1) A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and

A. B. C. D. has a current market value that is greater than its original cost. bears an interest rate that is at least equal to the prime rate of interest at the date of liquidation. is so near its maturity that it presents insignificant risk of changes in interest rates. is acceptable as a means to pay current liabilities.

2) Which of the following is NOT considered cash for financial reporting purposes? A. B. C. D. Money orders, certified checks, and personal checks Coin, currency, and available funds Postdated checks and I.O.U.'s Petty cash funds and change funds

3) Which of the following items should NOT be included in the Cash caption on the balance sheet? A. B. C. D. Checks from other parties presently in the cash register Amounts on deposit in checking account at the bank Postage stamps on hand Coins and currency in the cash register

4) If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as A. B. C. D. an item of "other expense" in the income statement. a deduction from accounts receivable in determining the net realizable value of accounts receivable. sales discounts forfeited in the cost of goods sold section of the income statement. a deduction from sales in the income statement.

5) The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach A. B. C. best relates bad debt expense to the period of sale. is the only generally accepted method for valuing accounts receivable. makes estimates of uncollectible accounts unnecessary.

are A. net income. overstatement. the effects of this error on cost of goods sold for 2006. net income for 2006. A percentage of sales NOT adjusted for the balance in the allowance A percentage of accounts receivable NOT adjusted for the balance in the allowance An amount derived from aging accounts receivable and NOT adjusted for the balance in the allowance A percentage of sales adjusted for the balance in the allowance 7) If the beginning inventory for 2006 is overstated. 9) Eller Co. 6) Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense? A. D. B. overstatement. and assets at December 31. B. net income. current assets. received merchandise on consignment. net income was correct and current assets were understated. overstatement. D. Eller included the goods in inventory. overstatement. 8) Valuation of inventories requires the deter¬mination of all of the following EXCEPT A. C. current assets. no effect. C. B. what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method? . As of January 31. B. but did NOT record the transaction. respectively. and retained earnings were overstated. understatement. The effect of this on its financial statements for January 31 would be A. 2007. C. no effect. the physical goods to be included in inventory. understatement. C. D. D. understatement. the cost flow assumption to be adopted. the costs to be included in inventory. overstatement.D. understatement. net income and current assets were overstated and current liabilities were understated. 10) Assuming no beginning inventory. overstatement. the cost of goods held on consign¬ment from other companies. gives a reasonably correct statement of receivables in the balance sheet. and retained earnings were understated.

C. the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements. It sells during the following period for $30. Prices remained unchanged.00. B. Prices increased. manufacturing overhead costs for a product manufactured and sold in the same accounting period. B.00 and normal profit of $12. D.00. a loss is recorded directly in the inventory account by crediting inventory and debiting loss on inventory decline. D.00. Which of the following statements is NOT true? A. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory. first-out 12) All of the following costs should be charged against revenue in the period in which costs are incurred EXCEPT for A. its normal selling price. B. 14) An item of inventory purchased this period for $15. The current year's income is understated. C. B. C. . there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale. with disposal costs of $3. Price trend cannot be determined from information given. Prices decreased. C. costs which will NOT benefit any future period. costs from idle manufacturing capacity resulting from an unexpected plant shutdown. 11) Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations? A. D.A. 13) When the direct method is used to record inventory at market A.00 has been incorrectly written down to its current replacement cost of $10. First-in. first-out Average cost Base stock Last-in. D.

The closing inventory of the current year is understated. D. 15) In no case can "market" in the lower-of-cost-or-market rule be more than A. there is no beginning inventory because it is the first year of operation. 17) Which of the following is NOT a basic assumption of the gross profit method? A.000. are deducted from the sum of the opening inventory plus purchases. The journal entry to record this situation at December 31. none of these. there is a substantial increase in inventory during the year.000. B. Lucas Manufacturing signed a contract with a supplier to purchase raw materials in 2007 for $700. D. B. 2006 balance sheet date. as an appropriation of retained earnings. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. the result is the amount of inventory on hand. C. reduced to the cost basis. B. the market price for these materials dropped to $510.B. B. estimated selling price in the ordinary course of business. The beginning inventory plus the purchases equal total goods to be accounted for. . Income of the following year will be understated. 16) The gross profit method of inventory valuation is invalid when A. C. C. 18) In 2006. If the sales. Goods NOT sold must be on hand. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. The cost of sales of the following year will be understated. 2006 will result in a credit that should be reported A. D. C. Before the December 31. a portion of the inventory is destroyed. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin. an allowance for an approximately normal profit margin. D. and an adequate reserve for possible future losses. C. as a valuation account to Inventory on the balance sheet. D. on the income statement. as a current liability.

C. B. special assessments. filling. filling. C. street lights. B. B. capitalized as part of the cost of the land. costs of improvements with limited lives. assumption of any liens or mortgages on the property. C. draining. D. capitalized as part of the cost of the new hotel. sewers.19) The cost of land typically includes the purchase price and all of the following costs EXCEPT A. costs of removing old buildings. allocated on a pro rata basis between the asset and normal operations. Labor and overhead only Materials and overhead only Materials and labor only . overhead costs incurred by an enterprise constructing its own building should be A. 22) To be consistent with the historical cost principle. The cost of the Holiday Hotel should be A. D. C. and clearing. written off as an extraordinary loss in the year the hotel is torn down. 21) 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. draining. C. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down. and clearing costs. allocated on the basis of lost production. eliminated completely from the cost of the asset. costs of grading. 23) Which of the following costs are capitalized for self-constructed assets? A. D. 20) The cost of land does NOT include A. B. grading. D. private driveways and parking lots. allocated on an opportunity cost basis. B. and drainage systems cost.

8/12. 11/12. 28) Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues? . and overhead 24) Which of the following assets do NOT qualify for capitalization of interest costs incurred during construction of the assets? A. and a gain or loss is recognized. B. the fair value of the asset given up. 9/12. the fair value of the asset received if it is equally reliable as the fair value of the asset given up. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is A. 27) When a plant asset is acquired by issuance of common stock. Assets NOT currently undergoing the activities necessary to prepare them for their intended use. Materials. B. B. either the fair value of the asset given up or the asset received. and a gain but NOT a loss may be recognized. Assets intended for sale or lease that are produced as discrete projects. par value of the stock. D. whichever one results in the largest gain (smallest loss) to the company. C. stated value of the stock. labor. the cost of the plant asset is properly measured by the A. D. C. C. 26) Construction of a qualifying asset is started on April 1 and finished on December 1.D. market value of the stock. D. Assets financed through the issuance of long-term debt. the fair value of the asset given up. 25) The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has commercial substance is usually recorded at A. 8/8. C. D. book value of the stock. B. Assets under construction for an enterprise's own use.

000 . B. 31) Lennon Company purchased a depreciable asset for $200.100 = $20.000. B. vary with production.100 hours in the current year. $57. The estimated salvage value is $10. B. the credit to accumulated depreciation from period to period during the life of the firm will A. Bigbie used the asset for 1.000. and the estimated useful life is 10. units-of-production.000 hours. The activity method will be used for depreciation.900 32) Bigbie Company purchased a depreciable asset for $600. The activity method will be used for depreciation.100 hours in the current year. C. and the estimated useful life is 10. vary with sales revenue. What is the depreciation expense on this asset? A. B. straight-line. Associating cause and effect Systematic and rational allocation Immediate recognition Partial recognition 29) For income statement purposes. declining-balance. be constant. D. depreciation is a variable expense if the depreciation method used is A. Lennon used the asset for 1.900 $22. C.000 $20.000) ÷ 10. vary with unit sales.000 – $10. The estimated salvage value is $30.000 $190.000 hours. 30) If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset. sum-of-the-years'-digits. $19. factory machinery.000. D.000] × 1.000. What is the depreciation expense on this asset? A. D. C.A.000 [$200. D. C.

000 $570.125 34) 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 A. D. amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.000] × 1.000 – $37.500 $26.100 = $62. capitalized if they have an indefinite life. $62.000 [($600.125 $37. charged off in the current period.000) ÷ 10. B.700 33) Starr Company purchased a depreciable asset for $150. expensed only if they have a limited life. C.500 $150. What is the depreciation expense for the second year on this asset? A. 36) Factors considered in determining an intangible asset’s useful life include all of the following EXCEPT A. added to factory overhead and allocated to production of the purchaser's product. capitalized. expensed as incurred. B. 35) Costs incurred internally to create intangibles are A. any legal or contractual provisions that may limit the useful life.700 $66.500) × [(1 ÷ 8) × 2] = $28. B. D. the expected use of the asset. D.250 $28.500 ($150. C. The estimated salvage value is $10. $17.000. C. amortized over the legal life of the purchased patent. the amortization method used. C. D.B. and the estimated useful life is 8 years. C. The double-declining balance method will be used for depreciation.000. .000 – $30.000 × [(1 ÷ 8) × 2] = $37. B.

B. The present value of these cash flows. including the goodwill.000. 2007 balance sheet? A.000 $5.000 = $500. and recorded goodwill of $750.000.000. $0 impairment 40) Easton Company and Lofton Company were combined in a purchase transaction. Mining uses straightline amortization for patents. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of .400. C. What amount of loss on impairment of goodwill should Fleming record in 2008? A. is $2.000 – $500. the Out-ofSight Products Division had a fair value of $3. the expected future cash flows expected from the patent were expected to be $600. At December 31. 2007.000. the fair value of Special Products Division is $2.000 ÷ 10) × 2] = $4.000 39) General Products Company bought Special Products Division in 2006 and appropriately booked $250. C.000.D.900.000 $750. B.000.000.000.000.000.000. $ -0$600. It was expected to have a 10 year life and no residual value.000 at that time.000. 38) Mining Company acquired a patent on an oil extraction technique on January 1.000.000 $350. On December 31. B. The net identifiable assets of the Division (excluding goodwill) had a fair value of $2.800.000 – [($5.000 as a result of that purchase. D. $200.000.000 $4.800. C.700.900. 2006 for $5. On December 31. What goodwill impairment should be recognized by General Products in 2007? A. discounted at Mining’s market interest rate.000 of goodwill related to the purchase.000 and it is carried on General Product’s books for a total of $1.000 > $1.800. $5. D.700. An analysis of Special Products Division’s assets indicates that goodwill of $200. any provisions for renewal or extension of the asset’s legal life 37) Fleming Corporation acquired Out-of-Sight Products on January 1.000 $2. $50.000 $250. $300.000 $4.400. 2007.000 $3.000. Since $2. At what amount should the patent be carried on the December 31. $0.000 – $2.000.000. D. 2007. 2008.000 per year for the next eight years.000 = $250.000 exists on December 31.000.000. 2008 for $4.

be written off by systematic charges as a regular operating expense over the period benefited. C. C. capitalized only when purchased. D. there was still some "negative goodwill.identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton." Proper accounting treatment by Easton is to report the amount as A. 44) Which of the following items is a current liability? A. . C. the terms of any equity security issued or to be issued. capitalized either when purchased or created internally. capitalized only when created internally. if any. B. be written off as soon as possible against retained earnings. the number of financing institutions that refused to refinance the debt. be written off as soon as possible as an extraordinary item. the footnote to the financial statements describing this event should include all of the following information EXCEPT A. After revaluing noncurrent assets to zero. B. D. C. paid-in capital. C. an extraordinary gain. not be amortized. Bonds due in three years. 41) Purchased goodwill should A. 42) The intangible asset goodwill may be A. a deferred credit and amortize it. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. B. the terms of the new obligation incurred or to be incurred. part of current income in the year of combination. a general description of the financing arrangement. written off directly to retained earnings. 43) If a short-term obligation is excluded from current liabilities because of refinancing. B. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. D. D. B.

D. there being no doubt about the marketability of the refunding issue. warranty costs are charged to expense as they are paid.80 × 8 × 10 × 35 = $72. FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority. $75. During 2007. Cash dividends should be recorded as a liability when they are declared by the board of directors. Vacation days earned in 2006 may first be taken on January 1. $72. and 210. 46) Simson Company has 35 employees who work 8-hour days and are paid hourly. D. 10% of customers mail in the rebate form.000. 45) Which of the following statements is false? A.880. $68. shown on the 2007 financial statements dated December 31? A. $25. $0. C. What is the rebate expense and liability. B. $390.240. 47) A company offers a cash rebate of $1 on each $4 package of batteries sold during 2007. $600.600.000 . 2007.000.50 10 10 What is the amount of expense relative to compensated absences that should be reported on Simson’s income statement for 2006? A.000 $390. D. $390.000. $390. respectively.000 $600.000. B. $600.000 $210. Information relative to these employees is as follows: Hourly Vacation Days Earned by Each Vacation Days Used by Each Year Wages Employee Employee 2006 $25. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. C.D.000 $1 rebates are mailed to customers. Bonds to be refunded when due in eight months. On January 1.000 packages of batteries are sold.80 10 0 2007 27. B. Historically.240. 6. C.000.00 10 8 2008 $28. Under the cash basis method. 2006 the company began a program of granting its employees 10 days of paid vacation each year.

000 = $390. 2007. B.000 in losses and no insurance expense $350. If the company were to obtain insurance on the property.000 – $210.000 × . $600. Ward had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land.000. Ward appears inclined to accept the Railroad's offer. recognition of a loss and creation of a liability for the value of the land. 50) Which of the following contingencies need NOT be disclosed in the financial statements or the notes thereto? A.000 in insurance expense $0 in losses and $1.000 48) Wellman Company self insures its property for fire and storm damage.000 in losses and $450. 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. due to the admitted negligence of the Railroad.000 per year. Probable losses NOT reasonably estimable Environmental liabilities that cannot be reasonably estimated All of these must be disclosed. it would cost them $1. B.000 in insurance expense 49) Mark Ward is a farmer who owns land which borders on the right-of-way of the Northern Railroad. $350.6. D. $350. creation of a liability only.000.10 × $1 = $600. disclosure in note form only. The Railroad's 2007 financial statements should include the following related to the incident: A. recognition of a loss only. How much total expense and/or loss should be recognized by Wellman Company for 2007? A. hay on the farm was set on fire and burned. Guarantees of indebtedness of others 51) Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? .000. The company estimates that on average it will incur losses of $800.000 worth of losses were sustained. C. D. During 2007.000 in insurance expense $0 in losses and $800. D.000. B.000 per year. On August 10. C. C.

less than if the straight-line method were used. D. C. greater than if the straight-line method were used. term bonds. D. accrued estimated warranty costs. Event is unusual in nature and occurrence of event is probable. C. C. D. D. 53) An example of an item which is NOT a liability is A. C. secured bonds. The minimum lease payments would be increased by the present value of the option price if.A. The lessee must decrease the present value of the minimum lease payments by the present value of the option price. greater than the amount of the interest payments. B. D. . advances from customers on contracts. Event is unusual in nature and event occurs infrequently. 54) If bonds are issued initially at a premium and the effective-interest method of amortization is used. 52) Bonds for which the owners' names are NOT registered with the issuing corporation are called A. it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price. B. 55) What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? A. the portion of long-term debt due within one year. B. No impact as the option does NOT enter into the transaction until the end of the lease term. the same as if the straight-line method were used. at the time of the lease agreement. interest expense in the earlier years will be A. B. The lessee must increase the present value of the minimum lease payments by the present value of the option price. Amount of loss is reasonably estimable and occurrence of event is probable. Amount of loss is reasonably estimable and event occurs infrequently. B. bearer bonds. debenture bonds. dividends payable in stock. C.

D. the amount of funds the lessor has tied up in the asset which is the subject of the directfinancing lease. . D. capital method will enable the lessee to report higher income. from the lessee's perspective. operating method will cause debt to increase. should be recognized at the lease's expiration. compared to the capital method. guaranteed residual value.56) Minimum lease payments may include a A. compared to the operating method. B. B. B. C. unearned income A. Leases similar to installment purchases are capitalized. 60) In a lease that is appropriately recorded as a direct-financing lease by the lessor. The lease receivable in a direct-financing lease is best defined as A. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement. the lessor needs to know how to calculate the lease receivable. D. capital method will cause debt to increase. Leases are NOT capitalized. penalty for failure to renew. C. 57) Which of the following best describes current practice in accounting for leases? A. any of these. B. C. the difference between the lease payments receivable and the fair market value of the leased property. compared to the capital method. the present value of minimum lease payments. C. operating method will cause income to decrease. D. All leases are capitalized. should be amortized over the period of the lease using the interest method. 59) In the earlier years of a lease. B. 58) In order to properly record a direct-financing lease. All long-term leases are capitalized. does NOT arise. bargain purchase option. C. compared to the operating method. the use of the A.

. should be amortized over the period of the lease using the straight-line method.D.