ACC 422 Final Exam Guide 3
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ACC 422 Final Exam Guide 3
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ACC 422 Final Exam Guide 3

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SET 3 1) Which of the following is NOT considered cash for financial reporting purposes? 2) What is the preferable presentation of accounts receivable from officers, employees, or affiliated companies on a balance sheet? 3) Which of the following items should NOT be included in the Cash caption on the balance sheet? 4) The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach 5) Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense? 6) 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 7) 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 8) 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 9) The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007. Orion uses the periodic inventory system. The January 1, 2007 merchandise inventory balance will appear 10) The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its 11) 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? 12) The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its 13) In no case can "market" in the lower-of-cost-or-market rule be more than 14) When the direct method is used to record inventory at market 15) Designated market value 16) The retail inventory method is based on the assumption that the 17) 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 18) The gross profit method of inventory valuation is invalid when 19) Which of the following is NOT a major characteristic of a plant asset? 20) The cost of land does NOT include 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) To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be 23) When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to 24) The period of time during which interest must be capitalized ends when 25) 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 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) When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the 28) 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 29) The term "depreciable cost," or "depreciable base," as it is used in accounting, refers to 30) Which of the following most accurately reflects the concept of depreciation as used in accounting? 31) Prentice Company purchased a depreciable asset for $200,000. The estimated salvage value is $20,000, 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? 32) Pine Company purchased a depreciable asset for $360,000. The estimated salvage value is $24,000, 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? 33) 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? 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) 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 36) Which of the following methods of amortization is normally used for intangible assets? 37) 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? 38) 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? 39) 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? 40) When a patent is amortized, the credit is usually made to 41) The reason goodwill is sometimes referred to as a master valuation account is because 42) 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 43) Stock dividends distributable should be classified on the 44) Which of the following statements is false? 45) Which of the following items is a current liability? 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: What is the amount of expense relative to compensated absences that should be reported on Simson’s income statement for 2006? 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? 48) A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2007. Historically, 10% of customers mail in the rebate form. During 2007, 4,000,000 packages of light bulbs are sold, and 140,000 $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) 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: 51) Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? 52) 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 53) An example of an item which is NOT a liability is 54) The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the 55) Which of the following is a correct statement of one of the capitalization criteria? 56) Which of the following best describes current practice in accounting for leases? 57) While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that 58) The amount to be recorded as the cost of an asset under capital lease is equal to the 59) In the earlier years of a lease, from the lessee's perspective, the use of the 60) If the residual value of a leased asset is guaranteed by a third party

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