ACC 422 Final EXAM Score 100% (A+) Grade
1) A cash equivalent is a short-term, highly liquid investment thatis readily convertible into known amounts of cash and
A. has a current market value that is greater than its originalcost.
B. bears an interest rate that is at least equal to the prime rateof interest at the date of liquidation.
C. is so near its maturity that it presents insignificant risk ofchanges in interest rates.
D. is acceptable as a means to pay current liabilities.
2) Which of the following is NOT considered cash for financialreporting purposes?
A. Money orders, certified checks, and personal checks
B. Coin, currency, and available funds
C. Postdated checks and I.O.U.’s
D. Petty cash funds and change funds
3) Which of the following items should NOT be included in the Cashcaption on the balance sheet?
A. Checks from other parties presently in the cash register
B. Amounts on deposit in checking account at the bank
C. Postage stamps on hand
D. Coins and 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 item of “other expense” in the income statement.
B. a deduction from accounts receivable in determining the netrealizable value of accounts receivable.
C. sales discounts forfeited in the cost of goods sold section ofthe income statement.
D. a deduction 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. best relates bad debt expense to the period of sale.
B. is the only generally accepted method for valuing accountsreceivable.
C. makes estimates of uncollectible accounts unnecessary.
D. gives a reasonably correct statement of receivables in thebalance sheet.
6) Which of the following is a generally accepted method ofdetermining the amount of the adjustment to bad debt expense?
A. A percentage of sales NOT adjusted for the balance in theallowance
B. A percentage of accounts receivable NOT adjusted for the balancein the allowance
C. An amount derived from aging accounts receivable and NOTadjusted for the balance in the allowance
D. A percentage of sales adjusted for the balance in theallowance
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 deterÂŹmination of all ofthe following EXCEPT
A. the physical goods to be included in inventory.
B. the costs to be included in inventory.
C. the cost flow assumption to be adopted.
D. the cost of goods held on consignÂŹment 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. net income was correct and current assets were understated.
B. net income, current assets, and retained earnings wereoverstated.
C. net income, current assets, and retained earnings wereunderstated.
D. net income and current assets were overstated and currentliabilities were 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. Prices remained unchanged.
B. Prices decreased.
C. Price trend cannot be determined from information given.
D. Prices increased.
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. Average cost
C. Base stock
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. costs which will NOT benefit any future period.
B. manufacturing overhead costs for a product manufactured and soldin the same accounting period.
C. costs of normal shrinkage and scrap incurred for the manufactureof a product in ending inventory.
D. costs from idle manufacturing capacity resulting from anunexpected plant shutdown.
13) When the direct method is used to record inventory atmarket
A. a loss is recorded directly in the inventory account bycrediting inventory and debiting loss on inventory decline.
B. the market value figure for ending inventory is substituted forcost and the loss is buried in cost of goods sold
C. only the portion of the loss attributable to inventory soldduring the period is recorded in the financial statements.
D. there is a direct reduction in the selling price of the productthat results in a loss being recorded on the income statement priorto the 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. The current year’s income is understated.
B. Income of the following year will be understated.
C. The closing inventory of the current year is understated.
D. The cost 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 business lessreasonably predictable costs of completion and disposal.
B. estimated selling price in the ordinary course of business lessreasonably 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 business lessreasonably predictable costs of completion and disposal and anallowance for an approximately normal profit margin.
D. estimated selling price in the ordinary course of business.
16) The gross profit method of inventory valuation is invalidwhen
A. there is a substantial increase in inventory during theyear.
B. none of these.
C. there is no beginning inventory because it is the first year ofoperation.
D. a portion of the inventory is destroyed.
17) Which of the following is NOT a basic assumption of the grossprofit method?
A. Goods NOT sold must be on hand.
B. The total amount of purchases and the total amount of salesremain relatively unchanged from the comparable previousperiod.
C. If the sales, reduced to the cost basis, are deducted from thesum of the opening inventory plus purchases, the result is theamount of inventory on hand.
D. The beginning inventory plus the purchases equal total goods tobe accounted 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 a current liability.
B. on the income statement.
C. as an appropriation of retained earnings.
D. as a valuation account to Inventory on the balance sheet.
19) The cost of land typically includes the purchase price and allof the following costs EXCEPT
A. street lights, sewers, and drainage systems cost.
B. assumption of any liens or mortgages on the property.
C. private driveways and parking lots.
D. grading, filling, draining, and clearing costs.
20) The cost of land does NOT include
A. costs of removing old buildings.
B. costs of improvements with limited lives.
C. costs of grading, filling, draining, and clearing.
D. special assessments.
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. written off as an extraordinary loss in the year the hotel istorn down.
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. Labor and 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. Assets intended for sale or lease that are produced as discreteprojects.
B. Assets financed through the issuance of long-term debt.
C. Assets under construction for an enterprise’s own use.
D. Assets NOT currently undergoing the activities necessary toprepare them for 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. the fair value of the asset given up, and a gain but NOT a lossmay be recognized.
B. the fair value of the asset received if it is equally reliableas the fair value of the asset given up.
C. the fair value of the asset given up, and a gain or loss isrecognized.
D. either the fair value of the asset given up or the assetreceived, whichever one results in the largest gain (smallest loss)to the company.
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. par value of the stock.
B. stated value of the stock.
C. book value of the stock.
D. market value 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. Partial recognition
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. be constant.
B. vary with unit sales.
C. vary with sales revenue.
D. vary with 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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