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Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
Dahle Corporation has equipment with a carrying value of $450,000 on December 31, 2010. The following information was available on December 31, 2010:Expected net cash flows (undiscounted) $420,000 Expected net cash flows discounted at 7% $400,000 Fair value, using the assets with other assets
Conner Corporation has equipment with a carrying value of $160,000 on December 31, 2010, after recording depreciation expense for 2010. The following information was available on December 31, 2010:Value of similar equipment for sale in market $140,000 Present value of estimated future cash flows
Linx Corporation acquired equipment on January 1, 2009, for $100,000. The equipment had a ten-year useful life and no salvage value. On December 31, 2010, the following information was obtained regarding the equipment:Expected value of undiscounted cash flows $72,000 Fair value estimated with
Scarbrough Company had purchased equipment for$280,000 on January 1, 2007. The equipment had an eightyear useful life and a salvage value of $40,000. Scarbrough depreciated the equipment using the straight-line method. In August 2010, Scarbrough questioned the recoverability of the carrying amount
With regard to impaired assets, the FASB standards provide for Recognition of loss upon impairment Restoration of previously recognized impairment lossesa. Yes Yesb. Yes Noc. No Yesd. No No
Synthia, Inc., a clothing manufacturer, purchased a sewing machine for $10,000 on July 1, 2008. The machine had a ten-year life, a $500 salvage value, and was depreciated using the straight-line method. On December 31, 2010, a test for impairment indicates that the undiscounted cash flows from the
Assets intended to be held and used for productive purposes may suffer from impairment in each of the following circumstances excepta. A change in the way the assets are used or physical change in the assets.b. Asset costs incurred exceed the original amounts planned.c. Discounted expected future
Cranston Inc. reported an impairment loss of $150,000 on its income statement for the year ended December 31, 2009. This loss was related to long-lived assets which Cranston intended to use in its operations. On the company’s December 31, 2009 balance sheet, Cranston reported these long-lived
Taft Inc. recognized a loss in 2009 related to long-lived assets that it intended to sell. These assets were not sold during 2010, and the company estimated, at December 31, 2010, that the loss recognized in 2009 had been more than recovered. On the December 31, 2010 balance sheet, Taft should
At December 31, 2010, Matson Inc. was holding longlived assets that it intended to sell. The assets do not constitute a separate component of the company. The company appropriately recognized a loss in 2010 related to these assets.On Matson’s income statement for the year ended December 31, 2010,
During 2010, the management of West Inc. decided to dispose of some of its older equipment and machinery. By year-end, December 31, 2010, these assets had not been sold, although the company was negotiating their sale to another company. On the December 31, 2010 balance sheet of West Inc., this
A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts would be decreased by thea. Cash proceeds received and original cost of the
Which of the following uses the straight-line depreciation method?Group depreciation Composite depreciationa. No Nob. Yes Noc. Yes Yesd. No Yes
The following graph depicts three depreciation expense patterns over time.Depreciation expense Time III III Which depreciation expense pattern corresponds to the sumof-the-years’ digits method and which corresponds to the double-declining balance method?Sum-of-the-years’ digits Double-declining
Spiro Corp. uses the sum-of-the-years’ digits method to depreciate equipment purchased in January 2008 for $20,000.The estimated salvage value of the equipment is $2,000 and the estimated useful life is four years. What should Spiro report as the asset’s carrying amount as of December 31,
A machine with a five-year estimated useful life and an estimated 10% salvage value was acquired on January 1, 2007. On December 31, 2010, accumulated depreciation, using the sum-of-the-years’ digits method, would bea. (Original cost less salvage value) multiplied by 1/15.b. (Original cost less
In which of the following situations is the units-ofproduction method of depreciation most appropriate?a. An asset’s service potential declines with use.b. An asset’s service potential declines with the passage of time.c. An asset is subject to rapid obsolescence.d. An asset incurs increasing
A depreciable asset has an estimated 15% salvage value.At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?Straight-line Productive outputa. Yes Nob. Yes Yesc. No Yesd. No No
On January 1, 2006, Crater, Inc. purchased equipment having an estimated salvage value equal to 20% of its original cost at the end of a ten-year life. The equipment was sold December 31, 2010, for 50% of its original cost. If the equipment’s disposition resulted in a reported loss, which of the
Weir Co. uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consisted of the following:12/31/10 12/31/09 Land $ 25,000 $ 25,000 Buildings 195,000 195,000 Machinery and equipment 695,000 650,000 915,000 870,000 Less accumulated depreciation 400,000
On January 2, 2007, Union Co. purchased a machine for$264,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value.On January 2, 2010, Union determined that the machine had a useful life of six years from the date of acquisition and will
Rago Company takes a full year’s depreciation expense in the year of an asset’s acquisition, and no depreciation expense in the year of disposition. Data relating to one of Rago’s depreciable assets at December 31, 2011, are as follows:Acquisition year 2008 Cost $110,000 Residual value 20,000
Turtle Co. purchased equipment on January 2, 2008, for$50,000. The equipment had an estimated five-year service life. Turtle’s policy for five-year assets is to use the 200%double-declining depreciation method for the first two years of the asset’s life, and then switch to the straight-line
On January 2, 2010, Lem Corp. bought machinery under a contract that required a down payment of $10,000, plus twenty-four monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery was $110,000. The machinery has an estimated useful life of ten
Derby Co. incurred costs to modify its building and to rearrange its production line. As a result, an overall reduction in production costs is expected. However, the modifications did not increase the building’s market value, and the rearrangement did not extend the production line’s
A building suffered uninsured fire damage. The damaged portion of the building was refurbished with higher quality materials. The cost and related accumulated depreciation of the damaged portion are identifiable. To account for these events, the owner shoulda. Reduce accumulated depreciation equal
On June 18, 2010, Dell Printing Co. incurred the following costs for one of its printing presses:Purchase of collating and stapling attachment $84,000 Installation of attachment 36,000 Replacement parts for overhaul of press 26,000 Labor and overhead in connection with overhaul 14,000 The overhaul
During 2010, King Company made the following expenditures relating to its plant building:Continuing and frequent repairs $40,000 Repainted the plant building 10,000 Major improvements to the electrical wiring system 32,000 Partial replacement of roof tiles 14,000 How much should be charged to
On July 1, 2010, Town Company purchased for$540,000 a warehouse building and the land on which it is located. The following data were available concerning the property:Current appraised value Seller’s original cost Land $200,000 $140,000 Warehouse building 300,000 280,000$500,000 $420,000 Town
Lano Corp.’s forest land was condemned for use as a national park. Compensation for the condemnation exceeded the forest land’s carrying amount. Lano purchased similar, but larger, replacement forest land for an amount greater than the condemnation award. As a result of the condemnation and
On July 1, 2010, one of Rudd Co.’s delivery vans was destroyed in an accident. On that date, the van’s carrying value was $2,500. On July 15, 2010, Rudd received and recorded a $700 invoice for a new engine installed in the van in May 2010, and another $500 invoice for various repairs.In
An entity disposes of a nonmonetary asset in a nonreciprocal transfer. A gain or loss should be recognized on the disposition of the asset when the fair value of the asset transferred is determinable and the nonreciprocal transfer is to Another entity A stockholder of the entitya. No Yesb. No Noc.
Yola Co. and Zaro Co. are fuel oil distributors. To facilitate the delivery of oil to their customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without physically moving the oil. Yola paid Zaro $20,000 to compensate for a difference in the grade of oil. On the date of the exchange,
Vik Auto and King Clothier exchanged goods, held for resale, with equal fair values. Each will use the other’s goods to promote their own products. The retail price of the car that Vik gave up is less than the retail price of the clothes received. Assuming the transaction has commercial
May Co. and Sty Co. exchanged nonmonetary assets.The exchange did not result in the expected cash flows of the assets being significantly different for either May or Sty.May paid cash to Sty in connection with the exchange. To the extent that the amount of cash exceeds a proportionate share of the
In an exchange of assets that is deemed to lack commercial substance, Transit Co. received equipment with a fair value equal to the carrying amount of equipment given up. Transit also contributed cash. As a result of the exchange, Transit recognizeda. A loss equal to the cash given up.b. A loss
Amble, Inc. exchanged a truck with a carrying amount of $12,000 and a fair value of $20,000 for a truck and $2,500 cash. The cash flows from the new truck are not expected to be significantly different from the cash flows of the old truck.The fair value of the truck received was $17,500. At what
On March 31, 2010, Winn Company traded in an old machine having a carrying amount of $16,800, and paid a cash difference of $6,000 for a new machine having a total cash price of $20,500. The cash flows from the new machine are expected to be significantly different than the cash flows from the old
When determining the commercial substance of the exchange, which of the following items is not considered?a. Cash flow of exchanged asset.b. Cash flow of new asset.c. Cash flow from tax effects on the exchange to avoid taxes.d. Cash flow from potential sale of new equipment at a later date.
For purposes of nonmonetary exchanges, the configuration of cash flows includes which of the following?a. The implicit rate, maturity date of loan, and amount of loan.b. The risk, timing, and amount of cash flows of the assets.c. The entity-specific value of the asset which is equal to the fair
In a nonmonetary exchange, which of the following situations will require the asset to be recognized at the recorded value of the asset relinquished?a. A delivery truck exchanged for a delivery van that can deliver four times the quantity of goods to customers.b. The exchanged item is intended to
A nonmonetary exchange is recognized at fair value of the assets exchanged unlessa. Exchange has commercial substance.b. Fair value is not determinable.c. The assets are similar in nature.d. The assets are dissimilar.
On July 1, 2010, Balt Co. exchanged a truck for twentyfive shares of Ace Corp.’s common stock. On that date, the truck’s carrying amount was $2,500, and its fair value was$3,000. Also, the book value of Ace’s stock was $60 per share. On December 31, 2010, Ace had 250 shares of common stock
During 2010, Bay Co. constructed machinery for its own use and for sale to customers. Bank loans financed these assets both during construction and after construction was complete. How much of the interest incurred should be reported as interest expense in the 2010 income statement?Interest
Clay Company started construction of a new office building on January 1, 2010, and moved into the finished building on July 1, 2011. Of the building’s $2,500,000 total cost, $2,000,000 was incurred in 2010 evenly throughout the year. Clay’s incremental borrowing rate was 12% throughout 2010,
Cole Co. began constructing a building for its own use in January 2010. During 2010, 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 2010 was
On December 1, 2010, Boyd Co. purchased a $400,000 tract of land for a factory site. Boyd razed an old building on the property and sold the materials it salvaged from the demolition.Boyd incurred additional costs and realized salvage proceeds during December 2010 as follows:Demolition of old
Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000.Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine?a. $155,000b. $145,000c. $135,000d. $125,000
Which of the following methods of accounting for inventory is not allowed under IFRS?a. LIFO.b. Specific identification.c. FIFO.d. Weighted-average.
Which of the following is not true about accounting for inventory under IFRS?a. FIFO is allowed.b. Interest costs may be capitalized if there is a lengthy production period to prepare goods for sale.c. The weighted-average method is acceptable.d. Inventories are always valued at net realizable
The information provided below is for an item in Harris Corporation’s inventory at year end. Harris presents its financial statements in accordance with IFRS:Historical cost $1,200 Estimated selling price 1,300 Estimated completion and selling costs 150 Replacement cost 1,100 What should be the
Under IFRS, the specific identification method of accounting for inventory is required fora. All inventory items.b. Inventory items which are interchangeable.c. Inventory items that are not interchangeable and goods that are produced and segregated for specific projects.d. Biological (agricultural)
Under IFRS, which of the following inventory items are not valued at the lower of cost or net realizable value?a. Manufactured inventory items.b. Retail inventory items.c. Biological inventory items.d. Industrial inventory items.
A company determined the following values for its inventory as of the end of its fiscal year:Historical cost $100,000 Current replacement cost 70,000 Net realizable value 90,000 Net realizable value less a normal profit margin 85,000 Fair value 95,000 Under IFRS, what amount should the company
Brady Corporation values its inventory at the lower of cost or net realizable value as required by IFRS. Brady has the following information regarding its inventory:Historical cost $1,000 Estimated selling price 900 Estimated costs to complete and sell 50 Replacement cost 800 What is the amount for
In accounting for a long-term construction contract using the percentage-of-completion method, the progress billings on contracts account is aa. Contra current asset account.b. Contra noncurrent asset account.c. Noncurrent liability account.d. Revenue account.
When should an anticipated loss on a long-term contract be recognized under the percentage-of-completion method and the completed-contract method, respectively?Percentage-of-completion Completed-contracta. Over life of project Contract completeb. Immediately Contract completec. Over life of project
The calculation of the income recognized in the third year of a five-year construction contract accounted for using the percentage-of-completion method includes the ratio ofa. Total costs incurred to date to total estimated costs.b. Total costs incurred to date to total billings to date.c. Cost
A company used the percentage-of-completion method of accounting for a five-year construction contract. Which of the following items will the company use to calculate the income recognized in the third year?Progress billings to date Income previously recognizeda. Yes Nob. No Yesc. No Nod. Yes Yes
Which of the following is used in calculating the income recognized in the fourth and final year of a contract accounted for by the percentage-of-completion method?Actual total costs Income previously recognizeda. Yes Yesb. Yes Noc. No Yesd. No No
If Pell used the percentage-of-completion method, what amount of gross profit (loss) would Pell report in its 2011 income statement?a. $(20,000)b. $ 20,000c. $ 22,500d. $ 40,000
If Pell used the completed contract method, what amount of gross profit (loss) would Pell report in its 2011 income statement?a. $ (20,000)b. $ 0c. $ 340,000d. $ 420,000
Hansen Construction, Inc. has consistently used the percentage-of-completion method of recognizing income.During 2011, Hansen started work on a $3,000,000 fixedprice construction contract. The accounting records disclosed the following data for the year ended December 31, 2011:Costs incurred $
Lake Construction Company has consistently used the percentage-of-completion method of recognizing income.During 2010, Lake entered into a fixed-price contract to construct an office building for $10,000,000. Information relating to the contract is as follows:At December 31, 2010 2011 Percentage of
State Co. recognizes construction revenue and expenses using the percentage-of-completion method. During 2010, a single long-term project was begun, which continued through 2011. Information on the project follows:2010 2011 Accounts receivable from construction contract $100,000 $300,000
Cord Builders, Inc. has consistently used the percentageof-completion method of accounting for construction-type contracts. During 2010 Cord started work on a $9,000,000 fixed-price construction contract that was completed in 2012.Cord’s accounting records disclosed the following:December 31 2010
Selected data pertaining to Lore Co. for the calendar year 2011 is as follows:Net cash sales $ 3,000 Cost of goods sold 18,000 Inventory at beginning of year 6,000 Purchases 24,000 Accounts receivable at beginning of year 20,000 Accounts receivable at end of year 22,000 Lore would use which of the
In a comparison of 2011 to 2010, Neir Co.’s inventory turnover ratio increased substantially although sales and inventory amounts were essentially unchanged. Which of the following statements explains the increased inventory turnover ratio?a. Cost of goods sold decreased.b. Accounts receivable
During 2011, Rand Co. purchased $960,000 of inventory.The cost of goods sold for 2011 was $900,000, and the ending inventory at December 31, 2011, was $180,000.What was the inventory turnover for 2011?a. 6.4b. 6.0c. 5.3d. 5.0
Heath Co.’s current ratio is 4:1. Which of the following transactions would normally increase its current ratio?a. Purchasing inventory on account.b. Selling inventory on account.c. Collecting an account receivable.d. Purchasing machinery for cash.
Jel Co., a consignee, paid the freight costs for goods shipped from Dale Co., a consignor. These freight costs are to be deducted from Jel’s payment to Dale when the consignment goods are sold. Until Jel sells the goods, the freight costs should be included in Jel’sa. Cost of goods sold.b.
Southgate Co. paid the in-transit insurance premium for consignment goods shipped to Hendon Co., the consignee.In addition, Southgate advanced part of the commissions that will be due when Hendon sells the goods. Should Southgate include the in-transit insurance premium and the advanced commissions
On December 1, 2011, Alt Department Store received 505 sweaters on consignment from Todd. Todd’s cost for the sweaters was $80 each, and they were priced to sell at$100. Alt’s commission on consigned goods is 10%. At December 31, 2011, five sweaters remained. In its December 31, 2011 balance
The following items were included in Opal Co.’s inventory account at December 31, 2011:Merchandise out on consignment, at sales price, including 40% markup on selling price $40,000 Goods purchased, in transit, shipped FOB shipping point 36,000 Goods held on consignment by Opal 27,000 By what
On October 20, 2011, Grimm Co. consigned forty freezers to Holden Co. for sale at $1,000 each and paid $800 in transportation costs. On December 30, 2011, Holden reported the sale of ten freezers and remitted $8,500. The remittance was net of the agreed 15% commission. What amount should Grimm
On January 1, 2011, Dell, Inc. contracted with the city of Little to provide custom built desks for the city schools.The contract made Dell the city’s sole supplier and required Dell to supply no less than 4,000 desks and no more than 5,500 desks per year for two years. In turn, Little agreed to
Lewis Company’s usual sales terms are net sixty days, FOB shipping point. Sales, net of returns and allowances, totaled $2,300,000 for the year ended December 31, 2011, before year-end adjustments. Additional data are as follows:• On December 27, 2011, Lewis authorized a customer to return, for
Kew Co.’s accounts payable balance at December 31, 2011, was $2,200,000 before considering the following data:• Goods shipped to Kew FOB shipping point on December 22, 2011, were lost in transit. The invoice cost of $40,000 was not recorded by Kew. On January 7, 2012, Kew filed a $40,000 claim
Herc Co.’s inventory at December 31, 2011, was$1,500,000 based on a physical count priced at cost, and before any necessary adjustment for the following:• Merchandise costing $90,000, shipped FOB shipping point from a vendor on December 30, 2011, was received and recorded on January 5, 2012.•
On July 1, 2011, Casa Development Co. purchased a tract of land for $1,200,000. Casa incurred additional cost of $300,000 during the remainder of 2011 in preparing the land for sale. The tract was subdivided into residential lots as follows:Lot class Number of lots Sales price per lot A 100 $24,000
Dart Company’s accounting records indicated the following information:Inventory, 1/1/11 $ 500,000 Purchases during 2011 2,500,000 Sales during 2011 3,200,000 A physical inventory taken on December 31, 2011, resulted in an ending inventory of $575,000. Dart’s gross profit on sales has remained
Jones Wholesalers stocks a changing variety of products.Which inventory costing method will be most likely to give Jones the lowest ending inventory when its product lines are subject to specific price increases?a. Specific identification.b. Weighted-average.c. Dollar-value LIFO.d. FIFO periodic.
When the double-extension approach to the dollar-value LIFO inventory method is used, the inventory layer added in the current year is multiplied by an index number. Which of the following correctly states how components are used in the calculation of this index number?a. In the numerator, the
Estimates of price-level changes for specific inventories are required for which of the following inventory methods?a. Conventional retail.b. Dollar-value LIFO.c. Weighted-average cost.d. Average cost retail.
Brock Co. adopted the dollar-value LIFO inventory method as of January 1, 2010. A single inventory pool and an internally computed price index are used to compute Brock’s LIFO inventory layers. Information about Brock’s dollar-value inventory follows:Inventory Date At base year cost At current
On January 1, 2010, Poe Company adopted the dollarvalue LIFO inventory method. Poe’s entire inventory constitutes a single pool. Inventory data for 2010 and 2011 are as follows:Date Inventory at current year cost Inventory at base year cost Relevant price index 1/1/10 $150,000 $150,000 1.00
During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods?FIFO LIFOa. Yes Nob. Yes Yesc. No Yesd. No No
Generally, which inventory costing method approximates most closely the current cost for each of the following?Cost of goods sold Ending inventorya. LIFO FIFOb. LIFO LIFOc. FIFO FIFOd. FIFO LIFO
A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices.What was the result of the change on ending inventory and net income in the year of the change?Ending inventory Net incomea. Increase Increaseb. Increase Decreasec. Decrease Decreased. Decrease
Drew Co. uses the average cost inventory method for internal reporting purposes and LIFO for financial statement and income tax reporting. At December 31, 2011, the inventory was $375,000 using average cost and $320,000 using LIFO. The unadjusted credit balance in the LIFO Reserve account on
During January 2011, Metro Co., which maintains a perpetual inventory system, recorded the following information pertaining to its inventory:Units Unit cost Total cost Units on hand Balance on 1/1/11 1,000 $1 $1,000 1,000 Purchased on 1/7/11 600 3 1,800 1,600 Sold on 1/20/11 900 700 Purchased on
Marsh Company had 150 units of product A on hand at January 1, 2011, costing $21 each. Purchases of product A during the month of January were as follows:Units Unit cost Jan. 10 200 $22 18 250 23 28 100 24 A physical count on January 31, 2011, shows 250 units of product A on hand. The cost of the
Thread Co. is selecting its inventory system in preparation for its first year of operations. Thread intends to use either the periodic weighted-average method or the perpetual moving-average method, and to apply the lower of cost or market rule either to individual items or to the total
On January 1, 2011, Card Corp. signed a three-year noncancelable purchase contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. at $.10 per unit and guarantees a minimum annual purchase of 100,000 units. During 2011, the part unexpectedly
The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower of cost or market method, the inventory item should be reported at thea. Net
Which of the following statements are correct when a company applying the lower of cost or market method reports its inventory at replacement cost?I. The original cost is less than replacement cost.II. The net realizable value is greater than replacement cost.a. I only.b. II only.c. Both I and
The original cost of an inventory item is below both replacement cost and net realizable value. The net realizable value less normal profit margin is below the original cost.Under the lower of cost or market method, the inventory item should be valued ata. Replacement cost.b. Net realizable
Reporting inventory at the lower of cost or market is a departure from the accounting principle ofa. Historical cost.b. Consistency.c. Conservatism.d. Full disclosure.
Based on a physical inventory taken on December 31, 2011, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of $20,000.Chewy estimated that, after further processing costs of$12,000, the chocolate could be sold as finished candy bars for $40,000.
During January 2011, Metro Co., which maintains a perpetual inventory system, recorded the following information pertaining to its inventory:Units Unit cost Total cost Units on hand Balance on 1/1/11 1,000 $1 $1,000 1,000 Purchased on 1/7/11 600 3 1,800 1,600 Sold on 1/20/11 900 700 Purchased on
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