ACC 422 Final Exam
JULY 2013 UPDATE
| 1) A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and | |||||||||||||||||||||||||||||
| 2) Which of the following is NOT considered cash for financial reporting purposes? | |||||||||||||||||||||||||||||
| 3) Which of the following items should NOT be included in the Cash caption on the balance sheet? | |||||||||||||||||||||||||||||
| 4) If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as | |||||||||||||||||||||||||||||
| 5) The advantage of relating a company’s bad debt expense to its outstanding accounts receivable is that this approach | |||||||||||||||||||||||||||||
| 6) Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense? | |||||||||||||||||||||||||||||
| 7) If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods sold for 2006, net income for 2006, and assets at December 31, 2007, respectively, are | |||||||||||||||||||||||||||||
| 8) Valuation of inventories requires the determination of all of the following EXCEPT | |||||||||||||||||||||||||||||
| 9) Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in inventory, but did NOT record the transaction. The effect of this on its financial statements for January 31 would be | |||||||||||||||||||||||||||||
| 10) 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? | |||||||||||||||||||||||||||||
| 11) Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations? | |||||||||||||||||||||||||||||
| 12) All of the following costs should be charged against revenue in the period in which costs are incurred EXCEPT |
| 13) When the direct method is used to record inventory at market |
| A. a loss is recorded directly in the inventory account by crediting inventory and debiting loss on inventory |
| 14) 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? |
| 15) In no case can “market” in the lower-of-cost-or-market rule be more than |
| 16) The gross profit method of inventory valuation is invalid when |
| 17) Which of the following is NOT a basic assumption of the gross profit method? |
| 18) In 2006, Lucas Manufacturing signed a contract with a supplier to purchase raw materials in 2007 for $700,000. Before the December 31, 2006 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2006 will result in a credit that should be reported |
| 19) The cost of land typically includes the purchase price and all of the following costs EXCEPT |
| 20) The cost of land does NOT include |
| 21) Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with the plan to tear down the Holiday Hotel and build a new luxury hotel on the site. The cost of the Holiday Hotel should be |
| 22) To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be |
| 23) Which of the following costs are capitalized for self-constructed assets? |
| 24) Which of the following assets do NOT qualify for capitalization of interest costs incurred during construction of the assets? |
| 25) The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has commercial substance is usually recorded at |
| 26) Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is |
| 27) When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the |
| 28) Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? |
| 29) For income statement purposes, depreciation is a variable expense if the depreciation method used is |
| 30) 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 |
| 31) 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? |
| [$200,000 – $10,000) ÷ 10,000] × 1,100 = $20,900 |
| 32) Bigbie Company purchased a depreciable asset for $600,000. The estimated salvage value is $30,000, and the estimated useful life is 10,000 hours. Bigbie used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset? |
| [($600,000 – $30,000) ÷ 10,000] × 1,100 = $62,700 |
| 33) 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? |
| $150,000 × [(1 ÷ 8) × 2] = $37,500
($150,000 – $37,500) × [(1 ÷ 8) × 2] = $28,125 |
| 34) The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser’s patented products should be |
| 35) Costs incurred internally to create intangibles are |
| 36) Factors considered in determining an intangible asset’s useful life include all of the following EXCEPT |
| 37) 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? |
| $3,400,000 – $2,900,000 = $500,000$750,000 – $500,000 = $250,000. |
| 38) Mining Company acquired a patent on an oil extraction technique on January 1, 2006 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, 2007, 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, 2007 balance sheet? |
| $5,000,000 – [($5,000,000 ÷ 10) × 2] = $4,000,000 |
| 39) General Products Company bought Special Products Division in 2006 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2007, the fair value of Special Products Division is $2,000,000 and it is carried on General Product’s books for a total of $1,700,000, including the goodwill. An analysis of Special Products Division’s assets indicates that goodwill of $200,000 exists on December 31, 2007. What goodwill impairment should be recognized by General Products in 2007? |
| Since $2,000,000 > $1,700,000, $0 impairment |
| 40) 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 |
| 41) Purchased goodwill should |
| 42) The intangible asset goodwill may be |
| 43) If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information EXCEPT |
| 44) Which of the following items is a current liability? |
| 45) Which of the following statements is false? |
| 46) Simson Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2006 the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2006 may first be taken on January 1, 2007. Information relative to these employees is as follows:YearHourly WagesVacation Days Earned by Each EmployeeVacation Days Used by Each Employee2006$25.80100200727.001082008$28.501010
What is the amount of expense relative to compensated absences that should be reported on Simson’s income statement for 2006? |
| $25.80 × 8 × 10 × 35 = $72,240. |
| 47) A company offers a cash rebate of $1 on each $4 package of batteries sold during 2007. Historically, 10% of customers mail in the rebate form. During 2007, 6,000,000 packages of batteries are sold, and 210,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2007 financial statements dated December 31? |
|
6,000,000 × .10 × $1 = $600,000; $600,000 – $210,000 = $390,000 |
| 48) Wellman Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,000,000 per year. The company estimates that on average it will incur losses of $800,000 per year. During 2007, $350,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Wellman Company for 2007? |
| 49) Mark Ward is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2007, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Ward had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Ward in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Ward appears inclined to accept the Railroad’s offer. The Railroad’s 2007 financial statements should include the following related to the incident: |
| 50) Which of the following contingencies need NOT be disclosed in the financial statements or the notes thereto? |
| 51) Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? |
| 52) Bonds for which the owners’ names are NOT registered with the issuing corporation are called |
| 53) An example of an item which is NOT a liability is |
| 54) If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be |
| 55) What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? |
| 56) Minimum lease payments may include a |
| 57) Which of the following best describes current practice in accounting for leases? |
| 58) In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as |
| 59) In the earlier years of a lease, from the lessee’s perspective, the use of the |
| 60) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income |
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