Use the following information for questions 1 & 2 RAC Corp sells refrigerators and dishwashers. Information related to the inventory of RAC Corp is provided below.

Use the following information for questions 1 & 2 RAC Corp sells refrigerators and dishwashers. Information related to the inventory of RAC Corp is provided below. Cost - Replacement Cost - Net Realizable Value - Net Realizable Value Less a Normal Profit Margin Refrigerator Models

Elite 80,000 - 70,000 - 80,000 - 60,000

Standard 100,000 - 110,000 - 100,000 - 70,000

Economy 90,000 - 75,000 - 90,000 - 80,000

Dishwasher Models

Pro 150,000 - 140,000 - 170,000 - 155,000

Residential 95,000 - 85,000 - 92,000 - 80,000 1. Calculate the final inventory value for RAC Corp based on individual inventory items (5 points):

2. Record the journal entry to write-down inventory assuming the allowance method is used (4 points).

Use the following information for problems 3 & 4 (4 points each)

On 11/30/15 Cougar Corp. exchanged an old truck for a piece of equipment and cash. The truck was purchased on 11/1/10 for $20,000 and was depreciated using the straight-line depreciation method based on the following assumptions: a) residual value of $5,600, b) useful life of 6 years. As compensation for the truck, Cougar Corp received a piece of equipment with a fair value of $7,500 and $1,000 cash.

3. Record the journal entry for the exchange assuming the transaction DOES have commercial substance.

4. Record the journal entry for the exchange assuming the transaction DOES NOT have commercial substance. Round all amounts to the nearest dollar.

Questions 5-6 (4 points each) 5. Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

a. Work-in-process

b. Finished goods

c. Supplies

d. Raw Materials

6. An expenditure made in connection with a machine being used by a company should be:

a. Expensed immediately if it improves the efficiency of the machine but does not extend the useful life

b. Capitalized if it increases the quantity of units produced by the machine

c. Expensed immediately if it extends the useful life of the machine but does not improve the efficiency

d. Capitalized if it maintains the machine in normal operating condition.

Questions 7-21 (5 Points each) 7. If the ending inventory for 2014 is overstated (and that is the only mistake made), the effects of this error on cost of goods sold for 2014, net income for 2014, and net income for 2015, respectively, are:

a. Overstatement, understatement, overstatement

b. Understatement, overstatement, understatement

c. Understatement, overstatement, overstatement

d. Overstatement, understatement, understatement

8. Using a _______ inventory cost flow will result in the highest level of ending inventory during times of falling prices.

a. LIFO

b. FIFO

c. Average-Cost

9. Which inventory costing method most closely approximates current cost for each of the following: Ending Inventory Cost of Goods Sold

a. LIFO FIFO

b. FIFO LIFO

c. FIFO FIFO

d. LIFO LIFO

Use the following information for problems 10 & 11.

The information relates to Cougar Corps inventory purchases and sales. Cougar Corp. utilizes a FIFO cost flow assumption.

Units Purchase/Sale Price (PER UNIT)

May 1, Beginning Inventory 10 $90

May 3, Purchase 15 $125

May 5, Sale 12 $250

May 9, Purchase 25 $140

May 15, Sale 14 $250

10. Assume Cougar Corp utilizes a periodic inventory system. What is Cougar Corps ending inventory for May?

11. Assume Cougar Corp utilizes a perpetual inventory system. What is Cougar Corps cost of goods sold (COGS) for May?

12. Cougar Corp. requires an estimate of the cost of goods lost by fire on May 15th. Merchandise on hand on January 1 was $41,000. Purchases since January 1 were $112,000. Freight paid on these inventory purchases is $5,100. The company also returned inventory that originally cost $3,400 (the retail price for the returned inventory is $5,800). Sales, which are made at 50% above cost, totaled $213,000 through May 15th. Goods costing $6,900 were left undamaged by the fire (the remaining goods were destroyed). Compute the cost of goods destroyed by the fire using the gross profit inventory method.

13. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be

a. Capitalized as part of the cost of the land

b. Capitalized as part of the cost of the new hotel

c. Depreciated over the period from acquisition to the date the hotel is scheduled to be torn down

d. Recorded as an extraordinary loss

14. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to a. That portion of expenditures for asset construction on which no interest cost was incurred.

b. That portion of total interest cost which would not have been incurred if expenditures for asset construction had not been made

c. The total interest cost actually incurred.

15. In accounting for property, plant, and equipment, which of the following expenditures made subsequent to acquisition should be fully expensed in the period the expenditure is made?

a. Expenditure made to increase the efficiency or effectiveness of an existing asset

b. Expenditure made to maintain an existing asset so that it can function in the manner intended

c. Expenditure made to add new features and other improvements to an asset

d. Expenditure made to extend the useful life of an existing asset beyond the time frame originally anticipated.

16. Wilson Co. purchased land as a site to build a new factory. The cost of the land was $900,000. Wilson paid $80,000 to tear down two old buildings on the land and prepare the land for its intended use. Salvage from the demolition was sold for $5,400. Legal fees of $12,280 were paid to complete the purchase of the land. The construction company building the new factory for Wilson Co. charged $31,200 to draw the blueprints for the factory and $2,800,000 in construction costs. Interest costs during construction were $170,000. The cost of the land that should be recorded by Wilson Co. is

a. $986,880

b. $974,600

c. $992,280

d. $912,280

17. When piece of equipment is acquired in exchange for stock, the cost of the equipment is properly measured by the

a. Market value of the stock

b. Par value of the stock

c. Book value of the stock

d. Stated value of the stock

18. Which of the following accounts is credited when using the direct method of writingdown inventory to its market value?

a. Loss Due to Decline of Inventory to market

b. Inventory

c. Allowance to Reduce Inventory to Market

d. Cost of Goods Sold

19. Lower-of-cost-or-market

a. Is most conservative if applied to major categories of inventory

b. Is most conservative if applied to individual items of inventory

c. Is most conservative if applied to the total inventory

d. Is equally conservative across all three methods listed above.

20. At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements?

a. Only disclose the existence of the purchase commitment

b. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment

c. No impact

d. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment

21. When the conventional retail inventory method is used, markdowns are ignored in the computation of the cost to retail ratio because

a. Mark-ups are also ignored

b. This tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold

c. There may be no markdowns in a given year

d. This tends to give a better approximation of the lower of cost or market