DIRECTIONS: Choose the BEST answer to each question and place your selection on the

answer sheet.

1. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?

a. Net realizable value

b. Net realizable value less a normal profit margin

c. Current replacement cost

d. Discounted present value

2. Designated market value

a. is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin.

b. should always be equal to net realizable value.

c. may sometimes exceed net realizable value.

d. should always be equal to net realizable value less a normal profit margin.

3. Lower-of-cost-or-market

a. is most conservative if applied to the total inventory.

b. is most conservative if applied to major categories of inventory.

c. is most conservative if applied to individual items of inventory.

d. must be applied to major categories for taxes.

4. Which of the following is a characteristic of a perpetual inventory system?

a. Inventory purchases are debited to a Purchases account.

b. Inventory records are not kept for every item.

c. Cost of goods sold is recorded with each sale.

d. Cost of goods sold is determined as the amount of purchases less the change in inventory.

5. Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?

a. Accounts payable.

b. Inventory.

c. Equipment.

d. Not on the balance sheet.

6. Which statement is not true about the gross profit method of inventory valuation?

a. It may be used to estimate inventories for interim statements.

b. It may be used to estimate inventories for annual statements.

c. It may be used by auditors.

d. None of these.

7. An inventory method which is designed to approximate inventory valuation at the lower of cost or market is

a. last-in, first-out.

b. first-in, first-out.

c. conventional retail method.

d. specific identification.

8. When calculating the cost ratio for the retail inventory method,

a. if it is the conventional method, the beginning inventory is included and markdowns are deducted.

b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted.

c. if it is the LIFO method, the beginning inventory is included and markdowns are not deducted.

d. if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.

9. What is the effect of freight-in on the cost-retail ratio when using the conventional retail method?

a. Increases the cost-retail ratio.

b. No effect on the cost-retail ratio.

c. Depends on the amount of the net markups.

d. Decreases the cost-retail ratio.

10. Plant assets may properly include

a. deposits on machinery not yet received.

b. idle equipment awaiting sale.

c. land held for possible use as a future plant site.

d. office building.

11. Which of the following is not a major characteristic of a plant asset?

a. Possesses physical substance

b. Acquired for resale

c. Acquired for use

d. Yields services over a number of years

12. The cost of land does not include

a. costs of grading, filling, draining, and clearing.

b. costs of removing old buildings.

c. costs of improvements with limited lives.

d. special assessments.

13. Fences and parking lots are reported on the balance sheet as

a. current assets.

b. land improvements.

c. land.

d. property and equipment.

14. Assets that qualify for interest cost capitalization include

a. assets under construction for a company's own use.

b. assets that are ready for their intended use in the earnings of the company.

c. assets that are not currently being used because of excess capacity.

d. All of these assets qualify for interest cost capitalization.

15. 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.

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

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

b. no further interest cost is being incurred.

c. the asset is abandoned, sold, or fully depreciated.

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

17. What is consigned inventory?

a. Goods that are shipped, but title transfers to the receiver.

b. Goods that are sold, but payment is not required until the goods are sold.

c. Goods that are shipped, but title remains with the shipper.

d. Goods that have been segregated for shipment to a customer.

18. Which inventory costing method most closely approximates current cost for each of the following:

Ending Inventory Cost of Goods Sold

a. FIFO FIFO

b. FIFO LIFO

c. LIFO FIFO

d. LIFO LIFO

19. On April 1, Mooney Corporation purchased for $1,710,000 a tract of land on which was located a warehouse and office building. The following data were collected concerning the property:

Current Assessed Valuation Vendors Original Cost

Land $600,000 $560,000

Warehouse 400,000 360,000

Office building 800,000 680,000

$1,800,000 $1,600,000

What are the appropriate amounts that Mooney should record for the land, warehouse, and office building, respectively?

a. Land, $560,000; warehouse, $360,000; office building, $680,000.

b. Land, $600,000; warehouse, $400,000; office building, $800,000.

c. Land, $598,500; warehouse, $384,750; office building, $363,375.

d. Land, $570,000; warehouse, $380,000; office building, $760,000.

20. Plant assets purchased on long-term credit contracts should be accounted for at

a. the total value of the future payments.

b. the future amount of the future payments.

c. the present value of the future payments.

d. none of these.

21. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the

a. par value of the stock.

b. stated value of the stock.

c. book value of the stock.

d. fair value of the stock.

22. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

a. Prices decreased.

b. Prices remained unchanged.

c. Prices increased.

d. Price trend cannot be determined from information given.

23. In the context of dollar-value LIFO, what is a LIFO layer?

a. The difference between the LIFO inventory and the amount used for internal reporting purposes.

b. The LIFO value of the inventory for a given year.

c. The inventory in base year dollars.

d. The LIFO value of an increase in the inventory for a given year.

24. The credit balance that arises when a net loss on a purchase commitment is recognized should be

a. presented as a current liability.

b. subtracted from ending inventory.

c. presented as an appropriation of retained earnings.

d. presented in the income statement.

25. The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to

a. the machinery account.

b. a separate deferred charge account.

c. miscellaneous tax expense (which includes all taxes other than those on income).

d. accumulated depreciation--machinery.