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ACT311 Quiz#3 Fall 2014




Question;ACT311 Quiz#3 Fall 2014;1;1. In periods of rising prices, which method results in the;lowest taxable income (Hint: use the four;illustrations in the handout)?;a. FIFO;b. LIFO;c. Weighted Average;2. The Greene Co. started using the dollar-value LIFO method;of inventory in 2005, with ending;inventory of $100,000. In 2006 the amount of inventory in;base year dollars increased by $40,000. In;2007 the amount of inventory in base year dollars decreased;by $30,000. Which of the following is true;when computing the ending inventory for 2007.;a. The ending inventory for 12/31/2007 will consist of;layers from 2005, 2006 and 2007.;b. The ending inventory for 12/31/2007 will consist of;layers from 2005 and 2007 only.;c. The ending inventory for 12/31/2007 will consist of;layers from 2005 and 2006 only.;d. The ending inventory for 12/31/2007 will consist of only;a 2007 layer.;3. [COGS] he Silva Co. provided the following information.;Beginning inventory = $12,000, Purchases =;$100,000, Purchase Returns = $3,000, Ending inventory =;$10,000, Sales = $180,000. Calculate Cost of;Goods Sold;a. $103,000 b. $101,000 c. $99,000 d. $98,000;4. [Gross Profit Method.] The Cavalas Co. is estimating the;amount of inventory using the gross profit;method. The beginning inventory was $40,000, the amount of;sales was $120,000 and the amount of;purchases during the year was $100,000. A normal gross;profit for this company is 60%. What should;be the estimated amount of ending inventory?;a. $84,000 b. $92,000 c. $68,000 d. $56,000;5. [Retail Method.] The following information pertains to;the Roberts Co: Cost of net purchases =;$70,000, cost of beginning inventory = $10,000, net;purchases at retail = $130,000, beginning;inventory at retail = $15,000, Sales = $80,000. What is the;amount of the ending inventory at retail?;(Choose the closest answer).;a. $145,000 b. $65,000 c. $45,000. d. $20,000 e. $30,000;6. [Retail method.] Ignore Question 5. Assume that ending;inventory at retail is $40,000 and that the;cost to retail ratio is 40%. What is the amount of ending;inventory at cost. (Choose the closest answer).;a. $16,000 b. $24,000 c. $40,000 d. $66,667ACT311 Quiz#3;Fall 2014;2;7. [LIFO Reserve.] How to covert COGS under LIFO to COGS;under FIFO? (Hint: read the text P432 15th e);a. Add the change in the LIFO reserve to COGS under LIFO to;yield COGS under FIFO.;b. Deduct the change in the LIFO reserve from COGS under;LIFO to yield COGS under FIFO.;c. Neither of the above.;8. On July 1, 2006, the ABC Co. sold equipment it no longer;needed for $100,000. On 12/31/05, the;balance in the Equipment Account was $130,000 and the;balance in the Accumulated Depreciation;account as $40,000. The company uses the straight-line;depreciation method, based on an estimated;salvage value of $20,000 and estimated life of 11 years.;Assuming that the accountant makes all of the;necessary journal entries, what was the amount of gain or;loss on the sale. Hint: don?t forget to;consider the additional 6 months of depreciation expense;before calculating the gain or loss.;a. Loss of $27,500 b. Gain of $12,500 c. Gain of $15,000;9. [$ Value LIFO.] The Green Co. uses the dollar-value LIFO;method. At the end of 2005, the base year;the current cost of the ending inventory was $60,000. At the;end of 2006, the current cost of the ending;inventory was $72,000 and the price index was 1.10. What;should be the cost of inventory on the;12/31/06 balance sheet?;a.. $60,000 b. $65,455 c. $66,000 d. $72,000 e. none of the;above;10. [LIFO] The Brown Co. has beginning inventory of 11 units;at $10 each. A purchase was made early in;the year of 8 units at $8, and later in the year of 7 units;at $7. At the end of the year, there were 12;units on hand. What is the amount of ending inventory, if;the company uses the LIFO method?;a. $89 b. $116 c. $118 d. $120;11. [Int Cap] Which of the following assets do not qualify;for interest capitalization?;a. A new building that is under construction and intended;for use by the company.;b. A new building that was purchased ready for use by the;company.;c. A new building that a company is building and intends to;sell for a profit.;12. When does the period of interest capitalization begin?;a. When expenditures for the asset have been made.;b. When activities that are necessary to get it ready for;its intended use are in progress.;c. When interest cost is being incurred.;d. Only when all three of the above conditions are;met.ACT311 Quiz#3 Fall 2014;3;13. [COGS] The Grievance Co. uses the periodic inventory;procedure and provided the following;information: Sales = $100,000, Beginning Inventory =;$30,000, Accounts Receivable = $20,000, Ending;Inventory = $40,000, Purchases = $90,000 Which of the;following is the correct journal entry for;recording COGS under the periodic procedure.;a. dr Merch Invty 30,000, dr. COGS 80,000, cr. Purchases;70,000, cr Merch. Invty 40,000;b. dr Merch Invty 40,000, dr. COGS 80,000, cr. Purchases;90,000, cr Merch. Invty 30,000;c. dr Merch Invty 40,000, dr Purchases 90,000, cr. Merch.;Invty 30,000, cr COGS 100,000.;d. dr Purchases 90,000, cr. COGS 80,000, cr. Merch. Invty;10,000;(Capitalization of Interest) On December 31, 2009, Hurston;Inc. borrowed $3,000,000 at 12%;payable annually to finance the construction of a new;building. In 2010, the company made the;following expenditures related to this building: March 1;$360,000, June 1, $600,000, July 1, $1,500,000;December 1, $1,200,000. Additional information is provided;as follows.;1. Other debt outstanding;10-year, 11% bond, December 31, 2003, interest payable;annually $4,000,000;6-year, 10% note, dated December 31, 2007, interest payable;annually $1,600,000;2. March 1 expenditure included land costs of $150,000;Hint: Expenditure for land can be included in calculating;weighted average accumulated expenditures;14. Determine the amount of weighted average accumulated;expenditure in 2010 in relation to the;construction of the building.;a. 1,500,000 b. 3,660,000 c. 1,600,000;15. Determine the amount of interest to be capitalized in;2010 in relation to the construction of the;building.;a. 180,000 b. 960,000 c. 780,000;16. Determine the total actual interest expenses incurred in;year 2010.;a. 180,000 b. 960,000 c. 780,000 ACT311 Quiz#3 Fall 2014;4;[ASSET IMPAIRMENT] On 12/31/09, the Stevens Co. had an asset;with cost of $10,000 and accumulated;depreciation of $6,000. Because of changes in technology;the auditor inquired as to the expected;future cash flows from the asset. The Company responded that;total estimated future cash flows;attributable to the asset amounted to $3,000. On 12/31/09;the fair market value of the asset was;$2,800.;17. Is the asset impaired?;a. yes b. no;18. What is the amount of loss due to impairment?;a. 2,800 b. 1,200 c. 1,000 d. there is no need to record a;loss due to impairment;[Depreciation Method] A machine was purchased on 1/1/09 for;$80,000. Estimated residual value =;$10,000. Estimated life = 20 years. Required: What is the;amount of depreciation expense for the;second year of the asset?s life;19. Under the Straight-line depreciation method.;a. 4,000 b. 3,500 c. 8,000;20. Under the double-declining balance method.;a. 8,000 b. 7,200 c.4,000


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