Management 200 Exam 2 ~ Purdue University

Credit sales are recorded as

A. Debit Cash, credit Deferred Revenue

B. Debit Service Revenue, credit Accounts Receivable

C. Debit Cash, credit Service Revenue

D. Debit Accounts Receivable, credit Service Revenue

D. Debit Accounts Receivable, credit Service Revenue

Identify the condition(s) that must exist for a sale and the related receivable to be recognized.

A. Collection of cash is probable

B. The company must have collected cash from at least one previous sale to the customer

C. Goods or services have been provided to the customer

D. Two of the other answers are conditions that must exist

D. Two of the other answers are conditions that must exist

A and C

Which of the following items are classified as receivables

A. Tax refund claims

B. Amounts owed by customers

C. Amounts loaned and expected to be collected

D. All of the other answers are classified as receivables

D. All of the other answers are classified as receivables

Identify the likely disadvantage(s) of extending credit to customers

A. Delay or failure to collect cash

B Lower profitability

C. Lower Revenues

D. All of the other answers are disadvantages of extending credit to customers

A. Delay or failure to collect cash

The Sales Returns account is an expense account

A. True

B. False

B. False

Sales Returns is a contra revenue account

Which of the following computations would be used to compute Net Revenue?

A. Total Revenue + Accounts Receivable - Sales Discounts Sales Allowances

B. Net Revenue + Sales Allowances - Sales Discounts

C. Total Revenue - Sales Discounts - Sales Allowances

D. Net Income - Change in Accounts Receivable

C. Total Revenue - Sales Discounts - Sales Allowances

Trade discounts represent a discount offered to the purchasers for a quick payment

A. True

B. False

B. False

Trade discounts represent a reduction in the listed price of a product and service

When customers purchase products on account, Knomark, Inc. offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a:

A. Bad debt

B. Sales Discount

C. Sales Return

D. Sales Allowances

B. Sales Discount

When a comany sells a $100 service with a 20% trade discount, $80 of revenue is recognized.

A. True

B. False

A. True

A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances.

A. True

B. False

B. False

A sales allowance is recorded as a debit to Sales Allowances and a credit to Accounts Receivable.

The net realizable value of accounts receivable is the full amount owed by customers

A. True

B. False

B. False

Net realizable value is a net amount of cash we expect to collect.

LePage's Inc. shipped the wrong color of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price

reduction is an example of a:

A. Sales Revenue

B. Sales Discount

C. Sales Return

D. Sales allowance

D. Sales allowance

The purpose of recording an allowance for uncollectible accounts is to:

A. Record the sales returns and allowances

B. Report net sales conservatively

C. Report accounts receivable at net realizable value

D. Report accounts receivable for the total amount of sales in the period

C. Report accounts receivable at net realizable value

If a company has total revenues of $100,000, sales discounts of $3,000, sales returns of $4,000, and sales allowances of $2,000, the income statement will report net revenues of $91,000.

A. True

B. False

A. True

Revenues $ 100,000

Less: Sales discounts (3,000)

Less: Sales returns (4,000)

Less: Sales allowances (2,000)

Net revenues $ 91,000

One advantage of the allowance method for accounting for uncollectible accounts is that the company reports:

A. Bad debt expense in the same period as the credit sale

B. Greater total sales to customers

C. Fewer returns by customers

D. Greater total cash collected from customers

A. Bad debt expense in the same period as the credit sale

The account "Allowance for Uncollectible Accounts" is classified as a(n):

A. Liability account in the balance sheet

B. Contra revenue to credit sales in the income statement

C. Expense in the income statement

D. Contra asset to accounts receivable in the balance sheet

D. Contra asset to accounts receivables in the balance sheet

The normal balance of the account "Allowance for Uncollectible Accounts" is a _______ because _______.

A. Debit; it is a contra account to Revenue (a credit account)

B. Credit; it is a contra account to Accounts Receivable (a debit account)

C. Debit; it is an expense in the income statement

D. Credit; it is a contra account to Bad Debt Expense (a debit account)

B. Credit; it is a contra account to Accounts Receivable (a debit account)

At the end of 2018, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage‐of‐receivables method. Murray State's adjustment on December 31, 2018, to record its estimated uncollectible accounts included a:

A. Credit to Allowance for Uncollectible Accounts of $12,000

B. Debit to Bad Debt Expense of $7,500

C. Credit to Allowance for Uncollectible Accounts of $7,500

D. Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500

D. Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500

Which of the following is true about the aging method?

A. No estimate for uncollectible accounts is made.

B. Older accounts are more likely to be collected.

C. It is not acceptable for GAAP.

D. Older accounts are less likely to be collected.

D. Older accounts are less likely to be collected.

(more accurate estimate of total uncollectible accounts

compared to using a single percentage.)

Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

A. $29,000

B. $28,000

C. $27,000

D. $26,000

D. 26,000

($600,000 × 1%) = $ 6,000

($100,000 × 10%) = 10,000

($50,000 × 20%) = 10,000

Total $26,000

-

Under the allowance method, when a company writes off an account receivable as an actual bad debt, it reduces total assets.

A. True

B. False

B. False

Writing off an account receivable has no effect on total assets

Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense

A. True

B. False

B. False

Writing off an account receivable has no effect on expenses

Cochrane, Inc. accounts for bad debts using the allowance method. On June 1, Cochrane wrote off $2,500 customer account. Based on Cochrane's estimation, the customer will never pay any portion of the balance in his account. What effect will this write‐off have on Cochrane's balance sheet at the time of the write‐off?

A. An increase to stockholders' equity and a decrease to liabilities

B. No effect

C. An increase to assets and an increase to stockholders' equity

D. A decrease to assets and a decrease to stockholders' equity

B. No effect

A debit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year's estimate of uncollectible accounts was too low.

A. True

B. False

A. True

The direct write‐off method is not normally an acceptable method for GAAP because it fails to report:

A. Revenue from the sale of goods or services to customers

B. Cash collected from customers

C. Accounts receivable for their net realizable value

D. The amounts receivable from customers

C. Accounts receivable for their net realizable value

Which accounting concept does the direct write‐off method violate?

A. Total assets equal total liabilities plus total stockholders' equity

B. Recording amount owed within one year as current liabilities

C. Recognizing revenue when goods or services are provided to customers

D. An attempt to match revenues and their related expenses

D. An attempt to match revenues and their related expenses

The primary difference between a note receivable and an account receivable is:

A. A note receivable cannot be classified as a current asset

B. Borrowers have the option of not paying a note receivable

C. An account receivable is more likely to be collected

D. A note receivable is evidenced by a written debt instrument

D. A note receivable is evidenced by a written debt instrument

Suppose a customer is unable to pay its account on time, so the company accepts a six‐month interest‐bearing note receivable to replace the customer's account receivable. What effect will accepting the note receivable have on the company's financial statements at the time of acceptance?

A. Total assets increase

B. Total assets decrease

C. No change in total assets

D. Total revenues increase

C. No change in total assets

"time of acceptance"

at this point of time f

Hughes Aircraft sold a four‐passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. This transaction would

include a

A. Credit to Cash

B. Debit to Sales Discount

C. Debit to Notes Receivable

D. Credit to Notes Receivable

C. Debit to Notes Receivables

On September 1, 2018, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2018?

A. $20

B. $40

C. $30

D. $60

B. 40

Interest revenue = $1,000 × 12% × 4/12 = $40

The formula for the receivables turnover ratio is

A. Average accounts receivable divided by average total assets.

B. Net credit sales divided by average accounts receivable

C. Net credit sales divided by average total assets

D. Average accounts receivable divided by net credit sales

B. Net credit sales divided by average accounts receivable

An increase in a company's receivables turnover ratio

typically means the company is

A. Having trouble paying debts as they become due.

B. Less profitable.

C. More effectively granting and collecting credit to customers.

D. Losing customers to its competitors.

C. More effectively granting and collecting credit to customers.

-

A. 6.0

From a balance sheet perspective, the percentage‐of‐

receivables method is typically preferable because assets (net accounts receivable) are reported closer to their net realizable value

A. True

B. False

A. True

Costs that are expensed when incurred are called?

A. Product costs

B. Direct costs

C. Inventoriable costs

D. Period costs

E. Indirect costs

D. Period Costs

Which of the following statements is true?

A. Product costs affect only the balance sheet

B. Product costs affect only the income statement

C. Period costs affect only the balance sheet

D. Neither product costs nor period costs affect the Statement of Retained Earnings.

This can also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation)

E. Product costs eventually affect both the balance sheet and the income statement.

E. Product costs eventually affect both the balance sheet and the income statement.

The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______.

A. Asset; Balance sheet

B. Expense; Income statement

C. Liability; Balance sheet

D. Revenue; Income statement

A. Asset; Balance Sheet

One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for:

A. Current assets

B. Inventory

C. Selling expenses

D. Deferred revenue

B. Inventory

Inventory does not include

A. Materials used in the production of goods to be sold.

B. Assets intended to be sold in the normal course of business.

C. Equipment used in the manufacturing of assets for sale.

D. Assets currently in production for normal sales.

C. Equipment used in the manufacturing of asset for sale.

Cost of goods sold is:

A. Reported in the income statement

B. Reported in the balance sheet

C. A current asset

D. The cost of inventory on hand at the end of the period

A. Reported in the income statement

If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000.

A. True

B. False

B. False

Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory?

A. $20,000

B. $30,000

C. $10,000

D. $50,000

A. $20,000

Which level of profitability is considered profit from

normal operations?

A. Gross profit

B. Operating income

C. Income before taxes

D. Net income

B. Operating Income

Income before taxes and net income include nonoperating items, which are not considered part of normal operations.

Sales revenue less cost of goods sold is referred to as operating income

A. True

B. False

B. False

Sales Revenue less cost of goods sold equals gross profit.

The primary distinction between operating activities and nonoperating activities in a multiple‐step income statement is whether the activity is:

A. A large or small dollar amount

B. Part of primary business operations

C. Related to current versus long‐term assets

D. Reported as a revenue or an expense

B. Part of primary business operations

Gross profit is calculated as net sales minus

A. Nonoperating expenses and income tax expense.

B. Operating expenses.

C. Cost of goods sold.

D. All of the other answers are subtracted from net

sales.

C. Cost of goods sold

Given the information in the table below, what is the company's gross profit?

Sales revenue $350,000

Accounts receivable $280,000

Ending inventory $230,000

Cost of goods sold $180,000

Sales returns $50,000

Sales discount $20,000

A. $280,000

B. $170,000

C. $50,000

D. $100,000

D. $100,000

Sales $350,000

Sales returns (50,000)

Sales discounts (20,000) =

Net sales 280,000 -

Cost of goods sold (180,000)

Gross profit $ 100,000

Consider the following year‐end information for Knomark

Corporation:

Cost of goods sold $500,000

Sales revenue 1,000,000

Nonoperating expenses 100,000

Operating expenses 200,000

What amount will Knomark report for operating income?

A. $ ‐ 0 ‐

B. $500,000

C. $200,000

D. $300,000

Sales $1,000,000

Cost of goods sold (500,000)=

Gross profit 500,000-

Operating expenses (200,000)=*

Operating income $ 300,000

Inventory methods such as LIFO and FIFO deal more with goods flow than with cost flow.

A. True

B. False

B. False

The inventory cost flow assumption that generally best

matches the physical flow of inventory is:

A. FIFO

B. LIFO

C. Weighted‐average

D. Lower of cost or net realizable value

A. FIFO

The inventory cost flow assumption that is least likely to match the physical flow of inventory for most companies is:

A. FIFO

B. LIFO

C. Weighted‐average

D. Specific identification

B. LIFO

In accounting for inventory, the assumed cost flow must match the physical goods flow.

A. True

B. False

B. False

A company has the following inventory transactions:

Jan. 1 Beginning inventory 100 units @ $4 each

Jan. 15 Purchase 100 units @ $5 each

Jan. 31 Purchase 100 units @ $6 each

What would be the cost of goods sold under the FIFO method if 120 units were sold in January?

A. $ 600

B. $ 500

C. $ 620

D. $ 720

B. $500

A company has the following inventory transactions:

Jan. 1 Beginning inventory 100 units @ $4 each

Jan. 15 Purchase 100 units @ $5 each

Jan. 31 Purchase 100 units @ $6 each

What would be the cost of goods sold under the LIFO

method if 120 units were sold in January?

A. $ 600

B. $ 500

C. $ 700

D. $ 720

C. $700

Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand.

A. True

B. False

B. False

Companies can assume which inventory units are sold and still remain on hand using a variety of methods (FIFO, LIFO, and weighted‐average cost).

Using the first‐in, first‐out method (FIFO), the first units purchased are assumed to be the first ones sold.

A. True

B. False

A. True

Using the weighted‐average cost method, the average cost of inventory is calculated as the average unit cost of inventory purchased during the year.

A. True

B. False

B. False

The average is a weighted‐average cost which includes both beginning inventory and purchases and is equal to total cost of goods available for sale divided by the total number of units available for sale.

Which inventory cost flow assumption more realistically matches the current cost of inventory with current sales revenue?

A. FIFO

B. LIFO

C. Weighted‐Average

D. LIFO ‐ Simplified

B. LIFO

LIFO is considered an income statement approach for

reporting inventory because it:

A. Always results in a higher amount of net income being reported.

B. Better approximates the value of ending inventory

C. Better approximates inventory cost necessary to generate revenue.

D. Always results in a lower amount of net income being reported

C. Better approximates inventory cost necessary to generate revenue.

During periods of rising costs, FIFO generally results in a higher cost of goods sold.

A. True

B. False

B. False

During periods of rising costs, FIFO generally results in a lower cost of goods sold.

During periods of rising costs, LIFO generally results in a higher ending inventory balance.

A. True

B. Flase

B. False

During periods of rising costs, LIFO generally results in a lower ending inventory balance since earliest costs are assigned to CGS.

The LIFO difference (reserve) is the additional amount of inventory a company would report if it used FIFO instead of LIFO.

A. True

B. False

A. True

During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income?

A. FIFO

B. LIFO

C. Weighted‐average

D. Simple LIFO average

B. LIFO

Using LIFO, we assume that the last units purchased (the last ones in) are the first ones sold (the first out). If prices are rising, cost of goods sold would be composed of the latest (and highest) costs using LIFO.

For most companies, actual physical flow of their inventory follows LIFO.

A. True

B. False

B. False

Most often, the actual physical flow of goods follows FIFO

The choice of inventory cost flow assumptions affects which of the following amounts?

A. Inventory.

B. Cost of goods sold.

C. Gross profit.

D. All of the other answers are affected by the inventory cost flow assumption.

D. All of the other answers are affected by the inventory cost flow assumption.

A perpetual inventory system measures cost of goods sold by:

A. Estimating the amount of inventory sold.

B. Making entries to the inventory account for each purchase and sale.

C. Counting inventory at the end of the period.

D. Debiting cost of goods sold for all purchases of inventory

B. Making entries to the inventory account for each purchase and sale

At the time inventory is sold, cost of goods sold is recorded under the perpetual inventory system.

A. True

B. False

A. True

In a perpetual inventory system, the entry at the time of a sale to record the cost of the inventory sold includes a:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Debit to Cost of Goods Sold

D. Not recorded at the time of the sale

C. Debit to Costs of Goods Sold

Good Inc., sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system?

A. No entry is required for cost of goods sold and inventory.

B. Debit Cost of Goods Sold $700; credit Inventory $700.

C. Debit Cost of Goods Sold $1,200; credit Inventory $1,200.

D. Debit Inventory $700; credit Cost of Goods Sold $700.

B. Debit Cost of Goods Sold $700; credit Inventory $700

For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory.

A. True

B. False

B. False

For FOB destination, title transfers once the inventory reaches the buyer. (destination)

Which of the following transactions would increase the balance of the inventory account for a company using the perpetual inventory system?

A. Costs of incoming freight charges on merchandise inventory

B. A return of damaged inventory to the vendor

C. A purchase discount taken for prompt payment

D. Shipping charges for outgoing inventory

A. Costs of incoming freight charges on merchandise inventory

Freight charges on inventory increase the balance of the inventory account. Returns & purchase discounts decrease the account balance.

If A sells to B, and B obtains title while goods are in transit, the goods were shipped _______. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped _______.

A. FOB shipping point; FOB destination

B. FOB destination; FOB shipping point

C. FOB destination; FOB destination

D. FOB shipping point; FOB shipping point

A. FOB shipping point; FOB destination

Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company B record the sale of goods to Company A?

A. May 12

B. May

C. May 19

D. May 17

D. May 17

A business may use the periodic or perpetual inventory systems for different types of inventory.

A. True

B. False

A. True

In a periodic inventory system, the purchase of inventory is debited to:

A. Purchases

B. Cost of goods sold

C. Inventory

D. Accounts payable

A. Purchases

In a periodic inventory system, the entry at the time of a sale to record the cost of inventory sold includes a:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Debit to Cost of Goods Sold

D. Not recorded at this time of the sale

D. Not recorded at this point in time of the sale

Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a periodic inventory system?

A. Purchases 2000

Accounts Payable 2000

A periodic inventory system does not continually modify inventory amounts, but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand

A. True

B. False

A. True

When the value of inventory falls below its cost, companies other than those that use LIFO have the option of recording the inventory at cost or the lower net realizable value

A. True

B. False

B. False

Companies must report inventory at the lower of cost and net realizable value.

The adjustment to write down inventory from cost to its lower net realizable value includes a debit to Cost of Goods Sold and a credit to Inventory.

A. True

B. False

A. True

Under the principle of lower of cost and net realizable value, when a company has 10 units of inventory A with net realizable value of $50 and a cost of $60, what is the adjustment?

A. Debit Inventory $100; credit Cost of Goods Sold $100

B. Debit Inventory $500; credit Cost of Goods Sold $500

C. Debit Cost of Goods Sold $100; credit Inventory $100

D. Debit Cost of Goods Sold $500; credit Inventory $500

C. Debit Cost of Goods Sold $100; credit Inventory $100

10 units x $10 price reduction = $100

Item # units cost net realizable

A 100 $4 $8

B 150 $8 $6

The amount to report for ending inventory using the lower of cost and net realizable value is:

A. $1,600

B. $1,700

C. $2,000

D. $1,300

D. $1300

The lower of cost and net realizable value is:

Item A = $4 per unit (cost)

Item B = $6 per unit (net realizable value)

Ending inventory = $1,300

(100 units × $4) + (150 units × $6) = $1,300

Item - # units cost - net realizable value

A 100 - $4 - $8

B 150 - $8 - $6

The year‐end adjustment using the lower of cost and net realizable value would include:

A. A credit to Inventory for $300

B. A debit to Cost of Goods Sold

A. A credit to inventory for $300

(100 units × $4) + (150 units × $8) = $1,600

NVR = $1300

$300

The practice of using the lower of cost and net realizable value to evaluate inventory reflects which of the following accounting principles?

A. Matching principle

B. Materiality

C. Conservatism

D. Answers A and C

D. Answers A and C

The inventory turnover ratio measures:

A. The portion of inventory that becomes obsolete each period.

B. How many times the company purchases inventory during the current reporting period

C. The times per period the average inventory balance is sold

D. How many days it takes to collect its sales of inventory sold on account

C. The times per period the average inventory balance is sold

A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25.

A. True

B. False

B. False

he inventory turnover ratio equals

cost of goods sold ($2,000) divided by

average inventory ($500), which equals

4.0 in this example.

Capital Construction purchased a 3‐acre tract of land for a building site for $350,000. 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 after the purchase date. The capitalized cost of the land is:

A. $366,400

B. $366,150

C. $364,650

D. $231,150

C. $364,650

Purchase price $350,000

Demolition costs 12,000 +

Scrap sold (1,500) +

Title insurance 900 +

Legal fees 500 +

Property taxes ($3,000 less taxes after

the purchase date of $250) 2,750 +

Total cost of land $364,650

Which of the following would be recorded as land improvements?

A. Property taxes.

B. Title insurance.

C. Real estate commissions.

D. Adding a parking lot.

D. Adding a parking lot.

Cowboy Development incurred the following costs associated with the purchase of a piece of land that it will use to re‐build an office building:

Sale price of the land $400,000

Sale of salvaged parts already on land ($20,000)

Demolition of the old building $30,000

Ground breaking ceremony (food and supplies) $1,500

Land preparation and leveling $7,500

Total net costs $419,000

What amount should be recorded for the purchase of the land?

A. $437,500.

B. $417,500

C. $439,000

D. $419,000

B. $417500

$419,000 less $1,500 = $417,500

(ground breaking ceremony costs

should be expensed as incurred)

Wiley Company purchased new equipment for $60,000. Wiley paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. The cost recorded for the

equipment was:

A. $60,000

B. $61,000

C. $64,000

D. $66,500

D. $66,500

$60,000 + $1,000 + $3,000 + $2,500

Accounts Payable $55,000

Land $90,000

Inventory $10,500

Accounts Receivable $7,500

Equipment $8,000

Deferred Revenue $58,500

Short‐term Investments $20,000

Patents $75,000

What is the amount of long‐term assets assuming the accounts above reflect normal activity?

A. $342,500

B. $173,000

C. $273,500

D. $98,000

B. 173,000

Land, Equipment, Patents

Accounts Payable $55,000

Land $90,000

Inventory $10,500

Accounts Receivable $7,500

Equipment $8,000

Deferred Revenue $58,500

Short‐term Investments $20,000

Patents $75,000

What is the amount of property, plant & equipment

A. $98,000

B. $165,000

C. $90,000

D. $110,000

A. $98,000

Land

Equipment

A basket purchase is the purchase of more than one asset at the same time for one purchase price

A. True

B. False

A. True

Cedarhurst purchased land, a building, and equipment for $800,000. The estimated fair values of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. At what amount would the company record the land?

A. $80,000

B. $90,000

C. $100,000

D. $800,000

A. $80,000

$800,00 (purchase price) x 10% = $80,000

A company makes a basket purchase of land, buildings, and equipment with estimated fair values of $70,000, $150,000, and $30,000, respectively. The purchase price is $210,000. How much should be recorded to the Land account?

A. $ 126,000

B. $ 70,000

C. $ 58,800

D. $ 25,200

C. $58,000

The total fair value of the three assets is $250,000. Land's relative fair value is $70,000/$250,000 (or 28%). Therefore, the land would be recorded for $210,000 × 28% = $58,800.

Many intangible assets are not recorded on the balance sheet at their estimated market values

A. True

B. False

A. True

Research and development costs should be:

A. Expensed in the period incurred

B. Expensed in the period they are determined to be unsuccessful

C. Deferred pending determination of success

D. Expensed if unsuccessful, capitalized if successful

A. Expensed in the period incurred

The franchisee's initial fee is recorded as an expense on the income statement

A. True

B. False

B. False

The franchisee's initial fee is recorded as an intangible asset and then expensed over the life of the franchise agreement

In accounting, goodwill

A. May be recorded whenever a company achieves a level of net income that exceeds the industry average.

B. Is amortized over its useful life.

C. May be recorded when a company purchases another business.

D. Must be expensed in the period it is recorded because benefits from goodwill are difficult to identify.

C. May be recorded when a company purchases another business