Choose the best option. Each question is worth 2 points. There are 25

questions.

1.

Storm Corporation purchased a new machine on October 31, 2014. A $2,400 down payment was

made and three monthly installments of $7,200 each are to be made beginning on November 30,

2014. The cash price would have been $23,200. Storm paid no installation charges under the monthly

payment plan but a $400 installation charge would have been incurred with a cash purchase. The

amount to be capitalized as the cost of the machine on October 31, 2014 would be

A.

$23,200.

B.

$23,600.

C.

$24,000

.

D.

$24,400.

2.

On January 2, 2014, Rapid Delivery Company traded in an old delivery truck for a newer model.

The exchange had commercial substance. Data relative to the old and new trucks follow:

Old Truck

Original cost

$30,000

Accumulated depreciation as of January 2, 2014

20,000

Fair Value of old truck

7,500

New Truck

List price

$45,000

Cash paid with trade-in

37,500

What is the gain or (loss) on the old truck?

A.

$1,500.

B.

$(2,500).

C.

$37,500

.

D.

$(10,000).

3.

Equipment that cost $220,000 and has accumulated depreciation of $100,000 is exchanged for

equipment with a fair value of $160,000 and $40,000 cash is received. The exchange lacked

commercial substance.

The gain to be recognized from the exchange is (hint: partial gain recognition since boot received)

A. $80,000

B. $20,000

C. $60,000

D. $16,000

4.

An improvement made to a machine increased its production capacity by 25% without extending

the machine's useful life. The cost of the improvement should be

A.

expensed.

B.

debited to accumulated depreciation.

C.

capitalized in the machine account.

D.

allocated between accumulated depreciation and the machine account.

5.

On December 1, 2014, Hogan Co. purchased a tract of land as a factory site for $750,000. The old

building on the property was demolished, and salvaged materials resulting from demolition were sold.

Additional costs incurred and salvage proceeds realized during December 2014 were as follows:

Cost to demolish old building

$70,000

Legal fees for purchase contract and to record ownership

10,000

Title guarantee insurance

16,000

Proceeds from sale of salvaged materials

8,000

In Hogan 's December 31, 2014 balance sheet, what amount should be reported as land?

A. $776,000

B. $812,000

C. $838,000

D. $846,000

6.

During 2014, Kimmel Co. incurred weighted-average accumulated expenditures of $800,000 during

construction of assets that qualified for capitalization of interest. The only debt outstanding during

2014 was a $1,000,000, 10%, 5-year note payable. What is the amount of interest that should be

capitalized by Kimmel during 2014?

A. $80,000

B. $100,000

C. $0

D. $20,000

7.

On Januaryl 1, 2013, Verlin Co. purchased new machinery for $300,000. There is no salvage

value. The machinery has an estimated useful life of 5 years, and depreciation is computed by the

sum-of-the-years'-digits method. The

accumulated depreciation

on this machinery at December 31,

2014, should be (note: this is the end of the

second year

of depreciation)

A. $200,000

B. $120,000

C. $180,000

D. $100,000

8.

The book value of a plant asset is

A.

the fair market value of the asset at a balance sheet date.

B.

the assessed value of the asset for property tax purposes.

C.

equal to the balance of the related accumulated depreciation account.

D.

the asset's acquisition cost less the accumulated depreciation recorded to date.

9.

Grover Corporation purchased a truck at the beginning of 2014 for $93,600. The truck is estimated

to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 21,000 miles in

2014. What is the depreciation expense for 2014?

A. $15,750

B. $21,750

C. $37,500

D. $17,010

10.

Jasmine Company purchased a depreciable asset for $225,000. The estimated salvage value is

$15,000, and the estimated useful life is 8 years. The double-declining balance method will be used

for depreciation. What is the

depreciation expense

for the

second year

on this asset?

A. $56,250

B. $42,188

C. $26,250

D. $39,375

11.

Morgan Corporation purchased a depreciable asset for $400,000 on January 1, 2012. The

estimated salvage value is $40,000, and the estimated useful life is 9 years. The straight-line method

is used for depreciation. In 2015 (the beginning of the 4

th

year), Morgan changed its estimates to a

total useful life of 5 years with a salvage value of $60,000. What is 2015 depreciation expense?

A. $110,000

B. $40,000

C. $120,000

D. $60,000

12.

Regis Inc. bought a machine on January 1, 2004 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, 2014 (10 years into

the assets life), the company reviewed for potential impairment 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 Regis record as an impairment loss on July 1, 2014? (hint: need to

calculate book value up to date of potential impairment).

A. $20,000

B. $71,000

C. $0

D. $11,000

13.

On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire

inventory on hand at the location. The inventory on hand as of June 30 totaled $960,000. Since June

30 until the time of the hurricane, the company made purchases of $255,000 and had sales of

$750,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of

the inventory that was destroyed?

A. $615,000

B. $765,000

C. $960,000

D. $544,500

14.

Dicer uses the

conventional retail method

to determine its ending inventory at cost. Assume

the beginning inventory at cost was $260,000 and at retail was $396,000, purchases during the

current year at cost were $1,370,000 and $2,200,000 at retail, freight-in on these purchases totaled

$86,000, sales during the current year totaled $2,000,000, and net markups were $48,000 and net

markdowns were $72,000, respectively. What is the ending inventory value at cost?

A. $371,228

B. $378,092

C. $572,000

D. $386,804

15.

The replacement cost of an inventory item is below the net realizable value (ceiling) AND below

the net realizable value less the normal profit margin (floor). As a result, under the lower-of-cost-or-

market method, the inventory items market value should be

A. replacement cost.

B. original cost.

C. net realizable value.

D. net realizable value less the normal profit margin.

16.

Net realizable value is

A.

selling price plus costs to complete and sell.

B.

acquisition cost plus costs to complete and sell.

C.

selling price less costs to complete and sell.

.

D.

selling price.

17.

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.

ignore both markups and markdowns..

C.

include markups and markdowns.

D.

include markdowns but not markups.

18.

Muckenthaler Company sells product 2005WSC for $40 per unit. The cost of one unit of

2005WSC is $36, and the replacement cost is $35. The estimated cost to dispose of a unit is $8, and

the normal profit is $16. At what amount per unit should product 2005WSC be reported, applying

lower-of-cost-or-market?

A.

$35.

B.

$36.

C.

$16.

.

D.

$32.

19.

Sunland Corporation has two products in its ending inventory, each accounted for at the lower of

cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific

data with respect to each product follows:

Product #1

Product #2

Cost

$10

$17

Replacement cost

11

14

Estimated cost to dispose

4

5

Estimated selling price

20

30

In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Sunland use

for products #1 and #2, respectively?

A. $11 and $14

B. $10 and $16

C. $9 and $15

D. $10 and $17

20.

At a lump-sum cost of $64,000, Ivanhoe Company recently purchased the following items for

resale:

Item

No. of Items Purchased

Resale Price Per Unit

M

3000

$3.25

N

1500

11.00

O

5000

5.00

The appropriate cost per unit of inventory is:

M

N

O

A. $3.25 $11.00 $5.00

B. $4.06 $13.74 $6.24

C. $3.66 $12.37 $5.62

D.

$6.74 $6.74 $6.74

21

. The period of time during which interest must be capitalized ends when

A. the asset is fully depreciated

B. the activities that are necessary to get the asset ready for its intended use have begun.

C. the asset is substantially complete and ready for its intended use.

D. no further interest cost is being incurred.

22.

Marigold Corp. is constructing a building. Construction began January 1, 2017 and the building

was completed 12/31/17. Marigold made payments to the construction company of $2,994,000 on

7/1, $6,216,000 on 9/1, and $5,910,000 on 12/31. Weighted-average accumulated expenditures were

A. $3,569,000

B. $9,210,000

C. $15,120,000

D. $3,044,000

23.

Dicer uses the

cost method

to determine its ending inventory at cost. Assume the beginning

inventory at cost was $260,000 and at retail was $396,000, purchases during the current year at cost

were $1,370,000 and $2,200,000 at retail, freight-in on these purchases totaled $86,000, sales during

the current year totaled $2,000,000, and net markups were $48,000 and net markdowns were

$72,000, respectively. What is the ending inventory value at cost (to the nearest $1)?

A. $371,228

B. $338,092

C. $381,638

D. $286,804

24.

Waterway Industries traded in a manual pressing machine for an automated pressing machine

and paid $40,500 cash. The old machine cost $466,000 and had accumulated depreciation of

$135,000 up to that date and had a net book value of $331,000. The old machine had a fair value of

$295,000.

Which of the following is the correct journal entry to record the exchange assuming a lack of

commercial substance?

A.

Cash

40,500

Equipment (new)

295,000

Loss on Disposal

36,000

Accum. Deprec. (old)

135,000

Equipment (new)

506,500

B.

Equipment (new)

335,500

Loss on Disposal

36,000

Accum. Deprec. (old)

135,000

Equipment (new)

466,000

Cash

40,500

C.

Equipment (new)

641,500

Accum. Deprec. (old)

135,000

Equipment (old)

466,000

Cash

40,500

25.

Which one of the following is

not

an accelerated depreciation method?

A. Declining balance method

B. Straight-line method

C. Sum-of-the-years digits method

D. Double-declining-balance method