Intermediate Accounting
Please provide thorough explanations and full calculations for each answer chosen.
1) It is known that goodwill that is purchased should be:
a) not written off but rather reduced only if impairment occurs.
b) Written off by systematic charges as a regular operating expense over the period benefited, but not more than 40 years.
c) Written off as soon as possible as an extraordinary item.
d) Written off as soon as possible against retained earnings.
2) The useful life of an asset
a) all of these
b) is affected by physical and economic factors.
c) Is the same as its physical life.
d) Remains unchanged once it has been determined.
3) The cost of a plant asset is $48,000 and it has a residual value of $12,000. The life of the asset is 5 years. The second year amortization is $7,680, which amortization method was utilized?
a) cannot tell from the information given
b) activity method
c) declining-balance
d) straight-line
4) What is the meaning of the term market when one is valuing the raw materials inventory at lower-of-cost-and-market?
a) discounted present value
b) current replacement cost
c) net realizable value less a normal profit margin
d) net realizable value
5) Based on the following, which one do you think are not normally used to determine the allocation of the purchase price for a lump-sum purchase of different assets?
a) appraised value
b) net book value
c) net replacement cost
d) fair market value
6) In order to produce an inventory valuation which estimates the lower-of-average-cost-and market using the method of conventional retail inventory, the computation of the ratio of cost to retail should
a) include markdowns but not markups.
b) Ignore both markups and markdowns.
c) Include markups and markdowns.
d) Include markups but not markdowns.
7) The retail method of inventory valued at average cost, lower-of-cost -or-market is utilized by a retail company. The information below is for 2007:
|
|
COST
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RETAIL
|
|
Jan 1, 2006 (beginning inventory)
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$950
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$1,525
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|
Sales revenue
|
|
5,700
|
|
Purchases
|
3,210
|
4,250
|
|
Net markups
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|
650
|
|
Net markdowns
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|
500
|
Based on the information above, for the 2007 ending inventory what do you think is the retail value?
a) $1,450
b) $75
c) $225
d) $1,540
8) Smith Ltd. had a mistake when recording cheque #1099 for incorrect amount of $340 during April 2007. The cheque was shown correctly on the bank statement as $430 (meaning it cleared the bank during April). For the April bank reconciliation (using the correct cash balance approach), how should the presentation of the cheque be?
a) as a $90 addition to the book
b) as a $90 addition to the bank balance
c) as a $90 deduction from the book balance
d) as a $90 deduction from the bank balance
9) ABC Corporation utilized the declining-balance amortization method in 2004. The sum-of-the-years'-digits amortization was used in 2005. The straight-line amortization method was used in 2007. Based on this information, which do you think would be violated (i.e. the accounting principles, qualitative criteria, or assumptions)?
a) matching principle
b) consistency
c) reliability
d) historical cost
10) For the company Collins Ltd., the year commenced with a debit balance of $2,325,000 for accounts receivable and for the allowance for doubtful account there was a credit balance of $74,000. There was total sales on account for $865000, $652000 was the collections of accounts receivable, and $45000 was bad debt expense (all three occurred during the year). Collins also had a debit balance of $2,511,000 in accounts receivable and for the allowance for doubtful accounts there was a credit balance of $92,000 (both of which were at the end of the year). Based on this, what do you think is the amount of account receivable that is written off during the year?
a) none of the below
b) $18,000
c) $27,000
d) $45,000
11) From the following items, which one do you think is not a capital expenditure?
a) a replacement
b) a betterment
c) an addition
d) repairs that maintain an asset in operating condition
12) From the below, which one of the following investments do you think would be suitably accounted for under the equity method?
a) a 15% investment in the common shares of a company where significant influence exists
b) obtained 25% investment in subordinated non-voting shares of a company
c) a 20% investment in common shares of a company where there is no significant influence
d) a 30% investment in preferred shares of a company
13) Pepsi Ltd. has incurred $300,000 of average accumulated expenditures during construction of assets that qualified for capitalization of interest during the 2006 period. During 2006, only debt outstanding was $400000, 10%, 5-year note payable dated on January 1st, 2004. During 2006, what amount of interest should be capitalized by Pepsi?
a) $40,000
b) $30,000
c) $10,000
d) $0
14) Which one of the following does the cost of land NOT include
a) special assessments
b) costs of improvements with limited lives
c) costs of removing old buildings
d) costs of grading, filling, draining, and clearing
15) Which of the following is true for a held-for-trading investment in bonds?
a) Any interest that is earned is adjusted for the amortization of the discount or premium.
b) Because it is a temporary investment, interest is not paid to the investor.
c) The discount or premium is not amortized.
d) It is usually purchased at its face value.