Managerial Accounting Economic Resources Multiple Choice Homework Help
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1. Gulf Consulting Co. reported the following on its December 31, 2011, balance sheet:
Equipment (at cost) . . .$700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf’s equipment averages 3.5 years at December 31, 2011.
What is the book value of Gulf’s equipment at December 31, 2011?
2. Cinnamon Buns Co. (CBC) started 2011 with $52,000 of merchandise on hand. During 2011, $280,000 in merchandise was purchased on account with credit terms of 2/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.
Assuming CBC uses the gross method to record purchases, ending inventory would be
3. Broadway Ltd. purchased equipment on 1/1/09 for $800,000, estimating a five-year useful life and no residual value. In 2009 and 2010, Broadway depreciated the asset using the straight-line method. In 2011, Broadway changed to sum-of-years’-digits depreciation for this equipment. What depreciation would Broadway record for the year 2011 on this equipment?
4. Sullivan Corporation has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:
Selling price $520,000
Disposal costs 30,000
Normal profit margin 60,000
What should be the carrying value of Sullivan’s inventory if the company prepares its financial statements according to International Financial Reporting Standards?
5. Cinnamon Buns Co. (CBC) started 2011 with $52,000 of merchandise on hand. During 2011, $280,000 in merchandise was purchased on account with credit terms of 2/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.
What is cost of goods available for sale, assuming CBC uses the gross method?
6. Northwest Fur Co. started 2011 with $94,000 of merchandise inventory on hand. During 2011, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.
What is ending inventory assuming Northwest uses the gross method to record purchases?
7. Axcel Software began a new development project in 2010. The project reached technological feasibility on June 30, 2011 and was available for release to customers at the beginning of 2012. Development costs incurred prior to June 30, 2011 were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. 2012 revenues from the sale of the new software were $4,000,000 and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2012 amortization of the software development costs would be
8. Robertson Inc. prepares its financial statements according to International Financial Reporting Standards. At the end of its 2011 fiscal year, the company chooses to revalue its equipment. The equipment cost $540,000, had accumulated depreciation of $240,000 at the end of the year after recording annual depreciation, and had a fair value of $330,000. After the revaluation, the accumulated depreciation account will have a balance of
9. Murgatroyd Co. purchased equipment on 1/1/09 for $500,000, estimating a four-year useful life and no residual value. In 2009 and 2010, Murgatroyd depreciated the asset using the sum-of-years’-digits method. In 2011, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2011 on this equipment?
10. Bond Company adopted the dollar-value LIFO inventory method on January 1, 2011. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:
Under the dollar-value LIFO method the inventory at December 31, 2012, should be
11. Jennings Advertising, Inc., reported the following in its December 31, 2011, balance sheet:
Less: Accumulated depreciation—equipment $135,000
In a disclosure note, Jennings indicates that it uses straight-line depreciation over 10 years and estimates salvage value at 10% of cost. What is the average age of the equipment owned by Jennings?
A. 7.3 years
B. 2.7 years
C. 3 years
D. 7 years
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12. Nanki Corporation purchased equipment on 1/1/09 for $650,000. In 2009 and 2010, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2011, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2011 on this equipment?
13. On March 31, 2011, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2011, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2011. At January 1, 2012, Belotti estimated that 20,000 tons still remained. During 2012, Belotti loaded and sold 8,000 tons.
Belotti would record depletion in 2012 of
14. Vijay, Inc., purchased a 3-acre tract of land for a building site for $320,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period subsequent to the purchase date. The capitalized cost of the land is
15. Fellingham Corporation purchased equipment on January 1, 2009, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2011, Fellingham reassessed the equipment’s condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2011?
16. Fryer, Inc., owns equipment for which it paid $90 million. At the end of 2011, it had accumulated depreciation on the equipment of $27 million. Due to adverse economic conditions, Fryer’s management determined that it should assess whether an impairment should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment’s fair value at that point is $40 million. Under these circumstances, Fryer would record
A. an impairment loss on the equipment of less than $1,000.
B. a $3 million impairment loss on the equipment.
C. no impairment loss on the equipment.
D. a $23 million impairment loss on the equipment.
17. Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What would the accumulated depreciation be at the end of year five under the sum-of-the-years’ digits method?
A. $4.5 million.
B. $12 million.
C. $8.25 million.
D. $16.5 million.
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