Questions 1 and 2 are based on the following information: Lake Company recently incurred the following costs: (1) Purchase price of land and dilapidated building $250,000 (2) Real estate broker’s commission 14,000 (3) Net demolition costs of dilapidated building 39,000 (4) Excavation costs for new building 44,000 (5) Architect’s fees and building permits 30,000 (6) Costs associated with new building construction 750,000 (7) Costs associated with new furniture and equipment 250,000 (8) Actual interest costs during building construction 168,000 (9) Actual interest cost after completion of building construction 120,000 (10) Costs of walks, driveways, and parking lot 55,000 ____ 1. The building should be recorded on Lake’s books at a. $680,000. b. $724,000. c. $763,000. d. $892,000. ____ 2. Land should be recorded on Lake’s books at a. $250,000. b. $264,000. c. $303,000. d. $333,000. ____ 3. Colaw Supply bought equipment at a cost of $72,000 on January 2, 2000. It originally had an estimated life of ten years and a salvage value of $12,000. Colaw uses the straight-line depreciation method. On December 31, 2003, Colaw decided the useful life likely would end on December 31, 2007, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2003, should be a. $6,000. b. $6,600. c. $9,600. d. $13,200. ___ 4. According to the FASB conceptual framework, in order to be relevant, accounting information must a. be neutral. b. be verifiable. c. have predictive value. d. be a faithful representation. ____ 5. Orlando Company exchanged old equipment for similar new equipment. The old equipment had a cost of $150,000, accumulated depreciation of $90,000, and a fair market value of $75,000. Orlando paid an additional $66,000 in cash. The new equipment should be recorded at a. $135,000. b. $150,000. c. $126,000. d. $141,000. ____ 6. If the entry to record the purchase of inventory is inadvertently omitted, but the item is correctly included in ending inventory, the effect when using the periodic inventory method is Net Income Assets a. Overstated No effect b. Overstated Understated c. Overstated Overstated d. No effect No effect ____ 7. The cost of a patent should be a. amortized over the assets’ estimated useful life, or 20 years, whichever is shorter. b. amortized over a period not exceeding 5 years. c. amortized over the assets’ estimated useful life. d. charged to an expense account at acquisition. ____ 8. In a period of rising prices, the inventory method that results in the lowest income tax payment is a. LIFO. b. FIFO. c. average cost. d. specific identification. ____ 9. On November 30, Mann Company issued a $6,000, 10%, 4-month note to the National Bank. The entry on Mann’s books to record the payment of the note at maturity will include a credit to Cash for a. $6,000. b. $6,600. c. $6,200. d. $6,150. ____ 10. The following information is available for Sanchez Company: Beginning Inventory $ 60,000 Cost of Goods Sold 600,000 Ending Inventory 100,000 Net Sales 800,000 Inventory turnover for the year is a. 10.0 times. b. 8.0 times. c. 7.5 times d. 6.0 times. ____ 11. The inventory methods that result in the most current costs in the income statement and balance sheet are Income Statement Balance Sheet a. FIFO FIFO b. LIFO FIFO c. LIFO LIFO d. FIFO LIFO ____ 12. The following information is available for Norton Company: Sales $130,000 Freight-in $10,000 Ending Merchandise Inventory 12,000 Purchase Returns and Allowances 5,000 Purchases 70,000 Beginning Merchandise Inventory 15,000 Norton’s cost of goods sold is a. $95,000. b. $90,000. c. $78,000. d. $75,000. ____ 13. If ending inventory is understated, net income and assets will be Net Income Assets a. Understated Understated b. Overstated Overstated c. Understated Unaffected d. None of the above. ____ 14. One of the two “constraints” recognized by the FASB in applying the operating guidelines within its conceptual framework is a. comparability. b. materiality. c. reliability. d. relevance. ____ 15. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the a. economic entity assumption. b. going concern assumption. c. monetary unit assumption. d. time period assumption. ____ 16. All of the following are intangible assets except a. patents. b. oil deposits. c. goodwill. d. franchises. ____ 17. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles? a. Documentation procedures b. Segregation of duties c. Establishment of responsibility d. Independent internal verification ____ 18. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a a. debit to an expense account. b. credit to an expense account. c. credit to the allowance account. d. debit to the allowance account. ____ 19. Shipping terms of FOB destination mean that the a. purchaser is responsible for the shipping charges. b. shipping charges are debited to Freight-Out. c. items should be in the purchaser’s inventory account at year-end if the items are in transit. d. both (a) and (c) above. ____ 20. Adler Company has a $450,000 balance in Accounts Receivable and a $6,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $2,700,000. What is the amount of the bad debt adjusting entry if Adler uses a percentage of credit sales basis (at 2%) or a percentage of receivables basis (at 10%)? % Credit Sales % Receivables a. $54,000 $45,000 b. $60,000 $39,000 c. $54,000 $51,000 d. $48,000 $39,000 ____ 21. The constraint of conservatism is best expressed as: a. The cost of applying an accounting principle should not exceed its benefit. b. Only material items should be recorded and reported. c. When in doubt, choose the method that will least likely overstate assets and net income. d. The lower of cost or market method should be used for inventories. ____ 22. A petty cash fund a. results in expense accounts being charged when cash is disbursed. b. should be replenished when the fund is low and at the end of the period. c. results in expense accounts being charged when the fund is replenished. d. both (b) and (c) above. ____ 23. If merchandise is sold for $4,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a a. credit to Sales Discounts for $80. b. credit to Accounts Receivable for $3,920. c. credit to Accounts Receivable for $80. d. none of the above. ____ 24. Harder Company’s records show the following for the month of January: Total Retained Earnings at January 1 $200,000 Total Retained Earnings at January 31 300,000 Total Revenues 335,000 Total Dividends Declared 15,000 Total expenses for January were a. $320,000. b. $335,000. c. $235,000. d. $220,000. ____ 25. Maxwell Company’s financial information is presented below. Sales $ ???? Purchase Returns and Allowances $ 30,000 Sales Returns and Allowances 60,000 Ending Merchandise Inventory 70,000 Net Sales 700,000 Cost of Goods Sold 360,000 Beginning Merchandise Inventory ???? Gross Profit ???? Purchases 340,000 The missing amounts above are: Sales Beginning Inventory Gross Profit a. $760,000 $90,000 $340,000 b. $640,000 $90,000 $400,000 c. $760,000 $120,000 $340,000 d. $640,000 $120,000 $400,000
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