Accounting Exam May 7, 2011

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Solution Guide / Answer Key:

ACCOUNTING

MULTIPLE CHOICE

1. Walters Co. purchased raw materials with a catalog price of $70,000 on March 2, 2010. Credit terms of 4/20, n/60 applied. Walters uses a perpetual inventory system and the net price method. If Walters pays for the purchase on March 18, 2010, what amount is recorded for inventory on March 2, 2010? (Points: 4)

2. Which one of the following types of costs is most likely to be included in determining the cost of inventory? (Points: 4)

3. Phillips Corp. purchased raw materials with a catalog price of $60,000. Credit terms of 3/15, n/60 apply. If Phillips uses the net price method, the purchase should be recorded at (Points: 4)

4. Which of the following is not a disadvantage of using the FIFO cost flow assumption? (Points: 4)

5. Which one of the following statements is true with regard to the lower of cost or market rule? (Points: 4)

6. The major criticism of the lower of cost or market rule for valuation of inventory is that (Points: 4)

7. The gross profit method is most commonly used to (Points: 4)

8. Which one of the following statements regarding the gross profit method is not true? (Points: 4)

9. According to GAAP, interest must be capitalized for (Points: 4)

10. When exchanging nonmonetary assets (Points: 4)

11. Which of the following costs incurred subsequent to the acquisition of a machine would be appropriately accounted for by debiting the accumulated depreciation account related to the machine? (Points: 4)

12. At the end of the year, any balance in Allowance for Repairs should be (Points: 4)

13. Which of the following is not a factor in selecting a depreciation method? (Points: 4)

14. When the expected cost to dismantle and remove an asset exceeds the expected selling price of a depreciable asset, the difference is (Points: 4)

15. Which depreciation method ignores residual value when computing the depreciable base of an asset? (Points: 4)

16. What effect does depreciation have on the calculation of the rate of return on total assets? (Points: 4)

17. Which of the following characteristics is not common to both tangible and intangible assets? (Points: 4)

18. Which of the following statements regarding intangible assets is true? (Points: 4)

19. Which of the following costs should always be expensed as incurred? (Points: 4)

20. Which of the following methods is used to amortize intangible assets over their useful lives? (Points: 4)

21. All of the following are examples of legal liabilities except (Points: 4)

22. On the balance sheet, liabilities are generally classified as (Points: 4)

23. Current liabilities are obligations whose liquidation is reasonably expected to require the use of existing current assets or the creation of other current liabilities within (Points: 4)

24. The operating cycle is typically defined as the time it requires to convert (Points: 4)

25. With regard to liabilities, liquidity refers to (Points: 4)

26. If a company sells its bonds at face value, the effective interest rate is (Points: 4)

27. When the market rate of interest is greater than the contract rate of interest, the bonds should sell at (Points: 4)

28. An unsecured bond is called a (Points: 4)

29. Discount on Bonds Payable is a(n) (Points: 4)

30. Which of the following bonds pay no interest until maturity? (Points: 4)

31. Investments that are typically held for short periods of time and sold by the company in the expectation of a profit on the short-term differences in price are classified as (Points: 4)

32. Which of the following methods of accounting for investments is appropriate when the investor has significant influence over the investee? (Points: 4)

33. Unrealized gains and losses on investments in trading securities are reported (Points: 4)

34. The carrying value of held-to-maturity debt securities is the (Points: 4)

35. Permanent value declines in available-for-sale securities should be (Points: 4)

FILE: MS WORD