ACC 380 3-4 Midterm Exam Chapters 8, 9, 10, and 11

1)

In a perpetual inventory system, the cost of purchases is debited to:

Purchases.

Cost of goods sold.

Inventory.

Accounts payable.

2)

In a perpetual inventory system, the cost of inventory sold is:

Debited to accounts receivable.

Credited to cost of goods sold.

Debited to cost of goods sold.

Not recorded at the time goods are sold.

3)

Purchases equal the invoice amount:

Plus freight-in, plus discounts lost.

Less purchase returns, plus purchase allowances.

Plus freight-in, less purchase discounts.

Plus discounts, less purchase returns.

4)

The LIFO Conformity Rule states that if LIFO is used for:

One class of inventory, it must be used for all classes of inventory.

Tax purposes, it must be used for financial reporting.

One company in an affiliated group, it must be used by all companies in an affiliated group.

Domestic companies, it must be used by foreign partners.

5)

In applying LCM, market cannot be:

Less than net realizable value.

Greater than the normal profit.

Less than the normal profit margin.

Greater than net realizable value.

6)

Under the conventional retail method, the denominator in the cost-to-retail percentage includes:

Net markups and net markdowns.

Neither net markups nor net markdowns.

Net markups, but not net markdowns.

Net markdowns, but not net markups.

7)

Under the retail method, in determining the cost-to-retail percentage for the current year:

Net markups are included.

Net markdowns are excluded.

Net sales are included.

All of the above are correct.

8)

The first step, when using dollar-value LIFO retail method for inventory, is to:

rev: 06_10_2014_QC_50265

Determine the estimated ending inventory at current year retail prices.

Determine the estimated cost of goods sold for the current year.

Determine the cost-to-retail percentage for the current year transactions.

Price index adjust the LIFO inventory layers.

9)

Property, plant, and equipment and intangible assets are:

Created by the normal operation of the business and include accounts receivable.

All assets except cash and cash equivalents.

Current and long-term assets used in the production of either goods or services.

Long-term revenue-producing assets.

10)

Goodwill is:

rev: 06_11_2014_QC_50224

Amortized over the greater of its estimated life or 40 years.

Only recorded by the seller of a business.

The excess of the acquisition price of a business over the fair value of all net identifiable assets.

None of the above.

11)

Productive assets that are physically consumed in operations are:

Equipment.

Land.

Land improvements.

Natural resources.

12)

An exclusive 20-year right to manufacture a product or use a process is a:

Patent.

Copyright.

Trademark.

Franchise.

13)

Donated assets are recorded at:

Zero (memo entry only).

The donor's book value.

The donee's stated value.

Fair value.

14)

Research and development costs for projects other than software development should be:

Expensed in the period incurred.

Expensed in the period they are determined to be unsuccessful.

Deferred pending determination of success.

Expensed if unsuccessful, capitalized if successful.

15)

The factors that need to be determined to compute depreciation are an asset's:

Cost, residual value, and physical life.

Cost, replacement value, and service life.

Fair value, residual value, and economic life.

Cost, residual value, and service life.

16)

The depreciable base for an asset is:

Its service life.

The excess of its cost over residual value.

The difference between its replacement value and cost.

The amount allowable under MACRS

17)

Gains on the cash sales of fixed assets:

Are the excess of the book value over the cash proceeds.

Are part of cash flows from operations.

Are reported on a net-of-tax basis if material.

Are the excess of the cash proceeds over the book value of the assets sold.

18)

Cutter Enterprises purchased equipment for $72,000 on January 1, 2013. The equipment is expected to have a five-year life and a residual value of $6,000.

Using the straight-line method, depreciation for 2013 would be:

$13,200.

$14,400.

$72,000.

None of the above is correct.

($72,000 - 6,000) ÷ 5 = $13,200

19)

The legal life of a patent is:

40 years.

20 years.

Life of the inventor plus 50 years.

Indefinite.

20)

An asset should be written down if there has been an impairment of value that is:

Relevant and objectively determined.

Material and market driven.

Unplanned and sudden.

Significant.

21)

James Company began the month of October with inventory of $16,000. The following inventory transactions occurred during the month:

 

 a. The company purchased merchandise on account for $23,500 on October 12, 2013. Terms of the purchase were 2/10, n/30. James uses the net method to record purchases. The merchandise was shipped f.o.b. shipping point and freight charges of $510 were paid in cash.

 b. On October 18 the company returned merchandise costing $3,100. The return reduced the amount owed to the supplier. The merchandise returned came from beginning inventory, not from the October 12 purchase.

 c. On October 31, James paid for the merchandise purchased on October 12.

 d. During October merchandise costing $18,150 was sold on account for $28,200.

 e. It was determined that inventory on hand at the end of October cost $18,290.

 

Required:

1. Assuming that the James Company uses a periodic inventory system, prepare journal entries for the above transactions including the adjusting entry at the end of October to record cost of goods sold. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

 

 

2. Assuming that the James Company uses a perpetual inventory system, prepare journal entries for the above transactions. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

 

22)

Tristar Production Company began operations on September 1, 2013. Listed below are a number of transactions that occurred during its first four months of operations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

 

  

1. On September 1, the company acquired five acres of land with a building that will be used as a warehouse. Tristar paid $160,000 in cash for the property. According to appraisals, the land had a fair value of $117,000 and the building had a fair value of $63,000.

2. On September 1, Tristar signed a $46,000 noninterest-bearing note to purchase equipment. The $46,000 payment is due on September 1, 2014. Assume that 10% is a reasonable interest rate.

3. On September 15, a truck was donated to the corporation. Similar trucks were selling for $3,100.

4. On September 18, the company paid its lawyer $6,000 for organizing the corporation.

5. On October 10, Tristar purchased machinery for cash. The purchase price was $21,000 and $800 in freight charges also were paid.

6. On December 2, Tristar acquired various items of office equipment. The company was short of cash and could not pay the $6,100 normal cash price. The supplier agreed to accept 200 shares of the company's nopar common stock in exchange for the equipment. The fair value of the stock is not readily determinable.

7. On December 10, the company acquired a tract of land at a cost of $26,000. It paid $5,000 down and signed a 12% note with both principal and interest due in one year. Twelve percent is an appropriate rate of interest for this note.

  

Required:

Prepare journal entries to record each of the above transactions. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)

 

23)

On March 31, 2013, the Herzog Company purchased a factory complete with machinery and equipment. The allocation of the total purchase price of $1,050,000 to the various types of assets along with estimated useful lives and residual values are as follows:

 

  Asset Cost Estimated Residual Value Estimated Useful

Life in Years

  Land $ 125,000        N/A N/A  

  Building 550,000        none 20  

  Machinery 190,000        12% of cost 8  

  Equipment 185,000 $ 13,000 4  

________________________________________________________________________________________________________________________ 

      Total $ 1,050,000  

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 

________________________________________

      

     On June 29, 2014, machinery included in the March 31, 2013, purchase that cost $105,000 was sold for $85,000. Herzog uses the straight-line depreciation method for buildings and machinery and the sum-of-the-years'-digits method for equipment. Partial-year depreciation is calculated based on the number of months an asset is in service.

 

Required:

1. Compute depreciation expense on the building, machinery, and equipment for 2013. (Do not round intermediate calculations.)

 

 

2. Prepare the journal entry to record the depreciation on the machinery sold on June 29, 2014, and the sale of machinery. (If no entry is required for a transaction, select "No journal entry required" in the first account field.)

 

 

3. Compute depreciation expense on the building, remaining machinery, and equipment for 2014. (Do not round intermediate calculations.)

 

 

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