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1. If a unit of inventory has declined in value below original cost, but the market value exceeds net realizable value, the amount to be used for purposes of inventory valuation is
A) net realizable value.
B) original cost.
C) market value.
D) net realizable value less a normal profit margin.

2. Which of the following best describes current practice in accounting for leases?
A) Leases are not capitalized.
B) Leases similar to installment purchases are capitalized.
C) All long-term leases are capitalized.
D) All leases are capitalized.

3. On January 1, 2008, the Accumulated Depreciation-Machinery account of a particular company showed a balance of $370,000. At the end of 2008, after the adjusting entries were posted, it showed a balance of $395,000. During 2008, one of the machines which cost $125,000 was sold for $60,500 cash. This resulted in a loss of $4,000. Assuming that no other assets were disposed of during the year, how much was depreciation expense for 2008?
A) $85,500
B) $93,500
C) $25,000
D) $60,500

4. The Lease Liability account should be disclosed as
A) all current liabilities.
B) all noncurrent liabilities.
C) current portions in current liabilities and the remainder in noncurrent liabilities.
D) deferred credits.

5. A plant asset has a cost of $24,000 and a salvage value of $6,000. The asset has a three-year life. If depreciation in the third year amounted to $3,000, which depreciation method was used?
A) Straight-line
B) Declining-balance
C) Sum-of-the-years'-digits
D) Cannot tell from information given

6. Which of the following methods of determining annual bad debt expense best achieves the matching concept?
A) Percentage of sales
B) Percentage of ending accounts receivable
C) Percentage of average accounts receivable
D) Direct write-off

7. On September 1, 2007, Looper Co. issued a note payable to National Bank in the amount of $1,200,000, bearing interest at 12%, and payable in three equal annual principal payments of $400,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2008. At December 31, 2008, Looper should record accrued interest payable of
A) $48,000.
B) $44,000.
C) $32,000.
D) $29,334.

8. Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2007 for $10,000,000. It was expected to have a 10 year life and no residual value. Malrom uses straight-line amortization for patents. On December 31, 2008, the expected future cash flows expected from the patent were expected to be $800,000 per year for the next eight years. The present value of these cash flows, discounted at Malrom's market interest rate, is $4,800,000. At what amount should the patent be carried on the December 31, 2008 balance sheet?
A) $10,000,000
B) $8,000,000
C) $6,400,000
D) $4,800,000

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Solution Summary

The solution contains a set of multiple choice questions on lease liability, asset valuation, depreciation etc.

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  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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