1) A cash equivalent is a short-term, highly liquid investmentthat is readily convertible into known amounts of cash and
A. has acurrent market value that is greater than its original cost.
B. bearsan interest rate that is at least equal to the prime rate ofinterest at the date of liquidation.
C. is sonear its maturity that it presents insignificant risk of changes ininterest rates.
D. isacceptable as a means to pay current liabilities.
2) Which of the following is NOT considered cash for financialreporting purposes?
A. Moneyorders, certified checks, and personal checks
B. Coin,currency, and available funds
C. Postdated checks and I.O.U.’s
D. Pettycash funds and change funds
3) Which of the following items should NOT be included in the Cashcaption on the balance sheet?
A. Checksfrom other parties presently in the cash register
B. Amountson deposit in checking account at the bank
C. Postagestamps on hand
D. Coinsand currency in the cash register
4) If a company employs the gross method of recording accountsreceivable from customers, then sales discounts taken should bereported as
A. an itemof “other expense” in the income statement.
B. adeduction from accounts receivable in determining the netrealizable value of accounts receivable.
C. salesdiscounts forfeited in the cost of goods sold section of the incomestatement.
D. adeduction from sales in the income statement.
5) The advantage of relating a company’s bad debt expense to itsoutstanding accounts receivable is that this approach
A. bestrelates bad debt expense to the period of sale.
B. is theonly generally accepted method for valuing accounts receivable.
C. makesestimates of uncollectible accounts unnecessary.
D. gives areasonably correct statement of receivables in the balancesheet.
6) Which of the following is a generally accepted method ofdetermining the amount of the adjustment to bad debt expense?
A. Apercentage of sales NOT adjusted for the balance in theallowance
B. Apercentage of accounts receivable NOT adjusted for the balance inthe allowance
C. Anamount derived from aging accounts receivable and NOT adjusted forthe balance in the allowance
D. Apercentage of sales adjusted for the balance in the allowance
7) If the beginning inventory for 2006 is overstated, the effectsof this error on cost of goods sold for 2006, net income for 2006,and assets at December 31, 2007, respectively, are
A. overstatement, understatement, no effect.
B. overstatement, understatement, overstatement.
C. understatement, overstatement, no effect.
D. understatement, overstatement, overstatement.
8) Valuation of inventories requires the deter¬mination of all ofthe following EXCEPT
A. thephysical goods to be included in inventory.
B. thecosts to be included in inventory.
C. thecost flow assumption to be adopted.
D. thecost of goods held on consign¬ment from other companies.
9) Eller Co. received merchandise on consignment. As of January 31,Eller included the goods in inventory, but did NOT record thetransaction. The effect of this on its financial statements forJanuary 31 would be
A. netincome was correct and current assets were understated.
B. netincome, current assets, and retained earnings were overstated.
C. netincome, current assets, and retained earnings were understated.
D. netincome and current assets were overstated and current liabilitieswere understated.
10) Assuming no beginning inventory, what can be said about thetrend of inventory prices if cost of goods sold computed wheninventory is valued using the FIFO method exceeds cost of goodssold when inventory is valued using the LIFO method?
A. Pricesremained unchanged.
B. Pricesdecreased.
C. Pricetrend cannot be determined from information given.
D. Pricesincreased.
11) Which method of inventory pricing best approximates specificidentification of the actual flow of costs and units in mostmanufacturing situations?
A. First-in, first-out
B. Averagecost
C. Basestock
D. Last-in, first-out
12) All of the following costs should be charged against revenue inthe period in which costs are incurred EXCEPT for
A. costswhich will NOT benefit any future period.
B. manufacturing overhead costs for a product manufactured andsold in the same accounting period.
C. costsof normal shrinkage and scrap incurred for the manufacture of aproduct in ending inventory.
D. costsfrom idle manufacturing capacity resulting from an unexpected plantshutdown.
13) When the direct method is used to record inventory atmarket
A. a lossis recorded directly in the inventory account by creditinginventory and debiting loss on inventory decline.
B. themarket value figure for ending inventory is substituted for costand the loss is buried in cost of goods sold
C. onlythe portion of the loss attributable to inventory sold during theperiod is recorded in the financial statements.
D. thereis a direct reduction in the selling price of the product thatresults in a loss being recorded on the income statement prior tothe sale.
14) An item of inventory purchased this period for $15.00 has beenincorrectly written down to its current replacement cost of $10.00.It sells during the following period for $30.00, its normal sellingprice, with disposal costs of $3.00 and normal profit of $12.00.Which of the following statements is NOT true?
A. Thecurrent year’s income is understated.
B. Incomeof the following year will be understated.
C. Theclosing inventory of the current year is understated.
D. Thecost of sales of the following year will be understated.
15) In no case can “market” in the lower-of-cost-or-market rule bemore than
A. estimated selling price in the ordinary course of businessless reasonably predictable costs of completion and disposal.
B. estimated selling price in the ordinary course of businessless reasonably predictable costs of completion and disposal, anallowance for an approximately normal profit margin, and anadequate reserve for possible future losses.
C. estimated selling price in the ordinary course of businessless reasonably predictable costs of completion and disposal and anallowance for an approximately normal profit margin.
D. estimated selling price in the ordinary course ofbusiness.
16) The gross profit method of inventory valuation is invalidwhen
A. thereis a substantial increase in inventory during the year.
B. none ofthese.
C. thereis no beginning inventory because it is the first year ofoperation.
D. aportion of the inventory is destroyed.
17) Which of the following is NOT a basic assumption of the grossprofit method?
A. GoodsNOT sold must be on hand.
B. Thetotal amount of purchases and the total amount of sales remainrelatively unchanged from the comparable previous period.
C. If thesales, reduced to the cost basis, are deducted from the sum of theopening inventory plus purchases, the result is the amount ofinventory on hand.
D. Thebeginning inventory plus the purchases equal total goods to beaccounted for.
18) In 2006, Lucas Manufacturing signed a contract with a supplierto purchase raw materials in 2007 for $700,000. Before the December31, 2006 balance sheet date, the market price for these materialsdropped to $510,000. The journal entry to record this situation atDecember 31, 2006 will result in a credit that should bereported
A. as acurrent liability.
B. on theincome statement.
C. as anappropriation of retained earnings.
D. as avaluation account to Inventory on the balance sheet.
19) The cost of land typically includes the purchase price and allof the following costs EXCEPT
A. streetlights, sewers, and drainage systems cost.
B. assumption of any liens or mortgages on the property.
C. privatedriveways and parking lots.
D. grading, filling, draining, and clearing costs.
20) The cost of land does NOT include
A. costsof removing old buildings.
B. costsof improvements with limited lives.
C. costsof grading, filling, draining, and clearing.
D. specialassessments.
21) Cotton Hotel Corporation recently purchased Holiday Hotel andthe land on which it is located with the plan to tear down theHoliday Hotel and build a new luxury hotel on the site. The cost ofthe Holiday Hotel should be
A. writtenoff as an extraordinary loss in the year the hotel is torndown.
B. capitalized as part of the cost of the land.
C. depreciated over the period from acquisition to the date thehotel is scheduled to be torn down.
D. capitalized as part of the cost of the new hotel.
22) To be consistent with the historical cost principle, overheadcosts incurred by an enterprise constructing its own buildingshould be
A. eliminated completely from the cost of the asset.
B. allocated on an opportunity cost basis.
C. allocated on the basis of lost production.
D. allocated on a pro rata basis between the asset and normaloperations.
23) Which of the following costs are capitalized forself-constructed assets?
A. Laborand overhead only
B. Materials and overhead only
C. Materials and labor only
D. Materials, labor, and overhead
24) Which of the following assets do NOT qualify for capitalizationof interest costs incurred during construction of the assets?
A. Assetsintended for sale or lease that are produced as discreteprojects.
B. Assetsfinanced through the issuance of long-term debt.
C. Assetsunder construction for an enterprise’s own use.
D. AssetsNOT currently undergoing the activities necessary to prepare themfor their intended use.
25) The cost of a nonmonetary asset acquired in exchange foranother nonmonetary asset and the exchange has commercial substanceis usually recorded at
A. thefair value of the asset given up, and a gain but NOT a loss may berecognized.
B. thefair value of the asset received if it is equally reliable as thefair value of the asset given up.
C. thefair value of the asset given up, and a gain or loss isrecognized.
D. eitherthe fair value of the asset given up or the asset received,whichever one results in the largest gain (smallest loss) to thecompany.
26) Construction of a qualifying asset is started on April 1 andfinished on December 1. The fraction used to multiply anexpenditure made on April 1 to find weighted-average accumulatedexpenditures is
A. 8/12.
B. 9/12.
C. 8/8.
D. 11/12.
27) When a plant asset is acquired by issuance of common stock, thecost of the plant asset is properly measured by the
A. parvalue of the stock.
B. statedvalue of the stock.
C. bookvalue of the stock.
D. marketvalue of the stock.
28) Which of the following principles best describes the conceptualrationale for the methods of matching depreciation expense withrevenues?
A. Associating cause and effect
B. Systematic and rational allocation
C. Immediate recognition
D. Partialrecognition
29) For income statement purposes, depreciation is a variableexpense if the depreciation method used is
A. units-of-production.
B. straight-line.
C. sum-of-the-years’-digits.
D. declining-balance.
30) If an industrial firm uses the units-of-production method forcomputing depreciation on its only plant asset, factory machinery,the credit to accumulated depreciation from period to period duringthe life of the firm will
A. beconstant.
B. varywith unit sales.
C. varywith sales revenue.
D. varywith production.
31) Lennon Company purchased a depreciable asset for $200,000. Theestimated salvage value is $10,000, and the estimated useful lifeis 10,000 hours. Lennon used the asset for 1,100 hours in thecurrent year. The activity method will be used for depreciation.What is the depreciation expense on this asset?
A. $19,000
B. $20,900
C. $22,000
D. $190,000
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