Q: A company purchased land and a building for $$500,000. The land is appraised at 100$$,000 and the building at $400,000. What amount should be allocated to the building using the relative fair values method?

$$ \frac{400,000}{500,000} \times 500,000 = 400,000 $$

Question 1

A company purchased equipment for $120,000 with an estimated useful life of 6 years and no residual value. Using the straight-line method, what is the annual depreciation expense?

Accepted Answer

$$ \frac{120,000}{6} = 20,000 $$

Question 2

Which of the following statements about stock dividends is true?

Accepted Answer

Stock dividends have no effect on total shareholders' equity.

Question 3

A company uses the perpetual inventory system. If $5,000 of goods are shipped FOB destination on December 31, but not received until January 2, how should the goods be reported on the December 31 balance sheet?

Accepted Answer

The goods should not be included in inventory.

Question 4

Which of the following is NOT a current liability?

Accepted Answer

Bonds payable

Question 5

If a company issues bonds at a premium, how does the interest expense change over time using the effective interest method?

Accepted Answer

Interest expense will be lower than interest payment, and will decrease over time.

Question 6

A company purchased land and a building for $$500,000. The land is appraised at 100$$,000 and the building at $400,000. What amount should be allocated to the building using the relative fair values method?

Accepted Answer

$$ \frac{400,000}{500,000} 	imes 500,000 = 400,000 $$

Question 7

Which of the following would be most likely to reveal that cost of goods sold is 127% of the amount shown for a base year?

Accepted Answer

Vertical analysis

Question 8

A company declared a cash dividend of $10,000. What is the journal entry to record the declaration?

Accepted Answer

Debit Retained Earnings $$10,000; Credit Dividends Payable 10$$,000

Question 9

Which of the following statements about depreciation is true?

Accepted Answer

Depreciation is the process of allocating the cost of an asset over its useful life.

Question 10

A company uses the FIFO inventory method. If the oldest costs are $$10/unit and the newest costs are 12/$$unit, and 100 units are sold, what is the cost of goods sold?

Accepted Answer

$$ 10 	imes 100 = 1,000 $$

Question 11

Which of the following is a capital expenditure?

Accepted Answer

The cost to install new equipment in a factory

Question 12

A company has beginning inventory of $$20,000, purchases of 50$$,000, and ending inventory of $15,000. What is the cost of goods sold?

Accepted Answer

$$ 20,000 + 50,000 - 15,000 = 55,000 $$

Question 13

Which of the following statements about share repurchases is correct?

Accepted Answer

Repurchasing shares decreases shareholders' equity.

Question 14

A company issues a 5-year bond at a discount. Using the effective interest method, what happens to the amount of amortization of bond discount at each payment date?

Accepted Answer

The amount of amortization increases each period.

Question 15

Which of the following is included in the cost of property, plant, and equipment?

Accepted Answer

Purchase price plus costs to get the asset ready for use

Question 16

A company has net sales of $$370,000 and cost of goods sold of 250$$,000. If net sales increase by 15% and cost of goods sold increases by 20%, what is the new gross margin?

Accepted Answer

$$ (370,000 	imes 1.15) - (250,000 	imes 1.20) = 425,500 - 300,000 = 125,500 $$

Question 17

Which of the following is the correct formula for gross profit percentage?

Accepted Answer

$$ \frac{	ext{Gross Profit}}{	ext{Net Sales}} 	imes 100 $$

Question 18

Which of the following is NOT a reason for a company to repurchase its own shares?

Accepted Answer

To increase the number of shares outstanding

Question 19

A company uses the weighted average inventory method. If beginning inventory is $$1,000 (100 units at 10$$), purchases are $$2,000 (200 units at 10$$), and 150 units are sold, what is the cost of goods sold?

Accepted Answer

$$ \frac{1,000 + 2,000}{100 + 200} 	imes 150 = \frac{3,000}{300} 	imes 150 = 10 	imes 150 = 1,500 $$

Comprehensive Study Notes for Financial Accounting: Key Concepts, Transactions, and Analysis

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