Reference no: EM13489962

Part -1:

1. The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the
a. net realizable value.
b. net realizable value less normal profit margin.
c. replacement cost.
d. selling price less costs of completion and disposal.

2. To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should
a. include markups but not markdowns.
b. include markups and markdowns.
c. ignore both markups and markdowns.
d. include markdowns but not markups.

3. On January 1, 2012, the merchandise inventory of Glaus, Inc. was $1,000,000. During 2012 Glaus purchased $2,000,000 of merchandise and recorded sales of $2,500,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2012?
a. $500,000.
b. $625,000.
c. $1,125,000.
d. $1,875,000.

4. Barker Pet supply uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $531,200 ($653,800), purchases during the current year at cost (retail) were $2,137,200 ($2,772,200), freight-in on these purchases totaled $127,800, sales during the current year totaled $2,604,000, and net markups (markdowns) were $4,000 ($192,600). What is the ending inventory value at cost?
a. $633,400.
b. $516,222.
c. $822,000.
d. $493,334.

5. The 2012 financial statements of Sito Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $800,000 for the year. Sito's inventory turnover ratio for 2012 is
a. 10.0 times.
b. 8.0 times.
c. 6.7 times.
d. 5.7 times.

6. In no case can "market" in the lower-of-cost-or-market rule be more than
a. estimated selling price in the ordinary course of business.
b. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.
c. 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.
d. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.

7. Which of the following is not a common disclosure for inventories?
a. Inventory composition.
b. Inventory location.
c. Inventory financing arrangements.
d. Inventory costing methods employed.

8. Following is data relative to the 12/31/13 inventory of Jenner:
Original Net Net Realizable Appropriate
Cost Replacement Realizable Value Less Inventory
Item Per Unit Cost Value Normal Profit Value
A $ .65 $ .45
B .45 .40
C .70 .75
D .75 .65
E .90 .85

Selling price is $1.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 30% of selling price. There are 1,000 units of each item in the 12/31/13 inventory.
Instructions
(a) Complete the last three columns in the 12/31/13 schedule above based upon the lower-of-cost-or-market rules.
(b) Prepare the entry(ies) necessary at 12/31/13 based on the data above.

Part -2:

9. Fences and parking lots are reported on the balance sheet as
a. current assets.
b. land improvements.
c. land.
d. property and equipment.

10. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to
a. the total interest cost actually incurred.
b. a cost of capital charge for stockholders' equity.
c. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made.
d. that portion of average accumulated expenditures on which no interest cost was incurred.

11. Accounting recognition should be given to some or all of the gain realized on a nonmonetary exchange of plant assets except when the exchange has
a. no commercial substance and additional cash is paid.
b. no commercial substance and additional cash is received.
c. commercial substance and additional cash is paid.
d. commercial substance and additional cash is received.

12. In accounting for plant assets, which of the following outlays made subsequent to acquisition should be fully expensed in the period the expenditure is made?
a. Expenditure made to increase the efficiency or effectiveness of an existing asset
b. Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated
c. Expenditure made to maintain an existing asset so that it can function in the manner intended
d. Expenditure made to add new asset services

Use the following information for questions 29 and 30.

Wilson Co. purchased land as a factory site for $800,000. Wilson paid $80,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect's fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,500,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000.

13. The cost of the land that should be recorded by Wilson Co. is
a. $880,480.
b. $886,880.
c. $889,880.
d. $896,280.

14. The cost of the building that should be recorded by Wilson Co. is
a. $2,503,800.
b. $2,504,840.
c. $2,513,200.
d. $2,514,240.

Use the following information to answer questions 31 - 35.

Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were $4,000,000 on March 1, $3,300,000 on June 1, and $5,000,000 on December 31. Arlington Company borrowed $2,000,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $4,000,000 note payable and an 11%, 4-year, $7,500,000 note payable.

15. What are the weighted-average accumulated expenditures?
a. $7,300,000
b. $5,258,333
c. $12,300,000
d. $6,150,000

16. What is the weighted-average interest rate used for interest capitalization purposes?
a. 11%
b. 10.85%
c. 10.5%
d. 10.65%

17. What is the avoidable interest for Arlington Company?
a. $240,000
b. $773,013
c. $273,802
d. $587,012

18. What is the actual interest for Arlington Company?
a. $1,465,000
b. $1,485,000
c. $1,225,000
d. $587,012

19. What amount of interest should be charged to expense?
a. $637,987
b. $1,225
c. $877,987
d. $691,987

20. Rogers Co. had a sheet metal cutter that cost $144,000 on January 5, 2008. This old cutter had an estimated life of ten years and a salvage value of $24,000. On April 3, 2013, the old cutter is exchanged for a new cutter with a fair value of $72,000. The exchange lacked commercial substance. Rogers also received $18,000 cash. Assume that the last fiscal period ended on December 31, 2012, and that straight-line depreciation is used.

Instructions
(a) Show the calculation of the amount of the gain or loss to be recognized by Rogers Co.
(b) Prepare all entries that are necessary on April 3, 2013. 

Part -3:

1. Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be computed?
a. What is the depreciation base to use for the asset?
b. What is the asset's useful life?
c. What method of cost apportionment is best for this asset?
d. What product or service is the asset related to?

2. Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?
a. Cost of asset
b. Property recovery class
c. Half-year convention
d. Salvage value

3. A principal objection to the straight-line method of depreciation is that it
a. provides for the declining productivity of an aging asset.
b. ignores variations in the rate of asset use.
c. tends to result in a constant rate of return on a diminishing investment base.
d. gives smaller periodic write-offs than decreasing charge methods.

4. For the composite method, the composite
a. rate is the total cost divided by the total annual depreciation.
b. rate is the total annual depreciation divided by the total depreciable cost.
c. life is the total cost divided by the total annual depreciation.
d. life is the total depreciable cost divided by the total annual depreciation.

5. Depreciation is normally computed on the basis of the nearest
a. full month and to the nearest cent.
b. full month and to the nearest dollar.
c. day and to the nearest cent.
d. day and to the nearest dollar.

6. A change in estimate should
a. result in restatement of prior period statements.
b. be handled in current and future periods.
c. be handled in future periods only.
d. be handled retroactively.

Ebert Inc. owns the following assets:
Asset Cost Salvage Estimated Useful Life
A $140,000 $14,000 10 years
B 75,000 7,500 5 years
C 164,000 8,000 12 years

7. What is the composite depreciation rate of Ebert's assets?
a. 14.0%
b. 10.3%
c. 12.9%
d. 11.1%

8. Newell, Inc. purchased equipment in 2011 at a cost of $800,000. Two years later it became apparent to Newell, Inc. that this equipment had suffered an impairment of value. In early 2013, the book value of the asset is $480,000 and it is estimated that the fair value is now only $320,000. The entry to record the impairment is
a. No entry is necessary as a write-off violates the historical cost principle.
b. Retained Earnings 160,000
Accumulated Depreciation-Equipment 160,000
c. Loss on Impairment of Equipment 160,000
Accumulated Depreciation-Equipment 160,000
d. Retained Earnings 160,000
Reserve for Loss on Impairment of Equipment 160,000

9. Robertson Inc. bought a machine on January 1, 2002 for $400,000. The machine had an expected life of 20 years and was expected to have a salvage value of $40,000. On July 1, 2012, the company reviewed the potential of the machine and determined that its undiscounted future net cash flows totaled $200,000 and its discounted future net cash flows totaled $140,000. If no active market exists for the machine and the company does not plan to dispose of it, what should Robertson record as an impairment loss on July 1, 2012?
a. $ 0
b. $11,000
c. $20,000
d. $71,000

10. A machine cost $800,000 on April 1, 2012. Its estimated salvage value is $80,000 and its expected life is eight years.

Instructions
Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used.
(a) Straight-line for 2012
(b) Double-declining balance for 2013
(c) Sum-of-the-years'-digits for 2013

Part -4:

1. Companies should test indefinite life intangible assets at least annually for:
a. recoverability.
b. amortization.
c. impairment.
d. estimated useful life.

2. When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark would not be allowed to be capitalized?
a. Attorney fees.
b. Consulting fees.
c. Research and development fees.
d. Design costs.

3. Goodwill may be recorded when:
a. it is identified within a company.
b. one company acquires another in a business combination.
c. the fair value of a company's assets exceeds their cost.
d. a company has exceptional customer relations.

4. Purchased goodwill should
a. be written off as soon as possible against retained earnings.
b. be written off as soon as possible as an extraordinary item.
c. be written off by systematic charges as a regular operating expense over the period benefited.
d. not be amortized.

5. A loss on impairment of an intangible asset is the difference between the asset's
a. carrying amount and the expected future net cash flows.
b. carrying amount and its fair value.
c. fair value and the expected future net cash flows.
d. book value and its fair value.

6. Which of the following costs incurred with developing computer software for internal use should be capitalized?
a. Evaluation of alternatives.
b. Coding.
c. Training.
d. Maintenance.

7. Blue Sky Company's 12/31/12 balance sheet reports assets of $7,500,000 and liabilities of $3,000,000. All of Blue Sky's assets' book values approximate their fair value, except for land, which has a fair value that is $450,000 greater than its book value. On 12/31/12, Horace Wimp Corporation paid $7,650,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase?
a. $ -0-
b. $150,000
c. $2,700,000
d. $3,150,000

8. The following information is available for Barkley Company's patents:
Cost $2,580,000
Carrying amount 1,290,000
Expected future net cash flows 1,200,000
Fair value 975,000
Barkley would record a loss on impairment of
a. $ 90,000.
b. $ 315,000.
c. $1,290,000.
d. $1,380,000.

9. Negative goodwill arises when the ______________ of the net assets acquired is higher than the purchase price of the assets.
a. useful life
b. carrying value
c. fair value
d. excess earnings

10. Barkley Corp. obtained a trade name in January 2011, incurring legal costs of $30,000. The company amortizes the trade name over 8 years. Barkley successfully defended its trade name in January 2012, incurring $9,800 in legal fees. At the beginning of 2013, based on new marketing research, Barkley determines that the fair value of the trade name is $24,000. Estimated total future cash flows from the trade name are $26,000 on January 4, 2013.

Instructions

Prepare the necessary journal entries for the years ending December 31, 2011, 2012, and 2013. Show all computations.