This document provides a guide to the ACC 422 final exam with 180 multiple choice questions across 3 sets. It includes sample accounting questions on topics like cash, inventory valuation methods, long-term assets, depreciation, and intangible assets. The questions assess understanding of concepts like lower of cost or market, inventory systems, capitalization of interest, and accounting for patents.

1. ACC 422 Final Exam Guide All 3 Sets
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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
checks753 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

2. 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

3. 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,

4. 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

5. 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

6. 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

7. 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 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

8. 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
$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? 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

9. 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 (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? 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

10. 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