Expense, Liability, and Capitalization

9. Marley Company received a seven-year, zero-interest-bearing note on February 22, 2008, in exchange for property it sold to O'Rear Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2008, 7.5% on December 31, 2008, 7.7% on February 22, 2009, and 8% on December 31, 2009. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2008 and 2009, respectively?
A) 0% and 0%
B) 7% and 7%
C) 7% and 7.7%
D) 7.5% and 8%

10. During 2008, Gannon Co. incurred average accumulated expenditures of $400,000 during construction of assets that qualified for capitalization of interest. The only debt outstanding during 2008 was a $500,000, 10%, 5-year note payable dated January 1, 2006. What is the amount of interest that should be capitalized by Gannon during 2008?
A) $0
B) $10,000
C) $40,000
D) $50,000

11. Milner Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 box tops from Milner Frosted Flakes boxes and $1.00. The company estimates that 60% of the box tops will be redeemed. In 2008, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 box tops receiving 110,000 bowls. If the bowls cost Milner Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2008?
A) $25,000
B) $37,500
C) $62,500
D) $87,500

12. Lower-of-cost-or-market
A) is most conservative if applied to the total inventory.
B) is most conservative if applied to major categories of inventory.
C) is most conservative if applied to individual items of inventory.
D) must be applied to major categories for taxes.

13. On December 1, 2008, Perez Corporation leased office space for 10 years at a monthly rental of $90,000. On that date Perez paid the landlord the following amounts:
Rent deposit $ 90,000
First month's rent 90,000
Last month's rent 90,000
Installation of new walls and offices 495,000
$765,000
The entire amount of $765,000 was charged to rent expense in 2008. What amount should Perez have charged to expense for the year ended December 31, 2008?
A) $90,000
B) $94,125
C) $184,125
D) $495,000

14. Nottingham Corporation had accounts receivable of $100,000 at 1/1. The only transactions affecting accounts receivable were sales of $900,000 and cash collections of $850,000. The accounts receivable turnover is
A) 6.0.
B) 6.6.
C) 7.2.
D) 9.0.