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Answers to all questions please. Thank...
This question was answered on Nov 29, 2010. View the Answer
Answers to all questions please.
Thank you very much.
3.docx

A)
B)
C)
D)

1. Risers Inc. reported total assets of $1,200,000 and net income of $135,000 for the
current year. Risers determined that inventory was overstated by $10,000 at the
beginning of the year (this was not corrected). What is the corrected amount for total
assets and net income for the year?
$1,200,000 and $135,000.
$1,200,000 and $145,000.
$1,190,000 and $125,000.
$1,210,000 and $145,000.

Use the following to answer question 2:
The following information was available from the inventory records of Rich Company for January:
Units
Balance at January 1
Purchases:
January 6
January 26
Sales:
January 7
January 31
Balance at
January 31

3,000
2,000

Unit Cost
$9.77
10.30

Total Cost
$29,310
20,600

2,700

10.71

28,917
(2,500)
(4,000)
1,200

A)
B)
C)
D)

2. Assuming that Rich does not maintain perpetual inventory records, what should be the
inventory at January 31, using the weighted-average inventory method, rounded to the
nearest dollar?
$12,606.
$12,284.
$12,312.
$12,432.

A)
B)
C)
D)

3. Which of the following is a reason why the specific identification method may be
considered ideal for assigning costs to inventory and cost of goods sold?
The potential for manipulation of net income is reduced.
There is no arbitrary allocation of costs.
The cost flow matches the physical flow.
Able to use on all types of inventory.

Page 1

4. Which inventory costing method most closely
approximates current cost for each of the
following:
En
din
g
Inv
ent
ory

Cost of Goods Sold

A)
FIFO

FIFO

FIFO

LIFO

LIFO

FIFO

LIFO

LIFO

B)
C)
D)

A)
B)
C)
D)

5. What is the effect of a $50,000 overstatement of last year's inventory on current years
ending retained earning balance?
Understated by $50,000.
No effect.
Overstated by $50,000.
Need more information to determine.

6. Costs which are inventoriable include all of the following except
costs that are directly connected with the bringing of goods to the place of business of
the buyer.
B)
costs that are directly connected with the converting of goods to a salable condition.
C)
buying costs of a purchasing department.
D)
selling costs of a sales department.
A)

7. How should the following costs affect a
retailer's inventory valuation?
Frei
ghtin

Page 2

Interest on Inventory Loan

A)
Increase

No effect

Increase

Increase

No effect

Increase

No effect

No effect

B)
C)
D)

A)
B)
C)
D)

8. In a period of rising prices, the inventory method which tends to give the highest
reported net income is
base stock.
first-in, first-out.
last-in, first-out.
weighted-average.

A)
B)
C)
D)

9. Tanner Corporation's inventory cost on its balance sheet was lower using first-in, firstout than it would have been using last-in, first-out. Assuming no beginning inventory,
in what direction did the cost of purchases move during the period?
Up
Down
Steady
Cannot be determined

A)
B)
C)
D)

10. Which of the following is a period cost?
Labor costs.
Freight in.
Production costs.
Selling costs.

11. How is a significant amount of consignment inventory reported in the balance sheet?
A)
The inventory is reported separately on the consignor's balance sheet.
B)
The inventory is combined with other inventory on the consignor's balance sheet.
C)
The inventory is reported separately on the consignee's balance sheet.
D)
The inventory is combined with other inventory on the consignee's balance sheet.
12. Dollar-value LIFO techniques help protect LIFO layers from erosion.
A)
True
B)
False

Page 3

13. June Corp. sells one product and uses a perpetual inventory system. The beginning
inventory consisted of 10 units that cost $20 per unit. During the current month, the
company purchased 60 units at $20 each. Sales during the month totaled 45 units for
$43 each. What is the cost of goods sold using the LIFO method?
A)
$200.
B)
$900.
C)
$1,200.
D)
$1,935.
Use the following to answer question 14:
Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on
account, $16,000, terms 2/10, n/30. Winsor returned $1,200 of the May 5 purchase and received
credit on account. At May 31 the balance had not been paid.

A)
B)
C)
D)

14. By how much should the account payable be adjusted on May 31?
$0.
$344.
$320.
$296.

15. Bell Inc. took a physical inventory at the end of the year and determined that $650,000
of goods were on hand. In addition, Bell, Inc. determined that $50,000 of goods that
were in transit that were shipped f.o.b. shipping were actually received two days after
the inventory count and that the company had $75,000 of goods out on consignment.
What amount should Bell report as inventory at the end of the year?
A)
$650,000.
B)
$700,000.
C)
$725,000.
D)
$775,000.
16. The use of a Purchase Discounts account implies that the recorded cost of a purchased
inventory item is its
A)
invoice price.
B)
invoice price plus any purchase discount lost.
C)
invoice price less the purchase discount taken.
D)
invoice price less the purchase discount allowable whether taken or not.

Page 4

17. During periods of rising prices, a perpetual
inventory system would result in the same
dollar amount of ending inventory as a
periodic inventory system under which of the
following inventory cost flow methods?
FI
F
O

LIFO

A)
Yes

No

Yes

Yes

No

Yes

No

No

B)
C)
D)

18. Keck Co. had 450 units of product A on hand
at January 1, 2010, costing $42 each.
Purchases of product A during January were as
follows:
Date
Jan. 10
18
28

A)
B)
C)
D)

Units
600
750
300

Unit Cost
$44
46
48

A physical count on January 31, 2010 shows
600 units of product A on hand. The cost of the
inventory at January 31, 2010 under the LIFO
method is
$28,200.
$26,700.
$25,500.
$24,600.

19. The dollar-value LIFO method measures any increases and decreases in a pool in terms
of total dollar value and physical quantity of the goods.
A)
True
B)
False

Page 5

A)
B)
C)
D)

20. Where should raw materials be classified on the balance sheet?
Prepaid expenses.
Inventory.
Equipment.
Not on the balance sheet.

21. The gross profit method can be used to approximate the dollar amount of inventory on
hand.
A)
True
B)
False
22. A disadvantage of the gross profit method is that it uses past percentages in determining
the markup.
A)
True
B)
False
23. 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
24. In no case can "market" in the lower-of-cost-or-market rule be more than
A)
estimated selling price in the ordinary course of business.
B)
estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal.
C)
estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal and an allowance for an approximately normal profit
margin.
D)
estimated selling price in the ordinary course of business less reasonably predictable
costs of completion and disposal, an allowance for an approximately normal profit
margin, and an adequate reserve for possible future losses.
25. Designated market value
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.
A)

26. When the direct method is used to record inventory at market
A)
there is a direct reduction in the selling price of the product that results in a loss being
recorded on the income statement prior to the sale.
Page 6

B)
C)
D)

a loss is recorded directly in the inventory account by crediting inventory and debiting
loss on inventory decline.
only the portion of the loss attributable to inventory sold during the period is recorded in
the financial statements.
the market value figure for ending inventory is substituted for cost and the loss is buried
in cost of goods sold.

27. The floor to be used in applying the lower-of-cost-or-market method to inventory is
determined as the
A)
net realizable value.
B)
net realizable value less normal profit margin.
C)
replacement cost.
D)
selling price less costs of completion and disposal.
28. Which of the following is not an acceptable approach in applying the lower-of-cost-ormarket method to inventory?
A)
Inventory location.
B)
Categories of inventory items.
C)
Individual item.
D)
Total of the inventory.
29. Which method(s) may be used to record a loss due to a price decline in the value of
inventory?
A)
Allowance method.
B)
Sales method.
C)
Direct method
D)
Both a and c.
30. Oslo 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:
Historical cost
Replacement cost
Estimated cost to
dispose
Estimated selling price

A)

Product #1
$40.00
45.00
10.00
80.00

In pricing its ending inventory using the lowerof-cost-or-market, what unit values should
Oslo use for products #1 and #2, respectively?
$40.00 and $65.00.
Page 7

B)
C)
D)

$46.00 and $65.00.
$46.00 and $60.00.
$45.00 and $54.00.

31. Muckenthaler Company sells product 2005WSC for $20 per unit. The cost of one unit of
2005WSC is $18, and the replacement cost is $17. The estimated cost to dispose of a
unit is $4, and the normal profit is 40%. At what amount per unit should product
2005WSC be reported, applying lower-of-cost-or-market?
A)
$8.
B)
$16.
C)
$17.
D)
$18.
32. Lexington Company sells product 1976NLC for $40 per unit. The cost of one unit of
1976NLC is $36, and the replacement cost is $34. The estimated cost to dispose of a
unit is $8, and the normal profit is 40%. At what amount per unit should product
1976NLC be reported, applying lower-of-cost-or-market?
A)
$16.
B)
$32.
C)
$34.
D)
$36.
33. Given the acquisition cost of product Z is $32.00, the net realizable value for product Z
is $29.00, the normal profit for product Z is $2.50, and the market value (replacement
cost) for product Z is $30.00, what is the proper per unit inventory price for product Z?
A)
$32.00.
B)
$30.00.
C)
$26.50.
D)
$29.00.
34. The following information is available for
October for Norton Company.
Beginning inventory
Net purchases
Net sales
Percentage markup on cost

A)
B)
C)

$100,000
300,000
600,000
66.67%

A fire destroyed Norton's October 31
inventory, leaving undamaged inventory with a
cost of $6,000. Using the gross profit method,
the estimated ending inventory destroyed by
fire is
$34,000.
$154,000.
$160,000.
Page 8

D)

$200,000.

35. A markup of 40% on cost is equivalent to what markup on selling price?
A)
29%
B)
40%
C)
60%
D)
71%
36. Kesler, Inc. estimates the cost of its physical
inventory at March 31 for use in an interim
financial statement. The rate of markup on cost
is 25%. The following account balances are
available:
Inventory, March 1
Purchases
Purchase returns
Sales during March

A)
B)
C)
D)

$220,000
172,000
8,000
300,000

The estimate of the cost of inventory at March
31 would be
$84,000.
$144,000.
$159,000.
$112,000.

37. Neer Co. has a probable loss that can only be reasonably estimated within a range of
outcomes. No single amount within the range is a better estimate than any other amount.
The loss accrual should be
A)
zero.
B)
the maximum of the range.
C)
the mean of the range.
D)
the minimum of the range.
38. Collier borrowed $175,000 on October 1 and is required to pay $180,000 on March 1.
What amount is the note payable recorded at on October 1 and how much interest is
recognized from October 1 to December 31?
A)
$175,000 and $0.
B)
$175,000 and $3,000.
C)
$180,000 and $0.
D)
$175,000 and $5,000.

Page 9

39. Assume that a manufacturing corporation has (1) good quality control, (2) a one-year
operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing
policy of guaranteeing new products against defects for three years that has resulted in
material but rather stable warranty repair and replacement costs. Any liability for the
warranty
A)
should be reported as long-term.
B)
should be reported as current.
C)
should be reported as part current and part long-term.
D)
need not be disclosed.
40. Which of the following is the proper way to report a gain contingency?
As an accrued amount.
As deferred revenue.
As an account receivable with additional disclosure explaining the nature of the
contingency.
D)
As a disclosure only.
A)
B)
C)

A)
B)
C)
D)

41. The numerator of the acid-test ratio consists of
total current assets.
cash and marketable securities.
cash and net receivables.
cash, marketable securities, and net receivables.

42. A company buys an oil rig for $1,000,000 on January 1, 2010. The life of the rig is 10
years and the expected cost to dismantle the rig at the end of 10 years is $200,000
(present value at 10% is $77,110). 10% is an appropriate interest rate for this company.
What expense should be recorded for 2010 as a result of these events?
A)
Depreciation expense of $120,000
B)
Depreciation expense of $100,000 and interest expense of $7,711
C)
Depreciation expense of $100,000 and interest expense of $20,000
D)
Depreciation expense of $107,710 and interest expense of $7,711
43. The ability to consummate the refinancing of a short-term obligation may be
demonstrated by
A)
actually refinancing the obligation by issuing a long-term obligation after the date of the
balance sheet but before it is issued.
B)
entering into a financing agreement that permits the enterprise to refinance the debt on a
long-term basis.
C)
actually refinancing the obligation by issuing equity securities after the date of the
balance sheet but before it is issued.
D)
all of these.
44. Which of the following terms is associated with recording a contingent liability?
A)
Possible.
B)
Likely.
Page 10

C)
D)

Remote.
Probable.
45. The amount of the liability for compensated
absences should be based on

the current rates of pay in effect when employees earn the r
absences.
the future rates of pay expected to be paid when employees
the present value of the amount expected to be paid in futur
A)
B)
C)
D)

1.
2.
3.
Either 1 or 2 is acceptable.

46. LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send
in 4 boxtops from LeMay Frosted Flakes boxes and $1.00. The company estimates that
60% of the boxtops will be redeemed. In 2010, the company sold 500,000 boxes of
Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the
bowls cost LeMay Company $2.50 each, how much liability for outstanding premiums
should be recorded at the end of 2010?
A)
$20,000
B)
$30,000
C)
$50,000
D)
$70,000
Use the following to answer questions 47-49:
Mott Co. includes one coupon in each bag of dog food it sells. In return for eight coupons,
customers receive a leash. The leashes cost Mott $2.00 each. Mott estimates that 40 percent of the
coupons will be redeemed. Data for 2010 and 2011 are as follows:
2010
Bags of dog food sold
Leashes purchased
Coupons redeemed

500,000
18,000
120,000

2011
600,000
22,000
150,000

47. The premium expense for 2010 is
A)
$25,000.
B)
$30,000.
C)
$35,000.
D)
$50,000.

Page 11

A)
B)
C)
D)

48. The estimated liability for premiums at December 31, 2010 is
$7,500.
$10,000.
$17,500.
$20,000.

49. The estimated liability for premiums at December 31, 2011 is
A)
$11,250.
B)
$21,250.
C)
$22,500.
D)
$42,500.
50. Stock dividends distributable should be classified on the
A)
income statement as an expense.
B)
balance sheet as an asset.
C)
balance sheet as a liability.
D)
balance sheet as an item of stockholders' equity.

Page 12

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Dear Student, Please find the attached solution. Regards View the full answer

6531633.docx

A)
B)
C)
D)

1. Risers Inc. reported total assets of $1,200,000 and net income of $135,000 for the
current year. Risers determined that inventory was overstated by $10,000 at the
beginning of the...

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