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This Tutorial contains excel File which can be used to solve for any change in
values Brief Exercise 7-1 Brief Exercise 7-7 Brief Exercise 7-14 Brief Exercise
7-15 Brief Exercise 8-4 (Part Level Submission) Brief Exercise 8-5 Brief
Exercise 8-6 Multiple Choice Question 21 Question 14 Brief Exercise 9-4
Exercise 9-4 Brief Exercise 10-6 Brief Exercise 10-8 Exercise 10-1 Question 9
Brief Exercise 11-8 Brief Exercise 12-2 Brief Exercise 12-8 Exercise 12-3 Brief
Exercise 13-2 Brief Exercise 13-5 Brief Exercise 13-10 Brief Exercise 13-13
Brief Exercise 14-3 Brief Exercise 14-12 Brief Exercise 14-14 Brief Exercise
21-11 Exercise 21-1 Multiple Choice Question 99 Multiple Choice Question 70
Brief Exercise 7-1 Your answer is correct. Vaughn Enterprises owns the
following assets at December 31, 2017. Cash in bank—savings account 69,000
Checking account balance 17,600 Cash on hand 9,030
Postdated checks 770 Cash refund due from IRS 35,600Certificates
of deposit (180-day) 94,570 What amount should be reported as cash?
Brief Exercise 7-7 Larkspur Family Importers sold goods to Tung Decorators
for $40,800 on November 1, 2017, accepting Tung’s $40,800, 6-month, 6%
note. Prepare Larkspur’s November 1 entry, December 31 annual adjusting
entry, and May 1 entry for the collection of the note and interest. Brief
Exercise 7-14 Recent financial statements of General Mills, Inc. report net
sales of $12,442,000,000. Accounts receivable are $912,000,000 at the
beginning of the year and $953,000,000 at the end of the year. Brief Exercise
7-15 Indigo Company designated Jill Holland as petty cash custodian and
established a petty cash fund of $290. The fund is reimbursed when the cash
in the fund is at $26, which it is. Petty cash receipts indicate funds were
disbursed for office supplies $92 and miscellaneous expense $169. Prepare
journal entries for the establishment of the fund and the reimbursement.
Brief Exercise 8-4 (Part Level Submission) Pharoah Company uses a periodic

inventory system. For April, when the company sold 500 units, the following
information is available. Units Unit Cost Total Cost April 1 inventory
290 $32 $ 9,280 April 15 purchase 430 3816,340April 23
purchase 280 42 11,7601,000 $37,380 Brief Exercise 8-6 Your
answer is correct. Sandhill Company uses a periodic inventory system. For
April, when the company sold 600 units, the following information is
available. Units Unit Cost Total Cost April 1 inventory 270 $30
$ 8,100 April 15 purchase 440 36 15,840April 23 purchase
290 39 11,3101,000 $35,250 Compute the April 30 inventory
and the April cost of goods sold using the LIFO method. Multiple Choice
Question 21 Which of the following inventories carried by a manufacturer is
similar to the merchandise inventory of a retailer? Question 14 A fire
destroys all of the merchandise of Shamrock Company on February 10, 2017.
Presented below is information compiled up to the date of the fire. Inventory,
January 1, 2017 $432,200 Sales revenue to February 10, 2017 1,935,200
Purchases to February 10, 2017 1,104,580 Freight-in to February
10, 2017 59,180Rate of gross profit on selling price 35% What is the
approximate inventory on February 10, 2017? Exercise 9-4 Martinez
Company began operations in 2017 and determined its ending inventory at
cost and at LCNRV at December 31, 2017, and December 31, 2018. This
information is presented below. Cost Net Realizable Value 12/31/17
$322,170 $299,520 12/31/18 409,250 390,440 (a)
Prepare the journal entries required at December 31, 2017, and December 31,
2018, assuming inventory is recorded at LCNRV and a perpetual inventory
system using the cost-of-goods-sold method. Brief Exercise 10-6 Waterway
Inc. purchased land, building, and equipment from Laguna Corporation for a
cash payment of $327,600. The estimated fair values of the assets are land
$62,400, building $228,800, and equipment $83,200. At what amounts should
each of the three assets be recorded? Brief Exercise 10-8 Pearl Corporation
traded a used truck (cost $29,600, accumulated depreciation $26,640) for a
small computer with a fair value of $4,884. Pearl also paid $740 in the
transaction. Prepare the journal entry to record the exchange. (The exchange
has commercial substance.) Exercise 10-1 The expenditures and receipts
below are related to land, land improvements, and buildings acquired for use
in a business enterprise. The receipts are enclosed in parentheses. (a)
Money borrowed to pay building contractor (signed a note)
$(285,400 ) (b) Payment for construction from note proceeds

285,400 (c) Cost of land fill and clearing 11,790(d)
Delinquent real estate taxes on property assumed by purchaser 7,300
(e) Premium on 6-month insurance policy during construction
8,580 (f) Refund of 1-month insurance premium because
construction completed early (1,430 ) (g) Architect’s fee on building
26,200 (h) Cost of real estate purchased as a plant site (land $209,100
and building $52,900) 262,000 (i) Commission fee paid to real
estate agency 8,970 (j) Installation of fences around property 3,770
(k) Cost of razing and removing building 11,710(l) Proceeds
from salvage of demolished building (4,550 ) (m) Interest paid during
construction on money borrowed for construction 13,150(n) Cost of
parking lots and driveways 20,050(o) Cost of trees and shrubbery
planted (permanent in nature) 14,440(p) Excavation costs for new
building 2,700 Identify each item by letter and list the items in columnar
form, using the headings shown below. All receipt amounts should be
reported in parentheses. For any amounts entered in the Other Accounts
column, also indicate the account title. Question 9 Sage Company purchased
machinery for $174,300 on January 1, 2017. It is estimated that the
machinery will have a useful life of 20 years, salvage value of $14,700,
production of 81,900 units, and working hours of 44,000. During 2017, the
company uses the machinery for 11,440 hours, and the machinery produces
9,009 units. Compute depreciation under the straight-line, units-of-output,
working hours, sum-of-the-years’-digits, and double-declining-balance
methods. Brief Exercise 11-8 Carla Company owns equipment that cost
$1,008,000 and has accumulated depreciation of $425,600. The expected
future net cash flows from the use of the asset are expected to be $560,000.
The fair value of the equipment is $448,000. Prepare the journal entry, if any,
to record the impairment loss. Brief Exercise 12-8 Concord Corporation
purchased Johnson Company 3 years ago and at that time recorded goodwill
of $330,000. The Johnson Division’s net assets, including the goodwill, have a
carrying amount of $700,000. The fair value of the division is estimated to be
$668,000 and the implied goodwill is $298,000. Prepare Concord journal
entry to record impairment of the goodwill. Exercise 12-3 Joni Marin Inc. has
the following amounts reported in its general ledger at the end of the current
year. Organization costs $24,400 Trademarks 16,900 Discount on bonds
payable 37,400 Deposits with advertising agency for ads to promote
goodwill of company 12,400 Excess of cost over fair value of net

identifiable assets of acquired subsidiary 77,400 Cost of equipment
acquired for research and development projects; the equipment has an
alternative future use 87,400 Costs of developing a secret formula for a
product that is expected to be marketed for at least 20 years 83,800 (a)
On the basis of this information, compute the total amount to be reported by
Marin for intangible assets on its balance sheet at year-end. Brief Exercise 13-
2 Ivanhoe Company borrowed $30,000 on November 1, 2017, by signing a
$30,000, 8%, 3-month note. Prepare Ivanhoe’s November 1, 2017, entry; the
December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.
Brief Exercise 13-5 Riverbed Corporation made credit sales of $19,800 which
are subject to 7% sales tax. The corporation also made cash sales which
totaled $28,462 including the 7% sales tax. Prepare the entry to record
Riverbed’s credit sales. Brief Exercise 13-10 Windsor Inc. is involved in a
lawsuit at December 31, 2017. Prepare the December 31 entry assuming it is
probable that Windsor will be liable for $862,200 as a result of this suit. Brief
Exercise 13-13 Martinez Factory provides a 2-year warranty with one of its
products which was first sold in 2017. Martinez sold $930,400 of products
subject to the warranty. Martinez expects $124,050 of warranty costs over the
next 2 years. In that year, Martinez spent $70,460 servicing warranty claims.
Prepare Martinez’s journal entry to record the sales (ignore cost of goods
sold) and the December 31 adjusting entry, assuming the expenditures are
inventory costs. Brief Exercise 14-3 The Skysong Company issued $260,000 of
10% bonds on January 1, 2017. The bonds are due January 1, 2022, with
interest payable each July 1 and January 1. The bonds were issued at 98.
Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31.
Assume The Skysong Company records straight-line amortization
semiannually. Brief Exercise 14-12 Vaughn Corporation issued a 4-year,
$55,000, 5% note to Greenbush Company on January 1, 2017, and received a
computer that normally sells for $44,762. The note requires annual interest
payments each December 31. The market rate of interest for a note of similar
risk is 11%. Prepare Vaughn’s journal entries for (a) the January 1 issuance
and (b) the December 31 interest. Multiple Choice Question 99 On June 30,
2018, Sheridan Co. sold equipment to an unaffiliated company for $2250000.
The equipment had a book value of $1205000 and a remaining useful life of
10 years. That same day, Sheridan leased back the equipment at $12500 per
month for 5 years with no option to renew the lease or repurchase the

equipment. Sheridan’s rent expense for this equipment for the year ended
December 31, 2018, should be
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1. Kraft Enterprises owns the following assets at December 31, 2012. Cash in
bank–savings account 67,516Checking account balance 26,445 Cash
on hand 9,478 Postdated checks 753 Cash refund due from IRS 40,324
Certificates of deposit (180-day) 94,754 What amount should be
reported as cash? Question 2 Presented below is information related to
Rembrandt Inc.’s inventory. (per unit) Skis
Boots Parkas Historical Cost 273.79
152.75 76.37 Selling Price 312.70 208.95
106.27 Cost to distribute 27.38 11.53 3.60
Current replacement cost 292.52 151.31 73.49
Normal profit margin 46.11 41.79 30.62
Determine the following: Question 3 Matlock Company uses a perpetual
inventory system. Its beginning inventory consists of 67 units that cost $40
each. During June, the company purchased 202 units at $40 each, returned 8
units for credit, and sold 168 units at $67 each. Journalize the June
transactions. Question 4 Amsterdam Company uses a periodic inventory
system. For April, when the company sold 700 units, the following
information is available. Compute the April 30 inventory and the April cost of
goods sold using the average cost method. Question 5 Amsterdam Company
uses a periodic inventory system. For April, when the company sold 600 units,
the following information is available. Compute the April 30 inventory and
the April cost of goods sold using the FIFO method. Question 6 (FIFO,
LIFO, Average Cost Inventory) Esplanade Company was formed on
December 1, 2011. The following information is available from Esplanade’s

inventory records for Product BAP. Purchases
Units Unit Cost January 1, 2012(beginning inventory) 762
8.00 January 5, 2012 1,524 9.00 January
25, 2012 1,651 10.00 February 16, 2012
1,061 11.00 March 26, 2012 762
12.00 A physical inventory on March 31, 2012, shows 2,032 units on hand.
Prepare schedules to compute the ending inventory at March 31, 2012, under
each of the following inventory methods. Assume Esplanade Company uses
the periodic inventory method. Question 7 Floyd Corporation has the
following four items in its ending inventory. Determine the final lower of cost
or market inventory value for each item. Question 8 Kumar Inc. uses a
perpetual inventory system. At January 1, 2013, inventory was $320,786 at
both cost and market value. At December 31, 2013, the inventory was
$428,714 at cost and $403,231 at market value. Prepare the necessary
December 31 entry under: Question 9 Boyne Inc. had beginning inventory of
$15,000 at cost and $25,000 at retail. Net purchases were $150,000 at cost and
$212,500 at retail. Net markups were $12,500; net markdowns were $8,750;
and sales were $196,250. Compute ending inventory at cost using the
conventional retail method. Question 10 (Gross Profit Method) Astaire
Company uses the gross profit method to estimate inventory for monthly
reporting purposes. Presented below is information for the month of May.
Question 11 Previn Brothers Inc. purchased land at a price of $30,400.
Closing costs were $1,820. An old building was removed at a cost of $14,850.
What amount should be recorded as the cost of the land? Question 12
Garcia Corporation purchased a truck by issuing an $108,000, 4-year, zero-
interest-bearing note to Equinox Inc. The market rate of interest for
obligations of this nature is 10%. Prepare the journal entry to record the
purchase of this truck. Question 13 Mohave Inc. purchased land, building,
and equipment from Laguna Corporation for a cash payment of $352,800.
The estimated fair values of the assets are land $67,200, building $246,400,
and equipment $89,600. At what amounts should each of the three assets be
recorded? Question 14 Fielder Company obtained land by issuing 2,000
shares of its $12 par value common stock. The land was recently appraised at
$103,700. The common stock is actively traded at $50 per share. Prepare the
journal entry to record the acquisition of the land. Question 15 Navajo
Corporation traded a used truck (cost $23,600, accumulated depreciation
$21,240) for a small computer worth $4,366. Navajo also paid $1,180 in the

transaction. Prepare the journal entry to record the exchange. Question 16
Mehta Company traded a used welding machine (cost $10,080, accumulated
depreciation $3,360) for office equipment with an estimated fair value of
$5,600. Mehta also paid $3,360 cash in the transaction. Prepare the journal
entry to record the exchange. Question 17 Depreciation is normally
computed on the basis of the nearest A). full month and to the nearest dollar.
B). day and to the nearest cent. C). day and to the nearest dollar. D). full
month and to the nearest cent. Question 18 Fernandez Corporation
purchased a truck at the beginning of 2012 for $54,180. The truck is
estimated to have a salvage value of $2,580 and a useful life of 206,400 miles.
It was driven 29,670 miles in 2012 and 39,990 miles in 2013. Compute
depreciation expense for 2012 and 2013. Question 19 Lockhard Company
purchased machinery on January 1, 2012, for $79,200. The machinery is
estimated to have a salvage value of $7,920 after a useful life of 8 years. (a)
Compute 2012 depreciation expense using the double-declining balance
method. (b) Compute 2012 depreciation expense using the double-declining
balance method assuming the machinery was purchased on October 1, 2012.
Question 20 Jurassic Company owns machinery that cost $1,145,700 and has
accumulated depreciation of $458,280. The expected future net cash flows
from the use of the asset are expected to be $636,500. The fair value of the
equipment is $509,200. Prepare the journal entry, if any, to record the
impairment loss. Question 21 Everly Corporation acquires a coal mine at a
cost of $501,600. Intangible development costs total $125,400. After extraction
has occurred, Everly must restore the property (estimated fair value of the
obligation is $100,320), after which it can be sold for $200,640. Everly
estimates that 5,016 tons of coal can be extracted. If 878 tons are extracted the
first year, prepare the journal entry to record depletion. Question 22 Francis
Corporation purchased an asset at a cost of $58,200 on March 1, 2012. The
asset has a useful life of 8 years and a salvage value of $5,820. For tax
purposes, the MACRS class life is 5 years. Compute tax depreciation for each
year 2012–2017. Question 23 Celine Dion Corporation purchases a patent
from Salmon Company on January 1, 2012, for $50,820. The patent has a
remaining legal life of 16 years. Celine Dion feels the patent will be useful for
10 years. Prepare Celine Dion’s journal entries to record the purchase of the
patent and 2012 amortization. Question 24 Karen Austin Corporation has
capitalized software costs of $768,500, and sales of this product the first year
totaled $390,630. Karen Austin anticipates earning $911,470 in additional

future revenues from this product, which is estimated to have an economic
life of 4 years. Compute the amount of software cost amortization for the first
year. (a) Compute the amount of software cost amortization for the first year
using the percent of revenue approach. (b) Compute the amount of software
cost amortization for the first year using the straight-line approach.
Question 25 Jeff Beck is a farmer who owns land which borders on the right-
of-way of the Northern Railroad. On August 10, 2012, due to the admitted
negligence of the Railroad, hay on the farm was set on fire and burned. Beck
had had a dispute with the Railroad for several years concerning the
ownership of a small parcel of land. The representative of the Railroad has
offered to assign any rights which the Railroad may have in the land to Beck
in exchange for a release of his right to reimbursement for the loss he has
sustained from the fire. Beck appears inclined to accept the Railroad’s offer.
The Railroad’s 2012 financial statements should include the following related
to the incident: A). recognition of a loss only. B). creation of a liability only.
C). disclosure in note form only. D). recognition of a loss and creation of a
liability for the value of the land. Question 26 Roley Corporation uses a
periodic inventory system and the gross method of accounting for purchase
discounts. On July 1, Roley purchased $66,000 of inventory, terms 2/10, n/30,
FOB shipping point. Roley paid freight costs of $1,210. On July 3, Roley
returned damaged goods and received credit of $6,600. On July 10, Roley
paid for the goods. Prepare all necessary journal entries for Roley. Question
27 Takemoto Corporation borrowed $93,000 on November 1, 2012, by signing
a $95,093, 3-month, zero-interest-bearing note. Prepare Takemoto’s
November 1, 2012, entry; the December 31, 2012, annual adjusting entry; and
the February 1, 2013, entry. (For multiple debit/credit en tries, list amounts
from largest to smallest, e.g. 10, 8, 6. Round all answers to 0 decimal places,
e.g. 11,150.) Question 28 Whiteside Corporation issues $629,000 of 9%
bonds, due in 14 years, with interest payable semiannually. At the time of
issue, the annual market rate for such bonds is 10%. Compute the issue price
of the bonds.(Use the present value tables in the text. Question 29 Indiana
Jones Company enters into a 6-year lease of equipment on January 1, 2012,
which requires 6 annual payments of $37,560 each, beginning January 1,
2012. In addition, the lessee guarantees a residual value of $20,870 at lease-
end. The equipment has a useful life of 6 years. Assume that for Lost Ark
Company, the lessor, collectibility is reasonably predictable, there are no
important uncertainties concerning costs, and the carrying amount of the

machinery is $191,722. Prepare Lost Ark’s January 1, 2012, journal entries.
Question 30 On January 1, 2012, Irwin Animation sold a truck to Peete
Finance for $26,050 and immediately leased it back. The truck was carried on
Irwin’s books at $20,800. The term of the lease is 5 years, and title transfers to
Irwin at lease-end. The lease requires five equal rental payments of $7,048 at
the end of each year. The appropriate rate of interest is 11%, and the truck
has a useful life of 5 years with no salvage value. Prepare Irwin’s 2012 journal
entries.
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SET 2 1) Which of the following is considered cash? 2) Bank overdrafts, if
material, should be 3) Which of the following is NOT considered cash for
financial reporting purposes? 4) If a company employs the gross method of
recording accounts receivable from customers, then sales discounts taken
should be reported as 5) Which of the following methods of determining
annual bad debt expense best achieves the matching concept? 6) The
advantage of relating a company's bad debt expense to its outstanding
accounts receivable is that this approach 7) 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 8) Belle Co. received merchandise on
consignment. As of March 31, Belle had recorded the transaction as a
purchase and included the goods in inventory. The effect of this on its
financial statements for March 31 9) Eller Co. received merchandise on
consignment. As of January 31, Eller included the goods in inventory, but did
NOT record the transaction. The effect of this on its financial statements for
January 31 10) The use of a Purchase Discounts account implies that the

recorded cost of a purchased inventory item is its 11) Which method of
inventory pricing best approximates specific identification of the actual flow
of costs and units in most manufacturing situations? 12) 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? 13) 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? 14) Designated market value 15) In no case can "market" in the lower-
of-cost-or-market rule be more than 16) A major advantage of the retail
inventory method is that it 17) The gross profit method of inventory valuation
is invalid when 18) The retail inventory method is based on the assumption
that the 19) Which of the following is NOT a major characteristic of a plant
asset? 20) Cotton Hotel Corporation recently purchased Holiday Hotel and
the land on which it is located with the plan to tear down the Holiday Hotel
and build a new luxury hotel on the site. The cost of the Holiday Hotel should
be 21) 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 22) The
period of time during which interest must be capitalized ends when 23) To be
consistent with the historical cost principle, overhead costs incurred by an
enterprise constructing its own building should be 24) When computing the
amount of interest cost to be capitalized, the concept of "avoidable interest"
refers to 25) The King-Kong 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 26) 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 27) Which of the
following is NOT a condition that must be satisfied before interest
capitalization can begin on a qualifying asset? 28) Which of the following
most accurately reflects the concept of depreciation as used in accounting?
29) Which of the following principles best describes the conceptual rationale
for the methods of matching depreciation expense with revenues? 30) The

major difference between the service life of an asset and its physical life is that
31) Starr Company purchased a depreciable asset for $150,000. The estimated
salvage value is $10,000, and the estimated useful life is 8 years. The double-
declining balance method will be used for depreciation. What is the
depreciation expense for the second year on this asset? 32) Bigbie Company
purchased a depreciable asset for $600,000. The estimated salvage value is
$30,000, and the estimated useful life is 10,000 hours. Bigbie used the asset for
1,100 hours in the current year. The activity method will be used for
depreciation. What is the depreciation expense on this asset? 33) Harrison
Company purchased a depreciable asset for $100,000. The estimated salvage
value is $10,000, and the estimated useful life is 10 years. The straight-line
method will be used for depreciation. What is the depreciation base of this
asset? 34) Costs incurred internally to create intangibles are 35) The cost of
purchasing patent rights for a product that might otherwise have seriously
competed with one of the purchaser's patented products should be 36) Riser
Corporation was granted a patent on a product on January 1, 1998. To
protect its patent, the corporation purchased on January 1, 2007 a patent on a
competing product which was originally issued on January 10, 2003. Because
of its unique plant, Riser Corporation does NOT feel the competing patent
can be used in producing a product. The cost of the competing patent should
be 37) Twilight Corporation acquired End-of-the-World Products on January
1, 2008 for $2,000,000, and recorded goodwill of $375,000 as a result of that
purchase. At December 31, 2008, the End-of-the-World Products Division had
a fair value of $1,700,000. The net identifiable assets of the Division
(excluding goodwill) had a fair value of $1,450,000 at that time. What amount
of loss on impairment of goodwill should Twilight record in 2008? 38)
Fleming Corporation acquired Out-of-Sight Products on January 1, 2008 for
$4,000,000, and recorded goodwill of $750,000 as a result of that purchase. At
December 31, 2008, the Out-of-Sight Products Division had a fair value of
$3,400,000. The net identifiable assets of the Division (excluding goodwill) had
a fair value of $2,900,000 at that time. What amount of loss on impairment of
goodwill should Fleming record in 2008? 39) Malrom Manufacturing
Company acquired a patent on a manufacturing process on January 1, 2006
for $10,000,000. It was expected to have a 10 year life and no residual value.
Malrom uses straight-line amortization for patents. On December 31, 2007,
the expected future cash flows expected from the patent were expected to be
$800,000 per year for the next eight years. The present value of these cash

flows, discounted at Malrom’s market interest rate, is $4,800,000. At what
amount should the patent be carried on the December 31, 2007 balance sheet?
40) Goodwill 41) Easton Company and Lofton Company were combined in a
purchase transaction. Easton was able to acquire Lofton at a bargain price.
The sum of the market or appraised values of identifiable assets acquired less
the fair value of liabilities assumed exceeded the cost to Easton. After
revaluing noncurrent assets to zero, there was still some "negative goodwill."
Proper accounting treatment by Easton is to report the amount as 42) The
reason goodwill is sometimes referred to as a master valuation account is
because 43) Which of the following items is a current liability? 44) Which of
the following statements is false? 45) Stock dividends distributable should be
classified on the 46) Simson Company has 35 employees who work 8-hour
days and are paid hourly. On January 1, 2006 the company began a program
of granting its employees 10 days of paid vacation each year. Vacation days
earned in 2006 may first be taken on January 1, 2007. Information relative to
these employees is as follows: Year Hourly Wages Vacation Days Earned by
Each Employee Vacation Dayse Used by Each Employee 2006 $28.50 10 0
2007 $27.00 10 8 2008 $28.50 10 10 What is the amount of expense relative to
compensated absences that should be reported on Simson’s income statement
for 2006? 47) A company buys an oil rig for $1,000,000 on January 1, 2007.
The life of the rig is 10 years and the expected cost to dismantle the rig at the
end of 10 years is $200,000 (present value at 10% is $77,110). 10% is an
appropriate interest rate for this company. What expense should be recorded
for 2007 as a result of these events? 48) A company offers a cash rebate of $1
on each $4 package of batteries sold during 2007. Historically, 10% of
customers mail in the rebate form. During 2007, 6,000,000 packages of
batteries are sold, and 210,000 $1 rebates are mailed to customers. What is
the rebate expense and liability, respectively, shown on the 2007 financial
statements dated December 31? 49) A contingency can be accrued when 50)
Which of the following sets of conditions would give rise to the accrual of a
contingency under current generally accepted accounting principles? 51)
Mark Ward is a farmer who owns land which borders on the right-of-way of
the Northern Railroad. On August 10, 2007, due to the admitted negligence of
the Railroad, hay on the farm was set on fire and burned. Ward had had a
dispute with the Railroad for several years concerning the ownership of a
small parcel of land. The representative of the Railroad has offered to assign
any rights which the Railroad may have in the land to Ward in exchange for a

release of his right to reimbursement for the loss he has sustained from the
fire. Ward appears inclined to accept the Railroad's offer. The Railroad's
2007 financial statements should include the following related to the incident:
52) An example of an item which is NOT a liability is 53) The covenants and
other terms of the agreement between the issuer of bonds and the lender are
set forth in the 54) Bonds for which the owners' names are NOT registered
with the issuing corporation are called 55) Minimum lease payments may
include a 56) What impact does a bargain purchase option have on the
present value of the minimum lease payments computed by the lessee? 57)
Which of the following is a correct statement of one of the capitalization
criteria? 58) In order to properly record a direct-financing lease, the lessor
needs to know how to calculate the lease receivable. The lease receivable in a
direct-financing lease is best defined as 59) In the earlier years of a lease,
from the lessee's perspective, the use of the 60) In a lease that is appropriately
recorded as a direct-financing lease by the lessor, unearned income
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SET 3 1) Which of the following is NOT considered cash for financial
reporting purposes? 2) What is the preferable presentation of accounts
receivable from officers, employees, or affiliated companies on a balance
sheet? 3) Which of the following items should NOT be included in the Cash
caption on the balance sheet? 4) The advantage of relating a company's bad
debt expense to its outstanding accounts receivable is that this approach 5)
Which of the following is a generally accepted method of determining the
amount of the adjustment to bad debt expense? 6) Assuming that the ideal
measure of short-term receivables in the balance sheet is the discounted value

of the cash to be received in the future, failure to follow this practice usually
does NOT make the balance sheet misleading because 7) Eller Co. received
merchandise on consignment. As of January 31, Eller included the goods in
inventory, but did NOT record the transaction. The effect of this on its
financial statements for January 31 would be 8) If the beginning inventory for
2006 is overstated, the effects of this error on cost of goods sold for 2006, net
income for 2006, and assets at December 31, 2007, respectively, are 9) The
accountant for the Orion Sales Company is preparing the income statement
for 2007 and the balance sheet at December 31, 2007. Orion uses the periodic
inventory system. The January 1, 2007 merchandise inventory balance will
appear 10) The use of a Discounts Lost account implies that the recorded cost
of a purchased inventory item is its 11) 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? 12) The use of a Purchase
Discounts account implies that the recorded cost of a purchased inventory
item is its 13) In no case can "market" in the lower-of-cost-or-market rule be
more than 14) When the direct method is used to record inventory at market
15) Designated market value 16) The retail inventory method is based on the
assumption that the 17) In 2006, Lucas Manufacturing signed a contract with
a supplier to purchase raw materials in 2007 for $700,000. Before the
December 31, 2006 balance sheet date, the market price for these materials
dropped to $510,000. The journal entry to record this situation at December
31, 2006 will result in a credit that should be reported 18) The gross profit
method of inventory valuation is invalid when 19) Which of the following is
NOT a major characteristic of a plant asset? 20) The cost of land does NOT
include 21) 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 22) To be
consistent with the historical cost principle, overhead costs incurred by an
enterprise constructing its own building should be 23) When computing the
amount of interest cost to be capitalized, the concept of "avoidable interest"
refers to 24) The period of time during which interest must be capitalized
ends when 25) 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 26) 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 27) When a plant
asset is acquired by issuance of common stock, the cost of the plant asset is
properly measured by the 28) If an industrial firm uses the units-of-
production method for computing depreciation on its only plant asset, factory
machinery, the credit to accumulated depreciation from period to period
during the life of the firm will 29) The term "depreciable cost," or
"depreciable base," as it is used in accounting, refers to 30) Which of the
following most accurately reflects the concept of depreciation as used in
accounting? 31) Prentice Company purchased a depreciable asset for
$200,000. The estimated salvage value is $20,000, and the estimated useful life
is 10 years. The straight-line method will be used for depreciation. What is
the depreciation base of this asset? 32) Pine Company purchased a
depreciable asset for $360,000. The estimated salvage value is $24,000, 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? 33) Bigbie Company purchased a depreciable asset for
is 10,000 hours. Bigbie used the asset for 1,100 hours in the current year. The
activity method will be used for depreciation. What is the depreciation
expense on this asset? 34) The cost of purchasing patent rights for a product
that might otherwise have seriously competed with one of the purchaser's
patented products should be 35) Riser Corporation was granted a patent on a
product on January 1, 1998. To protect its patent, the corporation purchased
on January 1, 2007 a patent on a competing product which was originally
issued on January 10, 2003. Because of its unique plant, Riser Corporation
does NOT feel the competing patent can be used in producing a product. The
cost of the competing patent should be 36) Which of the following methods of
amortization is normally used for intangible assets? 37) General Products
Company bought Special Products Division in 2006 and appropriately booked
$250,000 of goodwill related to the purchase. On December 31, 2007, the fair
value of Special Products Division is $2,000,000 and it is carried on General
Product’s books for a total of $1,700,000, including the goodwill. An analysis
of Special Products Division’s assets indicates that goodwill of $200,000 exists
on December 31, 2007. What goodwill impairment should be recognized by
General Products in 2007? 38) Twilight Corporation acquired End-of-the-
World Products on January 1, 2008 for $2,000,000, and recorded goodwill of

$375,000 as a result of that purchase. At December 31, 2008, the End-of-the-
World Products Division had a fair value of $1,700,000. The net identifiable
assets of the Division (excluding goodwill) had a fair value of $1,450,000 at
that time. What amount of loss on impairment of goodwill should Twilight
record in 2008? 39) Fleming Corporation acquired Out-of-Sight Products on
January 1, 2008 for $4,000,000, and recorded goodwill of $750,000 as a result
of that purchase. At December 31, 2008, the Out-of-Sight Products Division
had a fair value of $3,400,000. The net identifiable assets of the Division
of loss on impairment of goodwill should Fleming record in 2008? 40) When a
patent is amortized, the credit is usually made to 41) The reason goodwill is
sometimes referred to as a master valuation account is because 42) Easton
Company and Lofton Company were combined in a purchase transaction.
Easton was able to acquire Lofton at a bargain price. The sum of the market
or appraised values of identifiable assets acquired less the fair value of
liabilities assumed exceeded the cost to Easton. After revaluing noncurrent
assets to zero, there was still some "negative goodwill." Proper accounting
treatment by Easton is to report the amount as 43) Stock dividends
distributable should be classified on the 44) Which of the following statements
is false? 45) Which of the following items is a current liability? 46) Simson
Company has 35 employees who work 8-hour days and are paid hourly. On
January 1, 2006 the company began a program of granting its employees 10
days of paid vacation each year. Vacation days earned in 2006 may first be
taken on January 1, 2007. Information relative to these employees is as
follows: What is the amount of expense relative to compensated absences that
should be reported on Simson’s income statement for 2006? 47) A company
offers a cash rebate of $1 on each $4 package of batteries sold during 2007.
Historically, 10% of customers mail in the rebate form. During 2007,
6,000,000 packages of batteries are sold, and 210,000 $1 rebates are mailed to
customers. What is the rebate expense and liability, respectively, shown on
the 2007 financial statements dated December 31? 48) A company offers a
cash rebate of $1 on each $4 package of light bulbs sold during 2007.
Historically, 10% of customers mail in the rebate form. During 2007,
4,000,000 packages of light bulbs are sold, and 140,000 $1 rebates are mailed
to customers. What is the rebate expense and liability, respectively, shown on
the 2007 financial statements dated December 31? 49) A contingency can be
accrued when 50) Mark Ward is a farmer who owns land which borders on

the right-of-way of the Northern Railroad. On August 10, 2007, due to the
admitted negligence of the Railroad, hay on the farm was set on fire and
burned. Ward had had a dispute with the Railroad for several years
concerning the ownership of a small parcel of land. The representative of the
Railroad has offered to assign any rights which the Railroad may have in the
land to Ward in exchange for a release of his right to reimbursement for the
loss he has sustained from the fire. Ward appears inclined to accept the
Railroad's offer. The Railroad's 2007 financial statements should include the
following related to the incident: 51) Which of the following sets of conditions
would give rise to the accrual of a contingency under current generally
accepted accounting principles? 52) If bonds are issued initially at a premium
and the effective-interest method of amortization is used, interest expense in
the earlier years will be 53) An example of an item which is NOT a liability is
54) The covenants and other terms of the agreement between the issuer of
bonds and the lender are set forth in the 55) Which of the following is a
correct statement of one of the capitalization criteria? 56) Which of the
following best describes current practice in accounting for leases? 57) While
only certain leases are currently accounted for as a sale or purchase, there is
theoretic justification for considering all leases to be sales or purchases. The
principal reason that supports this idea is that 58) The amount to be recorded
as the cost of an asset under capital lease is equal to the 59) In the earlier
years of a lease, from the lessee's perspective, the use of the 60) If the residual
value of a leased asset is guaranteed by a third party
__________________________________________________________________
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ACC 422 Final Exam Guide All 3 Sets
ACC-422-Final-Exam-Guide-All-3-Sets
www.acc422nerd.com

Details of All 180 Questions Given Below SET 1 1. Kraft Enterprises owns the
following assets at December 31, 2012. Cash in bank–savings account 67,516
Checking account balance 26,445 Cash on hand 9,478
Postdated checks 753 Cash refund due from IRS 40,324Certificates
of deposit (180-day) 94,754 What amount should be reported as cash?
Question 2 Presented below is information related to Rembrandt Inc.’s
inventory. (per unit) Skis Boots Parkas Historical Cost 273.79 152.75 76.37
Selling Price 312.70 208.95 106.27 Cost to distribute 27.38 11.53 3.60 Current
replacement cost 292.52 151.31 73.49 Normal profit margin 46.11 41.79 30.62
Determine the following: Question 3 Matlock Company uses a perpetual
inventory system. Its beginning inventory consists of 67 units that cost $40
each. During June, the company purchased 202 units at $40 each, returned 8
units for credit, and sold 168 units at $67 each. Journalize the June
transactions. Question 4 Amsterdam Company uses a periodic inventory
system. For April, when the company sold 700 units, the following
information is available. Compute the April 30 inventory and the April cost of
goods sold using the average cost method. Question 5 Amsterdam Company
uses a periodic inventory system. For April, when the company sold 600 units,
the following information is available. Compute the April 30 inventory and
the April cost of goods sold using the FIFO method. Question 6 (FIFO, LIFO,
Average Cost Inventory) Esplanade Company was formed on December 1,
2011. The following information is available from Esplanade’s inventory
records for Product BAP. Purchases Units Unit Cost January 1,
2012(beginning inventory) 762 8.00 January 5, 2012 1,524 9.00 January 25,
2012 1,651 10.00 February 16, 2012 1,061 11.00 March 26, 2012 762 12.00 A
physical inventory on March 31, 2012, shows 2,032 units on hand. Prepare
schedules to compute the ending inventory at March 31, 2012, under each of
the following inventory methods. Assume Esplanade Company uses the
periodic inventory method. Question 7 Floyd Corporation has the following
four items in its ending inventory. Determine the final lower of cost or market
inventory value for each item. Question 8 Kumar Inc. uses a perpetual
inventory system. At January 1, 2013, inventory was $320,786 at both cost
and market value. At December 31, 2013, the inventory was $428,714 at cost
and $403,231 at market value. Prepare the necessary December 31 entry
under: Question 9 Boyne Inc. had beginning inventory of $15,000 at cost and
$25,000 at retail. Net purchases were $150,000 at cost and $212,500 at retail.
Net markups were $12,500; net markdowns were $8,750; and sales were

$196,250. Compute ending inventory at cost using the conventional retail
method. Question 10 (Gross Profit Method) Astaire Company uses the gross
profit method to estimate inventory for monthly reporting purposes.
Presented below is information for the month of May. Question 11 Previn
Brothers Inc. purchased land at a price of $30,400. Closing costs were $1,820.
An old building was removed at a cost of $14,850. What amount should be
recorded as the cost of the land? Question 12 Garcia Corporation purchased
a truck by issuing an $108,000, 4-year, zero-interest-bearing note to Equinox
Inc. The market rate of interest for obligations of this nature is 10%. Prepare
the journal entry to record the purchase of this truck. Question 13 Mohave
Inc. purchased land, building, and equipment from Laguna Corporation for a
cash payment of $352,800. The estimated fair values of the assets are land
$67,200, building $246,400, and equipment $89,600. At what amounts should
each of the three assets be recorded? Question 14 Fielder Company obtained
land by issuing 2,000 shares of its $12 par value common stock. The land was
recently appraised at $103,700. The common stock is actively traded at $50
per share. Prepare the journal entry to record the acquisition of the land.
Question 15 Navajo Corporation traded a used truck (cost $23,600,
accumulated depreciation $21,240) for a small computer worth $4,366.
Navajo also paid $1,180 in the transaction. Prepare the journal entry to
record the exchange. Question 16 Mehta Company traded a used welding
machine (cost $10,080, accumulated depreciation $3,360) for office equipment
with an estimated fair value of $5,600. Mehta also paid $3,360 cash in the
transaction. Prepare the journal entry to record the exchange. Question 17
Depreciation is normally computed on the basis of the nearest A). full month
and to the nearest dollar. B). day and to the nearest cent. C). day and to the
nearest dollar. D). full month and to the nearest cent. Question 18 Fernandez
Corporation purchased a truck at the beginning of 2012 for $54,180. The
truck is estimated to have a salvage value of $2,580 and a useful life of 206,400
miles. It was driven 29,670 miles in 2012 and 39,990 miles in 2013. Compute
depreciation expense for 2012 and 2013. Question 19 Lockhard Company
purchased machinery on January 1, 2012, for $79,200. The machinery is
estimated to have a salvage value of $7,920 after a useful life of 8 years. (a)
Compute 2012 depreciation expense using the double-declining balance
method. (b) Compute 2012 depreciation expense using the double-declining
balance method assuming the machinery was purchased on October 1, 2012.
Question 20 Jurassic Company owns machinery that cost $1,145,700 and has

accumulated depreciation of $458,280. The expected future net cash flows
from the use of the asset are expected to be $636,500. The fair value of the
equipment is $509,200. Prepare the journal entry, if any, to record the
impairment loss. Question 21 Everly Corporation acquires a coal mine at a
cost of $501,600. Intangible development costs total $125,400. After extraction
has occurred, Everly must restore the property (estimated fair value of the
obligation is $100,320), after which it can be sold for $200,640. Everly
estimates that 5,016 tons of coal can be extracted. If 878 tons are extracted the
first year, prepare the journal entry to record depletion. Question 22 Francis
Corporation purchased an asset at a cost of $58,200 on March 1, 2012. The
asset has a useful life of 8 years and a salvage value of $5,820. For tax
purposes, the MACRS class life is 5 years. Compute tax depreciation for each
year 2012–2017. Question 23 Celine Dion Corporation purchases a patent
from Salmon Company on January 1, 2012, for $50,820. The patent has a
remaining legal life of 16 years. Celine Dion feels the patent will be useful for
10 years. Prepare Celine Dion’s journal entries to record the purchase of the
patent and 2012 amortization. Question 24 Karen Austin Corporation has
capitalized software costs of $768,500, and sales of this product the first year
totaled $390,630. Karen Austin anticipates earning $911,470 in additional
future revenues from this product, which is estimated to have an economic
life of 4 years. Compute the amount of software cost amortization for the first
year. (a) Compute the amount of software cost amortization for the first year
using the percent of revenue approach. (b) Compute the amount of software
cost amortization for the first year using the straight-line approach. Question
25 Jeff Beck is a farmer who owns land which borders on the right-of-way of
the Railroad, hay on the farm was set on fire and burned. Beck had had a
any rights which the Railroad may have in the land to Beck in exchange for a
fire. Beck appears inclined to accept the Railroad’s offer. The Railroad’s 2012
financial statements should include the following related to the incident: A).
recognition of a loss only. B). creation of a liability only. C). disclosure in note
form only. D). recognition of a loss and creation of a liability for the value of
the land. Question 26 Roley Corporation uses a periodic inventory system and
the gross method of accounting for purchase discounts. On July 1, Roley

purchased $66,000 of inventory, terms 2/10, n/30, FOB shipping point. Roley
paid freight costs of $1,210. On July 3, Roley returned damaged goods and
received credit of $6,600. On July 10, Roley paid for the goods. Prepare all
necessary journal entries for Roley. Question 27 Takemoto Corporation
borrowed $93,000 on November 1, 2012, by signing a $95,093, 3-month, zero-
interest-bearing note. Prepare Takemoto’s November 1, 2012, entry; the
December 31, 2012, annual adjusting entry; and the February 1, 2013, entry.
(For multiple debit/credit en tries, list amounts from largest to smallest, e.g.
10, 8, 6. Round all answers to 0 decimal places, e.g. 11,150.) Question 28
Whiteside Corporation issues $629,000 of 9% bonds, due in 14 years, with
interest payable semiannually. At the time of issue, the annual market rate for
such bonds is 10%. Compute the issue price of the bonds.(Use the present
value tables in the text. Question 29 Indiana Jones Company enters into a 6-
year lease of equipment on January 1, 2012, which requires 6 annual
payments of $37,560 each, beginning January 1, 2012. In addition, the lessee
guarantees a residual value of $20,870 at lease-end. The equipment has a
useful life of 6 years. Assume that for Lost Ark Company, the lessor,
collectibility is reasonably predictable, there are no important uncertainties
concerning costs, and the carrying amount of the machinery is $191,722.
Prepare Lost Ark’s January 1, 2012, journal entries. Question 30 On January
1, 2012, Irwin Animation sold a truck to Peete Finance for $26,050 and
immediately leased it back. The truck was carried on Irwin’s books at
$20,800. The term of the lease is 5 years, and title transfers to Irwin at lease-
end. The lease requires five equal rental payments of $7,048 at the end of each
year. The appropriate rate of interest is 11%, and the truck has a useful life
of 5 years with no salvage value. Prepare Irwin’s 2012 journal entries. SET 2
1) Which of the following is considered cash? 2) Bank overdrafts, if material,
should be 3) Which of the following is NOT considered cash for financial
reporting purposes? 4) If a company employs the gross method of recording
accounts receivable from customers, then sales discounts taken should be
reported as 5) Which of the following methods of determining annual bad
debt expense best achieves the matching concept? 6) The advantage of
relating a company's bad debt expense to its outstanding accounts receivable
is that this approach 7) 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 8) Belle Co. received merchandise on consignment. As of
March 31, Belle had recorded the transaction as a purchase and included the

goods in inventory. The effect of this on its financial statements for March 31
9) Eller Co. received merchandise on consignment. As of January 31, Eller
included the goods in inventory, but did NOT record the transaction. The
effect of this on its financial statements for January 31 10) The use of a
Purchase Discounts account implies that the recorded cost of a purchased
inventory item is its 11) Which method of inventory pricing best
approximates specific identification of the actual flow of costs and units in
most manufacturing situations? 12) 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? 13) 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? 14) Designated
market value 15) In no case can "market" in the lower-of-cost-or-market rule
be more than 16) A major advantage of the retail inventory method is that it
17) The gross profit method of inventory valuation is invalid when 18) The
retail inventory method is based on the assumption that the 19) Which of the
following is NOT a major characteristic of a plant asset? 20) Cotton Hotel
Corporation recently purchased Holiday Hotel and the land on which it is
located with the plan to tear down the Holiday Hotel and build a new luxury
hotel on the site. The cost of the Holiday Hotel should be 21) 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 22) The period of time during which interest
must be capitalized ends when 23) To be consistent with the historical cost
principle, overhead costs incurred by an enterprise constructing its own
building should be 24) When computing the amount of interest cost to be
capitalized, the concept of "avoidable interest" refers to 25) The King-Kong
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 26) 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 27) Which of the following is NOT a condition that must be

satisfied before interest capitalization can begin on a qualifying asset? 28)
Which of the following most accurately reflects the concept of depreciation as
used in accounting? 29) Which of the following principles best describes the
conceptual rationale for the methods of matching depreciation expense with
revenues? 30) The major difference between the service life of an asset and its
physical life is that 31) Starr Company purchased a depreciable asset for
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? 32) Bigbie
value is $30,000, and the estimated useful life is 10,000 hours. Bigbie used the
asset for 1,100 hours in the current year. The activity method will be used for
depreciation. What is the depreciation expense on this asset? 33) Harrison
value is $10,000, and the estimated useful life is 10 years. The straight-line
method will be used for depreciation. What is the depreciation base of this
asset? 34) Costs incurred internally to create intangibles are 35) The cost of
be 37) Twilight Corporation acquired End-of-the-World Products on January
1, 2008 for $2,000,000, and recorded goodwill of $375,000 as a result of that
goodwill should Fleming record in 2008? 39) Malrom Manufacturing
Company acquired a patent on a manufacturing process on January 1, 2006

for $10,000,000. It was expected to have a 10 year life and no residual value.
Malrom uses straight-line amortization for patents. On December 31, 2007,
the expected future cash flows expected from the patent were expected to be
$800,000 per year for the next eight years. The present value of these cash
flows, discounted at Malrom’s market interest rate, is $4,800,000. At what
amount should the patent be carried on the December 31, 2007 balance sheet?
40) Goodwill 41) Easton Company and Lofton Company were combined in a
purchase transaction. Easton was able to acquire Lofton at a bargain price.
The sum of the market or appraised values of identifiable assets acquired less
the fair value of liabilities assumed exceeded the cost to Easton. After
revaluing noncurrent assets to zero, there was still some "negative goodwill."
Proper accounting treatment by Easton is to report the amount as 42) The
reason goodwill is sometimes referred to as a master valuation account is
because 43) Which of the following items is a current liability? 44) Which of
the following statements is false? 45) Stock dividends distributable should be
classified on the 46) Simson Company has 35 employees who work 8-hour
days and are paid hourly. On January 1, 2006 the company began a program
of granting its employees 10 days of paid vacation each year. Vacation days
earned in 2006 may first be taken on January 1, 2007. Information relative to
these employees is as follows: Year Hourly Wages Vacation Days Earned by
Each Employee Vacation Dayse Used by Each Employee 2006 $28.50 10 0
2007 $27.00 10 8 2008 $28.50 10 10 What is the amount of expense relative to
compensated absences that should be reported on Simson’s income statement
for 2006? 47) A company buys an oil rig for $1,000,000 on January 1, 2007.
The life of the rig is 10 years and the expected cost to dismantle the rig at the
end of 10 years is $200,000 (present value at 10% is $77,110). 10% is an
appropriate interest rate for this company. What expense should be recorded
for 2007 as a result of these events? 48) A company offers a cash rebate of $1
on each $4 package of batteries sold during 2007. Historically, 10% of
Which of the following sets of conditions would give rise to the accrual of a
contingency under current generally accepted accounting principles? 51)

52) An example of an item which is NOT a liability is 53) The covenants and
other terms of the agreement between the issuer of bonds and the lender are
set forth in the 54) Bonds for which the owners' names are NOT registered
with the issuing corporation are called 55) Minimum lease payments may
include a 56) What impact does a bargain purchase option have on the
present value of the minimum lease payments computed by the lessee? 57)
Which of the following is a correct statement of one of the capitalization
criteria? 58) In order to properly record a direct-financing lease, the lessor
needs to know how to calculate the lease receivable. The lease receivable in a
direct-financing lease is best defined as 59) In the earlier years of a lease,
from the lessee's perspective, the use of the 60) In a lease that is appropriately
recorded as a direct-financing lease by the lessor, unearned income SET 3 1)
Which of the following is NOT considered cash for financial reporting
purposes? 2) What is the preferable presentation of accounts receivable from
officers, employees, or affiliated companies on a balance sheet? 3) Which of
the following items should NOT be included in the Cash caption on the
balance sheet? 4) The advantage of relating a company's bad debt expense to
its outstanding accounts receivable is that this approach 5) Which of the
following is a generally accepted method of determining the amount of the
adjustment to bad debt expense? 6) Assuming that the ideal measure of short-
term receivables in the balance sheet is the discounted value of the cash to be
received in the future, failure to follow this practice usually does NOT make
the balance sheet misleading because 7) Eller Co. received merchandise on
consignment. As of January 31, Eller included the goods in inventory, but did
NOT record the transaction. The effect of this on its financial statements for
January 31 would be 8) If the beginning inventory for 2006 is overstated, the
effects of this error on cost of goods sold for 2006, net income for 2006, and
assets at December 31, 2007, respectively, are 9) The accountant for the Orion
Sales Company is preparing the income statement for 2007 and the balance
sheet at December 31, 2007. Orion uses the periodic inventory system. The

January 1, 2007 merchandise inventory balance will appear 10) The use of a
Discounts Lost account implies that the recorded cost of a purchased
inventory item is its 11) 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? 12) The use of a Purchase Discounts
account implies that the recorded cost of a purchased inventory item is its 13)
In no case can "market" in the lower-of-cost-or-market rule be more than 14)
When the direct method is used to record inventory at market 15) Designated
market value 16) The retail inventory method is based on the assumption that
the 17) In 2006, Lucas Manufacturing signed a contract with a supplier to
purchase raw materials in 2007 for $700,000. Before the December 31, 2006
balance sheet date, the market price for these materials dropped to $510,000.
The journal entry to record this situation at December 31, 2006 will result in
a credit that should be reported 18) The gross profit method of inventory
valuation is invalid when 19) Which of the following is NOT a major
characteristic of a plant asset? 20) The cost of land does NOT include 21) 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 22) To be consistent
with the historical cost principle, overhead costs incurred by an enterprise
constructing its own building should be 23) When computing the amount of
interest cost to be capitalized, the concept of "avoidable interest" refers to 24)
The period of time during which interest must be capitalized ends when 25)
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 26) 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 27) When a plant asset is acquired by
issuance of common stock, the cost of the plant asset is properly measured by
the 28) If an industrial firm uses the units-of-production method for
computing depreciation on its only plant asset, factory machinery, the credit
to accumulated depreciation from period to period during the life of the firm
will 29) The term "depreciable cost," or "depreciable base," as it is used in
accounting, refers to 30) Which of the following most accurately reflects the
concept of depreciation as used in accounting? 31) Prentice Company

$20,000, and the estimated useful life is 10 years. The straight-line method
will be used for depreciation. What is the depreciation base of this asset? 32)
Pine Company purchased a depreciable asset for $360,000. The estimated
salvage value is $24,000, 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? 33) Bigbie Company
$30,000, and the estimated useful life is 10,000 hours. Bigbie used the asset for
1,100 hours in the current year. The activity method will be used for
depreciation. What is the depreciation expense on this asset? 34) The cost of
be 36) Which of the following methods of amortization is normally used for
intangible assets? 37) General Products Company bought Special Products
Division in 2006 and appropriately booked $250,000 of goodwill related to the
purchase. On December 31, 2007, the fair value of Special Products Division
is $2,000,000 and it is carried on General Product’s books for a total of
$1,700,000, including the goodwill. An analysis of Special Products Division’s
assets indicates that goodwill of $200,000 exists on December 31, 2007. What
goodwill impairment should be recognized by General Products in 2007? 38)
Twilight Corporation acquired End-of-the-World Products on January 1,
2008 for $2,000,000, and recorded goodwill of $375,000 as a result of that

goodwill should Fleming record in 2008? 40) When a patent is amortized, the
credit is usually made to 41) The reason goodwill is sometimes referred to as a
master valuation account is because 42) Easton Company and Lofton
Company were combined in a purchase transaction. Easton was able to
acquire Lofton at a bargain price. The sum of the market or appraised values
of identifiable assets acquired less the fair value of liabilities assumed
exceeded the cost to Easton. After revaluing noncurrent assets to zero, there
was still some "negative goodwill." Proper accounting treatment by Easton is
to report the amount as 43) Stock dividends distributable should be classified
on the 44) Which of the following statements is false? 45) Which of the
following items is a current liability? 46) Simson Company has 35 employees
who work 8-hour days and are paid hourly. On January 1, 2006 the company
began a program of granting its employees 10 days of paid vacation each
year. Vacation days earned in 2006 may first be taken on January 1, 2007.
Information relative to these employees is as follows: What is the amount of
expense relative to compensated absences that should be reported on
Simson’s income statement for 2006? 47) A company offers a cash rebate of
$1 on each $4 package of batteries sold during 2007. Historically, 10% of
statements dated December 31? 48) A company offers a cash rebate of $1 on
each $4 package of light bulbs sold during 2007. Historically, 10% of
customers mail in the rebate form. During 2007, 4,000,000 packages of light
bulbs are sold, and 140,000 $1 rebates are mailed to customers. What is the
rebate expense and liability, respectively, shown on the 2007 financial
51) Which of the following sets of conditions would give rise to the accrual of

a contingency under current generally accepted accounting principles? 52) If
bonds are issued initially at a premium and the effective-interest method of
amortization is used, interest expense in the earlier years will be 53) An
example of an item which is NOT a liability is 54) The covenants and other
terms of the agreement between the issuer of bonds and the lender are set
forth in the 55) Which of the following is a correct statement of one of the
capitalization criteria? 56) Which of the following best describes current
practice in accounting for leases? 57) While only certain leases are currently
accounted for as a sale or purchase, there is theoretic justification for
considering all leases to be sales or purchases. The principal reason that
supports this idea is that 58) The amount to be recorded as the cost of an asset
under capital lease is equal to the 59) In the earlier years of a lease, from the
lessee's perspective, the use of the 60) If the residual value of a leased asset is
guaranteed by a third party
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