ACCTG 215 Sections A & B Fall 2010 1 Quiz 2 Name: __________________________ Student Number: ___________________ TA: _____________________________ Quiz Section Time: __________________ Instructions: There are 15 multiple-choice questions on the following pages. Your final answers must be entered in the spaces provided on this cover page in order to be graded. Code of Conduct: By signing below you acknowledge that you are a member of a learning community at the Foster School of Business that is committed to the highest academic standards and that you adhered to these standards while completing this quiz. Specific to this quiz, by signing below you acknowledge that you did not receive or give help to others, nor did you witness others receiving or giving help to others, during the quiz. Signature: _________________________________ Date: _____________________ *Signature required. Multiple Choice Answers: 1 C 2 B 3 C 4 B 5 E 6 D 7 D 8 A 9 D 10 A 11 A 12 B 13 B 14 B 15 A PLEASE ALSO WRITE YOUR NAME ON THE REVERSE OF THIS EXAMACCTG 215 Sections A & B Fall 2010 2 Short Questions (1 point each) 1. Inventory for a manufacturing firm does not include: A. The cost of raw materials. B. The cost of finished goods. C. The purchase price of equipment used to manufacture goods. D. The direct cost of labor to manufacture goods. E. Inventory includes all of the above. ANSWER: C 2. The largest expense on a merchandising firm's income statement is typically: A. Salaries and wages. B. Cost of goods sold. C. Income tax expense. D. Depreciation expense. E. Interest expense. ANSWER: B 3. Baker Fine Foods begins the year with $12,000 of inventory. During the year, Baker purchases inventory for $150,000 and ends the year with $20,000 of inventory. Baker will report cost of goods sold equal to: A. $150,000 B. $158,000. C. $142,000. D. $170,000. E. None of the above. ANSWER: C. Cost of goods sold = beginning inventory ($12,000) + purchases ($150,000) - ending inventory ($20,000) = $142,000. 4. The LIFO conformity rule states that if LIFO is used for: A. One type of inventory, it must be used for all types of inventory. B. Tax purposes, it must be used for financial reporting purposes. C. One division with a company, it must be used by all divisions in that company. D. A company’s domestic operations, it must also be used for the company’s foreign operations. E. All of the above. ANSWER: BACCTG 215 Sections A & B Fall 2010 3 5. Merchandise sold FOB destination indicates that: A. The merchandise has not yet been shipped. B. The merchandise will not be shipped until payment is received. C. The seller holds title until the buyer pays for the merchandise. D. The seller transfers title to the buyer once the merchandise is shipped. E. None of the above. ANSWER: E 6. In a period when inventory costs are steadily rising, the inventory method that most likely results in the lowest overall income tax expense is: A. FIFO. B. Lower-of-cost-or-market method. C. Average cost. D. LIFO. E. Income tax expense is always the same regardless of the inventory costing method used. ANSWER: D 7. If a company overstates its ending balance of inventory in year 1, and it records inventory correctly in year 2, which one of the following is true? A. Net income is overstated in year 2. B. Cost of goods sold is overstated in year 1. C. Net income is understated in year 1. D. Retained earnings is overstated in year 1. E. None of the above. ANSWER: D 8. Internal research and development costs should be: A. Expensed in the period incurred. B. Expensed in the period they are determined to be unsuccessful. C. Capitalized pending determination of success. D. Expensed if unsuccessful, capitalized if successful. E. None of the above. ANSWER: AACCTG 215 Sections A & B Fall 2010 4 9. Goodwill is: A. Amortized over the greater of its estimated life or forty years. B. Only recorded by the seller of a business. C. Recorded when an intangible asset is created internally. D. The excess of the fair market value of a business over the fair market value of all net identifiable assets. E. All of the above. ANSWER: D 10. Gilbert Company performed ordinary annual maintenance on a delivery truck at a cost of $500. Gilbert's accountant debited the asset account, Delivery Vehicles. Was this treatment an error, and if so, what will be the effect on the financial statements of Gilbert? A. The error overstated assets and owners’ equity. B. The repair was accounted for correctly. C. In the years following, net income will be overstated due to the error. D. The error understated net income. E. None of the above ANSWER: AACCTG 215 Sections A & B Fall 2010 5 Computational Questions (2 points each) Use the following information to answer questions 11 and 12. Inventory records for Marvin Company reveal the following information: Marvin sold 2,300 units of inventory during the month. 11. Ending inventory assuming FIFO in a periodic inventory system would be: A. $5,140. B. $5,080. C. $5,060. D. $5,050. E. None of the above. ANSWER A: Ending inventory = (100 x $7.30) + (600 x $7.35) = $5,140. 12. Cost of goods sold assuming LIFO in a perpetual inventory system would be: A. $16,640. B. $16,740. C. $16,660. D. $16,760. E. None of the above. ANSWER B: Cost of goods sold = Mar 5: (400 x $7.20) + Mar 14: (600 x $7.25) + (100 x $7.20) Mar 20: (500 x 7.30) Mar 26: (600 x $7.35) + (100 x $7.30) Total = $16,740.ACCTG 215 Sections A & B Fall 2010 6 13. Niva Company has the following information for inventory items A, B, C, and D: The necessary end-of-period journal entry associated with the lower-of-cost-or-market method would record a credit to inventory for what amount? A. $675 B. $475 C. $875 D. $375 E. None of the above ANSWER: B. Need to reduce inventory cost to the lower market value for items B and D. (20 x $5) + (25 x $15) = $475 14. A machine has a cost of $18,000, an estimated residual value of $3,000, and an estimated useful life of five years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount