Final Practice Exam PDF

Final Practice Exam For questions 1 through 4, use the following inventory information related to Planter’s Home- grown Ice Cream Farm Inventory (round intermediate calculations to two decimal places): Units Price latest...

Final Practice Exam For questions 1 through 4, use the following inventory information related to Planter’s Home- grown Ice Cream Farm Inventory (round intermediate calculations to two decimal places): Units Price latest thing you buy Beginning Inventory, June 1 580 $25.85 - 1170 : gold first Purchase, June 8 265 $22.50 Purchase, June 19 890 $21.50 Inventory, June 31 290 - ending inventory 1. The value assigned to ending inventory if Planter’s uses a periodic LIFO system is if it was F10 , 21. 50 A. $6,525.00 B. $6,235.00 C. $7,496.50 = (25 85) (290). D. $6,701.90 2. The value assigned to ending inventory if Planter’s uses a periodic average system is: A. $6,701.90 580 + 265 + 590 = 1735 B. $6,525.00 C. $7,496.50 1580 · 25 85). + (265. 22. 50)T D. $6,235.00 (890. 21. 50) 3. The value assigned to cost of goods sold if Planter’s uses a periodic FIFO system is 580 + 265 + 890 = A. $6,235.00 290 1445 1735 - = B. $33,855.50 (580)(25 85). = 14993 C. $32,594.00 50) = 5962 5 (265)(22.. 12900 D. $33,388.60 (600) (21 50) · = = 33855 5 14993 + 5962 50 + 12900.. 4. The value assigned to cost of goods sold if Planter’s uses a perpetual FIFO system is A. $6,235.00  B. $33,855.50 periodic + perpetualresta C. Not enough information to determine this. D. $33,388.60 5. Dollar-value LIFO: A. Starts with ending inventory measured at current costs and progressively creates LIFO layers for measuring inventory costs. B. Increases the recordkeeping costs of LIFO. C. Is not allowed for financial reporting purposes under US GAAP. D. None of these is correct. 6. When using the gross profit method to estimate ending inventory, you must use the average gross margin in order to estimate: dins = beginning inventory inventorypurd A. Beginning inventory B. Net purchases. C. Cost of goods sold. D. Net sales. 7. Academic research indicates that net income is extremely powerful for forecasting the future economic performance of the firm. Accordingly, it is very important to carefully consider what goes into the calculation of net income – and in particular, specifically separating items which have little value in predicting future operations, such as discontinued operations. The ability of net income to forecast future performance is a part of what qualitative characteristic of good financial accounting? Relevance Faithful Representation A. Yes No B. Yes Yes C. No No D. No Yes 8. In 2015, Edwards Corporation incurred research and development costs as follows: Fi Materials and equipment $ 110,000 Personnel 130,000 Indirect costs 150,000 $ 390,000 These costs relate to a product that will be marketed in 2016. It is estimated that these costs will be recouped by December 31, 2018. The equipment has no alternative  future use. What is the amount of research and development costs that should be expensed in 2015? A. $0. B. $250,000. C. $280,000. D. $390,000. 9. Regis Inc. bought a machine on July 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, the company reviewed the potential 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? , 000 000 10 2004 value 400 - a. $ 0 cost-salvage , - 18000 z b. $40,000 useful life 20 c. $20,000 18000 0 (18000) (10) = 000 d. $80,000 = 220 Dow 140, 400000 - 180000 - 110000 80000 10. On January 1, 2016, Tremen Corporation acquired 45% of the shares of Delany Company. Tremen paid $3,000,000 for the investment, and that amount is exactly equal to 45% of the book value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,250,000 for 2016, and paid $75,000 of dividends each quarter to its shareholders. After all closing entries are made, Tremen's "Investment in Delany Company" account would have a balance of: A. $4,115,000 1250000. 75% = 562 , 500 B. $3,528,750 C. $3,697,500 15000 7 = 300 , 000 562500 D. $3,427,500 300000 75% = 135000. 3000000 = 11. Moonland Company’s income statement contained the following errors: 3427500 Ending inventory, December 31, 2016, is understated by $6,000 Depreciation expense for 2016 is overstated by $1,000 What is the effect of errors on 2016 net income before considering tax effects? 1000 = + A. Overstated by $5,000 B. Understated by $5,000 6000 C. Understated by $7,000 D. Overstated by $7,000 7000  12. Twilight Corporation acquired Werewolf Productions on January 1, 2014 for $6,400,000, and recorded goodwill of $1,200,000 as a result of that purchase. At December 31, 2015, the Werewolf Productions Division had a fair value of $5,440,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of - $4,640,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2015? 000000 4640000 = a. $ -0- 5440000 - b. $400,000 800 , 000 = 40000 1200000 - c. $560,000 d. $960,000 13. Grover Corporation purchased a truck on November 1, 2016 for $126,000. The truck is estimated to have a salvage value of $22,000 and a useful life of 105,000 miles. It was driven 15,000 miles in 2016 and 48,000 miles in 2017. What is the depreciation expense for 2017? value cost-salvage useful life (miles A. $18,000 B. $47,543 126000 - 22000 C. $57,600 = 0 9905. 105000 D. $14,857 => 48000 (0 9905). 14. Which of the following is not an example of a change in accounting principle? A. A change in the useful life of a depreciable asset. B. A change from LIFO to FIFO for inventory costing. C. A change to the full costing method in the extractive industries. D. A change from the cost method to the equity method of accounting for investments. 15. On January 1, 2016, Rupar Retailers purchased $125,000 of Anand Company bonds for 112,500. The Anand bonds pay 7% interest but were purchased when the market interest rate was 8% for bonds of similar risk and maturity. The bonds pay interest semiannually on January 1 and July 1 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2016 journal entry to record the second period of interest, Rupar would record a credit to interest revenue of: A. $4,505  112500(4 %) = 4500 B. $4,500 5 %) 4375 125000 (3 = C. $8,750. 112625 D. $5,000 4500 4375 = 112625 112500 - + (4 %) = 16. Blue Co. has a patent on a communication process. The company has amortized the patent on a straight-line basis since 2012, when it was acquired at a cost of $36 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2016 (before adjusting and closing entries). What is the appropriate patent amortization expense in 2016? A. $4 million B. $5 million ??.? C. $10 million D. $20 million 17. On January 1, 2011, Russell Company purchased a copyright for $1,500,000, having an estimated useful life of 16 years. In January 2015, Russell paid $225,000 for legal fees in a successful defense of the copyright. Assuming Russell Company amortizes intangible assets on a straight-line basis, copyright amortization expense for the year ended December 31, 2015, should be: 2011 a. $0. 1500000 = 93750 2015 - 1500000 - 375000 = - b. $93,750. 16 Y 1125000 c. $107,812. 93750 · 4 = 375000 d. $112,500. + 22500 = 1350000 = 1/25000 - 12 11250c 18. Trading securities, by definition, are properly classified on the balance sheet as: A. Shareholders’ equity. B. Intangibles. C. Current assets. D. Noncurrent assets. 19. Given the acquisition cost of product Z was $100, the net realizable value for product Z is $87, the normal profit for product Z is $6, and the market value for product Z is $83, what is the proper per unit inventory price for product Z? A. $100. B. $81. 27  C. $83. D. $87. 20. Assets acquired under multiple-year deferred payment contracts are: A. Valued at their fair value on the date of the final payment. B. Valued at the present value of the payments required by the contract. C. Valued at the sum of the total payments required by the contract. D. None of the above answers are correct. The following data concerning the retail inventory method are taken from the financial records of Z-Mart for 2016. Round all numbers in intermediate steps to four decimal places and final answers to two decimal places. Cost Retail 1333000 ! Beginning inventory $ 198,000 $ 256,000 Purchases 1,050,000 1,890,000 Freight-in 85,000 — 2324500 Net markups — 178,500 Net markdowns — 89,500 Sales — 1,890,000 21. Under the conventional retail inventory valuation method, ending inventory at cost for the year ending December 31, 2016 should be: a. $249,185.75 2324500 89500 = 2235000 - b. $205,758.00 1890000 = 345000 2235000 - c. $197,857.50 d. $345,000.00 1333000 - = 0. 5737 2324500 = 345000(0 5737). 22. When depreciation is computed for partial periods under a decreasing charge depreciation method, it is necessary to: A. charge a full year's depreciation to the year of acquisition. B. determine depreciation expense for the full year and then prorate the expense between the two periods involved.  C. use the straight-line method for the year in which the asset is sold or otherwise disposed of. D. use a salvage value equal to the first year's partial depreciation charge. Use the table below, which contains information related to several investment securities that Beresford Inc. purchased in 2015, its first year of operations, to answer questions 23-25: Amortized Amortized Fair Value Fair Value Cost Cost Held to Maturity Securities: 12/31/2015 12/31/2016 12/31/2015 12/31/2016 ABC Co. Bonds $425,000 $400,000 $367,500 $360,000 Fair Value Fair Value Trading Securities: 12/31/2015 12/31/2016 Cost DEF Co. Stock $50,000 $67,500 $66,000 GEH Inc. Stock $47,500 $67,500 $39,000 IJK Inc. Stock $34,000 $25,800 $32,900 Fair Value Fair Value Available for Sale 12/31/2015 12/31/2016 Cost Securities: LMN Co. Stock $175,000 $150,400 $140,000 23. What total unrealized holding loss/gain would Beresford report in its 2016 income statement for its investment securities? A. $4,300 B. -$20,700 C. $45,700 D. $29,300 24. What would be the balance in Beresford’s accumulated other comprehensive income with respect to these investments in its 2016 balance sheet (ignoring tax effects)? A. $4,300 B. $10,400 C. -$26,500 D. None of the above answers are correct. 25. What balance sheet amount would Beresford report for its total investment securities as of December 31, 2015? A. $674,000 B. $731,500 C. $645,400 D. None of the above answers are correct. 26. During 2015, Kimmel Co. incurred weighted-average accumulated expenditures of $800,000 during construction of assets that qualified for capitalization of interest. Kimmel had no debt outstanding as of 2015. What is the amount of interest that should be capitalized by Kimmel during 2015? A. $0. B. $20,000. C. $80,000. D. $100,000. 27. Early in 2016, Benton Well Supplies discovered that a five-year insurance premium payment of $50,000 at the beginning of 2013 was debited to insurance expense. The correcting entry in 2016 would include: A. A credit to retained earnings of $20,000. B. A debit to insurance expense of $20,000. C. A debt to prepaid insurance of $30,000. D. A debit to prepaid insurance of $50,000. 28. On January 1, 2014, Markham Co. purchased machinery for $285,000. Salvage value was estimated to be $15,000. The machinery will be depreciated over eight years using the sum-of-the-years'-digits method. If depreciation is computed on the basis of the nearest full month, Markham should record depreciation expense for 2014 on this machinery of 4 + 5 + 6+ 7 + 8 = 36 1 + 2 + 3 + A. $60,000. 15000 = 270, 000 285000 - B. $63,333. C. D. $144,000. $33,750. (2000d # = 6000 29. On January 1, 2016, Green Corporation purchased 25% of the outstanding voting common stock of Gold Company for $250,000. The book value of the acquired shares was $200,000. The excess of cost over book value is attributable to an intangible asset on Gold's books that was undervalued and had a remaining useful life of five years. For the year ended December 31, 2016, Gold reported net income of $100,000 and paid cash dividends of $20,000. What is the carrying value of Green's investment in Gold at  December 31, 2016? 100000 (25%) 25 000 , = A. $277,500 5000 B. $250,000 % = 20000 (25 C. $270,000 100005000 D. $267,500 50000 2500 = = - 5 + 25000 267500 250000 30. Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to A. patents and amortized over the legal life of the patent. B. legal fees and amortized over 5 years or less. C. expenses of the period. D. patents and amortized over the remaining useful life of the patent. 31. On January 2, 2015, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000 and classified the investment as available for sale. Ranger's net income for the years ended December 31, 2015 and 2016, were $10,000 and $50,000, respectively. During 2016, Ranger declared and paid a total dividend to all common shares of $60,000. There were no dividends in 2015. On December 31, 2015, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000, and on December 31, 2016, the fair value of the Ranger stock owned by Howdy Doody had increased to $80,500. How much should Howdy Doody show in the 2015 income statement as income from this investment? A. $0 B. $7,200 C. $20,000 D. $27,200 32. Messersmith Company is constructing a building. Construction began in 2016 and the building was completed 12/31/16. Messersmith made payments to the construction company of $4,500,000 on January 1, 2016, $9,000,000 on September 1, 2016, and $5,980,000 on December 31, 2016. Weighted-average accumulated expenditures were: 4300000 (2) = 4500,000 A. $7,500,000. 9000000(2) = 3000000 B. $6,750,000. 5980000 (i) = 0 C. $8,250,000. = 7500000 4500000 + 3000000 D. $19,480,000. 33. In the 1990s, the FASB first began considering whether to force companies to report the fair value of stock options provided to executives as compensation expense. However, companies fought back in force, lobbying their senators and representatives to prevent the SEC from requiring them to report such a major new expense. The FASB backed off temporarily and instead only required companies to report the intrinsic value of stock options provided to executives as compensation expense. Since nearly all executive stock options were issued at or below the current market value of the stock, this meant that many stock options resulted in zero compensation expense for the company. This anecdote is a good example of how the financial accounting standard setting process is best described: A. as a socio-political process which reflects political actions of various interested user groups as well as a product of research and logic. B. as based solely on research and empirical findings. C. as a legalistic process based on rules promulgated by governmental agencies. D. as a democratic process in the sense that a majority of accountants must vote on a standard before it becomes enforceable. 34. The Claxton Company manufactures children's toys and also has a division that makes automobile parts. Due to a change in its strategic focus, the company sold the automobile parts division. The division qualifies as a component of the entity according to GAAP. How should Claxton report the sale in its 2016 income statement? A. Report it as restructuring costs. B. Report it as a discontinued operation. C. Report the income or loss from operations of the division in continuing operations. D. Report it as a gain on sale of investments included in income from continuing operations. 35. Cash and cash equivalents do not include: A. Currency held by the company. B. Investment grade corporate bonds scheduled to mature next year. C. U.S. Treasury Bills with a very short maturity. D. Checking accounts. 36. On March 31, 2016, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2016, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2016. At January 1, 2017, Belotti estimated that 20,000 tons still remained. During 2017, Belotti loaded and sold 8,000 tons. Belotti would record depletion in 2016 of: a. $41,000 14000 ton = 8 20 per b. $32,800. 20000 c. $30,750 20) = 32800 d. $24,600 100% (8. 37. Which of the following is one of the steps for recognizing revenue? A. Identify the performance obligations of the contract. B. Determine whether bad debts can be reasonably estimated. C. Estimate the total transaction price of the contract based on fair value. D. Allocate all revenue to the performance obligation with the largest stand-alone selling price. 38. According to the FASB's conceptual framework, the financial statement element comprehensive income includes which of the following? Income from Continuing Operations Dividends A. No No B. Yes No C. Yes Yes D. No Yes 39. Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively. Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of: A. $26,000 B. $8,000 nogainunleseiewed C. ($8,000) D. $0 40. Ramos Co. purchased machinery that was installed and ready for use on January 1, 2014, at a total cost of $180,000. Salvage value was estimated at $25,000. The  machinery will be depreciated over five years using the double-declining balance method. For the year 2015, Ramos should record depreciation expense on this machinery of A. $72,000. useful life = = 20 % B. $62,000. double decline: (2) (20%) = 40 % C. $43,200. D. $47,200. 180000(40%) = 72000 72000 = 108000 1800000 - 108000(40%) = 43200 Answer Key: 1. C 2. A 3. B 4. B 5. A 6. C 7. A 8. D 9. D 10. D 11. C 12. B 13. B 14. A 15. A 16. C 17. D 18. C 19. D 20. B 21. C 22. B 23. D 24. B 25. A 26. A 27. A 28. A 29. D 30. D 31. A 32. A 33. A 34. B 35. B 36. B 37. A 38. B 39. D 40. C 41.