Cirrus, Inc. purchased certain plant assets under a deferred payment contract. The agreement required Cirrus to pay $30,000 per year for ten years. The plant assets should be valued at:

Which of the following statements concerning patents is correct under U.S. GAAP?

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.

Grant, Inc. acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2.

In its Year 2 income statement, what amount should Grant report as gain from the sale of half of its investment?

The lower of cost or market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application generally results in the lowest inventory amount?

Which of the following factors would not be an indicator of an investor's ability to exercise significant influence over the operating and financial policies of an investee?

Rye Co. purchased a machine with a four-year estimated useful life and an estimated 10% salvage value for $80,000 on January 1, Year 2. In its income statement, what would Rye report as the depreciation expense for Year 4 using the double-declining-balance method?

Anders Co. uses the moving-average method to determine the cost of its inventory. During January, Anders recorded the following information pertaining to its inventory:

What amount of inventory should Anders report in its January 31 balance sheet?

On January 1, Year 1, Mega Corp. acquired 10% of the outstanding voting stock of Penny, Inc. On January 2, Year 2, Mega gained the ability to exercise significant influence over financial and operating control of Penny by acquiring an additional 20% of Penny's outstanding stock. The two purchases were made at prices proportionate to the value assigned to Penny's net assets, which equaled their carrying amounts. For the years ended December 31, Year 1 and Year 2, Penny reported the following:

In Year 2, what amounts should Mega report as current year investment income and as an adjustment, before income taxes, to Year 1 investment income?

Year 2 Investment income

Adjustment Year 1 Investment income

The original cost of an inventory item is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item's replacement cost is below the net realizable value less a normal profit margin. Under the lower of cost or market method, the inventory item should be valued at:

On January 1, Specialty Foods Inc. borrowed $20,000,000 at a 4.5% interest rate to construct a new cold-storage facility. The company started construction on April 1 and completed the storage facility on September 30, incurring average accumulated expenditures of $18,000,000. Assuming that the company moved its refrigerated inventory into the cold storage facility on November 15, during what period can Specialty Foods Inc. record capitalize interest?

ABC Company owns stock in XYZ Company. The stock is traded on the New York Stock Exchange and the London Stock Exchange. Stock price information from the two stock exchanges on December 31 is as follows:

What is the fair value of the XYZ stock on December 31 if there is no principal market for the stock?

Louis, Inc. acquired 40% of the outstanding non-voting preferred stock of Rich Co. What method for recording the investment should Louis use?

A.

The equity method because significant influence must be assumed.

B.

The equity method if no other investor has more than a 40% interest.

C.

The equity method if it can acquire an additional 11% by year-end.

D.

The fair value method.

On December 31, an entity analyzed equipment with a net carrying value of $250,000 for impairment. The entity determined the following:

What is the impairment loss that will be reported on the December 31 income statement under U.S. GAAP?

Which of the following types of assets would typically be reported on a company's balance sheet as an intangible asset?

Under U.S. GAAP, during periods of inflation, 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 valuation methods?

FIFO

LIFO

The following information pertained to Azur Co. for the year:

What amount should Azur report as cost of goods sold for the year?

Which of the following statements is correct concerning start-up costs?

In Year 1, Cobb adopted the U.S. GAAP dollar-value LIFO inventory method. At that time, Cobb's ending inventory had a base-year cost and an end-of-year cost of $300,000. In Year 2, the ending inventory had a $400,000 base-year cost and a $440,000 end-of-year cost. What dollar-value LIFO inventory cost would be reported in Cobb's December 31, Year 2, balance sheet?

Green Corp. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. In Year 1, Axel declared dividends of $100,000 on its common stock and $60,000 on its preferred stock. Green exercises significant influence over Axel's operations. What amount of dividend revenue should Green report in its income statement for the year ended December 31, Year 1?

Farmer Joe owns farmland along a busy highway. Farmer Joe originally paid $500,000 for this land. The land sat on top of a reservoir of oil, which when pumped out resulted in total depletion expenses to Farmer Joe of $125,000. The farmland currently has a value of $600,000 if it is used as farmland; however, a developer who wants to build a shopping plaza on the farmland has offered Farmer Joe $850,000 for the farmland. What is the fair value of the farmland?

A country club charges its members $15,000 per year for full rights to use the club, which includes access to dining facilities, tennis courts, two golf courses, and the swimming pool. The club operates with a fiscal year ending June 30. The annual fee is automatically collected from all members on July 1 of each year and covers the upcoming period July 1–June 30. With 350 members as of June 30, Year 3, what amount of Year 4 revenue will be reflected on the interim Year 4 income statement through December 31?

A.

$437,500

B.

$2,625,000

C.

$4,812,500

D.

$5,250,000

Gray Co. was granted a patent on January 2, Year 1, and appropriately capitalized $45,000 of related costs. Gray was amortizing the patent over its estimated useful life of 15 years. During Year 4, Gray paid $15,000 in legal costs in successfully defending an attempted infringement of the patent. After the legal action was completed, Gray sold the patent to the plaintiff for $75,000. Gray's policy is to take no amortization in the year of disposal. In its Year 4 income statement, what amount should Gray report as a gain from the sale of the patent?

Samm Corp. purchased a plot of land for $100,000. The cost to raze a building on the property amounted to $50,000 and Samm received $10,000 from the sale of scrap materials. Samm built a new plant on the site at a total cost of $800,000 including excavation costs of $30,000. What amount should Samm capitalize in its land account?

During Year 1, Lyle Co. incurred $400,000 of research and development costs in its laboratory to develop a product for which a patent was granted on July 1, Year 1. Legal fees and other costs associated with the patent totaled $82,000. The estimated economic life of the patent is 10 years. What amount should Lyle capitalize for the patent on July 1, Year 1 under U.S. GAAP?

An investor in common stock received dividends in excess of the investor's share of investee's earnings subsequent to the date of the investment. How will the investor's investment account be affected by those dividends under each of the following accounting methods?

Fair Value Method

Equity Method

Cole Co. began constructing a building for its own use in January. During the year, 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 the year was $40,000. What amount of interest cost should Cole capitalize?

Band Co. uses the equity method to account for its investment in Guard, Inc. common stock. How should Band record a 2% stock dividend received from Guard?

Perry, Inc. has investments in three companies. Which investments should be accounted for by Perry under the equity method?

I.

Anton Corp. – Common stock owned 10% by Perry with nine other investors also owning 10% each. Perry, Inc. is not represented on the Board of Directors; but Perry also owns 70% of the preferred stock of Anton.

II.

Barb, Ltd. – Common stock owned 25% by Perry. Perry owns no preferred stock of Barb, Inc.

III.

Charles, Inc. – Common stock owned 75% by Perry. Charles has no preferred stock.

When the equity method is used to account for investments in common stock, which of the following affect(s) the investor's reported investment income?

A change in market value of investee's common stock

Cash dividends from investee

On January 2, Year 1, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest bearing note due January 2, Year 4. There was no established exchange price for the equipment. The prevailing rate of interest for a note of this type at January 2, Year 1, was 10%. The present value of 1 at 10% for three periods is 0.75.
In Emme's Year 1 income statement, what amount should be reported as gain (loss) on sale of machinery?

Walt Co. adopted the U.S. GAAP dollar-value LIFO inventory method as of January 1, when its inventory was valued at $500,000. Walt's entire inventory constitutes a single pool. Using a relevant price index of 1.10, Walt determined that its December 31 inventory was $577,500 at current year cost, and $525,000 at base year cost. What was Walt's dollar-value LIFO inventory at December 31?

When the total consideration for a contract with multiple embedded obligations reflects a discount, the most appropriate way to assign that discount is to:

On January 2, Year 1, Lava, Inc. purchased a patent for a new consumer product for $90,000. At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, Year 4, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Lava charge against income during Year 4, assuming amortization is recorded at the end of each year?

A.

$9,000

B.

$54,000

C.

$63,000

D.

$72,000

Under which of the following scenarios would it be acceptable for a company to capitalize interest?

Golden Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product.

Specific data with respect to each product follows:

Golden uses the LIFO method to cost inventory. In pricing its ending inventory using the lower of cost or market, what unit values should Golden use for products #1 and #2, respectively?

A.

$15.00 and $44.00

B.

$16.00 and $44.00

C.

$16.00 and $45.00

D.

$17.00 and $46.00

Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation when using the:

Straight-Line Method

Production or Use Method

On January 1, Nick Co. purchased a delivery truck for $60,000. The truck's salvage value is $2,000, and its estimated useful life is 10 years. The productive life of the truck is estimated to be 100,000 miles. During the first year, the truck was driven 19,000 miles. Nick uses the double-declining balance method of depreciation. What amount of depreciation expense should Nick record for the first year?

Grant, Inc. acquired 30% of South Co.'s voting stock for $200,000 on January 2, Year 1. Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies. During Year 1, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, Year 2, and $200,000 for the year ended December 31, Year 2. On July 1, Year 2, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, Year 2.

Before income taxes, what amount should Grant include in its Year 1 income statement as a result of the investment?

Crossroads Co. chooses to report a financial asset at its fair value. The asset trades in two different markets; however, neither market is the principal market for the financial asset. In the first market, sales proceeds are $76, which is net of transaction costs of $6. In the second market, the sales proceeds are $80, which is net of transaction costs of $1. What amount should Crossroads report as the fair value of the asset?

West Co. paid $50,000 for an intangible asset other than goodwill. Fair value of the asset is $55,000. West signed a contract to sell the asset for $10,000 in 10 years. What amount of amortization expense should West record each year?

The following information appeared in the accounting records of a retail store for the year ended December 31:

The gross margin was:

Delar Co. completed its year-end physical count of inventory. The inventory was valued at first-in, first-out (FIFO) costs and totaled $500,000. Delar subsequently noted the following two items:

1. 1,000 units of inventory with a FIFO cost of $10 each were shipped and billed to a customer, FOB destination. These items were included in the physical count.

2. 6,000 units at a FIFO cost of $5 each were held on consignment for one of its suppliers, but were excluded from the physical count.

What amount should Delar report as inventory at year-end?

A company sells mobile phones and telecommunication service plans from a retail store. Sales agents employed at the store signed 200 customers to two-year service contracts during December. The company pays its sales agents commissions for the sale of service contracts in addition to their salaries. Salaries paid to sales agents during December were $12,000, and commissions paid were $2,400. The retail store also incurred $2,000 in advertising costs during the month. All selling costs are expected to be recoverable. In accounting for December's contract costs for its customers, the company should capitalize:

A.

All expenses of $16,400.

B.

Commissions of $2,400 and expense all other costs as incurred.

C.

Salaries and commissions of $14,400 and expense advertising costs as incurred.

D.

Commissions and advertising costs of $4,400 and expense salaries as incurred.

On January 2, Year 3, Well Co. purchased 10 percent of Rea Inc.'s outstanding common shares for $400,000. Well is the largest single shareholder in Rea, and Well's officers are a majority on Rea's board of directors. Rea reported net income of $500,000 for Year 3 and paid dividends of $150,000. In its December 31, Year 3, balance sheet, what amount should Well report as investment in Rea?

General Products Co. uses dollar-value LIFO to measure its inventory. The following data is available for the current operating year ended December 31.

Based on the above, what is the company’s ending inventory at December 31 using the dollar-value LIFO method?

On January 1, Year 1, Aker Corp. acquired a machine at a cost of $200,000. It was to be depreciated on the straight line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Aker's Year 1 financial statements. The oversight was discovered during the preparation of Aker's Year 2 financial statements. Depreciation expense on this machine for Year 2 should be:

Shipping costs incurred by a consignor on transfer of goods to a consignee should be considered as:

ABC Co. uses the dollar-value LIFO method to measure its inventory. During Year 1 and Year 2, the company added LIFO inventory layers at a base-year cost of $125,000 and $175,000, respectively. Assuming that the Year 1 ending inventory had a base-year cost of $610,000, what is the Year 2 ending inventory on a dollar-value basis if the computed price index for Year 1 and Year 2 was 1.3 and 1.2, respectively?