Financial Accounting Inventory Valuation MCQs Homework Help
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1) The gross profit method of inventory valuation is invalid when
A. there is a substantial increase in inventory during the year.
B. none of these.
C. there is no beginning inventory because it is the first year of operation.
D. a portion of the inventory is destroyed.
2) Which of the following is NOT a basic assumption of the gross profit method?
A. Goods NOT sold must be on hand.
B. The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
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 beginning inventory plus the purchases equal total goods to be accounted for.
3) In 2006, Lucas Manufacturing signed a contract with a supplier to purchase raw materials in 2007 for $700,000. Before the December 31, 2006 balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 2006 will result in a credit that should be reported
A. as a current liability.
B. on the income statement.
C. as an appropriation of retained earnings.
D. as a valuation account to Inventory on the balance sheet.
4) The cost of land typically includes the purchase price and all of the following costs EXCEPT
A. street lights, sewers, and drainage systems cost.
B. assumption of any liens or mortgages on the property.
C. private driveways and parking lots.
D. grading, filling, draining, and clearing costs.
5) The cost of land does NOT include
A. costs of removing old buildings.
B. costs of improvements with limited lives.
C. costs of grading, filling, draining, and clearing.
D. special assessments.
6) Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with the plan to tear down the Holiday Hotel and build a new luxury hotel on the site. The cost of the Holiday Hotel should be
A. written off as an extraordinary loss in the year the hotel is torn down.
B. capitalized as part of the cost of the land.
C. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.
D. capitalized as part of the cost of the new hotel.
7) To be consistent with the historical cost principle, overhead costs incurred by an enterprise constructing its own building should be
A. eliminated completely from the cost of the asset.
B. allocated on an opportunity cost basis.
C. allocated on the basis of lost production.
D. allocated on a pro rata basis between the asset and normal operations.
8) Which of the following costs are capitalized for self-constructed assets?
A. Labor and overhead only
B. Materials and overhead only
C. Materials and labor only
D. Materials, labor, and overhead
9) Which of the following assets do NOT qualify for capitalization of interest costs incurred during construction of the assets?
A. Assets intended for sale or lease that are produced as discrete projects.
B. Assets financed through the issuance of long-term debt.
C. Assets under construction for an enterprise’s own use.
D. Assets NOT currently undergoing the activities necessary to prepare them for their intended use.
10) The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset and the exchange has commercial substance is usually recorded at
A. the fair value of the asset given up, and a gain but NOT a loss may be recognized.
B. the fair value of the asset received if it is equally reliable as the fair value of the asset given up.
C. the fair value of the asset given up, and a gain or loss is recognized.
D. either the fair value of the asset given up or the asset received, whichever one results in the largest gain (smallest loss) to the company.
11) Construction of a qualifying asset is started on April 1 and finished on December 1. The fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated expenditures is
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12) When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the
A. par value of the stock.
B. stated value of the stock.
C. book value of the stock.
D. market value of the stock.
13) Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?
A. Associating cause and effect
B. Systematic and rational allocation
C. Immediate recognition
D. Partial recognition
14) For income statement purposes, depreciation is a variable expense if the depreciation method used is
15) If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will
A. be constant.
B. vary with unit sales.
C. vary with sales revenue.
D. vary with production.
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