Prelim-Quiz19
When a company records the cost of cutting down timber for example this cost is
deemed to be:
depletion cost
Which of the following is an example of the expected benefit approach for valuing
long-lived assets?
a. historical cost
b. current replacement value
c. current cost
d. discounted present value
d
Expenditures included in the cost of a long-lived asset are
capitalized
The method of measuring long-lived assets at their estimated value in an input
market is the
economic sacrifice approach
Which one of the following items would be charged to the cost of the building
rather than the cost of the land?
architectural fees
Capitalization of interest for the construction of long-lived assets is limited to
interest arising from actual borrowings from:
outsiders
Which of the following factors makes it difficult for financial analysts to use trend
analysis?
aging asset base
The method used to account for oil and gas exploration costs that capitalizes all
exploration costs is the
full cost method
Which of the following would be charged to the cost of the building?
a. architectural fees
b. cost of foundation
c. capitalization of interest financing charges
d. all of the above
d
For U.S. GAAP, software development costs are capitalized as intangible assets
once the technological feasibility of the product is established
Which of the following is not a classification for a minority, passive investment?
equity securities
When dividends from an investment are recognized as income, the investment
must have been which type?
minority, passive investment
When dividends from an investment are recognized as a reduction of the
investment account, the investment must have been of which type?
minority, active investment
Goodwill represents
the difference between the acquisition cost and the market value of its identifiable
assets and liabilities
What is net realizable value?
The selling price less costs to complete and sell
At Line Drive Apparel practice jerseys are sold for $30. The disposal costs are$5 per
jersey. The historical cost is $22 per jersey but the current replacement cost is $20
per jersey. What amount should the company to value each jersey in the lower-of-
cost-or-market comparison if Line Drive Apparel's normal profit margin is 20% of
the sale price?
$20
Which method of recording inventory at NRV substitutes the net realizable value
for cost and reports the loss as a part of cost of goods sold?
The cost-of-goods-sold method
Which of the following would be the cause of a markdown followed by a
markdown cancellation?
a one-day sale
What is the expected result of increasing the inventory turnover ratio?
The average days to sell will decrease.
When using the loss method of valuing inventory is used, the ____ account is
generally debited.
Loss Due to Decline of Inventory to NRV
Since employee discounts do not reflect an overall change in the selling price, they
are
not considered in the cost-to-retail percentage.
A company should _________ the historical cost principle when inventory declines
in value such that it is below its original cost.
abandon
Line Drive Apparel had following information is available for July. A fire destroyed
the July 31 inventory, leaving undamaged inventory with a cost of $15,000. What is
the estimated ending inventory destroyed by fire using the gross profit method?
Beginning Inventory $250K
Net Purchases $750K
Net Sales $1.5M
Markup on cost 66.67%
$85,000
First determine the cost of the goods available to sell in July. $250,000 + $750,000
= $1,000,000. The gross profit on sales is .6667/1.6667 = 40%. $1,500,000 - (40% X
$1,500,000) = $900,000 cost of goods sold estimate. $1,000,000 - $900,000 =
$100,000 ending inventory estimate. The inventory destroyed is $100,000 -
$15,000 = $85,000. Note: the markup is actually 2/3 which is .66666 repeating
which results in the rounding error of about $18
Which of the following is the maximum value of "market" when using the lower-
of-cost-or-market rule?
The estimated selling price in the ordinary course of business less reasonably
predictable costs of completion and disposal.
Which of the following are assumptions of the gross profit method?
1. Beginning inventory plus purchases equals the total goods to be accounted for.
2. Goods not sold must be on hand.
3. Sales, in terms of cost, deducted from the total goods equals ending inventory.
1, 2, and 3
Abnormal shortages are deducted from both the cost and retail amounts and then
reported as a loss in the retail inventory method.
True
