1. paula smith accepted a six month 9%, $10,000 note receivable from a customer on june 1. Smith has an arrangement with the Regency Bank to discount selected customer notes at 12%. If the note were discounted on July 1 under the terms of agreement with Regency Bank, which one of the following journal entries would Smith record? a. DR Cash 10,000 CR notes receivable 10,000 b. DR cash 9,928 CR notes payable-Regency Bank 9.928 c. DR cash 9,928 DR interest Expense 72 CR notes receivable 10,000 d. DR cash 9,928 DR interest Expense 72 CR notes payable- Regency Bank 10,000 2. cook Industries purchased a machine on jan 2, Year 5, for $100,000. It paid $20,000 down and financed the balance over 5 years at Fidelity Bank, Terms of the loan were 10% interest payable on December 31 each year with a required $16,000 principal payment. Year 8 proved to be a difficult one and on December 1, Cook negotiated a debt restructuring with Fidelity Bank. The settlement calls for a cash payment of accrued interest plus $4,000 on December 1 and the transfer of 400 acres of land held by Cook that cost $15,000. The land has a current market value of $22,000. Which one of the following entries would be made to record the settlement on Cooks books? a. DR note payable-Fidelity bank 32,000 CR cash 4000 CR land 15,000 CR extraordinary gain on debt restr. 13,000 b. DR note payable- Fidelity Bank 32,000 DR interest payable 2,933 CR cash 6,933 CR land 22,000 CR extraordinary gain on debt restr. 6,000 c. DR note payable Fidelity Bank 323,000 DR interest payable 2,933 CR cash 4,000 CR land 22,000 CR extraordinary gain on debt restr 8,933 d. DR note payable Fidelity Bank 26,000 CR cash 4,000 CR land 22,000 3. Analysts must be aware that with the use of absorption costing, as inventory absorbs more fixed costs, reported income tends to: a. become highly volitale b. decrease c. increase d. remain the same ------------------------------------------------------------------- TABLE 5-3 AMANDA COMPANY had the following inventory transactions in August. Purchases sales balance Aug.1 Balance 200 @ $3.20 Aug. 2 150 @ $5.50 Aug. 4 550 @ $3.10 Aug. 5 400 @ $5.50 Aug. 7 300 @ $3.30 Aug. 8 250 @ $5.50 Aug. 12 100 @ $6.00 Aug. 13 450 @ $3.40 Aug. 20 300 @ $6.00 Aug. 21 125 @ $3.50 Aug. 29 100 @ $6.00 1. Refer to table 5-3 If Amanda uses a periodic inventory system, the LIFO basis ending inventory is: a. $1,027.50 b. $1,040.00 c. $1,072.50 d. $1,117.50 2. Refer to Table 5-3. If Amanda uses a perpetual inventory system, the LIFO basis ending inventory is: a. $1,027.50 b. $1,040.00 c. $1,067.50 d. $1,117.50 3. Refer to Table 4-3. If Amanda uses a perpetual inventory system, the FIFO basis ending inventory is: e. $1,027.50 f. $1,040.00 g. $1,117.50 h. $1,137.50 4. The ABC Company reported merchandise inventory at LIFO of $450,000 on the year-end financial statements. The company also reported a LIFO Reserve of $45,000. An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is: a. $360,000 b. $405,000 c. $455,000 d. $495,000 5. The Sea King Corporation reported a LIFO Reserve of $50,000 at the end of the year. The beginning of the year LIFO Reseerve was $40,000. The cost of goods sold was $395,000 under LIFO. The cost of goods sold under FIFO should be: a. $375,000 b. $385,000 c. $445,000 d. $485,000 6. As a firm liquidates old LIFO layers of inventory, the lower costs of the LIFO layers are matched against current sales dollars resulting in a profit margin that is: a. always the same as under FIFO b. deflated c. inflated d. lower than normal 7. WAM, Inc. uses the lower of cost or market mehod to determine inventory value. The following information relates to Product W at the end of the year: cost $26; replacement cost $20; selling price $30; cost of completion $2; and normal profit $7. Based upon this information, the lower of cost or market for Product W is: a. $20 b. $21 c. $23 d. $26 TABLE 5-4 Dollar Balue LIFO inventory Data: Year Year End Price Price Index 1 $200,000 100 2 $250,000 105 3 $296,000 108 4 $286,000 110 8. Refer to Table 5-4. The inventory under dollar value LIFO at the end of Year 3 is __________ and at the end of Year $ is _________. a. $274,075; $238,096 b. $276,800; $240,000 c. $278,856; $263,657 d. $300,000; $286,000 9. Clermont Company started construction of a new office building on january 1,2000, and moved into the finished building on July 1, 2002. Of the buildings $2,500,000 was incurred by 12/31/2000 in even increments throughout the year. Clermonts weighted average borrowing rate was 12% throughout 2000, and the actual amount of interest incurred by Clermont during 2000 was $135,000. what amount should Clermont report as capitalized interest at 12/31/2000? a. $120,000 b. $135,000 c. $150,000 d. $240,000 10. The ABC Company purchased an oil well lease for $8,000,000 at the beginning of Year 7. During year 7, it drilled 10 oil wells at a cost of $9,000,000 each. Three of the wells were economically feasible wells and the remaining wells were dry holes. If ABC Company uses the full-cost approach to determine the asset cost, the capitalized cost is: a. $8,000,000 b. $27,000,000 c. $68,600,000 d. $98,000,000 11. The ABC Company purchased an oil well lease for $8,000,000 at the beginning of Year 7. During year 7, it drilled 10 oil wells at a cost of $9,000,000 each. Three of the wells were economically feasible wells and the remaining wells were dry holes. If ABC Company uses the successful-efforts approach to determine the asset cost, the capitalized cost is: a. $9,000,000 b. $27,000,000 c. $35,000,000 d. $98,000,000