Q1. Hammond Company started the year with 500 units costing $65 each. On January 15, the company purchased 450 units for $72 each. 650 units were sold for $95 each on January 28. During March, additional 700 units were purchased for $76 each. At the end of March, 800 units were sold for $105. Hammond decided to use the FIFO cost flow assumption, but mistakenly applied LIFO. Which of the following statements is true?
a. Ending inventory is understated by $1,315.
b. Cost of goods sold is understated by $2,200.
c. Gross profit is understated by $2,200.
d. Ending inventory is overstated by $2,200.
e. Gross profit is overstated by $1,315.
Q2. King Corporation purchased machinery on January1, 2012. The annual depreciation expense of machinery was $5,000. The book value of machinery at the end of 2013 was $85,000. What is the original cost of machinery?
a. $85,000
b. $90,000
c. $95,000
d. $100,000
e. $105,000
Q3. On June 1, Felix Company purchased 10 umbrellas for $5 each. On June 11, the company purchased additional 10 umbrellas for $7 each. On June 20, it sold 9 umbrellas for $20 each. If Felix is using the averaging method, what would be its ending inventory on June 20?
a. $55
b. $57
c. $66
d. $75
e. $50
Q4. Which of the following would be considered property and equipment?
a. Land held for speculative purposes
b. Machine held as inventory
c. Land held as future plant site
d. Building purchased by a realtor for resale
e. Building purchased to be a warehouse facility
Q5. Which of the following cost flow assumptions will yield the highest net income in a period of rising prices?
a. Specific identification
b. FIFO
c. LIFO
d. Weighted averaging
e. Moving averaging
Q6. Property and equipment is reported at its:
a. fair value.
b. historical cost.
c. book value.
d. depreciation cost.
e. market value.
Q7. Which of the following methods of depreciation allocates an equal expense to each period in which the asset is used to generate revenue?
a. The double-declining balance method
b. The straight-line method
c. The units-of-production method
d. The sum-of-years' digits method
e. The activity depreciation method
Q8. Vision Company started the year with 4,000 units costing $105 each. On January 9, the company purchased 2,000 units for $115 each. 4,200 units were sold for $150 each on January 23. During March, additional 4,000 units were purchased for $120 each. At the end of April, 4,800 units were sold for $162. Vision decided to use the averaging method, but mistakenly applied FIFO. Which of the following statements is true?
a. Ending inventory is understated by $15,000
b. Gross profit is understated by $7,000
c. Cost of goods sold is overstated by $15,000
d. Gross profit is overstated by $15,000
e. Ending inventory is overstated by $7,000
Q9. Which of the following is used to gauge the fair value of a business as a whole?
a. Fair value capitalization
b. Market capitalization
c. Market rationalization
d. Fair value rationalization
e. Market depreciation
Q10. Karbon Corporation determined depreciation expense of its building for 2014 to be $450,000. The company omitted to pass an adjusting entry to record depreciation expense. Which of the following is true?
a. Building account is understated.
b. Accumulated depreciation account is overstated.
c. Gross income is understated.
d. Net income is overstated.
e. Total assets are understated.
Q11. At the beginning of that year 2013, Trannik had 50 units in its inventory, each costing $4. In January, Trannik purchased 30 units for $5 each. On January 31, Trannik sold 20 units. Assuming a LIFO cost flow assumption, what would be Trannik's cost of goods sold?
a. $200
b. $100
c. $150
d. $120
e. $80
Q12. Comfort Company began the month of September with 120 units, each costing $30. On September 7, it purchased 80 units for $40 each. On September 17, it purchased 100 units for $40 each. At the end of the month, the company sold 270 units for $55 each. Assuming Comfort uses FIFO, determine its gross profit for the month.
a. $5,130
b. $4,950
c. $5,700
d. $5,250
e. $8,100
Q13. Which of the following assumes that the most recent costs are transferred first from the inventory to cost of goods sold?
a. LIFO
b. FIFO
c. Specific identification
d. Weighted averaging
e. Moving averaging
Q14. Which of the following accounting principles dictates that an asset's cost should be expensed over its useful life?
a. Matching
b. Conservatism
c. Consistency
d. Going concern
e. Revenue recognition
Q15. Depreciation expense is usually recorded by passing a(n):
a. opening entry.
b. closing entry.
c. reversing entry.
d. adjusting entry.
e. correcting entry.
Q16. Seventh Heaven, a multi-cuisine restaurant, started its operations in 2012. Its fixed assets had a book value of $1,200,000 in 2013. The hotel did not purchase any fixed assets in 2013. The annual depreciation expense on fixed assets was $100,000 and the accumulated depreciation account had a balance of $200,000 on December 31, 2013. What is the original cost of fixed assets owned by the restaurant in 2012 when it started its operations?
a. $1,200,000
b. $1,000,000
c. $1,400,000
d. $1,100,000
e. $1,300,000
Q17. At the beginning of the year 2013, Trannik had 50 units in its inventory, each costing $4. In January, Trannik purchased 30 units for $5 each. On January 31, Trannik sold 20 units. Assuming a FIFO cost flow assumption, what would be Trannik's cost of goods sold?
a. $200
b. $100
c. $150
d. $120
e. $80
Q18. Comfort Company began the month of September with 120 units, each costing $30. On September 7, it purchased 80 units for $40 each. On September 17, it purchased 100 units for $40 each. At the end of the month, the company sold 270 units for $55 each. Assuming Comfort uses averaging, determine its gross profit for the month.
Select one:
a. $8,100
b. $4,950
c. $5,700
d. $5,250
e. $5,130
Q19. On June 1, Felix Company purchased 10 umbrellas for $5 each. On June 11, the company purchased additional 10 umbrellas for $7 each. On June 20, it sold 9 umbrellas for $20 each. If Felix is using the FIFO method, what would be its ending inventory on June 20?
a. $45
b. $57
c. $66
d. $77
e. $75
Q20. Which of the following cost flow assumptions will yield the lowest amount of ending inventory in a period of rising prices?
a. FIFO
b. Weighted averaging
c. Specific identification
d. LIFO
e. Moving averaging
Q21. Which of the following is true of property and equipment category?
a. They should have tangible physical substance to be classified under this category.
b. They will generate revenue for a single year.
c. They will not be used within normal operating activities of a business.
d. They include assets held for resale.
e. They include land acquired to construct a future plant.
Q22. At the beginning of the year, Delight Company had 100 units in its inventory at $50 each. On January 17, the company purchased 100 units for $60 each and at the end of the month sold 150 units for $95 each. During March, the company made two purchases of 200 units and 300 units for $70 and $80 each respectively. In the month of April, the company sold 450 units for $105 each. If the company is applying averaging, what would be the amount of gross profit?
a. $18,500
b. $20,500
c. $19,500
d. $17,500
e. $19,000
Q23. Which of the following accounting principles supports the use of historical cost for reporting fixed assets?
a. Matching
b. Conservatism
c. Consistency
d. Going concern
e. Revenue recognition
Q24. Which of the following statements is true?
a. The FIFO assumption is more in line with the matching principle.
b. In inflationary times, the LIFO assumption is associated with a higher reported net income.
c. The FIFO assumption is often used to reduce income tax costs.
d. The average method assumes most recent costs are transferred first to cost of goods sold.
e. The specific identification method physically identifies its remaining inventory.
Q25. Which of the following cost flow assumptions is most likely to be used by a company selling yachts?
a. FIFO
b. Specific identification
c. Weighted averaging
d. LIFO
e. Moving averaging
Q26. On June 1, Felix Company purchased 10 umbrellas for $5 each. On June 11, the company purchased additional 10 umbrellas for $7 each. On June 20, it sold 9 umbrellas for $20 each. If Felix is using the LIFO method, what would be its ending inventory on June 20?
a. $63
b. $75
c. $66
d. $57
e. $50
Q27. What type of an account is accumulated depreciation?
a. Equity
b. Contra asset
c. Liability
d. Expense
e. Loss
Q28. In which of the following methods, the most recent costs of purchasing inventory remains in the ending inventory?
a. Moving averaging
b. FIFO
c. Specific identification
d. Weighted averaging
e. LIFO
Q29. Which of the following is capitalized to land account?
a. Cost of building a warehouse on the land obtained
b. Interest on loan borrowed to construct a work place
c. Cost incurred to obtain legal title of the land
d. Fees paid to architects on constructing a building on the land
e. Depreciation expense of the land
Q30. In a period of rising prices, averaging yields a cost of goods sold that is:
Select one:
a. between those yielded by FIFO and LIFO.
b. greater than the amount yielded by LIFO.
c. lesser than the amount yielded by FIFO.
d. equal to the amount yielded by FIFO.
e. equal to the amount yielded by LIFO.
Q31. Which of the following accounts shows the cost of an asset expensed to date?
a. Equipment
b. Allowance for doubtful accounts
c. Depreciation expense
d. Accumulated depreciation
e. Land
Q32. Which of the following is another name for property and equipment?
a. Fixed assets
b. Current assets
c. Land assets
d. Movable assets
e. Intangible assets
Q33. Which of the following would be capitalized to equipment account?
a. Discount received on the purchase of the equipment
b. Cost of training employees on the proper use of equipment
c. Depreciation cost
d. Inventory produced by the equipment
e. Interest paid on loan borrowed to purchase the equipment
Q34. Comfort Company began the month of September with 120 units, each costing $30. On September 7, it purchased 80 units for $40 each. On September 17, it purchased 100 units for $40 each. At the end of the month, the company sold 270 units for $55 each. Assuming Comfort uses LIFO, determine its gross profit for the month.
Select one:
a. $4,950
b. $5,700
c. $5,250
d. $5,130
e. $8,100
Q35. Which of the following is considered in computing depreciation expense using the straight-line method?
a. Asset's historical cost
b. Cost of inventory produced by equipment
c. Asset's fair value
d. Balance in accumulated depreciation
e. Net income of the company
Q36. Which of the following inventory methods are most likely to be used by automobile dealers, jewelers, and art galleries?
a. Weighted averaging
b. FIFO
c. Specific identification
d. LIFO
e. Moving averaging
Q37. Laster Company purchases land as an investment and increases its property and equipment account. Which of the following is true?
a. Total Assets are overstated
b. Property and equipment is overstated
c. Total Assets are understated
d. Investments are overstated
e. Property and equipment are understated
Q38. Which of the following asserts that a company can recognize 6 months of depreciation on all assets bought or sold during the year?
a. Straight-line depreciation
b. Partial-year convention
c. Property and equipment rule
d. Depreciation convention
e. Half-year convention
Q39. The difference between the cost of an asset and its salvage value is its:
a. historical cost.
b. depreciation expense.
c. fair value.
d. depreciable base.
e. book value.
Q40. At the beginning of the year, Delight Company had 100 units in its inventory at $50 each. On January 17, the company purchased 100 units for $60 each and at the end of the month sold 150 units for $95 each. During March, the company made two purchases of 200 units and 300 units for $70 and $80 each respectively. In the month of April, the company sold 450 units for $105 each. If the company is applying averaging, what would be the amount of ending inventory?
a. $8,000
b. $7,000
c. $5,000
d. $6,000
e. $6,500