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1. If a unit of inventory has declined in value below original
1. If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is
A) net realizable value.
B) original cost.
C) market value.
D) net realizable value less a normal profit margin.
2. Which of the following best describes current practice in accounting for leases?
A) Leases are not capitalized.
B) Leases similar to installment purchases are capitalized.
C) All long-term leases are capitalized.
D) All leases are capitalized.
3. On January 1, 2008, the Accumulated Depreciation—Machinery account of a particular company showed a balance of $370,000. At the end of 2008, after the adjusting entries were posted, it showed a balance of $395,000. During 2008, one of the machines which cost $125,000 was sold for $60,500 cash. This resulted in a loss of $4,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2008?
4. The Lease Liability account should be disclosed as
A) all current liabilities.
B) all noncurrent liabilities.
C) current portions in current liabilities and the remainder in noncurrent liabilities.
D) deferred credits.
5. A plant asset has a cost of $24,000 and a salvage value of $6,000. The asset has a three-year life. If depreciation in the third year amounted to $3,000, which depreciation method was used?
D) Cannot tell from information given
6. Which of the following methods of determining annual bad debt expense best achieves the matching concept?
A) Percentage of sales
B) Percentage of ending accounts receivable
C) Percentage of average accounts receivable
D) Direct write-off
7. On September 1, 2007, Looper Co. issued a note payable to National Bank in the amount of $1,200,000, bearing interest at 12%, and payable in three equal annual principal payments of $400,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2008. At December 31, 2008, Looper should record accrued interest payable of
8. Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2007 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, 2008, 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, 2008 balance sheet?
9. Marley Company received a seven-year, zero-interest-bearing note on February 22, 2008, in exchange for property it sold to O'Rear Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2008, 7.5% on December 31, 2008, 7.7% on February 22, 2009, and 8% on December 31, 2009. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2008 and 2009, respectively?
A) 0% and 0%
B) 7% and 7%
C) 7% and 7.7%
D) 7.5% and 8%
10. During 2008, Gannon Co. incurred average accumulated expenditures of $400,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2008 was a $500,000, 10%, 5-year note payable dated January 1, 2006. What is the amount of interest that should be capitalized by Gannon during 2008?
11. Milner Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 box tops from Milner Frosted Flakes boxes and $1.00. The company estimates that 60% of the box tops will be redeemed. In 2008, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 box tops receiving 110,000 bowls. If the bowls cost Milner Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2008?
A) is most conservative if applied to the total inventory.
B) is most conservative if applied to major categories of inventory.
C) is most conservative if applied to individual items of inventory.
D) must be applied to major categories for taxes.
13. On December 1, 2008, Perez Corporation leased office space for 10 years at a monthly rental of $90,000. On that date Perez paid the landlord the following amounts:
Rent deposit $ 90,000
First month's rent 90,000
Last month's rent 90,000
Installation of new walls and offices 495,000
The entire amount of $765,000 was charged to rent expense in 2008. What amount should Perez have charged to expense for the year ended December 31, 2008?
14. Nottingham Corporation had accounts receivable of $100,000 at 1/1. The only transactions affecting accounts receivable were sales of $900,000 and cash collections of $850,000. The accounts receivable turnover is
Use the following to answer question 15:
On March 1, 2008, Dennis Company purchased land for an office site by paying $540,000 cash. Dennis began construction on the office building on March 1. The following expenditures were incurred for construction:
March 1, 2008 $ 360,000
April 1, 2008 504,000
May 1, 2008 900,000
June 1, 2008 1,440,000
The office was completed and ready for occupancy on July 1. To help pay for construction, $720,000 was borrowed on March 1, 2008 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during 2008 was a $300,000, 12%, 6-year note payable dated January 1, 2008.
15. The actual interest cost incurred during 2008 was
16. Lynne Corporation acquired a patent on May 1, 2008. Lynne paid cash of $20,000 to the seller. Legal fees of $800 were paid related to the acquisition. What amount should be debited to the patent account?
17. Minimum lease payments are payments the lessee is obligated to make or can be expected to make in connection with the leased property. In computing minimum lease payments, all of the following would be included except the
A) present value of the cost of the leased asset.
B) penalty for failure to renew or extend the lease.
C) bargain purchase option.
D) minimum rental payments.
18. During the year, Jantz Company made an entry to write off a $4,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $50,000 and the balance in the allowance account was $4,500. The net realizable value of accounts receivable after the write-off entry was
19. Limeway Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2008 on January 1, 2008. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?
20. Which of the following items is a current liability?
A) Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months.
B) Bonds due in three years.
C) Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.
D) Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.
21. A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and
A) is acceptable as a means to pay current liabilities.
B) has a current market value that is greater than its original cost.
C) bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation.
D) is so near its maturity that it presents insignificant risk of changes in interest rates.
22. Noll Co. had 450 units of product A on hand at January 1, 2008, costing $42 each. Purchases of product A during January were as follows:
Date Units Unit Cost
Jan. 10 600 $44
18 750 46
28 300 48
A physical count on January 31, 2008 shows 600 units of product A on hand. The cost of the inventory at January 31, 2008 under the LIFO method is
23. Martin Inc. incurred the following costs during the year ended December 31, 2008:
Laboratory research aimed at discovery of new knowledge $180,000
Costs of testing prototype and design modifications 45,000
Quality control during commercial production, including routine testing
Construction of research facilities having an estimated useful life of
6 years but no alternative future use
The total amount to be classified and expensed as research and development in 2008 is
24. Which of the following is correct?
A) Selling costs are product costs.
B) Manufacturing overhead costs are product costs.
C) Interest costs for routine inventories are product costs.
D) All of these.
25. General Products Company bought Special Products Division in 2007 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2008, 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, 2008. What goodwill impairment should be recognized by General Products in 2008?
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