Acc422 Intermediate Accounting: Final Study Guide (60 MCQs)_June 2012 Version

Acc422 Intermediate Accounting
Final Study Guide (60 MCQs)



1) Which of the following is considered cash?

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) Which of the following methods of determining annual bad debt expense best achieves the matching concept?

5) If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

6) The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach

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) The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

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) 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?

11) The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

12) Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?

13) When the direct method is used to record inventory at market

14) 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?

15) When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?

16) 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

17) Which of the following is NOT a basic assumption of the gross profit method?

18) When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because

19) 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

20) Which of the following is NOT a major characteristic of a plant asset?

21) The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to

22) Which of the following assets do NOT qualify for capitalization of interest costs incurred during construction of the assets?

23) Which of the following costs are capitalized for self-constructed assets?

24) The period of time during which interest must be capitalized ends when

25) Which of the following is NOT a condition that must be satisfied before interest capitalization can begin on a qualifying asset?

26) The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has commercial substance is usually recorded at

27) 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

28) The major difference between the service life of an asset and its physical life is that

29) The term "depreciable cost," or "depreciable base," as it is used in accounting, refers to

30) 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

31) Lennon Company purchased a depreciable asset for $200,000. The estimated salvage value is $10,000, and the estimated useful life is 10,000 hours. Lennon 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?


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) 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?


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) Under current accounting practice, intangible assets are classified as

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) 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) 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

41) Goodwill

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) If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information EXCEPT

45) Which of the following statements is false?

46) Wellman Company self insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,000,000 per year. The company estimates that on average it will incur losses of $800,000 per year. During 2007, $350,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Wellman Company for 2007?

47) 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?

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) Which of the following contingencies need NOT be disclosed in the financial statements or the notes thereto?

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 is the proper way to report a gain contingency?

52) Bonds that pay no interest unless the issuing company is profitable are called

53) The term used for bonds that are unsecured as to principal is

54) Bonds for which the owners' names are NOT registered with the issuing corporation are called

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) What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee?

58) In computing depreciation of a leased asset, the lessee should subtract

59) The amount to be recorded as the cost of an asset under capital lease is equal to the

60) In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income
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