Accounting 350
Quiz #5, Winter 2010, Chpts 9 & 10
Name
1. Oslo Corporation has two products in its ending inventory, each accounted for at the
lower of cost or market. A profit margin of 30% on selling price is considered normal
for each product. Specific data with respect to each product follows:
Product #1
Product #2
Historical cost
$40.00
$ 70.00
Replacement cost
45.00
54.00
Estimated cost to dispose
10.00
26.00
Estimated selling price
80.00
130.00
In pricing its ending inventory using the lower-of-cost-or-market, what unit values
should Oslo use for products #1 and #2, respectively?
A) $40.00 and $65.00.
B) $46.00 and $65.00.
C) $46.00 and $60.00.
D) $45.00 and $54.00.
2. Muckenthaler Company sells product 2005WSC for $20 per unit. The cost of one unit
of 2005WSC is $18, and the replacement cost is $17. The estimated cost to dispose of a
unit is $4, and the normal profit is 40%. At what amount per unit should product
2005WSC be reported, applying lower-of-cost-or-market?
A) $8.
B) $16.
C) $17.
D) $18.
3. The following information is available for October for Barton Company.
Beginning inventory
Net purchases
Net sales
Percentage markup on cost
$ 50,000
150,000
300,000
66.67%
A fire destroyed Barton's October 31 inventory, leaving undamaged inventory with a
cost of $3,000. Using the gross profit method, the estimated ending inventory destroyed
by fire is
A) $17,000.
B) $77,000.
C) $80,000.
D) $100,000.
4. Reyes Company had a gross profit of $360,000, total purchases of $420,000, and an
ending inventory of $240,000 in its first year of operations as a retailer. Reyes's sales in
its first year must have been
A) $540,000.
B) $660,000.
C) $180,000.
D) $600,000.
Use the following to answer questions 5-6:
Plank Co. uses the retail inventory method. The following information is available for the current year.
Cost
Retail
Beginning inventory
$ 78,000
$122,000
Purchases
295,000
415,000
Freight-in
5,000
—
Employee discounts
—
2,000
Net markups
—
15,000
Net Markdowns
—
20,000
Sales
—
390,000
5. If the ending inventory is to be valued at approximately lower of average cost or market,
the calculation of the cost ratio should be based on cost and retail of
A) $300,000 and $430,000.
B) $300,000 and $428,000.
C) $373,000 and $550,000.
D) $378,000 and $552,000.
6. The approximate cost of the ending inventory by the conventional retail method is
A) $95,900.
B) $94,920.
C) $98,000.
D) $102,480.
Use the following to answer question 8:
Arlington Company is constructing a building. Construction began on January 1 and was completed on
December 31. Expenditures were $2,400,000 on March 1, $1,980,000 on June 1, and $3,000,000 on December
31. Arlington Company borrowed $1,200,000 on January 1 on a 5-year, 12% note to help finance construction
of the building. In addition, the company had outstanding all year a 10%, 3-year, $2,400,000 note payable and
an 11%, 4-year, $4,500,000 note payable.
8. What is the weighted-average interest rate used for interest capitalization purposes?
A) 11%
B) 10.85%
C) 10.5%
D) 10.65%
9. Dodson Company traded in a manual pressing machine for an automated pressing
machine and gave $8,000 cash. The old machine cost $93,000 and had a net book value
of $71,000. The old machine had a fair market value of $60,000.
Which of the following is the correct journal entry to record the exchange?
A) Equipment
68,000
Loss on Exchange
11,000
Accumulated Depreciation
22,000
Equipment
93,000
Cash
8,000
B) Equipment
68,000
Equipment
60,000
Cash
8,000
C) Cash
8,000
Equipment
60,000
Loss on Exchange
11,000
Accumulated Depreciation
22,000
Equipment
101,000
D) Equipment
123,000
Loss on Exchange
22,000
Accumulated Depreciation
93,000
Cash
8,000
10. On December 1, Miser Corporation exchanged 2,000 shares of its $25 par value
common stock held in treasury for a parcel of land to be held for a future plant site. The
treasury shares were acquired by Miser at a cost of $40 per share, and on the exchange
date the common shares of Miser had a fair market value of $50 per share. Miser
received $6,000 for selling scrap when an existing building on the property was
removed from the site. Based on these facts, the land should be capitalized at
A) $74,000.
B) $80,000.
C) $94,000.
D) $100,000.
11. On January 1, 2002, Mill Corporation purchased for $152,000, equipment having a
useful life of ten years and an estimated salvage value of $8,000. Mill has recorded
monthly depreciation of the equipment on the straight-line method. On December 31,
2010, the equipment was sold for $28,000. As a result of this sale, Mill should recognize
a gain of
A) $0.
B) $5,600.
C) $13,600.
D) $28,000.
Use the following to answer questions 12-13:
A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on
December 31, 2010. On April 1, 2011, when the machine has a fair value of $27,500, it is exchanged for a
machine with a fair value of $135,000 and the proper amount of cash is paid. The exchange lacked commercial
substance.
12. The gain to be recorded on the exchange is
A) $0.
B) $2,500 loss.
C) $5,000 gain.
D) $15,000 gain.
13. The new machine should be recorded at
A) $107,500.
B) $122,500.
C) $132,500.
D) $135,000.
14. Colt Football Co. had a player contract with Watts that is recorded in its books at
$3,600,000 on July 1, 2010. Day Football Co. had a player contract with Kurtz that is
recorded in its books at $4,500,000 on July 1, 2010. On this date, Colt traded Watts to
Day for Kurtz and paid a cash difference of $450,000. The fair value of the Kurtz
contract was $5,400,000 on the exchange date. The exchange had no commercial
substance. After the exchange, the Kurtz contract should be recorded in Colt's books at
A) $4,050,000.
B) $4,500,000.
C) $4,950,000.
D) $5,400,000.
Answer Key
1.
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8.
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11.
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13.
14.
A
B
A
A
D
A
D
A
C
B
B
D
A