This document provides study materials and practice questions for ACC 422 Final Exam, including summaries of key concepts, sample journal entries, and multiple choice questions covering topics like inventory valuation methods, long-term asset acquisition and disposal, notes payable, and intangible assets. An Excel file is included to help solve problems.

1. ACC 422 Final Exam Guide (New 2017, With EXCEL FILE, Score 29 30)
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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 69,000Checking 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

2. 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 proceeds285,400
(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

3. 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 building11,710(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

4. 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 67,516 Checking 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.

6. 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

7. 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-

8. 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

9. 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

10. 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

11. 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

12. 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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ACC 422 Final Exam Guide 3
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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

13. 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

14. 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 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

15. 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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16. 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 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

17. 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)
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