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Accounting 315

STUDY
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Costs incurred internally to create intangibles are
C
Which of the following methods of amortization is normally used for intangible assets?
B
The cost of an intangible asset includes all of the following except
D
Factors considered in determining an intangible asset's useful life include all of the following except
D
Under current accounting practice, intangible assets are classified as
B
One factor that is not considered in determining the useful life of an intangible ass is
C
When a company develops a trademark or trade name, the costs directly related to securing it should be capitalized. Which of the following costs associated with a trademark or trade name would not be allowed to be capitalized?
C
A large publicly held company has developed and registered a trademark during 2008. How should the cost of developing and registering the trademark be accounted for if it is considered to have a limited life?
D
The cost of purchasing patent right for a product that might otherwise have seriously competed with one of the purchaser's patented products should be
D
Rise 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, Rise Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be
C
Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charge to
D
Which of the following is not an intangible asset?
B
Which of the following intangible assets should not be amortized?
C
When a patent is amortized, the credit is usually made to
A
Goodwill
C
The reason goodwill is sometimes referred to as a master valuation account is because
B
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
A
Purchased goodwill should
D
The intangible asset goodwill may be
A
The amortization of goodwill
B
The accounting profession does not allow the immediate write-off of goodwill. The best reason for this requirement seems to be that
B
When the fair market value of the assets acquired in a business purchase exceed the purchase price, negative goodwill (also called badwill) arises. When negative goodwill arises, GAAP requires that it be allocated to
A
Jo Jo Chong, Inc. needs to determine if its property, plant, and equipment has been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are):
A
White Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should
B
A loss on impairment of an intangible asset is the difference between the asset's
B
Weaver Boxing Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are)
C
The carrying amount of an intangible is
B
Which of the following research and development related costs should be capitalized and amortized over current and future periods?
A
Which of the following principles best describes the current method of accounting for research and development costs?
D
How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement?
D
Which of the following costs should be excluded from research and development expense?
C
If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as
B
Operating losses incurred during the start-up years of a new business should be
A
The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. These costs should be
D
Which of the following would be considered an R & D activity?
A
The total amount of patent cost amortized to date is usually
C
Lynne Corporation acquired a patent on May 1, 2008. Lynne paid cash of $20,000 to the seller. Legal fees of $800 were paid related to the acquisition. What amount should be debited to the patent account?
D
Maris Corporation acquired a patent on May 1, 2008. Maris paid cash of $25,000 to the seller. Legal fees of $1,000 were paid related to the acquisition. What amount should be debited to the patent account?
D
Jeff Corporation purchased a limited-life intangible asset for $120,000 on May 1, 2006. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?
C
Rich Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2006. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008?
C
Hooker Corporation acquired a franchise to operate a Good Pet Dog Kennel in January, 2003. The cost of the franchise was $125,000 and was estimated to have a limited life of 40 years. Early in the year 2009, the franchise was deemed worthless due to significant law suits that cause the franchisor to go out of business. What amount of cost or expense should be charged to the income statement of Hooker Corporation for years noted below?
D
Smith Co. bought a window franchise from Paine, Inc., on January 2, 2008, for $100,000. A highly regarded independent research company estimated that the remaining useful life of the franchise was 50 years. Its unamortized cost of Paine's books at January 1, 2008, was $15,000. Smith has decided to write off the franchise over the longest possible period. How much should be amortized by Smith Co. for the year ended December 31, 2008?
B
ELO Corporation purchased a patent for $180,000 on September 1, 2006. It had a useful life of 10 years. On January 1, 2008, ELO spent $44,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2008?
B
LRF Corporation purchased a patent for $450,000 on September 1, 2006. It had a useful life of 10 years. On January 1, 2008, LRF spent $110,000 to successfully defend the patent in a lawsuit. LRF feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2008?
B
The general ledger of Vance Corporation as of December 31, 2008, includes the following accounts:
Copyrights $ 20,000
Deposits with advertising agency (will be used to promote goodwill) 27,000
Discount on bonds payable 67,500
Excess of cost over fair value of identifiable net assets of
acquired subsidiary 390,000
Trademarks 90,000
In the preparation of Vance's balance sheet as of December 31, 2008, what should be reported as total intangible assets?
C
In January, 2003, Findley Corporation purchased a patent for a new consumer product for $720,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2008, the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2008, assuming amortization is recorded at the end of each year?
B
Kerr Company purchased a patent on January 1, 2006 for $180,000. The patent had a remaining useful life of 10 years at that date. In January of 2007, Kerr successfully defends the patent at a cost of $81,000, extending the patent's life to 12/31/18. What amount of amortization expense would Kerr record in 2007?
B
On January 2, 2007, Klein Co. bought a trademark from Royce, Inc. for $500,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce's books was $400,000. In Klein's 2007 income statement, what amount should be reported as amortization expense?
A
Wildcat Baseball Company had a player contract with Carter that was recorded in its accounting records at $5,800,000. Aggie Baseball Company had a player contract with Jeter that was recorded in its accounting records at $5,600,000. Wildcat traded Carter to Aggie for Jeter by exchanging each player's contract. The fair value of each contract was $6,000,000. What amount should be shown in the accounting records after the exchange of player contracts?
C
A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2005 for $1,200,000. The company uses straight-line amortization for patents. On January 2, 2007, a new patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least amount of amortization that could be recorded in 2007 is
B
Blue Sky Company's 12/31/08 balance sheet reports assets of $5,000,000 and liabilities of $2,000,000. All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $300,000 greater than its book value. On 12/31/08, Horace Wimp Corporation paid $5,100,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase?
C
Turner Company's 12/31/08 balance sheet reports assets of $6,000,000 and liabilities of $2,500,000. All of Turner's assets' book values approximate their fair value, except for land, which has a fair value that is $400,000 greater than its book value. On 12/31/08, Benedict Corporation paid $6,100,000 to acquire Turner. What amount of goodwill should Benedict record as a result of this purchase?
C
Distributor Company purchases Supplier Company for $800,000 cash on January 1, 2009. The book value of Supplier Company's net assets, as reflected on its December 31, 2008 balance sheet is $620,000. An analysis by Distributor on December 31, 2008 indicates that the fair value of Supplier's tangible assets exceeded the book value by $60,000, and the fair value of identifiable intangible assets exceeded book value by $45,000. How much goodwill should be recognized by Distributor Company when recording the purchase of Supplier Company?
D
During 2008, Bond Company purchased the net assets of May Corporation for $950,000. On the date of the transaction, May had $300,000 of liabilities. The fair value of May's assets when acquired were as follows:
Current assets $ 540,000
Noncurrent assets 1,260,000
$1,800,000
How should the $550,000 difference between the fair value of the net assets acquired ($1,500,000) and the cost ($950,000) be accounted for by Bond?
B
General Products Company bought Special Products Division in 2007 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2008, 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, 2008. What goodwill impairment should be recognized by General Products in 2008?
A
The following information is available for Barkley Company's patents:
Cost $1,720,000
Carrying amount 860,000
Expected future net cash flows 800,000
Fair value 640,000
Barkley would record a loss on impairment of
B
Mining Company acquired a patent on an oil extraction technique on January 1, 2007 for $5,000,000. It was expected to have a 10 year life and no residual value. Mining uses straight-line amortization for patents. On December 31, 2008, the expected future cash flows expected from the patent were expected to be $600,000 per year for the next eight years. The present value of these cash flows, discounted at Mining's market interest rate, is $2,800,000. At what amount should the patent be carried on the December 31, 2008 balance sheet?
C
Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2007 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, 2008, 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, 2008 balance sheet?
D
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?
B
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?
B
In 2005, Hume, Inc. purchased Rousseau Metals for $3 million. At December 31, 2008, the Rousseau division reported net assets of $3,300,000 (including $1,700,000 of goodwill). Hume reviewed the Rousseau division and determined that expected net future cash flows equal $2,500,000 and the fair value is estimated to be only $1,800,000. What entry should Hume record concerning the Rousseau division on December 31, 2008?
B
Isa Company has equipment that, due to changes in use, is reviewed for possible impairment. The asset's carrying amount is $400,000 ($500,000 cost less $100,000 accumulated depreciation). The expected future net cash flows (undiscounted) from the use of the asset and its eventual disposition are determined to be $380,000 and it has a current market value of $350,000. What is the amount of the impairment, if any, that should be recorded by Isa Company?
C
Peppers Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $200,000. The machinery has a fair value of $140,000. Peppers should recognize a loss on impairment of
A
Dillman Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $175,000. The machinery has a fair value of $140,000. Dillman should recognize a loss on impairment of
C
Calvin Company incurred the following costs related to the start-up of the business:
Attorney's fee $10,000
Underwriter's fee 15,000
State incorporation fee
7,000
$32,000
The company wishes to amortize these costs over the maximum period allowed under generally accepted accounting principles. Assuming that Calvin Company began operation on January 1, 2008, what amount of the start-up costs should be amortized in 2009?
D
In 2008, Edwards Corporation incurred research and development costs as follows:
Materials and equipment $ 80,000
Personnel 120,000
Indirect costs 150,000
$350,000
These costs relate to a product that will be marketed in 2009. It is estimated that these costs will be recouped by December 31, 2011. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2008?
D
Hall Co. incurred research and development costs in 2008 as follows:
Materials used in research and development projects $ 450,000
Equipment acquired that will have alternate future uses in future research
and development projects
3,000,000
Depreciation for 2008 on above equipment 300,000
Personnel costs of persons involved in research and development projects 750,000
Consulting fees paid to outsiders for research and development projects 150,000
Indirect costs reasonably allocable to research and development projects 225,000
$4,875,000
The amount of research and development costs charged to Hall's 2008 income statement should be
C
Martin Inc. incurred the following costs during the year ended December 31, 2008:
Laboratory research aimed at discovery of new knowledge $180,000
Costs of testing prototype and design modifications 45,000
Quality control during commercial production, including routine testing
of products 270,000
Construction of research facilities having an estimated useful life of
6 years but no alternative future use 360,000
The total amount to be classified and expensed as research and development in 2008 is
C
MaBelle Corporation incurred the following costs in 2008:
Acquisition of R&D equipment with a useful life of
4 years in R&D projects $600,000
Start-up costs incurred when opening a new plant 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full
production stage 350,000
What amount should MaBelle record as research & development expense in 2008?
A
Lopez Corp. incurred $420,000 of research and development costs to develop a product for which a patent was granted on January 2, 2003. Legal fees and other costs associated with registration of the patent totaled $80,000. On March 31, 2008, Lopez paid $120,000 for legal fees in a successful defense of the patent. The total amount capitalized for the patent through March 31, 2008 should be
A
On June 30, 2008, Cey, Inc. exchanged 2,000 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2008 at a cost of $55,000. At the exchange date, Seely common stock had a fair value of $45 per share, and the patent had a net carrying value of $110,000 on Gore's books. Cey should record the patent at
C
On May 5, 2008, Flynn Corp. exchanged 2,000 shares of its $25 par value treasury common stock for a patent owned by Denson Co. The treasury shares were acquired in 2006 for $45,000. At May 5, 2008, Flynn's common stock was quoted at $32 per share, and the patent had a carrying value of $55,000 on Denson's books. Flynn should record the patent at
D
Ely Co. bought a patent from Baden Corp. on January 1, 2008, for $300,000. An independent consultant retained by Ely estimated that the remaining useful life is 30 years. Its unamortized cost on Baden 's accounting records was $150,000; the patent had been amortized for 5 years by Baden. How much should be amortized for the year ended December 31, 2008?
D
On January 2, 2005, Koll, Inc. purchased a patent for a new consumer product for $180,000. At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2008, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2008, assuming amortization is recorded at the end of each year?
C
On January 1, 2004, Unruh Company purchased a copyright for $800,000, having an estimated useful life of 16 years. In January 2008, Unruh paid $120,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2008, should be
D
Which of the following legal fees should be capitalized?
Legal fees to Legal fees to successfully defend a
obtain a copyright trademark
C
Which of the following costs of goodwill should be amortized over their estimated useful lives?
Costs of goodwill from a
business combination
accounted for as a purchase goodwill internally

Costs of developing goodwill internally
A
During 2008, Leon Co. incurred the following costs:
Testing in search for process alternatives $350,000
Costs of marketing research for new product 250,000
Modification of the formulation of a process 510,000
Research and development services performed by Beck Corp. for Leon 325,000
In Leon's 2008 income statement, research and development expense should be
C
Riley Co. incurred the following costs during 2008:
Modification to the formulation of a chemical product $160,000
Trouble-shooting in connection with breakdowns during commercial
production 150,000
Costs of marketing research for new product 200,000
Seasonal or other periodic design changes to existing products
185,000
Laboratory research aimed at discovery of new technology
215,000
In its income statement for the year ended December 31, 2008, Riley should report research and development expense of
A
Copyrights should be amortized over
D
A patent should be amortized over
D
The major problem of accounting for intangibles is determining
D
Limited-life intangibles are reported at their
B
Negative goodwill arises when the ________ of the net assets acquired is higher than the purchase of the assets
C
General-purpose financial statements are the product of
A
Users of financial reports include all of the following except
D
The financial statements most frequently provided include all of the following except the
D
The information provided by financial reporting pertains to
A
The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, evaluate, and control an organization's operations is called
B
Whether a business is successful and thrives is determined by
D
An effective capital allocation process
D
Financial statements in the early 2000s provide information related to
C
Which of the following statements is not an objective of financial reporting?
C
Accrual accounting is used because
B
One objective of financial reporting is to provide
C
Accounting principles are "generally accepted" only when
C
A common set of accounting standards and procedures are called
B
The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as
C
The body that has the power to prescribe the accounting practices and standards to be employed by companies that fall under its jurisdiction is the
C
Companies that are listed on a stock exchange are required to submit their financial statements to the
D
The Financial Accounting Standards Board (FASB) was proposed by the
D
The Financial Accounting Standards Board
D
The Financial Accounting Foundation
A
The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is
B
The Financial Accounting Standards Board employs a "due process" system which
B
Which of the following is not a publication of the FASB?
B
FASB Technical Bulletins
C
The purpose of the Emerging Issues Task Force is to
D
The Government Accounting Standards Board
B
The Government Accounting Standards Board's main purpose is to develop standards for
C
Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?
C
An organization that has not published accounting standards is the
D
The purpose of the Statements of Financial Accounting Concepts is to
C
Members of the Financial Accounting Standards Board are
D
The following published documents are part of the "due process" system used by the FASB in the evolution of a typical FASB Statement of Financial Accounting Standards:

1. Exposure Draft
2. Statement of Financial Accounting Standards
3. Discussion Memorandum

The chronological order in which these items are released is as follows:
D
In the House of GAAP, is the following on the highest level of authoritative status (meaning among the most authoritative)?
D
Generally Accepted Accounting Principles include: 1) FASB Technical Bulletins, 2) APB Opinions, and 3) Widely-accepted industry practices. These three items rank from most authoritative to least authoritative as follows
C
Generally accepted accounting principles
D
The most significant current source of generally accepted accounting principles is the
D
The most authoritative category of generally accepted accounting principles includes all of the following except
D
Which of the following is not a part of generally accepted accounting principles?
D
Which of the following publications does not qualify as a statement of generally accepted accounting principles?
D
Financial accounting standard-setting in the United States
A
The purpose of the International Accounting Standards Board is to
C
Publications:

1. Accounting Research Bulletins (1953-1959)
2. Statements of Auditing Standards
3. Journal of Accountancy
4. Emerging Issues Task Force Statements
5. Opinions (1962-1973)
6. Technical Bulletins
7. Statements of Financial Accounting Standards
8. Statements of Financial Accounting Concepts
9. Statements of Position (SOPs)
D
A
C
F
E
F
F
F
B
Generally accepted accounting principles
C
A soundly developed conceptual framework of concepts and objectives should
D
Which of the following (a-c) are not true concerning a conceptual framework in accounting?
C
Which of the following is not a benefit associated with the FASB Conceptual Framework Project?
D
In the conceptual framework for financial reporting, what provides "the why"--the goals and purposes of accounting?
D
The underlying theme of the conceptual framework is
A
Which of the following is not an objective of financial reporting?
D
The objective of financial reporting include all of the following except to provide information that
A
Decision makers vary widely in the types of decisions they make, the methods of decision making they employ, the information they already possess or can obtain from other sources, and their ability to process information. Consequently, for information to be useful there must be a linkage between these users and the decisions they make. This link is
C
The overriding criterion by which accounting information can be judged is that of
A
The two primary qualities that make accounting information useful for decision making are
C
Accounting information is considered to be relevant when it
B
The quality of information that gives assurance that it is reasonably free of error and bias and is a faithful representation is
B
According to Statement of Financial Account Concepts No. 2, which of the following relates to both relevance and reliability?
D
According to Statement of Financial Accounting Concepts No. 2, timeliness is an ingredient of the primary quality of
C
According to Statement of Financial Accounting Concepts No. 2, verifiability is an ingredient of the primary quality of
D
According to Statement of Financial Accounting Concepts No. 2, neutrality is an ingredient of the primary quality of
B
Information is neutral if it
D
The characteristic that is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement methods is
C
According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the primary quality of
A
Under Statement of Financial Accounting Concepts No. 2, representational faithfulness is an ingredient of the primary quality of
C
Financial information does not demonstrate consistency when
D
Financial information exhibits the characteristic of consistency when
B
Information about different entitities and about different periods of the same entity can be prepared and presented in a similar manner. Comparability and consistency are related to which of these objectives?
B
When information about two different enterprises has been prepared and presented in a similar manner, the information exhibits the characteristic of
D
Which of the following violates the concept of reliability?
B
Which of the following is a characteristic describing the primary quality of relevance?
B
If accounting information is verifiable, representationally faithful, and neutral, it can be considered
D
The major objective of the consistency principle is to
B
Comprehensive income as characterized in SFAC No. 6 includes all changes in equity during a period except
B
The elements of financial statements include investments by owners. These are increases in an entity's net assets resulting from owners
D
In classifying the elements of financial statements, the primary distinction between revenues and gains is
C
A decrease in net assets arising from peripheral or incidental transactions is called a(n)
C
One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," comprehensive income is equal to
D
Which of the following elements of financial statements is not a component of compre-hensive income?
B
Which of the following is false with regard to the element "comprehensive income"?
D
According to the FASB conceptual framework, earnings
B
According to the FASB Conceptual Framework, the elements⎯assets, liabilities, and equity⎯describe amounts of resources and claims to resources at/during a
A
Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the economy?
A
During the lifetime of an entity, accountants produce financial statements at artificial points in time in accordance with the concept of
C
Under current GAAP, inflation is ignored in accounting due to the
C
The economic entity assumption
D
Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of the
A
During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance with which basic accounting concept?
B
What accounting concept justifies the usage of accruals and deferrals?
A
The assumption that a business enterprise will not be sold or liquidated in the near future is known as the
D
Which of the following is an implication of the going concern assumption?
D
The economic entity assumption in account¬ing is best reflected by which of the following statements?
C
Continuation of an accounting entity in the absence of evidence to the contrary is an example of the basic concept of
C
In accounting, an economic entity may be defined as
D
Although many objections have been raised about the historical cost principle, it is still widely supported for financial reporting because it
A
Under the revenue recognition principle, revenue is generally recognized when the earning process is virtually complete and
A
Which of the following is an incorrect statement regarding the matching principle?
B
The concept referred to by the matching principle is that
D
In complying with the full disclosure principle, an accountant must determine the amount of disclosure necessary. How much disclosure is enough?
C
Proponents of historical cost ordinarily maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more
A
Valuing assets at their liquidation values rather than their cost is inconsistent with the
D
Revenue is generally recognized when realized or realizable and earned. This statement describes the
C
Generally, revenue from sales should be recognized at a point when
D
Revenue generally should be recognized
D
Which of the following is not a time when revenue may be recognized?
D
Under Statement of Financial Accounting Concepts No. 5, which of the following, in the most precise sense, means the process of converting noncash resources and rights into cash or claims to cash?
C
"When products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash" is a definition of
B
The allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the
B
The accounting principle of matching is best demonstrated by
B
Which of the following serves as the justification for the periodic recording of depreciation expense?
B
Application of the full disclosure principle
C
Which of the following statements concerning the cost-benefit relationship is not true?
D
Under Statement of Financial Accounting Concepts No. 2, which of the following relates to both relevance and reliability?
A
Charging off the cost of a wastebasket with an estimated useful life of 10 years as an expense of the period when purchased is an example of the application of the
C
Which of the following statements about materiality is not correct?
D
Which of the following are considered pervasive constraints by Statement of Financial Accounting Concepts No. 2?
D
The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as the
A
Which of the following best illustrates the accounting concept of conservatism?
B
Trade-offs between the characteristics that make information useful may be necessary or beneficial. Issuance of interim financial statements is an example of a trade-off between
A
Allowing firms to estimate rather than physically count inventory at interim (quarterly) periods is an example of a trade-off between
C
In matters of doubt and great uncertainty, accounting issues should be resolved by choosing the alternative that has the least favorable effect on net income, assets, and owners' equity. This guidance comes from the
C
According to the FASB's conceptual framework, predictive value is an ingredient of
A
According to the FASB's conceptual framework, which of the following relates to both relevance and reliability?
B
The FASB's conceptual framework classifies gains and losses based on whether they are related to an entity's major ongoing or central operations. These gains or losses may be classified as
B
According to the FASB's conceptual framework, earnings
B
According to the FASB's conceptual framework, comprehensive income includes which of the following?
A
According to the FASB's conceptual framework, the calculation of comprehensive income includes which of the following?
B
According to the FASB's conceptual framework, comprehensive income includes which of the following?
D
Under Statements of Financial Accounting Concepts, comprehensive income includes which of the following?
D
According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is
A
Factors that shape an accounting information system include the
D
Maintaining an accounting system that ensures reliable information is reported in the financial statements is
D
Which of the following is a real (permanent) account?
D
Which of the following is a nominal (temporary) account?
B
Nominal accounts are also called
A
An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the
D
The debit and credit analysis of a transaction normally takes place
A
Debit always means
D
The double-entry accounting system means
C
When a corporation pays a note payable and interest,
C
Stockholders' equity is not affected by all
A
The accounting equation (A = L + SE) must remain in balance
A
The difference between the accounting process and the accounting cycle is
B
Which of the following criteria must be met before an event or item should be recorded for accounting purposes?
D
Which of the following is a recordable event or item?
D
Which of the following is not an internal event?
C
External events do not include
D
A general journal
A
An optional step in the accounting cycle is preparation of
D
A trial balance
D
A trial balance may prove that debits and credits are equal, but
D
A journal entry to record the sale of inventory on account will include a
B
A journal entry to record a payment on account will include a
C
A journal entry to record a receipt of rent revenue in advance will include a
D
Which of the following statements is not true as it pertains to the accounting process?
D
Which of the following is not a principal purpose of an unadjusted trial balance?
D
Which of the following journal entries is appropriate when a company receives payment in advance for goods or services?
C
An adjusting entry should never include
B
Which of the following is an example of an accrued expense?
B
Rent collected in advance by a landlord is a(n)
D
Adjustments are often prepared
A
At the time a company prepays a cost
A
How do these prepaid expenses expire?
A
Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for
B
Unearned revenue on the books of one company is likely to be a(n)
A
To compute interest expense for an adjusting entry, the formula is principal × rate × a fraction. The numerator and denominator of the fraction are:
A
Adjusting entries are necessary to
D
Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?
C
When an item of expense is paid and recorded in advance, it is normally called a(n)
A
When an item of revenue or expense has been earned or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense.
D
When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue.
C
An accrued expense can best be described as an amount
D
If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve
D
Which of the following must be considered in estimating depreciation on an asset for an accounting period?
D
Which of the following would not be a correct form for an adjusting entry?
D
Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?
D
A prepaid expense can best be described as an amount
B
An accrued revenue can best be described as an amount
C
An unearned revenue can best be described as an amount
B
An adjusted trial balance
B
Which of the following statements best describes the purpose of closing entries?
C
If expenses are greater than revenues, the Income Summary account will be closed by a debit to
D
Which type of account is always debited during the closing process?
C
When a company uses a periodic inventory system, the year-end entry to adjust the inventory account will debit and credit inventory as follows:
C
If the Inventory account at the end of the year is understated, the effect will be to
C
Reversing entries are
1. normally prepared for prepaid, accrued, and estimated items.
2. necessary to achieve a proper matching of revenue and expense.
3. desirable to exercise consistency and establish standardized procedures.
D
Adjusting entries that should be reversed include those for prepaid or unearned items that
D
Adjusting entries that should be reversed include
D
A reversing entry should never be made for an adjusting entry that
B
The worksheet for Sharko Co. consisted of eight pairs of debit and credit columns. The dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. That item is
D
Maso Company recorded journal entries for the issuance of common stock for $40,000, the payment of $13,000 on accounts payable, and the payment of salaries expense of $21,000. What net effect do these entries have on owners' equity?
C
Mune Company recorded journal entries for the payment of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000. What net effect do these entries have on owners' equity?
C
Murphy Company sublet a portion of its warehouse for five years at an annual rental of $24,000, beginning on May 1, 2008. The tenant, Sheri Charter, paid one year's rent in advance, which Murphy recorded as a credit to Unearned Rental Income. Murphy reports on a calendar-year basis. The adjustment on December 31, 2008 for Murphy should be
D
Pappy Corporation received cash of $13,500 on September 1, 2008 for one year's rent in advance and recorded the transaction with a credit to Unearned Rent. The December 31, 2008 adjusting entry is
C
Panda Corporation paid cash of $18,000 on June 1, 2008 for one year's rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2008 adjusting entry is
C
Tate Company purchased equipment on November 1, 2008 and gave a 3-month, 9% note with a face value of $20,000. The December 31, 2008 adjusting entry is
D
During the first year of Wisnewski Co.'s operations, all purchases were recorded as assets. Store supplies in the amount of $6,450 were purchased. Actual year-end store supplies inventory amounted to $2,150. The adjusting entry for store supplies will
B
Brown Company's account balances at December 31, 2008 for Accounts Receivable and the related Allowance for Doubtful Accounts are $460,000 debit and $700 credit, respectively. From an aging of accounts receivable, it is estimated that $12,500 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for
C
Chen Company's account balances at December 31, 2008 for Accounts Receivable and the Allowance for Doubtful Accounts are $320,000 debit and $600 credit. Sales during 2008 were $900,000. It is estimated that 1% of sales will be uncollectible. The adjusting entry would include a credit to the allowance account for
B
Starr Corporation loaned $90,000 to another corporation on December 1, 2008 and received a 3-month, 8% interest-bearing note with a face value of $90,000. What adjusting entry should Starr make on December 31, 2008?
C
Assuming that the company does not use reversing entries, what entry should be made on April 1, 2008 when the annual interest payment is received?
C
Assuming that the company does use reversing entries, what entry should be made on April 1, 2008 when the annual interest payment is received?
D
Big-Mouth Frog Corporation had revenues of $200,000, expenses of $120,000, and dividends of $30,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a
D
The following account balances (normal balances) were taken from the journal entry used to transfer various merchandise accounts under a periodic inventory system into the Cost of Goods Sold account:
Cost of Goods Sold $235,000
Inventory (beginning) 62,500
Transportation-In 6,700
Purchase Discounts 4,500
Purchases 214,000
Purchase Allowances 5,700
Based on the above facts, what was ending inventory?
C
The gross profit of Fordyce Company for 2008 is $75,000, cost of goods manufactured is $320,000, the beginning inventories of goods in process and finished goods are $22,000 and $25,000, respectively, and the ending inventories of goods in process and finished goods are $30,000 and $32,000, respectively. The sales of Fordyce Company for 2008 must have been
C
Lopez Company received $6,400 on April 1, 2008 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2008 adjusting entry is
A
Gibson Company paid $3,600 on June 1, 2008 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2008 adjusting entry is
D
Garcia Corporation received cash of $18,000 on August 1, 2008 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2008 adjusting entry is
B
On September 1, 2007, Lowe Co. issued a note payable to National Bank in the amount of $600,000, bearing interest at 12%, and payable in three equal annual principal payments of $200,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2008. At December 31, 2008, Lowe should record accrued interest payable of
B
Eaton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of $1,800,000 at December 31, 2008 before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $450,000 at December 31, 2008.
Service contracts still outstanding at December 31, 2008 expire as follows:
During 2009 $380,000
During 2010 570,000
During 2011 350,000
What amount should be reported as Unearned Service Revenues in Eaton's December 31, 2008 balance sheet?
B
In November and December 2008, Lane Co., a newly organized magazine publisher, received $90,000 for 1,000 three-year subscriptions at $30 per year, starting with the January 2009 issue. Lane included the entire $90,000 in its 2008 income tax return. What amount should Lane report in its 2008 income statement for subscriptions revenue?
A
On June 1, 2008, Nott Corp. loaned Horn $400,000 on a 12% note, payable in five annual installments of $80,000 beginning January 2, 2009. In connection with this loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Horn after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2008. Horn made timely payments through November 1, 2008. On January 2, 2009, Nott received payment of the first principal installment plus all interest due. At December 31, 2008, Nott's interest receivable on the loan to Horn should be
C
Allen Corp.'s liability account balances at June 30, 2008 included a 10% note payable in the amount of $2,400,000. The note is dated October 1, 2006 and is payable in three equal annual payments of $800,000 plus interest. The first interest and principal payment was made on October 1, 2007. In Allen's June 30, 2008 balance sheet, what amount should be reported as accrued interest payable for this note?
B
Colaw Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Colaw accrues salaries expense only at its December 31 year end. Data relating to salaries earned in December 2008 are as follows:
Last payroll was paid on 12/26/08, for the 2-week period ended 12/26/08.
Overtime pay earned in the 2-week period ended 12/26/08 was $10,000.
Remaining work days in 2008 were December 29, 30, 31, on which days there was no overtime.
The recurring biweekly salaries total $180,000.
Assuming a five-day work week, Colaw should record a liability at December 31, 2008 for accrued salaries of
B
Tolan Corp.'s trademark was licensed to Eddy Co. for royalties of 15% of sales of the trademarked items. Royalties are payable semiannually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year. Tolan received the following royalties from Eddy:
March 15 September 15
2007 $5,000 $7,500
2008 6,000 8,500
Eddy estimated that sales of the trademarked items would total $40,000 for July through December 2008. In Tolan's 2008 income statement, the royalty revenue should be
A
At December 31, 2008, Sue's Boutique had 1,000 gift certificates outstanding, which had been sold to customers during 2008 for $50 each. Sue's operates on a gross margin of 60% of its sales. What amount of revenue pertaining to the 1,000 outstanding gift certificates should be deferred at December 31, 2008?
D
Which of the following is a limitation of the balance sheet?
D
The balance sheet is useful for analyzing all of the following except
C
The balance sheet contributes to financial reporting by providing a basis for all of the following except
C
One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is
B
The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as
C
Solvency refers to the
A
The primary purpose of the balance sheet is to reflect
B
For accounting purposes, the operating cycle concept
C
If $1,240 cash and a $4,760 note are given in exchange for a delivery truck to be used in a business,
A
Which of the following is not a current asset?
B
Of the following statements, which best illustrates the fact that the formal distinction made between current and noncurrent assets is somewhat arbitrary?
D
Which of the following items should never be included in the current assets section of the balance sheet?
D
Of the following items, the one which should be classified as a current asset is
A
Prepaid expenses are included in the current assets section of the balance sheet because
B
One of the main reasons for separating liabilities into current and long-term is to
A
A liability to be paid next year would not be included in the current liability section of the balance sheet if the debt is expected to be refinanced through another long-term issue, or
C
A characteristic of all assets and liabilities comprising working capital is that they are
C
If a company converted a short-term note payable into a long-term note payable, this transaction would
C
How are the following items handled in computing the total stockholders' equity section of the balance sheet?
C
The net assets of a business are equal to
D
The correct order to present current assets is
B
The basis for classifying assets as current or noncurrent is conversion to cash within the
B
The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in
D
The current assets section of the balance sheet should include
D
Which of the following is a current asset?
D
Which of the following should not be considered as a current asset in the balance sheet?
D
Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as
D
When a portion of inventories has been pledged as security on a loan,
C
Which of the following is not a long-term investment?
B
A generally accepted method of valuation is
1. trading securities at market value.
2. accounts receivable at net realizable value.
3. inventories at current cost.
D
Which item below is not a current liability?
B
Working capital is
D
An example of an item which is not an element of working capital is
B
Long-term liabilities include
D
Which of the following should be excluded from long-term liabilities?
D
Treasury stock should be reported as a(n)
D
Which of the following should be reported for capital stock?
D
Which of the following would be classified in a different major section of a balance sheet from the others?
D
The stockholders' equity section is usually divided into what three parts?
C
Which of the following is not an acceptable major asset classification?
D
Which of the following is a contra account?
D
Which of the following balance sheet classifications would normally require the greatest amount of supplementary disclosure?
D
Which of the following is not a method of disclosing pertinent information?
D
A general description of the depreciation methods applicable to major classes of depreci-able assets
D
It is mandatory that the essential provisions of which of the following be clearly stated in the notes to the financial statements?
D
A generally accepted account title is
D
Which of the following reflects proper use of the term "reserve" in the preparation of financial statements?
B
Garret Company owns the following investments:
Trading securities (fair value) $60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
Garret will report investments in its current assets section of
D
For Nicholson Company, the following information is available:
Capitalized leases $200,000
Trademarks 65,000
Long-term receivables 75,000
In Nicholson's balance sheet, intangible assets should be reported at
C
Sam Hurd Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000; retained earnings, $313,000. What total amount should Sam Hurd Company report as stockholders' equity?
A
Horton Company owns the following investments:
Trading securities (fair value) $60,000
Available-for-sale securities (fair value) 35,000
Held-to-maturity securities (amortized cost) 47,000
Horton will report securities in its long-term investments section of
B
For Mitchell Company, the following information is available:
Capitalized leases $280,000
Trademarks 90,000
Long-term receivables 105,000
In Mitchell's balance sheet, intangible assets should be reported at
D
Stanton Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000; retained earnings, $363,000. What total amount should Stanton Company report as stockholders' equity?
A
Stanton Company has the following items: common stock, $720,000; treasury stock, $85,000; deferred taxes, $100,000; retained earnings, $363,000. What total amount should Stanton Company report as stockholders' equity?
B
Reese Corp.'s trial balance reflected the following account balances at December 31, 2008:
Accounts receivable (net) $24,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash 11,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Reese's December 31, 2008 balance sheet, the current assets total is
D
The current assets total is
D
The current liabilities total is
A
The final retained earnings balance is
C
On January 4, 2008, Gregg Co. leased a building to Cole Corp. for a ten-year term at an annual rental of $75,000. At inception of the lease, Gregg received $300,000 covering the first two years' rent of $150,000 and a security deposit of $150,000. This deposit will not be returned to Cole upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $300,000 should be shown as a current and long-term liability in Gregg's December 31, 2008 balance sheet?
Current Liability Long-term Liability
B
Which of the following facts concerning fixed assets should be included in the summary of significant accounting policies?
Depreciation Method Composition
C
1. Bond sinking fund
2. Common stock distributable
3. Appropriation for plant expansion
4. Bank overdraft
5. Bonds payable (due 2010)
6. Premium on common stock
7.Securities owned by another company which are collateral for that company's note
8. Trading Securities
9. Inventory
10. Unamortized discount on bonds payable
11. Patents
12. Unearned revenue
1. B 5. G 9. A
2. I 6. J 10. G
3. K 7. L 11. D
4. F 8. A 12. F
The major elements of the income statement are
C
Information in the income statement helps users to
D
Limitations of the income statement include all of the following except
B
Which of the following would represent the least likely use of an income statement prepared for a business enterprise?
D
The income statement reveals
D
The primary reason the income statement is so important to investors and creditors relates to its ability to provide information helpful in
C
The single-step income statement emphasizes
B
Which of the following is an acceptable method of presenting the income statement?
D
Which of the following is not a generally practiced method of presenting the income statement?
A
The occurrence that most likely would have no effect on 2008 net income (assuming that all amounts involved are material) is the
B
The occurrence that most likely would have no effect on 2008 net income is the
C
Which of the following is not a selling expense?
B
The accountant for Orion Sales Company is preparing the income statement for 2008 and the balance sheet at December 31, 2008. The January 1, 2008 merchandise inventory balance will appear
B
One of the primary benefits of the multiple-step income statement over the single-step income statement is that the multiple-step income statement
A
Any gain or loss experienced by a concern, whether directly or indirectly related to operations, contributes to the long-run profitability and should be included in the computa-tion of net income. Those who favor such a philosophy adhere to the
Current Operating All-Inclusive
Performance Concept Concept
D
Which of the following asset disposals would qualify as a disposal of a component of a business?
D
To be classified on an income statement as an extraordinary item, the transaction or event must be material in nature and
Unusual Occur Infrequently
A
Which of the following should not be reported on the income statement as an extra-ordinary item?
B
In order to be classified as an extraordinary item in the income statement, an event or transaction should be
D
Which of the following should be reported on the income statement as an extraordinary item?
C
In general, the basic difference between the concepts of revenues and gains concerns
B
When a company changes from one accounting principle to another, the income statement for the year of change
A
Changing the basis of inventory pricing from FIFO to average cost is an example of a(n)
B
The concept that reports extraordinary items in the income statement is called the
D
When a manufacturing company sells one of its plant assets at a price in excess of its book value, it should recognize
Revenue Gain
A
Classification as an extraordinary item on the income statement would be appropriate for the
D
Which of these is generally an example of an extraordinary item?
D
Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes?
A
An item that should be classified as an extraordinary item is
D
How should an unusual event not meeting the criteria for an extraordinary item be disclosed in the financial statements?
A
Which of the following is a change in accounting principle?
B
Which of the following is never classified as an extraordinary item?
D
Which of the following is a required disclosure in the income statement when reporting the disposal of a component of the business?
C
When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as a(n)
C
A material item which is unusual in nature or infrequent in occurrence, but not both should be shown in the income statement
Net of Tax Disclosed Separately
C
Income taxes are allocated to
D
Which of the following is true about intraperiod tax allocation?
D
Earnings per share is computed by dividing net income
D
Earnings per share should always be shown separately for
C
A correction of an error in prior periods' income will be reported
In the income statement Net of tax
D
Which of the following items will not appear in the retained earnings statement?
C
Which one of the following types of losses is excluded from the determination of net income in income statements?
D
Shank Corporation made a very large arithmetical error in the preparation of its year-end financial statements by improper placement of a decimal point in the calculation of depreciation. The error caused the net income to be reported at almost double the proper amount. Correction of the error when discovered in the next year should be treated as
D
Comprehensive income includes all of the following except
C
The approach most companies use to provide information related to the components of other comprehensive income is a
C
In Garret Wolfe's single-step income statement, gross profit
A
In Garret Wolfe's multiple-step income statement, gross profit
C
Gross billings for merchandise sold by Otto Company to its customers last year amounted to $15,720,000; sales returns and allowances were $370,000, sales discounts were $175,000, and freight-out was $140,000. Net sales last year for Otto Company were
C
If plant assets of a manufacturing company are sold at a gain of $820,000 less related taxes of $250,000, and the gain is not considered unusual or infrequent, the income statement for the period would disclose these effects as
A
During the year 2008, Siska Corporation had the following information available related to its income statement:
Disbursements for purchases $630,000
Increase in trade accounts payable 80,000
Decrease in merchandise inventory 25,000
Cost of goods sold for 2008 amounted to
A
An income statement shows "income before income taxes and extraordinary items" in the amount of $685,000. The income taxes payable for the year are $360,000, including $120,000 that is applicable to an extraordinary gain. Thus, the "income before extraordi-nary items" is
A
Sam Hurd Company has the following items: write-down of inventories, $120,000; loss on disposal of Sports Division, $185,000; and loss due to strike, $113,000. Ignoring income taxes, what total amount should Sam Hurd Company report as extraordinary losses?
A
An income statement shows "income before income taxes and extraordinary items" in the amount of $2,055,000. The income taxes payable for the year are $1,080,000, including $360,000 that is applicable to an extraordinary gain. Thus, the "income before extraordinary items" is
A
Cole Company, with an applicable income tax rate of 30%, reported net income of $210,000. Included in income for the period was an extraordinary loss from flood damage of $30,000 before deducting the related tax effect. The company's income before income taxes and extraordinary items was
C
A review of the December 31, 2008, financial statements of Baden Corporation revealed that under the caption "extraordinary losses," Baden reported a total of $515,000. Further analysis revealed that the $515,000 in losses was comprised of the following items:
(1) Baden recorded a loss of $150,000 incurred in the abandonment of equipment formerly used in the business.
(2) In an unusual and infrequent occurrence, a loss of $250,000 was sustained as a result of hurricane damage to a warehouse.
(3) During 2008, several factories were shut down during a major strike by employees, resulting in a loss of $85,000.
(4) Uncollectible accounts receivable of $30,000 were written off as uncollectible.
Ignoring income taxes, what amount of loss should Baden report as extraordinary on its 2008 income statement?
B
At Hall Company, events and transactions during 2008 included the following. The tax rate for all items is 30%.
(1) Depreciation for 2006 was found to be understated by $30,000.
(2) A strike by the employees of a supplier resulted in a loss of $25,000.
(3) The inventory at December 31, 2006 was overstated by $40,000.
(4) A flood destroyed a building that had a book value of $500,000. Floods are very uncommon in that area.

The effect of these events and transactions on 2008 income from continuing operations net of tax would be
A
At Hall Company, events and transactions during 2008 included the following. The tax rate for all items is 30%.
(1) Depreciation for 2006 was found to be understated by $30,000.
(2) A strike by the employees of a supplier resulted in a loss of $25,000.
(3) The inventory at December 31, 2006 was overstated by $40,000.
(4) A flood destroyed a building that had a book value of $500,000. Floods are very uncommon in that area.

The effect of these events and transactions on 2008 net income net of tax would be
B
During 2008, Gomez Corporation disposed of Pine Division, a major component of its business. Gomez realized a gain of $1,200,000, net of taxes, on the sale of Pine's assets. Pine's operating losses, net of taxes, were $1,400,000 in 2008. How should these facts be reported in Gomez's income statement for 2008?
Total Amount to be Included in
Income from Results of
Continuing Operations Discontinued Operations
C
Carpino Corporation has an extraordinary loss of $200,000, an unusual gain of $140,000, and a tax rate of 40%. At what amount should Carpino report each item?
Extraordinary loss Unusual gain
C
Edmonds Corporation reports the following information:
Net income $500,000
Dividends on common stock 140,000
Dividends on preferred stock 60,000
Weighted-average common shares outstanding 200,000

Edmonds should report earnings per share of
C
Simmons Corporation reports the following information:
Correction of understatement of depreciation expense
in prior years, net of tax $ 430,000
Dividends declared 320,000
Net income 1,000,000
Retained earnings, 1/1/08, as reported 2,000,000
Simmons should report retained earnings, 1/1/08, as adjusted at
A
Simmons Corporation reports the following information:
Correction of understatement of depreciation expense
in prior years, net of tax $ 430,000
Dividends declared 320,000
Net income 1,000,000
Retained earnings, 1/1/08, as reported 2,000,000
Simmons should report retained earnings, 12/31/08, as adjusted at
B
Joe Novak Corporation reports the following information:
Correction of overstatement of depreciation expense
in prior years, net of tax $ 215,000
Dividends declared 160,000
Net income 500,000
Retained earnings, 1/1/08, as reported 1,000,000
Joe Novak should report retained earnings, 12/31/08, at
D
The following information was extracted from the accounts of Boone Corporation at December 31, 2008:
CR(DR)
Total reported income since incorporation $1,700,000
Total cash dividends paid (800,000)
Unrealized holding loss (120,000)
Total stock dividends distributed (200,000)
Prior period adjustment, recorded January 1, 2008 75,000
What should be the balance of retained earnings at December 31, 2008?
D
Silas Company reported the following information for 2008:
Sales revenue $500,000
Cost of goods sold 350,000
Operating expenses 55,000
Unrealized holding gain on available-for-sale securities 20,000
Cash dividends received on the securities 2,000
For 2008, Silas would report comprehensive income of
A
How much of the expenses listed above should be included in Meyer's selling expenses for 2008?
D
How much of the expenses listed above should be included in Meyer's general and administrative expenses for 2008?
A
One-half of the rented premises is occupied by the sales department. Bowen's total selling expenses for 2008 are
A
The office space is used equally by Nen's sales and accounting departments. What amount of the above-listed items should be classified as general and administrative expenses in Nen's multiple-step income statement?
A
On Hogan's multiple-step income statement for 2008,

Inventory purchases are
D
On Hogan's multiple-step income statement for 2008,

Income before extraordinary item is
C
On Hogan's multiple-step income statement for 2008,

Extraordinary loss is
A
Agler Corp. had the following infrequent transactions during 2008:
A $150,000 gain from selling the only investment Agler has ever owned.
A $210,000 gain on the sale of equipment.
A $70,000 loss on the write-down of inventories.
In its 2008 income statement, what amount should Agler report as total infrequent net gains that are not considered extraordinary?
B
Snead, Inc. incurred the following infrequent losses during 2008:
A $70,000 write-down of equipment leased to others.
A $40,000 adjustment of accruals on long-term contracts.
A $60,000 write-off of obsolete inventory.
In its 2008 income statement, what amount should Snead report as total infrequent losses that are not considered extraordinary?
A
Which of the following should be reported as a prior period adjustment?
Change in Estimated Lives Change from Unaccepted
of Depreciable Assets Principle to Accepted Principle
B
The revenue recognition principle provides that revenue is recognized when
C
When goods or services are exchanged for cash or claims to cash (receivables), revenues are
B
When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are
A
Which of the following is not an accurate representation concerning revenue recognition?
B
Which of the following is not a reason why revenue is recognized at time of sale?
D
An alternative available when the seller is exposed to continued risks of ownership through return of the product is
D
A sale should not be recognized as revenue by the seller at the time of sale if
C
The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?
D
Which of the following is not a condition that must be present for a company to recognize revenue at the time of sale when the company gives the buyer the right to return the product?
B
In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be
B
The percentage-of-completion method must be used when certain conditions exist. Which of the following is not one of those necessary conditions?
C
When work to be done and costs to be incurred on a long-term contract can be estimated dependably, which of the following methods of revenue recognition is preferable?
B
In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the
B
The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it
B
One of the more common techniques that companies use to determine the progress toward completion in the percentage-of-completion method is the
D
The principal advantage of the completed-contract method is that
A
Under the completed-contract method
C
Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be
A
When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct?
B
The criteria for recognition of revenue at the completion of production of precious metals and farm products include
D
In certain cases, revenue is recognized at the completion of production even though no sale has been made. Which of the following statements is not true?
A
Under the completed-contract method of accounting for long-term construction contracts, interim charges and/or credits to the income statement are made for
Revenues Costs Gross Profit
B
The Nathan Company is involved in the construction of an asset under a long-term construction contract. At the end of the third year of the five-year contract, the cost estimates indicate that a loss will result on the completion of the entire contract. In accounting for this contract, the entire expected loss must be recognized in the current period under the
Percentage-of- Completed-
Completion Method Contract Method
B
Which of the following methods is used when the collectibility of the receivable is so uncertain that gross profit (or income) is not recognized until cash is received?
C
Under the installment-sales accounting method, certain items related to the sale are recognized in the period of the sale and certain items are recognized in the period in which cash is collected. Of the following items, which are recognized in the period of sale and which are recognized in the period in which the cash is collected?
Revenues Cost of Sales Gross Profit Other Expenses
C
The installment-sales method of recognizing profit for accounting purposes is acceptable if
C
Under the cost-recovery method of revenue recognition,
B
Winser, Inc. is engaged in extensive exploration for water in Utah. If, upon discovery of water, Winser does not recognize any revenue from water sales until the sales exceed the costs of exploration, the basis of revenue recognition being employed is the
D
How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract?
C
How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-completion method of revenue recognition is used?
A
In accounting for long-term construction-type contracts, construction costs are accumu-lated in an inventory account called Construction in Process under the
Percentage-of- Completed-
Completion Method Contract Method
A
Deferred gross profit on installment sales is generally treated as a(n)
C
The method most commonly used to report defaults and repossessions is
B
Under the installment-sales method,
B
The realization of income on installment sales transactions involves
C
Reese Construction Corporation contracted to construct a building for $1,500,000. Construction began in 2008 and was completed in 2009. Data relating to the contract are summarized below:
Year ended December 31
2008 2009
Costs incurred $600,000 $450,000
Estimated costs to complete 400,000 —
Reese uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2008, and 2009, respectively, Reese should report gross profit of
C
72. Winsor Construction Company uses the percentage-of-completion method of accounting. In 2008, Winsor began work on a contract it had received which provided for a contract price of $15,000,000. Other details follow:
2008
Costs incurred during the year $7,200,000
Estimated costs to complete as of December 31 4,800,000
Billings during the year 6,600,000
Collections during the year 3,900,000
What should be the gross profit recognized in 2008?
C
In 2008, Crane Corporation began construction work under a three-year contract. The contract price is $2,400,000. Crane uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2008, follow:
Balance Sheet
Accounts receivable—construction contract billings $100,000
Construction in progress $300,000
Less contract billings 240,000
Costs and recognized profit in excess of billings 60,000

Income Statement
Income (before tax) on the contract recognized in 2008 $60,000

How much cash was collected in 2008 on this contract?
B
In 2008, Crane Corporation began construction work under a three-year contract. The contract price is $2,400,000. Crane uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2008, follow:
Balance Sheet
Accounts receivable—construction contract billings $100,000
Construction in progress $300,000
Less contract billings 240,000
Costs and recognized profit in excess of billings 60,000

Income Statement
Income (before tax) on the contract recognized in 2008 $60,000

What was the initial estimated total income before tax on this contract?
D
Eaton Construction Co. uses the percentage-of-completion method. In 2008, Eaton began work on a contract for $3,300,000 and it was completed in 2009. Data on the costs are:
Year Ended December 31
2008 2009
Costs incurred $1,170,000 $840,000
Estimated costs to complete 780,000 —
For the years 2008 and 2009, Eaton should recognize gross profit of
2008 2009
C
Ramos, Inc. began work in 2008 on contract #3814, which provided for a contract price of $7,200,000. Other details follow:
2008 2009
Costs incurred during the year $1,200,000 $3,675,000
Estimated costs to complete, as of December 31 3,600,000 0
Billings during the year 1,350,000 5,400,000

Assume that Ramos uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2008 is
B
Ramos, Inc. began work in 2008 on contract #3814, which provided for a contract price of $7,200,000. Other details follow:
2008 2009
Costs incurred during the year $1,200,000 $3,675,000
Estimated costs to complete, as of December 31 3,600,000 0
Billings during the year 1,350,000 5,400,000

Assume that Ramos uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2009 is
C
Miley, Inc. began work in 2008 on a contract for $8,400,000. Other data are as follows:
2008 2009
Costs incurred to date $3,600,000 $5,600,000
Estimated costs to complete 2,400,000 —
Billings to date 2,800,000 8,400,000
Collections to date 2,000,000 7,200,000

If Miley uses the percentage-of-completion method, the gross profit to be recognized in 2008 is
A
Miley, Inc. began work in 2008 on a contract for $8,400,000. Other data are as follows:
2008 2009
Costs incurred to date $3,600,000 $5,600,000
Estimated costs to complete 2,400,000 —
Billings to date 2,800,000 8,400,000
Collections to date 2,000,000 7,200,000

If Miley uses the completed-contract method, the gross profit to be recognized in 2009 is
B
Parker Construction Co. uses the percentage-of-completion method. In 2008, Parker began work on a contract for $5,500,000; it was completed in 2009. The following cost data pertain to this contract:
Year Ended December 31
2008 2009
Cost incurred during the year $1,950,000 $1,400,000
Estimated costs to complete at the end of year 1,300,000 —

The amount of gross profit to be recognized on the income statement for the year ended December 31, 2009 is
A
Parker Construction Co. uses the percentage-of-completion method. In 2008, Parker began work on a contract for $5,500,000; it was completed in 2009. The following cost data pertain to this contract:
Year Ended December 31
2008 2009
Cost incurred during the year $1,950,000 $1,400,000
Estimated costs to complete at the end of year 1,300,000 —

If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2008 and 2009 would be
2008 2009
C
Willingham Construction Company uses the percentage-of-completion method. During 2008, the company entered into a fixed-price contract to construct a building for Richman Company for $30,000,000. The following details pertain to the contract:
At December 31, 2008 At December 31, 2009
Percentage of completion 25% 60%
Estimated total cost of contract $22,500,000 $25,000,000
Gross profit recognized to date 1,875,000 3,000,000

The amount of construction costs incurred during 2009 was
B
Noonan Construction Co. began operations in 2008. Construction activity for 2008 is shown below. Noonan uses the percentage-of-completion method.
Estimated
Contract Costs to Costs to
Contract Price 12/31/08 Complete
1 $1,480,000 $250,000 $ 750,000
2 1,700,000 400,000 1,600,000

Which of the following should be shown on the income statement for 2008 related to Contract 1?
C
Noonan Construction Co. began operations in 2008. Construction activity for 2008 is shown below. Noonan uses the percentage-of-completion method.
Estimated
Contract Costs to Costs to
Contract Price 12/31/08 Complete
1 $1,480,000 $250,000 $ 750,000
2 1,700,000 400,000 1,600,000

Which of the following should be shown on the income statement for 2008 related to Contract 2?
A
Kirby Builders, Inc. is using the completed-contract method for a $5,600,000 contract that will take two years to complete. Data at December 31, 2008, the end of the first year, are as follows:
Costs incurred to date $2,560,000
Estimated costs to complete 3,280,000
Billings to date 2,400,000
Collections to date 2,000,000
The gross profit or loss that should be recognized for 2008 is
B
Carter Construction Company had a contract starting April 2008, to construct a $15,000,000 building that is expected to be completed in September 2009, at an estimated cost of $13,750,000. At the end of 2008, the costs to date were $6,325,000 and the estimated total costs to complete had not changed. The progress billings during 2008 were $3,000,000 and the cash collected during 2008 was $2,000,000. Carter uses the percentage-of-completion method.

For the year ended December 31, 2008, Carter would recognize gross profit on the building of
C
Carter Construction Company had a contract starting April 2008, to construct a $15,000,000 building that is expected to be completed in September 2009, at an estimated cost of $13,750,000. At the end of 2008, the costs to date were $6,325,000 and the estimated total costs to complete had not changed. The progress billings during 2008 were $3,000,000 and the cash collected during 2008 was $2,000,000. Carter uses the percentage-of-completion method.

At December 31, 2008, Carter would report Construction in Process in the amount of
A
Cushing Corporation recently received a long-term contract to construct a luxury liner. The contract will take 3 years to complete at a cost of $3,500,000. The price of the liner is set at $5,000,000. Cost estimates at the end of the first year are in line with original estimates, and $1,050,000 of costs were incurred during the first year.

The amount of income recognized during the first year using the percentage-of-completion method is
D
Cushing Corporation recently received a long-term contract to construct a luxury liner. The contract will take 3 years to complete at a cost of $3,500,000. The price of the liner is set at $5,000,000. Cost estimates at the end of the first year are in line with original estimates, and $1,050,000 of costs were incurred during the first year.

At the end of the first year which of the following entries would be made to recognize revenue on the contract?
C
Bretts Construction Company had a contract starting April 2008, to construct a $6,000,000 building that is expected to be completed in September 2010, at an estimated cost of $5,500,000. At the end of 2008, the costs to date were $2,530,000 and the estimated total costs to complete had not changed. The progress billings during 2008 were $1,200,000 and the cash collected during 2008 was $800,000. Bretts uses the percentage-of-completion method.

For the year ended December 31, 2008, Bretts would recognize gross profit on the building of
B
Bretts Construction Company had a contract starting April 2008, to construct a $6,000,000 building that is expected to be completed in September 2010, at an estimated cost of $5,500,000. At the end of 2008, the costs to date were $2,530,000 and the estimated total costs to complete had not changed. The progress billings during 2008 were $1,200,000 and the cash collected during 2008 was $800,000. Bretts uses the percentage-of-completion method.

At December 31, 2008, Bretts would report Construction in Process in the amount of
C
During 2008, Ted Corporation sold merchandise costing $500,000 on an installment basis for $800,000. The cash receipts related to these sales were collected as follows: 2008, $250,000; 2009, $450,000; 2010, $100,000.

What is the rate of gross profit on the installment sales made by Ted Corporation during 2008?
A
During 2008, Ted Corporation sold merchandise costing $500,000 on an installment basis for $800,000. The cash receipts related to these sales were collected as follows: 2008, $250,000; 2009, $450,000; 2010, $100,000.

If expenses, other than the cost of the merchandise sold, related to the 2008 installment sales amounted to $60,000, by what amount would Ted's net income for 2008 increase as a result of installment sales?
D
During 2008, Ted Corporation sold merchandise costing $500,000 on an installment basis for $800,000. The cash receipts related to these sales were collected as follows: 2008, $250,000; 2009, $450,000; 2010, $100,000.

What amounts would be shown in the December 31, 2009 financial statements for realized gross profit on 2008 installment sales, and deferred gross profit on 2008 installment sales, respectively?
A
On January 1, 2008, Dole Co. sold land that cost $210,000 for $280,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of $112,595 starting on December 31, 2008. Because collection of the note is very uncertain, Dole will use the cost-recovery method. How much revenue from this sale should Dole recognize in 2008?
A
During 2008, Steele Corporation sold merchandise costing $1,500,000 on an installment basis for $2,000,000. The cash receipts related to these sales were collected as follows: 2008, $800,000; 2009, $700,000; 2010, $500,000.

What is the rate of gross profit on the installment sales made by Steele Corporation during 2008?
D
During 2008, Steele Corporation sold merchandise costing $1,500,000 on an installment basis for $2,000,000. The cash receipts related to these sales were collected as follows: 2008, $800,000; 2009, $700,000; 2010, $500,000.

If expenses, other than the cost of the merchandise sold, related to the 2008 installment sales amounted to $90,000, by what amount would Steele's net income for 2008 increase as a result of installment sales?
A
During 2008, Steele Corporation sold merchandise costing $1,500,000 on an installment basis for $2,000,000. The cash receipts related to these sales were collected as follows: 2008, $800,000; 2009, $700,000; 2010, $500,000.

What amount would be shown in the December 31, 2009 financial statement for realized gross profit on 2008 installment sales, and deferred gross profit on 2008 installment sales, respectively?
D
Harber Co. uses the installment-sales method. When an account had a balance of $8,400, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for $2,400 as repossessed, or for $3,000 if the company spent $300 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a
D
Yarbow Corporation has a normal gross profit on installment sales of 30%. A 2007 sale resulted in a default early in 2009. At the date of default, the balance of the installment receivable was $24,000, and the repossessed merchandise had a fair value of $13,500. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be
B
Seeman Furniture uses the installment-sales method. No further collections could be made on an account with a balance of $18,000. It was estimated that the repossessed furniture could be sold as is for $5,400, or for $6,300 if $300 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was
A
Wagner Company sold some machinery to Granger Company on January 1, 2008. The cash selling price would have been $568,620. Granger entered into an installment sales contract which required annual payments of $150,000, including interest at 10%, over five years. The first payment was due on December 31, 2008. What amount of interest income should be included in Wagner's 2009 income statement (the second year of the contract)?
B
Lamberson Company has used the installment method of accounting since it began operations at the beginning of 2008. The following information pertains to its operations for 2008:
Installment sales $1,400,000
Cost of installment sales 980,000
Collections of installment sales 560,000
General and administrative expenses 140,000

The amount to be reported on the December 31, 2008 balance sheet as Deferred Gross Profit should be
B
Singer Company sells plasma-screen televisions on an installment basis and appropri-ately uses the installment-sales method of accounting. A customer with an account balance of $5,600 refuses to make any more payments and the merchandise is repossessed. The gross profit rate on the original sale is 40%. Singer estimates that the television can be sold as is for $1,750, or for $2,100 if $140 is spent to refurbish it. The loss on repossession is
D
According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is
A
Flynn Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2008, Flynn entered into a fixed-price contract to construct an office building for $12,000,000. Information relating to the contract is as follows:
At December 31
2008 2009
Percentage of completion 15% 45%
Estimated total cost at completion $9,000,000 $9,600,000
Gross profit recognized (cumulative) 600,000 1,440,000

Contract costs incurred during 2009 were
B
Noland Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2008, Noland started work on a $35,000,000 construction contract that was completed in 2009. The following information was taken from Noland's 2008 accounting records:
Progress billings $11,000,000
Costs incurred 10,500,000
Collections 7,000,000
Estimated costs to complete 21,000,000

What amount of gross profit should Noland have recognized in 2008 on this contract?
D
During 2008, Eaton Corp. started a construction job with a total contract price of $3,500,000. The job was completed on December 15, 2009. Additional data are as follows:
2008 2009
Actual costs incurred $1,350,000 $1,525,000
Estimated remaining costs 1,350,000 —
Billed to customer 1,200,000 2,300,000
Received from customer 1,000,000 2,400,000

Under the completed-contract method, what amount should Eaton recognize as gross profit for 2009?
D
Klugg, Inc. appropriately uses the installment-sales method of accounting to recognize income in its financial statements. Some pertinent data relating to this method of accounting include:
2008 2009
Installment sales $750,000 $720,000
Cost of installment sales 570,000 504,000
Gross profit $180,000 $216,000

Rate of gross profit 24% 30%

Balance of deferred gross profit at year end:
2008 $108,000 $ 36,000
2009 198,000
Total $108,000 $234,000

What amount of installment accounts receivable should be presented in Klugg's December 31, 2009 balance sheet?
B
Neber Co., which began operations on January 1, 2008, appropriately uses the installment-sales method of accounting. The following information pertains to Neber's operations for the year 2008:
Installment sales $1,200,000
Regular sales 480,000
Cost of installment sales 720,000
Cost of regular sales 300,000
General and administrative expenses 96,000
Collections on installment sales 288,000

The deferred gross profit account in Neber's December 31, 2008 balance sheet should be
C
On January 1, 2008, Stein Co. sold a used machine to Mays, Inc. for $350,000. On this date, the machine had a depreciated cost of $245,000. Mays paid $50,000 cash on January 1, 2008 and signed a $300,000 note bearing interest at 10%. The note was payable in three annual installments of $100,000 beginning January 1, 2009. Stein appropriately accounted for the sale under the installment method. Mays made a timely payment of the first installment on January 1, 2009 of $130,000, which included interest of $30,000 to date of payment. At December 31, 2009, Stein has deferred gross profit of
C
Grant Co. began operations on January 1, 2008 and appropriately uses the installment method of accounting. The following information pertains to Grant's operations for 2008:
Installment sales 1,800,000
Cost of installment sales 1,080,000
General and administrative expenses 180,000
Collections on installment sales 825,000
The balance in the deferred gross profit account at December 31, 2008 should be
C
Lott Co. records all sales using the installment method of accounting. Installment sales contracts call for 36 equal monthly cash payments. According to the FASB's conceptual framework, the amount of deferred gross profit relating to collections 12 months beyond the balance sheet date should be reported in the
C
Which of the following is not considered cash for financial reporting purposes?
D
Which of the following is considered cash?
B
Travel advances should be reported as
D
Which of the following items should not be included in the Cash caption on the balance sheet?
D
Which of the following is properly classified as cash?
C
A compensating balance as defined by the SEC is best reflected by which of the following?
C
A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and
D
Bank overdrafts, if material, should be
D
Deposits held as compensating balances
D
The category "trade receivables" includes
D
Which of the following should be recorded in Accounts Receivable?
D
What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet?
C
When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce prompt payment. Such a discount is called a(n)
D
Trade discounts are
D
If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as
A
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
C
Which of the following methods of determining bad debt expense does not properly match expense and revenue?
D
Which of the following methods of determining annual bad debt expense best achieves the matching concept?
A
Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?
B
The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach
A
Green Company wrote off a client's account receivable of $400 as uncollectible. What will be the effect on net income under the following methods of recognizing bad debt expense?
Direct Write-off Allowance
A
Which of the following statements is not correct regarding uncollectible accounts receivable?
C
The allowance method is preferable to the direct write-off method because the allowance method
D
The basic accounting issues for both accounts receivable and notes receivable would center around which of the following?
Recognition Valuation
B
At the beginning of 2007, Finney Company received a three-year, zero-interest-bearing $1,000 trade note. The market rate for equivalent notes was 8% at that time. Finney reported this note as a $1,000 trade note receivable on its 2007 year-end statement of financial position and $1,000 as sales revenue for 2007. What effect did this accounting for the note have on Finney's net earnings for 2007, 2008, 2009, and its retained earnings at the end of 2009, respectively?
D
Which of the following is true when accounts receivable are factored without recourse?
C
Which of the following statements is incorrect regarding the classification of accounts and notes receivable?
C
Of the following conditions, which is the only one that is not required if the transfer of receivables with recourse is to be accounted for as a sale?
A
Thresher Corporation sold its accounts receivable outright to Kari Company, a financing company which normally buys accounts receivable of other companies without recourse. The accounts receivable have been
C
In which of the following accounts receivable assignment arrangements do all receivables serve as collateral for the promissory note given by the assignor?
General Assignment Specific Assignment
B
The accounts receivable turnover ratio measures the
A
The accounts receivable turnover ratio is computed by dividing
D
Which of the following is not true?
C
A Cash Over and Short account
C
The journal entries for a bank reconciliation
B
When preparing a bank reconciliation, bank credits are
C
When preparing a bank reconciliation for the purpose of arriving at the correct cash balance
B
In a bank reconciliation that attempts to reconcile the bank balance to the corrected cash balance, the following items would affect the reconciliation in what way?
Outstanding Checks Deposits In Transit
B
Kari, Inc.'s cash book balance on December 31, 2008, was $5,000. In addition, Kari had the following items on its premises on December 31:
Check payable to Kari, Inc., dated January 3, 2009, included in
December 31 book balance $ 200
Postage stamps on hand not included in December 31 book balance 100
Cashier's check payable to Kari, Inc., dated December 28, 2008, not
included in December 31 book balance 1,300
The proper amount to be shown as Cash on Kari's balance sheet at December 31, 2008, is
A
On January 1, 2008, Mann Company borrows $2,000,000 from National Bank at 11% annual interest. In addition, Mann is required to keep a compensatory balance of $200,000 on deposit at National Bank which will earn interest at 5%. The effective interest that Mann pays on its $2,000,000 loan is
D
Hamilton Company has cash in bank of $10,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Hamilton should report cash of
B
Horvath Company has the following items at year end:
Cash in bank $20,000
Petty cash 300
Short-term paper with maturity of 2 months 5,500
Postdated checks 1,400
Horvath should report cash and cash equivalents of
C
Marshell Company has cash in bank of $15,000, restricted cash in a separate account of $4,000, and a bank overdraft in an account at another bank of $2,000. Marshell should report cash of
B
Peterson Company has the following items at year end:
Cash in bank $30,000
Petty cash 500
Short-term paper with maturity of 2 months 8,200
Postdated checks 2,100
Peterson should report cash and cash equivalents of
C
If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)?
C
At the close of its first year of operations, December 31, 2008, Linn Company had accounts receivable of $540,000, after deducting the related allowance for doubtful accounts. During 2008, the company had charges to bad debt expense of $90,000 and wrote off, as uncollectible, accounts receivable of $40,000. What should the company report on its balance sheet at December 31, 2008, as accounts receivable before the allowance for doubtful accounts?
B
Before year-end adjusting entries, Bass Company's account balances at December 31, 2007, for accounts receivable and the related allowance for uncollectible accounts were $600,000 and $45,000, respectively. An aging of accounts receivable indicated that $62,500 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is
B
During the year, Jantz Company made an entry to write off a $4,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $50,000 and the balance in the allowance account was $4,500. The net realizable value of accounts receivable after the write-off entry was
D
The following information is available for Reagan Company:
Allowance for doubtful accounts at December 31, 2007 $ 8,000
Credit sales during 2008 400,000
Accounts receivable deemed worthless and written off during 2008 9,000
As a result of a review and aging of accounts receivable in early January 2009, however, it has been determined that an allowance for doubtful accounts of $5,500 is needed at December 31, 2008. What amount should Reagan record as "bad debt expense" for the year ended December 31, 2008?
C
A trial balance before adjustments included the following:
Debit Credit
Sales $425,000
Sales returns and allowance $14,000
Accounts receivable 43,000
Allowance for doubtful accounts 760

If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment is
B
A trial balance before adjustments included the following:
Debit Credit
Sales $425,000
Sales returns and allowance $14,000
Accounts receivable 43,000
Allowance for doubtful accounts 760

If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of the adjustment is
A
Simpson Company has the following account balances at year end:
Accounts receivable $60,000
Allowance for doubtful accounts 3,600
Sales discounts 2,400
Simpson should report accounts receivable at a net amount of
B
Holtzman Corporation had a 1/1/08 balance in the Allowance for Doubtful Accounts of $10,000. During 2008, it wrote off $7,200 of accounts and collected $2,100 on accounts previously written off. The balance in Accounts Receivable was $200,000 at 1/1 and $240,000 at 12/31. At 12/31/08, Holtzman estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2008?
B
Rusch Corporation had a 1/1/08 balance in the Allowance for Doubtful Accounts of $12,000. During 2008, it wrote off $8,640 of accounts and collected $2,520 on accounts previously written off. The balance in Accounts Receivable was $240,000 at 1/1 and $288,000 at 12/31. At 12/31/08, Rusch estimates that 5% of accounts receivable will prove to be uncollectible. What should Rusch report as its Allowance for Doubtful Accounts at 12/31/08?
D
Sandler Company has the following account balances at year end:
Accounts receivable $80,000
Allowance for doubtful accounts 4,800
Sales discounts 3,200

Sandler should report accounts receivable at a net amount of
B
Delgado Corporation had a 1/1/08 balance in the Allowance for Doubtful Accounts of $20,000. During 2008, it wrote off $14,400 of accounts and collected $4,200 on accounts previously written off. The balance in Accounts Receivable was $400,000 at 1/1 and $480,000 at 12/31. At 12/31/08, Delgado estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2008?
B
Burnett Corporation had a 1/1/08 balance in the Allowance for Doubtful Accounts of $15,000. During 2008, it wrote off $10,800 of accounts and collected $3,150 on accounts previously written off. The balance in Accounts Receivable was $300,000 at 1/1 and $360,000 at 12/31. At 12/31/08, Burnett estimates that 5% of accounts receivable will prove to be uncollectible. What should Burnett report as its Allowance for Doubtful Accounts at 12/31/08?
D
For the month of December 2008, the records of White Corporation show the following information:
Cash sales $20,000
Cash received on accounts receivable 25,000
Accounts receivable, December 1, 2008 70,000
Accounts receivable, December 31, 2008 64,000
Accounts receivable written off as uncollectible 1,000
White Corporation uses the direct write-off method in accounting for uncollectible accounts receivable. What are the sales for the month of December 31, 2008?
B
Gardin Corporation uses the allowance method of accounting for uncollectible accounts. During 2008 Gardin had charges to Bad Debts Expense of $20,000 and wrote off as uncollectible, accounts receivable totaling $16,000. These transactions decreased the net receivable's realizable value by
A
Moluf Corporation receives a 5-year, $20,000 zero-interest-bearing note, the present value of which is $11,348.60. What is the implicit interest rate that equates the total cash to be received to the present value of the future cash flows?
D
On December 31, 2008, Eller Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000. The terms of the sale were as follows:
$15,000 down payment
$30,000 payable on December 31 for each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2008 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
A
Marley Company received a seven-year, zero-interest-bearing note on February 22, 2008, in exchange for property it sold to O'Rear Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2008, 7.5% on December 31, 2008, 7.7% on February 22, 2009, and 8% on December 31, 2009. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2008 and 2009, respectively?
B
Pinkowski sold land to Ewell for $100,000 cash and a zero-interest-bearing note with a face amount of $400,000. The fair value of the land at the date of sale was $450,000. Pinkowski should value the note receivable at
C
Henry Co. assigned $400,000 of accounts receivable to Easy Finance Co. as security for a loan of $335,000. Easy charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Henry collected $110,000 on assigned accounts after deducting $380 of discounts. Henry accepted returns worth $1,350 and wrote off assigned accounts totaling $2,980.

The amount of cash Henry received from Easy at the time of the transfer was
C
Henry Co. assigned $400,000 of accounts receivable to Easy Finance Co. as security for a loan of $335,000. Easy charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Henry collected $110,000 on assigned accounts after deducting $380 of discounts. Henry accepted returns worth $1,350 and wrote off assigned accounts totaling $2,980.

Entries for Henry during the first month would include a
C
On February 1, 2008, Norton Company factored receivables with a carrying amount of $300,000 to Koch Company. Koch Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Norton Company for February.

Assume that Norton factors the receivables on a without recourse basis. The loss to be reported is
B
On February 1, 2008, Norton Company factored receivables with a carrying amount of $300,000 to Koch Company. Koch Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Norton Company for February.

Assume that Norton factors the receivables on a with recourse basis. The recourse obligation has a fair value of $1,500. The loss to be reported is
B
Joe Novak Corporation factored, with recourse, $100,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Joe Novak estimates the recourse obligation at $2,400. What amount should Joe Novak report as a loss on sale of receivables?
C
Mortonson Corporation factored, with recourse, $300,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Mortonson estimates the recourse obligation at $7,200. What amount should Mortonson report as a loss on sale of receivables?
C
Mike McKinney Corporation had accounts receivable of $100,000 at 1/1. The only transactions affecting accounts receivable were sales of $600,000 and cash collections of $550,000. The accounts receivable turnover is
C
Nottingham Corporation had accounts receivable of $100,000 at 1/1. The only transactions affecting accounts receivable were sales of $900,000 and cash collections of $850,000. The accounts receivable turnover is
C
If a petty cash fund is established in the amount of $250, and contains $150 in cash and $95 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to the following accounts
D
If the month-end bank statement shows a balance of $36,000, outstanding checks are $12,000, a deposit of $4,000 was in transit at month end, and a check for $500 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is
B
In preparing its bank reconciliation for the month of April 2008, Gregg, Inc. has available the following information.
Balance per bank statement, 4/30/08 $39,140
NSF check returned with 4/30/08 bank statement 450
Deposits in transit, 4/30/08 5,000
Outstanding checks, 4/30/08 5,200
Bank service charges for April 20
What should be the correct balance of cash at April 30, 2008?
B
Tanner, Inc.'s checkbook balance on December 31, 2008 was $21,200. In addition, Tanner held the following items in its safe on December 31.
(1) A check for $450 from Peters, Inc. received December 30, 2008, which was not included in the checkbook balance.
(2) An NSF check from Garner Company in the amount of $900 that had been deposited at the bank, but was returned for lack of sufficient funds on December 29. The check was to be redeposited on January 3, 2009. The original deposit has been included in the December 31 checkbook balance.
(3) Coin and currency on hand amounted to $1,450.
The proper amount to be reported on Tanner's balance sheet for cash at December 31, 2008 is
C
The cash account shows a balance of $45,000 before reconciliation. The bank statement does not include a deposit of $2,300 made on the last day of the month. The bank statement shows a collection by the bank of $940 and a customer's check for $320 was returned because it was NSF. A customer's check for $450 was recorded on the books as $540, and a check written for $79 was recorded as $97. The correct balance in the cash account was
B
In preparing its May 31, 2008 bank reconciliation, Dogg Co. has the following information available:
Balance per bank statement, 5/31/08 $30,000
Deposit in transit, 5/31/08 5,400
Outstanding checks, 5/31/08 4,900
Note collected by bank in May 1,250
The correct balance of cash at May 31, 2008 is
C
On the December 31, 2008 balance sheet of Yount Co., the current receivables consisted of the following:
Trade accounts receivable $ 75,000
Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 2008) 3,000
Selling price of unsold goods sent by Yount on consignment
at 130% of cost (not included in Yount 's ending inventory) 26,000
Security deposit on lease of warehouse used for storing
some inventories 30,000
Total $132,000
At December 31, 2008, the correct total of Yount 's current net receivables was
A
May Co. prepared an aging of its accounts receivable at December 31, 2008 and determined that the net realizable value of the receivables was $300,000. Additional information is available as follows:
Allowance for uncollectible accounts at 1/1/08—credit balance $ 29,000
Accounts written off as uncollectible during 2008 23,000
Accounts receivable at 12/31/08 320,000
Uncollectible accounts recovered during 2008 5,000
For the year ended December 31, 2008, May's uncollectible accounts expense would be
D
For the year ended December 31, 2008, Colt Co. estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable. The following data are available:
Allowance for uncollectible accounts, 1/1/08 $56,000
Provision for uncollectible accounts during 2008
(2% on credit sales of $2,000,000) 40,000
Uncollectible accounts written off, 11/30/08 46,000
Estimated uncollectible accounts per aging, 12/31/08 69,000
After year-end adjustment, the uncollectible accounts expense for 2008 should be
D
King Co.'s allowance for uncollectible accounts was $95,000 at the end of 2008 and $90,000 at the end of 2007. For the year ended December 31, 2008, King reported bad debt expense of $13,000 in its income statement. What amount did King debit to the appropriate account in 2008 to write off actual bad debts?
B
Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account
C
The following accounts were abstracted from Todd Co.'s unadjusted trial balance at December 31, 2008:
Debit Credit
Accounts receivable $750,000
Allowance for uncollectible accounts 8,000
Net credit sales $3,000,000
Todd estimates that 2% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2008, the allowance for uncollectible accounts should have a credit balance of
D
On January 1, 2007, Marr Co. exchanged equipment for a $400,000, zero-interest-bearing note due on January 1, 2010. The prevailing rate of interest for a note of this type at January 1, 2007 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Marr's 2008 income statement?
C
On June 1, 2008, Watt Corp. loaned Hall $300,000 on a 12% note, payable in five annual installments of $60,000 beginning January 2, 2009. In connection with this loan, Hall was required to deposit $3,000 in a zero-interest-bearing escrow account. The amount held in escrow is to be returned to Hall after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2008. Hall made timely payments through November 1, 2008. On January 2, 2009, Watt received payment of the first principal installment plus all interest due. At December 31, 2008, Watt's interest receivable on the loan to Hall should be
C
Which of the following is a method to generate cash from accounts receivable?
Assignment Factoring
B
In preparing its August 31, 2008 bank reconciliation, Adel Corp. has available the follow-ing information:
Balance per bank statement, 8/31/08 $21,650
Deposit in transit, 8/31/08 3,900
Return of customer's check for insufficient funds, 8/30/08 600
Outstanding checks, 8/31/08 2,750
Bank service charges for August 100
At August 31, 2008, Adel's correct cash balance is
A
Sandy, Inc. had the following bank reconciliation at March 31, 2008:
Balance per bank statement, 3/31/08 $37,200
Add: Deposit in transit 10,300
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/08 $34,900
Data per bank for the month of April 2008 follow:
Deposits $46,700
Disbursements 49,700
All reconciling items at March 31, 2008 cleared the bank in April. Outstanding checks at April 30, 2008 totaled $6,000. There were no deposits in transit at April 30, 2008. What is the cash balance per books at April 30, 2008?
A
When using a perpetual inventory system,
D
Goods in transit which are shipped f.o.b. shipping point should be
B
Goods in transit which are shipped f.o.b. destination should be
A
Which of the following items should be included in a company's inventory at the balance sheet date?
D
Goods on consignment are
B
Valuation of inventories requires the deter¬mination of all of the following except
C
The accountant for the Orion Sales Company is preparing the income statement for 2008 and the balance sheet at December 31, 2008. Orion uses the periodic inventory system. The January 1, 2008 merchandise inventory balance will appear
B
Goods in transit at the balance sheet date should be included in the purchaser's inventory if they are shipped:
F.O.B Destination F.O.B. Shipping Point
B
Which of the following is correct?
B
Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?
B
Which inventory costing method most closely approximates current cost for each of the following:
Ending Inventory Cost of Goods Sold
B
The pricing of issues from inventory must be deferred until the end of the accounting period under which method of inventory valuation?
B
An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is
A
Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?
B
Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?
A
In a period of rising prices, the inventory method which tends to give the highest reported net income is
B
In a period of rising prices, the inventory method which tends to give the highest reported inventory is
A
Quayle Corporation's inventory cost on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?
B
In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is
C
Which of the following statements is not valid as it applies to inventory costing methods?
D
The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the
D
Which of the following inventory methods comes closest to stating ending inventory at replacement cost?
A
The use of LIFO under a perpetual inventory system (units and costs)
B
One argument against the use of the specific identification inventory method is
C
Which of the following represents a departure from the historical cost basis of valuing inventories?
C
In periods of rising prices, use of LIFO rather than the FIFO inventory method will most likely have what effect on the following items?
B
The traditional LIFO approach which tends to emphasize specific goods in costing LIFO inventories is often unrealistic because
D
Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO
B
When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported
D
Which of the following statements is not true as it relates to the dollar-value LIFO inven¬tory method?
A
The dollar-value inventory method is an improvement over the traditional LIFO pool approach because
C
Estimates of price-level changes for specific inventories are required for which of the following inventory methods?
D
Which of the following is not considered an advantage of LIFO when prices are rising?
A
Which of the following is true regarding the use of LIFO for inventory valuation?
D
If inventory levels are stable or increasing, an argument which is not an advantage of the LIFO method as compared to FIFO is
C
The acquisition cost of a heavily used raw material changes frequently. The inventory amount of this material at year end will be the same if perpetual records (units and costs) are kept as it would be under a periodic inventory method only if the inventory amount is computed under the
B
Which of the following represents the best justification for the departure from the historical cost principle that results when lower-of-cost-or-market is used?
D
Replacement cost is the designated market value used to compare to cost in determining lower-of-cost-or-market when its relationship to the items shown below is
A
If a unit of inventory has declined in value below original cost, and the market value is less than the net realizable value less a normal profit margin, the amount to be used for purposes of inventory valuation is
D
Under the lower-of-cost-or-market rule, market will be replacement cost except when replacement cost is
C
Which of the following is true about lower-of-cost-or-market?
D
The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their
D
When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?
C
In no case can "market" in the lower-of-cost-or-market rule be more than
B
Designated market value
A
Lower-of-cost-or-market
C
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?
D
When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?
B
Net realizable value is
D
If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is
A
The average days to sell inventory is computed by dividing
A
The inventory turnover ratio is computed by dividing the cost of goods sold by
C
Which of the following is not a basic assumption of the gross profit method?
D
The gross profit method of inventory valuation is invalid when
D
Which statement is not true about the gross profit method of inventory valuation?
B
TJones Manufacturing Company has the following account balances at year end:
Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 72,000
Prepaid insurance 6,000
What amount should TJones report as inventories in its balance sheet?
C
The following items were included in Voigt Corporation's inventory account at December 31, 2008:
Goods held on consignment by Voigt $ 7,000
Merchandise out on consignment, at sales price,
including 30% mark-up on selling price 12,000
Goods purchased, in transit, shipped f.o.b. shipping point 9,000
Voigt's inventory account at December 31, 2008, should be reduced by
A
Slowe Company has been using the LIFO cost method of inventory valuation for 8 years. Its 2008 ending inventory was $135,000 but it would have been $180,000 if FIFO had been used. Thus, if FIFO had been used, Slowe's net income before income taxes would have been
a. $45,000 less in 2008.
b. $45,000 more in 2008.
c. $45,000 greater over the 8-year period.
d. $45,000 less over the 8-year period.
C
The following information was available from the inventory records of Neer Company for January:
Units Unit Cost Total Cost
Balance at January 1 3,000 $9.77 $29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917

Sales:
January 7 (2,500)
January 31 (4,000)
Balance at January 31 1,200

Assuming that Neer does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar?
B
The following information was available from the inventory records of Neer Company for January:
Units Unit Cost Total Cost
Balance at January 1 3,000 $9.77 $29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917

Sales:
January 7 (2,500)
January 31 (4,000)
Balance at January 31 1,200

Assuming that Neer maintains perpetual inventory records, what should be the inventory at January 31, using the moving-average inventory method, rounded to the nearest dollar?
D
Kiner Co. has the following data related to an item of inventory:
Inventory, March 1 100 units @ $4.20
Purchase, March 7 350 units @ $4.40
Purchase, March 16 70 units @ $4.50
Inventory, March 31 130 units

The value assigned to ending inventory if Kiner uses LIFO is
B
Kiner Co. has the following data related to an item of inventory:
Inventory, March 1 100 units @ $4.20
Purchase, March 7 350 units @ $4.40
Purchase, March 16 70 units @ $4.50
Inventory, March 31 130 units

The value assigned to cost of goods sold if Kiner uses FIFO is
D
Baker Company has been using the LIFO method of inventory valuation for 10 years, since it began operations. Its 2008 ending inventory was $40,000, but it would have been $60,000 if FIFO had been used. Thus, if FIFO had been used, Baker's income before income taxes would have been
A
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ $3.20 June 2 600 @ $5.50
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is
A
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ $3.20 June 2 600 @ $5.50
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is
C
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ $3.20 June 2 600 @ $5.50
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is
D
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ $3.20 June 2 600 @ $5.50
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost basis, rounded to the nearest dollar, is
B
Kingman Company had 500 units of "Dink" in its inventory at a cost of $5 each. It purchased, for $2,400, 300 more units of "Dink". Kingman then sold 600 units at a selling price of $10 each, resulting in a gross profit of $2,100. The cost flow assumption used by Kingman
B
Green Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2007 was $80,000. The balance in the same account at the end of 2008 is $120,000. Green's Cost of Goods Sold account has a balance of $600,000 from sales transactions recorded during the year. What amount should Green report as Cost of Goods Sold in the 2008 income statement?
C
Johnson Company had 400 units of "Tank" in its inventory at a cost of $4 each. It purchased 600 more units of "Tank" at a cost of $6 each. Johnson then sold 700 units at a selling price of $10 each. The LIFO liquidation overstated normal gross profit by
B
AJ Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO. During the year, purchases were $600,000 and sales were $1,000,000. December 31 inventory at year-end prices was $143,360, and the price index was 112.

What is AJ Company's ending inventory?
C
AJ Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO. During the year, purchases were $600,000 and sales were $1,000,000. December 31 inventory at year-end prices was $143,360, and the price index was 112.

What is AJ Company's gross profit?
B
Dolan Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2006. Its inventory at that date was $220,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:
Inventory at Current
Date Current Prices Price Index
December 31, 2007 $256,800 107
December 31, 2008 290,000 125
December 31, 2009 325,000 130

What is the cost of the ending inventory at December 31, 2007 under dollar-value LIFO?
C
Dolan Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2006. Its inventory at that date was $220,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:
Inventory at Current
Date Current Prices Price Index
December 31, 2007 $256,800 107
December 31, 2008 290,000 125
December 31, 2009 325,000 130

What is the cost of the ending inventory at December 31, 2008 under dollar-value LIFO?
C
Dolan Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2006. Its inventory at that date was $220,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:
Inventory at Current
Date Current Prices Price Index
December 31, 2007 $256,800 107
December 31, 2008 290,000 125
December 31, 2009 325,000 130

What is the cost of the ending inventory at December 31, 2009 under dollar-value LIFO?
A
Amidei Company adopts dollar-value LIFO inventory on 12/31/07 when its inventory at current price is $45,000. The inventory value on 12/31/08 at current 2008 prices is $65,000. If prices increased by 30% during 2008, what is the dollar-value LIFO inventory at 12/31/08?
C
Marr Corporation has two products in its ending inventory, each accounted for at the lower-of-cost-or-market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows:
Product #1 Product #2
Historical cost $40.00 $ 70.00
Replacement cost 45.00 54.00
Estimated cost to dispose 10.00 26.00
Estimated selling price 80.00 130.00
In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Marr use for products #1 and #2, respectively?
A
Paul Konerko Company sells product 2005WSC for $20 per unit. The cost of one unit of 2005WSC is $18, and the replacement cost is $17. The estimated cost to dispose of a unit is $4, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
B
Remington Company sells product 1976NLC for $40 per unit. The cost of one unit of 1976NLC is $36, and the replacement cost is $34. The estimated cost to dispose of a unit is $8, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?
B
A dudad has an original cost of $15 and a replacement cost of $12. The cost of completion and disposal is $2. If the dudad has a net realizable value of $16 and a normal profit margin of $5, its inventory value should be
B
Martinez Corporation has two products in its ending inventory. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows:
Product A Product B
Historical cost $22.00 $ 55.00
Replacement cost 20.00 56.00
Estimated cost to dispose 7.00 31.00
Estimated selling price 35.00 110.00
In pricing its ending inventory using the lower-of-cost-or-market method, what unit values should Martinez use for products A and B, respectively?
C
Ace Corporation's computation of cost of goods sold is:
Beginning inventory $ 60,000
Add: Cost of goods purchased 405,000
Cost of goods available for sale 465,000
Ending inventory 80,000
Cost of goods sold $385,000

The average days to sell inventory for Ace are
C
The 2008 financial statements of Wert Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $600,000 for the year. Wert's inventory turnover ratio for 2008 is
B
The following information is available for October for Jordan Company.
Beginning inventory $ 50,000
Net purchases 150,000
Net sales 300,000
Percentage markup on cost 66.67%
A fire destroyed Jordan's October 31 inventory, leaving undamaged inventory with a cost of $3,000. Using the gross profit method, the estimated ending inventory destroyed by fire is
A
Gomez Company had a gross profit of $360,000, total purchases of $420,000, and an ending inventory of $240,000 in its first year of operations as a retailer. Gomez's sales in its first year must have been
A
Miller, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available:
Inventory, March 1 $220,000
Purchases 172,000
Purchase returns 8,000
Sales during March 300,000
The estimate of the cost of inventory at March 31 would be
B
On January 1, 2008, the merchandise inventory of Colaw, Inc. was $800,000. During 2008 Colaw purchased $1,600,000 of merchandise and recorded sales of $2,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Colaw at December 31, 2008?
C
For 2008, cost of goods available for sale for Vale Corporation was $900,000. The gross profit rate was 20%. Sales for the year were $800,000. What was the amount of the ending inventory?
B
On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available:
Sales, January 1 through April 15 $300,000
Inventory, January 1 50,000
Purchases, January 1 through April 15 250,000
Markup on cost 25%
The amount of the inventory loss is estimated to be
A
On January 31, fire destroyed the entire inventory of Mojares Company. The following data are available:
Sales for January $60,000
Inventory, January 1 10,000
Purchases for January 55,000
Markup on cost 25%
The amount of the inventory loss is estimated to be
A
Gear Co.'s accounts payable balance at December 31, 2008 was $1,500,000 before considering the following transactions:
• Goods were in transit from a vendor to Gear on December 31, 2008. The invoice price was $70,000, and the goods were shipped f.o.b. shipping point on December 29, 2008. The goods were received on January 4, 2009.
• Goods shipped to Gear, f.o.b. shipping point on December 20, 2008, from a vendor were lost in transit. The invoice price was $50,000. On January 5, 2009, Gear filed a $50,000 claim against the common carrier.
In its December 31, 2008 balance sheet, Gear should report accounts payable of
A
Dark Co. recorded the following data pertaining to raw material X during January 2008:
Units
Date Received Cost Issued On Hand
1/1/08 Inventory $8.00 3,200
1/11/08 Issue 1,600 1,600
1/22/08 Purchase 4,000 $9.40 5,600
The moving-average unit cost of X inventory at January 31, 2008 is
C
During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods?
A
Earl Co. was formed on January 2, 2008, to sell a single product. Over a two-year period, Earl's acquisition costs have increased steadily. Physical quantities held in inventory were equal to three months' sales at December 31, 2008, and zero at December 31, 2009. Assuming the periodic inventory system, the inventory cost method which reports the highest amount of each of the following is
C
Noll Co. had 450 units of product A on hand at January 1, 2008, costing $42 each. Purchases of product A during January were as follows:
Date Units Unit Cost
Jan. 10 600 $44
18 750 46
28 300 48
A physical count on January 31, 2008 shows 600 units of product A on hand. The cost of the inventory at January 31, 2008 under the LIFO method is
C
Carr Co. adopted the dollar-value LIFO inventory method on December 31, 2008. Carr's entire inventory constitutes a single pool. On December 31, 2008, the inventory was $320,000 under the dollar-value LIFO method. Inventory data for 2009 are as follows:
12/31/09 inventory at year-end prices $440,000
Relevant price index at year end (base year 2008) 110
Using dollar value LIFO, Carr's inventory at December 31, 2009 is
B
Teel Distribution Co. has determined its December 31, 2008 inventory on a FIFO basis at $250,000. Information pertaining to that inventory follows:
Estimated selling price $255,000
Estimated cost of disposal 10,000
Normal profit margin 30,000
Current replacement cost 225,000
Teel records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2008, the loss that Teel should recognize is
D
Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value
B
The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the
B
Gore Company's accounting records indicated the following information:
Inventory, 1/1/08 $ 600,000
Purchases during 2008 3,000,000
Sales during 2008 3,800,000
A physical inventory taken on December 31, 2008, resulted in an ending inventory of $700,000. Gore's gross profit on sales has remained constant at 25% in recent years. Gore suspects some inventory may have been taken by a new employee. At December 31, 2008, what is the estimated cost of missing inventory?
A
Plant assets may properly include
D
Which of the following is not a major characteristic of a plant asset?
B
Which of these is not a major characteristic of a plant asset?
D
Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with a plan to tear down the Holiday Hotel and build a new luxury hotel on the site. The cost of the Holiday Hotel should be
C
The cost of land does not include
C
The cost of land typically includes the purchase price and all of the following costs except
C
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 the
D
The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to
A
Fences and parking lots are reported on the balance sheet as
B
Historical cost is the basis advocated for recording the acquisition of property, plant, and equipment for all of the following reasons except
B
Which of the following is not a necessary characteristic for an item to be classified as property, plant, and equipment?
C
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
D
Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant, and equipment?
A
When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the
D
When a closely held corporation issues preferred stock for land, the land should be recorded at the
D
A plant site donated by a township to a manufacturer that plans to open a new factory should be recorded on the manufacturer's books at
B
In order for a cost to be capitalized (capital expenditure), the following must be present:
D
An improvement made to a machine increased its fair market value and its production capacity by 25% without extending the machine's useful life. The cost of the improvement should be
C
Which of the following is a capital expenditure?
D
Which of the following is not a capital expenditure?
A
An expenditure made in connection with a machine being used by an enterprise should be
D
The following is true of depreciation accounting.
D
Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?
B
Depreciation accounting
C
Which of the following most accurately reflects the concept of depreciation as used in accounting?
B
The major difference between the service life of an asset and its physical life is that
A
Economic factors that shorten the service life of an asset include
D
The activity method of depreciation
A
For income statement purposes, depreciation is a variable expense if the depreciation method used is
A
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
D
Use of the double-declining balance method
D
Use of the sum-of-the-years'-digits method
C
A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?
C
A principal objection to the straight-line method of depreciation is that it
B
Depreciation is normally computed on the basis of the nearest
B
Quayle Company acquired machinery on January 1, 2003 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2008, Quayle estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by Quayle?
C
A change in estimate should
B
Which of the following is a realistic assumption of the straight-line method of depreciation?
D
Which of the following statements is the assumption on which straight-line depreciation is based?
B
Which of the following depreciation methods does not consider salvage value in computing the depreciable base of the asset?
C
When depreciation is computed for partial periods under a decreasing charge depreciation method, it is necessary to
B
Which of the following nonmonetary exchange transactions represents a culmination of the earning process?
C
When boot is involved in an exchange having commercial substance
A
The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has commercial substance is usually recorded at
A
The King-Kong Corporation exchanges one plant asset for another 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
B
Accounting recognition should be given to some or all of the gain realized on a nonmonetary exchange of plant assets except when the exchange has
A
For a nonmonetary exchange of plant assets, accounting recognition should not be given to
C
When a plant asset is disposed of, a gain or loss may result. The gain or loss would be classified as an extraordinary item on the income statement if it resulted from
A
The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were
D
Which of the following disclosures is not required in the financial statements regarding depreciation?
B
A general description of the depreciation methods applicable to major classes of depreciable assets
D
The asset turnover ratio is computed by dividing
D
Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets?
D
Assets that qualify for interest cost capitalization include
A
When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to
C
The period of time during which interest must be capitalized ends when
A
Which of the following statements is true regarding capitalization of interest?
B
Interest cost that is capitalized should
D
Which of the following is not a condition that must be satisfied before interest capitalization can begin on a qualifying asset?
C
The cost of the land that should be recorded by Seiler Co. is
B
The cost of the building that should be recorded by Seiler Co. is
D
On February 1, 2008, Morgan Corporation purchased a parcel of land as a factory site for $200,000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2008. Costs incurred during this period are listed below:
Demolition of old building $ 20,000
Architect's fees 35,000
Legal fees for title investigation and purchase contract 5,000
Construction costs 1,090,000
(Salvaged materials resulting from demolition were sold for $10,000.)
Morgan should record the cost of the land and new building, respectively, as
D
Tyson Chandler Company purchased equipment for $10,000. Sales tax on the purchase was $500. Other costs incurred were freight charges of $200, repairs of $350 for damage during installation, and installation costs of $225. What is the cost of the equipment?
C
On December 1, Wynne Corporation exchanged 2,000 shares of its $25 par value common stock held in treasury for a parcel of land to be held for a future plant site. The treasury shares were acquired by Wynne at a cost of $40 per share, and on the exchange date the common shares of Wynne had a fair market value of $50 per share. Wynne received $6,000 for selling scrap when an existing building on the property was removed from the site. Based on these facts, the land should be capitalized at
C
Taylor Company buys a delivery van with a list price of $30,000. The dealer grants a 15% reduction in list price and an additional 2% cash discount on the net price if payment is made in 30 days. Sales taxes amount to $400 and the company paid an extra $300 to have a special horn installed. What should be the recorded cost of the van?
C
On April 1, Renner Corporation purchased for $855,000 a tract of land on which was located a warehouse and office building. The following data were collected concerning the property:
Current Assessed Valuation Vendor's Original Cost
Land $300,000 $280,000
Warehouse 200,000 180,000
Office building 400,000 340,000
$900,000 $800,000
What are the appropriate amounts that Renner should record for the land, warehouse, and office building, respectively?
D
Herman Company exchanged 400 shares of Daily Company common stock, which Herman was holding as an investment, for equipment from West Company. The Daily Company common stock, which had been purchased by Herman for $50 per share, had a quoted market value of $58 per share at the date of exchange. The equipment had a recorded amount on West's books of $21,000. What journal entry should Herman make to record this exchange?
D
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?
C
Lennon Company purchased a depreciable asset for $200,000. The estimated salvage value is $10,000, and the estimated useful life is 10,000 hours. Lennon 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?
B
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?
C
On July 1, 2007, Rodriguez Corporation purchased factory equipment for $150,000. Salvage value was estimated to be $4,000. The equipment will be depreciated over ten years using the double-declining balance method. Counting the year of acquisition as one-half year, Gonzalez should record depreciation expense for 2008 on this equipment of
B
Norris Corporation purchased factory equipment that was installed and put into service January 2, 2007, at a total cost of $60,000. Salvage value was estimated at $4,000. The equipment is being depreciated over four years using the double-declining balance method. For the year 2008, Norris should record depreciation expense on this equipment of
B
On April 13, 2007, Foley Co. purchased machinery for $120,000. Salvage value was estimated to be $5,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Foley should record depreciation expense for 2008 on this machinery of
B
Vinson Co. purchased machinery that was installed and ready for use on January 3, 2007, at a total cost of $69,000. Salvage value was estimated at $9,000. The machinery will be depreciated over five years using the double-declining balance method. For the year 2008, Vinson should record depreciation expense on this machinery of
B
A plant asset has a cost of $24,000 and a salvage value of $6,000. The asset has a three-year life. If depreciation in the third year amounted to $3,000, which depreciation method was used?
C
On January 1, 2007, Carson Company purchased a new machine for $2,100,000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $75,000. Depreciation was computed on the sum-of-the-years'-digits method. What amount should be shown in Carson's balance sheet at December 31, 2008, net of accumulated depreciation, for this machine?
B
On January 1, 2001, Barnes Company purchased equipment at a cost of $50,000. The equipment was estimated to have a salvage value of $5,000 and it is being depreciated over eight years under the sum-of-the-years'-digits method. What should be the charge for depreciation of this equipment for the year ended December 31, 2008?
A
On September 19, 2007, Rosen Co. purchased machinery for $190,000. Salvage value was estimated to be $10,000. The machinery will be depreciated over eight years using the sum-of-the-years'-digits method. If depreciation is computed on the basis of the nearest full month, Rosen should record depreciation expense for 2008 on this machinery of
C
On January 3, 2006, Lopez Co. purchased machinery. The machinery has an estimated useful life of eight years and an estimated salvage value of $30,000. The depreciation applicable to this machinery was $65,000 for 2008, computed by the sum-of-the-years'-digits method. The acquisition cost of the machinery was
C
On January 2, 2005, Payne Company acquired equipment to be used in its manufacturing operations. The equipment has an estimated useful life of 10 years and an estimated salvage value of $15,000. The depreciation applicable to this equipment was $70,000 for 2008, computed under the sum-of-the-years'-digits method. What was the acquisition cost of the equipment?
B
Sears Corporation, which has a calendar year accounting period, purchased a new machine for $40,000 on April 1, 2003. At that time Sears expected to use the machine for nine years and then sell it for $4,000. The machine was sold for $22,000 on Sept. 30, 2008. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be
C
On January 1, 2008, the Accumulated Depreciation—Machinery account of a particular company showed a balance of $370,000. At the end of 2008, after the adjusting entries were posted, it showed a balance of $395,000. During 2008, one of the machines which cost $125,000 was sold for $60,500 cash. This resulted in a loss of $4,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2008?
A
During 2008, Geiger Co. sold equipment that had cost $98,000 for $58,800. This resulted in a gain of $4,300. The balance in Accumulated Depreciation—Equipment was $325,000 on January 1, 2008, and $310,000 on December 31. No other equipment was disposed of during 2008. Depreciation expense for 2008 was
C
McCartney Company purchased a depreciable asset for $250,000 on April 1, 2005. The estimated salvage value is $25,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2008 when the asset is sold?
D
George Martin Corporation purchased a depreciable asset for $300,000 on January 1, 2005. The estimated salvage value is $30,000, and the estimated useful life is 9 years. The straight-line method is used for depreciation. In 2008, George Martin changed its estimates to a total useful life of 5 years with a salvage value of $50,000. What is 2008 depreciation expense?
C
Jantz Corporation purchased a machine on July 1, 2005, for $750,000. The machine was estimated to have a useful life of 10 years with an estimated salvage value of $42,000. During 2008, it became apparent that the machine would become uneconomical after December 31, 2012, and that the machine would have no scrap value. Accumulated depreciation on this machine as of December 31, 2007, was $177,000. What should be the charge for depreciation in 2008 under generally accepted accounting principles?
B
Weston Company purchased a tooling machine on January 3, 2001 for $500,000. The machine was being depreciated on the straight-line method over an estimated useful life of 10 years, with no salvage value. At the beginning of 2008, the company paid $125,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional 5 years (15 years total). What should be the depreciation expense recorded for the machine in 2008?
A
Klein Co. purchased machinery on January 2, 2002, for $440,000. The straight-line method is used and useful life is estimated to be 10 years, with a $40,000 salvage value. At the beginning of 2008 Klein spent $96,000 to overhaul the machinery. After the overhaul, Klein estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $20,000. The depreciation expense for 2008 should be
B
Thucydides Company purchased a new machine on May 1, 1999, for $25,000. At the time of acquisition, the machine was estimated to have a useful life of 10 years and an estimated salvage value of $1,000. The company has recorded monthly depreciation using the straight-line method. On March 1, 2008, the machine was sold for $800. What should be the loss recognized from the sale of the machine?
C
Plato Corporation purchased a machine with a cost of $165,000 and a salvage value of $9,000 on April 1, 2008. The machine will be depreciated over a 12-year useful life using the sum-of-the-years'-digits method. The amount of depreciation Plato Corporation would record for the year ended 12/31/09 would be
D
On January 2, 2008, Quick Delivery Company traded in an old delivery truck for a newer model. The exchange lacked commercial substance. Data relative to the old and new trucks follow:
Old Truck
Original cost $24,000
Accumulated depreciation as of January 2, 2008 16,000
Average published retail value 7,000
New Truck
List price $40,000
Cash price without trade-in 36,000
Cash paid with trade-in 30,000
What should be the cost of the new truck for financial accounting purposes?
B
On December 1, 2008, Fiene Company acquired a new delivery truck in exchange for an old delivery truck that it had acquired in 2005. The old truck was purchased for $35,000 and had a book value of $13,300. On the date of the exchange, the old truck had a market value of $14,000. In addition, Fiene paid $45,500 cash for the new truck, which had a list price of $63,000. The exchange lacked commercial substance. At what amount should Fiene record the new truck for financial accounting purposes?
B
A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2007. On April 1, 2008, when the machine has a market value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid. The exchange lacked commercial substance.

The gain to be recorded on the exchange is
A
A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2007. On April 1, 2008, when the machine has a market value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid. The exchange lacked commercial substance.

The new machine should be recorded at
C
Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received. The exchange lacked commercial substance.

The gain to be recognized from the exchange is
A
Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received. The exchange lacked commercial substance.

The new equipment should be recorded at
D
Two independent companies, Mintz Co. and Pine Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other's land. They agree to exchange their land. An appraiser was hired, and from her report and the companies' records, the following information was obtained:
Mintz's Land Pine's Land
Cost and book value $192,000 $120,000
Fair value based upon appraisal 240,000 210,000

The exchange was made, and based on the difference in appraised fair values, Pine paid $30,000 to Mintz. The exchange lacked commercial substance.

For financial reporting purposes, Mintz should recognize a pre-tax gain on this exchange of
B
Two independent companies, Mintz Co. and Pine Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other's land. They agree to exchange their land. An appraiser was hired, and from her report and the companies' records, the following information was obtained:
Mintz's Land Pine's Land
Cost and book value $192,000 $120,000
Fair value based upon appraisal 240,000 210,000

The exchange was made, and based on the difference in appraised fair values, Pine paid $30,000 to Mintz. The exchange lacked commercial substance.

The new land should be recorded on Mintz's books at
A
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $12,000 and a fair market value of $15,000. The asset given up by Armstrong Co. has a book value of $20,000 and a fair market value of $19,000. Boot of $4,000 is received by Armstrong Co.

What amount should Glen Inc. record for the asset received?
B
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $12,000 and a fair market value of $15,000. The asset given up by Armstrong Co. has a book value of $20,000 and a fair market value of $19,000. Boot of $4,000 is received by Armstrong Co.

What amount should Armstrong Co. record for the asset received?
A
Hardin Company received $40,000 in cash and a used computer with a fair value of $120,000 from Page Corporation for Hardin Company's existing computer having a fair value of $160,000 and an undepreciated cost of $150,000 recorded on its books. The transaction has no commercial substance. How much gain should Hardin recognize on this exchange, and at what amount should the acquired computer be recorded, respectively?
C
Bobby Jenks Company purchased machinery for $160,000 on January 1, 2004. Straight-line depreciation has been recorded based on a $10,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2008 at a gain of $3,000. How much cash did Bobby Jenks receive from the sale of the machinery?
C
Morganstern Company purchased machinery for $320,000 on January 1, 2004. Straight-line depreciation has been recorded based on a $20,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2008 at a gain of $6,000. How much cash did Morganstern receive from the sale of the machinery?
C
Jeter Company purchased a new machine on May 1, 2000 for $176,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $8,000. The company has recorded monthly depreciation using the straight-line method. On March 1, 2009, the machine was sold for $24,000. What should be the loss recognized from the sale of the machine?
B
On January 1, 2000, Hite Corporation purchased for $152,000, equipment having a useful life of ten years and an estimated salvage value of $8,000. Hite has recorded monthly depreciation of the equipment on the straight-line method. On December 31, 2008, the equipment was sold for $28,000. As a result of this sale, Hite should recognize a gain of
B
For 2008, Colaw Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000.
Colaw's 2008 asset turnover ratio is
D
For 2008, Colaw Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000.
The rate of return on assets for Colaw in 2008 is
C
Rubber Soul Company reported the following data:
2008 2009
Sales $2,000,000 $2,600,000
Net Income 300,000 400,000
Assets at year end 1,800,000 2,500,000
Liabilities at year end 1,100,000 1,500,000
What is Rubber Soul's asset turnover for 2009?
C
Wheeler Corporation constructed a building at a cost of $20,000,000. Average accumulated expenditures were $8,000,000, actual interest was $1,200,000, and avoidable interest was $600,000. If the salvage value is $1,600,000, and the useful life is 40 years, depreciation expense for the first full year using the straight-line method is
A
Hackleman Company is constructing a building. Construction began in 2008 and the building was completed 12/31/08. Hackleman made payments to the construction company of $1,500,000 on 7/1, $3,300,000 on 9/1, and $3,000,000 on 12/31. Average accumulated expenditures were
B
During 2008, Gannon Co. incurred average accumulated expenditures of $400,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2008 was a $500,000, 10%, 5-year note payable dated January 1, 2006. What is the amount of interest that should be capitalized by Gannon during 2008?
C
On March 1, Bakken Co. began construction of a small building. Payments of $180,000 were made monthly for four months beginning March 1. The building was completed and ready for occupancy on June 1. In determining the amount of interest cost to be capitalized, the weighted-average accumulated expenditures are
A
On March 1, 2008, Dennis Company purchased land for an office site by paying $540,000 cash. Dennis began construction on the office building on March 1. The following expenditures were incurred for construction:
Date Expenditures
March 1, 2008 $ 360,000
April 1, 2008 504,000
May 1, 2008 900,000
June 1, 2008 1,440,000

The office was completed and ready for occupancy on July 1. To help pay for construction, $720,000 was borrowed on March 1, 2008 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2008 was a $300,000, 12%, 6-year note payable dated January 1, 2008.

The actual interest cost incurred during 2008 was
A
On March 1, 2008, Dennis Company purchased land for an office site by paying $540,000 cash. Dennis began construction on the office building on March 1. The following expenditures were incurred for construction:
Date Expenditures
March 1, 2008 $ 360,000
April 1, 2008 504,000
May 1, 2008 900,000
June 1, 2008 1,440,000

The office was completed and ready for occupancy on July 1. To help pay for construction, $720,000 was borrowed on March 1, 2008 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2008 was a $300,000, 12%, 6-year note payable dated January 1, 2008.

Assume the weighted-average accumulated expenditures for the construction project are $870,000. The amount of interest cost to be capitalized during 2008 is
B
During 2008, Aber Corporation constructed assets costing $1,000,000. The weighted-average accumulated expenditures on these assets during 2008 was $600,000. To help pay for construction, $440,000 was borrowed at 10% on January 1, 2008, and funds not needed for construction were temporarily invested in short-term securities, yielding $9,000 in interest revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a $500,000, 10-year, 9% note payable dated January 1, 2002. What is the amount of interest that should be capitalized by Aber during 2008?
C
On December 1, 2008, Logan Co. purchased a tract of land as a factory site for $800,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2008 were as follows:
Cost to raze old building $70,000
Legal fees for purchase contract and to record ownership 10,000
Title guarantee insurance 16,000
Proceeds from sale of salvaged materials 8,000
In Logan 's December 31, 2008 balance sheet, what amount should be reported as land?
C
Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be
B
Petty County owned an idle parcel of real estate consisting of land and a factory building. Petty gave title to this realty to Larson Co. as an incentive for Larson to establish manufacturing operations in Petty County. Larson paid nothing for this realty, which had a fair market value of $250,000 at the date of the grant. Larson should record this nonmonetary transaction as a
B
On September 10, 2008, Flint Co. incurred the following costs for one of its printing presses:
Purchase of attachment $55,000
Installation of attachment 5,000
Replacement parts for renovation of press 18,000
Labor and overhead in connection with renovation of press 7,000
Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized?
D
On January 2, 2008, Renn Corp. replaced its boiler with a more efficient one. The following information was available on that date:
Purchase price of new boiler $150,000
Carrying amount of old boiler 10,000
Fair value of old boiler 4,000
Installation cost of new boiler 20,000
The old boiler was sold for $4,000. What amount should Renn capitalize as the cost of the new boiler?
A
Gant Co. purchased a machine on July 1, 2008, for $400,000. The machine has an estimated useful life of five years and a salvage value of $80,000. The machine is being depreciated from the date of acquisition by the 150% declining-balance method. For the year ended December 31, 2008, Gant should record depreciation expense on this machine of
C
A machine with a five-year estimated useful life and an estimated 10% salvage value was acquired on January 1, 2006. The depreciation expense for 2008 using the double-declining balance method would be original cost multiplied by
B
On April 1, 2006, Reiley Co. purchased new machinery for $240,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method. The accumulated depreciation on this machinery at March 31, 2008, should be
B
Mack Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Mack's depreciable assets at December 31, 2008 are as follows:
Acquisition year 2006
Cost $140,000
Residual value 20,000
Accumulated depreciation 96,000
Estimated useful life 5 years
Using the same depreciation method as used in 2006, 2007, and 2008, how much depreciation expense should Mack record in 2009 for this asset?
A
A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?
D
Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the
B
A plant asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-the-years'-digits method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset?
B
Gray Football Co. had a player contract with Vance that is recorded in its books at $3,600,000 on July 1, 2008. Day Football Co. had a player contract with Simms that is recorded in its books at $4,500,000 on July 1, 2008. On this date, Gray traded Vance to Day for Simms and paid a cash difference of $450,000. The fair value of the Simms contract was $5,400,000 on the exchange date. The exchange had no commercial substance. After the exchange, the Simms contract should be recorded in Gray's books at
A
Reed Co. exchanged nonmonetary assets with Wilton Co. No cash was exchanged and the exchange had no commercial substance. The carrying amount of the asset surrendered by Reed exceeded both the fair value of the asset received and Wilton's carrying amount of that asset. Reed should recognize the difference between the carrying amount of the asset it surrendered and
A
A company is constructing an asset for its own use. Construction began in 2007. The asset is being financed entirely with a specific new borrowing. Construction expenditures were made in 2007 and 2008 at the end of each quarter. The total amount of interest cost capitalized in 2008 should be determined by applying the interest rate on the specific new borrowing to the
B