Question 30 A firm experiencing deflation and increasing inventory will have the highest inventory under the Answer average cost method. first-in, first-out method. last-in, last-out method. Cannot be determined without additional information Question 31 Which of the following statements regarding inventory accounting systems is true? Answer A disadvantage of the perpetual inventory system is that the inventory dollar amounts used for interim reporting purposes are estimated amounts. A disadvantage of the periodic inventory system is that the cost of goods sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages. An advantage of the perpetual inventory system is that the record keeping required to maintain the system is relatively simple. An advantage of the periodic inventory system is that it provide a continuous record of the inventory balance. Question 32 The journal entry to record a sale under the periodic inventory system would include a Answer credit to Inventory. credit to Purchases. credit to Accounts Receivable. credit to Sales Revenue. Question 33 Cole Co. began constructing a building for its own use in January 2007. During 2007, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 2007 was $40,000. What amount of interest cost should Cole capitalize? Answer $20,000 $40,000 $50,000 $70,000 Question 34 Adams Market Inc. trades an asset with a book value of $10,000 for another asset with a fair market value of $8,500 and receives $2,000 as boot. The exchange is deemed to lack commercial substance. The fair market value of Adams Market s old asset is $10,500. Compute Adams Market s recognized gain or loss. Answer $95 gain $405 gain $500 gain $500 loss Question 35 Delta Enterprises trades an asset that costs $55,000 and had accumulated depreciation of another $37,000 for another asset with a fair market value of $20,000. The exchange is deemed to lack commercial substance. Delta pays $500 in cash. Delta s asset has a fair market value of $19,500. Determine Delta s recorded cost of the new asset. Answer $21,500 $20,000 $19,500 $18,500 Question 36 HCI, Inc. understated its ending inventory by $6,000 in 2006. Assume HCI, Inc. has a 25 percent income tax rate. Which of the following statements about the financial reports of HCI, Inc. for 2006 is correct? Answer Ending inventory will be overstated by $4,500. Ending inventory will be understated by $4,500. Cost of sales will be overstated by $1,500. Net income will be understated by $4,500. Question 37 Person Dot Company sold a delivery truck on July 1, 2005, for $5,500. The original cost of the truck was $30,000. Each December 31, Parson s recognized $4,500 of depreciation using the straight-line method. On January 1, 2005, the accumulated depreciation was $22,500. The liquidation value for the truck is $3,000 on July 1. Compute Parson s gain or loss on the sale of the truck. Answer $2,500 gain $2,000 gain $2,000 loss $250 gain Question 38 Which of the following statements concerning exchanges of similar assets without commercial substance is false? Answer Losses are always recognized. Gains are not recognized if cash is paid. Gains are never recognized. Losses are recognized if cash is paid. Question 39 On July 1, 2005, Woody Co. purchased for $500,000 5 acres of land for a store and parking lot. Woody removed an old building on the land and sold the scrap material. Woody s cost incurred during 2005 on the project and the salvage proceeds were:Demolition of old building:$75,000,Legal fees for the purchase:20,000,Title insurance:2,000,Proceeds from sale of salvaged materials:18,000.On its December 31, 2005 balance sheet, Doyle should report a balance in the Land account of Answer $579,000. $575,000. $557,000. $500,000. Question 40 Fences and parking lots are reported on the balance sheet as Answer current assets. land improvements. land. property and equipment.
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