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The specific identification method is acceptable only when the actual cost of individual units of merchandise can be determined from the accounting records.

01 / 10 / 2021 Assignment

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Part I: True/False Questions

1.The specific identification method is acceptable only when the
actual cost of individual units of merchandise can be determined from the
accounting records.

TrueFalse

2.An advantage of the average-cost method of accounting for
inventory is that the inventory is valued in the balance sheet at current
replacement costs.

TrueFalse

3.An advantage to the LIFO method of accounting for inventory is
that it values the cost of goods sold at current replacement costs.

TrueFalse

4.During periods of inflation, the LIFO cost flow assumption
will yield a lower inventory value than FIFO.

TrueFalse

5.Any business that sells numerous units of identical products
may determine its cost of goods sold using a cost flow assumption, rather than
the specific identification method.

TrueFalse

6.Incidental costs incurred in the purchase of land that are
charged to Land Improvements will affect net income at some future time.

TrueFalse

7.The term plant assets refers to long-lived assets acquired for
use in business operations, rather than for resale to customers.

TrueFalse

8.If a piece of equipment is dropped and damaged during
installation, the cost of repairing the damage should be added to the cost of
the equipment.

TrueFalse

9.Natural resources such as oil or minerals are categorized as
intangible assets.

TrueFalse

10.Sales tax on equipment is not part of the acquisition cost
and should not be capitalized.

TrueFalse

11.A liability that is known to exist but the precise dollar
amount is not known is called a possible liability.

TrueFalse

12.Working capital is equal to current assets less current
liabilities.

TrueFalse

13.Current liabilities are obligations that must be repaid
within the shorter of one year or the operating cycle.

TrueFalse

14.Accounts payable are often subdivided into the categories of
trade accounts payable and notes payable.

TrueFalse

15.When money is borrowed by issuing a note payable, the
borrower records a liability equal to the maturity value of the note.

TrueFalse

Part II: Multiple Choice Questions

1.Inventory:

A. Consists of all
goods owned and held for sale to customers.

B. Is a non-financial
asset.

C. Both consists of all
goods owned and held for sale to customers and is a non-financial asset.

D. Both consists of all
goods owned and held for sale to customers and is a financial asset.

2.Which of the
following is not considered an acceptable inventory cost method according to
GAAP?

A. First-in, first-out.

B. First-in, last-out.

C. Last-in, first-out.

D. Average cost.

3.When prices are
increasing, which inventory method will produce the highest cost of goods sold?

A. FIFO.

B. LIFO.

C. Average cost.

D. Cost of goods sold
will not change.

4.Kent Company has used
the same inventory method for many years. This is an example of which
principle?

A. Matching.

B. Realization.

C. Cost.

D. Consistency.

5.In which of these
inventory approaches is it important to determine the actual cost of a
particular inventory item being sold in order to determine cost of goods sold?

A. LIFO.

B. FIFO.

C. Specific
identification.

D. Weighted average
cost.

6.In a perpetual
inventory system, two entries are normally made to record each sales
transaction. The purpose of these entries is best described as follows:

A. One entry recognizes
the sales revenue and the other recognizes the cost of goods sold.

B. One entry records
the purchase of merchandise and the other records the sale.

C. One entry records
the cost of goods sold and the other reduces the balance in the Inventory
account.

D. One entry updates
the subsidiary ledger and the other updates the general ledger.

7.Land is purchased for $256,000. Additional costs include a
$15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence,
and a legal fee of $8,500. What is the cost of the land?

A. $256,000.

B. $271,300.

C. $283,950.

D. $282,200.

8.Which of the following would not be considered as part of the
cost of equipment recently purchased?

A. Sales tax.

B. Transportation charges.

C. Installation and setup charges.

D. The cost to repair damage incurred after dropping the
equipment.

7.Armstrong Company recently acquired a new computer system.
Which of the following costs associated with the computer should not be debited
to the Equipment account?

A. Insurance coverage purchased by Armstrong to cover the
computer during shipment from the manufacturer.

B. Wages paid to system programmers hired to prepare the new
computer for use.

C. Replacement of several circuit boards damaged during
installation.

D. Installation of new electrical power supplies required for
the computer.

8.Tomassi Company paid $450,000 to acquire a piece of real
estate consisting of land and an office building with a parking lot. In this
situation:

A. The purchase price should be apportioned among the Land, Land
Improvement, and Building accounts.

B. The entire purchase price should be debited to the Land
account only.

C. Land, Land Improvement, and Building accounts should each be
credited for the respective appraisal value of each item.

D. Allocation of the entire $450,000 to Land results in an
understatement of net income in the current and future accounting periods.

9.Which of the following assets is not subject to depreciation
and whose usefulness does not decline over time?

A. Patents.

B. Copyrights.

C. Land.

D. Coal mine.

10.Assets that have been pledged as security for a loan:

A. Are reported as liabilities on the balance sheet.

B. Must be sold when the loan matures.

C. Become the property of the lender until the loan is paid in
full.

D. Are disclosed in the notes to the financial statements.

11.All of the following are examples of current liabilities
except:

A. Accounts payable.

B. Pledged assets.

C. Unearned revenue.

D. Income taxes payable.

12.The two basic characteristics of estimated liabilities are:

A. Probable and reasonably estimated.

B. Known to exist and amount unable to be determined until a
later date.

C. Probable and non-interest bearing.

D. Known to exist and interest bearing.

13.If a business ceases operations and liquidates, which of the
following will be paid last?

A. Owners.

B. General creditors.

C. Employees.

D. Creditors who have collateral for their loans.

14.A measure of a company’s liquidity is:

A. Assets divided by liabilities.

B. The current ratio.

C. The dollar amount of liabilities that bear interest.

D. The dollar amount of assets used as collateral for a loan.

15.On October 1, 2015, Master’s Co. borrows $500,000 from its
bank for five years at an annual interest rate of 10%. According to the terms
of the loan, the principal amount will not be due for five years. Interest is
to be paid monthly on the first day of each month, beginning November 1, 2015.
With respect to this borrowing, Master’s December 31, 2015, balance sheet
included only a long-term note payable of $500,000. As a result:

A. The December 31, 2015, financial statements are accurate.

B. Liabilities are understated by $12,500 accrued interest
payable.

C. Liabilities are understated by $4,167 accrued interest
payable.

D. Liabilities are understated by the amount of interest for the
five-year term of the note that has not yet been paid.



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