ACC 422 Final Exam Guide 2
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ACC 422 Final Exam Guide 2
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ACC 422 Final Exam Guide 2

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SET 2 1) Which of the following is considered cash? 2) Bank overdrafts, if material, should be 3) Which of the following is NOT considered cash for financial reporting purposes? 4) If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as 5) Which of the following methods of determining annual bad debt expense best achieves the matching concept? 6) The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach 7) The failure to record a purchase of mer¬chandise on account even though the goods are properly included in the physical inven¬tory results in 8) Belle Co. received merchandise on consignment. As of March 31, Belle had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 9) Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in inventory, but did NOT record the transaction. The effect of this on its financial statements for January 31 10) The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its 11) Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations? 12) When using the periodic inventory system, which of the following generally would NOT be separately accounted for in the computation of cost of goods sold? 13) An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is NOT true? 14) Designated market value 15) In no case can "market" in the lower-of-cost-or-market rule be more than 16) A major advantage of the retail inventory method is that it 17) The gross profit method of inventory valuation is invalid when 18) The retail inventory method is based on the assumption that the 19) Which of the following is NOT a major characteristic of a plant asset? 20) Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with the plan to tear down the Holiday Hotel and build a new luxury hotel on the site. The cost of the Holiday Hotel should be 21) If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on 22) The period of time during which interest must be capitalized ends when 23) To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be 24) When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to 25) The King-Kong Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is NOT expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will 26) When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds NOT needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be 27) Which of the following is NOT a condition that must be satisfied before interest capitalization can begin on a qualifying asset? 28) Which of the following most accurately reflects the concept of depreciation as used in accounting? 29) Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? 30) The major difference between the service life of an asset and its physical life is that 31) Starr Company purchased a depreciable asset for $150,000. The estimated salvage value is $10,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset? 32) Bigbie Company purchased a depreciable asset for $600,000. The estimated salvage value is $30,000, and the estimated useful life is 10,000 hours. Bigbie used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset? 33) Harrison Company purchased a depreciable asset for $100,000. The estimated salvage value is $10,000, and the estimated useful life is 10 years. The straight-line method will be used for depreciation. What is the depreciation base of this asset? 34) Costs incurred internally to create intangibles are 35) The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser's patented products should be 36) Riser Corporation was granted a patent on a product on January 1, 1998. To protect its patent, the corporation purchased on January 1, 2007 a patent on a competing product which was originally issued on January 10, 2003. Because of its unique plant, Riser Corporation does NOT feel the competing patent can be used in producing a product. The cost of the competing patent should be 37) Twilight Corporation acquired End-of-the-World Products on January 1, 2008 for $2,000,000, and recorded goodwill of $375,000 as a result of that purchase. At December 31, 2008, the End-of-the-World Products Division had a fair value of $1,700,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $1,450,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2008? 38) Fleming Corporation acquired Out-of-Sight Products on January 1, 2008 for $4,000,000, and recorded goodwill of $750,000 as a result of that purchase. At December 31, 2008, the Out-of-Sight Products Division had a fair value of $3,400,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $2,900,000 at that time. What amount of loss on impairment of goodwill should Fleming record in 2008? 39) Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2006 for $10,000,000. It was expected to have a 10 year life and no residual value. Malrom uses straight-line amortization for patents. On December 31, 2007, the expected future cash flows expected from the patent were expected to be $800,000 per year for the next eight years. The present value of these cash flows, discounted at Malrom’s market interest rate, is $4,800,000. At what amount should the patent be carried on the December 31, 2007 balance sheet? 40) Goodwill 41) Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some "negative goodwill." Proper accounting treatment by Easton is to report the amount as 42) The reason goodwill is sometimes referred to as a master valuation account is because 43) Which of the following items is a current liability? 44) Which of the following statements is false? 45) Stock dividends distributable should be classified on the 46) Simson Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2006 the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2006 may first be taken on January 1, 2007. Information relative to these employees is as follows: Year Hourly Wages Vacation Days Earned by Each Employee Vacation Dayse Used by Each Employee 2006 $28.50 10 0 2007 $27.00 10 8 2008 $28.50 10 10 What is the amount of expense relative to compensated absences that should be reported on Simson’s income statement for 2006? 47) A company buys an oil rig for $1,000,000 on January 1, 2007. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $200,000 (present value at 10% is $77,110). 10% is an appropriate interest rate for this company. What expense should be recorded for 2007 as a result of these events? 48) A company offers a cash rebate of $1 on each $4 package of batteries sold during 2007. Historically, 10% of customers mail in the rebate form. During 2007, 6,000,000 packages of batteries are sold, and 210,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2007 financial statements dated December 31? 49) A contingency can be accrued when 50) Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? 51) Mark Ward is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2007, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Ward had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Ward in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Ward appears inclined to accept the Railroad's offer. The Railroad's 2007 financial statements should include the following related to the incident: 52) An example of an item which is NOT a liability is 53) The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the 54) Bonds for which the owners' names are NOT registered with the issuing corporation are called 55) Minimum lease payments may include a 56) What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? 57) Which of the following is a correct statement of one of the capitalization criteria? 58) In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as 59) In the earlier years of a lease, from the lessee's perspective, the use of the 60) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income

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