ACCOUNTING (Economic Finance) EXAM TEST 2

QUESTIONS AND ACCURATE SOLUTIONS

COMPLETE AND VERIFIED A.
Which accounting principles, concepts, or modifying conventions underlie the
valuation of inventories at the lower of cost or net realizable value?
Conservatism
The estimated selling price of an inventory item less reasonably predictable costs
of completion, disposal, and transportation is called:
Net Realizable Value.
Three ways by which the lower cost or net realizable value rule might be applied
include all but:
group by group
Of the three ways by which the lower cost or net realizable value might be
applied, which will give the lowest ending inventory valuation.
Item by item
A business would use the gross profit method instead of the retail method to
estimate ending inventory:
the selling prices of items on hand are not known.
Under what circumstances would the gross profit method of estimating inventory
be used?
Both A and B are correct.
Which of these inventory costing procedures does not require a physical count of
the inventory items?
retail method
Which inventory method almost always gives a result between LIFO and FIFO
average cost method
Tangible personal property includes all of the following except:
Land
The total cost of an asset includes all the following except:
utility cost related to the operation and use of the asset.
When an asset is constructed and used by the business, the capitalized cost
includes all of the following except:
measurable indirect cost
Assuming a five year life, a cost of $40,000, and an estimated net salvage of
$8,000. Depreciation for 2nd year if double-declining-balance method is used?
$9,600
An asset acquired on May 22 20X1, costs 70,000, useful life of 5 years, salvage
value of $10,000. Depreciation for 20X1 if straight line is used.
$7,000
What is the numerator and denominator to be used in computing depreciation for
the thirst year of use of an asset with a life of 7 years if the sum of years digits
method is uses.
Num= 5, Den= 28
Which method of deprecation will result in a higher net income during the first
year the asset is in use?
straight-line
Land is not depreciated for all the reasons below except:
A and B are correct.
Under federal income tax rules, how are gains and losses on the trade in of a like
kind asset treated?
neither gains nor losses are recognized
For financial reporting purposes, in what circumstances is a loss on the sale of a
long term asset recognized?
A loss is recognized when the net book value exceeds the sales price.
If an item of equip is retired and scrapped or sold, how should the retirement be
accounted for?
All of the above, a, b, and c are correct.
An asset that cost 20,000 and depreciation of 15,000 recorded. Sales price is
27,000. Old owner allowance of 7,000 for old asset and paid 20,000 in cash. What
was the amount of gain or loss recorded.
A gain of $2,000
An asset cost 25,000 retired and sold for 16,000. Acc Dep was 14,000. Entry to
record this retirement and sale
A gain of $5,000
If a company's fully depreciated asset that had no salvage value was scrapped but
not removed from the accounting records, what would be the effect on the
company's financial statements?
Both a and b are correct.
All of the following are steps in recording a trade in of like kind assets under the
federal income tax method except:
record the gain or loss on the transaction.
Under the federal income tax method in recording a trade in of a like kind asset, at
what amount is the new asset recorded?
the sum of the book value of the old plus the cash paid.
How much cash will the borrower receive for a $12,000, 75 day, non-interest
bearing note discounted at 8%?
$11,800
What is the maturity date of a 120-day note issued on April 10?
August 8
What is the interest due on a note for $15,000 at 8 percent for 75 days?
$250
The total to be received when a note receivable is due is known as the:
Maturity Value
Which of the following is not required for an instrument to be negotiable?
All of the above are required.
Notes due within one year are classified as current liabilities. Notes due in more
than one year are classified as long term liabilities.
true
Interest expense appears on the income statement as an operating expense and
is listed in the Other Income and Expenses section and is deducted from Income
from operations.
false
A note receivable with a maturity value of $6,200 is discounted at 10% with 90
days remaining until the maturity date. What are the proceeds from discounting
the note?
$6,045
Why do businesses sometimes accept notes receivable from customers?
All of the above are correct.
What does it mean to dishonor a note?
The maker of the note does not pay the note when it is due.
The Notes Receivable-Discounted account:
Is deducted from Notes Receivable on the balance sheet
A company that discounts an interest-bearing note receivable:
Recognizes interest income only if the proceed from discounting exceed the maturity
value of the note discounted.
What an interest-bearing note receivable is accepted instead of cash at the time
of sale, the interest on the note increases the amount reported as sales.
false
Notes receivable appear on the balance sheet as assets. Notes that mature within
one year are classified as current assets. Notes that mature in more than one year
are classified as long-term assets.
true
Which generally accepted accounting principle requires firms to use the same
method of inventory from year to year?
Consistency
In a period of rising prices, which inventory method results in the lowest reported
net income?
LIFO, last in, first out
Under FIFO costing, which costs are assigned to the goods sold during the period?
Oldest Costs
Under which method is the cost of goods sold the same as the costs of the
merchandise sold?
Specific Identification
Which method of inventory valuation is based on the total number of units
available for sale during the period?
Weighted Average
beginning inventory plus purchases minus ending inventory equals:
Cost of goods sold.
Which inventory valuation method focuses on the balance sheet?
FIFO
Which inventory valuation method focuses on the income statement?
LIFO
Impairment exists when:
book value is more than the fair value of an asset.
Depletion for federal income tax purposes is:
the larger of cost depletion or percentage.
Strategic Innovations company spent $80 Mil...
charged to expense as incurred
Intangible assets include all the following except:
land
The allocation of the cost of intangible assets over their estimated useful life is
called:
amortization
Percentage depletion may continue to be taken even though the book value of the
asset for tax purposes is zero.
true
An oil company paid a landowner 30,000...
Both a and b are correct.
Goodwill represents the value of the business in excess of the value...
true