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ACCT 310

Name___________________________________________
Final Exam, Fall 2014
DUE: NO LATER than NOON, Thursday, 11 December 2014
There are 100 multiple choice questions included in this exam. Each question is worth one point. Use the Scantron
provided and indicate the answer you think is correct. If it is indeed correct you will earn a point, if not you
will not. Return the completed scantron to my office no later than NOON, Thursday, 11 December 2014.
MAKE SURE YOUR NAME IS ON IT. Also, indicate the days you take the class MW or TR. Good Luck!
Stay Safe and have a great holiday after you finish the exam. MELE KALIKE MAKA!
1.

The information provided by financial reporting pertains to


a. individual business enterprises, rather than to industries or an economy as a whole or to members of
society as consumers.
b. business industries, rather than to individual enterprises or an economy as a whole or to members of
society as consumers.
c. individual business enterprises, industries, and an economy as a whole, rather than to members of society
as consumers.
d. an economy as a whole and to members of society as consumers, rather than to individual enterprises or
industries.

2.

What is the objective of financial reporting?


a. Provide information that is useful to management in making decisions.
b. Provide information that clearly portray nonfinancial transactions.
c. Provide information about the reporting entity that is useful to present and potential equity investors,
lenders, and other creditors.
d. Provide information that excludes claims to the resources.

3.

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the
Accounting Principles Board (APB), is
a. the FASB issues exposure drafts of proposed standards.
b. all members of the FASB are fully remunerated, serve full time, and are independent of any companies
or institutions.
c. all members of the FASB possess extensive experience in financial reporting.
d. a majority of the members of the FASB are CPAs drawn from public practice.

4.

The Financial Accounting Standards Board employs a "due process" system which
a. is an efficient system for collecting dues from members.
b. enables interested parties to express their views on issues under consideration.
c. identifies the accounting issues that are the most important.
d. requires that all accountants must receive a copy of financial standards.

5.

The purpose of the Emerging Issues Task Force is to


a. develop a conceptual framework as a frame of reference for the solution of future problems.
b. lobby the FASB on issues that affect a particular industry.
c. do research on issues that relate to long-term accounting problems.
d. issue statements which reflect a consensus on how to account for new and unusual financial transactions
that need to be resolved quickly.

6.

Which of the following publications does not qualify as a statement of generally accepted accounting
principles?
a. Statements of financial standards issued by the FASB
b. Accounting interpretations issued by the FASB
c. APB Opinions
d. Accounting research studies issued by the AICPA

2
7.

What is a possible danger if politics plays too big a role in accounting standard setting?
a. Accounting standards that are not truly generally accepted.
b. Individuals may influence the standards.
c. User groups become active.
d. The FASB delegates its authority to elected officials.

8.

What is "expectation gap"?


a. The difference between what the public thinks the accountant is not doing and what the accountant
knows they don't do.
b. The difference between what the public thinks the accountant is doing and what Congress says the
accountant is doing.
c. The difference between what the public thinks the accountant is doing and what the accountant thinks
they can do.
d. The difference between what the accountant is doing and what the Courts say the accountant should be
doing.

9.

Authoritative standards for IFRS include:


a. International Financial Reporting Standards only.
b. International Financial Reporting Standards and International Accounting Standards only.
c. International Financial Reporting Standards, International Accounting Standards and U.S. GAAP only.
d. International Financial Reporting Standards, International Accounting Standards and any GAAP
standard recognized by an organized stock exchange.

10.Which of these statements regarding the IFRS and U.S. GAAP is correct?
a. U.S. GAAP is considered to be "principles-based" and more detailed than IFRS.
b. U.S. GAAP is considered to be "rules-based" and less detailed than IFRS.
c. IFRS is considered to be "principles-based" and less detailed than U.S. GAAP
d. Both U.S. GAAP and IFRS are considered to be "rules-based", but U.S. GAAP tends to be more
complex.
11. Which of the following is not a benefit associated with the FASB Conceptual Framework Project?
a. A conceptual framework should increase financial statement users' understanding of and confidence in
financial reporting.
b. Practical problems should be more quickly solvable by reference to an existing conceptual framework.
c. A coherent set of accounting standards and rules should result.
d. Business entities will need far less assistance from accountants because the financial reporting process
will be quite easy to apply.
12.

In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting?
a. Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
b. Qualitative characteristics of accounting information
c. Elements of financial statements
d. Objective of financial reporting

13.

Financial information exhibits the characteristic of consistency when


a. expenses are reported as charges against revenue in the period in which they are paid.
b. companies apply the same accounting treatment to similar events, from period to period.
c. extraordinary gains and losses are not included on the income statement.
d. accounting procedures are adopted which give a consistent rate of net income.

14.

According to the FASB's conceptual framework, predictive value is an ingredient of


a.
b.
c.
d.

Relevance
Yes
Yes
No
No

Faithful Representation
No
Yes
Yes
No

3
15.

According to the FASB's conceptual framework, which of the following relates to both relevance and faithful
representation?
a.
b.
c.
d.

Comparability
Yes
Yes
No
No

Neutrality
Yes
No
Yes
No

16.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
a.
b.
c.
d.

Nonoperating
Yes
Yes
No
No

Operating
No
Yes
Yes
No

17.According to the FASB's conceptual framework, comprehensive income includes which of the following?
a.
b.
c.
d.
18.

Operating Income
Yes
Yes
No
No

Investments by Owners
No
Yes
Yes
No

According to the FASB's conceptual framework, the calculation of comprehensive income includes which of
the following?

a.
b.
c.
d.

Income from
Continuing Operations
No
Yes
Yes
No

Distributions
to Owners
No
No
Yes
Yes

19.

According to the FASB's conceptual framework, the process of reporting an item in the financial statements
of an entity is
a. recognition.
b. realization.
c. allocation.
d. matching.

20.

Unearned revenue on the books of one company is likely to be


a. a prepaid expense on the books of the company that made the advance payment.
b. an unearned revenue on the books of the company that made the advance payment.
c. an accrued expense on the books of the company that made the advance payment.
d. an accrued revenue on the books of the company that made the advance payment.

21.

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over
subsequent accounting cycles?
a. To reduce the federal income tax liability
b. To aid management in cash-flow analysis
c. To match the costs of production with revenues as earned
d. To adhere to the accounting constraint of conservatism

4
22.

An accrued expense can best be described as an amount


a. paid and currently matched with earnings.
b. paid and not currently matched with earnings.
c. not paid and not currently matched with earnings.
d. not paid and currently matched with earnings.

23.

A prepaid expense can best be described as an amount


a. paid and currently matched with revenues.
b. paid and not currently matched with revenues.
c. not paid and currently matched with revenues.
d. not paid and not currently matched with revenues.

24.An accrued revenue can best be described as an amount


a. collected and currently matched with expenses.
b. collected and not currently matched with expenses.
c. not collected and currently matched with expenses.
d. not collected and not currently matched with expenses.
25.

An unearned revenue can best be described as an amount


a. collected and currently matched with expenses.
b. collected and not currently matched with expenses.
c. not collected and currently matched with expenses.
d. not collected and not currently matched with expenses.

26.

Olsen Company paid or collected during 2012 the following items:


Insurance premiums paid
Interest collected
Salaries paid
The following balances have been excerpted from Olsen's balance sheets:
December 31, 2012
Prepaid insurance
$ 2,400
Interest receivable
7,400
Salaries and wages payable
24,600
The insurance expense on the income statement for 2012 was
a. $15,400.
b. $20,200.
c. $21,400.
d. $26,200.

27.

$ 20,800
67,800
240,400
December 31, 2011
$ 3,000
5,800
21,200

Olsen Company paid or collected during 2012 the following items:


Insurance premiums paid
Interest collected
Salaries paid
The following balances have been excerpted from Olsen's balance sheets:
December 31, 2012
Prepaid insurance
$ 2,400
Interest receivable
7,400
Salaries and wages payable
24,600
The interest revenue on the income statement for 2012 was
a. $54,600.
b. $66,200.
c. $69,400.
d. $81,000.

$ 20,800
67,800
240,400
December 31, 2011
$ 3,000
5,800
21,200

5
28.

Olsen Company paid or collected during 2012 the following items:


Insurance premiums paid
Interest collected
Salaries paid
The following balances have been excerpted from Olsen's balance sheets:
December 31, 2012
Prepaid insurance
$ 2,400
Interest receivable
7,400
Salaries and wages payable
24,600
Salaries expense on the income statement for 2012 was
a. $194,600.
b. $237,000.
c. $243,800.
d. $286,200.

$ 20,800
67,800
240,400
December 31, 2011
$ 3,000
5,800
21,200

29.

Earnings per share data are required on the face of which of the following financial statements?
a. Statement of retained earnings
b. Statement of stockholders' equity
c. Income statement
d. Balance sheet

30.

At Ruth Company, events and transactions during 2012 included the following. The tax rate for all items is
30%.
(1)
(2)
(3)
(4)

Depreciation for 2010 was found to be understated by $60,000.


A strike by the employees of a supplier resulted in a loss of $50,000.
The inventory at December 31, 2010 was overstated by $80,000.
A flood destroyed a building that had a book value of $1,000,000. Floods are very uncommon in that
area.
The effect of these events and transactions on 2012 income from continuing operations net of tax would be
a. ($35,000).
c. ($133,000).
b. ($77,000).
d. ($833,000).

31. At Ruth Company, events and transactions during 2012 included the following. The tax rate for all items is
30%.
(1)
(2)
(3)
(4)

Depreciation for 2010 was found to be understated by $60,000.


A strike by the employees of a supplier resulted in a loss of $50,000.
The inventory at December 31, 2010 was overstated by $80,000.
A flood destroyed a building that had a book value of $1,000,000. Floods are very uncommon in that
area.
The effect of these events and transactions on 2012 net income net of tax would be
a. ($35,000).
c. ($777,000).
b. ($735,000).
d. ($833,000).

6
32. Perry Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The
adjusted trial balance at December 31, 2012, included the following expense accounts:
Accounting and legal fees
Advertising
Freight-out
Interest
Loss on sale of long-term investments
Officers' salaries
Rent for office space
Sales salaries and commissions

$280,000
240,000
150,000
120,000
60,000
360,000
360,000
220,000

One-half of the rented premises is occupied by the sales department.


How much of the expenses listed above should be included in Perry's selling expenses for 2012?
a. $460,000.
c. $640,000.
b. $610,000.
d. $790,000.
33. Perry Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The
adjusted trial balance at December 31, 2012, included the following expense accounts:
Accounting and legal fees
Advertising
Freight-out
Interest
Loss on sale of long-term investments
Officers' salaries
Rent for office space
Sales salaries and commissions

$280,000
240,000
150,000
120,000
60,000
360,000
360,000
220,000

One-half of the rented premises is occupied by the sales department.


How much of the expenses listed above should be included in Perry's general and administrative expenses for
2012?
a. $820,000.
c. $940,000.
b. $880,000.
d. $1,000,000.
34. Logan Corp.'s trial balance of income statement accounts for the year ended December 31, 2012 included the
following:
Debit
Credit
Sales revenue
$280,000
Cost of good sold
$100,000
Administrative expenses
50,000
Loss on disposal of equipment
18,000
Sales commission expense
16,000
Interest revenue
10,000
Freight-out
6,000
Loss due to earthquake damage
24,000
Bad debt expense
6,000
Totals
$220,000
$290,000
Other information:
Logan's income tax rate is 30%. Finished goods inventory:
January 1, 2012
$160,000
December 31, 2012
140,000
On Logan's multiple-step income statement for 2012,
Income before extraordinary item is
a. $128,000.
c. $65,800.
b. $94,000.
d. $49,000.

7
35. Logan Corp.'s trial balance of income statement accounts for the year ended December 31, 2012 included the
following:
Debit
Credit
Sales
$280,000
Cost of sales
$100,000
Administrative expenses
50,000
Loss on sale of equipment
18,000
Commissions to salespersons
16,000
Interest revenue
10,000
Freight-out
6,000
Loss due to earthquake damage
24,000
Bad debt expense
6,000
Totals
$220,000
$290,000
Other information:
Logan's income tax rate is 30%. Finished goods inventory:
January 1, 2012
$160,000
December 31, 2012
140,000
On Logan's multiple-step income statement for 2012,
Extraordinary loss is
a. $16,800.
c. $29,400.
b. $24,000.
d. $42,000.
36. Which of the following should be reported as a prior period adjustment?

a.
b.
c.
d.

Change in Estimated Lives


of Depreciable Assets
Yes
No
Yes
No

Change from Unaccepted


Principle to Accepted Principle
Yes
Yes
No
No

37. The stockholders' equity section is usually divided into what three parts?
a. Preferred stock, common stock, treasury stock
b. Preferred stock, common stock, retained earnings
c. Capital stock, additional paid-in capital, retained earnings
d. Capital stock, appropriated retained earnings, unappropriated retained earnings
38.

The financial statement which summarizes operating, investing, and financing activities of an entity for a
period of time is the
a. retained earnings statement.
c. statement of cash flows.
b. income statement.
d. statement of financial position.
39.
If common stock was issued to acquire an $8,000 machine, how would the transaction appear on the
statement of cash flows?
a. It would depend on whether you are using the direct or the indirect method.
b. It would be a positive $8,000 in the financing section and a negative $8,000 in the investing section.
c. It would be a negative $8,000 in the financing section and a positive $8,000 in the investing section.
d. It would not appear on the statement of cash flows but rather on a schedule of noncash investing and
financing activities.

40.

Which of the following events will appear in the cash flows from financing activities section of the statement
of cash flows?
a. Cash purchases of equipment.
b. Cash purchases of bonds issued by another company.
c. Cash received as repayment for funds loaned.
d. Cash purchase of treasury stock.

8
41.

Making and collecting loans and disposing of property, plant, and equipment are
a. operating activities.
b. investing activities.
c. financing activities.
d. liquidity activities.

42.

In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost would be
classified as a(n)
a. operating activity.
b. financing activity.
c. extraordinary activity.
d. investing activity.

43.

One of the benefits of the statement of cash flows is that it helps users evaluate financial flexibility. Which of
the following explanations is a description of financial flexibility?
a. The nearness to cash of assets and liabilities.
b. The firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities.
c. The firm's ability to pay its debts as they mature.
d. The firm's ability to invest in a number of projects with different objectives and costs.

44.

Which of the following balance sheet classifications would normally require the greatest amount of
supplementary disclosure?
a. Current assets
c. Plant assets
b. Current liabilities
d. Long-term liabilities

45.

Accounting policies disclosed in the notes to the financial statements typically include all of the
except
a. the cost flow assumption used
b. the depreciation methods used
c. significant estimates made
d. significant inventory purchasing policies

46.

Which of the following best exemplifies a contingency that is reported in the notes to the financial
statements?
a. Losses from potential future lawsuits
b. Loss from a lawsuit settled out of court prior to the end of the fiscal year
c. Warranty claims on future sales
d. Estimated loss from an ongoing lawsuit

47.

Significant accounting policies may not be


a. selected on the basis of judgment.
b. selected from existing acceptable alternatives.
c. unusual or innovative in application.
d. omitted from financial-statement disclosure.

following

48.On January 4, 2012, Kiley Co. leased a building to Dodd Corp. for a ten-year term at an annual rental of
$100,000. At inception of the lease, Dodd received $400,000 covering the first two years' rent of $200,000
and a security deposit of $200,000. This deposit will not be returned to Dodd 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 $400,000 should be
shown as a current and long-term liability in Kiley's December 31, 2012 balance sheet?
a.
b.
c.
d.

Current Liability
$0
$100,000
$200,000
$200,000

Long-term Liability
$400,000
$200,000
$200,000
$100,000

9
49.In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets
should generally be classified as cash inflows from
a. operating activities.
b. financing activities.
c. investing activities.
d. selling activities.
50.

In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash
outflows for
a. operating activities.
b. borrowing activities.
c. lending activities.
d. financing activities.

51.

In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows
from
a. lending activities.
b. operating activities.
c. investing activities.
d. financing activities.

52.

In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash
equivalents) should be classified as cash outflows for
a. operating activities.
b. investing activities.
c. financing activities.
d. lending activities.

53.

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct write-off method is difficult to do.
d. Improved matching of bad debt expense with revenue.

54.

Which of the following concepts relates to using the allowance method in accounting for accounts
receivable?
a. Bad debt expense is an estimate that is based on historical and prospective information.
b. Bad debt expense is based on the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of the receivables aging.
d. Bad debt expense is management's determination of which accounts will be sent to the attorney for
collection.

Use the following information for questions 55 and 56.


A trial balance before adjustments included the following:
Debit
Sales
Sales returns and allowance
Accounts receivable
Allowance for doubtful accounts
55.

Credit
$850,000

$28,000
86,000
1,520

If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment is
a. $13,400.
b. $16,440.
c. $17,000.
d. $19,480.

10
56.

If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of the
adjustment is
a. $7,080.
b. $8,600.
c. $8,448.
d. $10,120.

57.

On the December 31, 2012 balance sheet of Vanoy Co., the current receivables consisted of the following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit (November 2012)
Selling price of unsold goods sent by Vanoy on consignment
at 130% of cost (not included in Vanoy 's ending inventory)
Security deposit on lease of warehouse used for storing
some inventories
Total

$ 60,000
(2,000)
3,000
26,000
30,000
$117,000

At December 31, 2012, the correct total of Vanoy's current net receivables was
a. $61,000.
b. $87,000.
c. $91,000.
d. $117,000.
58.Ace Co. prepared an aging of its accounts receivable at December 31, 2012 and determined that the net realizable
value of the receivables was $600,000. Additional information is available as follows:
Allowance for uncollectible accounts at 1/1/12credit balance
Accounts written off as uncollectible during 2012
Accounts receivable at 12/31/12
Uncollectible accounts recovered during 2012

$ 68,000
46,000
650,000
10,000

For the year ended December 31, 2012, Ace's uncollectible accounts expense would be
a. $50,000.
b. $46,000.
c. $32,000.
d. $18,000.
59.

For the year ended December 31, 2012, Dent Co. estimated its allowance for uncollectible accounts using the
year-end aging of accounts receivable. The following data are available:
Allowance for uncollectible accounts, 1/1/12
Provision for uncollectible accounts during 2012
(2% on credit sales of $3,000,000)
Uncollectible accounts written off, 11/30/12
Estimated uncollectible accounts per aging, 12/31/12
After year-end adjustment, the uncollectible accounts expense for 2012 should be
a. $69,000.
b. $60,000.
c. $104,000.
d. $89,000.

60.

$84,000
60,000
69,000
104,000

Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible
account
a. increases the allowance for uncollectible accounts.
b. has no effect on the allowance for uncollectible accounts.
c. has no effect on net income.
d. decreases net income.

11
61.

The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December 31, 2012:
Debit
Credit
Accounts receivable
$750,000
Allowance for uncollectible accounts
8,000
Net credit sales
$3,000,000
Starr estimates that 4% of the gross accounts receivable will become uncollectible. After adjustment at
December 31, 2012, the allowance for uncollectible accounts should have a credit balance of
a. $120,000.
b. $112,000.
c. $38,000.
d. $30,000.

62.

Which of the following is a method to generate cash from accounts receivable?


a.
b.
c.
d.

63.

Factoring
No
Yes
Yes
No

How should the following costs affect a retailer's inventory valuation?


a.
b.
c.
d.

64.

Assignment
Yes
Yes
No
No

Freight-in
Increase
Increase
No effect
No effect

Interest on Inventory Loan


No effect
Increase
Increase
No effect

The following information applied to Howe, Inc. for 2012:


Merchandise purchased for resale
Freight-in
Freight-out
Purchase returns

$350,000
8,000
5,000
2,000

Howe's 2012 inventoriable cost was


a. $350,000.
b. $353,000.
c. $356,000.
d. $361,000.
65.

The following information was derived from the 2012 accounting records of Perez Co.:

Beginning inventory
Purchases
Freight-in
Transportation to consignees
Freight-out
Ending inventory
Perez's 2012 cost of sales was
a. $470,000.
b. $500,000.
c. $534,000.
d. $539,000.

Perez 's Central Warehouse


$130,000
475,000
10,000
30,000
145,000

Perez 's Goods


Held by Consignees
$ 14,000
70,000
5,000
8,000
20,000

12
66.

Dole Corp.'s accounts payable at December 31, 2012, totaled $650,000 before any necessary year-end
adjustments relating to the following transactions:

On December 27, 2012, Dole wrote and recorded checks to creditors totaling $350,000 causing an
overdraft of $100,000 in Dole's bank account at December 31, 2012. The checks were mailed out on
January 10, 2013.

On December 28, 2012, Dole purchased and received goods for $150,000, terms 2/10, n/30. Dole
records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3,
2013.

Goods shipped f.o.b. destination on December 20, 2012 from a vendor to Dole were received January 2,
2013. The invoice cost was $65,000.

At December 31, 2012, what amount should Dole report as total accounts payable?
a. $1,212,000.
b. $1,147,000.
c. $900,000.
d. $800,000.
67.

The balance in Moon Co.'s accounts payable account at December 31, 2012 was $900,000 before any
necessary year-end adjustments relating to the following:

Goods were in transit to Moon from a vendor on December 31, 2012. The invoice cost was $40,000. The
goods were shipped f.o.b. shipping point on December 29, 2012 and were received on January 4, 2013.

Goods shipped f.o.b. destination on December 21, 2012 from a vendor to Moon were received on
January 6, 2013. The invoice cost was $25,000.

On December 27, 2012, Moon wrote and recorded checks to creditors totaling $30,000 that were mailed
on January 10, 2013.

In Moon's December 31, 2012 balance sheet, the accounts payable should be
a. $930,000.
b. $940,000.
c. $965,000.
d. $970,000.
68.

Kerr Co.'s accounts payable balance at December 31, 2012 was $1,300,000 before considering the following
transactions:

Goods were in transit from a vendor to Kerr on December 31, 2012. The invoice price was $70,000, and
the goods were shipped f.o.b. shipping point on December 29, 2012. The goods were received on
January 4, 2013.

Goods shipped to Kerr, f.o.b. shipping point on December 20, 2012, from a vendor were lost in transit.
The invoice price was $50,000. On January 5, 2013, Kerr filed a $50,000 claim against the common
carrier.

In its December 31, 2012 balance sheet, Kerr should report accounts payable of
a. $1,420,000.
b. $1,370,000.
c. $1,350,000.
d. $1,300,000.
69.

Walsh Retailers purchased merchandise with a list price of $75,000, subject to trade discounts of 20% and
10%, with no cash discounts allowable. Walsh should record the cost of this merchandise as
a. $52,500.
b. $54,000.
c. $58,500.
d. $75,000.

13
70.

On June 1, 2012, Penny Corp. sold merchandise with a list price of $40,000 to Linn on account. Penny
allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b. shipping
point. Penny prepaid $800 of delivery costs for Ison as an accommodation. On June 12, 2012, Penny received
from Linn a remittance in full payment amounting to
a. $21,952.
b. $22,736.
c. $22,752.
d. $22,392.

71.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.
b.
c.
d.

FIFO
Yes
Yes
No
No

LIFO
No
Yes
Yes
No

72.Hite Co. was formed on January 2, 2012, to sell a single product. Over a two-year period, Hite's acquisition costs
have increased steadily. Physical quantities held in inventory were equal to three months' sales at December
31, 2012, and zero at December 31, 2013. Assuming the periodic inventory system, the inventory cost
method which reports the highest amount of each of the following is

a.
b.
c.
d.

Inventory
December 31, 2012
LIFO
LIFO
FIFO
FIFO

Cost of Sales
2013
FIFO
LIFO
FIFO
LIFO

73.

At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the
purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer.
The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of
the year is $4.50, how would this situation be reflected in the annual financial statements?
a. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment.
b. No impact.
c. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment.
d. Disclose the existence of the purchase commitment.

74.

At the end of the fiscal year, Apha Airlines has an outstanding purchase commitment for the purchase of 1
million gallons of jet fuel at a price of $4.60 per gallon for delivery during the coming summer. The company
prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is
$4.25, how would this situation be reflected in the annual financial statements?
a. Record unrealized gains of $350,000 and disclose the existence of the purchase commitment.
b. No impact.
c. Record unrealized losses of $350,000 and disclose the existence of the purchase commitment.
d. Disclose the existence of the purchase commitment.

75.Which of the following statements is false regarding an assumption of inventory cost flow?
a. The cost flow assumption need not correspond to the actual physical flow of goods.
b. The assumption selected may be changed each accounting period.
c. The FIFO assumption uses the earliest acquired prices to cost the items sold during a period.
d. The LIFO assumption uses the earliest acquired prices to cost the items on hand at the end of an
accounting period.

14
76.Keen Company's accounting records indicated the following information:
Inventory, 1/1/12
Purchases during 2012
Sales during 2012

$ 900,000
4,500,000
5,700,000

A physical inventory taken on December 31, 2012, resulted in an ending inventory of $1,050,000. Keen's
gross profit on sales has remained constant at 25% in recent years. Keen suspects some inventory may have
been taken by a new employee. At December 31, 2012, what is the estimated cost of missing inventory?
a. $75,000.
b. $225,000.
c. $300,000.
d. $375,000.
77.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
a. the significance of the cost allocated to the building in relation to the combined cost of the lot and
building.
b. the length of time for which the building was held prior to its demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building was acquired.
78.Which of the following costs are capitalized for self-constructed assets?
a. Materials and labor only
c. Materials and overhead only
b. Labor and overhead only
d. Materials, labor, and overhead
79.When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by
the
a. par value of the stock.
b. stated value of the stock.
c. book value of the stock.
d. fair value of the stock.
80.

On February 1, 2012, Nelson Corporation purchased a parcel of land as a factory site for $250,000. An old
building on the property was demolished, and construction began on a new building which was completed on
November 1, 2012. Costs incurred during this period are listed below:
Demolition of old building
Architect's fees
Legal fees for title investigation and purchase contract
Construction costs
(Salvaged materials resulting from demolition were sold for $10,000.)
Nelson should record the cost of the land and new building, respectively, as
a. $275,000 and $1,315,000.
b. $260,000 and $1,330,000.
c. $260,000 and $1,325,000.
d. $265,000 and $1,325,000.

20,000
35,000
5,000
1,290,000

15
81.On April 1, Mooney Corporation purchased for $1,710,000 a tract of land on which was located a warehouse and
office building. The following data were collected concerning the property:
Current Assessed ValuationVendors Original Cost
Land
$600,000
$560,000
Warehouse
400,000
360,000
Office building
800,000
680,000
$1,800,000
$1,600,000
What are the appropriate amounts that Mooney should record for the land, warehouse, and office building,
respectively?
a. Land, $560,000; warehouse, $360,000; office building, $680,000.
b. Land, $600,000; warehouse, $400,000; office building, $800,000.
c. Land, $598,500; warehouse, $384,750; office building, $363,375.
d. Land, $570,000; warehouse, $380,000; office building, $760,000.
82.Sutherland Company purchased machinery for $640,000 on January 1, 2009. Straight-line depreciation has been
recorded based on a $40,000 salvage value and a 5-year useful life. The machinery was sold on May 1, 2013
at a gain of $12,000. How much cash did Sutherland receive from the sale of the machinery?
a. $92,000.
c. $132,000.
b. $108,000.
d. $172,000.
83.

Ecker Company purchased a new machine on May 1, 2004 for $264,000. At the time of acquisition, the
machine was estimated to have a useful life of ten years and an estimated salvage value of $12,000. The
company has recorded monthly depreciation using the straight-line method. On March 1, 2013, the machine
was sold for $36,000. What should be the loss recognized from the sale of the machine?
a. $0.
b. $5,400.
c. $12,000.
d. $17,400.

84.On January 1, 2004, Mill Corporation purchased for $304,000, equipment having a useful life of ten years and an
estimated salvage value of $16,000. Mill has recorded monthly depreciation of the equipment on the straightline method. On December 31, 2012, the equipment was sold for $56,000. As a result of this sale, Mill should
recognize a gain of
a. $0.
c. $27,200.
b. $11,200.
d. $56,000.
85.

On December 1, 2012, Hogan Co. purchased a tract of land as a factory site for $900,000. 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 2012 were as follows:
Cost to raze old building
Legal fees for purchase contract and to record ownership
Title guarantee insurance
Proceeds from sale of salvaged materials

$70,000
10,000
16,000
8,000

In Hogan 's December 31, 2012 balance sheet, what amount should be reported as land?
a. $926,000.
c. $988,000.
b. $962,000.
d. $996,000.
86.

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
a. classified as other income.
b. deducted from the cost of the land.
c. netted against the costs to clear the land and expensed as incurred.
d. netted against the costs to clear the land and amortized over the life of the plant.

16
87.A company is constructing an asset for its own use. Construction began in 2012. The asset is being financed
entirely with a specific new borrowing. Construction expenditures were made in 2012 and 2013 at the end of
each quarter. The total amount of interest cost capitalized in 2013 should be determined by applying the
interest rate on the specific new borrowing to the
a. total accumulated expenditures for the asset in 2012 and 2013.
b. average accumulated expenditures for the asset in 2012 and 2013.
c. average expenditures for the asset in 2013.
d. total expenditures for the asset in 2013.
88.Chase County owned an idle parcel of real estate consisting of land and a factory building. Chase gave title to this
realty to Patton Co. as an incentive for Patton to establish manufacturing operations in the County. Patton
paid nothing for this realty, which had a fair market value of $250,000 at the date of the grant. Patton should
record this nonmonetary transaction as a
a. memo entry only.
b. credit to Contribution Revenue for $250,000.
c. credit to Extraordinary Income for $250,000.
d. credit to Donated Capital for $250,000.
89.

On September 10, 2012, Jenks Co. incurred the following costs for one of its printing presses:
Purchase of attachment
Installation of attachment
Replacement parts for renovation of press
Labor and overhead in connection with renovation of press

$65,000
5,000
18,000
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?
a. $0.
b. $77,000.
c. $88,000.
d. $95,000.
90.

On January 2, 2012, York Corp. replaced its boiler with a more efficient one. The following information was
available on that date:
Purchase price of new boiler
Carrying amount of old boiler
Fair value of old boiler
Installation cost of new boiler

$170,000
10,000
4,000
20,000

The old boiler was sold for $4,000. What amount should York capitalize as the cost of the new boiler?
a. $190,000.
b. $186,000.
c. $180,000.
d. $170,000.
91.Which of the following is a realistic assumption of the straight-line method of depreciation?
a. The asset's economic usefulness is the same each year.
b. The repair and maintenance expense is essentially the same each period.
c. The rate of return analysis is enhanced using the straight-line method.
d. Depreciation is a function of time rather than a function of usage.
92.

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
a. be constant.
b. vary with unit sales.
c. vary with sales revenue.
d. vary with production.

17
93.The most common method of recording depletion for accounting purposes is the
a. percentage depletion method.
b. decreasing charge method.
c. straight-line method.
d. units-of-production method.
94.The book value of a plant asset is
a. the fair market value of the asset at a balance sheet date.
b. the asset's acquisition cost less the total related depreciation recorded to date.
c. equal to the balance of the related accumulated depreciation account.
d. the assessed value of the asset for property tax purposes.
95.Kinder Company purchased a depreciable asset for $280,000. The estimated salvage value is $14,000, and the
estimated useful life is 10,000 hours. Kinder 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?
a. $26,600
b. $29,260
c. $30,800
d. $266,000
96.

Fanestil Corporation purchased a depreciable asset for $630,000 on January 1, 2010. The estimated salvage
value is $63,000, and the estimated total useful life is 9 years. The straight-line method is used for
depreciation. In 2013, Fanestill changed its estimates to a useful life of 5 years with a salvage value of
$105,000. What is 2013 depreciation expense?
a. $63,000
b. $105,000
c. $168,000
d. $189,000

97.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?
a.
b.
c.
d.

Straight-line
Yes
Yes
No
No

Productive Output
No
Yes
Yes
No

98.Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation
computation when using the

a.
b.
c.
d.

Straight-line
Method
Yes
Yes
No
No

Production or
Use Method
No
Yes
No
Yes

18
99.Giger Company acquired a tract of land containing an extractable natural resource. Giger is required by the
purchase contract to restore the land to a condition suitable for recreational use after it has extracted the
natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons, and that
the land will have a value of $800,000 after restoration. Relevant cost information follows:
Land
Estimated restoration costs

$5,600,000
1,200,000

If Giger maintains no inventories of extracted material, what should be the charge to depletion expense per
ton of extracted material?
a. $1.36
b. $1.20
c. $1.12
d. $0.96
100.

In January 2012, Fehr Mining Corporation purchased a mineral mine for $6,300,000 with removable ore
estimated by geological surveys at 2,500,000 tons. The property has an estimated value of $600,000 after the
ore has been extracted. Fehr incurred $1,725,000 of development costs preparing the property for the
extraction of ore. During 2012, 340,000 tons were removed and 300,000 tons were sold. For the year ended
December 31, 2012, Fehr should include what amount of depletion in its cost of goods sold?
a. $775,200
b. $684,000
c. $891,000
d. $1,009,800