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1. On June 18, 2005, Dell Printing Co. incurred the following costs for one of its printing presses:

2. The overhaul resulted in a significant increase in production. Neither the attachment nor the overhaul increased the estimated useful life of the press. What amount of the above costs should be capitalized?

3. The following two inventory items were purchased as a group in a liquidation sale for $1,000. 4. The firm purchasing the inventory records item A at what amount? 5. Which of the following statements are correct when a company applying the lower of cost or market method reports its inventory at replacement cost? 6. Immediately after a note payable was signed, its present value was $30,000. This note and $20,000 cash were used to acquire a used plant asset at the beginning of the current year. The interest rate implied in the note is 6%. Total interest payments due on the note over its term amount to $4,000. The term exceeds one year. No payments on the note are due during the current year. What amount of interest expense is recognized for the first year (current year) on this note, and what amount is capitalized to the plant asset account? 7. Cole Co. began constructing a building for its own use in January 2004. During 2004, Cole incurred interest of $50,000 on specific construction debt and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated


expenditures for the building during 2004 was $40,000. What amount of interest cost should Cole capitalize? 8. Many years after constructing a plant asset, management spent a significant sum on the asset. Which of the following types of expenditures should be capitalized in this instance: 9. Which of the following is a not requirement for an asset to be categorized as a plant asset. 10. Zahn Corp.'s comprehensive Balance Sheet at December 31, 2005 and 2004 reported accumulated depreciation balances of $800,000 and $600,000, respectively. Property with a cost of $50,000 and a carrying amount of $40,000 was the only property sold in 2005. Depreciation charged to operations in 2005 was:

11. Talton Co. installed new assembly line production equipment at a cost of $185,000. Talton had to rearrange the assembly line and remove a wall to install the equipment. The rearrangement cost was $12,000 and the wall removal cost was $3,000. The rearrangement did not increase the life of the assembly line but it did make it more efficient. What amount of these costs should be capitalized by Talton?

12. The original cost of an inventory item is above the replacement cost. The inventory item's replacement cost is above the net realizable value. Under the lower of cost or market method, the inventory item should be valued at 13. When marking up a specific line of household items for resale, a retailer computes its markup as 40% of cost. For purposes of estimating ending inventory using the gross margin method, what percentage is applied to sales when estimating cost of goods sold? 14. A flash flood swept through Hat, Inc.'s warehouse on May 1. After the flood, Hat's accounting records showed the following: 15. What amount of inventory was lost in the flood? 16. Information for a firm using the dollar value (DV) LIFO retail method follows. The cost to retail (C/R) is provided along with price level indices. The data reflects the use of the method through year one.


17. For year two, ending inventory at retail (by count) totaled $310. The ending pricelevel index for the year was 1.15. The cost-to-retail ratio was .42. What is the ending inventory for financial reporting purposes for this firm? 18. A firm began the construction of its new manufacturing facility in January of 20x2. The following expenditures were made on construction in that year: 19. Debt outstanding the entire year: 20. At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and $300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%. The only other outstanding debt the company had was a 10% interest rate, long-term mortgage of $800,000, which had been outstanding the entire year. What amount of interest should Cann capitalize as part of the cost of the plant addition? 21. A corporation entered into a purchase commitment to buy inventory. At the end of the accounting period, the current market value of the inventory was less than the fixed purchase price, by a material amount. Which of the following accounting treatments is most appropriate? 22. Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine? 23. How does the retail inventory method establish the lower-of-cost-or-market valuation for ending inventory? 24. A firm uses the dollar value LIFO retail method and has $2,000 in beginning inventory at retail at the beginning of the current year. The base year equivalent of this amount is $1,600. The base year index is 1.00. The beginning inventory reported in the Balance Sheet is $800. During the current year, the firm purchased $12,000 of inventory at cost and marked that up to $40,000. Sales for the year were $28,000. The relevant ending price index is 1.60. What amount does this firm report as inventory in its Balance Sheet at the end of the current year?


Acc 422 week 2 cpa practice exam