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BUS 230 Week 3 Quiz – Strayer
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Chapter 2 and 3
CHAPTER 2
Supply Strategy
11. An effective supply strategy primarily focuses on linking:
a. current needs to current markets.
b. future needs to future markets.
c. current needs to future markets.
d. future needs to current markets.
e. current and future needs to current and future markets.
12. Organizational objectives and supply objectives typically are expressed:
a. differently, making it difficult to translate organizational objectives into supply objectives.
b. differently, providing the supply manager multiple opportunities to tap into organizational resources.
c. the same (survival, growth, financial, and environmental), making it easy to translate organizational objectives into supply objectives.
d. the same factors (quality, quantity, price, delivery and service), but long-term at the organizational level and short-term at the supply level.
e. in ways that are very specific to the organization, making it difficult to convey objectives to suppliers.
13. Which one of the following is NOT one of the six major supply strategy areas:
a. competitive-edge strategies.
b. environmental-change strategies.
c. new-product design strategies.
d. risk-management strategies.
e. cost-reduction strategies.
14. When developing supply strategies related to “how to buy,” decisions must be made
about:
i. systems and procedures
ii. goals and objectives.
iii. make or buy.
iv. large or small inventories.
v. none of the above.
15. The key question in strategic supply management is:
a. How can supply strategy be kept separate from and equal to organizational strategy?
b. How can first tier suppliers contribute to the buying organization’s objectives and strategy?
c. How can first, second, third- and subsequent tiers of suppliers contribute to the buying organization’s objectives and strategy?
d. How can the supply manager develop a network of suppliers that contribute to the buying organization’s strategies and goals?
e. How can supply and the supply chain contribute effectively to organizational objectives and strategy?
16. Three major challenges exist when setting supply objectives and strategies:
a. adopting efficient electronic transaction systems, designing effective strategic supply processes, and increasing internal compliance with both.
b. effectively interpreting corporate and supply objectives, selecting appropriate actions to achieve objectives, and integrating supply information into organizational strategies.
c. hiring professionals educated specifically in supply management, providing them with technical expertise, and developing leadership skills for the long-term.
d. emphasizing strategic cost management, involving key suppliers early in the process, and measuring the reduction in total cost of ownership.
e. identifying internal stakeholders, building consensus among these stakeholders, and selling top management on the results.
17. To effectively manage supply risks, the supply manager must:
a. inform the corporate risk officer of a potential risk, await instructions, and implement the directive.
b. seek input from senior executives in other functional areas, propose a risk mitigation plan, and await instructions from senior management.
c. identify and classify risks, assess the potential impact, and develop a risk mitigation strategy.
d. review the commodity strategy, revise it as needed, and implement the strategy revision.
e. confer with the organization’s management consultant, provide all requested data, and implement the consultant’s plan.
18. Linking supply strategy to corporate strategy is:
a. essential only in manufacturing, and most have the mechanisms to link them..
b. essential only in the service sector, and most lack the mechanisms to link them.
c. essential in all organizations, and most have the mechanisms to link them.
d. essential in all organizations, and many lack the mechanisms to link them.
e. non-essential in most types of organizations.
19. Strategic planning can be defined as:
a. how each functional area will achieve its specific goals and objectives.
b. a procedure for allocating resources to appropriate functions in the organization.
c. taking big risks to maximize current period benefits.
d. an action plan to achieve specific long-term goals and objectives.
e. an action plan to achieve specific operational and tactical goals.
20. Supply strategies that are based on changes in demand and supply are known as:
a. risk-management strategies.
b. assurance-of-supply strategies.
c. cost-reduction strategies.
d. environmental-change strategies.
e. supply chain support strategies.
True and False
1. The three levels of strategic planning are: function, unit, and corporate.
2. Environmental-change strategies are designed to anticipate and recognize shifts in the natural world that affect supply availability.
3. Even if a supply manager identifies and eliminates the causes of uncertainty and risk in the supply chain, the organization may still need to carry the same amount of inventory.
4. Risks in the supply chain can be classified into three main categories: (1) operational, (2) financial, and (3) strategic.
5. There is a growing emphasis on strategic supply management processes and less on purchase transactions.
6. A corporate risk management group headed by a chief risk officer has emerged in many organizations to assess total risk exposure and develop strategies to best manage all risks.
7. Assurance-of-supply strategies emphasize quality over all other considerations.
8. The most fundamental question facing an organization is whether to make or buy.
9. Supply managers may be able to provide information to identify risks to the organization and they can develop strategies to mitigate those risks.
10. Seldom do the actions of supply managers impact the organization’s reputation either positively or negatively.
Chapter 3
Supply Organization
21. Close to 70 percent of the value of any given requirement is established when needs are recognized and described. Therefore, the following functions should work together during need recognition and description:
a. the primary user and specifier.
b. the primary user and supply.
c. the primary user, design engineering and supply.
d. the primary user, design engineering, supply and accounting.
e. the primary user, design engineering, supply and all other relevant functional areas such as accounting/finance, marketing and operations.
22. A change in how supply is organized and structured is the result of:
a. the changing preference of the Chief Purchasing Officer.
b. an assessment of the best purchasing structure given the supply base.
c. a change in the overall corporate organizational structure.
d. a determination of the easiest change to manage internally.
e. a consensus among the supply management professionals in the company.
3. Which factors have a major influence on supply’s level in the organization:
a. the ratio of purchased material and services costs as a percentage of total costs or income.
b. the size of the supply base.
c. the nature of the products or services acquired.
d. the extent to which supply and suppliers can provide competitive advantage.
e. the credentials of the existing supply personnel.
a. a and b
b. c and d.
c. d and e
d. a, c and d.
e. a, d and e.
4. Organizations commit resources to cross-functional team development to:
a. give internal users ownership of tasks and problems.
b. achieve time, quality, or cost-reduction targets
c. promote diversity in the workplace.
d. give supply ownership of tasks and problems.
e. cross-train employees in case of downsizing.
5. Supply can provide an uninterrupted flow of materials, supplies and services by:
a. holding large inventories.
b. holding small inventories.
c. standardizing capital equipment, materials, MRO and services.
d. b and c.
e. a and c
6. A purchasing consortium:
a. speeds up the purchasing process, but does not usually result in price concessions from suppliers.
b. consists of two or more independent organizations that combine requirements for materials, services and capital goods to gain better pricing, service and technology from suppliers.
c. results in price concessions from suppliers, but usually does not speed up the purchasing process.
d. consists of two or more divisions of the same organization that combine requirements for materials, services and capital goods to gain better pricing, service and technology from suppliers.
e. is a form of collaborative purchasing used only by the public sector to deliver a wider range of services at a lower total cost.
7. Hybrid supply structures typically:
a. amplify the disadvantages of centralization.
b. amplify the advantages of decentralization.
c. capture the benefits of both centralized and decentralized structures.
d. are used in small to medium-sized organizations.
e. are used in service organizations of all sizes.
8. The organizational structure (centralized, decentralized, or hybrid) of the supply function:
a. has little influence on supply processes, internal cross-functional relationships, or the procedures and systems employed.
b. influences supply processes, internal cross-functional relationships, and the procedures and systems employed.
c. influences supply processes, but not internal cross-functional relationships, or the procedures and systems employed.
d. influences internal cross-functional relationships, and the procedures and systems employed, but not supply processes.
e. influences the procedures and systems employed, but not supply processes or internal cross-functional relationships.
9. Supply’s contribution to the organization’s competitive position depends on its ability to:
a. reduce costs.
b. enhance revenues.
c. manage assets.
d. a and c.
e. a, b and c.
10. Specialization within the supply function:
a. allows staff to develop expertise in particular areas.
b. is unnecessary because most tasks are transactional.
c. has no impact on talent management or organization within supply.
d. increases operating costs beyond the benefits of specialization.
e. is seldom required now that so many tasks are automated.
True and False
1. Eliminating process inefficiencies is the best way to accomplish supply objectives at the lowest total operating costs.
2. Decentralization refers to a supply organization that is physically located at corporate headquarters from which all organizational spending decisions are made.
3. There is an inherent conflict between supply’s objective to provide an uninterrupted flow of materials, supplies and services required to operate the organization and the objective to keep inventory investment and loss at a minimum.
4. Products, services and processes can be standardized and, if done effectively, will lower total cost of ownership.
5. The executive to whom the Chief Supply Officer reports has no relationship to the status of purchasing and the degree to which it is emphasized within the organization.
6. The supply process and structure for managing indirect spend is typically different than that for managing direct spend.
7. In a decentralized purchasing structure, those tasks which are more effectively handled at the business unit level include establishing policies, procedures, controls, and systems.
8. Some of the disadvantages of decentralization are narrow specialization and job boredom, lack of job flexibility, and a tendency to minimize legitimate differences in requirements.
9. Supply should obtain needed goods and services at the lowest total cost of ownership meaning that other cost factors—such as quality levels, after-sales service, warranties, inventory and spare parts requirements, and downtime—must be considered even though in the long term these factors seldom have a cost impact greater than the original purchase price.
10.The degree of centralization is reflected by the number of supply professionals working throughout all functional areas of the organization.
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ACC 576 Week 3 Discussion Questions – Strayer New
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Week 3 DQ
"IT Auditing" Please respond to the following:
· Predict at least two (2) areas where you believe that IT systems are most vulnerable to fraud. Based on your predictions, make one (1) recommendation that would prevent or detect such vulnerabilities.
· Imagine that you are a criminal working in the IT department of a large or small company. Create a scenario in which you attempt to breach the company’s accounting system in order to commit fraud. Based on your scenario, recommend one (1) control that would prevent or detect your fraud. Support your recommendation with examples.
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ACC 571 Week 3 Discussion Questions – Strayer NEW
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Week 3 DQ
"Theories of Crime Causation and Non-sharable Problems" Please respond to the following:
• From the e-Activity, compare and contrast theories of crime causation. Speculate as to which theory would have most likely detected fraud at Enron.
• Assess the six situational categories that cause non-sharable problems. Determine which of these six categories, in your opinion, were prevalent at Enron.
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ACC 564 Week 3 Discussion Questions – Strayer NEW
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Week 3 Discussion 1
"Attacks" Please respond to the following:
You have been hired by the CFO of Strayer University to develop a plan to protect its accounting and financial systems at a reasonable cost. Suggest a high-level plan for the CFO. Provide support for your suggestion.
Based on your security plan recommendation, determine the system aspect that is most likely to be violated.
Week 3 Discussion 2
"Revamping the Sarbanes-Oxley Act (SOX)" Please respond to the following:
We know that the Sarbanes-Oxley Act was created as the result of several high-profile fraud cases. Now that the act is over 10 years old, many think that it needs to be updated to reflect the changing times. From the e-Activity, identify and discuss at least three changes that should be made to the act, indicating why these changes are necessary.
Create an argument supporting three items in the act that you would not change.
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ACC 564 Quiz 1 – Strayer New
ACC 564 Week 3 Quiz 1 Chapter 1, 2, 3 and 5
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Chapter 1 Accounting Information Systems: An Overview
1) Which of the following statements below shows the contrast between data and information?
A) Data is the output of an AIS.
B) Information is the primary output of an AIS.
C) Data is more useful in decision-making than information.
D) Data and information are the same.
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
2) Information is
A) basically the same as data.
B) raw facts about transactions.
C) potentially useful facts when processed in a timely manner.
D) data that has been organized and processed so that it's meaningful.
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
3) The value of information can best be defined as
A) how useful it is to decision makers.
B) the benefits produced by possessing and using the information minus the cost of producing it.
C) how relevant it is.
D) the extent to which it maximizes the value chain.
Answer:
Page Ref: 4
Objective: Learning Objective 1
Difficulty : Moderate
AACSB: Analytic
4) An accounting information system (AIS) processes ________ to provide users with ________.
A) data; information
B) data; transactions
C) information; data
D) data; benefits
Answer:
Page Ref: 10
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
5) Information that reduces uncertainty, improves decision makers' ability to make predictions, or confirms or corrects their prior expectations, is said to be
A) complete.
B) relevant.
C) reliable.
D) timely.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
6) Information that is free from error or bias and accurately represents the events or activities of the organization is
A) relevant.
B) reliable.
C) verifiable.
D) timely.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
7) Information that does not omit important aspects of the underlying events or activities that it measures is
A) complete.
B) accessible.
C) relevant.
D) timely.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
8) When two knowledgeable people acting independently each produce the same information, this information is said to be
A) complete.
B) relevant.
C) reliable.
D) verifiable.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
9) Data must be converted into information to be considered useful and meaningful for decision-making. There are six characteristics that make information both useful and meaningful. If information is free from error or bias and accurately represents the events or activities of the organization, it is representative of the characteristic of
A) relevancy.
B) timeliness.
C) understandability.
D) reliability.
Answer:
Page Ref: 5
Objective: Learning Objective 1
Difficulty : Easy
AACSB: Analytic
10) An accounting information system must be able to perform which of the following tasks?
A) collect transaction data
B) process transaction data
C) provide adequate controls
D) all of the above
Answer:
Page Ref: 10
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic
11) Which of the following is not an example of a common activity in an AIS?
A) buy and pay for goods and services
B) sell goods and services and collect cash
C) summarize and report results to interested parties
D) recording of sales calls for marketing purposes
Answer:
Page Ref: 8
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic
12) Which of the following is not one of the components of an AIS?
A) Internal controls and security measures
B) People
C) Procedures and instructions
D) Hardware
Answer:
Page Ref: 10
Objective: Learning Objective 5
Difficulty : Easy
AACSB: Analytic
13) One group that relies on both the adequate collection and transformation of data for decision-making purposes for an organization is
A) management.
B) interested outsiders.
C) competitors.
D) the government.
Answer:
Page Ref: 12
Objective: Learning Objective 3
Difficulty : Easy
AACSB: Analytic
14) The primary objective of accounting is to
A) implement strong internal controls.
B) provide useful information to decision makers.
C) prepare financial statements.
D) ensure the profitability of an organization.
Answer:
Page Ref: 12
Objective: Learning Objective 5
Difficulty : Moderate
AACSB: Analytic
15) The American Institute of Certified Public Accountants (AICPA) has recognized the importance of AIS and the major impact information technology has on the area of accounting. To recognize individual CPAs who have met educational and experiential requirements in this area, the group formally created the designation known as
A) the Certified Management Accountant.
B) the Certified Information Technology Professional.
C) the Certified Internal Auditor.
D) the Certified Data Processing Professional.
Answer:
Page Ref: 11
Objective: Learning Objective 6
Difficulty : Moderate
AACSB: Analytic
16) The AIS must include controls to ensure
A) safety and availability of data.
B) marketing initiatives match corporate goals.
C) information produced from data is accurate.
D) both A and C
Answer:
Page Ref: 10
Objective: Learning Objective 6
Difficulty : Easy
AACSB: Analytic
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ACC 563 Week 3 Quiz – Strayer NEW
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Week 3 Quiz 2: Chapters 2 and 3
Chapter 2
Multiple Choice
1. Which early accounting theorist was among the first to express the view that all changes in the value of assets and liabilities should be reflected in the financial statements ?\
a. A. C. Littleton
b. John Canning
c. William Paton
d. DR Scott
Answer
2. Which of the following economists most influenced the views of DR Scott?
a. Thorstein Veblen
b. John Hicks
c. Karl Marx
d. John Smith
Answer
3. Which of the following is not one of DR Scott’s hierarchy of accounting postulates and principles?
a. Orientation postulate.
b. The principles of truth and fairness.
c. The materiality principle
d. The principles of adaptability and consistency.
Answer
4. Which of the following organizations published the monograph titled A Tentative Statement of Accounting Principles Affecting Annual Corporate Reports
a. SEC
b. AAA
c. AIA
d. NAA
Answer
5. Which of the following organizations published the monograph titled A Statement of Accounting Principles?
a. SEC
b. AAA
c. AIA
d. NAA
Answer
6. Who was the author of Accounting Research Study No. 1, The Basic Postulates of Accounting?
a. Robert Sprouse
b. Maurice Moonitz
c. Alvin Jennings\
d. Thomas Hatfield
Answer
7. Which of the following is not an approaches to accounting theory AS categorized by Statement on Accounting Theory and Theory Acceptance?
a. Classical,
b. Neoclassical
c. Decision usefulness
d. Information economics.
Answer
8. Under Statement of Financial Accounting Concepts No. 2, feedback value is an ingredient of the primary quality o
Relevance Reliability
a. No No
b. No Yes
c. Yes Yes
d. Yes No
Answer
9. Under Statement of Financial Accounting Concepts No. 2, which of the following interacts with both relevance and reliability to contribute to the usefulness of information?
a. Comparability
b. Timeliness
c. Neutrality
d. Predictive value
Answer
10. Which of the following hierarchy of qualities did Statement of Financial Accounting Concepts No. 2 indicate as being most important?
a. Relevance
b. Reliability
c. Verifiability
d. Decision usefulness
Answer
11. Which of the following is considered a pervasive constraint by Statement of Financial Accounting Concepts No. 2
a. Benefits>costs
b. Conservatism
c. Timeliness
d. Verifiability
Answer
12. Under Statement of Financial Accounting Concepts No. 2, which of the following is an ingredient of the primary quality of relevance?
a. Predictive value
b. Materiality
c. Understandability
d. Verifiability
Answer
13. Under Statement of Financial Accounting Concepts No. 2, which of the following is an ingredient of the primary quality of reliability?
a. Understandability
b. Verifiability
c. Predictive value
d. Materiality
Answer
14. Under Statement of Financial Accounting Concepts No. 2, the ability through consensus of measures to ensure that information represents what it purports to represent is an example of the concept of
a. Relevance
b. Verifiability
c. Representational faithfulness
d. Feedback value
Answer
15. Under Statement of Financial Accounting Concepts No. 2, which of the following relates to both relevance and reliability?
a. Timeliness
b. Materiality
c. Verifiability
d. Neutrality
Answer
16. Which of the following is not a qualitative characteristic associated with reliability?
a. Verifiable
b. Conservatism
c. Neutral
d. Faithful representation
Answer
17. An item is considered material if
a. It doesn’t costs a lot of money.
b. It is of a tangible good.
c. It is likely to influence the decision of an investor or creditor.
d. The cost of reporting the item is greater than its benefits
Answer
Essay
1. Discuss the contributions of Paton and Canning to the development of accounting theory.
2. Discuss DR Scott’s hierarchy of postulates and principles.
3. Discuss the contributions of the works by Sanders Hatfield and More, and Paton and Littleton to accounting theory.
4. Discuss accounting Research Study No. 1.
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ACC 563 Week 3 Homework Problems – Strayer NEW
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Week 3
Homework
Chapter 4: Case 4-3, Case 4-5, and Case 4-7
Chapter 5: Case 5-4, Case 5-7, and Case 5-8
ACC 563 Week 1 Homework Problems
ACC 563 Week 2 Homework Problems
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ACC 563 Quiz
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ACC 562 Week 3 Assignment 1 – Strayer
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Assignment 1: Madoff Securities
Due Week 3 and worth 280 points
Review the Madoff Securities case, located in Chapter 3 of your textbook.
Write a four to five (4-5) page paper in which you:
1. Determine the regulatory oversight that was in place while the Ponzi scheme was operating, and speculate on the main reasons why they did not discover the scheme.
2. Assume you are an auditor for a firm that had $10 million dollars invested in Madoff Securities. Determine the fundamental audit procedures that you should have applied to this investment.
3. Predict the way in which a peer review of Friehling and Horowitz would have uncovered the scheme related to Madoff Securities.
4. Pretend you are Harry Markopolos and suggest one (1) strategy, different from that of the case study, to expose the potential fraud. Provide a rationale to support the suggestion.
5. Analyze the role of the audit committee for Madoff Securities in regard to the discovery of Ponzi scheme, and suggest one (1) action the audit committee could have taken in order to prevent or detect the fraud. Provide a rationale to support the suggestion.
6. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and similar type Websites do not qualify as academic resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
o
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ACC 560 Week 3 Quiz – Strayer NEW
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Week 3 Quiz 2: Chapter 2 and 3
Chapter 2
TRUE-FALSE STATEMENTS
1. Cost accounting is primarily concerned with accumulating information about product costs.
Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
2. A job order cost system is most appropriate when a large volume of uniform products are produced.
Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Reporting
3. A process cost accounting system is appropriate for similar products that are continuously mass produced.
Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Reporting
4. The perpetual inventory method cannot be used in a job order cost system.
Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Reporting
5. A job order cost system and a process cost system are two alternative methods for valuing inventories.
Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
6. A job order cost system identifies costs with a particular job rather than with a set time period.
Ans:, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
7. A company may use either a job order cost system or a process cost system, but not both.
Ans:, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
8. Raw Materials Inventory, Factory Labor, and Manufacturing Overhead are all control accounts in the general ledger when a job order cost accounting system is used.
Ans:, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
9. Accumulating and assigning manufacturing costs are two important activities in a job order cost system.
Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
10. Recording the acquisition of raw materials is a part of accumulating manufacturing costs.
Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
11. Manufacturing costs are generally incurred in one period and recorded in a subsequent period.
Ans:, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
12. The Purchases account is credited for all raw materials purchase returns and allowances.
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ACC 560 Week 3 Homework Problems – Strayer NEW
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Week 3
Homework
o Chapter 4: Exercise 2, 3, 9, and 12; Problems 2 and 4
ACC 560 Week 1 Homework Problems
ACC 560 Week 2 Homework Problems
ACC 560 Week 3 Homework Problems
ACC 560 Week 4 Homework Problems
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ACC 560 Week 3 Assignment 1 – Strayer NEW
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Assignment 1: Activity-based Costing (ABC) in Service Industries Week 3
Due Week 3 and worth 300 points
Research a U.S. company in the service industry with e-commerce activities.
Write a five to six (5-6) page paper in which you:
1. Describe the company you researched in one to two (1-2) paragraphs.
2. Discuss how a time driven ABC cost system can be implemented in the company you researched and the benefits that the use will yield to the business performance.
3. Assess how using an ABC system can provide a competitive advantage to the company in the market space it operates and the resulting impact to the business performance.
4. Examine the potential impact of time-driven ABC costing on services provided online with those provided through traditional channels, considering how this knowledge will impact decisions made by management about these services.
5. Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Analyze the concepts of job order costing, process costing, and activity-based costing.
Use technology and information resources to research issues in managerial accounting.
Write clearly and concisely about managerial accounting using proper writing mechanics.
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ACC 557 Week 3 Discussion Question – Strayer New
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Week 3 Discussion
"Researching Financial Information" Please respond to the following:
• Go to the Securities and Exchange Commission Website, located at http://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_MainAccess.jsp?search_text=*&sort=Date&formType=Form10K&isAdv=true&stemming=true&numResults=100&numResults=100. Analyze the section showing typical stock information and financial positions of companies. Next, analyze one company’s financial position and determine whether or not the stock potential will rise, remain stable, or decrease in value. Determine whether you would invest in it or not at this time. Provide a rationale for your response.
• Assess how profitable the company has been over the past five (5) years and determine how you would advise the company about its future profitability potential.
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ACC 557 Week 3 Homework Problems – Strayer
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Chapter 4
Exercise 4-1
The trial balance columns of the worksheet for Cajon Company at June 30, 2014, are as follows.
CAJON COMPANY Worksheet For the Month Ended June 30, 2014
Trial Balance
Account Titles
Dr.
Cr.
Cash
$4,020
Accounts Receivable
2,440
Supplies
1,900
Accounts Payable
$1,120
Unearned Service Revenue
240
Common Stock
5,000
Service Revenue
3,100
Salaries and Wages Expense
860
Miscellaneous Expense
240
$9,460
$9,460
Other data:
1.
A physical count reveals $500 of supplies on hand.
2.
$100 of the unearned revenue is still unearned at month-end.
3.
Accrued salaries are $250.
Complete the worksheet.
CAJON COMPANY Worksheet For the Month Ended June 30, 2014
Trial Balance
Adjustments
Adj. Trial Balance
Income Statement
Balance Sheet
Account Titles
Dr
Cr.
Dr
Cr.
Dr
Cr.
Dr
Cr.
Dr
Cr.
Cash
4,020
Accounts Receivable
2,440
Supplies
1,900
Accounts Payable
1,120
Unearned Service Revenue
240
Common Stock
5,000
Service Revenue
3,100
Salaries and Wages Expense
860
Miscellaneous Expense
240
Totals
9,460
9,460
Supplies Expense
Salaries and Wages Payable
Totals
Net Income
Totals
Exercise 4-5
Your answer is correct.
The adjustments columns of the worksheet for Munoz Company are shown below.
Adjustments
Account Titles
Debit
Credit
Accounts Receivable
600
Prepaid Insurance
400
Accumulated Depreciation—Equipment
900
Salaries and Wages Payable
500
Service Revenue
600
Salaries and Wages Expense
500
Insurance Expense
400
Depreciation Expense
900
2,400
2,400
(a) Prepare adjusting entries in order presented in the problem. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(b) Indicate with an "X" the financial statement column to which each balance should be extended.
Exercise 4-7
Lanza Company had the following adjusted trial balance.
LANZA COMPANY Adjusted Trial Balance For the Month Ended June 30, 2014
Adjusted Trial Balance
Account Titles
Debit
Credit
Cash
$3,712
Accounts Receivable
3,904
Supplies
480
Accounts Payable
$1,556
Unearned Service Revenue
160
Common Stock
4,000
Retained Earnings
1,760
Dividends
600
Service Revenue
4,300
Salaries and Wages Expense
1,344
Miscellaneous Expense
180
Supplies Expense
1,900
Salaries and Wages Payable
344
$12,120
$12,120
a) Prepare closing entries at June 30, 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
b) Prepare a post-closing trial balance.
Exercise 4-13
Kogan Company has an inexperienced accountant. During the first 2 weeks on the job, the accountant made the following errors in journalizing transactions. All entries were posted as made.
1.
A payment on account of $840 to a creditor was debited to Accounts Payable $480 and credited to Cash $480.
2.
The purchase of supplies on account for $380 was debited to Equipment $38 and credited to Accounts Payable $38.
3.
A $500 cash dividend was debited to Salaries and Wages Expense $500 and credited to Cash $500.
Prepare the correcting entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Problem 4-4A
Excelsior Amusement Park has a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below.
Excelsior Amusement Park Worksheet For the Year Ended September 30, 2014
Trial Balance
Adjusted Trial Balance
Dr.
Cr.
Dr.
Cr.
Cash
34,400
34,400
Supplies
18,600
2,200
Prepaid Insurance
29,900
10,900
Land
80,000
80,000
Equipment
120,000
120,000
Accumulated Depreciation-Equip.
36,200
42,200
Accounts Payable
14,600
14,600
Unearned Ticket Revenue
3,900
1,000
Mortgage Payable
50,000
50,000
Common Stock
60,000
60,000
Retained Earnings
36,100
36,100
Dividends
14,000
14,000
Ticket Revenue
277,900
280,800
Salaries and Wages Expense
98,000
98,000
Maintenance and Repairs Expense
30,500
30,500
Advertising Expense
9,400
9,400
Utilities Expense
16,900
16,900
Property Tax Expense
21,000
24,000
Interest Expense
6,000
8,000
Totals
478,700
478,700
Insurance Expense
19,000
Supplies Expense
16,400
Interest Payable
2,000
Depreciation Expense
6,000
Property Taxes Payable
3,000
Totals
489,700
489,700
a) Prepare a complete worksheet.
b) Prepare a classified balance sheet. (Note: $15,000 of the mortgage note payable is due for payment in the next fiscal year.) (List current assets in order of liquidity.)
C) Journalize the adjusting entries using the worksheet as a basis
d) Journalize the closing entries using the worksheet as a basis.
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ACC 410 Week 3 Quiz – Strayer
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Chapter 2
Fund Accounting
TRUE/FALSE (CHAPTER 2)
1. A fund is a separate fiscal and accountingentity with a self-balancing set of accounts.
2. Fund accounting promotes control and accountability over restricted resources.
3. The basis of accounting determines what transactions and events are recognized.
4. An entity’s measurement focus determines when transactions and events are recognized.
5. If an entity adopts a full accrual basis of accounting, its measurement focus will automatically be on all economic resources.
6. If an entity adopts a modified accrual basis of accounting, its measurement focus will automatically be on current financial resources.
7. A government may report some of its funds on a full accrual basis.
8. A government may have as many general funds as it deems necessary.
9. Funds divide a government into functional departments.
10. General funds are established to account for resources legally restricted for specified purposes.
11. Fiduciary activities only benefit parties other than the government itself.
12. The Financial Accounting Standards Board requires all nongovernmental not-for-profit entities to use fund accounting.
MULTIPLE CHOICE (CHAPTER 2)
1. What is the primary reason that governmental entities use fund accounting?
a) Fund accounting is required by law.
b) Fund accounting is required by GAAP.
c) Fund accounting promotes control and accountability over restricted resources.
d) Fund accounting promotes better control over operating activities.
2. Basis of accounting determines which of the following?
a) When transactions and events are recognized.
b) What transactions and events will be reported.
c) Where transactions and events will be reported.
d) Why transactions and events will be reported.
3. A fund is
a) A separate legal entity.
b) A separate fiscal and accounting entity.
c) A separate self-balancing set of accounts for inventory purposes.
d) None of the above.
4. Which of the following funds is a fiduciary fund?
a) Permanent fund.
b) Agency fund.
c) Capital project fund.
d) Debt service fund.
5. When a governmental entity adopts a basis of accounting other than full accrual and a measurement focus that excludes long-lived assets and liabilities in its governmental fund types:
a) It is in violation of the law.
b) It is in violation of GAAP.
c) It has recorded transactions in accordance with standards for presentation in the fund financial statement required by the new GASB reporting model.
d) It has the ability to better measure the results of operations.
6. A city receives a donation from a citizen who specifies that the principal must be invested and the earnings must be used to support operations of a city-owned recreational facility. The principal of this gift should be accounted for in which of the following funds?
a) Trust fund.
b) Special revenue fund.
c) Permanent fund.
d) Internal service fund.
7. Which of the following is NOT a governmental fund?
a) City Hall Debt Service Fund.
b) City Utilities Enterprise Fund.
c) Gasoline Tax Special Revenue Fund.
d) City Hall Capital Project Fund.
8. Which of the following accounts would you least expect to see in a debt service fund?
a) Principal payments.
b) Interest charges.
c) Interest earned.
d) Outstanding balance of the debt being serviced.
9. Which of the following funds is a proprietary fund?
a) Internal service fund.
b) Special revenue fund.
c) Capital project fund.
d) Permanent fund.
10. Which of the following funds is a governmental fund?
a) Enterprise fund.
b) Debt service fund.
c) Internal service fund.
d) Agency fund.
11. Which of the following activities should the City of Highland account for in a trust fund?
a) General fund contributions received by the City pension plan.
b) Greens fees received from golfers at the City-owned golf course.
c) Grants received from the Federal government to purchase buses to be used for public transit.
d) Proceeds of bonds issued to construct a new city hall building.
12. The state collects a gasoline tax that must be used to support highway construction and maintenance. The gasoline tax should be accounted for in which of the following funds?
a) General fund.
b) Special revenue fund.
c) Debt service fund.
d) Internal service fund.
13. The City of San Jose built a new city hall and financed construction by issuing bonds due in installments over the next 30 years. The bond principal and interest will be paid by a special tax levied on property in the City. The money received from this special tax should be accounted for in which of the following funds?
a) General fund.
b) Special revenue fund.
c) Capital project fund.
d) Debt service fund.
14. Riverside Golf Course is a City-owned golf course that collects greens fees in amounts sufficient to cover its expenses. Riverside Golf Course should be accounted for in which of the following funds?
a) Internal service fund.
b) Enterprise fund.
c) General fund.
d) Special revenue fund.
15. To fulfill the printing needs of its various departments and agencies, the City has established a Central Print Shop which bills the various departments and agencies of the city for printing services rendered. The Central Print Shop should be accounted for in which of the following funds.
a) Internal service fund.
b) Enterprise fund.
c) General fund.
d) Special revenue fund.
16. Which of the following funds is accounted for on the modified accrual basis of accounting?
a) General fund.
b) Internal service fund.
c) Proprietary fund.
d) Pension trust fund.
17. Which of the following assets would NOT be found in the fund balance sheet of the General Fund of the City of Harrison?
a) Cash.
b) Capital assets.
c) Receivable from Special Revenue Fund.
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ACC 401 Week 3 Quiz - Strayer
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Chapter 3
Consolidated Financial Statements—Date of Acquisition
Multiple Choice
1. A majority-owned subsidiary that is in legal reorganization should normally be accounted for using
a. consolidated financial statements.
b. the equity method.
c. the market value method.
d. the cost method.
2. Under the acquisition method, indirect costs relating to acquisitions should be
a. included in the investment cost.
b. expensed as incurred.
c. deducted from other contributed capital.
d. none of these.
3. Eliminating entries are made to cancel the effects of intercompany transactions and are made on the
a. books of the parent company.
b. books of the subsidiary company.
c. workpaper only.
d. books of both the parent company and the subsidiary.
4. One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is
a. an undervaluation of the subsidiary's assets.
b. the existence of unrecorded goodwill.
c. an overvaluation of the subsidiary's liabilities.
d. none of these.
5. In a business combination accounted for as an acquisition, registration costs related to common stock issued by the parent company are
a. expensed as incurred.
b. deducted from other contributed capital.
c. included in the investment cost.
d. deducted from the investment cost.
6. On the consolidated balance sheet, consolidated stockholders' equity is
a. equal to the sum of the parent and subsidiary stockholders' equity.
b. greater than the parent's stockholders' equity.
c. less than the parent's stockholders' equity.
d. equal to the parent's stockholders' equity.
7. Majority-owned subsidiaries should be excluded from the consolidated statements when
a. control does not rest with the majority owner.
b. the subsidiary operates under governmentally imposed uncertainty.
c. a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls.
d. any of these circumstances exist.
8. Under the economic entity concept, consolidated financial statements are intended primarily for the benefit of the
a. stockholders of the parent company.
b. creditors of the parent company.
c. minority stockholders.
d. all of the above.
9. Reasons a parent company may pay more than book value for the subsidiary company's stock include all of the following except
a. the fair value of one of the subsidiary's assets may exceed its recorded value because of appreciation.
b. the existence of unrecorded goodwill.
c. liabilities may be overvalued.
d. stockholders' equity may be undervalued.
10. What is the method of presentation required by SFAS 160 of “non-controlling interest” on a consolidated balance sheet?
a. As a deduction from goodwill from consolidation.
b. As a separate item within the long-term liabilities section.
c. As a part of stockholders' equity.
d. As a separate item between liabilities and stockholders' equity.
11. Which of the following is a limitation of consolidated financial statements?
a. Consolidated statements provide no benefit for the stockholders and creditors of the parent company.
b. Consolidated statements of highly diversified companies cannot be compared with industry standards.
c. Consolidated statements are beneficial only when the consolidated companies operate within the same industry.
d. Consolidated statements are beneficial only when the consolidated companies operate in different industries.
12. Pine Corp. owns 60% of Sage Corp.'s outstanding common stock. On May 1, 2011, Pine advanced Sage $90,000 in cash, which was still outstanding at December 31, 2011. What portion of this advance should be eliminated in the preparation of the December 31, 2011 consolidated balance sheet?
a. $90,000.
b. $54,000.
c. $36,000.
d. $-0-.
Use the following information for questions 13-15.
On January 1, 2011, Polk Company and Sigler Company had condensed balance sheets as follows:
Polk Sigler
Current assets $ 280,000 $ 80,000
Noncurrent assets _360,000 __160,000
Total assets $ 640,000 $240,000
Current liabilities $ 120,000 $ 40,000
Long-term debt 200,000 -0-
Stockholders' equity __320,000 200,000
Total liabilities & stockholders' equity $ 640,000 $240,000
On January 2, 2011 Polk borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sigler. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2011. Any difference between book value and the value implied by the purchase price relates to land.
On Polk's January 2, 2011 consolidated balance sheet,
13. Noncurrent assets should be
a. $520,000.
b. $536,000.
c. $544,000.
d. $586,667.
14. Current liabilities should be
a. $200,000.
b. $184,000.
c. $160,000.
d. $120,000.
15. Noncurrent liabilities should be
a. $440,000.
b. $416,000.
c. $240,000.
d. $216,000.
16. A newly acquired subsidiary has pre-existing goodwill on its books. The parent company’s consolidated balance sheet will:
a. treat the goodwill the same as other intangible assets of the acquired company.
b. will always show the pre-existing goodwill of the subsidiary at its book value.
c. not show any value for the subsidiary’s pre-existing goodwill.
d. do an impairment test to see if any of it has been impaired.
17. The Difference between Implied and Book Value account is:
a. an account necessary for the preparation of consolidated working papers.
b. used in allocating the amounts paid for recorded balance sheet accounts that are different than
their fair values.
c. the excess implied value assigned to goodwill.
d. the unamortized excess that cannot be assigned to any related balance sheet accounts
18. The main evidence of control for purposes of consolidated financial statements involves
a. possessing majority ownership
b. having decision-making ability that is not shared with others.
c. being the sole shareholder
d. having the parent company and the subsidiary participating in the same industry.
19. In which of the following cases would consolidation be inappropriate?
a. The subsidiary is in bankruptcy.
b. Subsidiary's operations are dissimilar from those of the parent.
c. The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor.
d. Subsidiary is foreign.
20. Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 2011. On the date of acquisition, Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000 and fair value of $500,000. What amount would land be reported in the consolidated balance sheet prepared immediately after the combination?
a. $650,000
b. $500,000
c. $550,000
d. $375,000
Use the following information to answer questions 21 - 23.
On January 1, 2011, Pena Company and Shelby Company had condensed balanced sheets as follows:
Pena Shelby
Current assets $ 210,000 $ 60,000
Noncurrent assets 270,000 120,000
Total assets $480,000 $180,000
Current liabilities $ 90,000 $ 30,000
Long-term debt 150,000 -0-
Stock holders' equity 240,000 150,000
Total liabilities & stockholders' equity $ 480,000 $ 180,000
On January 2, 2011 Pena borrowed $180,000 and used the proceeds to purchase 90% of the outstanding common stock of Shelby. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2011. Any difference between book value and the value implied by the purchase price relates to land.
On Pena's January 2, 2011 consolidated balance sheet,
21. Noncurrent assets should be
a. $390,000.
b. $402,000.
c. $408,000.
d. $440,000.
22. Current liabilities should be
a. $150,000.
b. $138,000.
c. $120,000.
d. $90,000.
23. Noncurrent liabilities should be
a. $330,000.
b. $312,000.
c. $180,000.
d. $162,000.
24. On January 1, 2011, Primer Corporation acquired 80 percent of Sutter Corporation's voting common stock.
Sutters's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of
acquisition. At what amount will Sutter’s buildings and equipment will be reported in the consolidated
statements ?
a. $350,000
b. $340,000
c. $280,000
d. $300,000
Problems
3-1 On December 31, 2011, Page Company purchased 80% of the outstanding common stock of Snead Company for cash. At the time of acquisition, Snead Company's balance sheet was as follows:
Current assets $ 1,680,000
Plant and equipment 1,580,000
Land 280,000
Total assets $3,540,000
Liabilities $ 1,320,000
Common stock, $10 par value 1,440,000
Other contributed capital 700,000
Retained earnings 240,000
Total $3,700,000
Treasury stock at cost, 5,000 shares 160,000
Total equities $3,540,000
Required:
Prepare the elimination entry(s) required for the preparation of a consolidated balance sheet workpaper on December 31, 2011, assuming the purchase price of the stock was $1,670,000. Any difference between the value implied by the purchase price of the investment and the book value of net assets acquired relates to subsidiary land.
3-2 P Company purchased 80% of the outstanding common stock of S Company on January 2, 2011, for $380,000. Balance sheets for P Company and S Company immediately after the stock acquisition were as follows:
P Company S Company
Current assets $ 166,000 $ 96,000
Investment in S Company 380,000 -0-
Plant and equipment (net) 560,000 224,000
Land 40,000 120,000
$1,146,000 $440,000
Current liabilities $ 120,000 $ 44,000
Long-term notes payable -0- 36,000
Common stock 480,000 160,000
Other contributed capital 244,000 64,000
Retained earnings 302,000 136,000
$1,146,000 $440,000
S Company owed P Company $16,000 on open account on the date of acquisition.
Required:
Prepare a consolidated balance sheet for P and S Companies on the date of acquisition. Any difference between the value implied by the purchase price of the investment and the book value of net assets acquired relates to subsidiary land. The book values of S Company's other assets and liabilities are equal to their fair values.
3-3 P Company acquired 54,000 shares of the common stock of S Company on January 1, 2011, for $950,000 cash. The stockholders' equity section of S Company's balance sheet on that date was as follows:
Common stock, $10 par value $600,000
Other contributed capital 80,000
Retained earnings 320,000
Total $1,000,000
On the date of acquisition, S Company owed P Company $10,000 on open account.
Required:
Present, in general journal form, the elimination entries for the preparation of a consolidated balance sheet workpaper on January 1, 2011. The difference between the value implied by the purchase price of the investment and the book value of the net assets acquired relates to subsidiary land.
3-4 On January 2, 2011, Potter Company acquired 90% of the outstanding common stock of Smiley Company for $480,000 cash. Just before the acquisition, the balance sheets of the two companies were as follows:
Potter Smiley
Cash $ 650,000 $ 160,000
Accounts Receivable (net) 360,000 60,000
Inventory 290,000 140,000
Plant and Equipment (net) 970,000 240,000
Land 150,000 80,000
Total Assets $2,420,000 $680,000
Accounts Payable $ 260,000 $ 120,000
Mortgage Payable 180,000 100,000
Common Stock, $2 par value 1,000,000 170,000
Other Contributed Capital 520,000 50,000
Retained Earnings 460,000 240,000
Total Equities $2,420,000 $680,000
The fair values of Smiley's assets and liabilities are equal to their book values with the exception of land.
Required:
A. Prepare the journal entry necessary to record the purchase of Smiley's common stock.
B. Prepare a consolidated balance sheet at the date of acquisition.
3-5 P Corporation paid $420,000 for 70% of S Corporation’s $10 par common stock on December 31, 2011, when S Corporation’s stockholders’ equity was made up of $300,000 of Common Stock, $90,000 of Other Contributed Capital and $60,000 of Retained Earnings. S’s identifiable assets and liabilities reflected their fair values on December 31, 2011, except for S’s inventory which was undervalued by $60,000 and their land which was undervalued by $25,000. Balance sheets for P and S immediately after the business combination are presented in the partially completed work-paper below.
Eliminations
P
S
Debit
Credit
Noncontrolling Interest
Consolidated Balances
ASSETS
Cash
$40,000
$30,000
Accounts
receivable-net
30,000
45,000
Inventories
185,000
165,000
Land
45,000
120,000
Plant assets-
net
480,000
240,000
Investment in
S Corp.
420,000
Difference between implied and book value
Goodwill
Total Assets
$1,200,000
$600,000
EQUITIES
Current
liabilities
$170,000
$150,000
Capital stock
600,000
300,000
Additional paid-in capital
150,000
90,000
Retained earnings
280,000
60,000
Noncontrolling interest
Total Equities
$1,200,000
$600,000
Required:
Complete the consolidated balance sheet workpaper for P Corporation and Subsidiary.
3-6 Prepare in general journal form the workpaper entries to eliminate Porter Company's investment in Sewell Company in the preparation of a consolidated balance sheet at the date of acquisition for each of the following independent cases:
Sewell Company Equity Balances
Cash
Percent of Stock Owned
Investment Cost
Common Stock
Other Contributed Capital
Retained Earnings
a.
90
$675,000
$450,000
$180,000
$75,000
b.
80
318,000
620,000
140,000
20,000
Any difference between book value of net assets acquired and the value implied by the purchase price relates to subsidiary property, plant, and equipment except for case (b). In case (b) assume that all book values and fair values are the same.
3-7 On December 31, 2011, Pryor Company purchased a controlling interest in Shelby Company for $1,060,000. The consolidated balance sheet on December 31, 2011 reported noncontrolling interest in Shelby Company of $265,000.
On the date of acquisition, the stockholders' equity section of Shelby Company's balance sheet was as follows:
Common stock $520,000
Other contributed capital 380,000
Retained earnings 280,000
Total 1,180,000
Required:
A. Compute the noncontrolling interest percentage on December 31, 2011.
B. Prepare the investment elimination entry made to prepare a consolidated balance sheet workpaper. Any difference between book value and the value implied by the purchase price relates to subsidiary land.
3-8 On January 1, 2011, Primer Company issued 1,500 of its $20 par value common shares with a fair value of $50 per share in exchange for 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700 paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows:
Primer
Swartz
Cash
$ 73,000
$13,000
Accounts Receivable (net)
95,000
19,000
Inventory
58,000
25,000
Plant and Equipment (net)
95,000
43,000
Land
26,000
20,000
Total Assets
$ 347,000
$ 120,000
Accounts Payable
$ 66,000
16,000
Notes Payable
82,000
21,000
Common Stock, $20 par value
100,000
40,000
Other Contributed Capital
60,000
24,000
Retained Earnings
39,000
19,000
Total Liabilities and Equities
$ 347,000
$ 120,000
Any differences between the book value of equity and the value implied by the purchase price relates to Land.
Required:
Prepare the journal entry on Primer’s books to record the exchange of stock.
Prepare a Computation and Allocation Schedule for the Difference between book value and value implied by the purchase price.
Calculate the consolidated balance for each of the following accounts as of December 31, 2011:
1. Cash
2. Land
3. Common Stock
4. Other Contributed Capital
Short Answer
1. There are several reasons why a company would acquire a subsidiary’s voting common stock rather than its net assets. Identify at least two advantages to acquiring a controlling interest in the voting stock of another company rather than its assets.
2. A useful first step in the consolidating process is to prepare a Computation and Allocation of Difference (CAD) Schedule. Identify the steps involved in preparing the CAD schedule.
Short Answer Questions from the Textbook
1. What are the advantages of acquiring the majority of the voting stock of another company rather than acquiring all its voting stock?
2. What is the justification for preparing consolidated financial statements when, in fact, it is ap-parent that the consolidated group is not a legal entity?
3. Why is it often necessary to prepare separate financial statements for each legal entity in a consolidated group even though consolidated statements provide a better economic picture of the combined activities?
4. What aspects of control must exist before a subsidiary is consolidated?
5. Why are consolidated work papers used in pre-paring consolidated financial statements?
6. Define noncontrolling (minority) interest. List three methods that might be used for reporting the noncontrolling interest in a consolidated balance sheet, and state which is preferred under the SFAS No. 160[topic 810].
7. Give several reasons why a parent company would be willing to pay more than book value for subsidiary stock acquired.
8. What effect do subsidiary treasury stock holdings have at the time the subsidiary is acquired? How should the treasury stock be treated on consolidated work papers?
9. What effect does a noncontrolling interest have on the amount of intercompany receivables and payables eliminated on a consolidated balance sheet?
10 A.SFAS No. 109and SFAS No. 141R[ASC 740 and805] require that a deferred tax asset or liability be recognized for likely differences between the reported values and tax bases of assets and liabilities recognized in business combinations (for example, in exchanges that are nontaxable to the selling shareholders). Does this decision change the amount of consolidated net income reported in years subsequent to the business combination? Explain.
Business Ethics Question from the Textbook
Part I. You are working on the valuation of accounts receivable, and bad debt reserves for the current year’s annual report. The CFO stops by and asks you to reduce the reserve by enough to increase the current year’s EPS by 2 cents a share. The company’s policy has always been to use the previous year’s actual bad debt percentage adjusted for a specific economic index. The CFO’s suggested change would still be within acceptable GAAP. However, later, you learn that with the increased EPS, the CFO would qualify for a significant bonus. What do you do and why?
Part II. Consider the following: Accounting firm KPMG created tax shelters called BLIPS, FLIP, OPIS, and SOS that were based largely in the Cayman Islands and allowed wealthy clients (there were 186) to create $5 billion in losses, which were then deducted from their income for IRS tax purposes. BLIPS (Bond Linked Issue Premium Structures) had clients borrow from an offshore bank for purposes of purchasing currency. The client would then sell the currency back to the lender for a loss. However, the IRS contends the losses were phony and that there was never any risk to the client in the deals. The IRS has indicted eight former KPMG partners and an outside lawyer alleging that the transactions were shams, illegal methods for avoiding taxes. KPMG has agreed to pay a$456 million fine, no longer to do tax shelters, and to cooperate with the government in its prosecution of the nine individuals involved in the tax shelter scheme. Many argue that the courts have not always held that such tax avoidance schemes show criminal intent because the tax laws permit individuals to minimize taxes. However, the IRS argues that these shelters evidence intent because of the lack of risk.
Question
In this case, the IRS contends that the losses generated by the tax shelters were phony and that the clients never incurred any risk. Do tax avoidance schemes indicate criminal intent if the tax laws permit individuals to minimize taxes? Justify your answer.
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ACC 350 Week 3 Quiz – Strayer
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Chapter 2
An Introduction to Cost Terms and Purposes
1)
Products, services, departments, and customers may be cost objects.
2)
Costs are accounted for in two basic stages: assignment followed by accumulation.
3)
Actual costs and budgeted costs are two different terms referring to the same thing.
4)
Accountants define a cost as a resource to be sacrificed to achieve a specific objective.
5)
A cost object is always either a product or a service.
6)
A department could be considered a cost object.
7)
The same cost may be direct for one cost object and indirect for another cost object.
8)
Assigning direct costs poses more problems than assigning indirect costs.
9)
Improvements in information-gathering technologies are making it possible to trace more costs as direct.
10)
Misallocated indirect costs may lead to promoting products that are not profitable.
11)
The materiality of the cost is a factor in classifying the cost as a direct or indirect cost.
12)
The cost of a customized machine only used in the production of a single product would be classified as a direct cost.
13)
Some fixed costs may be classified as direct manufacturing costs.
14)
The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).
15)
Fixed costs have no cost driver in the short run, but may have a cost driver in the long run.
16)
Costs that are difficult to change over the short run are always variable over the long run.
17)
A decision maker cannot adjust capacity over the short run.
18)
Fixed costs vary with the level of production or sales volume.
19)
Currently, most administrative personnel costs would be classified as fixed costs.
20)
Fixed costs depend on the resources used, not the resources acquired.
21)
The variable cost per unit of a product should stay the same throughout the relevant range of production.
22)
An appropriate cost driver for shipping costs might be the number of units shipped.
23)
When making decisions using fixed costs, the focus should be on total costs and not unit costs.
24)
When 50,000 units are produced the fixed cost is $10 per unit. Therefore, when 100,000 units are produced fixed costs will remain at $10 per unit.
25)
A unit cost is computed by dividing total cost by the number of units.
26)
Unit costs and average costs are really the same thing.
27)
Service-sector companies provide services or intangible products to their customers.
28)
America on Line (AOL) would be an example of a merchandising company.
29)
Merchandising companies purchase products and sell them to customers without changing their basic form.
30)
Merchandising companies only hold two types of inventories: merchandise inventory, and direct material.
31)
Manufacturing sector firms normally hold three types of inventory: direct materials inventory, work-in-process inventory, and finished goods inventory.
32)
Work-in-process inventory are goods partially worked on but not yet completed.
33)
Direct material costs are the acquisition costs of all materials that eventually become part of the cost object and cannot be traced to the cost object in an economically feasible way.
34)
Acquisition costs of direct materials include freight-in charges, sales taxes, and custom duties.
35)
Indirect manufacturing costs include the compensation of all manufacturing labor that can be traced to the cost object in an economically feasible way.
36)
Direct manufacturing labor includes wages and fringe benefits paid to machine operators.
37)
Inventoriable costs are reported as an asset when incurred and expensed on the income statement when the product is sold.
38)
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ACC 304 Week 3 Quiz – Strayer NEW
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Week 3 Quiz 2: Chapter 9
INVENTORIES: ADDITIONAL VALUATION ISSUES
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. A company should abandon the historical cost principle when the future utility of the inventory item falls below its original cost.
2. The lower-of-cost-or-market method is used for inventory despite being less conservative than valuing inventory at market value.
3. The purpose of the “floor” in lower-of-cost-or-market considerations is to avoid overstating inventory.
4. Application of the lower-of-cost-or-market rule results in inconsistency because a company may value inventory at cost in one year and at market in the next year.
5. GAAP requires reporting inventory at net realizable value, even if above cost, whenever there is a controlled market with a quoted price applicable to all quantities.
6. A reason for valuing inventory at net realizable value is that sometimes it is too difficult to obtain the cost figures.
7. In a basket purchase, the cost of the individual assets acquired is determined on the basis of their relative sales value.
8. A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.
9. Most purchase commitments must be recorded as a liability.
10. If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should record any expected losses on the commitment in the period in which the market decline takes place.
11. When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.
12. The gross profit method can be used to approximate the dollar amount of inventory on hand.
13. In most situations, the gross profit percentage is stated as a percentage of cost.
14. A disadvantage of the gross profit method is that it uses past percentages in determining the markup.
15. When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation.
16. In the retail inventory method, the term markup means a markup on the original cost of an inventory item.
17. In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.
18. The inventory turnover ratio is computed by dividing the cost of goods sold by the ending inventory on hand.
19. The average days to sell inventory represents the average number of days’ sales for which a company has inventory on hand.
*20. The LIFO retail method assumes that markups and markdowns apply only to the goods purchased during the period.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. Which of the following is true about lower-of-cost-or-market?
a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income.
d. All of these.
22. The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their
a. selling price will be less than their replacement cost.
b. replacement cost will be more than their net realizable value.
c. cost will be less than their replacement cost.
d. future utility will be less than their cost.
23. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?
a. Net realizable value
b. Net realizable value less a normal profit margin
c. Current replacement cost
d. Discounted present value
24. In no case can "market" in the lower-of-cost-or-market rule be more than
a. estimated selling price in the ordinary course of business.
b. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.
c. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin.
d. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.
25. Designated market value
a. is always the middle value of replacement cost, net realizable value, and net realizable value less a normal profit margin.
b. should always be equal to net realizable value.
c. may sometimes exceed net realizable value.
d. should always be equal to net realizable value less a normal profit margin.
26. Lower-of-cost-or-market
a. is most conservative if applied to the total inventory.
b. is most conservative if applied to major categories of inventory.
c. is most conservative if applied to individual items of inventory.
d. must be applied to major categories for taxes.
27. An item of inventory purchased this period for $15.00 has been incorrectly written down to its current replacement cost of $10.00. It sells during the following period for $30.00, its normal selling price, with disposal costs of $3.00 and normal profit of $12.00. Which of the following statements is not true?
a. The cost of sales of the following year will be understated.
b. The current year's income is understated.
c. The closing inventory of the current year is understated.
d. Income of the following year will be understated.
S28. When the cost-of-goods-sold method is used to record inventory at market
a. there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale.
b. a loss is recorded directly in the inventory account by crediting inventory and debiting loss on inventory decline.
c. only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements.
d. the market value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.
29. Lower-of-cost-or-market as it applies to inventory is best described as the
a. drop of future utility below its original cost.
b. method of determining cost of goods sold.
c. assumption to determine inventory flow.
d. change in inventory value to market value.
30. The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the
a. net realizable value.
b. net realizable value less normal profit margin.
c. replacement cost.
d. selling price less costs of completion and disposal.
31. What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory?
a. Prevents understatement of the inventory value.
b. Allows for a normal profit to be earned.
c. Allows for items to be valued at replacement cost.
d. Prevents overstatement of the value of obsolete or damaged inventories.
32. Why are inventories stated at lower-of-cost-or-market?
a. To report a loss when there is a decrease in the future utility.
b. To be conservative.
c. To report a loss when there is a decrease in the future utility below the original cost.
d. To permit future profits to be recognized.
33. Which of the following is not an acceptable approach in applying the lower-of-cost-or-market method to inventory?
a. Inventory location.
b. Categories of inventory items.
c. Individual item.
d. Total of the inventory.
34. Which method(s) may be used to record a loss due to a price decline in the value of inventory?
a. Cost-of-goods-sold.
b. Sales method.
c. Loss method
d. Both a and c.
35. Why might inventory be reported at sales prices (net realizable value or market price) rather than cost?
a. When there is a controlled market with a quoted price applicable to all quantities and when there are no significant costs of disposal.
b. When there are no significant costs of disposal.
c. When a non-cancellable contract exists to sell the inventory.
d. When there is a controlled market with a quoted price applicable to all quantities.
S36. Recording inventory at net realizable value is permitted, even if it is above cost, when there are no significant costs of disposal involved and
a. the ending inventory is determined by a physical inventory count.
b. a normal profit is not anticipated.
c. there is a controlled market with a quoted price applicable to all quantities.
d. the internal revenue service is assured that the practice is not used only to distort reported net income.
37. When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?
a. Sales price
b. Net realizable value
c. Historical cost
d. Net realizable value reduced by a normal profit margin
38. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.
39. If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is
a. net realizable value.
b. original cost.
c. market value.
d. net realizable value less a normal profit margin.
40. Inventory may be recorded at net realizable value if
a. there is a controlled market with a quoted price.
b. there are no significant costs of disposal.
c. the inventory consists of precious metals or agricultural products.
d. all of these.
41. If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices,
a. this fact must be disclosed.
b. disclosure is required only if prices have declined since the date of the order.
c. disclosure is required only if prices have since risen substantially.
d. an appropriation of retained earnings is necessary.
42. The credit balance that arises when a net loss on a purchase commitment is recognized should be
a. presented as a current liability.
b. subtracted from ending inventory.
c. presented as an appropriation of retained earnings.
d. presented in the income statement.
P43. In 2012, Orear Manufacturing signed a contract with a supplier to purchase raw materials in 2013 for $700,000. Before the December 31, 2012 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2012 will result in a credit that should be reported
a. as a valuation account to Inventory on the balance sheet.
b. as a current liability.
c. as an appropriation of retained earnings.
d. on the income statement.
44. At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.10 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.50, how would this situation be reflected in the annual financial statements?
a. Record unrealized gains of $400,000 and disclose the existence of the purchase commitment.
b. No impact.
c. Record unrealized losses of $400,000 and disclose the existence of the purchase commitment.
d. Disclose the existence of the purchase commitment.
45. At the end of the fiscal year, Apha Airlines has an outstanding purchase commitment for the purchase of 1 million gallons of jet fuel at a price of $4.60 per gallon for delivery during the coming summer. The company prices its inventory at the lower of cost or market. If the market price for jet fuel at the end of the year is $4.25, how would this situation be reflected in the annual financial statements?
a. Record unrealized gains of $350,000 and disclose the existence of the purchase commitment.
b. No impact.
c. Record unrealized losses of $350,000 and disclose the existence of the purchase commitment.
d. Disclose the existence of the purchase commitment.
46. How is the gross profit method used as it relates to inventory valuation?
a. Verify the accuracy of the perpetual inventory records.
b. Verity the accuracy of the physical inventory.
c. To estimate cost of goods sold.
d. To provide an inventory value of LIFO inventories.
S47. Which of the following is not a basic assumption of the gross profit method?
a. The beginning inventory plus the purchases equal total goods to be accounted for.
b. Goods not sold must be on hand.
c. If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand.
d. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
48. The gross profit method of inventory valuation is invalid when
a. a portion of the inventory is destroyed.
b. there is a substantial increase in inventory during the year.
c. there is no beginning inventory because it is the first year of operation.
d. none of these.
49. Which statement is not true about the gross profit method of inventory valuation?
a. It may be used to estimate inventories for interim statements.
b. It may be used to estimate inventories for annual statements.
c. It may be used by auditors.
d. None of these.
50. A major advantage of the retail inventory method is that it
a. provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period.
b. hides costs from competitors and customers.
c. gives a more accurate statement of inventory costs than other methods.
d. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
51. An inventory method which is designed to approximate inventory valuation at the lower of cost or market is
a. last-in, first-out.
b. first-in, first-out.
c. conventional retail method.
d. specific identification.
52. The retail inventory method is based on the assumption that the
a. final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods.
b. ratio of gross margin to sales is approximately the same each period.
c. ratio of cost to retail changes at a constant rate.
d. proportions of markups and markdowns to selling price are the same.
53. Which statement is true about the retail inventory method?
a. It may not be used to estimate inventories for interim statements.
b. It may not be used to estimate inventories for annual statements.
c. It may not be used by auditors.
d. None of these.
54. When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because
a. there may be no markdowns in a given year.
b. this tends to give a better approximation of the lower of cost or market.
c. markups are also ignored.
d. this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.
55. To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should
a. include markups but not markdowns.
b. include markups and markdowns.
c. ignore both markups and markdowns.
d. include markdowns but not markups.
*56. When calculating the cost ratio for the retail inventory method,
a. if it is the conventional method, the beginning inventory is included and markdowns are deducted.
b. if it is the LIFO method, the beginning inventory is excluded and markdowns are deducted.
c. if it is the LIFO method, the beginning inventory is included and markdowns are not deducted.
d. if it is the conventional method, the beginning inventory is excluded and markdowns are not deducted.
S57. Which of the following is not required when using the retail inventory method?
a. All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price.
b. A record of the total cost and retail value of goods purchased.
c. A record of the total cost and retail value of the goods available for sale.
d. Total sales for the period.
S58. Which of the following is not a reason the retail inventory method is used widely?
a. As a control measure in determining inventory shortages
b. For insurance information
c. To permit the computation of net income without a physical count of inventory
d. To defer income tax liability
59. What condition is not necessary in order to use the retail method to provide inventory results?
a. Retailer keeps a record of the total costs of products sold for the period.
b. Retailer keeps a record of the total costs and retail value of goods purchased.
c. Retailer keeps a record of the total costs and retail value of goods available for sale.
d. Retailer keeps a record of sales for the period.
60. What method yields results that are essentially the same as those of the conventional retail method?
a. FIFO.
b. Lower-of-average-cost-or-market.
c. Average cost.
d. LIFO.
61. What is the effect of net markups on the cost-retail ratio when using the conventional retail method?
a. Increases the cost-retail ratio.
b. No effect on the cost-retail ratio.
c. Depends on the amount of the net markdowns.
d. Decreases the cost-retail ratio.
62. What is the effect of freight-in on the cost-retail ratio when using the conventional retail method?
a. Increases the cost-retail ratio.
b. No effect on the cost-retail ratio.
c. Depends on the amount of the net markups.
d. Decreases the cost-retail ratio.
63. Which of the following is not a common disclosure for inventories?
a. Inventory composition.
b. Inventory location.
c. Inventory financing arrangements.
d. Inventory costing methods employed.
P64. Which of the following statements is false regarding an assumption of inventory cost flow?
a. The cost flow assumption need not correspond to the actual physical flow of goods.
b. The assumption selected may be changed each accounting period.
c. The FIFO assumption uses the earliest acquired prices to cost the items sold during a period.
d. The LIFO assumption uses the earliest acquired prices to cost the items on hand at the end of an accounting period.
P65. The average days to sell inventory is computed by dividing
a. 365 days by the inventory turnover ratio.
b. the inventory turnover ratio by 365 days.
c. net sales by the inventory turnover ratio.
d. 365 days by cost of goods sold.
66. The inventory turnover ratio is computed by dividing the cost of goods sold by
a. beginning inventory.
b. ending inventory.
c. average inventory.
d. number of days in the year.
*67. When using dollar-value LIFO, if the incremental layer was added last year, it should be multiplied by
a. last year's cost ratio and this year's index.
b. this year's cost ratio and this year's index.
c. last year's cost ratio and last year's index.
d. this year's cost ratio and last year's index.
Multiple Choice Answers—Conceptual
Solutions to those Multiple Choice questions for which the answer is “none of these.”
48. The gross profit percentage applicable to the goods in ending inventory is different from the percentage applicable to the goods sold during the period.
53. Many answers are possible.
Multiple Choice—Computational
68. Oslo 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:
Product #1 Product #2
Historical cost $20.00 $ 35.00
Replacement cost 22.50 27.00
Estimated cost to dispose 5.00 13.00
Estimated selling price 40.00 65.00
In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Oslo use for products #1 and #2, respectively?
a. $20.00 and $32.50.
b. $23.00 and $32.50.
c. $23.00 and $30.00.
d. $22.50 and $27.00.
69. Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
a. $12.
b. $24.
c. $26.
d. $27.
70. Lexington Company sells product 1976NLC for $50 per unit. The cost of one unit of 1976NLC is $45, and the replacement cost is $43. The estimated cost to dispose of a unit is $10, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?
a. $20.
b. $40.
c. $43.
d. $45.
71. Given the acquisition cost of product Z is $64, the net realizable value for product Z is $58, the normal profit for product Z is $5, and the market value (replacement cost) for product Z is $60, what is the proper per unit inventory price for product Z?
a. $64.
b. $60.
c. $53.
d. $58.
72. Given the acquisition cost of product ALPHA is $17, the net realizable value for product ALPHA is $16.70, the normal profit for product ALPHA is $1.24, and the market value (replacement cost) for product ALPHA is $14.72, what is the proper per unit inventory price for product ALPHA?
a. $17.00.
b. $15.46
c. $14.72.
d. $16.70.
73. Given the acquisition cost of product Dominoe is $43.31, the net realizable value for product Dominoe is $38.49, the normal profit for product Dominoe is $4.32, and the market value (replacement cost) for product Dominoe is $40.68, what is the proper per unit inventory price for product Dominoe?
a. $40.68.
b. $34.18.
c. $38.49.
d. $43.31
74. Given the historical cost of product Z is $80, the selling price of product Z is $95, costs to sell product Z are $11, the replacement cost for product Z is $83, and the normal profit margin is 40% of sales price, what is the market value that should be used in the lower-of-cost-or-market comparison?
a. $80.
b. $84.
c. $83.
d. $46.
75. Given the historical cost of product Z is $80, the selling price of product Z is $95, costs to sell product Z are $11, the replacement cost for product Z is $83, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method?
a. $46.
b. $80.
c. $84.
d. $83.
76. Given the historical cost of product Dominoe is $43, the selling price of product Dominoe is $60, costs to sell product Dominoe are $11, the replacement cost for product Dominoe is $40, and the normal profit margin is 20% of sales price, what is the cost amount that should be used in the lower-of-cost-or-market comparison?
a. $49.
b. $40.
c. $37.
d. $43.
77. Given the historical cost of product Dominoe is $43, the selling price of product Dominoe is $60, costs to sell product Dominoe are $11, the replacement cost for product Dominoe is $40, and the normal profit margin is 20% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method?
a. $43.
b. $37.
c. $40.
d. $49.
78. Robust Inc. has the following information related to an item in its ending inventory. Product 66 has a cost of $3,250, a replacement cost of $3,100, a net realizable value of $3,200, and a normal profit margin of $200. What is the final lower-of-cost-or-market inventory value for product 66?
a. $3,200.
b. $3,100.
c. $3,250.
d. $3,100.
79. Robust Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $524, a replacement cost of $402, a net realizable value of $468, and a normal profit margin of $21. What is the final lower-of-cost-or-market inventory value for Packit?
a. $447.
b. $524.
c. $402.
d. $468.
80. Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost of $251, a replacement cost of $234, a net realizable value of $266, and a normal profit margin of $34. What is the final lower-of-cost-or-market inventory value for Acer Top?
a. $232.
b. $251.
c. $234.
d. $266.
81. Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $150,000. The total selling price is $360,000, and estimated costs of disposal are $10,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet?
a. $140,000.
b. $150,000.
c. $350,000.
d. $360,000.
82. Rodriguez Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $210,000. The total selling price is $490,000, and estimated costs of disposal are $5,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet?
a. $205,000.
b. $210,000.
c. $485,000.
d. $490,000.
83. Turner Corporation acquired two inventory items at a lump-sum cost of $80,000. The acquisition included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for $24 per unit, and 1B for $8 per unit. If Turner sells 1,000 units of LF, what amount of gross profit should it recognize?
a. $3,000
b. $9,000.
c. $16,000.
d. $19,000.
84. Robertson Corporation acquired two inventory items at a lump-sum cost of $60,000. The acquisition included 3,000 units of product CF, and 7,000 units of product 3B. CF normally sells for $18 per unit, and 3B for $6 per unit. If Robertson sells 1,000 units of CF, what amount of gross profit should it recognize?
a. $2,250.
b. $6,750.
c. $12,000.
d. $14,250.
85. At a lump-sum cost of $72,000, Pratt Company recently purchased the following items for resale:
Item No. of Items Purchased Resale Price Per Unit
M 4,000 $3.75
N 2,000 12.00
O 6,000 6.00
The appropriate cost per unit of inventory is:
M N O
a. $3.75 $12.00 $6.00
b. $3.11 $19.86 $3.32
c. $3.60 $11.52 $5.76
d. $6.00 $6.00 $6.00
86. Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 1?
a. $0.150.
b. $0.100.
c. $0.120.
d. $0.225.
87. Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 2?
a. $0.225.
b. $0.360.
c. $0.210.
d. $0.239.
88. Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 3?
a. $0.477.
b. $0.225.
c. $0.720.
d. $0.540.
89. During the current fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Jeremiah agreed to purchase $2.5 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $2.3 million. What is the journal entry at the end of the current fiscal year?
a. Debit Unrealized Holding Gain or Loss for $200,000 and credit Estimated Liability on Purchase Commitment for $200,000.
b. Debit Estimated liability on Purchase Commitments for $200,000 and credit Unrealized Holding Gain or Loss for $200,000.
c. Debit Unrealized Holding Gain or Loss for $2,300,000 and credit Estimated Liability on Purchase Commitments for $2,300,000.
d. No journal entry is required.
90. During the prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $2.5 million of raw materials. Jeremiah paid the $2.5 million to acquire the raw materials when the raw materials were only worth $2.3 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase?
a. Debit Inventory for $2,300,000, and credit Cash for $2,300,000.
b. Debit Inventory for $2,300,000, debit Unrealized Holding Gain or Loss for $200,000, and credit Cash for $2,500,000.
c. Debit Inventory for $2,300,000, debit Estimated Liability on Purchase Commitments for $200,000 and credit Cash for $2,500,000.
d. Debit Inventory for $2,500,000, and credit Cash for $2,500,000.
91. During 2012, Larue Co., a manufacturer of chocolate candies, contracted to purchase 200,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2013. Because a record harvest is predicted for 2013, the price per pound for cocoa beans had fallen to $3.30 by December 31, 2012.
Of the following journal entries, the one which would properly reflect in 2012 the effect of the commitment of Larue Co. to purchase the 100,000 pounds of cocoa is
a. Cocoa Inventory.............................................................. 400,000
Accounts Payable................................................ 400,000
b. Cocoa Inventory.............................................................. 330,000
Loss on Purchase Commitments...................................... 70,000
Accounts Payable................................................ 400,000
c. Unrealized Holding Gain or Loss-Income....................... 70,000
Estimated Liability on Purchase Commitments... 70,000
d. No entry would be necessary in 2012
92. RS Corporation, a manufacturer of ethnic foods, contracted in 2012 to purchase 500 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2013. By 12/31/12, the price per pound of the spice mixture had risen to $5.40 per pound. In 2012, AJ should recognize
a. a loss of $2,500.
b. a loss of $200.
c. no gain or loss.
d. a gain of $200.
93. LF Corporation, a manufacturer of Mexican foods, contracted in 2012 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2013. By 12/31/12, the price per pound of the spice mixture had dropped to $4.70 per pound. In 2012, LF should recognize
a a loss of $5,000.
b. a loss of $300.
c. no gain or loss.
d. a gain of $300.
94. The following information is available for October for Barton Company.
Beginning inventory $150,000
Net purchases 450,000
Net sales 900,000
Percentage markup on cost 66.67%
A fire destroyed Barton’s October 31 inventory, leaving undamaged inventory with a cost of $9,000. Using the gross profit method, the estimated ending inventory destroyed by fire is
a. $51,000.
b. $231,000.
c. $240,000.
d. $300,000.
95. The following information is available for October for Norton Company.
Beginning inventory $200,000
Net purchases 600,000
Net sales 1,200,000
Percentage markup on cost 66.67%
A fire destroyed Norton’s October 31 inventory, leaving undamaged inventory with a cost of $12,000. Using the gross profit method, the estimated ending inventory destroyed by fire is
a. $68,000.
b. $308,000.
c. $320,000.
d. $400,000.
Use the following information for questions 96 and 97.
Miles Company, a wholesaler, budgeted the following sales for the indicated months:
June July August
Sales on account $2,700,000 $2,760,000 $2,850,000
Cash sales 270,000 300,000 390,000
Total sales $2,970,000 $3,060,000 $3,240,000
All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold.
96. The cost of goods sold for the month of June is anticipated to be
a. $2,160,000.
b. $2,250,000.
c. $2,280,000.
d. $2,475,000.
97. Merchandise purchases for July are anticipated to be
a. $2,448,000.
b. $3,114,000.
c. $2,550,000.
d. $2,595,000.
98. Reyes Company had a gross profit of $480,000, total purchases of $560,000, and an ending inventory of $320,000 in its first year of operations as a retailer. Reyes’s sales in its first year must have been
a. $720,000.
b. $880,000.
c. $240,000.
d. $800,000.
99. A markup of 30% on cost is equivalent to what markup on selling price?
a. 23%
b. 30%
c. 70%
d. 77%
100. Kesler, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available:
Inventory, March 1 $385,000
Purchases 301,000
Purchase returns 14,000
Sales during March 525,000
The estimate of the cost of inventory at March 31 would be
a. $147,000.
b. $252,000.
c. $278,250.
d. $196,000.
101. On January 1, 2012, the merchandise inventory of Glaus, Inc. was $1,000,000. During 2012 Glaus purchased $2,000,000 of merchandise and recorded sales of $2,500,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2012?
a. $500,000.
b. $625,000.
c. $1,125,000.
d. $1,875,000.
102. For 2012, cost of goods available for sale for Tate Corporation was $1,800,000. The gross profit rate was 20%. Sales for the year were $1,600,000. What was the amount of the ending inventory?
a. $0.
b. $520,000.
c. $360,000.
d. $320,000.
103. On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available:
Sales, January 1 through April 15 �� $360,000
Inventory, January 1 60,000
Purchases, January 1 through April 15 300,000
Markup on cost 25%
The amount of the inventory loss is estimated to be
a. $72,000.
b. $36,000.
c. $90,000.
d. $60,000.
104. The inventory account of Irick Company at December 31, 2012, included the following items:
Inventory Amount
Merchandise out on consignment at sales price
(including markup of 40% on selling price) $30,000
Goods purchased, in transit (shipped f.o.b. shipping point) 24,000
Goods held on consignment by Irick 26,000
Goods out on approval (sales price $15,200, cost $12,800) 15,200
Based on the above information, the inventory account at December 31, 2012, should be reduced by
a. $40,400.
b. $45,200.
c. $64,400.
d. $64,000.
105. The sales price for a product provides a gross profit of 20% of sales price. What is the gross profit as a percentage of cost?
a. 20%.
b. 17%.
c. 25%.
d. Not enough information is provided to determine.
106. Gamma Ray Corp. has annual sales totaling $975,000 and an average gross profit of 20% of cost. What is the dollar amount of the gross profit?
a. $195,000.
b. $146,250.
c. $162,500.
d. $243,750.
107. On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $640,000. Since June 30 until the time of the hurricane, the company made purchases of $170,000 and had sales of $500,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
a. $640,000.
b. $363,000.
c. $410,000.
d. $510,000.
108. On October 31, a fire destroyed PH Inc.'s entire retail inventory. The inventory on hand as of January 1 totaled $1,360,000. From January 1 through the time of the fire, the company made purchases of $330,000 and had sales of $720,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
a. $1,360,000.
b. $1,346,000.
c. $970,000.
d. $1,258,000.
109. On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $3,300,000. From January 1 through the time of the fire, the company made purchases of $1,366,000, incurred freight-in of $156,000, and had sales of $2,420,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed?
a. $4,096,000.
b. $2,972,000.
c. $3,128,000.
d. $4,822,000.
110. Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $260,000 ($396,000), purchases during the current year at cost (retail) were $1,370,000 ($2,200,000), freight-in on these purchases totaled $86,000, sales during the current year totaled $2,100,000, and net markups (markdowns) were $48,000 ($72,000). What is the ending inventory value at cost?
a. $306,328.
b. $312,330.
c. $314,824.
d. $472,000.
111. Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $196,500 ($297,000), purchases during the current year at cost (retail) were $1,704,000 ($2,596,800), freight-in on these purchases totaled $79,500, sales during the current year totaled $2,433,000, and net markups were $207,000. What is the ending inventory value at cost?
a. $667,800.
b. $523,098.
c. $426,723.
d. $456,924.
112. Barker Pet supply uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $531,200 ($653,800), purchases during the current year at cost (retail) were $2,137,200 ($2,772,200), freight-in on these purchases totaled $127,800, sales during the current year totaled $2,604,000, and net markups (markdowns) were $4,000 ($192,600). What is the ending inventory value at cost?
a. $633,400.
b. $516,222.
c. $822,000.
d. $493,334.
113. Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year:
Cost Retail
Beginning inventory $ 30,000 $ 50,000
Purchases 175,000 240,000
Freight-in 2,500 —
Net markups — 8,500
Net markdowns — 10,000
Employee discounts — 1,000
Sales — 205,000
If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost to retail ratio?
a. $207,500 ÷ $290,000
b. $207,500 ÷ $298,500
c. $205,000 ÷ $300,000
d. $207,500 ÷ $288,500
Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company.
Cost Retail
Beginning inventory $ 98,000 $ 140,000
Purchases 448,000 640,000
Freight-in 12,000 —
Net markups — 40,000
Net markdowns — 28,000
Sales — 672,000
114. The ending inventory at retail should be
a. $148,000.
b. $120,000.
c. $128,000.
d. $84,000.
115. If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost to retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of
a. $558,000 and $820,000.
b. $558,000 and $792,000.
c. $558,000 and $780,000.
d. $546,000 and $780,000.
116. If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $108,000 at retail, the business has
a. realized a windfall gain.
b. sustained a loss.
c. no gain or loss as there is close coincidence of the inventories.
d. none of these.
*117. Assuming no change in the price level if the LIFO inventory method were used in conjunction with the data, the ending inventory at cost would be
a. $85,200.
b. $84,000.
c. $81,600.
d. $86,400.
*118. Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost to retail ratio would
a. exclude both markups and markdowns and include beginning inventory.
b. include markups and exclude both markdowns and beginning inventory.
c. include both markups and markdowns and exclude beginning inventory.
d. exclude markups and include both markdowns and beginning inventory.
119. Drake Corporation had the following amounts, all at retail:
Beginning inventory $ 3,600 Purchases $140,000
Purchase returns 6,000 Net markups 18,000
Abnormal shortage 4,000 Net markdowns 2,800
Sales 72,000 Sales returns 1,800
Employee discounts 1,600 Normal shortage 2,600
What is Drake’s ending inventory at retail?
a. $74,400.
b. $76,000.
c. $77,600.
d. $78,400
120. Goren Corporation had the following amounts, all at retail:
Beginning inventory $ 3,600 Purchases $110,000
Purchase returns 6,000 Net markups 18,000
Abnormal shortage 4,000 Net markdowns 2,800
Sales 72,000 Sales returns 1,800
Employee discounts 1,600 Normal shortage 2,600
What is Goren’s ending inventory at retail?
a. $44,400.
b. $46,000.
c. $47,600.
d. $48,400
121. Fry Corporation’s computation of cost of goods sold is:
Beginning inventory $ 60,000
Add: Cost of goods purchased 530,000
Cost of goods available for sale 590,000
Ending inventory 90,000
Cost of goods sold $500,000
The average days to sell inventory for Fry are
a. 43.5 days.
b. 50.3 days.
c. 54.5 days.
d. 65.2 days.
122. East Corporation’s computation of cost of goods sold is:
Beginning inventory $ 60,000
Add: Cost of goods purchased 482,000
Cost of goods available for sale 542,000
Ending inventory 80,000
Cost of goods sold $462,000
The average days to sell inventory for East are
a. 68.3 days.
b. 75.7 days.
c. 55.3 days.
d. 90.9 days.
123. The 2012 financial statements of Sito Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $800,000 for the year. Sito’s inventory turnover ratio for 2012 is
a. 10.0 times.
b. 8.0 times.
c. 6.7 times.
d. 5.7 times.
124. Boxer Inc. reported inventory at the beginning of the current year of $360,000 and at the end of the current year of $411,000. If net sales for the current year are $3,321,900 and the corresponding cost of sales totaled $2,819,100, what is the inventory turnover ratio for the current year?
a. 8.61.
b. 6.86.
c. 7.83.
d. 7.31.
Use the following information for questions 125 through 129.
Plank Co. uses the retail inventory method. The following information is available for the current year.
Cost Retail
Beginning inventory $ 156,000 $244,000
Purchases 590,000 830,000
Freight-in 10,000 —
Employee discounts — 4,000
Net markups — 30,000
Net Markdowns — 40,000
Sales — 780,000
125. If the ending inventory is to be valued at approximately lower of average cost or market, the calculation of the cost ratio should be based on cost and retail of
a. $600,000 and $860,000.
b. $600,000 and $856,000.
c. $746,000 and $1,100,000.
d. $756,000 and $1,104,000.
126. The ending inventory at retail should be
a. $320,000.
b. $300,000.
c. $288,000.
d. $280,000.
127. The approximate cost of the ending inventory by the conventional retail method is
a. $191,800.
b. $189,840.
c. $196,000.
d. $204,960.
*128. If the ending inventory is to be valued at approximately LIFO cost, the calculation of the cost ratio should be based on cost and retail of
a. $756,000 and $1,104,000.
b. $756,000 and $1,064,000.
c. $600,000 and $820,000.
d. $600,000 and $860,000.
*129. Assuming that the LIFO inventory method is used, that the beginning inventory is the base inventory when the index was 100, and that the index at year end is 112, the ending inventory at dollar-value LIFO retail cost is
a. $160,920.
b. $185,514.
c. $191,800.
d. $204,960.
Use the following information for questions 130 and 131.
Eaton Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2012:
Cost Retail
Inventory, 1/1/12 $ 141,000 $210,000
Net purchases 567,000 843,000
Net markups 102,000
Net markdowns 45,000
Net sales 795,000
*130. Assuming stable prices (no change in the price index during 2012), what is the cost of Eaton's inventory at December 31, 2012?
a. $192,150.
b. $207,150.
c. $204,000.
d. $198,450.
*131. Assuming that the price index was 105 at December 31, 2012 and 100 at January 1, 2012, what is the cost of Eaton's inventory at December 31, 2012 under the dollar-value-LIFO retail method?
a. $200,535.
b. $208,372.
c. $210,458.
d. $197,700.
Multiple Choice Answers—Computational
Multiple Choice—CPA Adapted
132. Ryan Distribution Co. has determined its December 31, 2012 inventory on a FIFO basis at $500,000. Information pertaining to that inventory follows:
Estimated selling price $510,000
Estimated cost of disposal 20,000
Normal profit margin 60,000
Current replacement cost 450,000
Ryan records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2012, the loss that Ryan should recognize is
a. $0.
b. $10,000.
c. $40,000.
d. $50,000.
133. Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value
a. when it is below the net realizable value less the normal profit margin.
b. when it is below the net realizable value and above the net realizable value less the normal profit margin.
c. when it is above the net realizable value.
d. regardless of net realizable value.
134. 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 the
a. net realizable value.
b. net realizable value less the normal profit margin.
c. replacement cost.
d. original cost.
135. Keen Company's accounting records indicated the following information:
Inventory, 1/1/12 $ 900,000
Purchases during 2012 4,500,000
Sales during 2012 5,700,000
A physical inventory taken on December 31, 2012, resulted in an ending inventory of $1,050,000. Keen's gross profit on sales has remained constant at 25% in recent years. Keen suspects some inventory may have been taken by a new employee. At December 31, 2012, what is the estimated cost of missing inventory?
a. $75,000.
b. $225,000.
c. $300,000.
d. $375,000.
136. Henke Co. uses the retail inventory method to estimate its inventory for interim statement purposes. Data relating to the computation of the inventory at July 31, 2012, are as follows:
Cost Retail
Inventory, 2/1/12 $ 200,000 $ 250,000
Purchases 1,000,000 1,575,000
Markups, net 175,000
Sales 1,650,000
Estimated normal shoplifting losses 20,000
Markdowns, net 110,000
Under the lower-of-cost-or-market method, Henke's estimated inventory at July 31, 2012 is
a. $132,000.
b. $144,000.
c. $156,000.
d. $220,000.
137. At December 31, 2012, the following information was available from Kohl Co.'s accounting records:
Cost Retail
Inventory, 1/1/12 $147,000 $ 203,000
Purchases 833,000 1,155,000
Additional markups 42,000
Available for sale $980,000 $1,400,000
Sales for the year totaled $1,150,000. Markdowns amounted to $10,000. Under the lower-of-cost-or-market method, Kohl's inventory at December 31, 2012 was
a. $294,000.
b. $175,000.
c. $182,000.
d. $168,000.
*138. On December 31, 2012, Pacer Co. adopted the dollar-value LIFO retail inventory method. Inventory data for 2013 are as follows:
LIFO Cost Retail
Inventory, 12/31/12 $450,000 $630,000
Inventory, 12/31/13 ? 825,000
Increase in price level for 2013 10%
Cost to retail ratio for 2013 70%
Under the LIFO retail method, Pacer's inventory at December 31, 2013, should be
a. $542,400.
b. $577,500.
c. $586,500.
d $600,150.
Multiple Choice Answers—CPA Adapted
IFRS QUESTIONS
True / False
1. IFRS permits an entity to reverse inventory write-downs in certain situations, whereas U.S. GAAP does not.
2. IFRS defines market as replacement cost subject to certain constraints.
3. IFRS uses a ceiling to determine market.
4. Similar to U.S. GAAP, certain agricultural products and mineral products can be reported at net realizable value using IFRS.
5. IFRS records market in the lower-of-cost-or-market differently than U.S. GAAP.
Answers to True/False
Multiple Choice Questions
1. Where is the authoritative IFRS guidance related to accounting and reporting for inventories found?
a. IAS 2
b. IAS 18
c. IAS 41
d. All of these standards deal with inventory.
2. All of the following are key similarities between U.S. GAAP and IFRS with respect to accounting for inventories except
a. guidelines on ownership of goods are similar.
b. costs to include in inventories are similar.
c. LIFO cost flow assumption where appropriate is used by both sets of standards.
d. fair value valuation of inventories is prohibited by both sets of standards.
3. All of the following are key differences between U.S. GAAP and IFRS with respect to accounting for inventories except the
a. definition of the lower-of-cost-or-market test for inventory valuation differs between U.S. GAAP and IFRS.
b. inventory basis determination for writedowns differs between U.S. GAAP and IFRS.
c. guidelines are more principles based under IFRS than they are under U.S. GAAP.
d. average costing method is prohibited under IFRS.
4. Alonzo Company in Italy prepares its financial statements in accordance with IFRS. In 2012, it reported cost of goods sold of €600 million and average inventory of €150 million. What is Alonzo's inventory turnover ratio?
a. 4 days
b. 25 days
c. 91.25 days
d. 100 days
5. Starfish Company (a company using U.S. GAAP and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?
a. During a period of inflation, the current ratio would decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO.
b. During a period of inflation, the taxes will decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO.
c. During a period of inflation, net income would be greater if IFRS and the FIFO inventory method are used as compared to U.S.GAAP and LIFO.
d. During a period of inflation, working capital would decrease when IFRS and the FIFO inventory method are used as compared to U.S. GAAP and LIFO.
6. Which of the following statements is true regarding IFRS and inventories?
a. In order to determine market valuation of inventories, IFRS uses a ceiling and a floor.
b. IFRS permits the option of valuing inventories at fair value.
c. With respect to inventories, IFRS defines market as net realizable value.
d. IFRS allows inventory to be written up above its original cost.
7. State Company manufactured a forklift machine at a cost of $60,000. The product is sold for $66,000 at a 5% discount. The delivery costs are estimated to be $6,000. Under IFRS, how much should be the carrying amount of this inventory?
a. $60,000
b. $66,000
c. $54,000
d. $56,700
8. The following information relates to Moore Company's inventory:
Cost of inventory = $860
Selling price of inventory = $1,000
Normal profit margin = 10% of selling price
Current replacement cost = $740
Cost of completion and disposal = $100
Under IFRS, which of the following would be the correct measurement value for the inventory?
a. $860
b. $740
c. $1,000
d. $900
9. Assume that Darcy Industries had the following inventory values:
Inventory cost (on December 31, 2011) = $1,500
Inventory market (on December 31, 2011) = $1,350
Inventory net realizable value (on December 31, 2011) = $1,320
Inventory market (on June 30, 2012) = $1,560
Inventory net realizable value (on June 30, 2012) = $1,570
Under IFRS, what is the inventory carrying value on December 31, 2011?
a. $1,500
b. $1,350
c. $1,320
d. $1,390
10. Assume that Darcy Industries had the following inventory values:
Inventory cost (on December 31, 2011) = $1,500
Inventory market (on December 31, 2011) = $1,350
Inventory net realizable value (on December 31, 2011) = $1,320
Inventory market (on June 30, 2012) = $1,560
Inventory net realizable value (on June 30, 2012) = $1,570
Under IFRS, what is the inventory carrying value on June 30, 2012?
a. $1,500
b. $1,560
c. $1,570
d. $1,320
Answers to Multiple Choice
Short Answer
1. Briefly describe some of the similarities and differences between U.S. GAAP and IFRS with respect to the accounting for inventories.
2. Explain the main obstacle to achieving convergence in the area of inventory accounting.
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