Test Bank for Financial Accounting: Tools for Business Decision Making, Sixth Edition
FE – 7
Instructions: Designate the best answer for each of the following questions.
Questions 1 and 2 are based on the following information:
Poin Company recently incurred the following costs:
(1) Purchase price of land and dilapidated building $330,000
(2) Real estate broker’s commission 14,000
(3) Net demolition costs of dilapidated building 42,000
(4) Excavation costs for new building 44,000
(5) Architect’s fees and building permits 35,000
(6) Costs associated with new building construction 1,130,000
(7) Costs associated with new furniture and equipment 250,000
(8) Actual interest costs during building construction 135,000
(9) Actual interest cost after completion of building construction 120,000
(10) Costs of walks, driveways, and parking lot 55,000
____ 1. The building should be recorded on Poin’s books at:
____ 2. Land should be recorded on Poin’s books at:
____ 3. Benson Supply bought equipment at a cost of $72,000 on January 2, 2008. It originally had an estimated life of ten years and a salvage value of $12,000. Benson uses the straight-line depreciation method. On December 31, 2012, Benson decided the useful life likely would end on December 31, 2013, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2012, should be:
____ 4. In order to be relevant, accounting information must:
a. be neutral.
b. be verifiable.
c. help predict future events.
d. be a faithful representation.
____ 5. Gordan Company sold old equipment for $40,000. The equipment had a cost of $100,000 and accumulated depreciation of $50,000. The entry to record the sale of the equipment would include a:
a. loss on disposal of $40,000.
b. gain on disposal of $40,000.
c. loss on disposal of $10,000.
d. gain on disposal of $10,000.
____ 6. The cost of intangible assets should be:
a. amortized over the assets’ estimated useful life, or its legal life, whichever is shorter.
b. amortized over a period not exceeding 5 years.
c. amortized over the assets’ estimated useful life.
d. charged to an expense account at acquisition.
____ 7. In a period of rising prices, the inventory method that results in the lowest income tax payment is:
c. average cost.
d. specific identification.
____ 8. On November 30, Thatcher Company issued a $12,000, 6%, 6-month note to the National Bank. The entry on Thatcher’s books to record the payment of the note at maturity will include a credit to Cash for:
____ 9. The inventory methods that result in the most current costs in the income statement and balance sheet are:
Income Statement Balance Sheet
a. FIFO FIFO
b. LIFO FIFO
c. LIFO LIFO
d. FIFO LIFO
____ 10. The following information is available for Brighten Company:
Sales $130,000 Freight-in $10,000
Ending Merchandise Inventory 15,000 Purchase Returns and Allowances 5,000
Purchases 110,000 Beginning Merchandise Inventory 12,000
Brighten’s cost of goods sold is:
____ 11. If ending inventory is overstated, net income and assets will be:
Net Income Assets
a. Understated Understated
b. Overstated Overstated
c. Understated Overstated
d. Overstated Understated
____ 12. One of the two constraints in accounting is:
c. faithful representation.
____ 13. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the:
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. periodicity assumption.
____ 14. All of the following are intangible assets except:
b. land improvements.
____ 15. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
a. Documentation procedures.
b. Segregation of duties.
c. Establishment of responsibility.
d. Independent internal verification.