Use the following to answer question 1: The following data concerning the retail inventory method are taken from the financial records of Stone Company. 1. The ending inventory at retail should be A) $74,000. B) $60,000. C) $64,000. D) $42,000. Use the following to answer question 2: Sloan Company, a wholesaler, budgeted the following sales for the indicated months: All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. 2. Merchandise purchases for July are anticipated to be A) $1,632,000. B) $2,076,000. C) $1,700,000. D) $1,730,000. 3. 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. 4. The retail inventory method is based on the assumption that the A) final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods. B) ratio of gross margin to sales is approximately the same each period. C) ratio of cost to retail changes at a constant rate. D) proportions of markups and markdowns to selling price are the same. 5. AJ Corporation, a manufacturer of ethnic foods, contracted in 2007 to purchase 500 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008. By 12/31/07, the price per pound of the spice mixture had risen to $5.60 per pound. In 2007, AJ should recognize A) a loss of $2,500. B) a loss of $300. C) no gain or loss. D) a gain of $300. 6. Gore Company's accounting records indicated the following information: Inventory, 1/1/07 $ 600,000 Purchases during 2007 3,000,000 Sales during 2007 3,800,000 A physical inventory taken on December 31, 2007, resulted in an ending inventory of $700,000. Gore's gross profit on sales has remained constant at 25% in recent years. Gore suspects some inventory may have been taken by a new employee. At December 31, 2007, what is the estimated cost of missing inventory? A) $50,000. B) $150,000. C) $200,000. D) $250,000. 7. 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. 8. The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their A) selling price will be less than their replacement cost. B) replacement cost will be more than their net realizable value. C) cost will be less than their replacement cost. D) future utility will be less than their cost. 9. When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by A) last year's cost ratio and this year's index. B) this year's cost ratio and this year's index. C) last year's cost ratio and last year's index. D) this year's cost ratio and last year's index. 10. The gross profit method of inventory valuation is invalid when A) a portion of the inventory is destroyed. B) there is a substantial increase in inventory during the year. C) there is no beginning inventory because it is the first year of operation. D) none of these. Use the following to answer question 11: Seiler Co. purchased land as a factory site for $600,000. Seiler paid $60,000 to tear down two buildings on the land. Salvage was sold for $5,400. Legal fees of $3,480 were paid for title investigation and making the purchase. Architect's fees were $31,200. Title insurance cost $2,400, and liability insurance during construction cost $2,600. Excavation cost $10,440. The contractor was paid $2,200,000. An assessment made by the city for pavement was $6,400. Interest costs during construction were $170,000. 11. The cost of the land that should be recorded by Seiler Co. is A) $660,480. B) $666,880. C) $669,880. D) $676,280. 12. Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is A) . B) . C) . D) . 13. 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. 14. Hinrich Company traded machinery with a book value of $120,000 and a fair value of $200,000. It received in exchange from Noach Company a machine with a fair value of $180,000 and cash of $20,000. Noach's machine has a book value of $190,000. What amount of gain should Hinrich recognize on the exchange? A) $ -0- B) $8,000 C) $20,000 D) $80,000 15. Reed Co. exchanged nonmonetary assets with Wilton Co. No cash was exchanged and the exchange had no commercial substance. The carrying amount of the asset surrendered by Reed exceeded both the fair value of the asset received and Wilton's carrying amount of that asset. Reed should recognize the difference between the carrying amount of the asset it surrendered and A) the fair value of the asset it received as a loss. B) the fair value of the asset it received as a gain. C) Wilton's carrying amount of the asset it received as a loss. D) Wilton's carrying amount of the asset it received as a gain. 16. Sweet Knee Company is constructing a building. Construction began in 2008 and the building was completed 12/31/08. Sweet Knee made payments to the construction company of $1,000,000 on 7/1, $2,100,000 on 9/1, and $2,000,000 on 12/31. Average accumulated expenditures were A) $1,025,000. B) $1,200,000. C) $3,100,000. D) $5,100,000. 17. On January 2, 2007, Renn Corp. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler $150,000 Carrying amount of old boiler 10,000 Fair value of old boiler 4,000 Installation cost of new boiler 20,000 The old boiler was sold for $4,000. What amount should Renn capitalize as the cost of the new boiler? A) $170,000. B) $166,000. C) $160,000. D) $150,000. 18. To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be A) allocated on the basis of lost production. B) eliminated completely from the cost of the asset. C) allocated on an opportunity cost basis. D) allocated on a pro rata basis between the asset and normal operations. 19. Which of the following statements about involuntary conversions is false? A) An involuntary conversion may result from condemnation or fire. B) The gain or loss from an involuntary conversion may be reported as an extraordinary item. C) The gain or loss from an involuntary conversion should not be recognized when the enterprise reinvests in replacement assets. D) All of these. 20. When a closely held corporation issues preferred stock for land, the land should be recorded at the A) total par value of the stock issued. B) total book value of the stock issued. C) total liquidating value of the stock issued. D) fair market value of the land. 21. Sears Corporation, which has a calendar year accounting period, purchased a new machine for $40,000 on April 1, 2002. At that time Sears expected to use the machine for nine years and then sell it for $4,000. The machine was sold for $22,000 on Sept. 30, 2007. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be A) $4,000. B) $3,000. C) $2,000. D) $0. 22. Mack Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Mack's depreciable assets at December 31, 2007 are as follows: Acquisition year 2005 Cost $140,000 Residual value 20,000 Accumulated depreciation 96,000 Estimated useful life 5 years Using the same depreciation method as used in 2005, 2006, and 2007, how much depreciation expense should Mack record in 2008 for this asset? A) $16,000 B) $24,000 C) $28,000 D) $32,000 23. Quayle Company acquired machinery on January 1, 2002 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2007, Quayle estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by Quayle? A) As a prior period adjustment B) As the cumulative effect of a change in accounting principle in 2007 C) By setting future annual depreciation equal to one-sixth of the book value on January 1, 2007 D) By continuing to depreciate the machinery over the original fifteen year life 24. McCartney Company purchased a depreciable asset for $250,000 on April 1, 2005. The estimated salvage value is $25,000, and the estimated useful life is 5 years. The straight-line method is used for depreciation. What is the balance in accumulated depreciation on May 1, 2008 when the asset is sold? A) $90,000 B) $105,000 C) $123,750 D) $138,750 25. The asset turnover ratio is computed by dividing A) net income by ending total assets. B) net income by average total assets. C) net sales by ending total assets. D) net sales by average total assets. 26. For income statement purposes, depreciation is a variable expense if the depreciation method used is A) units-of-production. B) straight-line. C) sum-of-the-years'-digits. D) declining-balance. Use the following to answer question 27: For 2007, Colaw Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. 27. The rate of return on assets for Colaw in 2007 is A) 20.0%. B) 22.7%. C) 25.0%. D) 27.8%. 28. Klein Co. purchased machinery on January 2, 2001, for $440,000. The straight-line method is used and useful life is estimated to be 10 years, with a $40,000 salvage value. At the beginning of 2007 Klein spent $96,000 to overhaul the machinery. After the overhaul, Klein estimated that the useful life would be extended 4 years (14 years total), and the salvage value would be $20,000. The depreciation expense for 2007 should be A) $28,250. B) $34,500. C) $40,000. D) $37,000. 29. In January, 2007, Miley Corporation purchased a mineral mine for $3,400,000 with removable ore estimated by geological surveys at 2,000,000 tons. The property has an estimated value of $200,000 after the ore has been extracted. The company incurred $1,000,000 of development costs preparing the mine for production. During 2007, 500,000 tons were removed and 400,000 tons were sold. What is the amount of depletion that Miley should expense for 2007? A) $640,000 B) $800,000 C) $840,000 D) $1,120,000 Use the following to answer question 30: For 2007, Colaw Company reports beginning of the year total assets of $900,000, end of the year total assets of $1,100,000, net sales of $1,250,000, and net income of $250,000. 30. Colaw's 2007 asset turnover ratio is A) .23 times. B) .25 times. C) 1.14 times. D) 1.25 times. 31. The general ledger of Vance Corporation as of December 31, 2007, includes the following accounts: In the preparation of Vance's balance sheet as of December 31, 2007, what should be reported as total intangible assets? In the preparation of Vance's balance sheet as of December 31, 2007, what should be reported as total intangible assets? A) $594,500. B) $527,000. C) $500,000. D) $460,000. 32. General Products Company bought Special Products Division in 2006 and appropriately booked $250,000 of goodwill related to the purchase. On December 31, 2007, the fair value of Special Products Division is $2,000,000 and it is carried on General Product's books for a total of $1,700,000, including the goodwill. An analysis of Special Products Division's assets indicates that goodwill of $200,000 exists on December 31, 2007. What goodwill impairment should be recognized by General Products in 2007? A) $0. B) $200,000. C) $50,000. D) $300,000. 33. A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2005 for $1,200,000. The company uses straight-line amortization for patents. On January 2, 2007, a new patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least amount of amortization that could be recorded in 2007 is A) $200,000. B) $40,000. C) $54,545. D) $60,000. 34. Which of the following costs of goodwill should be amortized over their estimated useful lives? A) a B) b C) c D) d 35. The total amount of patent cost amortized to date is usually A) shown in a separate Accumulated Patent Amortization account which is shown contra to the Patent account. B) shown in the current income statement. C) reflected as credits in the Patent account. D) reflected as a contra property, plant and equipment item. 36. Rich Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2006. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2008? A) $ -0-. B) $36,000 C) $48,000 D) $54,000 37. On January 1, 2003, Unruh Company purchased a copyright for $800,000, having an estimated useful life of 16 years. In January 2007, Unruh paid $120,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2007, should be A) $0. B) $50,000. C) $57,500. D) $60,000. 38. Hall Co. incurred research and development costs in 2007 as follows: The amount of research and development costs charged to Hall's 2007 income statement should be A) $1,500,000. B) $1,650,000. C) $1,875,000. D) $4,050,000. 39. On January 2, 2007, Klein Co. bought a trademark from Royce, Inc. for $500,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce's books was $400,000. In Klein's 2007 income statement, what amount should be reported as amortization expense? A) $50,000. B) $40,000. C) $25,000. D) $20,000. 40. Which of the following costs should be excluded from research and development expense? A) Modification of the design of a product B) Acquisition of R & D equipment for use on a current project only C) Cost of marketing research for a new product D) Engineering activity required to advance the design of a product to the manufacturing stage