Accounting 136

Petty cash and change funds are classified as current assets and included as part of cash. True or False

___________ is/are assumed to be collected from employees or deducted from their salaries. Short-term paper. Travel advances. Petty cash. Bank overdrafts.

All of the following are nontrade receivables except: Deposits paid as a guarantee of performance. Interest receivable. Open accounts resulting from short-term extensions of credit. Claims against insurance companies for casualties sustained

Sales discounts are used to avoid frequent changes in catalog prices and to hide the true invoice price from competitors. True or False

The direct write-off method Is based on facts, not estimates. Is often used for financial reporting purposes. All of these answer choices are correct. Records the expense in the same period as the associated revenue.

Non-interest-bearing notes include interest as part of their face amount. True or False

Companies may elect to use the fair value option All of these answer choices are correct. when some event triggers a new basis of accounting. whenever an unrealized holding gain or loss arises. at the balance sheet date.

Which of the following requires a financial components approach? Assigning accounts receivable. Transfer of accounts receivable in a non-recourse transaction. Transfer of accounts receivable in a with recourse transaction. Pledging accounts receivable.

The accounts receivable turnover ratio is computed by dividing net sales by average net receivables. net sales by ending net receivables. gross sales by ending net receivables. gross sales by average net receivables

The journal entries for a bank reconciliation may include a debit to Office Expense for bank service charges. may include a credit to Accounts Receivable for an NSF check. may include a debit to Accounts Payable for an NSF check. are taken from the "balance per bank" section only.

Money market savings certificates and certificates of deposit (CDs) are classified as cash. True or False

Receivables may be classified as all of following except: accounts receivable or notes receivable. restricted or unrestricted. current or noncurrent. trade receivables or nontrade receivables

In the gross method of recording cash discounts, sales discounts are: never recorded. ignored unless they are material in amount. recorded when payment is received within the discount period. recorded at the time of sale.

The percentage-of-receivables method for estimating uncollectible accounts is often referred to as the: balance sheet approach. direct write-off method. income statement approach. aging method.

A note receivable All of these answer choices are correct. is supported by a formal promissory note. is a negotiable instrument. always contains an interest element.

Which of the following is not true with regard to the fair value option? The unrealized holding gain or loss is included in net income. The unrealized holding gain or loss is calculated as the net change in fair value from one period to the next. The fair value option must be elected at the time the financial instrument is originally recognized. Fair value provides more relevant information than historical cost because it reflects the financial instrument's current cash equivalent value.

On March 1, 2014, Beijing Pasta Company assigns $1,400,000 of its accounts receivable to Bank of China as collateral for a $1,000,000 note. Bank of China assesses a finance charge of 1 percent of the accounts receivable and interest on the note of 12 percent. Which of the following is correct regarding this transaction? On March 1, 2014, Beijing Pasta Company will credit Due from Factor for $20,000. On March 1, 2014, Beijing Pasta Company will debit Interest Expense for $14,000. On March 1, 2014, Beijing Pasta Company will debit Loss on Sale of Receivables for $34,000. Beijing Pasta Company has factored its receivables.

Harper Company's average collection period is 45 days and its average accounts receivable are $600,000. What are Harper Company's net sales for the period? $74,074. $4,860,000. $72,000. $5,000,000

Companies use ____________ to make a specific amount of cash available for a limited purpose: petty cash accounts. lockbox accounts. imprest bank accounts. general checking accounts

Which of the following statements is incorrect? Under IFRS, cash and receivables are generally reported in the noncurrent assets section of the balance sheet. The international standard related to the fair value option is subject to certain qualifying criteria not in the U.S. standard. IFRS sometimes refers to the allowance for doubtful accounts as a provision. Under IFRS, bank overdrafts are generally reported as cash.

Manufacturing companies have two inventory accounts: Work in Process and Finished Goods. True or False

A physical inventory is only required at year-end if the company has a periodic inventory system. True or False

If ending inventory is overstated, net income, retained earnings and working capital are overstated in that period as well. True or False

Storage costs are usually included in the value of the inventory. True or False

In a period of rising prices, LIFO will result in a higher income tax expense than FIFO. True or False

The change in the Allowance to Reduce Inventory to LIFO balance from one period to the next is called the LIFO Reserve. Allowance. Effect. Reduction.

An erosion of LIFO inventory layers is referred to as a LIFO Allowance. Reserve. Effect. Liquidation.

The method employed by most companies that use a LIFO system is: weighted-average LIFO. specific goods LIFO. specific goods pooled LIFO. dollar-value LIFO.

Which of the following is not considered an advantage of LIFO when prices are rising? The more recent costs are matched against current revenues. There will be a deferral of income tax. A company's future reported earnings will not be affected substantially by future price declines. The inventory will be overstated.

LIFO would be appropriate when prices charged to customers tend to lag behind costs paid to suppliers. True or False

Which of the following would be included in the balance sheet of a merchandiser? Raw Materials Inventory. Work in Process Inventory. Finished Goods Inventory. Merchandise Inventory.

All of the following accounts are used under a perpetual inventory system except: Inventory. Sales. Cost of Goods Sold. Purchase Discounts Lost.

On December 30, Kessler Co. accepted delivery of merchandise which it purchased on account. As of December 31, Kessler had recorded the purchase, but did not include the merchandise in its physical count of ending inventory. The effect of this on its financial statements for December 31 would be net income was overstated and current assets were understated. net income, current assets, and retained earnings were understated. net income was correct and current assets were understated. net income was understated and current liabilities were overstated.

Which of the following should be not included in a company's ending inventory? Goods out on consignment. In-transit goods sold and shipped FOB destination. In-transit goods purchased and shipped FOB shipping point. Goods held on consignment.

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is FIFO. LIFO. weighted-average. base stock.

An erosion of LIFO inventory layers is referred to as a LIFO allowance. True or False

Under the dollar-value LIFO method, increases and decreases in an inventory pool are determined and measured in terms of: total dollar value. dollar value per unit. unit layers. physical quantity.

Which of the following is not a disadvantage of the LIFO method? Understated inventory reported on the balance sheet. All of the answer choices are disadvantages of the LIFO method. Tax consequences when involuntary liquidation occurs. Lower earnings relative to the FIFO method.

Which of the following statements related to the LIFO method is incorrect? LIFO is appropriate where prices tend to lag behind costs. LIFO is not appropriate in situations where specific identification is traditional. LIFO is preferable if revenues have been increasing faster than costs. LIFO is preferable in situations where it has been traditional.

The departure from cost when the lower of cost or market rule is applied is justified because the loss of utility is charged against revenues in the period in which the loss occurs. True or False

Inventory may be recorded at net realizable value if there is a controlled market with a quoted price. all of these answer choices are correct. there are no significant costs of disposal. the inventory consists of precious metals or agricultural products.

A basket purchase is a group of varying units bought in a single lump-sum purchase. True or False

Losses on noncancelable purchase contracts should be recognized: at the date of inception. at the time of payment. in the period a decline in market price occurs. when the purchase is recorded.

The gross profit method uses the current period's gross profit percentage in determining the mark-up True or False

Under the retail inventory method, freight costs are considered part of the purchase price. True or False

The retail inventory method requires that a record be kept of all of the following except the: sales for the period. total cost and retail value of goods purchased. total cost and retail value of goods available for sale. total cost and retail value of freight costs.

Which of the following is not a required inventory disclosure under GAAP? Significant or unusual inventory financing arrangements. The composition of the inventory. The inventory costing methods employed. All of these are required disclosures.

A major assumption of the LIFO retail method is that the markups and markdownsapply only to the goods purchased during the current period and not to the beginning inventory. True or False

All of the following statements are true regarding inventory valuation under U.S. GAAP and IFRS except: IFRS allows reversals of writedowns but U.S. GAAP does not. U.S GAAP allows use of the LIFO cost flow assumption but IFRS does not. U.S. GAAP and IFRS define "market" in Lower-of-cost -or-market in the same way. All of these statements are true.

Designated market value is the lower of replacement cost or net realizable value less a normal profit margin. True or False

Companies may value inventories at net realizable value if cost is too difficult to determine True or False

When is the relative sales value method used? When purchasing a group of like items. When purchasing a group of varying units. When purchasing a commodity. When purchasing damaged inventory.

Medi Corporation, a manufacturer of ethnic foods, contracted in 2013 to purchase 2,000 pounds of a spice mixture at $5.15 per pound, delivery to be made in May of 2014. By December 31, 2013, the price per pound of the spice mixture had risen to $5.65 per pound. In 2013, Medi should recognize a gain of $1,000. a loss of $10,300. no gain or loss. a loss of $1,000.

The gross profit method of estimating ending inventory is not acceptable for: insurance claims for destroyed inventory. interim financial statements. annual financial statements. None of these answer choices are correct.

Which of the following is not an assumption made when using the gross profit method? Goods not sold are on hand. The beginning inventory plus purchases equal total goods available during the period. The cost ratio is computed after markups (and markup cancellations) but before markdowns. Ending inventory is equal to beginning inventory plus purchases less sales, reduced to cost.

Which statement is true about the retail inventory method? None of these answer choices are correct. It may not be used to estimate inventories for interim statements. It may not be used by auditors. It may not be used to estimate inventories for annual statements.

The inventory turnover ratio is computed by dividing: cost of goods sold by ending inventory. cost of goods sold by average inventory. sales by ending inventory. sales by average inventory.

The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period True or False

Which of the following statements is true regarding IFRS and inventories? In order to determine market valuation of inventories, IFRS uses a ceiling and a floor. IFRS allows inventory to be written up above its original cost. With respect to inventories, IFRS defines" market" as net realizable value. IFRS permits the option of valuing inventories at fair value.

Which of the following is not a major characteristic of a plant asset? Acquired for resale Yields services over a number of years Possesses physical substance Acquired for us

The cost of land includes all of the following except: purchase price. cost of fencing and lighting. cost of leveling and grading. payments to clear liens.

The cost of a building should include all of the following except: building permits. costs of removing an old building on the new building site. overhead costs incurred during construction. excavation costs.

A portion of fixed overhead incurred during self-construction of an asset must be allocated to the construction process. True or False

Interest revenue earned on borrowed funds during the construction of an asset to be used by a firm can be used to reduce the cost of interest to be capitalized. True or False

IFRS and GAAP both use a commercial substance test to determine whether gains on nonmonetary exchanges should be recognized. True or False

When nonmonetary assets are traded in an exchange that lacks commercial substance and no cash is received, any loss is recognized immediately. True or False

Which of the following is not a capital expenditure with regard to a manufacturing facility? Replacing the heating system with a more energy efficient model Expanding the building by adding a new wing Painting the exterior of the building Replacing the air conditioning system with a similar unit

If an asset is sold at a gain, the proceeds from the sale are greater than the asset's cost. the fair value of the asset is greater than the proceeds received from the sale. the book value of the asset is less than the proceeds received from the sale. the cost of the asset is greater than its book value.

Ridge Company sold equipment with a cost of $75,000 and accumulated depreciation of $40,000 for $37,000. The journal entry to record this transaction will include: a credit to a gain account for $38,000. a debit to a loss account for $2,000. a debit to Accumulated Depreciation - Equipment for $40,000. a credit to the Equipment account for $35,000.

The only major characteristic of property, plant and equipment shown below is: they lack physical substance. they are always subject to depreciation. they are acquired for resale. they are long-term in nature.

Special assessments for local improvements, such as pavements, street lights, sewers, and drainage systems, are usually charged to what account? Land. Land Improvements. Betterments. Building Improvements

Which of the following costs are capitalized for self-constructed assets? Materials and labor only Materials, labor, and overhead Labor and overhead only Materials and overhead only

Which of the following is one of the conditions that must be present for the capitalization period of interest to begin? Interest costs are being incurred. The construction period must occur in the current accounting period. Activities necessary to get the asset ready for its intended use must be known. Expenditures for the asset must be budgeted.

The interest capitalization period ends when: the asset is substantially complete and ready for its intended use. expenditures for the asset are being made. interest cost is no longer being incurred. activities to get the asset ready for its intended use are in progress.

Losses on exchanges of nonmonetary assets are: recognized only on exchanges that have commercial substance. recognized only on exchanges that lack commercial substance. never recognized. recognized in the period of the exchange.

A nonmonetary asset acquired in an exchange that has commercial substance is usually recorded at the: fair value of the asset received. book value of the asset received. book value of the asset given up. fair value of the asset given up, unless fair value of the asset received is more clearly evident.

The cost of a replacement that extends the useful life of an asset should be debited to the asset account. True or False

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were greater than cost. greater than book value. less than book value. less than current market value.

Assets that qualify for interest cost capitalization include assets under construction for a company's own use. assets that are ready for their intended use in the earnings of the company. all of these assets qualify for interest cost capitalization. assets that are not currently being used because of excess capacity.

Depreciation is a means of adjusting an asset's cost to its fair value. True or False

Which of the following is not a physical factor related to depreciation? Obsolescence. Casualties. Wear and tear. Decay.

Changes in the estimates used to calculate depreciation should be handled as a correction of an error and require an adjustment to the beginning balance of Retained Earnings. True or False

Which of the following depreciation methods is not based on the passage of time? Sum-of-the-years'-digits. Straight-line. Declining-balance. Activity.

A depreciation method that is used when a collection of assets is heterogeneous and the assets have different useful lives is the: group method. combination method. hybrid method. composite method.

A company can write up or write down an asset held for disposal in future periods as long as the carrying value after the write-up does not exceed the carrying amount before the impairment. True or False

Natural resources include all of the following except: timber. land improvements. petroleum. minerals.

The rate of return on assets is computed by dividing: net income by ending total assets. net sales by ending total assets. net sales by average total assets. net income by average total assets.

Under MACRS, which of the following must be considered in determining depreciation? Cost of asset All of these answers are correct Property recovery class Half-year convention

Miller Company follows IFRS and applies revaluation accounting to plant assets with a carrying value of $900,000, a useful life of 3 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of $990,000. Miller's journal entry to record depreciation for year one will include: debit to Depreciation Expense for $300,000. debit to Accumulated Depreciation for $300,000. debit to Depreciation Expense for $330,000. credit to Accumulated Depreciation for $30,000.

Depreciation is a: measure of deterioration in the physical condition of an asset. means of recording the decline in an asset's fair market value. matter of valuation. means of allocating the cost of a tangible asset to each of the periods that benefit from its use.

The depreciable base of an asset is its original cost: less accumulated depreciation. plus accumulated depreciation. less salvage value. plus salvage value.

Which of the following depreciation methods uses book value to determine annual depreciation? Units of production. Declining-balance. Straight-line. Sum-of-the-years' digits

Morrow Company purchased a depreciable asset for $38,000 on January 1, 2012. The estimated salvage value is $6,000, and the estimated useful life is 4 years. The sum-of-the-years' digits method is used for depreciation. What is depreciation expense for the year 2014? $11,400. $6,400. $12,800. $8,000.

For the composite method, the composite life is the total cost divided by the total annual depreciation. rate is the total annual depreciation divided by the total depreciable cost. life is the total depreciable cost divided by the total annual depreciation. rate is the total cost divided by the total annual deprecia

Impairment has occurred when the undiscounted expected future net cash flows are less than the carrying amount of an asset. True or False

The depletion base of a natural resource includes: exploration costs. development costs. All of these answer choices are correct. restoration costs.

The asset turnover ratio is computed by dividing: net sales by average total assets. net income by ending total assets. net income by average total assets. net sales by ending total assets.

Ignoring income tax effects, accelerated depreciation methods can offset the effect of increasing repair and maintenance costs as the asset ages. True or False

Both U.S. GAAP and IFRS use the first-stage recoverability test to measure impairment loss. True or False

Which of the following is a characteristic of intangible assets? They are long-term in nature. They are all subject to amortization. They have physical existence. They are financial instruments.

A company capitalizes only the direct costs incurred in developing an intangible, such as legal costs. True or False

An indefinite-life intangible asset is amortized over the shorter of its useful life or its legal life. True or False

Artistic-related intangible assets are not amortized because they have an indefinite number of renewals for periods of 10 years each. True or False

For indefinite-life intangibles other than goodwill, an impairment test should be conducted at least: quarterly. once during its useful life. monthly. annually.

Research and development costs do not include: routine ongoing efforts to improve the qualities of an existing product. searching for applications of new research findings. construction of prototypes. critical investigation aimed at discovering new knowledge.

Which of the following costs are similar to R & D costs? All of these answer choices are correct. Start-up costs for a new operation. Advertising costs. Computer software costs.

The requirement that companies expense all R&D costs as incurred is an example of the conflict between: neutrality and relevance. consistency and neutrality. comparability and consistency. relevance and faithful representation.

IFRS: permits revaluation for goodwill. permits reversal of impairment losses when there has been a change in economic conditions. permits capitalization of all internally generated intangible assets. requires expensing of all R&D costs.