Most current costs in the income statement

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Reference no: EM1313389

Valuation of plant asset, land and intangible assets.

Questions 1 and 2 are based on the following information:

Poin Company recently incurred the following costs:

(1) Purchase price of land and dilapidated building	$280,000
(2) Real estate broker's commission	14,000
(3) Net demolition costs of dilapidated building	42,000
(4) Excavation costs for new building	44,000
(5) Architect's fees and building permits	35,000
(6) Costs associated with new building construction	930,000
(7) Costs associated with new furniture and equipment	250,000
(8) Actual interest costs during building construction	135,000
(9) Actual interest cost after completion of building construction	120,000
(10) Costs of walks, driveways, and parking lot	55,000

1. The building should be recorded on Poin's books at

a. $1,144,000.

b. $1,319,000.

c. $ 930,000.

d. $1,264,000.

2. Land should be recorded on Poin's books at

a. $280,000.

b. $336,000.

c. $322,000.

d. $380,000.

3. Jenson Supply bought equipment at a cost of $24,000 on January 2, 2002. It originally had an estimated life of ten years and a salvage value of $4,000. Jenson uses the straight-line depreciation method. On December 31, 2006, Jenson decided the useful life likely would end on December 31, 2007, with a salvage value of $2,000. The depreciation expense recorded on December 31, 2006, should be

a. $2,000.

b. $7,000.

c. $4,000.

d. $3,500.

4. In order to be relevant, accounting information must

a. be neutral.

b. be verifiable.

c. help predict future events.

d. be a faithful representation.

5. The cost of intangible assets should be

a. amortized over the assets' estimated useful life, or its legal life, whichever is shorter.

b. amortized over a period not exceeding 5 years.

c. amortized over the assets' estimated useful life.

d. charged to an expense account at acquisition.

6. In a period of rising prices, the inventory method that results in the lowest income tax payment is

a. LIFO.

b. FIFO.

c. average cost.

d. specific identification.

7. On November 30, Catcher Company issued a $8,000, 6%, 6-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for

a. $8,000.

b. $8,480.

c. $8,120.

d. $8,240.

8. The inventory methods that result in the most current costs in the income statement and balance sheet are

	Income Statement	Balance Sheet
a.	FIFO	FIFO
b.	LIFO	FIFO
c.	LIFO	LIFO
d.	FIFO	LIFO

9. One of the two constraints in accounting is

a. comparability.

b. materiality.

c. reliability.

d. relevance.

10. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the

a. economic entity assumption.

b. going concern assumption.

c. monetary unit assumption.

d. time period assumption.

Reference no: EM1313389

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