ACCT IS 301 701 Financial Reporting I Fall 2024 Review Packet 2 This review packet only provides examples of the nature and types of questions on Exam 2 It is not intended to be representative of the length or difficulty of the actual exam Note Solutions are at the end of the review packet Multiple Choice Circle the best answer for each question 1 On April 15 of the current year a fire destroyed the entire uninsured inventory of a retail store The following data are available Sales January 1 through April 15 Inventory January 1 at cost Purchases January 1 through April 15 at cost Gross profit percentage on sales 300 0 00 50 000 250 00 0 25 Using the gross profit method of estimating inventory the amount of the inventory loss as of April 15 is estimated to be a 60 000 b 30 000 c 75 000 d 50 000 e none of the above 2 Caputo Distribution Co has determined its December 31 2024 inventory on a First In First Out FIFO basis at 250 000 Information pertaining to that inventory follows Estimated selling price Estimated cost disposal of 255 0 00 30 000 Caputo Distribution Co records losses that result from applying the lower of cost or net realizable value approach At December 31 2024 the loss that Caputo Distribution Co should recognize is a 0 b 5 000 1 c 20 000 d 25 000 e none of the above 3 Frederick Boot Company uses the First In First Out FIFO method of inventory valuation for internal reporting purposes and uses LIFO for external reporting purposes At January 1 2023 the LIFO reserve balance was 20 000 At December 31 2024 the ending inventory was 590 000 as accounted for on a FIFO basis and 560 000 if computed on a LIFO basis What adjusting entry if any should be made at December 31 2024 to adjust the LIFO reserve balance a No entry is necessary to adjust the LIFO reserve balance b Cost of Goods Sold 30 000 Allowance to Reduce Inventory to LIFO 30 000 c Allowance to Reduce Inventory to LIFO 30 000 Cost of Goods Sold 30 000 d Cost of Goods Sold 10 000 Allowance to Reduce Inventory to LIFO 10 000 e Allowance to Reduce Inventory to LIFO 10 000 Cost of Goods Sold 10 000 4 Which of the following is not a capital expenditure a repairs that maintain an asset in operating condition b an addition c a betterment d a replacement 2 5 The purpose of recording depreciation expense on plant assets is a to reflect declines in the service value not restored by maintenance b to allocate the cost of fixed assets to periods in a rational and c to provide funds for the replacement of the plant assets d to adjust for changes in the market value of the plant assets during systematic manner the period 6 Borland Inc purchased equipment in 2022 at a cost of 600 000 Two years later Borland Inc determined this equipment had suffered an impairment of value by conducting the recoverability test comparing the equipment s future net cash flows undiscounted to the equipment s carrying value i e book value In early 2024 the book value of the asset is 360 000 and it is estimated that the fair value is only 240 000 The entry to record the impairment is a No entry is necessary as a write off violates the historical cost principle b Retained Earnings Accumulated Depreciation Equipment 120 000 120 000 c Loss on Impairment of Equipment Accumulated Depreciation Equipment 120 000 120 000 d Retained Earnings Reserve for Loss on Impairment of Equipment 120 000 120 000 7 The amount of interest cost capitalized during the construction period a May be greater than the total interest cost for the period b May be equal to or less than the total interest cost for the period c Must be equal to the total interest cost for the period 3 d Either a or b 4 8 The general ledger of the French Corporation as of December 31 2024 includes the following accounts Organization costs legal costs of incorporation Advertising costs to promote brand recognition Billboards that will have future alternate uses used to promote brand recognition Excess of purchase price i e cost over fair value of identifiable net assets of acquired subsidiary Trademarks purchased 18 000 13 500 33 750 305 00 0 45 000 In the preparation of French s Balance Sheet as of December 31 2024 what amount should be reported as total intangible assets a 415 250 b 381 500 c 368 000 d 350 000 e none of the above 9 Duckworth Co incurred research and development costs in 2024 as follows in research and Materials used development projects Equipment acquired that will have alternate future uses in future research and development projects Depreciation for 2024 on above equipment Personnel costs of persons involved in research and development projects Consulting fees paid to third parties for research and development Costs related to research and development projects 450 000 3 000 0 00 300 000 750 000 150 000 225 000 The amount of research and development expense on Duckworth s Income Statement for the year ending December 31 2024 should be 5 a 1 500 000 b 1 650 000 c 1 875 000 d 4 050 000 e none of the above 6 Use the following information for questions 10 11 and 12 Pederson Company was formed on December 1 2024 The following information is available from Pederson s inventory records for the product X Date December 2 December 15 December 19 December 30 Purchases 2 000 units at 4 00 unit 6 000 units at 4 40 unit 2 000 units at 4 75 unit Sold or Issued Balance 4 000 units 2 000 units 8 000 units 4 000 units 6 000 units 10 Assuming that Pederson uses a perpetual inventory system what is ENDING INVENTORY at December 31 2024 under the FIFO method 11 Assuming that Pederson uses a perpetual inventory system what is ENDING INVENTORY at December 31 2024 under the LIFO method a 18 100 b 27 100 c 16 800 d 13 800 e None of the above a 18 300 b 17 600 c 26 300 d 25 600 e None of the above a 17 200 b 26 700 c 17 560 12 Assuming that Pederson uses a periodic inventory system what is ENDING INVENTORY at December 31 2024 under the weighted average method 7 d 26 340 e None of the above 8 13 On January 1 Bob s Corner Store purchases gasoline pumps with underground tanks to store the fuel The tanks have an estimated life of 30 years and will be depreciated straight line with no salvage value Bob s estimates that the cost to remove the tanks at the end of their useful life is 1 115 000 Based on an 11 discount rate the present value of the asset retirement costs ARC and related obligation ARO is 48 706 What amount would …