30%.
Basic earnings per share for 2015 is (rounded to the nearest penny)

21) Sealy Corporation had the following information in its financial
statements for the years ended 2014 and 2015:
Cash dividends for the year 2015 $5,000
Net income for the year ended 2015 87,000
Market price of stock, 12/31/14 10
Common stockholders' equity, 12/31/14 1,000,000
Outstanding shares, 12/31/15 100,000
Preferred dividends for the year ended 2015 10,000
What is the payout ratio for Sealy Corporation for the year ended
2015?
22) Jenks Corporation acquired Linebrink Products on January 1,
2015 for $8,000,000, and recorded goodwill of $1,500,000 as a result
of that purchase. At December 31, 2015, Linebrink Products had a
fair value of $6,800,000. The net identifiable assets of the Linebrink
(excluding goodwill) had a fair value of $5,800,000 at that time. What
amount of loss on impairment of goodwill should Jenks record in
2015?
23) On December 31, 2014, the stockholders' equity section of Arndt,
Inc., was as follows:
Common stock, par value $10; authorized 30,000 shares;
issued and outstanding 9,000 shares $90,000
Additional paid-in capital 116,000
Retained earnings 184,000
Total stockholders' equity $390,000
On March 31, 2015, Arndt declared a 10% stock dividend, and
accordingly 900 additional shares were issued, when the fair value of
the stock was $18 per share. For the three months ended March 31,

2015, Arndt sustained a net loss of $32,000. The balance of Arndt’s
retained earnings as of March 31, 2015, should be
24) On September 1, 2014, Halley Co. issued a note payable to
Fidelity Bank in the amount of $1,800,000, bearing interest at 10%,
and payable in three equal annual principal payments of $600,000. On
this date, the bank's prime rate was 11%. The first payment for
interest and principal was made on September 1, 2015. At December
31, 2015, Halley should record accrued interest payable of
1) We have also attached download of Chapter 12, 13, 14, 15, 16
(download it from my account section)
Please use those as well for your finals and please either use the
question number or some data from question to search as they usually
change the company keeping the data same
2) Convertible bonds
3) Litke Corporation issued at a premium of $5,000 a $100,000
bond issue convertible into 2,000 shares of common stock (par value
$20). At the time of the conversion, the unamortized premium is
$2,000, the market value of the bonds is $110,000, and the stock is
quoted on the market at $60 per share. If the bonds are converted into
common, what is the amount of paid-in capital in excess of par to be
recorded on the conversion of the bonds?
4) Didde Co. had 300,000 shares of common stock issued and
outstanding at December 31, 2014. No common stock was issued
during 2015. On January 1, 2015, Didde issued 200,000 shares of
nonconvertible preferred stock. During 2015, Didde declared and paid
$75,000 cash dividends on the common stock and $60,000 on the
preferred stock. Net income for the year ended December 31, 2015

was $465,000. What should be Didde's 2015 earnings per common
share?
5) Weiser Corp. on January 1, 2012, granted stock options for
40,000 shares of its $10 par value common stock to its key
employees. The market price of the common stock on that date was
$23 per share and the option price was $20. The Black-Scholes option
pricing model determines total compensation expense to be $420,000.
The options are exercisable beginning January 1, 2015, provided
those key employees are still in Weiser’s employ at the time the
options are exercised. The options expire on January 1, 2016.
On January 1, 2015, when the market price of the stock was $29 per
share, all 40,000 options were exercised. The amount of
compensation expense Weiser should record for 2015 under the fair
value method is
6) Carr Corporation retires its $300,000 face value bonds at 105 on
January 1, following the payment of interest. The carrying value of
the bonds at the redemption date is $311,235. The entry to record the
redemption will include a
The entry to record the issuance of the bonds would include a credit
of
8) Farmer Company issues $25,000,000 of 10-year, 9% bonds on
March 1, 2014 at 97 plus accrued interest. The bonds are dated
January 1, 2014, and pay interest on June 30 and December 31. What
is the total cash received on the issue date?

9) On its December 31, 2014 balance sheet, Emig Corp. reported
bonds payable of $3,000,000 and related unamortized bond issue
costs of $160,000. The bonds had been issued at par. On January 2,
2015, Emig retired $1,500,000 of the outstanding bonds at par plus a
call premium of $35,000. What amount should Emig report in its
2015 income statement as loss on extinguishment of debt (ignore
taxes)?
10) Feller Company issues $15,000,000 of 10-year, 9% bonds on
March 1, 2014 at 97 plus accrued interest. The bonds are dated
January 1, 2014, and pay interest on June 30 and December 31. What
is the total cash received on the issue date?
11) Where is debt callable by the creditor reported on the debtor's
financial statements?
12) Sawyer Company self-insures its property for fire and storm
damage. If the company were to obtain insurance on the property, it
would cost them $1,500,000 per year. The company estimates that on
average it will incur losses of $1,200,000 per year. During 2014,
$525,000 worth of losses were sustained. How much total expense
and/or loss should be recognized by Sawyer Company for 2014?
13) A liability for compensated absences such as vacations, for which
it is expected that employees will be paid, should
14) On September 1, Horton purchased $13,300 of inventory items
on credit with the terms 1/15, net 30, FOB destination. Freight
charges were $280. Payment for the purchase was made on September
18. Assuming Horton uses the perpetual inventory system and the net
method of accounting for purchase discounts, what amount is
recorded as inventory from this purchase?

15) What is a discount as it relates to zero-interest-bearing notes
payable?
16) Which of the following legal fees should be capitalized?
17) Which of the following costs of goodwill should be amortized
over their estimated useful lives?
18) MaBelle Corporation incurred the following costs in 2015:
Acquisition of R&D equipment with a useful life of 4 years in R&D
projects $800,000
Start-up costs incurred when opening a new plant 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full production
stage 500,000
What amount should MaBelle record as research & development
expense in 2015?
19) Jenks Corporation acquired Linebrink Products on January 1,
2015 for $8,000,000, and recorded goodwill of $1,500,000 as a result
of that purchase. At December 31, 2015, Linebrink Products had a
fair value of $6,800,000. The net identifiable assets of the Linebrink
(excluding goodwill) had a fair value of $5,800,000 at that time. What
amount of loss on impairment of goodwill should Jenks record in
2015?
20) The general ledger of Vance Corporation as of December 31,
2015, includes the following accounts:
Copyrights $30,000
Deposits with advertising agency (will be used to promote goodwill)
27,000
Discount on bonds payable 70,000
Excess of cost over fair value of identifiable net assets of Acquired
subsidiary 480,000
Trademarks 90,000
In the preparation of Vance's balance sheet as of December 31, 2015,
what should be reported as total intangible assets?

21) Sealy Corporation had the following information in its financial
What is the rate of return on common stock equity for Sealy
Corporation for the year ended 2015?
22) An entry is not made on the
23) The issuer of a 5% common stock dividend to common
stockholders should transfer from retained earnings to paid-in capital
an amount equal to the
24) Layne Corporation had the following information in its financial
What is the book value per share for Layne Corporation for the year
ended 2015?
25) The pre-emptive right of a common stockholder is the right to

1) Swing High Inc. offers its 100 employees to participate in an
employee share-purchase plan. Under the terms of plan, employees
are entitled to purchase 10 shares at 10% discount. The par values of
shares were $10. Overall, 60 employees accepted the offer and each
employee purchased six shares. The market price on purchase date
was $100.
2) Didde Co. had 300,000 shares of common stock issued and
outstanding at December 31, 2014. No common stock was issued
during 2015. On January 1, 2015, Didde issued 200,000 shares of
nonconvertible preferred stock. During 2015, Didde declared and paid
$75,000 cash dividends on the common stock and $60,000 on the
preferred stock. Net income for the year ended December 31, 2015
was $465,000. What should be Didde's 2015 earnings per common
share?
3) When convertible debt is retired by the issuer, any material
difference between the cash acquisition price and the carrying amount
of the debt should be
4) On July 1, 2014, an interest payment date, $90,000 of Parks Co.
bonds were converted into 1,800 shares of Parks Co. common stock
each having a par value of $45 and a market value of $54. There is
$3,600 unamortized discount on the bonds. Using the book value
method, Parks would record
5) Convertible bonds
6) Paige Co. took advantage of market conditions to refund debt.
This was the fourth refunding operation carried out by Paige within

the last three years. The excess of the carrying amount of the old debt
over the amount paid to extinguish it should be reported as a
7) Under the effective-interest method of bond discount or
premium amortization, the periodic interest expense is equal to
8) When a business enterprise enters into what is referred to as off-
balance-sheet financing, the company
9) When the interest payment dates of a bond are May 1 and
November 1, and a bond issue is sold on June 1, the amount of cash
received by the issuer will be
11) Which of the following taxes does not represent a common
employee payroll deduction?
12) Which of the following is an example of a contingent liability?
13) Sawyer Company self-insures its property for fire and storm
damage. If the company were to obtain insurance on the property, it
would cost them $1,500,000 per year. The company estimates that on
average it will incur losses of $1,200,000 per year. During 2014,
$525,000 worth of losses were sustained. How much total expense
and/or loss should be recognized by Sawyer Company for 2014?
14) Greeson Corp. signed a three-month, zero-interest-bearing note
on November 1, 2014 for the purchase of $250,000 of inventory. The
face value of the note was $253,900. Greeson used a "Discount on
Note Payable" account to initially record the note. Assuming that the
discount will be amortized equally over the 3-month period and that
there was no adjusting entry made for November, the adjusting entry
made at December 31, 2012 will include a

15) Presented below is information available for Marley Company.
Current Assets
Cash $ 4,000
Short-term investments 65,000
Accounts receivable 61,000
Inventories 110,000
Prepaid expenses 30,000
Total current assets $ 270,000
16) In accounting for internally generated intangible assets, U.S.
GAAP requires that
17) One factor that is not considered in determining the useful life of
an intangible asset is
18) In 2015, Edwards Corporation incurred research and
development costs as follows:
Materials and equipment $110,000
Personnel 130,000
Indirect costs 150,000
$390,000
These costs relate to a product that will be marketed in 2016. It is
estimated that these costs will be recouped by December 31, 2018.
The equipment has no alternative future use. What is the amount of
research and development costs that should be expensed in 2015?
19) The carrying value of an intangible is
20) Under current accounting practice, intangible assets are classified
as
21) The statement of changes in equity has columns for each of the
following except:

22) The pre-emptive right of a common stockholder is the right to
23) Total stockholders' equity represents
24) The issuer of a 5% common stock dividend to common
stockholders should transfer from retained earnings to paid-in capital
an amount equal to the
25) Which of the following features of preferred stock makes it more
like a debt than an equity instrument?
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1) On January 1, 2015, Piper Co. issued ten-year bonds with a face
value of $3,000,000 and a stated interest rate of 10%, payable
Present value of annuity for 10 periods at 10% 6.145

2) Without prejudice to your solution in part (a), assume that the
issue price was $2,652,000. Prepare the amortization table for 2015,
assuming that amortization is recorded on interest payment dates
using the effective-interest method.
3) The following information pertains to Parsons Co.:
Preferred stock, cumulative:
Par value per share $100
Dividend rate 8%
Shares outstanding 9,000
Dividends in arrears none
Common stock:
Shares issued 100,000
Dividends paid per share $2.00
Market price per share $47
Additional paid-in capital $480,000
Unappropriated retained earnings (after closing) $250,000
Retained earnings appropriated for contingencies $280,000
Common treasury stock:
Number of shares 9,000
Total cost $240,000
Net income $610,000
Compute (assume no changes in balances during the past year):
(Round per share and ratios to 2 decimal places, e.g. $15.75 or
15.75%.)
(a) Total amount of stockholders' equity in the balance
sheet $
(b) Earnings per share of common stock $
per share
(c) Book value per share of common stock $
per share
(d) Payout ratio of common stock
%
(e) Return on common stock equity

%
4) Sisco Co. purchased a patent from Thornton Co. for $620,000
on July 1, 2012. Expenditures of $119,000 for successful litigation in
defense of the patent were paid on July 1, 2015. Sisco estimates that
the useful life of the patent will be 20 years from the date of
acquisition.
Prepare a computation of the carrying value of the patent at
December 31, 2015.
5) On August 31, Latty Co. partially refunded $401,000 of its
outstanding 10% note payable made one year ago to Dugan State
Bank by paying $401,000 plus $40,100 interest, having obtained the
$441,100 by using $126,240 cash and signing a new one-year
$346,000 note discounted at 9% by the bank.
6) Make the entry to record the partial refunding. Assume Latty
Co. makes reversing entries when appropriate. (Credit account titles
are automatically indented when the amount is entered. Do not indent
manually.)
6)
7) Prepare the adjusting entry at December 31, assuming straight-
line amortization of the discount. (Credit account titles are
automatically indented when the amount is entered. Do not indent
manually.)
1) The following information pertains to Parsons Co.:
Preferred stock, cumulative:
Dividend rate 8%
Shares outstanding 9,000

Dividends in arrears none
Common stock:
Shares issued 100,000
Dividends paid per share $2.00
Market price per share $47
Additional paid-in capital $480,000
Unappropriated retained earnings (after closing) $250,000
Retained earnings appropriated for contingencies $280,000
Common treasury stock:
Number of shares 9,000
Total cost $240,000
Net income $610,000
Compute (assume no changes in balances during the past year):
(Round per share and ratios to 2 decimal places, e.g. $15.75 or
15.75%.)
(a) Total amount of stockholders' equity in the balance
sheet $
(b) Earnings per share of common stock $
per share
(c) Book value per share of common stock $
per share
(d) Payout ratio of common stock
%
(e) Return on common stock equity
%
2) On January 1, 2015, Piper Co. issued ten-year bonds with a face
value of $3,000,000 and a stated interest rate of 10%, payable

3) Calculate the issue price of the bonds.
Issue price of bond
4) Without prejudice to your solution in part (a), assume that the
issue price was $2,652,000. Prepare the amortization table for 2015,
assuming that amortization is recorded on interest payment dates
using the effective-interest method.
5) Sisco Co. purchased a patent from Thornton Co. for $620,000
on July 1, 2012. Expenditures of $119,000 for successful litigation in
defense of the patent were paid on July 1, 2015. Sisco estimates that
the useful life of the patent will be 20 years from the date of
acquisition.
Prepare a computation of the carrying value of the patent at December
31, 2015.
6) On August 31, Latty Co. partially refunded $443,000 of its
outstanding 10% note payable made one year ago to Dugan State
Bank by paying $443,000 plus $44,300 interest, having obtained the
$487,300 by using $134,220 cash and signing a new one-year
$388,000 note discounted at 9% by the bank.
7) Make the entry to record the partial refunding. Assume Latty
Co. makes reversing entries when appropriate. (Credit account titles
are automatically indented when the amount is entered. Do not indent
manually.)
8) Prepare the adjusting entry at December 31, assuming straight-
line amortization of the discount. (Credit account titles are
automatically indented when the amount is entered. Do not indent
manually.)

Date Account Titles and Explanation Debit Credit
**************************************
ACC 304 Week 1 Chapter 8 Homework
1) Matlock Company uses a perpetual inventory system. Its
beginning inventory consists 50 units that cost $34 each. During June
, (1) the company purchased units at $34 each, (2) returned 6 units for
credit ,and (3) sold 125 unit at $50 each. Journalize the June
transactions.
2) Amsterdam Company uses a periodic inventory system. For
April, When the company sold 600 units, The following information
is available. calculate weighted average cost per unit.
3) Arna, Inc. uses the dollar value LIFO method of computing its
inventory. Data for the past 3 year follow. Compute the value of the
2014 and 2015 inventories using the dollar-value LIFE method.
4) Craig Company asks you to review its December 31, 2014,
inventory values and prepare the necessary adjustments to the book.
The following information is given to u. determine the proper
inventory balance for Craig Company at December 31, 2014.
5) Prepare any correcting entries to adjust inventory to its proper
amount at December 31, 2014. Assume the books have not been
closed.
6) The net income per books of Linda Patrick Company was
determined without knowledge of the errors indicated below. Prepare
work sheet to show the adjusted net income figure for each of the 6
years after taking into account the inventory errors.

7) Presented below the information related to Dino Radja
Company. Compute the ending inventory for Dino Radja Company
for 2011 throw 2016 using the Dollar value LIFO method.
8) Under IFRS, an entity should initially recognize inventory when
9) With respect to accounting of inventories, which of the
following is a difference that exists for IFRS, as opposed to U.S
GAAP?
10) Some of the transactions of Torres Company during August are
listed below. Torres uses the periodic inventory method.
11) Assuming that purchases are recorded at gross amounts and that
discounts are to be recorded when taken: prepare general journal
entries to record the transactions
12) Assuming that purchases are recorded at net amounts and that
discounts lost are treated as financial expenses: prepare general
journal entries to record the transactions
13) Assuming that purchases are recorded at net amounts and that
discounts lost are treated as financial expenses: prepare the adjusting
entry necessary on August 31 if financial statements are to be
prepared at that time.
14) Under IFRS, which of the following would be included in the
cost of inventories?
15) Under IFRS, inventories are classified as
16) Which of the following best describes the IFRS requirement for
applying the same cost formula to all inventories?
**************************************
ACC 304 Week 2 Chapter 8 Quiz (All Possible
Questions)
ACC 304 Week 2 Quiz – Strayer NEW

CHAPTER 8
VALUATION OF INVENTORIES:A COST-BASIS APPROACH
IFRS questions are available at the end of this chapter.
TRUE FALSE—Conceptual
1. A manufacturing concern would report the cost of units only
partially processed as inventory in the balance sheet.
2. Both merchandising and manufacturing companies normally
have multiple inventory accounts.
3. When using a perpetual inventory system, freight charges on
goods purchased are debited to Freight-In.
4. If a supplier ships goods f.o.b. destination, title passes to the
buyer when the supplier delivers the goods to the common carrier.
5. If ending inventory is understated, then net income is
understated.
6. If both purchases and ending inventory are overstated by the
same amount, net income is not affected.
7. Freight charges on goods purchased are considered a period
cost and therefore are not part of the cost of the inventory.

8. Purchase Discounts Lost is a financial expense and is reported
in the ―other expenses and losses‖ section of the income statement.
9. The cost flow assumption adopted must be consistent with the
physical movement of the goods.
10. In all cases when FIFO is used, the cost of goods sold would
be the same whether a perpetual or periodic system is used.
11. The change in the LIFO Reserve from one period to the next is
recorded as an adjustment to Cost of Goods Sold.
12. Many companies use LIFO for both tax and internal reporting
purposes.
13. LIFO liquidation often distorts net income, but usually leads
to substantial tax savings.
14. LIFO liquidations can occur frequently when using a specific-
goods approach.
15. Dollar-value LIFO techniques help protect LIFO layers from
erosion.
16. The dollar-value LIFO method measures any increases and
decreases in a pool in terms of total dollar value and physical quantity
of the goods.

17. A disadvantage of LIFO is that it does not match more recent
costs against current revenues as well as FIFO.
18. The LIFO conformity rule requires that if a company uses
LIFO for tax purposes, it must also use LIFO for financial accounting
purposes.
19. Use of LIFO provides a tax benefit in an industry where unit
costs tend to decrease as production increases.
20. LIFO is inappropriate where unit costs tend to decrease as
production increases.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. Which of the following inventories carried by a manufacturer
is similar to the merchandise inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
22. Where should raw materials be classified on the balance
sheet?

a. Prepaid expenses.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
23. Which of the following accounts is not reported in inventory?
a. Raw materials.
b. Equipment.
c. Finished goods.
d. Supplies.
24. Why are inventories included in the computation of net
income?
a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net income.
25. Which of the following is a characteristic of a perpetual
inventory system?
a. Inventory purchases are debited to a Purchases account.

b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less
the change in inventory.
26. How is a significant amount of consignment inventory
reported in the balance sheet?
a. The inventory is reported separately on the consignor's balance
sheet.
b. The inventory is combined with other inventory on the consignor's
balance sheet.
c. The inventory is reported separately on the consignee's balance
sheet.
d. The inventory is combined with other inventory on the consignee's
balance sheet.
27. Where should goods in transit that were recently purchased
f.o.b. destination be included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.

28. If a company uses the periodic inventory system, what is the
impact on net income of including goods in transit f.o.b. shipping
point in purchases, but not ending inventory?
a. Overstate net income.
b. Understate net income.
c. No effect on net income.
d. Not sufficient information to determine effect on net income.
29. If a company uses the periodic inventory system, what is the
impact on the current ratio of including goods in transit f.o.b. shipping
point in purchases, but not ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine effect on the current ratio.
30. What is consigned inventory?
a. Goods that are shipped, but title transfers to the receiver.
b. Goods that are sold, but payment is not required until the goods
are sold.
c. Goods that are shipped, but title remains with the shipper.
d. Goods that have been segregated for shipment to a customer.

31. When using a perpetual inventory system,
a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
32. Goods in transit which are shipped f.o.b. shipping point should
be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.
33. Goods in transit which are shipped f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.

34. Which of the following items should be included in a
company's inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to
call for at his or her convenience.
d. None of these.
Use the following information for questions 35 and 36.
During 2012 Carne Corporation transferred inventory to Nolan
Corporation and agreed to repurchase the merchandise early in 2013.
Nolan then used the inventory as collateral to borrow from Norwalk
Bank, remitting the proceeds to Carne. In 2013 when Carne
repurchased the inventory, Nolan used the proceeds to repay its bank
loan.
35. This transaction is known as a(n)
a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.
36. On whose books should the cost of the inventory appear at the
December 31, 2012 balance sheet date?

a. Carne Corporation
b. Nolan Corporation
c. Norwalk Bank
d. Nolan Corporation, with Carne making appropriate note
disclosure of the transaction
37. Goods on consignment are
a. included in the consignee's inventory.
b. recorded in a Consignment Out account which is an inventory
account.
c. recorded in a Consignment In account which is an inventory
account.
d. all of these
S38. Valuation of inventories requires the determination of all of
the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consign-ment from other companies.
d. the cost flow assumption to be adopted.
P39. The accountant for the Pryor Sales Company is preparing the
income statement for 2012 and the balance sheet at December 31,

2012. Pryor uses the periodic inventory system. The January 1, 2012
merchandise inventory balance will appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the income statement.
c. as a deduction in the cost of goods sold section of the income
statement and as a current asset on the balance sheet.
d. as an addition in the cost of goods sold section of the income
statement and as a current asset on the balance sheet.
P40. If the beginning inventory for 2012 is overstated, the effects of
this error on cost of goods sold for 2012, net income for 2012, and
assets at December 31, 2013, respectively, are
a. overstatement, understatement, overstatement.
b. overstatement, understatement, no effect.
c. understatement, overstatement, overstatement.
d. understatement, overstatement, no effect.
S41. The failure to record a purchase of mer-chandise on account
even though the goods are properly included in the physical
inven-tory results in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.

c. an understatement of cost of goods sold and liabilities and an
overstatement of assets.
d. an understatement of liabilities and an overstatement of owners'
equity.
42. Dolan Co. received merchandise on consignment. As of
March 31, Dolan had recorded the transaction as a purchase and
included the goods in inventory. The effect of this on its financial
statements for March 31 would be
a. no effect.
b. net income was correct and current assets and current liabilities
were overstated.
c. net income, current assets, and current liabilities were overstated.
d. net income and current liabilities were overstated.
43. Green Co. received merchandise on consignment. As of
January 31, Green included the goods in inventory, but did not record
the transaction. The effect of this on its financial statements for
January 31 would be
a. net income, current assets, and retained earnings were overstated.
b. net income was correct and current assets were understated.
c. net income and current assets were overstated and current
liabilities were understated.
d. net income, current assets, and retained earnings were understated.

44. Feine Co. accepted delivery of merchandise which it
purchased on account. As of December 31, Feine had recorded the
transaction, but did not include the merchandise in its inventory. The
effect of this on its financial statements for December 31 would be
a. net income, current assets, and retained earnings were understated.
b. net income was correct and current assets were understated.
c. net income was understated and current liabilities were overstated.
d. net income was overstated and current assets were understated.
45. On June 15, 2012, Wynne Corporation accepted delivery of
merchandise which it pur-chased on account. As of June 30, Wynne
had not recorded the transaction or included the merchandise in its
inventory. The effect of this on its balance sheet for June 30, 2012
would be
a. assets and stockholders' equity were overstated but liabilities were
not affected.
b. stockholders' equity was the only item affected by the omission.
c. assets, liabilities, and stockholders' equity were understated.
d. none of these.
46. What is the effect of a $50,000 overstatement of last year's
inventory on current years ending retained earning balance?
a. Understated by $50,000.
b. No effect.

c. Overstated by $50,000.
d. Need more information to determine.
47. Which of the following is a product cost as it relates to
inventory?
a. Selling costs.
b. Interest costs.
c. Raw materials.
d. Abnormal spoilage.
48. Which of the following is a period cost?
a. Labor costs.
b. Freight in.
c. Production costs.
d. Selling costs.
49. Which method may be used to record cash discounts a
company receives for paying suppliers promptly?
a. Net method.
b. Gross method.
c. Average method.

d. a and b.
50. Which of the following is included in inventory costs?
a. Product costs.
b. Period costs.
c. Product and period costs.
d. Neither product or period costs.
51. Which of the following is correct?
a. Selling costs are product costs.
b. Manufacturing overhead costs are product costs.
c. Interest costs for routine inventories are product costs.
d. All of these.
52. All of the following costs should be charged against revenue
in the period in which costs are incurred except for
a. manufacturing overhead costs for a product manufactured and
sold in the same accounting period.
b. costs which will not benefit any future period.
c. costs from idle manufacturing capacity resulting from an
unexpected plant shutdown.

d. costs of normal shrinkage and scrap incurred for the manufacture
of a product in ending inventory.
53. Which of the following types of interest cost incurred in
connection with the purchase or manufacture of inventory should be
capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as
ships or real estate projects
c. Interest incurred on notes payable to vendors for routine purchases
made on a repetitive basis
d. All of these should be capitalized.
54. The use of a Discounts Lost account implies that the recorded
cost of a purchased inventory item is its
a. invoice price.
b. invoice price plus the purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken
or not.
55. The use of a Purchase Discounts account implies that the
recorded cost of a purchased inventory item is its
a. invoice price.

b. invoice price plus any purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken
or not.
Use the following information for questions 56 and 57.
During 2012, which was the first year of operations, Oswald
Company had merchandise purchases of $985,000 before cash
discounts. All purchases were made on terms of 2/10, n/30. Three-
fourths of the items purchased were paid for within 10 days of
purchase. All of the goods available had been sold at year end.
56. Which of the following recording procedures would result in
the highest cost of goods sold for 2012?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts
not taken shown under "other expenses" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same cost of goods sold.
d. Cannot be determined from the information provided.
57. Which of the following recording procedures would result in
the highest net income for 2012?

1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts
not taken shown under "other expenses" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same net income.
d. Cannot be determined from the information provided.
58. When using the periodic inventory system, which of the
following generally would not be separately accounted for in the
computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchased during the
period
S59. Costs which are inventoriable include all of the following
except
a. costs that are directly connected with the bringing of goods to the
place of business of the buyer.

b. costs that are directly connected with the converting of goods to a
salable condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.
P60. Which inventory costing method most closely approximates
current cost for each of the following:
Ending Inventory Cost of Goods Sold
a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO for:
**************************************
1) Floyd Corporation has the following four items in its ending
inventory. Determine the final lower-of-cost-or-market inventory
value for each item.
2) Bell, Inc. buys 1,000 computer game CDs from a distributor
who is disconnecting those games. The purchase price for the lot is

$8,000.Bell will group the CDs into three price categories for resale,
as indicated bellow. Determine the cost per CD for each group, using
the relative sales value method.
3) Boyne Inc. had beginning inventory of $12,000 at cost and
$20,000 t retail. Net purchase were $12,000 at cost and $17,000 at
retail. Net markups were $10,000; net markdowns were $7,000; and
sales revenue was $147,000.compute ending inventory at cost using
the conventional retail method.
4) Marvin Gaye Company has been having difficulty obtaining key
raw materials for its manufacturing process. The Company therefore
signed a long-term non cancelable purchase commitment with its
largest supplier of this raw material on November 30, 2014,at an
agreed price of $400,0000. At December 31, 2014, the raw material
had declined in price to $365,000. What entry would you make on
December 31, 2014, to recognize these facts?
5) Tim Legler requires an estimate of the cost of goods loat by fire
on March 9. Merchandise on hand on January 1 was $38,000.
Purchases since January 1 were $72,000; freight-in $3,400; purchases
returns and allowances, $2,400. Sales are made at 33 1/3% above cost
and totaled $100,000 to March 9. Goods coasting $10,900 were left
undamaged by the fire; remaining goods were destroyed. (a).
compute the cost goods destroyed. (b). compute the cost goods
destroyed, assuming that the gross profit 33 1/3% of sales.
6) Presented below is information related to Ricky Henderson
Company. Compute the inventory by the conventional retail
inventory method.
7) The inventory section of Maddox’s balance sheet as of
November 30,2014, including required foot notes, is presented below
are the inventory section supporting calculations.
8) All of the following are key similarities between GAAP and
IFRS with respect to accounting for inventories except:
9) Starfish Company (a Company using Gap and LIFO inventory
method) is considering changing to IFRS and the FIFO inventory
method. How would a comparison of these methods affect Starfish’s
financials?
10) Assume that Darcy industry had the following inventory values.
1. Inventory cost (on December 31,2014)$1,500

2. Inventory sales value (on December 31,2014)$1,350
3. Inventory net realizable value (on December 31,2014)$1,320
Under IFRS, what is the inventory carrying value on December 31,
2014 ?
11) Under IFRS, agricultural activity results in which of the
following types of assets?
1. Agricultural produce
2. Biological assets
**************************************
Questions)
1. A company should abandon the historical cost principle when the
future utility of the inventory item falls below its original cost.
2. The lower-of-cost-or-market method is used for inventory
despite being less conservative than valuing inventory at market
value.
3. The purpose of the ―floor‖ in lower-of-cost-or-market
considerations is to avoid overstating inventory.
4. Application of the lower-of-cost-or-market rule results in
inconsistency because a company may value inventory at cost in one
year and at market in the next year.
5. GAAP requires reporting inventory at net realizable value,
even if above cost, whenever there is a controlled market with a
quoted price applicable to all quantities.

6. A reason for valuing inventory at net realizable value is that
sometimes it is too difficult to obtain the cost figures.
7. In a basket purchase, the cost of the individual assets acquired
is determined on the basis of their relative sales value.
8. A basket purchase occurs when a company agrees to buy
inventory weeks or months in advance.
9. Most purchase commitments must be recorded as a liability.
10. If the contract price on a noncancelable purchase commitment
exceeds the market price, the buyer should record any expected losses
on the commitment in the period in which the market decline takes
place.
11. When a buyer enters into a formal, noncancelable purchase
contract, an asset and a liability are recorded at the inception of the
contract.
12. The gross profit method can be used to approximate the dollar
amount of inventory on hand.
13. In most situations, the gross profit percentage is stated as a
percentage of cost.
14. A disadvantage of the gross profit method is that it uses past
percentages in determining the markup.
15. When the conventional retail method includes both net
markups and net markdowns in the cost-to-retail ratio, it approximates
a lower-of-cost-or-market valuation.
16. In the retail inventory method, the term markup means a
markup on the original cost of an inventory item.

17. In the retail inventory method, abnormal shortages are
deducted from both the cost and retail amounts and reported as a loss.
18. The inventory turnover ratio is computed by dividing the cost
of goods sold by the ending inventory on hand.
19. The average days to sell inventory represents the average
number of days’ sales for which a company has inventory on hand.
*20. The LIFO retail method assumes that markups and
markdowns apply only to the goods purchased during the period.
21. Which of the following is true about lower-of-cost-or-market?
a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income.
d. All of these.
22. The primary basis of accounting for inventories is cost. A
departure from the cost basis of pricing the inventory is required
where there is evidence that when the goods are sold in the ordinary
course of business their
a. selling price will be less than their replacement cost.
b. replacement cost will be more than their net realizable value.

c. cost will be less than their replacement cost.
d. future utility will be less than their cost.
23. When valuing raw materials inventory at lower-of-cost-or-
market, what is the meaning of the term "market"?
a. Net realizable value
b. Net realizable value less a normal profit margin
c. Current replacement cost
d. Discounted present value
24. 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.
b. estimated selling price in the ordinary course of business less
reasonably predictable costs of completion and disposal.
c. estimated selling price in the ordinary course of business less
reasonably predictable costs of completion and disposal and an
allowance for an approximately normal profit margin.
d. estimated selling price in the ordinary course of business less
reasonably predictable costs of completion and disposal, an allowance
for an approximately normal profit margin, and an adequate reserve
for possible future losses.
25. Designated market value

a. is always the middle value of replacement cost, net realizable
value, and net realizable value less a normal profit margin.
b. should always be equal to net realizable value.
c. may sometimes exceed net realizable value.
d. should always be equal to net realizable value less a normal profit
margin.
26. Lower-of-cost-or-market
a. is most conservative if applied to the total inventory.
b. is most conservative if applied to major categories of inventory.
c. is most conservative if applied to individual items of inventory.
d. must be applied to major categories for taxes.
27. An item of inventory purchased this period for $15.00 has
been incorrectly written down to its current replacement cost of
$10.00. It sells during the following period for $30.00, its normal
selling price, with disposal costs of $3.00 and normal profit of $12.00.
Which of the following statements is not true?
a. The cost of sales of the following year will be understated.
b. The current year's income is understated.
c. The closing inventory of the current year is understated.
d. Income of the following year will be understated.

S28. When the cost-of-goods-sold method is used to record
inventory at market
a. there is a direct reduction in the selling price of the product that
results in a loss being recorded on the income statement prior to the
sale.
b. a loss is recorded directly in the inventory account by crediting
inventory and debiting loss on inventory decline.
c. only the portion of the loss attributable to inventory sold during
the period is recorded in the financial statements.
d. the market value figure for ending inventory is substituted for cost
and the loss is buried in cost of goods sold.
29. Lower-of-cost-or-market as it applies to inventory is best
described as the
a. drop of future utility below its original cost.
b. method of determining cost of goods sold.
c. assumption to determine inventory flow.
d. change in inventory value to market value.
30. The floor to be used in applying the lower-of-cost-or-market
method to inventory is determined as the
a. net realizable value.
b. net realizable value less normal profit margin.
c. replacement cost.

d. selling price less costs of completion and disposal.
31. What is the rationale behind the ceiling when applying the
lower-of-cost-or-market method to inventory?
a. Prevents understatement of the inventory value.
b. Allows for a normal profit to be earned.
c. Allows for items to be valued at replacement cost.
d. Prevents overstatement of the value of obsolete or damaged
inventories.
32. Why are inventories stated at lower-of-cost-or-market?
a. To report a loss when there is a decrease in the future utility.
b. To be conservative.
c. To report a loss when there is a decrease in the future utility below
the original cost.
d. To permit future profits to be recognized.
33. Which of the following is not an acceptable approach in
applying the lower-of-cost-or-market method to inventory?
a. Inventory location.
b. Categories of inventory items.
c. Individual item.

d. Total of the inventory.
34. Which method(s) may be used to record a loss due to a price
decline in the value of inventory?
a. Cost-of-goods-sold.
b. Sales method.
c. Loss method
d. Both a and c.
35. Why might inventory be reported at sales prices (net realizable
value or market price) rather than cost?
a. When there is a controlled market with a quoted price applicable
to all quantities and when there are no significant costs of disposal.
b. When there are no significant costs of disposal.
c. When a non-cancellable contract exists to sell the inventory.
d. When there is a controlled market with a quoted price applicable
to all quantities.
S36. Recording inventory at net realizable value is permitted, even
if it is above cost, when there are no significant costs of disposal
involved and
a. the ending inventory is determined by a physical inventory count.
b. a normal profit is not anticipated.

c. there is a controlled market with a quoted price applicable to all
quantities.
d. the internal revenue service is assured that the practice is not used
only to distort reported net income.
37. When inventory declines in value below original (historical)
cost, and this decline is considered other than temporary, what is the
maximum amount that the inventory can be valued at?
a. Sales price
b. Net realizable value
c. Historical cost
d. Net realizable value reduced by a normal profit margin
38. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.
39. If a unit of inventory has declined in value below original cost,
but the market value exceeds net realizable value, the amount to be
used for purposes of inventory valuation is
a. net realizable value.

b. original cost.
c. market value.
d. net realizable value less a normal profit margin.
40. Inventory may be recorded at net realizable value if
a. there is a controlled market with a quoted price.
b. there are no significant costs of disposal.
c. the inventory consists of precious metals or agricultural products.
d. all of these.
41. If a material amount of inventory has been ordered through a
formal purchase contract at the balance sheet date for future delivery
at firm prices,
a. this fact must be disclosed.
b. disclosure is required only if prices have declined since the date of
the order.
c. disclosure is required only if prices have since risen substantially.
d. an appropriation of retained earnings is necessary.
42. The credit balance that arises when a net loss on a purchase
commitment is recognized should be
a. presented as a current liability.

b. subtracted from ending inventory.
c. presented as an appropriation of retained earnings.
d. presented in the income statement.
P43. In 2012, Orear Manufacturing signed a contract with a
supplier to purchase raw materials in 2013 for $700,000. Before the
December 31, 2012 balance sheet date, the market price for these
materials dropped to $510,000. The journal entry to record this
situation at December 31, 2012 will result in a credit that should be
reported
a. as a valuation account to Inventory on the balance sheet.
b. as a current liability.
c. as an appropriation of retained earnings.
d. on the income statement.
44. At the end of the fiscal year, Apha Airlines has an outstanding
non-cancellable purchase commitment for the purchase of 1 million
gallons of jet fuel at a price of $4.10 per gallon for delivery during the
coming summer. The company prices its inventory at the lower of
cost or market. If the market price for jet fuel at the end of the year is
$4.50, how would this situation be reflected in the annual financial
statements?
a. Record unrealized gains of $400,000 and disclose the existence of
the purchase commitment.
b. No impact.

c. Record unrealized losses of $400,000 and disclose the existence of
d. Disclose the existence of the purchase commitment.
45. At the end of the fiscal year, Apha Airlines has an outstanding
purchase commitment for the purchase of 1 million gallons of jet fuel
at a price of $4.60 per gallon for delivery during the coming summer.
The company prices its inventory at the lower of cost or market. If the
market price for jet fuel at the end of the year is $4.25, how would
this situation be reflected in the annual financial statements?
a. Record unrealized gains of $350,000 and disclose the existence of
b. No impact.
c. Record unrealized losses of $350,000 and disclose the existence of
d. Disclose the existence of the purchase commitment.
46. How is the gross profit method used as it relates to inventory
valuation?
a. Verify the accuracy of the perpetual inventory records.
b. Verity the accuracy of the physical inventory.
c. To estimate cost of goods sold.
d. To provide an inventory value of LIFO inventories.
S47. Which of the following is not a basic assumption of the gross
profit method?

a. The beginning inventory plus the purchases equal total goods to
be accounted for.
b. Goods not sold must be on hand.
c. If the sales, reduced to the cost basis, are deducted from the sum
of the opening inventory plus purchases, the result is the amount of
inventory on hand.
d. The total amount of purchases and the total amount of sales
remain relatively unchanged from the comparable previous period.
48. The gross profit method of inventory valuation is invalid when
a. a portion of the inventory is destroyed.
b. there is a substantial increase in inventory during the year.
c. there is no beginning inventory because it is the first year of
operation.
d. none of these.
49. Which statement is not true about the gross profit method of
inventory valuation?
a. It may be used to estimate inventories for interim statements.
b. It may be used to estimate inventories for annual statements.
c. It may be used by auditors.
d. None of these.
50. A major advantage of the retail inventory method is that it

a. provides reliable results in cases where the distribution of items in
the inventory is different from that of items sold during the period.
b. hides costs from competitors and customers.
c. gives a more accurate statement of inventory costs than other
methods.
d. provides a method for inventory control and facilitates
determination of the periodic inventory for certain types of
companies.
51. An inventory method which is designed to approximate
inventory valuation at the lower of cost or market is
a. last-in, first-out.
b. first-in, first-out.
c. conventional retail method.
d. specific identification.
52. The retail inventory method is based on the assumption that
the
a. final inventory and the total of goods available for sale contain the
same proportion of high-cost and low-cost ratio goods.
b. ratio of gross margin to sales is approximately the same each
period.
c. ratio of cost to retail changes at a constant rate.
d. proportions of markups and markdowns to selling price are the
same.

53. Which statement is true about the retail inventory method?
a. It may not be used to estimate inventories for interim statements.
b. It may not be used to estimate inventories for annual statements.
c. It may not be used by auditors.
d. None of these.
54. When the conventional retail inventory method is used,
markdowns are commonly ignored in the computation of the cost to
retail ratio because
a. there may be no markdowns in a given year.
b. this tends to give a better approximation of the lower of cost or
market.
c. markups are also ignored.
d. this tends to result in the showing of a normal profit margin in a
period when no markdown goods have been sold.
55. To produce an inventory valuation which approximates the
lower of cost or market using the conventional retail inventory
method, the computation of the ratio of cost to retail should
a. include markups but not markdowns.
b. include markups and markdowns.
c. ignore both markups and markdowns.
d. include markdowns but not markups.

*56. When calculating the cost ratio for the retail inventory
method,
a. if it is the conventional method, the beginning inventory is
included and markdowns are deducted.
b. if it is the LIFO method, the beginning inventory is excluded and
markdowns are deducted.
c. if it is the LIFO method, the beginning inventory is included and
markdowns are not deducted.
d. if it is the conventional method, the beginning inventory is
excluded and markdowns are not deducted.
S57. Which of the following is not required when using the retail
inventory method?
a. All inventory items must be categorized according to the retail
markup percentage which reflects the item's selling price.
b. A record of the total cost and retail value of goods purchased.
c. A record of the total cost and retail value of the goods available
for sale.
d. Total sales for the period.
S58. Which of the following is not a reason the retail inventory
method is used widely?
a. As a control measure in determining inventory shortages
b. For insurance information
c. To permit the computation of net income without a physical count
of inventory

d. To defer income tax liability
59. What condition is not necessary in order to use the retail
method to provide inventory results?
a. Retailer keeps a record of the total costs of products sold for the
period.
b. Retailer keeps a record of the total costs and retail value of goods
purchased.
c. Retailer keeps a record of the total costs and retail value of goods
available for sale.
d. Retailer keeps a record of sales for the period.
60. What method yields results that are essentially the same as
those of the conventional retail method?
a. FIFO.
b. Lower-of-average-cost-or-market.
c. Average cost.
d. LIFO.
**************************************

ACC 304 Week 3 Homework (Chapter 10)
1) Hanson Company is constructing a building. Construction
begins on February 1 and was completed on December 31.
Expenditure were $1,800,000 on march 1, $1,200,000 on June 1, and
$3,000,000 on December 31. Compute Hanson’s weighted-average
accumulated expenditure for interest capitalization purposes.
2) Mehta Company traded a used welding machine (cost $9,000,
accumulated depreciation $3,000) for office equipment with an
estimated fair value of $5,000. Mehta also paid $3,000 cash in the
transaction. Prepare the journal entry to record the exchange.
3) Ottawa Corporation owns machinery that cost $20,000 when
purchased on July 1, 2011. Depreciation has been recorded at a rate of
$2,400 per year, resulting in a balance is accumulated depreciation of
$8,400 at December 31, 2014. The machinery is sold on September 1,
2015, for $10,500. Prepare journal entries to (a) update depreciation
for 2015 and (b) record the sale.
4) Martin Buber co. purchased land as a factory site for $400,000.
The process of tearing down two old buildings on the site and
constructing the factory required 6 months. The company paid
$42,000 to raze the old buildings and salvaged lumber and brick for
$6,300. Legal fees of $1,850 were paid for title investigation and
drawing the purchase contract. Martin Buber paid $2,200 to an
engineering firm for a land survey, and $68,000 for drawing the
factory plans. The land survey had to be made before definitive plans
could be drawn. Title insurance on the property cost $1,500, and a
liability insurance premium paid during construction was $900. The
contractor’s charge for construction was $2,740,000. The company
paid the contractor in two installments:$1,200,000 at the end of 3
months and $1,540,000 upon completion. Interest costs of $170,000
were incurred to finance the construction. Determine the cost of the
land and the cost of the building as they should be recorded on the
books of Martin Buberk Co. assumes that the land survey was for the
building.

5) Ben Sisko Supply Company, a newly formed corporation,
incurred the following expenditure related to land, to Buildings, and
to machinery and equipment. Determine the amounts that should be
debited to land, to buildings, and to machinery and equipment.
Assume the benefits of capitalizing interest during construction
exceed the cost of implementation.
6) On December 31, 2013, Main Inc. borrowed $3,000,000 at 12%
payable annually to finance the construction of a new building. In
2014, the company made the following expenditures related to this
building: March 1, $360,000; June 1, $600,000;$1,500,000;
December 1, $1,500,000. The building was completed in February
2015. Additional information is provided as follows.
7) Determine the amount of interest to be capitalized in 2014 in
relation to the construction of the building.
8) Prepare the journal entry to record the capitalization of interest
and the recognition of interest expense, if any, at December 31, 2014.
9) Busytown Corporation, which manufactures shoes, hired a
recent college graduate to work in accounting department. On the first
day of work, the accountant was assigned to total a batch of invoices
with the use of an adding machine. Before long, the accountant, who
had never before seen such a machine, managed to break the machine.
Busy town Corporation gave the machine plus $340 to Disk Business
machine Company (dealer) in exchange for a new machine. Assume
the following information about the machines. For each company,
prepare the necessary journal entry to record the exchange.
10) Under IFRS, Sampson company, who has a non-current asset
which has been classified as held-for-sale, should
11) Miller Company, a company who uses IFRS reporting standards,
sells a non-current asset classified as held-for-sale. Which of the
following statements is true regarding the treatment of a gain on a
subsequent increase in the fair value less cost?
12) Damson Company, a company who uses IFRS reporting
standards, has a non-current asset that has been classified as held-for-
sale. When the asset no longer meets this definition, Danson should
13) Elton Industries, a company who uses IFRS reporting standards,
has asset and liabilities of a disposal group classified as held-for-sale

shown on its statement of financial position. Which of the following
presents the best treatment for these?
14) Woodson Company, a company who uses IFRS reporting
standards, has identified a group of plant assets for disposal. On
January 1, 2014, the carrying value of these assets was $14.5 million.
The assets were revalued to $13.5 million on January 5, 2014, when
they were identified as property for the disposal group. In addition,
Woodson thinks that it will cost $1.5 million to sell these assets. What
carrying amount should these assets reflect for year-end financial
statements to be prepared on January 10, 2014?
**************************************
Questions)
ACC 304 Week 4 Quiz – Strayer NEW
Week 4 Quiz 3: Chapter 10
ACQUISITION AND DISPOSITION OF PROPERTY, PLANT,
AND EQUIPMENT
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. Assets classified as Property, Plant, and Equipment can be
either acquired for use in operations, or acquired for resale.

2. Assets classified as Property, Plant, and Equipment must be
both long-term in nature and possess physical substance.
3. When land with an old building is purchased as a future
building site, the cost of removing the old building is part of the cost
of the new building.
4. Insurance on equipment purchased, while the equipment is in
transit, is part of the cost of the equipment.
5. Special assessments for local improvements such as street
lights and sewers should be accounted for as land improvements.
6. Variable overhead costs incurred to self-construct an asset
should be included in the cost of the asset.
7. Companies should assign no portion of fixed overhead to self-
constructed assets.
8. When capitalizing interest during construction of an asset, an
imputed interest cost on stock financing must be included.
9. Assets under construction for a company’s own use do not
qualify for interest cost capitalization.
10. Avoidable interest is the amount of interest cost that a
company could theoretically avoid if it had not made expenditures for
the asset.
11. When a company purchases land with the intention of
developing it for a particular use, interest costs associated with those
expenditures qualify for interest capitalization.
12. Assets purchased on long-term credit contracts should be
recorded at the present value of the consideration exchanged.

13. Companies account for the exchange of nonmonetary assets
on the basis of the fair value of the asset given up or the fair value of
the asset received.
14. If a nonmonetary exchange lacks commercial substance, and
cash is received, a partial gain or loss is recognized.
15. When a company exchanges nonmonetary assets and a loss
results, the company recognizes the loss only if the exchange has
commercial substance.
16. Costs incurred subsequent to the acquisition of an asset are
capitalized if they provide future benefits.
17. Improvements are often referred to as betterments and involve
the substitution of a better asset for the one currently used.
18. When an ordinary repair occurs, several periods will usually
benefit.
19. Companies always treat gains or losses from an involuntary
conversion as extraordinary items.
20. If a company scraps an asset without any cash recovery, it
recognizes a loss equal to the asset’s book value.
21. Plant assets may properly include
a. deposits on machinery not yet received.
b. idle equipment awaiting sale.

c. land held for possible use as a future plant site.
d. none of these.
22. Which of the following is not a major characteristic of a plant
asset?
a. Possesses physical substance
b. Acquired for resale
c. Acquired for use
d. Yields services over a number of years
23. Which of these is not a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for use in operations
c. Yields services over a number of years
d. All of these are major characteristics of a plant asset.
24. Cotton Hotel Corporation recently purchased Emporia Hotel
and the land on which it is located with the plan to tear down the
Emporia Hotel and build a new luxury hotel on the site. The cost of
the Emporia Hotel should be
a. depreciated over the period from acquisition to the date the hotel
is scheduled to be torn down.
b. written off as an extraordinary loss in the year the hotel is torn
down.

c. capitalized as part of the cost of the land.
d. capitalized as part of the cost of the new hotel.
25. The cost of land does not include
a. costs of grading, filling, draining, and clearing.
b. costs of removing old buildings.
c. costs of improvements with limited lives.
d. special assessments.
26. The cost of land typically includes the purchase price and all
of the following costs except
a. grading, filling, draining, and clearing costs.
b. street lights, sewers, and drainage systems cost.
c. private driveways and parking lots.
d. assumption of any liens or mortgages on the property.
27. If a corporation purchases a lot and building and subsequently
tears down the building and uses the property as a parking lot, the
proper accounting treatment of the cost of the building would depend
on
a. the significance of the cost allocated to the building in relation to
the combined cost of the lot and building.
b. the length of time for which the building was held prior to its
demolition.
c. the contemplated future use of the parking lot.

d. the intention of management for the property when the building
was acquired.
28. The debit for a sales tax properly levied and paid on the
purchase of machinery preferably would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all taxes other than
those on income).
d. accumulated depreciation--machinery.
29. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.
S30. Historical cost is the basis advocated for recording the
acquisition of property, plant, and equipment for all of the following
reasons except
a. at the date of acquisition, cost reflects fair market value.
b. property, plant, and equipment items are always acquired at their
original historical cost.

c. historical cost involves actual trans-actions and, as such, is the
most reliable basis.
d. gains and losses should not be anticipated but should be
recognized when the asset is sold.
S31. To be consistent with the historical cost principle, overhead
costs incurred by an enterprise constructing its own building should
be
a. allocated on the basis of lost production.
b. eliminated completely from the cost of the asset.
c. allocated on an opportunity cost basis.
d. allocated on a pro rata basis between the asset and normal
operations.
32. Which of the following costs are capitalized for self-
constructed assets?
a. Materials and labor only
b. Labor and overhead only
c. Materials and overhead only
d. Materials, labor, and overhead
33. Which of the following assets do not qualify for capitalization
of interest costs incurred during construction of the assets?
a. Assets under construction for an enterprise's own use.
b. Assets intended for sale or lease that are produced as discrete
projects.

c. Assets financed through the issuance of long-term debt.
d. Assets not currently undergoing the activities necessary to prepare
them for their intended use.
34. Assets that qualify for interest cost capitalization include
a. assets under construction for a company's own use.
b. assets that are ready for their intended use in the earnings of the
company.
c. assets that are not currently being used because of excess capacity.
d. All of these assets qualify for interest cost capitalization.
35. When computing the amount of interest cost to be capitalized,
the concept of "avoidable interest" refers to
a. the total interest cost actually incurred.
b. a cost of capital charge for stockholders' equity.
c. that portion of total interest cost which would not have been
incurred if expenditures for asset construction had not been made.
d. that portion of average accumulated expenditures on which no
interest cost was incurred.
36. The period of time during which interest must be capitalized
ends when
a. the asset is substantially complete and ready for its intended use.
b. no further interest cost is being incurred.

c. the asset is abandoned, sold, or fully depreciated.
d. the activities that are necessary to get the asset ready for its
intended use have begun.
37. Which of the following statements is true regarding
capitalization of interest?
a. Interest cost capitalized in connection with the purchase of land to
be used as a building site should be debited to the land account and
not to the building account.
b. The amount of interest cost capitalized during the period should
not exceed the actual interest cost incurred.
c. When excess borrowed funds not immediately needed for
construction are temporarily invested, any interest earned should be
offset against interest cost incurred when determining the amount of
interest cost to be capitalized.
d. The minimum amount of interest to be capitalized is determined
by multiplying a weighted average interest rate by the amount of
average accumulated expenditures on qualifying assets during the
period.
38. Construction of a qualifying asset is started on April 1 and
finished on December 1. The fraction used to multiply an expenditure
made on April 1 to find weighted-average accumulated expenditures
is
a. 8/8.
b. 8/12.
c. 9/12.
d. 11/12.

39. When funds are borrowed to pay for construction of assets that
qualify for capitalization of interest, the excess funds not needed to
pay for construction may be temporarily invested in interest-bearing
securities. Interest earned on these temporary investments should be
a. offset against interest cost incurred during construction.
b. used to reduce the cost of assets being constructed.
c. multiplied by an appropriate interest rate to determine the amount
of interest to be capitalized.
d. recognized as revenue of the period.
40. Interest cost that is capitalized should
a. be written off over the remaining term of the debt.
b. be accumulated in a separate deferred charge account and written
off equally over a 40-year period.
c. not be written off until the related asset is fully depreciated or
disposed of.
d. none of these.
S41. Which of the following is not a condition that must be
satisfied before interest capitalization can begin on a qualifying asset?
a. Interest cost is being incurred.
b. Expenditures for the assets have been made.
c. The interest rate is equal to or greater than the company's cost of
capital.

d. Activities that are necessary to get the asset ready for its intended
use are in progress.
S42. Which of the following is the recommended approach to
handling interest incurred in financing the construction of property,
plant and equipment?
a. Capitalize only the actual interest costs incurred during
construction.
b. Charge construction with all costs of funds employed, whether
identifiable or not.
c. Capitalize no interest during construction.
d. Capitalize interest costs equal to the prime interest rate times the
estimated cost of the asset being constructed.
S43. Which of the following nonmonetary exchange transactions
represents a culmination of the earning process?
a. Exchange of assets with no difference in future cash flows.
b. Exchange of products by companies in the same line of business
with no difference in future cash flows.
c. Exchange of assets with a difference in future cash flows.
d. Exchange of an equivalent interest in similar productive assets
that causes the companies involved to remain in essentially the same
economic position.
S44. When boot is involved in an exchange having commercial
substance.
a. gains or losses are recognized in their entirely.

b. a gain or loss is computed by comparing the fair value of the asset
received with the fair value of the asset given up.
c. only gains should be recognized.
d. only losses should be recognized.
S45. The cost of a nonmonetary asset acquired in exchange for
another nonmonetary asset and the exchange has commercial
substance is usually recorded at
a. the fair value of the asset given up, and a gain or loss is
recognized.
b. the fair value of the asset given up, and a gain but not a loss may
be recognized.
c. the fair value of the asset received if it is equally reliable as the
fair value of the asset given up.
d. either the fair value of the asset given up or the asset received,
whichever one results in the largest gain (smallest loss) to the
company.
P46. Ringler Corporation exchanges one plant asset for a similar
plant asset and gives cash in the exchange. The exchange is not
expected to cause a material change in the future cash flows for either
entity. If a gain on the disposal of the old asset is indicated, the gain
will
a. be reported in the Other Revenues and Gains section of the
income statement.
b. effectively reduce the amount to be recorded as the cost of the
new asset.

c. effectively increase the amount to be recorded as the cost of the
new asset.
d. be credited directly to the owner's capital account.
47. Plant assets purchased on long-term credit contracts should be
accounted for at
a. the total value of the future payments.
b. the future amount of the future payments.
c. the present value of the future payments.
d. none of these.
48. When a plant asset is acquired by issuance of common stock,
the cost of the plant asset is properly measured by the
a. par value of the stock.
b. stated value of the stock.
c. book value of the stock.
d. fair value of the stock.
49. When a closely held corporation issues preferred stock for
land, the land should be recorded at the
a. total par value of the stock issued.
b. total book value of the stock issued.
c. total liquidating value of the stock issued.
d. fair value of the land.

50. Accounting recognition should be given to some or all of the
gain realized on a nonmonetary exchange of plant assets except when
the exchange has
a. no commercial substance and additional cash is paid.
b. no commercial substance and additional cash is received.
c. commercial substance and additional cash is paid.
d. commercial substance and additional cash is received.
51. For a nonmonetary exchange of plant assets, accounting
recognition should not be given to
a. a loss when the exchange has no commercial substance.
b. a gain when the exchange has commercial substance.
c. part of a gain when the exchange has no commercial substance
and cash is paid (cash paid/received is less than 25% of the fair value
of the exchange).
d. part of a gain when the exchange has no commercial substance
and cash is received (cash paid or received is less than 25% of the fair
value of the exchange).
52. When an enterprise is the recipient of a donated asset, the
account credited may be a
a. paid-in capital account.
b. revenue account.
c. deferred revenue account.

d. all of these.
53. A plant site donated by a township to a manufacturer that
plans to open a new factory should be recorded on the manufacturer's
books at
a. the nominal cost of taking title to it.
b. its fair value.
c. one dollar (since the site cost nothing but should be included in
the balance sheet).
d. the value assigned to it by the company's directors.
54. In order for a cost to be capitalized (capital expenditure), the
following must be present:
a. The useful life of an asset must be increased.
b. The quantity of assets must be increased.
c. The quality of assets must be increased.
d. Any one of these.
55. An improvement made to a machine increased its fair value
and its production capacity by 25% without extending the machine's
useful life. The cost of the improvement should be
a. expensed.
b. debited to accumulated depreciation.
c. capitalized in the machine account.

d. allocated between accumulated depreciation and the machine
account.
56. Which of the following is a capital expenditure?
a. Payment of an account payable
b. Retirement of bonds payable
c. Payment of Federal income taxes
d. None of these
57. Which of the following is not a capital expenditure?
a. Repairs that maintain an asset in operating condition
b. An addition
c. A betterment
d. A replacement
P58. In accounting for plant assets, which of the following outlays
made subsequent to acquisition should be fully expensed in the period
the expenditure is made?
a. Expenditure made to increase the efficiency or effectiveness of an
existing asset
b. Expenditure made to extend the useful life of an existing asset
beyond the time frame originally anticipated
c. Expenditure made to maintain an existing asset so that it can
function in the manner intended

d. Expenditure made to add new asset services
S59. An expenditure made in connection with a machine being
used by an enterprise should be
a. expensed immediately if it merely extends the useful life but does
not improve the quality.
b. expensed immediately if it merely improves the quality but does
not extend the useful life.
c. capitalized if it maintains the machine in normal operating
condition.
d. capitalized if it increases the quantity of units produced by the
machine.
S60. When a plant asset is disposed of, a gain or loss may result.
The gain or loss would be classified as an extraordinary item on the
income statement if it resulted from
a. an involuntary conversion and the conditions of the disposition are
unusual and infrequent in nature.
b. a sale prior to the completion of the estimated useful life of the
asset.
c. the sale of a fully depreciated asset.
d. an abandonment of the asset.
**************************************

1) Lockard Company purchased machinery on January 1, 2014, for
$102,960. The machinery is estimated to have a salvage value of
$10,296 after a useful life of 8 years.
2) Compute 2014 depreciation expense using the double-declining-
balance method.
3) Compute 2014 depreciation expense using the double-declining-
balance method, assuming the machinery was purchased on October
1, 2014.
4) Everly Corporation acquires a coal mine at a cost of $452,000.
Intangible development costs total $113,000. After extraction has
occurred, Everly must restore the property (estimated fair value of the
obligation is $90,400), after which it can be sold for $180,800. Everly
estimates that 4,520 tons of coal can be extracted.
5) In its 2011 annual report, Campbell Soup Company reports
beginning-of-the-year total assets of $6,276 million, end-of-the-year
total assets of $6,862 million, total sales of $7,719 million, and net
income of $805 million.
6) Compute Campbell’s asset turnover ratio. (Round answer to 3
decimal places, e.g. 4.871.)
Asset turnover ratio
7) Compute Campbell’s profit margin on sales. (Round answer to
2 decimal places, e.g. 4.87 or 4.87%.)
8) Compute Campbell’s return on assets using (1) asset turnover
and profit margin and (2) net income. (Round answers to 2 decimal
places, e.g. 4.87 or 4.87%.)Return on assets

9) Rembrandt Company acquired a plant asset at the beginning of
Year 1. The asset has an estimated service life of 5 years. An
employee has prepared depreciation schedules for this asset using
three different methods to compare the results of using one method
with the results of using other methods. You are to assume that the
following schedules have been correctly prepared for this asset using
(1) the straight-line method, (2) the sum-of-the-years'-digits method,
and (3) the double-declining-balance method.
Year Straight-Line Sum-of-the-
Years'-Digits Double-Declining-
Balance
1 $11,970 $19,950
$26,600
2 11,970 15,960
15,960
3 11,970 11,970
9,576
4 11,970 7,980
5,746
5 11,970 3,990
1,968
Total $59,850
$59,850 $59,850
10) What is the cost of the asset being depreciated? (Round answer to
0 decimal places, e.g. 45,892.)
Cost of asset $
11) If there is any salvage value and the amount is unknown (as is the
case here), the cost would have to be determined by looking at the
data for the double-declining balance method.
12) What amount, if any, was used in the depreciation calculations
for the salvage value for this asset? (Round answer to 0 decimal
places, e.g. 45,892.)

13) Which method will produce the highest charge to income in Year
1?
The method that produces the highest charge to income in Year 1 is
14) Which method will produce the highest charge to income in Year
4?
The method that produces the highest charge to income in Year 4 is
15) Which method will produce the highest book value for the asset
at the end of Year 3?
The method that produces the highest book value for the asset at the
end of Year 3 is
16) Prepare the journal entry (if any) to record the impairment of the
asset at December 31, 2014. (If no entry is required, select "No entry"
for the account titles and enter 0 for the amounts. Credit account titles
are automatically indented when amount is entered. Do not indent
manually.)
17) If the asset is sold at the end of Year 3, which method would
yield the highest gain (or lowest loss) on disposal of the asset?
The method that will yield the highest gain (or lowest loss) on
disposal of the asset if the asset is sold at the end of Year 3 is
18) Muggsy Bogues Company purchased equipment for $224,700 on
October 1, 2014. It is estimated that the equipment will have a useful
life of 8 years and a salvage value of $24,720. Estimated production is
39,600 units and estimated working hours are 20,200. During 2014,
Bogues uses the equipment for 590 hours and the equipment produces
1,100 units.
Compute depreciation expense under each of the following methods.
Bogues is on a calendar-year basis ending December 31.
19) Presented below is information related to equipment owned by
Suarez Company at December 31, 2014.
Cost $ 20,232,000

Accumulated depreciation to date 2,248,000
Expected future net cash flows 15,736,000
Fair value 10,790,400
Suarez intends to dispose of the equipment in the coming year. It is
expected that the cost of disposal will be $ 44,960 . As of December
31, 2014, the equipment has a remaining useful life of 4 years.
20) The following data relate to the Machinery account of Eshkol,
Inc. at December 31, 2014.
Machinery
A B C D
Original cost $108,560 $120,360
$188,800 $188,800
Year purchased 2009 2010 2011
2013
Useful life 10 years 15,000 hours 15
years 10 years
Salvage value $7,316 $7,080 $11,800
$11,800
Depreciation method Sum-of-the-years'-digits
Activity Straight-line Double-declining
balance
Accum. depr through 2014* $73,632 $83,072
$35,400 $37,760
*In the year an asset is purchased, Eshkol, Inc. does not record any
depreciation expense on the asset.
In the year an asset is retired or traded in, Eshkol, Inc. takes a full
year’s depreciation on the asset.
21) Mandall Company constructed a warehouse for $280,000 on
January 2, 2014. Mandall estimates that the warehouse has a useful
life of 20 years and no residual value. Construction records indicate
that $40,000 of the cost of the warehouse relates to its heating,
ventilation, and air conditioning (HVAC) system, which has an

estimated useful life of only 10 years. What is the first year of
depreciation expense using straight-line component depreciation
under IFRS?
22) Francisco Corporation is constructing a new building at a total
initial cost of $10,000,000. The building is expected to have a useful
life of 50 years with no residual value. The building’s finished
surfaces (e.g., roof cover and floor cover) are 5% of this cost and have
a useful life of 20 years. Building services systems (e.g., electric,
heating, and plumbing) are 20% of the cost and have a useful life of
25 years. The depreciation in the first year using component
depreciation, assuming straight-line depreciation with no residual
value, is:
23) Which of the following statements is correct?
Both IFRS and GAAP permit revaluation of property, plant, and
equipment.
IFRS permits revaluation of property, plant, and equipment but not
GAAP.
Both IFRS and GAAP do not permit revaluation of property, plant,
and equipment.
GAAP permits revaluation of property, plant, and equipment but not
IFRS.
24) Hilo Company has land that cost $350,000 but now has a fair
value of $500,000. Hilo Company decides to use the revaluation
method specified in IFRS to account for the land. Which of the
following statements is correct?
25) Under IFRS, value-in-use is defined as:
**************************************
ACC 304 Week 5 Midterm Part 1 (Set 1)

The book value of a plant asset is
The asset turnover ratio is computed by dividing
On September 19, 2014, Markham Co. purchased machinery for
$285,000. Salvage value was estimated to be $15,000. The machinery
will be depreciated over eight years using the sum-of-the-years'-digits
method. If depreciation is computed on the basis of the nearest full
month, Markham should record depreciation expense for 2015 on this
machinery of
In 2014, Bargain shop reported net income of $5.7 billion, net sales of
$175 billion, and average total assets of $70 billion. What is Bargain
shop's asset turnover ratio?
In 2006, Jarrett Company purchased a tract of land as a possible
future plant site. In January, 2014, valuable sulphur deposits were
discovered on adjoining property and Jarrett Company immediately
began explorations on its property. In December, 2014, after incurring
$800,000 in exploration costs, which were accumulated in an expense
account, Jarrett discovered sulphur deposits appraised at $4,500,000
more than the value of the land. To record the discovery of the
deposits, Jarrett should
The primary IFRS related to property, plant and equipment is found in
Ryan Distribution Co. has determined its December 31, 2014
inventory on a FIFO basis at $490,000. Information pertaining to that
inventory follows:

LF Corporation, a manufacturer of Mexican foods, contracted in 2014
to purchase 1,500 pounds of a spice mixture at $5.00 per pound,
delivery to be made in spring of 2015. By 12/31/14, the price per
pound of the spice mixture had dropped to $4.70 per pound. In 2014,
LF should recognize
Plank Co. uses the retail inventory method. The following information
is available for the current year.
Cost
Retail
Beginning inventory
$234,000
$366,000
Purchases
885,000
1,245,000
Freight-in
15,000
—
Employee discounts
—
6,000
Net markups
—

45,000
Net markdowns
—
60,000
Sales revenue
—
1,170,000
10.
Which of the following is true of normal shortages?
Under the lower-of-cost-or-market method, the replacement cost of an
inventory item would be used as the designated market value
Which of the following is not a common disclosure for inventories?
The use of a Purchase Discounts account implies that the recorded
cost of a purchased inventory item is its
Hay Company had January 1 inventory of $180,000 when it adopted
dollar-value LIFO. During the year, purchases were $1,080,000 and
sales were $1,800,000. December 31 inventory at year-end prices was
$227,700, and the price index was 110.
What is Hay Company’s gross profit
16. In the double-extension method, the value of the units in
inventory is extended at:
17. Web World began using dollar-value LIFO for costing its
inventory last year. The base year layer consists of $400,000.
Assuming the current inventory at end of year prices equals $552,000
and the index for the current year is 1.10, what is the ending inventory
using dollar-value LIFO?
18.
RF Company had January 1 inventory of $200,000 when it adopted
dollar-value LIFO. During the year, purchases were $1,200,000 and

sales were $2,000,000. December 31 inventory at year-end prices was
$286,720, and the price index was 112.
What is RF Company’s gross profit?
19. Cotton Hotel Corporation recently purchased Emporia Hotel and
the land on which it is located with the plan to tear down the Emporia
Hotel and build a new luxury hotel on the site. The cost of the
Emporia Hotel should be
20. Ecker Company purchased a new machine on May 1, 2006 for
$352,000. At the time of acquisition, the machine was estimated to
have a useful life of ten years and an estimated salvage value of
$16,000. The company has recorded monthly depreciation using the
straight-line method. On March 1, 2015, the machine was sold for
$48,000. What should be the loss recognized from the sale of the
machine?
21. Under IFRS, Sampson Company, who has a non-current asset
which has been classified as held-for-sale, should
22. The cost of land does not include
23. Which of the following is not a condition that must be satisfied
before interest capitalization can begin on a qualifying asset?
24. Which of the following is not a major characteristic of a plant
asset?
25. Ringler Corporation exchanges one plant asset for a similar plant
asset and gives cash in the exchange. The exchange is not expected to
cause a material change in the future cash flows for either entity. If a
gain on the disposal of the old asset is indicated, the gain will
**************************************
ACC 304 Week 5 Midterm Part 1 (Set 2)

Multiple Choice Question 90
If Labor, Inc. uses the composite method and its composite rate is
7.5% per year, what entry should it make when plant assets that
originally cost $80,000 and have been used for 10 years are sold for
$24,000?
Porter Resources Company acquired a tract of land containing an
extractable natural resource. Porter is required by its purchase
contract to restore the land to a condition suitable for recreational use
after it has extracted the natural resource. Geological surveys estimate
that the recoverable reserves will be 2,000,000 tons, and that the land
will have a value of $1,000,000 after restoration. Relevant cost
information follows:
In 2014, shop reported net income of $5.7 billion, net sales of $175
billion, and average total assets of $70 billion. What is Bargain shop's
return on total assets?
In 2006, Jarrett Company purchased a tract of land as a possible
future plant site. In January, 2014, valuable sulphur deposits were
discovered on adjoining property and Jarrett Company immediately
began explorations on its property. In December, 2014, after incurring
$800,000 in exploration costs, which were accumulated in an expense
account, Jarrett discovered sulphur deposits appraised at $4,500,000
more than the value of the land. To record the discovery of the
deposits, Jarrett should
Grover Corporation purchased a truck at the beginning of 2014 for
$93,600. The truck is estimated to have a salvage value of $3,600 and
a useful life of 120,000 miles. It was driven 21,000 miles in 2014 and
29,000 miles in 2015. What is the depreciation expense for 2015?
Halltown Company purchased a depreciable asset for $450,000. The
estimated salvage value is $30,000, and the estimated useful life is 8
years. The double-declining balance method will be used for
depreciation. What is the depreciation expense for the second year on
this asset?

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