Property Plant Equipment: Sukhpreet Kaur

6/18/2020 PROPERTY
PLANT
EQUIPMENT
SUKHPREET KAUR
SUKHPREETKAURMALHOTRA44@GMAIL.COM
CHAPTER 10: PROPERTY PLANT AND
EQUIPMENT MULTIPLE
CHOICE
1. Which of the following is NOT included in the IAS16 definition of property, plant, and
equipment (PPE)?
a)PPE will be used over more than one accounting period.
b)PPE is held for use in the production of goods and services.
c)PPE can be tangible or intangible.
d)PPE is tangible.
Answer: c
2. Examples of property, plant, and equipment include

a)land, equipment, vehicles.
b)equipment, apple trees, mineral resource property.
c)machinery, livestock, patents.
d)computers, cherry orchards, copyrights.
Answer: b
3. Which of the following statements applies to the recognition of property, plant, and
equipment acquisitions?
a)It is certain that the item’s associated future benefits will flow to the entity.
b)It is probable that the item’s associated future benefits will flow to the entity.
c)The cost can be measured reliably.
d)It is probable that the item’s associated future benefits will flow to the entity, and the
cost can
be measured reliably.
Answer: d
4. Which of the following would NOT be included in the cost of an item of

property, plant, and equipment?
a)the purchase price net of any trade discounts and rebates
b)delivery costs
c)costs of training employees to use the asset
d)costs of obligations associated with the asset’s eventual disposal
Answer: c
5. Which of the following does NOT apply to the capitalization of borrowing costs for
the purchase of assets?
a)They can have a significant impact on a company's earnings.
b)This is allowed under both ASPE and IFRS.
c)This is not allowed under IFRS.
d)They must be disclosed in the notes to the financial statements.
Answer: c
6. Under ASPE, the costs for environmental clean-up at the end of an asset’s useful
life
a)are always expensed as incurred.
b)are recognized only if they represent a legal obligation.
c)are capitalized once they have become apparent.
d)include only costs related to the acquisition of the asset.
Answer: b
7. The debit for non-refundable provincial sales tax correctly calculated and paid on the
purchase of machinery should be included in
a)Provincial Sales Tax Expense.
b)Machinery.
c)Accumulated Depreciation—Machinery.
d)Prepaid Provincial Sales Tax.
Answer: b
8.How should variable overhead costs incurred to self-construct an asset be recorded?

a)They should be included in the cost of the asset.
b)They should be assigned to the cost of inventory production.
c)They should be written of as a loss for the period.
d)They should be recorded as a one-time special assessment in a separate asset
account.
Answer: a
9. Upshaw Ltd. bought a lift truck with a list price of $ 30,000. The dealer granted a 10%
reduction in the list price, and an additional 2% cash discount on the net price when
payment was made in 30 days. Provincial sales tax was $ 1,785 and Upshaw paid an
extra $ 350 to have a special horn installed. The recorded cost of the truck should be
a) $ 29,135.
b) $ 31,535.
c) $ 28,595.
d) $ 28,552.
Answer: c
10. Property, plant, and equipment purchased on long-term credit contracts should be
accounted for at the
a)actual cash to be paid in the future.
b)future amount of the future payments.
c)present value of the future payments.
d)future value of the current payments.
Answer: c
11. When a plant asset is acquired by the issuance of a public company’s common shares,
the cost
of the plant asset is properly measured by the
a)market value of the plant asset.
b)original cost of the plant asset.
c)book value of the plant asset.
d)book value of the shares.
Answer: a
12. When a closely held corporation issues preferred shares for land, the land should be
recorded at the
a)total value of the shares issued.
b)total book value of the shares issued.
c)total liquidating value of the shares issued.
d)fair market value of the land.
Answer: d
13. When an enterprise is the recipient of a donated asset, the account credited would
probably be a(n)
a)equity account.
b)revenue account.
c)deferred revenue account.
d)asset account.
Answer: b
14. A plant site donated by a city to a manufacturer that plans to open a new
factory should be recorded on the manufacturer's books at
a)the nominal cost of taking title to it.
b)its market value.
c)one dollar (since the site cost nothing but should be included in the statement of
financial position).
d)the value assigned to it by the company's directors.
Answer: b
15. Spock Inc. exchanged merchandise that cost $ 19,000 and normally sold for $ 27,000 for
a new delivery truck with a list price of $ 31,000. The delivery truck should be recorded on
Spock's books at
a) $ 31,000.
b) $ 27,000.
c) $ 19,000.
d) $ 12,000.
Answer: a
16. When accounting for asset exchanges,

a)if a transaction lacks commercial substance, it is not recorded.
b)an asset cannot be recognized at more than its fair value.
c)if the fair values of either the asset given up or the asset received cannot be ascertained,
then the Board of Directors may assign an arbitrary value.
d)when an exchange lacks commercial substance, either a gain or loss may be
recognized.
Answer: b
17. Mozambique Ltd. received a $ 250,000 grant from the federal government to help
buy equipment as an incentive for them to establish manufacturing operations in Ottawa.
Assuming that Mozambique uses the cost reduction method for such transactions, they
should record this transaction as a
a)memo entry only.
b)credit to Equipment for $ 250,000.
c)credit to Deferred Revenue for $ 250,000.
d)credit to Contribution Revenue for $ 250,000.
Answer: b
18. Chad Corporation purchased a tract of land for $ 765,000, which included a
warehouse and office building. The following data were collected concerning the
property:
Current Assessed Valuation Vendor’s Original Cost
Land $ 300,000 $ 250,000
Warehouse 200,000 150,000
Office building 400,000 300,000
$ 900,000 $ 700,000
What are the appropriate amounts that Chad should record for the land, warehouse, and office
building, respectively?
a)land, $ 250,000; warehouse, $ 150,000; office building, $ 300,000
b)land, $ 300,000; warehouse, $ 200,000; office building, $ 400,000
c)land, $ 273,214; warehouse, $ 163,929; office building, $ 327,857
d)land, $ 255,000; warehouse, $ 170,000; office building, $
340,000 Answer: d
19. Frosty Ltd.

exchanged 400 common shares of Grants Corp., which Frosty was holding as an
investment, for new equipment from Milliken Sales. The Grants Corp. common shares, which
had been purchased by Frosty for $ 80 per share, had a quoted market value of $ 100
per share at the date of exchange. The equipment had a recorded amount on Milliken’s
books of $ 37,000, but the fair value was not available. The journal entry that Frosty
should make to record this exchange is a) Equipment
.................................................................................................... 32,000
Investment in Lesotho Corp Common Shares ...................................... 32,000
b) Equipment.................................................................................................... 37,000
Investment in Lesotho Corp. Common Shares ..................................... 32,000
Gain on Disposal of Investment............................................................. 5,000
c) Equipment .................................................................................................... 37,000
Loss on Disposal of Investment .................................................................... 3,000
d) Equipment.................................................................................................... 40,000
Gain on Disposal of Investment............................................................. 8,000
Answer: d
20. On January 2, 2020, Neeson Delivery Company traded in an old delivery truck for a
newer model. Data relative to the old and new trucks follow:
Old Truck
Original cost......................................................................... $ 9,000
Accumulated depreciation at January 2, 2020................... 6,000
Fair value.............................................................................. 3,000
New Truck
List price............................................................................... $
15,000 Cash price without trade-in ................................................ 14,000
Cash paid with trade-in ....................................................... 11,000
The cost of the new truck for financial accounting
purposes is a) $ 9,000.
b) $ 11,000.
c) $ 14,000.
d) $ 15,000.
Answer: c
21. Soflo Inc. acquired a new delivery truck in exchange for an old delivery truck
that it had acquired several years earlier for $ 50,000. On the date of the exchange, the
old truck had a fair value of $ 20,000, and its net book value (carrying value) was $ 19,000.
In addition, Soflo paid $ 65,000 cash for the new truck, which had a list price of $
90,000. At what amount should Soflo record the new truck for financial accounting
purposes?
a) $ 65,000
b) $ 84,200
c) $ 85,000
d) $ 90,000
Answer: c
22. On January 2, 2020, Gabon Corp. purchases a new machine. The company makes a $
2,000 cash down payment, and agrees to pay four annual instalments of $ 4,000 each, starting
December 31, 2020, signing a non-interest-bearing note to this efect. The cash equivalent
price of the machine is not known, but the appropriate interest rate for this type of
transaction is 9% p.a. Rounding to the
nearest dollar (if necessary), Gabon should record the cost of the machine
at a) $ 18,000.
b) $ 16,000.
c) $ 14,959.
d) $ 12,959.
Answer: c
23. On January 2, 2020, Zimbabwe Corp. purchases a new machine. The company makes a $
3,000 cash down payment, and agrees to pay eight semi-annual instalments of $ 2,000 each,
starting July 1, 2020, signing a non-interest-bearing note to this efect. The cash equivalent price
of the machine is not known, but the appropriate interest rate for this type of transaction is
8% p.a. Rounding to the nearest dollar (if necessary), Zimbabwe should record the cost
of the machine at
a) $ 15,413.
b) $ 16,465.
c) $ 16,000.
d) $ 19,000.
Answer: b
24. Bally Ho Inc. traded one of its used trailers (cost $ 15,000, accumulated depreciation $
13,500) for another used trailer with a fair value of $ 2,400. Bally Ho also paid $ 300 to
complete the transaction. Since the exchange will leave Bally Ho in the same
economic position, this transaction lacks commercial substance. What is the gain or
loss on the exchange?
a)$ 900 gain
b)$ 675 gain
c)$ 225 loss
d)$ 0 (no gain or
loss) Answer: d
25. On August 1, 2020, Chapelle Corp. purchases a new machine. The company makes a $
7,200 cash down payment, and agrees to pay four monthly instalments of $ 10,800 each,
starting September 1, 2020, signing a non-interest-bearing note to this efect. The cash
equivalent price of the machine is $ 43,200. As well, Chapelle pays installation costs of $
1,200. The recorded cost of the machine should be
a) $ 8,400.
b) $ 44,400.
c) $ 50,400.
d) $ 51,600.
Answer: b
26. On August 1, 2020, Burkina Corp. purchases a new machine. The company makes a $
2,000 cash down payment, and agrees to pay four annual instalments of $ 3,000 each, starting
August 1, 2021, signing a non-interest bearing-note to this efect. The cash equivalent
price of the machine is $ 12,500. Due to an employee strike, Burkina could not install the
machine immediately, and thus
incurred $ 300 of storage costs. As well, Burkina pays installation costs of $ 400. The recorded cost
of the machine should be
a) $ 14,000.
b) $ 13,200.
c) $ 12,900.
d) $ 12,500.
Answer: c
27. Ben’s Delivery buys a van with a list price of $ 60,000. The dealer grants a 15%
reduction in list price and an additional 2% cash discount on the net price if payment is
made in 30 days, which Ben’s did. Non-refundable sales taxes are $ 800 and Ben’s paid an
extra $ 600 to have a GPS device installed. What amount should Ben’s record as the
cost of the van?
a) $ 51,380.
b) $ 49,980.
c) $ 51,290.
d) $ 50,780.
Answer: a
28. Ghana Football Club had a player contract with Mowgli that is recorded in its
books at $ 300,000 on July 1, 2020. Ivory Coast Football Club had a player contract with
Eeyore that is recorded in its books at $ 375,000 on July 1, 2020. On this date, Ghana
traded Mowgli to Ivory Coast for Eeyore and paid a cash diference of $ 37,500. The fair value
of the Eeyore contract was $ 450,000 on the exchange date. After the exchange, the
Eeyore contract should be recorded in Ghana’s books at
a) $ 337,500.
b) $ 375,000.
c) $ 412,500.
d) $ 450,000.
Answer: d
29. Dinga Corp. exchanged similar pieces of equipment with Elongo Corp. No cash was
exchanged. Since this exchange will not significantly change the economic position of
either company, this transaction lacks commercial substance. At this time, the net book
value of Dinga's asset is $ 36,000, while the net book value of Elongo’s asset on their books
is $ 33,300. However, it has been reliably determined that the fair value of Dinga’s asset is
$ 36,900, while the fair value of Elongo’s asset is $ 34,200. Given these facts, at what
amount should Dinga record the asset it receives from Elongo?
a) $ 36,900
b) $ 36,000
c) $ 34,200
d) $ 33,300
Answer: c
30. On January 2, 2020, Holliwell Inc. replaced its boiler with a more efficient one. The
following
information was available on that date:
Purchase price of new boiler............................................... $ 36,000
Carrying amount of old boiler............................................. 4,000
Fair value of old boiler......................................................... 2,400
Installation cost of new boiler ............................................ 3,200
The old boiler was sold for $ 2,400. At what amount should Holliwell capitalize the cost of
the new boiler?
a) $ 42,300
b) $ 43,200
c) $ 39,200
d) $ 40,000
Answer: c
31. Liberia Corporation exchanged 2,000 shares of its common shares for a parcel of
land to be held as a future plant site. The book value of the shares is currently $ 90
per share, and their current market value is $ 110 per share. Liberia received $ 30,000
from the sale of scrap when an existing building on the property was removed from the site.
Based on these facts, the land should be capitalized at
a) $ 150,000.
b) $ 180,000.
c) $ 190,000.
d) $ 220,000.
Answer: c
Use the following information for questions 32–33.
Morocco Corp. purchased land as a factory site for $ 250,000. They paid $ 10,000 to tear down
two buildings on the land, and the salvage from these old buildings was sold for $ 1,350.
Legal fees of $ 870 were paid for title investigation and making the purchase. Architect's fees
were $ 10,300. Title insurance cost $ 600, and liability insurance during construction cost $
650. Excavation costs were
$ 2,610. A contractor was paid $ 600,000 to construct the new building. An assessment made
by the city for pavement was $ 1,600. Interest costs during construction were $
42,500.
32. The cost of the land should be

recorded at a) $ 260,120.
b) $ 261,720.
c) $ 262,470.
d) $ 264,070.
Answer: b
33. The cost of the building should be

recorded at a) $ 656,060.
b) $ 655,800.
c) $ 653,710.
d) $ 653,450.
Answer: a
34. On February 1, 2020, Sudan Corp. purchased a parcel of land for $ 300,000 as a factory
site. An old building on the property was demolished, and construction began on a new
building which was completed on November 1, 2020. Costs incurred during this
period are listed below:
Demolition of old building ............................................................. $ 25,000
Architect's fees ............................................................................... 35,000
Legal fees for title investigation and purchase contract .............. 5,000
Construction costs.......................................................................... 990,000
(Salvaged materials resulting from demolition were sold for $
10,000.) Sudan should record the cost of the land and new building,
respectively, at a) $ 330,000 and $ 1,015,000.
b) $ 315,000 and $ 1,030,000.
c) $ 315,000 and $ 1,025,000.
d) $ 320,000 and $ 1,025,000.
Answer: d
35. On December 1, 2020, Guinea Corp. purchased a tract of land as a factory site for $
500,000. The old building on the property was razed, and salvaged materials resulting
from demolition were sold. Additional costs incurred and salvage proceeds realized during
December 2020 were as follows:
Cost to raze old building......................................................................$ 25,000
Legal fees for purchase contract and to record ownership .................... 5,000
Property purchase tax .............................................................................. 8,000
Proceeds from sale of salvaged materials............................................... 4,000
On Guinea’s December 31, 2020 balance sheet, what amount should be reported for the
land?
a) $ 513,000
b) $ 521,000
c) $ 534,000
d) $ 538,000
Answer: c
36. Chiquita Corp. purchased a large area of land with the intention to transform it into
a banana plantation. Before the new seedlings can be planted, the site, which is prone to
flooding, must be drained. The cost of the draining should be
a)capitalized as part of the cost of the land.
b)expensed only after the first crop of bananas has been harvested.
c)expensed immediately.
d)reported as loss from discontinued operations.
Answer: a
37. Land is generally included in property, plant, and equipment EXCEPT when
a)it is not yet ready for use.
b)it is held for resale by land developers.
c)it includes a building that must be demolished.
d)special amounts are assessed for local improvements such as sewers.
Answer: b
38. The costs of land improvements with limited lives, such as a parking lot, are
a)added to the land account.
b)recorded in a separate account.
c)depreciated over their useful lives.
d)recorded in a separate account and depreciated over their useful lives.
Answer: d
39. If a corporation purchases a lot and building and subsequently tears down the
building and uses the property as a parking lot, the proper accounting treatment of the
cost of the building would depend on
a)the significance of the cost allocated to the building in relation to the combined cost
of the lot and building.
b)the length of time for which the building was held prior to its demolition.
c)management’s plans for the property when the building was acquired.
d)the planned future use of the parking lot.
Answer: d
40. Under IFRS, biological assets should normally be measured at

a)cost.
b)cost less accumulated depreciation.
c)fair value.
d)fair value less costs to sell.
Answer: d
41. Land was purchased to be used as the site for the construction of a plant. A
building on the property was sold and removed by the buyer so that construction on
the plant could begin. The proceeds from the sale of the building should be
a)classified as other income.
b)deducted from the cost of the land.
c)netted against the costs to clear the land and expensed as incurred.
d)netted against the costs to clear the land and amortized over the life of the plant.
Answer: b
42. The cost model of accounting for PP&E assets

a)should be applied to investment property only.
b)should be applied to other PP&E assets only.
c)can be applied to all classes of PP&E including investment property.
d)is not appropriate under
ASPE. Answer: c
43. The revaluation model of accounting for PP&E assets

a)uses a revaluation surplus account to hold net increases in the asset's fair value.
b)may be applied to all classes of PP&E including investment property.
c)may be applied to investment property under ASPE.
d)is not allowed under
IFRS. Answer: a
44. When using the revaluation model of accounting for PP&E assets (asset-
adjustment or elimination method),
a)the related Accumulated Depreciation account is closed to OCI.
b)depreciation continues to be charged in the original pattern.
c)the diference between fair value and book value is always debited to Revaluation Surplus
(OCI).
d)a new depreciation rate must be calculated.
Answer: d
45. When can the balance in the Revaluation Surplus (OCI) account be transferred to
retained earnings?
a)at the end of every year, or when the asset is sold
b)whenever a revaluation is performed
c)only when the revalued asset is sold
d)never
Answer:
46. The fair value model of accounting for PP&E assets

a)recognizes changes in the asset's fair value in other comprehensive income.
b)should be applied to investment property only.
c)once chosen for one investment property does not have to be applied to all
investment property.
d)is acceptable under both IFRS and
ASPE. Answer: b
47. Round Up Corporation uses the cost model to account for its property, plant, and
equipment, which were acquired on January 1, 2020, for $ 200,000. Round Up uses straight-
line depreciation and estimates the assets will have an eight-year life with no residual
value. Assuming Round Up did not experience any impairment losses, the December 31,
2021, net book value of the assets is a) $ 200,000.
b) $ 175,000.
c) $ 150,000.
d) $ 125,000.
Answer: c
48. Nigeria Ltd. acquires a new machine. It is comprised of two diferent components (A
and B) that are expected to be overhauled at diferent times.
The acquisition costs of the components are as
follows: Component A: $ 198,000
Component B: $ 240,000
Component A is expected to have a useful life of 5 years and a residual value of $ 20,000
before the first major overhaul is required. Component B is expected to have a useful life
of 7 years and a residual value of $ 15,000 before its first overhaul. Nigeria uses straight-line
depreciation for all its equipment. What is the net book value of component A after 5
years?
a) $ 0
b) $ 19,000
c) $ 20,000
d) $ 55,600
Answer: c
Tunisia Inc. owns assets to which it applies the revaluation model (asset-adjustment method).
The following additional information is available:
1. Accumulated Depreciation at December 31, 2021, (prior to any fair value adjustments)
was $ 12,000.
2. Between December 31, 2020, and December 31, 2021, the property's fair value had
increased by $ 30,000.
3. The December 31, 2021, balance in the revaluation surplus account (prior to any fair
value adjustments) was $ 2,000.
49. The adjusted December 31, 2021, balance in the related contra-asset account
will be a) $ 0.
b) $ 10,000.
c) $ 12,000.
d) $ 14,000.
Answer: a
50. The adjusted December 31, 2021, in the revaluation surplus account
will be a) $ 0.
b) $ 28,000.
c) $ 30,000.
d) $ 32,000.
Answer: d
51. Assume the same facts as indicated above, except that, between December 31, 2020,
and
December 31, 2021, the property's fair value had decreased by $ 10,000. As a result, Tunisia's
2021 income statement will include a
a) $ 10,000 loss.
b) $ 8,000 loss.
c) $ 8,000 gain (other comprehensive income).
d) $ 2,000
loss. Answer:
52. Nickel Corporation uses the fair value model of accounting for its investment property.
The fair values of its property were: December 31, 2020, $ 180,000 and December 31, 2021, $
195,000. At December 31, 2021, Nickel should
a)recognize a gain of $ 15,000 in income.
b)report a gain of $ 15,000 in other comprehensive income.
c)defer the gain until the property is sold.
d)do nothing (ignore it).
Answer: a
53. Which of the following expenditures after acquisition would NOT be capitalized?
a)adding a new wing to a hospital
b)replacing the air conditioning system in an office building
c)major overhaul of a fleet of trucks
d)replacing all the tires on an 18-wheel semi-
trailer Answer: d
54. A major overhaul made to a machine increased its fair value and its production
capacity by 25% without extending the machine's useful life. The cost of the
improvement should be
a)expensed.
b)debited to accumulated depreciation.
c)capitalized.
d)allocated between accumulated depreciation and the machine account.
Answer: c
55. An expenditure that maintains an existing asset so that it can function in the manner
intended should be
a)fully expensed in the period in which it is made.
b)partially expensed in the period in which it is made.
c)fully capitalized in the period in which it is made.
d)partially capitalized in the period in which it is made.
Answer: a
56. Kenya Ltd. acquires a new machine. It is comprised of two diferent components (A and
B) that are expected to be overhauled at diferent times.
The acquisition costs of the components are as
follows: Component A: $ 198,000
Component B: $ 240,000
Component A is expected to have a useful life of 5 years and a residual value of $ 20,000
before the first major overhaul is required. Component B is expected to have a useful life
of 7 years and a residual value of $ 15,000 before its first overhaul. Kenya uses straight-line
depreciation for all its equipment. At the beginning of year 6, component A undergoes a
major overhaul at a cost of 100,000. The work is expected to extend its life by 3 years, but
the residual value will then be zero. What is the net book value of component A one year
after the overhaul?
a) $ 120,000
b) $ 80,000
c) $ 66,667
d) $ 40,000
Answer: b
57. On September 10, 2020, Angola Printing incurred the following costs for one of its
printing presses:
Purchase of stapling attachment.........................................................$ 84,000
Installation of attachment ....................................................................... 10,000
Replacement parts for renovation of press............................................. 36,000
Labour and overhead in connection with renovation of press .............. 14,000
Neither the attachment nor the renovation increased the estimated useful life of the press.
However, the renovation resulted in significantly increased productivity. What amount of the
costs should be capitalized?
a) $ 0
b) $ 108,000
c) $ 130,000
d) $ 144,000
Answer: d
58. Which of the following statements is correct?

a)IFRS treats major overhauls that allow the continued use of an asset, as replacements;
ASPE usually treats them as expenses.
b)ASPE treats major overhauls that allow the continued use of an asset, as replacements;
IFRS usually treats them as expenses.
c)Both IFRS and ASPE treat major overhauls that allow the continued use of an asset,
as replacements.
d)Both IFRS and ASPE treat major overhauls that allow the continued use of an asset, as
expenses. Answer: a

a)IFRS allows the cost, revaluation, or fair value models; ASPE allows only the cost model.
b)ASPE allows the cost, revaluation, or fair value models; IFRS allows only the cost model.
c)Both IFRS and ASPE allow the cost, revaluation, or fair value models.
d)IFRS allows the cost, revaluation, or fair value models; ASPE allows only the cost
and revaluation models.
Answer: a

a)IFRS requires that any net revenues or expenses derived from an asset before it is ready for
use be included in income; ASPE requires that such revenues and expenses be included in the
asset’s cost.
b)ASPE requires that any net revenues or expenses derived from an asset before it is ready for
use be included in income; IFRS requires that such revenues and expenses be included in
the asset’s cost.
c)Both IFRS and ASPE require that any net revenues or expenses derived from an asset before
it is ready for use be included in income.
d)Both IFRS and ASPE require that any net revenues or expenses derived from an asset
before it is
ready for use be included in the asset’s cost.
Answer: a

a)ASPE considers investment, mining, and oil and gas properties to be part of property, plant,
and equipment; IFRS has diferent standards for each of these.
b)IFRS considers investment, mining, and oil and gas properties to be part of property, plant,
and equipment; ASPE has diferent standards for each of these.
c)Both ASPE and IFRS consider investment, mining, and oil and gas properties to be
part of property, plant, and equipment.
d)Both ASPE and IFRS have diferent standards for investment, mining, and oil and gas
properties; they do not consider them to be part of property, plant, and equipment.
Answer: a
*62. Borrowing costs incurred for the acquisition of assets may be capitalized if certain conditions
are met. Which of the following issues is irrelevant in making that determination?
a)the capitalization period
b)the avoidable borrowing costs
c)whether the asset is a “qualifying asset”
d)the depreciation
period Answer: d
*63. Construction of a qualifying asset is started on April 1 and finished on December 1. The
fraction used to multiply an expenditure made on April 1 to find weighted-average accumulated
expenditures is
a) 8 ÷ 8.
b) 8 ÷ 12.
c) 9 ÷ 12.
d) 11 ÷ 12.
Answer: b
*64. Borrowing costs that are capitalized should

a)be written of over the remaining term of the debt.
b)be accumulated in a separate deferred charge account and written of straight-line over a
40- year period.
c)not be written of until the related asset is fully depreciated or disposed of.
d)be amortized over the related asset’s useful life.
Answer: d
*65. A company is constructing an asset for its own use. Construction began in 2020. The
asset is being financed entirely with a specific new borrowing. Construction expenditures were
made in 2020 and 2021 at the end of each quarter. The total amount of interest cost
capitalized in 2021 should be determined by applying the interest rate on the specific
new borrowing to the
a)total accumulated expenditures for the asset in 2020 and 2021.
b)weighted-average accumulated expenditures for the asset in 2020 and 2021.
c)weighted-average expenditures for the asset in 2021.
d)total expenditures for the asset in 2021.
Answer: b
*66. On May 1, 2020, Ethiopia Ltd. began construction of a new building for its own
use. Expenditures of $ 75,000 were incurred monthly for five months beginning on May 1. The
building was completed and ready for occupancy on September 1, 2020. For the purpose
of determining the amount of interest cost to be capitalized, the weighted-average
accumulated expenditures on the building during 2020 were
a) $ 62,500.
b) $ 75,000.
c) $ 187,500.
d) $ 375,000.
Answer: a
*67. During calendar 2020, Somalia Corp. incurred weighted-average accumulated expenditures
of
$ 800,000 during construction of assets that qualified for capitalization of interest. The only
debt outstanding during 2020 was a $ 900,000, 8%, five-year note payable dated January 1,
2018. The amount of interest that should be capitalized during calendar 2020 is
a) $ 0.
b) $ 32,000.
c) $ 64,000.
d) $ 72,000.
Answer: c
*68. On March 1, Senegal Inc. began construction of a small building for its own use. Payments
of $ 150,000 were made monthly for three months beginning March 1. The building was
completed and ready for occupancy on June 1. In determining the amount of interest cost
to be capitalized, the weighted-average accumulated expenditures are
a) $ 0.
b) $ 75,000.
c) $ 150,000.
d) $ 450,000.
Answer: b
Use the following information for questions *70–*71.
On March 1, 2020, Mauritania Ltd. purchased land for $ 270,000 cash, which they intend to use
for their new head office. Construction on the office building began on March 1. The
following expenditures were incurred for construction:
Date Expenditures
March 1, 2020 $ 450,000
April 1, 2020 252,000
May 1, 2020 450,000
June 1, 2020 720,000
The office building was completed and ready for occupancy on July 1. To help pay for
construction, Mauritania borrowed $ 360,000 on March 1, 2020, on a 9%, three-year note
payable. Other than this note, the only other debt outstanding during 2020 was a $ 150,000,
10%, six-year note payable dated January 1, 2019.
*69. The weighted-average accumulated expenditures on the construction project during

2020 were
a) $ 1,467,000.
b) $ 348,000.
c) $ 258,000.
d) $ 156,000.
Answer: b
*70. The actual interest cost incurred during 2020

was a) $ 27,000.
b) $ 39,500.
c) $ 42,000.
d) $ 47,400.
Answer: c
*71. When using the revaluation model of accounting for PP&E assets (proportionate
method),
a)a Revaluation Surplus account is not used.
b)depreciation continues to be charged in the original pattern.
c)the asset account and its related contra-asset are both adjusted.
d)over the life of the asset, it is possible that there can be a net increase in net
income from revaluations.
Answer: c
Use the following information for questions *72–*73.
Egypt Corp. owns equipment that originally cost $ 100,000. At December 31, 2020, the
equipment’s book value (after 2020 depreciation was booked) is $ 60,000. It is determined that
the fair value of the equipment at this date is $ 90,000. Although Egypt’s policy is to apply
the revaluation model using the proportionate method, this is the first time the
company has done it.
*72. By how much must the accumulated depreciation account be increased (decreased) at
December 31, 2020?
a) $ 20,000
b) $ 40,000
c) $ 60,000
d) $ (60,000)
Answer: a
*73. The adjusting entry to record the revaluation will include a

a)debit to Accumulated Depreciation of $ 20,000.
b)credit to Equipment of $ 10,000.
c)credit to Revaluation Surplus (OCI) of $ 30,000.
d)debit to Revaluation Surplus (OCI) of $ 10,000.
Answer: c
MULTIPLE CHOICE
1.Which of the following is INCORRECT regarding depreciation?

a)It is not a matter of valuation.
b)It is part of the matching of revenues and expenses.
c)It is a means of cost allocation.
d)It is an attempt to reflect the fair market values of the related assets.
2.Factors to consider in the depreciation process do NOT include

a)the asset’s depreciable amount.
b)the period over which to depreciate the asset.
c)the asset’s fair market value.
d)which asset components should be depreciated separately.
3.Deciding which PP&E components to depreciate separately is called

a)separate depreciation.
b)componentization.
c)group depreciation.
d)individual asset depreciation.
4.An asset’s useful life

a)remains unchanged once it has been determined.
b)is the same as its physical life.
c)is afected by physical and economic factors.
d)is not afected by physical and economic factors.
5.Depreciation commences or continues when

a)The asset has been paid for.
b)The asset is available for use.
c)The asset’s fair value can be recovered.
d)The asset is taken out of service.
6. A graph is set up with "yearly depreciation expense" on the vertical axis and
"time" on the horizontal axis. Assuming linear relationships, how would the graphs
for straight-line and declining-balance depreciation, respectively, be drawn?
a)vertically and sloping down to the right
b)vertically and sloping up to the right
c)horizontally and sloping down to the right
d)horizontally and sloping up to the right
Answer: c
7.A principal objection to the straight-line method of depreciation is that it

a)provides for the declining productivity of an aging asset.
b)ignores variations in the rate of asset use.
c)tends to result in a constant rate of return on a diminishing investment base.
d)gives smaller periodic write-ofs than decreasing charge methods.
Answer: b
8. For income statement purposes, depreciation is a decreasing expense if the

depreciation method used is
a)units of production.
b)straight-line.
c)increasing charge.
d)declining-balance.
9. If a company uses the units of production method for calculating depreciation on its
factory machinery, the credit to accumulated depreciation from period to period during
the life of the firm will
a)be constant.
b)vary with unit sales.
c)vary with sales revenue.
d)vary with production.
10. When the unit of production method of depreciation is used, which of the
following best describes depreciation expense?
a)Depreciation expense will vary directly with output.
b)Depreciation expense will vary directly with sales.
c)Depreciation rate per unit will vary directly with output.
d)Depreciation rate per unit will vary directly with sales.
Answer: a
11. Which of the following is NOT a time-based depreciation method?

a)straight-line
b)units of production
c)double-declining balance
d)any diminishing balance
method Answer: b
12. Which of the following does NOT apply to the declining-balance method?
a)It results in a decreasing charge to depreciation expense.
b)Residual value is not deducted in calculating the depreciation base.
c)The book value should not be reduced below residual value.
d)In certain circumstances, the book value may be reduced below residual value.
Answer: d
13. If income tax efects are ignored, accelerated depreciation methods

a)provide funds for the earlier replacement of assets.
b)increase funds provided by operations.
c)tend to ofset the efect of steadily increasing repair and maintenance costs on the
income statement.
d)tend to decrease the current ratio.
Answer: c
14. Consider an asset that was separated into its main components (A, B, and C). The
$1,200,000 purchase price was allocated to these components in equal proportions. The useful
lives are 12, 4, and 7 years for components A, B, and C respectively. Components A and B
are not expected to have any residual value, but Component C is expected to have a
residual value of $18,000. Assuming straight-line depreciation, total annual depreciation
expense, to the nearest dollar, relating to these assets is
a) $100,100.
b) $125,120.
c) $187,905.
d) $190,476.
Answer: c
15. Cassidy Corporation purchased factory equipment that was installed and put into
service on January 2, 2019, at a total cost of $55,000. Residual value was estimated at $3,000.
The equipment is being depreciated over four years using the double-declining-balance method.
For the calendar year 2020, Cassidy should record depreciation expense on this
equipment of
a) $27,500.
b) $52,000.
c) $13,750.
d) $13,000.
Answer: c
16. Ella Inc. purchased machinery that was installed and ready for use on January 3,
2019, at a total cost of $460,000. Residual value was estimated at $60,000. The machinery
will be depreciated over five years using the double-declining-balance method. For the
calendar year 2020, Ella should record depreciation expense on this machinery of
a) $96,000.
b) $110,400.
c) $120,000.
d) $184,000.
Answer: b
17. A machine has a cost of $24,000, a residual value of $6,000, and an estimated three-
year life. If depreciation in the second year was $2,000, which depreciation method
was used?
a)straight-line
b)double declining-balance
c)units of production
d)cannot tell from information
given Answer: b
18. On January 1, 2019, Incredible Corp. purchased a new machine for $350,000. The new
machine has an estimated useful life of eight years and the residual value was estimated
to be $25,000. Depreciation was calculated using the double-declining-balance method. To
the nearest dollar, what amount should be shown in Incredible’s balance sheet at
December 31, 2020, net of accumulated depreciation, for this machine?
a) $153,125
b) $175,000
c) $201,563
d) $196,875
Answer: d
19. On April 1, 2015, Ninja Ltd. purchased equipment for $120,000. The equipment was
estimated to have a residual value of $15,000 and is being depreciated over ten years using
the straight-line method. What should be the depreciation expense for this
equipment for the year ended December 31, 2020?
a) $7,875
b) $8,000
c) $10,500
d) $12,000
Answer: c
20. On January 3, 2018, City Corp. purchased machinery. The machinery has an estimated
useful life of eight years and an estimated residual value of $67,500. City uses straight-line
depreciation for all their machinery, and recorded $115,500 depreciation expense for 2020.
The acquisition cost of the machinery was
a) $991,500.
b) $924,000.
c) $856,500.
d) $655,500.
Answer: a
21. On January 2, 2019, Urban Ltd. purchased equipment to be used in its

manufacturing operations. The equipment has an estimated useful life of ten years, and
an estimated residual
value of $33,000. It was also estimated that the equipment would be used a total of 63,000
hours over its useful life. The depreciation expense for this equipment was $156,000 for
calendar 2020, using the units of production method. The machine was used for 7,500
hours in 2020. The acquisition cost of the equipment was
a) $1,587,600.
b) $1,527,000.
c) $1,066,200.
d) $1,343,400.
Answer: d
22. Consider an asset for which the following information is

available: Carrying value at Dec 31, 2020 before
depreciation $9,000
Calculated depreciation for 2020........................................ $2,400
Original cost......................................................................... $24,000
Residual value...................................................................... $8,500
Remaining useful life ........................................................... 3 years
The depreciation expense for 2020
is a) $3,100.
b) $3,000.
c) $2,400.
d) $500.
Answer: d
23. Swallow Ltd. takes a full year's depreciation expense in the year of an asset's
acquisition and no depreciation expense in the year of disposition. Data relating to one
of Swallow’s pieces of equipment at December 31, 2019, are as follows:
Acquisition year ............................................... 2017
Cost .................................................................. $280,000
Residual value.................................................. 40,000
Accumulated depreciation.............................. 219,520
Estimated useful life........................................ 5 years
Using the same depreciation method that was used in 2017, 2018, and 2019, how much
depreciation expense should be recorded in 2020 for this asset?
a) $60,480
b) $48,000
c) $32,000
d) $20,480
Answer: d
24. On March 24, 2019, Dagger Ltd. purchased a new machine for $50,000. This
machine has an eight-year estimated useful life, an estimated residual value of $2,500, and
is expected to produce 95,000 units over its useful life. The machine produced 5,500 units in
2019 and 6,500 units in 2020. Using the unit of production method, to the nearest dollar, the
related Accumulated Depreciation account on the adjusted trial balance at December
31, 2020 would be
a) $6,500.
b) $6,316.
c) $6,000.
d) $3,250.
Answer: c
25. On July 1, 2019, Boots Corporation purchased factory equipment for $200,000. Residual
value was estimated to be $5,000. The equipment will be depreciated over ten years using
the double- declining-balance method. Counting the year of acquisition as one-half year,
Boots should record depreciation expense on this equipment for the calendar year
2020 of
a) $36,100.
b) $36,000.
c) $180,000.
d) $16,000.
Answer: b
26. On April 10, 2019, Rio Corp. purchased machinery for $180,000. Residual value was
estimated at $4,000. The machinery will be depreciated over ten years using the
straight-line method. If depreciation is calculated on the basis of the nearest full month,
the related Accumulated Depreciation account at December 31, 2020 will be
a) $31,500.
b) $30,800.
c) $30,000.
d) $29,333.
Answer: b
27. On September 25, 2019, Panther Corp. purchased machinery for $336,000. Residual
value was estimated to be $15,000. The machinery will be depreciated over eight years
using the double- declining-balance method. If depreciation is calculated on the basis of
the nearest full month,
Panther should record depreciation expense for calendar 2020 on this machinery
of a) $78,750.
b) $63,000.
c) $60,000.
d) $42,000.
Answer: a
28. On July 1, 2020, Eland Corp. purchased a machine for $375,000. The machine has an
estimated useful life of five years and a residual value of $50,000. The machine is being
depreciated using the double-declining-balance method. For the year ended December 31,
2020, Eland should record depreciation expense on this machine of
a) $65,000.
b) $75,000.
c) $130,000.
d) $150,000.
Answer: b
29. On April 1, 2018, Chickadee Corp. purchased new machinery for $400,000. The
machinery has an estimated useful life of ten years, a residual value of $20,000, and
depreciation is calculated using the double-declining-balance method. Chickadee’s year
end is December 31. The accumulated depreciation on this machinery at March 31,
2020, should be
a) $102,500.
b) $131,200.
c) $141,600.
d) $182,400.
Answer: c
30. Depletion expense

a)is usually part of cost of goods sold.
b)includes tangible equipment costs in the depletion base.
c)excludes intangible development costs from the depletion base.
d)excludes restoration costs from the depletion base.
Answer: a
31. The most common method of recording depletion for accounting purposes is the
a)single-declining method.
b)double-declining method.
c)straight-line method.
d)units of production method.
Answer: d
32. When all or a portion of shareholders’ capital investments are returned to them, this
is called a
a)return dividend.
b)liquidating dividend.
c)stock dividend.
d)investment dividend.
33. In January, 2020, Camel Corporation purchased a mine for $2,550,000 with
removable ore estimated by geological surveys at 1 million tonnes. The property has an
estimated (residual) value of $150,000 after the ore has been extracted. The
company incurred $750,000 in development costs preparing the mine for production.
During 2020, 250,000 tonnes were removed and 200,000 tonnes were sold. What is the
amount of depletion that Camel should expense for 2020?
a) $480,000
b) $600,000
c) $787,500
d) $840,000
34. In 2020, Elk Corporation purchased a mine for $200 million (of this, $30 million was
applicable to the land). An independent evaluation estimated the mine's reserves at 7.5
million tonnes.
During 2020, Elk extracted 900,000 tonnes. Elk’s depletion expense for 2020 is
a) $200,000.
b) $18,000,000.
c) $20,400,000.
d) $24,000,000.
35. Roan Corp. acquired a tract of land containing an extractable natural resource. The
company is required by the government to restore the land to a condition suitable for
recreational use after it has extracted the natural resource. Geological surveys estimate that
the recoverable reserves will be 6.2 million tonnes, and that the land will have a value of
$1.2 million after restoration. Relevant cost information follows:
Land............................................................$8,000,000
Estimated restoration costs.............................2,100,000
If Roan maintains no inventories, what is the depletion charge per tonne of extracted
resource? a) $1.00
b) $1.32
c) $1.44
d) $1.63
36. On January 1, 2015, Rabbit Corp. acquired machinery that it depreciated using the
straight-line method with an estimated useful life of 15 years and no residual value. On January
1, 2020, Rabbit estimated that the remaining life of this machinery was six years with no
residual value. This change should be accounted for
a)as a prior period adjustment.
b)as the cumulative efect of a change in accounting principle in 2020.
c)by setting future annual depreciation equal to one-sixth of the book value on January 1,
2020.
d)by continuing to depreciate the machinery over the original 15-year life.
Answer: c
37. Changes in the depreciation rate are accounted for as a(n)

a)adjustment to current and future periods.
b)adjustment to the current period only.
c)adjustment to future periods only.
d)catch-up adjustment to prior periods.
Answer: a
38. On July 1, 2017, Puppy Corp. purchased a machine for $500,000. The machine was
estimated to have a useful life of ten years with an estimated residual value of $28,000. During
2020, it became apparent that the machine would become uneconomical after December
31, 2021, and that the machine would have no salvage value. Accumulated depreciation
on this machine at December 31, 2019, was $118,000, using the straight-line method. The
depreciation expense for 2020 should be
a) $95,500.
b) $82,000.
c) $76,400.
d) $191,000.
Answer: d
39. On January 3, 2013, Hippo Corp. purchased a machine for $600,000. The machine
was being depreciated using the straight-line method over an estimated useful life of ten
years, with no residual value. At the beginning of 2020, the company paid $150,000 to
overhaul the machine. As a result of this improvement, the company estimated that the
useful life of the machine would be extended an additional five years (15 years total). The
depreciation expense for 2020 should be
a) $41,250.
b) $50,000.
c) $60,000.
d) $66,000.
Answer: a
40. On May 1, 2011, Platypus Ltd. purchased a new machine for $132,000. At the
time of acquisition, the machine was estimated to have a useful life of ten years and an
estimated residual value of $6,000. The company has recorded monthly depreciation using the
straight-line method.
On March 1, 2020, the machine was sold for $18,000. The loss to be recognized from the
sale is a) $0.
b) $2,700.
c) $6,000.
d) $8,700.
Answer: b
41. On June 1, 2018, Morgan Manufacturing acquired a machine for $100,000 with an
estimated useful life of five years and an estimated residual value of $10,000. The company
uses the double- declining-method of depreciation and takes a full year’s depreciation in the
year of acquisition and none in the year of disposition. If the machine were disposed of for
$16,000 on May 1, 2020, the loss on disposal would be
a) $20,000.
b) $26,400.
c) $24,000.
d) $36,000.
Answer: a
42. ASPE requires that assets must be assessed for indications of impairment
a)at the end of each reporting period.
b)at the end of every quarter.
c)when events and circumstances indicate that asset's carrying amount may not be
recoverable.
d)whenever the method of depreciation has changed.
Answer: c
43. IFRS require that assets must be assessed for indications of impairment
a)at the end of every quarter.
b)at the end of each reporting period.
c)when events and circumstances indicate that asset's carrying amount may not be
recoverable.
d)whenever the method of depreciation has changed.
Answer: b
44. Which of the following is NOT likely to be an indicator of possible asset

impairment?
a)evidence of obsolescence or physical damage
b)a significant decrease in the asset's market value
c)the book value of the entity’s net assets is greater than the entity’s market
capitalization
d)costs incurred for asset acquisition or operation are significantly lower than originally
expected Answer: d
45. The cost recovery impairment model

a)uses undiscounted cash flows in its determination of impairment.
b)uses discounted cash flows in its determination of impairment.
c)is the method used under IFRS.
d)requires the calculation of value in use.
Answer: a
46. The rational entity impairment model

a)does not allow the reversal of previously recognized impairment losses.
b)is the method used under ASPE.
c)uses undiscounted cash flows in its determination of impairment.
d)compares the asset’s carrying value with its recoverable amount.
Answer: d
47. Which of the following best describes the concept of cash-generating units
(CGU)?
a)Their cash flows are dependent on those of other CGU's.
b)The individual assets that are included in the CGU do not generate cash flows on their
own.
c)A CGU is the largest identifiable group of assets that generates cash inflows
predominantly independent from other CGUs.
d)IFRS does not recognize the concept of cash-generating units (CGU).
Answer: b
48. For a company that uses ASPE, the required year-end journal entry to record an
impairment loss includes
a)a debit to Loss on Impairment and a credit to Accumulated Impairment Losses.
b)a debit to Other Comprehensive Income and a credit to Accumulated Impairment Losses.
c)a debit to Loss on Impairment and a credit to the related asset.
d)a debit to Other Comprehensive Income and a credit to the related asset.
Answer: a
49. Monkey Shines Ltd., a Canadian public corporation, owns equipment for which the
following year-end information is available:
Carrying amount (book value)..........................$120,000
Value in use ...................................................... 102,000
Fair value less disposal costs .......................... 108,000
The recoverable amount to be used in the determination of
impairment is a) $102,000.
b) $108,000.
c) $120,000.
d) Cannot be determined from the information given.
Answer: b
50. Gibbon Corp., a Canadian public corporation, owns equipment for which the following
year- end information is available:
Carrying amount (book value) ........................ $59,000
Recoverable amount ....................................... 52,000
Fair value less disposal costs .......................... 55,000
Which of the following best describes the proper accounting treatment for Gibbon's
equipment?
a)It is not impaired and a loss should not be recognized.
b)It is impaired and a loss must be recognized, with no reversal possible.
c)It is not impaired, but a loss must be recognized.
d)It is impaired and a loss must be recognized, but the loss but may be reversed in future
periods.
Answer: d
51. Long-lived assets that are held for sale

a)continue to be depreciated.
b)are carried at the higher of book value and fair values less costs of disposal.
c)are generally not re-measured at each balance sheet date.
d)are reported separately from other assets.
Answer: d
52. Depreciation should be discontinued when an asset has been

a)derecognized or taken out of service.
b)derecognized or classified as held for sale.
c)taken out of service.
d)taken out of service or classified as held for sale.
Answer: b
53. The sale of a depreciable asset resulting in a loss indicates that the proceeds
from the sale were
a)less than book value.
b)greater than cost.
c)greater than book value.
d)less than current market value.
Answer: a
54. One of Spade Corp.’s assets was expropriated by government authorities. The
following
additional information is available:
Book value at the time of expropriation..........................$600,000
Cash received................................................................$1,500,000
Under ASPE, this situation would be reflected in the company's financial statements as a
$900,000
a)gain that would be included in other comprehensive income.
b)gain that would be included in net income.
c)gain from discontinued operations.
d)gain that would appear on the statement of shareholders’ equity.
Answer: b
55. On January 1, 2010, Antelope Ltd. purchased a building for $800,000. At this time, the
building had an estimated residual value of $300,000 and an estimated useful life of 20 years.
The company has recorded monthly depreciation using the straight-line method. On
January 1, 2020, it is decided to put the building up for sale for $1,200,000. At December 31,
2020, the building is still for sale. The correct depreciation to record for 2020 is
a) $0.
b) $25,000.
c) $40,000.
d) $60,000.
Answer: a
56. Golden Goose Corp. has a piece of equipment, which is being held for sale, and
has a carrying value of $100,000. When the decision to sell had been made, the
equipment had been written down from a carrying value of $180,000. At December 31,
2020, it is estimated that the fair value less disposal costs (net realizable value) is $130,000.
For the calendar year 2020, Golden Goose should recognize a recovery (gain) of
a) $0.
b) $30,000.
c) $50,000.
d) $80,000.
Answer: a
57. On January 1, 2020, the Accumulated Depreciation—Machinery account of

Bonobo Corp. showed a balance of $760,000. At the end of 2020, after the adjusting
entries were posted, it showed a balance of $820,000. During 2020, one of the machines
that cost $240,000 was sold for
$118,000 cash. This resulted in a loss of $7,000. Assuming that no other assets were disposed
of during the year, depreciation expense for 2020 was
a) $189,000.
b) $182,000.
c) $180,000.
d) $175,000.
Answer: d
58. During 2020, Jersey Ltd. sold equipment that had originally cost $206,000 for
$127,600. This resulted in a gain of $9,600. The balance in the Accumulated
Depreciation—Equipment was
$660,000 on January 1, 2020, and $630,000 on December 31, 2020. No other
equipment was disposed of during 2017. Depreciation expense for 2020 was
a) $20,000.
b) $58,000.
c) $59,600.
d) $101,000.
Answer: b
59. The following information is available for an asset that is classified as held
for sale: Accumulated depreciation (at March 31, 2020)..................
$24,300
Asset cost ............................................................................. 50,000
If the asset were sold on April 1, 2020 for $27,600, there would be
a)a loss of $1,900.
b)a gain of $1,400.
c)a gain of $1,900.
d)a loss of $22,400.
Answer: c
60. On January 1, 2012, Owl Corporation purchased equipment for $76,000, having a useful
life of ten years and an estimated residual value of $4,000. Owl has recorded monthly
depreciation using the straight-line method. On December 31, 2020, the equipment was sold
for $14,000. The gain to be recognized from the sale is
a) $14,000.
b) $6,800.
c) $2,800.
d) $0.
Answer: c
61. A general description of the depreciation methods applicable to major classes of

depreciable assets
a)is not a current practice in financial reporting.
b)is not essential to a fair presentation of financial position.
c)is needed in financial reporting when company policy difers from income tax policy.
d)should be included in corporate financial statements or notes thereto.
Answer: d
62. The asset turnover ratio is calculated by dividing

a)net income by ending total assets.
b)net sales by average total assets.
c)net sales by ending total assets.
d)net income by average total assets.
Answer: b
63. The rate of return on assets (ROA) is calculated by dividing

a)average total assets by net income.
b)net revenue by average total assets.
c)net income by average total assets.
d)net income by net revenue.
Answer: c
64. For 2020, Walrus Company reported net revenues, average total assets, and net income
of
$180,000, $24,000, and $100,000 respectively. Walrus Company’s asset turnover ratio for 2020 was
a) 1.8.
b) 3.8.
c) 7.5.
d) 8.0.
Answer: c
65. In 2020, Elephant Corporation's financial statements included the following

information: Net income........................................................................... $19,000
Sales ..................................................................................... 98,000
Total assets, beginning of year ........................................... 85,000
Total assets, end of the year ............................................... 112,000
Inventory.............................................................................. 70,000
To one decimal, Elephant's return on assets (ROA) for 2020
was a) 21.0%.
b) 19.3%.
c) 17.2%.
d) 0.99%.
Answer: b
Use the following data for questions 69–71.
Wren Corp. reported the following data on its most recent financial statements:
Net revenues:.............................. $312,500
Net income.................................. 58,200
Total assets, Jan 1 ...................... 174,280
Total assets, Dec 31 .................... 168,420
66. To two decimals, what is Wren Corp.’s asset turnover ratio?

a) 1.82
b) 1.79
c) 0.35
d) 0.34
Answer: a
67. To two decimals, what is Wren Corp.’s profit margin ratio?

a) 33.97%
b) 18.62%
c) 18.24%
d) 5.37%
Answer: b
68. To two decimals, what is Wren Corp.’s rate of return on assets

(ROA)? a) 18.24%
b) 18.62%
c) 33.97%
d) 34.56%
Answer: c
69. Disclosures relating to PP&E assets are

a)identical under IFRS and ASPE.
b)less extensive under IFRS.
c)less extensive under ASPE.
d)more extensive under
ASPE. Answer: c
*70. A major objective of capital cost allowance for tax depreciation is to

a)reduce the amount of depreciation expense claimed for income tax purposes.
b)assure that the amount of depreciation for income tax and book purposes will be the
same.
c)help taxpayers achieve a faster write-of of their capital assets.
d)require taxpayers to use the actual economic lives of assets in calculating tax
depreciation.
Answer: c
*71. Under the capital cost allowance system, which of the following is NOT relevant?
a)the capital cost of the asset
b)the asset class
c)the half-year rule
d)the asset’s residual value
Answer: d
*72. On January 1, 2020, Seal Corp. purchased a machine costing $250,000. The machine is in
an asset class for tax purposes with a 30% CCA rate. It has an estimated $40,000 residual value
at the end of its five-year useful life. The CCA deduction for tax purposes for the year
2020 is
a) $25,000.
b) $31,500
c) $37,500.
d) $75,000.
Answer: c
Use the following information to answer questions *73–*74.
Tarantula Corp. reported the following information about the only machine that it
owns: Date of purchase...............March 31, 2020
Capital cost..............................$200,000
Estimated useful life...................10 years
Estimated residual value.............$20,000
CCA Class....................................Class 10 (30%)
Tarantula uses straight-line depreciation to the nearest month for accounting
purposes.
*73. Assuming Tarantula always takes the maximum CCA, what is the CCA for calendar
2020? a) $22,500
b) $30,000
c) $45,000
d) $60,000
Answer: b
*74. Assume that at the end of calendar 2019, the UCC for this machine is $83,300. Tarantula
sells the machine on January 2, 2020 for $90,000, and does not replace it. The recapture of
CCA or terminal loss would be
a)$60,500 terminal loss.
b)$56,000 recapture.
c)$6,700 terminal loss.
d)$6,700 recapture.
Answer: d
1.Which of the following is NOT a debt security?

a)convertible bonds
b)commercial paper
c)loans receivable
d)government treasury
bills Answer: c
2.An investment in an entity's debt instruments makes that investor a(n)
a)owner of the issuing entity.
b)creditor of the issuing entity.
c)parent company.
d)subsidiary.
Answer: b
3.Which of the following is NOT an equity instrument?

a)common shares
b)preferred shares
c)convertible bonds
d)put
options
Answer: c
4.Any contract that is evidence of a residual interest in an entity’s assets is called a(n)
a)debt security.
b)liability.
c)derivative.
d)equity security.
Answer: d
5.How investments are accounted for does NOT usually depend on

a)the type of investment.
b)whether the investments are bought on margin.
c)management intent.
d)company strategy.
Answer: b
6.The price of a debt instrument is quoted as a percentage of its
a)face or par value.
b)fair market value.
c)book value.
d)present value.
Answer: a
7.Generally, transaction costs are

a)capitalized when investments are accounted for using a cost-based model.
b)capitalized when investments are accounted for using a fair value model.
c)always expensed.
d)never expensed.
Answer: a
8. Which of the following is NOT a motivation for investment in debt and equity
instruments issued by other companies?
a)to assist those companies in meeting financial obligations
b)the returns provided by the investments
c)to have a special relationship, with a supplier, for example
d)to exercise influence or control over the operations of the
investee Answer: a
9.When it comes to measuring investments, which of the following statements is true?

a)Companies are required to measure at cost/amortized cost.
b)Companies are required to measure at fair value.
c)Both cost/amortized cost and fair value are permitted in appropriate circumstances.
d)The company may report using whichever method best aligns with their financial
reporting objectives.
Answer: c
10. When the cost model is applied to an investment in debt securities, such as bonds,
it is referred to as the
a)equity method.
b)fair value through net income model.
c)fair value through other comprehensive income model.
d)amortized cost model.
Answer: d
11. Under the cost/amortized cost model, holding gains are
a)recognized in net income only when realized.
b)recognized in other comprehensive income.
c)recognized depending on management's intention.
d)not recognized at all.
Answer: a
12. Equity investments that are accounted for under the cost model will result in
a)recognition of dividend income only when actually received.
b)expensing transaction costs when incurred.
c)recognition of a gain or loss in net income at disposal.
d)recognition of a gain or loss in other comprehensive income at disposal.
Answer: c
13. To calculate the amount of interest to recognize each period for a bond
investment (unless it held for trading purposes),
a)ASPE requires the use of the efective-interest method.
b)IFRS requires the use of the efective-interest method.
c)IFRS allows the use of either the efective-interest or the straight-line method.
d)ASPE requires the use of the straight-line method.
Answer: b
14. The premium or discount on bonds accounted for under the cost/amortized cost
model is
a)amortized over the expected holding period.
b)amortized over the life of the bond.
c)not amortized.
d)treated as a transaction cost.
Answer: b
15. A bond is purchased at a discount and will be accounted for under the amortized cost
model.
The entry to record the amortization of the discount includes a
a)debit to the investment account.
b)debit to “Gain from Discount.”
c)debit to Interest Income.
d)credit to the investment account.
Answer: a
16. Under ASPE, for accounting for investments in associates,

a)the cost method must be used for all such investments.
b)the fair value method can be used for shares quoted in an active market.
c)the investor may use the cost method for one investment and the fair value for
another.
d)the fair value method must be used for all such investments.
Answer: b
17. In practice, under the cost/amortized cost method and ASPE, any discount or premium
on a bond investment is
a)required to be recognized and reported separately, and amortized using the efective-
interest rate method.
b)not recognized or reported separately; amortized using either the straight-line or
efective- interest method.
c)not recognized or reported separately; amortized using the efective-interest
method.
d)required to be recognized and reported separately, and amortized using the straight-
line method.
Answer: b
18. An interest-bearing investment is sold mid-way through the year. At the time of sale, how
is the accrued interest typically treated?
a)The seller forfeits the right to any interest payment, and loses on the investment
sale.
b)The original issuer (investee) must settle the interest owing before the sale can be
completed.
c)The purchaser pays the seller an amount equal to the accrued interest since the last
payment date.
d)At the next interest payment date, the original issuer (investee) splits the interest
payments amongst anyone who held the investment over the period.
Answer: c
19. On August 1, 2020, Franklin Inc. acquired $ 120,000 (face value) 10% bonds of
Machu Corporation at 102 plus accrued interest. The bonds were dated May 1, 2020, and
mature on April 30, 2023, with interest payable each October 31 and April 30. The bonds
will be held to maturity. Assuming the amortized cost model is used, the entry to record
the purchase of the bonds on August 1, 2020 is
a) Bond Investment at Amortized Cost ................. 125,400
Cash ............................................................ 125,400
b) Bond Investment at Amortized Cost ................. 122,400
Interest Income .................................................. 3,000
Cash ............................................................ 125,400
c) Bond Investment at Amortized Cost ................. 125,400
Interest Income .......................................... 3,000
Cash ............................................................ 122,400
d) Bond Investment at Amortized Cost .................. 120,000
Premium on Bonds ............................................ 5,400
Cash ............................................................ 125,400
Answer: b
20. On August 1, 2020, Peterson Corp. acquired 20, $ 1,000, 8% bonds at 95 plus accrued
interest. The bonds were dated May 1, 2020, and mature on April 30, 2020, with interest paid
semi-annually
on October 31 and April 30. The bonds will be held to maturity. Assuming the
amortized cost model is used, the entry to record the purchase of the bonds on
August 1, 2020 is
a) Bond Investment at Amortized Cost ................. 9,500
Interest Income .................................................. 200
Cash ............................................................ 9,700
b) Bond Investment at Amortized Cost ................. 9,700
Cash ............................................................ 9,700
c) Bond Investment at Amortized Cost ................. 9,500
Interest Receivable ............................................ 200
Cash ............................................................ 9,700
d) Bond Investment at Amortized Cost ................. 10,000
Interest Income .................................................. 200
Discount on Debt Securities....................... 500
Cash ............................................................ 9,700
Answer: a
21. On October 1, 2020, Barrick Corp. purchased 800, $ 1,000, 9% bonds for $ 792,000,
which included $ 12,000 accrued interest. The bonds, which mature on February 1, 2029,
pay interest semi-annually on February 1 and August 1. The bonds will be held to maturity.
Barrick uses the straight-line method of amortization. The bonds, which are accounted for
under the amortized cost model, should be reported in the December 31, 2020 balance
sheet at a carrying value of a) $ 792,240.
b) $ 780,000.
c) $ 780,600.
d) $ 792,000.
Answer: c
22. On November 1, 2020, Jepson Ltd. purchased 300 of the $ 1,000 face value, 9% bonds of
Carly Corp., for $ 316,000, which included accrued interest of $ 4,500. The bonds, which
mature on January 1, 2025, pay interest semi-annually on March 1 and September 1. The
bonds will be held to maturity. Assuming that Jepson uses the straight-line method of
amortization and that the bonds are accounted for under the amortized cost method, the
carrying value of the bonds should be shown on Jepson's December 31, 2020,
statement of financial position at
a) $ 316,000.
b) $ 300,000.
c) $ 311,500.
d) $ 311,040.
Answer: d
23. On November 1, 2020, Fluck Corp. purchased 10-year, 9%, bonds with a face value of $
360,000, for $ 324,000. An additional $ 10,800 was paid for the accrued interest, which is paid
semi-annually on January 1 and July 1. The bonds mature on July 1, 2027 and will be held
to maturity. Fluck uses the straight-line method of amortization and the amortized cost
method for these bonds. Ignoring income taxes, the amount to be reported in Fluck’s 2020
income statement as a result of this investment is
a) $ 6,300.
b) $ 6,000.
c) $ 5,400.
d) $ 4,800.
Answer: a
24. On October 1, 2020, Berlin Corp. purchased 250, $ 1,000, 9% bonds for $ 260,000. An
additional
$ 7,500 was paid for the accrued interest, which is paid semi-annually on December 1 and
June 1. The bonds mature on December 1, 2024 and will be held to maturity. Berlin uses
the straight-line method of amortization and the amortized cost model for these bonds. Ignoring
income taxes, the amount to be reported in Berlin's 2020 income statement as a result
of this investment is
a) $ 3,750.
b) $ 5,025.
c) $ 5,625.
d) $ 6,225.
Answer: b
25. During 2020, Brandon Inc. purchased 2,000, $ 1,000, 9% bonds. The bonds mature on
March 1, 2025, and pay interest on March 1 and September 1. The carrying value of the bonds
at December 31, 2020 was $ 1,960,000. On September 1, 2021, after the semi-annual
interest was received, Brandon sold half of these bonds for $ 988,000. Brandon uses straight-
line amortization and has accounted for the bonds under the amortized cost model.
The gain on the sale is
a) $ 11,200.
b) $ 8,000.
c) $ 4,800.
d) $ 0.
Answer: c
26. On January 2, 2020, Fidel Corp. purchased 200 of the 1,000 outstanding common
shares of Rindu Ltd. for $ 60,000. During 2020, Rindu declared total cash dividends of $
10,000 and reported net income for the year of $ 40,000. If Fidel uses the cost model to
account for its investment in Rindu, Fidel’s Investment in Rindu Ltd. account at
December 31, 2020 should be
a) $ 68,000.
b) $ 66,000.
c) $ 60,000.
d) $ 58,000.
Answer: c
On July 1, 2020, Harry Ltd. purchased $ 200,000 (par value) of Prince’s 8% bonds. Because
the market rate was 9%, Harry purchased them for $ 186,992. The bonds pay interest semi-
annually on December 31 and June 30. Harry uses the amortized cost model and the efective-
interest method
to recognize interest income on bond investments.
27. Rounding values to the nearest dollar (if necessary), the entry to recognize receipt of
the first interest payment on December 31, 2020 will include a
a)debit to Cash of $ 9,000.
b)credit to Interest Income of $ 8,415.
c)debit to Cash of $ 8,415.
d)credit to Interest Income of $ 8,000.
Answer: b
28. Rounding values to the nearest dollar (if necessary), the bond discount to be
amortized on December 31, 2020 is
a) $ 8,415.
b) $ 8,000.
c) $ 7,585.
d) $ 415.
Answer: d
29. On October 1, 2020, Moray Ltd. purchased 500 of the $ 1,000 face value, 8% bonds of Eel
Ltd. for $ 585,000, including accrued interest of $ 10,000. The bonds, which mature on January
1, 2027, pay interest semi-annually on January 1 and July 1. Moray used the straight-line method
of amortization and appropriately recorded the bonds as long-term. On Moray's December 31,
2021 balance sheet, the carrying value of the bonds would be
a) $ 575,000.
b) $ 570,000.
c) $ 568,000.
d) $ 560,000.
Answer: d
30. On January 1, 2020 Limoyo Corporation purchased 600 of $ 1,000 face value, 8% bonds
of Leon Company, for $ 553,668, to yield 10%. The bonds, which mature on January 1, 2025,
pay interest semi-annually on January 1 and July 1. Assuming that Limoyo uses the
straight-line method of amortization and that the bonds are accounted for under the
amortized cost method, the net carrying value of the bonds should be shown on Limoyo’s
December 31, 2020, statement of financial position at
a) $ 557,351.
b) $ 562,934.
c) $ 600,000.
d) $ 553,668.
Answer: b
31. The fair value through net income (FV–NI) model is sometimes referred to as
a)the fair value through profit or loss (FVTPL).
b)held for trading.
c)discontinued operations.
d)available for sale.
Answer: a
32. Regarding the reporting of investment income under the FV–NI method, for
companies reporting in accordance with ASPE, which of the following
statements is true?
a)Interest income must be separated from net gains or losses recognized on
financial instruments.
b)Holding gains and losses are always tracked separately from interest and dividend
income.
c)Interest income must be separated from dividends recognized on financial instruments.
d)None of these are true.
Answer: a
33. Under the fair value through net income model, holding gains are
a)recognized in other comprehensive income only.
b)recognized in either net income or other comprehensive income.
c)recognized in net income only.
d)ignored.
Answer: c
34. The fair value through net income model requires that
a)investments are measured at fair value.
b)transaction costs are expensed.
c)investments are measured at fair value and transaction costs are capitalized.
d)investments are measured at fair value and transaction costs are expensed.
Answer: d
35. In January 2020, Haddock Ltd. had purchased an investment for $ 150,000. By
December 31, 2020, the fair market value of that investment had increased by $ 20,000.
Assuming this gain was included in the company's 2020 net income, which accounting
method did Haddock use to account for this investment?
a)cost
b)fair value through other comprehensive income (FV–OCI)
c)fair value through net income (FV–NI)
d)equity
Answer:
36. On its December 31, 2020, balance sheet, Red Red Corp. reported a short-term
investment in equity securities, under the fair value through net income model, at $
330,000. At December 31,
2021, the fair value of the securities was $ 350,000. What should Red report on its 2021 income
statement as a result of the increase in fair value of the investments during 2021?
a) $ 0.
b)loss on investments of $ 20,000.
c)unrealized gain of $ 20,000.
d)investment income of $ 20,000.
Answer: d
37. George Inc. owns bonds that are accounted for under the fair value through net income
model. On December 31, 2020, the bonds have a carrying value of $ 124,365. The fair value at
that date is $ 123,000. The entry to record the year-end adjustment is
a) Investment Income or Loss.......................................... 1,365
FV–NI Investments................................................ 1,365
b) Unrealized Gain or Loss OCI 1,365
FV–NI Investments................................................ 1,365
c) FV–NI Investments ....................................................... 1,365
Investment Income or Loss.................................. 1,365
d) No adjustment is required.
Answer: a
38. At December 31, 2020, Silicon Corp.’s stock investment portfolio, which is being
accounted for by the fair value through net income (FV–NI) model, shows a general ledger
balance of $ 318,600. It is determined that the fair value of the securities is actually $
326,200. The entry to adjust the portfolio to fair value will include a
a)debit to Investment Income or Loss of $ 7,600.
b)credit to Cash of $ 7,600.
c)debit to FV–NI Investments of $ 7,600.
d)credit to FV–NI Investments of $ 7,600.
Answer: c
39. Masma Corp. began operations in 2020. An analysis of Masma’s equity securities
portfolio acquired in 2020 shows the following totals at the end of the year. Masma
accounts for these investments using the fair value through net income (FV–NI)
model.
Total cost $ 182,400
Total fair market value 153,600
Based on this information, what amount should Masma report in its 2020 income statement
for
“Investment Income or Loss”?
a) $ 12,800 loss
b) $ 16,000 gain
c) $ 28,800 gain
d) $ 28,800
loss Answer: d
40. At December 31, 2020, Platinum Corp. has the following equity securities (no
significant influence) that were purchased earlier in 2020, its first year of
operation:
Cost Market
Security A $ 50,000 $ 51,875
B 70,000 77,500
Totals $ 120,000 $ 129,375
If the investments are being accounted for under the fair value through net income (FV–NI)
model, the total book value of the investment accounts should
a)be decreased by $ 9,375.
b)be increased by $ 9,375.
c)be decreased by $ 20,000.
d)remain unchanged.
Answer: b
41. Application of the cost model to the investment one company makes in another entity’s
shares
is straightforward and includes all of the following EXCEPT
a)recognize the cost of the investment at the fair value of shares acquired.
b)unless impaired, report the investment at its fair value at each balance sheet date.
c)recognize dividend income when the entity has a claim to the dividend.
d)when the shares are disposed of, derecognize them and report a gain or loss on
disposal in net income.
Answer: b
42. Under the fair value through other comprehensive income model, unrealized gains and
losses are
a)recognized in net income.
b)recognized in other comprehensive income.
c)recognized in either net income or other comprehensive income.
d)ignored.
Answer: b
43. Accumulated comprehensive income is included as part of

a)retained earnings.
b)net income.
c)shareholders’ equity.
d)unearned revenue.
Answer: c
44. Under the fair value through other comprehensive income model, with recycling,
previously unrealized holding gains and/or losses to the date of disposal are
a)ignored.
b)transferred to retained earnings.
c)transferred to net income.
d)transferred to “Unrealized Gain or Loss – OCI.”
Answer: c
45. Other comprehensive income does NOT include

a)comprehensive income.
b)net income.
c)unrealized gains resulting from the application of the fair value through other
comprehensive income model.
d)unrealized losses resulting from the application of the fair value through other
comprehensive income model.
Answer: b
46. Accumulated other comprehensive income includes

a)current year's net income.
b)all previous debits to other comprehensive income.
c)all previous credits to other comprehensive income.
d)all previous debits and credits to other comprehensive income.
Answer: d
47. The concept of recycling within the context of investments

a)refers to the transfer of previously unrealized gains or losses to net income.
b)refers to the switch of income between diferent investments categories.
c)should be used in the fair value through net income model.
d)should not be used in the fair value through other comprehensive income model.
Answer: a
48. Salmon Corporation purchased an investment in 2020 (an equity investment

without significant influence). The purchase price of $ 94,000 included transaction costs
of $ 1,000. Assuming the transaction costs were capitalized and Salmon follows IFRS,
which accounting method did Salmon use to account for this investment?
a)amortized cost
b)fair value through net income (FV–NI)
c)fair value through other comprehensive income (FV–OCI)
d)equity
Answer:
49. Realized gains and losses on investment disposals are recognized in net income
for all investment instruments EXCEPT those classified as
a)FV–NI.
b)FV–OCI with recycling.
c)cost/amortized cost.
d)FV–OCI without recycling.
Answer: d
50. At December 31, 2020, Swift Current Inc. has the following portfolio of common shares in
which it does not have significant influence:
Cost Fair Value
Apple Corp. $ 100,000 $ 120,000
Chester Inc. 200,000 205,000
Dooley Ltd. 300,000 500,000
$ 600,000 $ 825,000
Assuming Swift Current uses the fair value through other comprehensive income (FV–OCI)
model to account for this portfolio of investments, the most informative entry to record
the year-end adjustment is
a) FV–OCI Investments ..................................................... 225,000
Unrealized Gain or Loss–OCI................................ 225,000
b) FV–OCI Investment in Apple Corp................................ 20,000
FV–OCI Investment in Chester Inc. .............................. 5,000
FV–OCI Investment in Dooley Ltd. ............................... 200,000
Unrealized Gain or Loss–OCI on Apple Corp. ...... 20,000
Unrealized Gain or Loss–OCI on Chester Inc. ...... 5,000
Unrealized Gain or Loss–OCI on Dooley Ltd. 200,000
c) Unrealized Gain or Loss–OCI on Apple Corp. 20,000
..............
Unrealized Gain or Loss–OCI on Chester Inc............... 5,000
Unrealized Gain or Loss–OCI on Dooley Ltd................ 200,000
FV–OCI Investment in Apple Corp........................ 20,000
FV–OCI Investment in Chester Inc........................ 5,000
FV–OCI Investment in Dooley Ltd. ....................... 200,000
d) Unrealized Gain or Loss–OCI ....................................... 225,000
FV–OCI Investments........................................... 225,000
Answer: b
51. Accounting of impairment losses is required for investments that are measured using
the
a)cost/amortized cost model.
b)FV–NI model.
c)FV–OCI model.
d)All of these (all of these models require a method of accounting for impairment).
Answer: a
52. Which of the following situations would NOT necessarily indicate the potential
impairment of the underlying securities?
a)The issuing entity is experiencing major financial difficulties.
b)The issuing entity is unable to pay its liabilities.
c)The issuing entity has temporarily halted dividend payments in order to retain cash for
future expansion.
d)The issuing entity is undergoing a major reorganization.
Answer: c
53. Assuming the revised amount and timing of cash flows for an investment can be
reasonably determined, the incurred loss impairment model uses which discount
rate?
a)the investor’s internal rate of return
b)the historical interest rate
c)the current market rate
d)either the historical rate or the current market
rate Answer: d
54. Assuming the revised amount and timing of cash flows for an investment can be
reasonably determined, the expected loss impairment model uses which discount
rate?
a)the investor’s internal rate of return
b)the historical interest rate
c)the current market rate
d)either the historical rate or the current market
rate Answer: b
55. The fair value loss impairment model

a)is used for all investments that are not accounted for as FV–NI.
b)requires a separate impairment test.
c)calculates the impairment loss as the diference between the asset’s fair value and its
current
carrying amount.
d)calculates the impairment loss as the diference between the asset’s original cost
and its
current carrying amount.
Answer: c
56. On November 1, 2020, Mack Co. purchased a 5-year, 8% bond with a face value of $
200,000. The purchase price of $ 184,556 was consistent with a 10% yield. Interest is payable
semi-annually on January 1 and July 1. The bonds mature on January 1, 2022. The
amortized cost of the bond on the maturity date is
a) $ 185,556.
b) $ 195,000.
c) $ 200,000.
d) $ 190,000.
Answer: c
57. When one corporation has a controlling interest in another corporation whose shares
are not actively traded, under ASPE, the investment is accounted for using
a)either the consolidation method or the equity method or the cost method.
b)the consolidation method.
c)either the consolidation method or the equity method.
d)either the consolidation method or the equity method or the cost method or the
FV–OCI method.
Answer: a
58. The accounting for investments in another entity's equity instruments depends
mainly on
a)the level of influence the investor is able to exert.
b)the level of influence the investor actually exerts.
c)the quality of earnings of the investee.
d)whether the investee pays dividends.
Answer: a
59. When a public company holds between 20% and 50% of the outstanding common shares
of an investee, which of the following statements applies?
a)The investor should always use the equity method to account for its investment.
b)The investor should use the equity method to account for its investment unless
circumstances indicate that it is unable to exercise "significant influence" over the
investee.
c)The investor must use the cost method unless it can clearly demonstrate the ability to
exercise "significant influence" over the investee.
d)The investor should always use the cost method to account for its investment.
Answer: b
60. An investor who owns 15% of an entity's voting shares can

a)potentially have influence over the investee if the shares are widely held.
b)always be assumed to have little or no influence over the investee.
c)be assumed to be using the cost model.
d)be assumed to always use the equity method.
Answer: a
61. An investor who owns 11% of an entity's voting shares

a)must use the equity method.
b)would be likely to prepare consolidated statements.
c)may have significant influence over the investee if the shares are closely held.
d)may have significant influence over the investee if the shares are widely held.
Answer: d
62. Olde Corp. accounts for its investment in the common shares of Young Inc. under the
equity method. Olde Corp. should record a cash dividend received from Young as
a)a reduction of the carrying value of the investment.
b)additional paid-in capital.
c)an addition to the carrying value of the investment.
d)dividend income.
Answer: a
63. Under the equity method of accounting for investments, an investor recognizes its share
of the earnings in the period in which the
a)investor sells the investment.
b)investee declares a dividend.
c)earnings are reported by the investee in its financial statements.
d)investee pays a dividend.
Answer: c
64. Jabba Inc. owns 35% of Hutt Corp., and has significant influence over Hutt. During the
calendar year 2020, Hutt reported net income of $ 300,000 and paid dividends of $ 30,000.
Jabba mistakenly recorded these transactions using the cost method rather than the equity
method of accounting. What efect would this have on Jabba’s investment account, net
income, and retained earnings, respectively?
a)understate, overstate, overstate
b)overstate, understate, understate
c)understate, understate, understate
d)overstate, overstate, overstate
Answer: c
65. When an investor is using the equity method and receives dividends from the
investee, the journal entry will include a
a)credit to Dividend Revenue.
b)credit to Retained Earnings.
c)credit to the Investment account.
d)debit to the Investment account.
Answer: c
66. When an investor is using the equity method and the investee reports a net loss, the
journal entry will include a
a)debit to the Investment account.
b)debit to Retained Earnings.
c)credit to the Investment account.
d)credit to Investment Income or Loss.
Answer: c
67. When an investor, using the equity method, pays more than its share of the
investee’s book
value, the diference is
a)ignored.
b)accounted for on the investor’s books by a debit to Goodwill.
c)accounted for on the investee’s books by a debit to Goodwill.
d)requires that the investor’s Investment account and any investment income from the
associate
be adjusted over time.
Answer: d
68. Current IFRS rules for equity investments that are traded in an active market require
that they
a)can be accounted for under the cost model.
b)can be accounted for under the fair value through net income model.
c)should generally be accounted for under the fair value through other comprehensive
income model.
d)cannot be accounted for under the fair value through net income model.
Answer: b
The summarized balance sheets of Thunder Bay Corp. and Fort William Corp. at December 31,
2020, are as follows:
THUNDER BAY CORP.
Balance Sheet
December 31,
2020
Assets ...................................................................................................... $ 400,000
Liabilities ................................................................................................ $ 50,000

Common shares ..................................................................................... 200,000
Retained earnings .................................................................................. 150,000
Total equities.......................................................................................... $ 400,000
FORT WILLIAM CORP.

Balance Sheet
December 31,
2020
Assets ...................................................................................................... $ 300,000
Liabilities ................................................................................................ $ 75,000

Common shares ..................................................................................... 185,000
Retained earnings .................................................................................. 40,000
Total equities.......................................................................................... $ 300,000
69. If Thunder Bay acquired a 20% interest in Fort William on December 31, 2020, for $
65,000 and
the equity method of accounting for the investment were used, the amount of the
debit to Investment in Fort William Corp. would have been
a) $ 65,000.
b) $ 60,000.
c) $ 45,000.
d) $ 37,000.
Answer: a
75,000 and the equity method of accounting for the investment were used, the
amount of the debit to Investment in Fort William Corp. would have been
a) $ 90,000.
b) $ 75,000.
c) $ 67,500.
d) $ 60,000.
Answer: b
45,000, and during 2021 Fort William reported net income of $ 25,000 and paid a total
cash dividend of $ 10,000, applying the equity method would give a debit balance in the
Investment in Fort William Corp. account at the end of 2021 of
a) $ 37,000.
b) $ 45,000.
c) $ 48,000.
d) $ 50,000.
Answer: c
67,500 and during 2021 Fort William reported net income of $ 25,000 and paid a total
cash dividend of $ 30,000, applying the equity method would give a debit balance in the
Investment in Fort William Corp. account at the end of 2021 of
a) $ 67,500.
b) $ 66,000.
c) $ 62,500.
d) $ 58,500.
Answer: b
73. On January 2, 2020, Fidel Corp. purchased 200 of the 1,000 outstanding common
shares of Rindu Ltd. for $ 60,000. During 2020, Rindu declared total cash dividends of $ 10,000
and reported net income for the year of $ 40,000. If Fidel uses the equity method of accounting
for its investment in Rindu, Fidel’s Investment in Rindu Ltd. account at December 31,
2020 should be
a) $ 68,000.
b) $ 66,000.
c) $ 60,000.
d) $ 58,000.
Answer: b
During calendar 2020, Davel Corp. reported net income of $ 45,000 and paid total cash
dividends of $ 15,000. Ryan Inc. owns 2,250 of the 7,500 outstanding shares of Davel and
exercises significant influence.
74. What amount should Ryan show in the investment account at December 31,
2020 if the beginning of the year balance in the account was $ 60,000?
a) $ 69,000
b) $ 73,500
c) $ 60,000
d) $ 90,000
Answer: a
AACSB: Analytic
75. How much income from its investment in Davel should Ryan report in
2020? a) $ 45,000
b) $ 15,000
c) $ 13,500
d) $ 22,500
Answer: c
76. On December 31, 2020, Ryan Corp. acquired a 40% interest in Gosling Corp. for $
315,000. During 2021, Gosling reported net income of $ 200,000 and paid total cash
dividends of $ 50,000. Assuming Ryan uses the equity method, at December 31, 2021, the
balance in the investment account should be
a) $ 395,000.
b) $ 295,000.
c) $ 375,000.
d) $ 255,000.
Answer: c
Red Corp. owns 3,000 of the 10,000 outstanding common shares of Grey Corp. and
exercises significant influence. During 2020, Grey reported net income of $ 120,000 and
paid total cash dividends of $ 40,000.
77. If the beginning 2020 balance in the Investment in Grey Corp. account was $
180,000, the balance at December 31, 2020 should be
a) $ 260,000.
b) $ 204,000.
c) $ 180,000.
d) $ 132,000.
Answer: b
78. Red Corp. should report investment revenue for

2020 of a) $ 12,000.
b) $ 24,000.
c) $ 36,000.
d) $ 48,000.
Answer: c
On January 1, 2020, Abalone Ltd. acquired 30% of Flounder Corp.'s common shares for $
240,000. During 2020, Flounder reported net income of $ 100,000 and paid total dividends
of $ 60,000.
Abalone's 30% interest in Flounder gives Abalone the ability to exercise significant influence
over their operating and financial policies. During 2021, Flounder reported net income of $
150,000 and paid total dividends of $ 30,000 on April 1 and $ 40,000 on October 1. On July 1,
2021, Abalone sold half of its shares in Flounder for $ 158,000 cash.
79. Before income taxes, what income should Abalone include in its 2020 income
statement as a result of this investment?
a) $ 100,000
b) $ 60,000
c) $ 30,000
d) $ 18,000
Answer: c
80. The carrying amount of this investment in Abalone's December 31, 2020, statement of
financial position should be
a) $ 252,000.
b) $ 240,000.
c) $ 270,000.
d) $ 275,000.
Answer: a
81. The gain on disposal of this investment in Abalone's 2021, income statement
should be a) $ 8,000.
b) $ 20,750.
c) $ 25,250.
d) $ 32,000.
Answer: c
82. On January 1, 2020, Scallop Corp. purchased 25% of Prawn Corp.'s common
shares; no goodwill resulted from the purchase. Scallop correctly uses the equity method to
account for this investment at equity. The Investment in Associate account related to the
Scallop investment was reported on the December 31, 2020, statement of financial
position at $ 360,000. Prawn had reported net income of $ 225,000 for calendar 2020, and
paid dividends totalling $ 90,000 during 2020. How much did Scallop pay for its 25%
interest in Prawn?
a) $ 393,750
b) $ 382,500
c) $ 360,000
d) $ 326,250
Answer: d
83. When one corporation has control over another corporation, the investor
corporation
a)is referred to as an associate.
b)is referred to as the subsidiary.
c)can determine the investee’s strategic operating and financing policies.
d)must have obtained at least 50% of the investee’s issued common shares.
Answer: c
84. An investor that has subsidiaries

a)is required to prepare consolidated financial statements under IFRS.
b)is required to prepare consolidated financial statements under ASPE.
c)does not have to prepare consolidated financial statements under IFRS.
d)ignores the noncontrolling interest on the consolidated financial statements.
Answer: a
85. If a parent company owns 90% of a subsidiary’s outstanding shares, the parent
should generally account for the subsidiary's income under the
a)cost/amortized cost model.
b)fair value through net income model.
c)fair value through other comprehensive model.
d)consolidation method.
Answer: d
86. When the investor has control over the investee, the reporting model to be used
is the
a)cost model.
b)consolidation model.
c)market value model.
d)equity method.
Answer: b
87. When one corporation acquires control of another entity, the investor corporation is
referred to as the parent and the investee corporation as the
a)subsidiary.
b)joint venture.
c)associate.
d)child.
Answer: a
88. Under IFRS, which of the following is NOT a condition for an investment to be
classified as current?
a)It is held primarily for trading purposes.
b)It is a cash equivalent.
c)It must be expected to be sold or realized within 12 months from the statement of
financial position date.
d)It must be accounted for under the cost model.
Answer: d
89. The objectives of disclosures required for investments in debt and equity investments
do NOT include
a)how significant the investments are to the investor's financial position and performance.
b)whether the investments are classified as current or long-term.
c)the nature and extent of the risks that the investor faces as a result of the
investments.
d)how the risks that the investor faces as a result of the investments are managed.
Answer: b
90. The disclosure requirements for private entities are usually less extensive as
compared to those for public entities because
a)investors in private entities are expected to have less information about the
company.
b)investors in private entities are expected to have more information about the
company.
c)investors in private entities tend to be more sophisticated.
d)investors in private entities tend to be less sophisticated.
Answer: b
91. The standards relating to consolidation difer under ASPE and IFRS. Which of the
following statements best describes the diference?
a)IFRS requires consolidation whereas ASPE ofers a choice of methods.
b)ASPE requires consolidation whereas IFRS ofers a choice of methods.
c)Consolidation is specifically excluded as one of the choices under ASPE.
d)Consolidation is specifically excluded as one of the choices under
IFRS. Answer: a
92. Which of the following is NOT required to report for associates accounted for using
the equity method?
a)the fair value of any of these investments that has a price quoted in an active
market
b)separate disclosure of income related to equity-accounted associates
c)the investor’s strategy and motivation for holding equity ownership in the associate
d)information about associates’ year ends that are diferent from the investor’s year
end
Answer: c
93. Financial disclosures required regarding acquisitions require that

a)readers are able to relate the investment category on the SFP to the investment
income reported on the income statement.
b)readers are able to understand the efects of the accounting methods that are used for
diferent categories of investments.
c)major acquisition dates are disclosed, as the SFP contains all assets, and the P&L only
contains income earned by the subsidiary after it was acquired.
d)all of these describe financial disclosures required regarding acquisitions.
Answer: d
94. Which of the following is a reason for the diferences in the disclosure
requirements for investments in associates under IFRS and ASPE?
a)ASPE requires that the associate must be a private entity.
b)ASPE does not include an "associates" category.
c)ASPE allows the use of methods other than the equity method.
d)ASPE does not allow the equity method.
Answer: c
95. The standards relating to the treatment of transaction costs difer under ASPE and IFRS.
Which of the following statements best describe the diference?
a)ASPE requires that transaction costs are capitalized, except for those investments that
are accounted for under the fair value through net income model.
b)ASPE requires that transaction costs are expensed whenever cost-based measures are
used.
c)IFRS requires that transaction costs are capitalized except for those investments that
are accounted for under the fair value through net income model.
d)IFRS requires that all transaction costs are
capitalized. Answer: c
96. The standards relating to the treatment of interest and dividend income difer under
ASPE and IFRS. Which of the following statements is INCORRECT?
a)IFRS requires the use of the efective-interest method when interest income is to be
reported separately.
b)IFRS requires certain dividends to be recognized in other comprehensive income.
c)ASPE allows the use of either the straight-line or efective-interest method.
d)When using the equity method, IFRS allows a dividend from an investee to be recorded
as income, while ASPE does not.
Answer: d
CHAPTER 8
1. A manufacturing company typically maintains the following inventory account(s):
a) Merchandise Inventory.
b) Raw Materials and Work in Process only.
c) Raw Materials, Work in Process, and Finished Goods.
d) Work in Process and Merchandise Inventory.
2. A hardware retailer typically maintains the following inventory account(s):

a) Merchandise Inventory.
b) Raw Materials and Work in Process only.
c) Raw Materials, Work in Process, and Finished Goods.
d) Work in Process and Merchandise Inventory.
3. Companies that carry inventories must carefully monitor inventory in order to

a) have the greatest selection available so customers can always find what they
want.
b) minimize carrying costs and keep inventory levels high so stockouts never occur.
c) keep inventory levels high to maximize profits.
d) minimize carrying costs and meet customer demands.
4. The cost of goods available for sale is calculated as

a) beginning inventory plus ending inventory.
b) beginning inventory minus ending inventory.
c) beginning inventory plus the cost of goods acquired during the period.
d) cost of goods acquired during the period minus ending inventory.
5. A manufacturer that carries very little inventory likely follows the

a) allowance method.
b) just-in-time method.
c) indirect method.
d) replacement method.
6. Which of the following items would be inventory for a company like Marriott Hotel
Corporation?
a) hotel rooms
b) food and beverage stock
c) cleaning supplies
d) all of the above
7. The following information is available for Plymouth Ltd. for last year:
Freight-in $ 120,000
Purchase returns 183,000
Selling expenses 255,000
Ending inventory 480,000
The cost of goods sold is equal to 200% of selling expenses. What is the cost of
goods available for sale?
a) Cannot be determined from information given.
b) $447,000
c) $990,000
d) $927,000
8. For calendar 2020, the gross profit of Seymour Corp. was $135,000; the cost of
goods manufactured was $360,000; the beginning inventories of goods in process
and finished goods were $33,500 and $57,000, respectively; and the ending
inventories of goods in process and finished goods were $44,000 and $71,000,
respectively. Allan Corp.’s sales for 2020 must have been
a) $346,000.
b) $552,000.
c) $445,000.
d) $481,000.
9. Finkler Inc.’s net sales and gross profit were $335,250 and $117,750 respectively.
Assuming the cost of goods available for sale were $271,000, what was the cost
value of the ending inventory?
a) $217,500
b) $117,750
c) $61,750
d) $53,500
10. For last month, Mingi Corp.'s cost of goods sold and ending inventory were
$200,000 and $300,000 respectively. Assuming Mingi had neither purchases nor
returns during the month, what was the cost of its beginning inventory?
a) $100,000
b) $300,000
c) $500,000
11. In its first year of operations as a retailer, Riley Ltd. reported a gross profit of
$181,500, total purchases of $225,000, and an ending inventory of $90,000.
Therefore, Riley’s sales in its first year must have been
a) $91,500.
b) $135,000.
c) $315,000.
d) $316,500.
12. Under IFRs, liabilities related to non-cancellable purchase commitments are

typically recognized
a) on the date the contract takes efect.
b) at the time of payment.
c) when the purchase is recorded in the accounting system.
d) in the period a decline in market price occurs.
13. Delaware Corp.'s accounts payable at December 31, 2020, totalled $450,000
before any necessary year-end adjustments relating to the following:
1. On December 27, 2020, Delaware wrote and recorded cheques to creditors
totalling $175,000 causing an overdraft of $100,000 in Delaware’s bank account
at December 31, 2020. The cheques were mailed out on January 10, 2021.
2. On December 28, 2020, Delaware purchased and received goods for $100,000,
terms 2/10, n/30. Delaware records purchases and accounts payable at net
amounts. The invoice was recorded and paid on January 3, 2021.
3. Goods shipped FOB destination on December 20, 2020 from a vendor were
received on January 2, 2021. The invoice cost was $65,000.
At December 31, 2020, what amount should Delaware report as total accounts
payable?
a) $550,000
b) $575,000
c) $723,000
d) $755,500
14. The balance in Georgia Corp.'s accounts payable account at December 31,
2020, was $900,000 before any necessary year-end adjustments relating to the
following:
1. Goods were in transit to Georgia from a vendor on December 31, 2020. The
invoice cost was $75,000. The goods were shipped FOB shipping point on
December 29, 2020 and were received on January 4, 2021.
2. Goods shipped FOB destination on December 21, 2020 from a vendor were
received on January 6, 2021. The invoice cost was $37,500.
3. On December 27, 2020, Georgia wrote and recorded cheques to creditors
totalling $45,000 that were mailed on January 10, 2021.
At December 31, 2020, what amount should Georgia report as total accounts
payable?
a) $1,020,000
b) $1,012,500
c) $975,000
d) $945,000
15. Florida Ltd.'s accounts payable balance at December 31, 2020, was $300,000
before any necessary year-end adjustments relating to the following:
1. Goods were in transit from a vendor to Florida on December 31, 2020. The
invoice price was $20,000, and the goods were shipped FOB shipping point on
December 29, 2020. The goods were received on January 4, 2021.
2. Goods shipped to Florida, FOB shipping point on December 20, 2020, from a
vendor were lost in transit. The invoice price was $12,500. On January 5, 2021,
Florida filed a $12,500 claim against the common carrier.
At December 31, 2020, what amount should Florida report as total accounts
payable?
a) $300,000
b) $312,500
c) $320,000
d) $332,500
16. The following information was derived from the 2020 accounting records of
Jersey Co.:
Jersey’s Goods
Jersey’s Central Warehouseheld by consignees
Beginning inventory $260,000
Purchases 475,000 90,000
Freight-in 15,000
Transportation to consignees 5,000
Freight-out 25,000 8,000
Ending inventory 290,000 20,000
Jersey’s 2020 cost of sales was
a) $563,000.
b) $558,000.
c) $488,000.
d) $460,000.
17. An estimated loss on purchase commitments is reported

a) under other expenses and losses.
b) as a deduction from purchases.
c) as a current liability.
d) as an extraordinary item.
18. When substantially all risks and rewards of ownership have passed to the
purchaser, the purchaser then recognizes an asset. For this recognition, which of
the following statements is correct?
a) The purchaser must have both legal title and possession of the goods.
b) Legal title and possession do not always pass to the purchaser at the same time.
c) In practice, recording inventory purchases often takes place when they leave the
seller’s place of business.
d) The purchaser must have possession of goods before it has legal title.
19. Goods in transit that are shipped FOB shipping point should be included
a) in the inventory of the buyer.
b) in the inventory of the seller.
c) in the inventory of the shipping company.
d) in no one’s inventory until they arrive at their destination.
20. Goods in transit that are shipped FOB destination should be included
a) in the inventory of the buyer.
b) in the inventory of the seller.
c) in the inventory of the shipping company.
d) in no one’s inventory until they arrive at their destination.
21. Which of the following items should be included in inventory at the statement of
financial position date?
a) goods in transit that were purchased FOB destination
b) goods received from another company for sale on consignment
c) goods sold to a customer that are being held for the customer to call for at his or
her convenience
d) goods in transit that were purchased FOB shipping point
22. Which of the following is correct?

a) Goods on consignment are included in the consignee's inventory.
b) Goods on consignment are included in the consignor’s inventory.
c) The consignee essentially has the risks and rewards of ownership.
d) Inventory on consignment is always shown in a separate account.
23. Wilma received merchandise on consignment from Betty. As at March 31, Wilma
had recorded the transaction as a purchase and included the goods in inventory.
The efect of this on Wilma’s financial statements for March 31 would be
a) net income was correct and current assets and current liabilities were overstated.
b) net income, current assets, and current liabilities were overstated.
c) net income and current liabilities were overstated.
d) no efect.
24. Fred received merchandise on consignment from Dino. As at January 31, Fred
included the goods in inventory, but did NOT record the transaction. The efect of
this on Fred’s financial statements for January 31 would be
a) net income, current assets, and retained earnings were understated.
b) net income was correct and current assets were understated.
c) net income, current assets, and retained earnings were overstated.
d) net income and current assets were overstated and current liabilities were
understated.
During 2020 Ebert Corp. transferred inventory to Siskel Corp. and agreed to
repurchase the merchandise early in 2021. Siskel then used the inventory as
collateral to borrow from Southern Bank, remitting the proceeds to Ebert. In 2021
when Ebert repurchased the inventory, Siskel used the proceeds to repay its bank
loan.
25. This transaction is known as a(n)

a) consignment.
b) instalment sale.
c) product financing arrangement.
d) sale with delayed payment terms.
26. On whose books should the cost of the inventory appear at the December 31,
2020, statement of financial position date?
a) Siskel Corp.
b) Ebert Corp.
c) Southern Bank
d) Siskel Corp., with Ebert Corp. making appropriate note disclosure of the
transaction
27. Which of the following does NOT correctly describe the implications of an
executory contract on the accounting entries and/or disclosures to be made by the
purchaser and/or seller?
a) Assets and liabilities are usually recorded at inception of the contract.
b) Assets and liabilities are usually not recorded at inception of the contract.
c) Contract details should be disclosed if the amounts are abnormal in relation to
the entity's normal business operations.
d) Assets and liabilities are recognized as performance has occurred.
28. If the unavoidable costs of completing a purchase commitment are higher than
the expected benefits from receiving the contracted goods or services, IFRS
requires a loss provision to be recognized. This is known as a(n)
a) executory contract.
b) purchase commitment.
c) onerous contract.
d) impaired contract.
29. If a material amount of inventory has been ordered through a formal purchase
contract at the statement of financial position date, for future delivery, at firm
prices,
a) this fact must be disclosed.
b) disclosure is required only if prices have declined since the date of the order.
c) disclosure is required only if prices have since risen substantially.
d) an appropriation of retained earnings is necessary.
30. On December 27, Cloud Corp. accepted delivery of merchandise that it

purchased on account. As at December 31, Cloud had recorded the transaction, but
did not include the merchandise in its year-end inventory. The efect of this on its
December 31 financial statements would be
a) net income, current assets, and retained earnings were understated.
b) net income was correct and current assets were understated.
c) net income was understated and current liabilities were overstated.
d) net income was overstated and current assets were understated.
Shanti Inc. is a calendar-year corporation. Its financial statements for the years
2020 and 2019 contained errors as follows:
2020 2019
Ending inventory $6,000 overstated $16,000 overstated
Depreciation expense $4,000 understated $12,000 overstated
31. Assume that the proper correcting entries were made at December 31, 2019. By
how much will 2020 income before taxes be overstated or understated?
a) $2,000 understated
b) $2,000 overstated
c) $4,000 overstated
d) $10,000 overstated
32. Assume that no correcting entries were made at December 31, 2019. Ignoring
income taxes, by how much will retained earnings at December 31, 2020 be
overstated or understated?
b) $18,000 understated
Giselle Ltd. is a calendar-year corporation. Its financial statements for the years
2020 and 2019 contained errors as follows:
2020 2019
Ending inventory $2,000 overstated $3,000 overstated
Depreciation expense $6,000 understated $12,000 overstated
33. Assume that the proper correcting entries were made at December 31, 2019. By
how much will 2020 pre-tax income be overstated or understated?
34. Assume that no correcting entries were made at December 31, 2019. Ignoring
income taxes, by how much will retained earnings at December 31, 2020 be
overstated or understated?
c) $6,000 understated
d) $15,000 understated
35. Assume that no correcting entries were made at December 31, 2019, or
December 31, 2020 and that no additional errors occurred in 2021. Ignoring income
taxes, by how much will working capital, at December 31, 2021 be overstated or
understated?
a) $0
c) $4,000 understated
d) $6,000 understated
36. For calendar 2020, Gomez Corporation reported pre-tax income of $70,000. A
recount of the company's inventory revealed that 2020 ending inventory was
overstated by $10,000. What is Gomez's corrected pre-tax income for 2020?
a) $60,000
b) $80,000
c) $70,000
d) $75,000
37. For calendar 2020, Redfern Corporation reported pre-tax income of $270,000.
You have been made aware that the company's beginning inventory was overstated
by $14,000 and ending inventory was understated by $9,000. What is Redfern’s
corrected pre-tax income for 2020?
a) $270,000
b) $275,000
c) $265,000
d) $293,000
38. On June 25, Veranda Corp. accepted delivery of merchandise that it purchased
on account. As at June 30, Veranda had NOT recorded the transaction nor included
the merchandise in its inventory. The efect of this on Veranda’s June 30 statement
of financial position would be
a) assets and shareholders’ equity were overstated but liabilities were not afected.
b) shareholders’ equity was the only item afected by the omission.
c) assets, liabilities, and shareholders’ equity were understated.
d) assets and liabilities were understated but shareholders’ equity was not afected.
39. All else being equal, which of the following statements with respect to the
impact of inventory errors is NOT correct?
a) An overstatement of ending inventory will result in an understatement of income.
b) An overstatement of ending inventory will result in an overstatement of income.
c) An overstatement of beginning inventory will result in an understatement of
income.
d) An understatement of beginning inventory will cause cost of goods sold to be
understated.
40. In a periodic inventory system, if the beginning inventory is overstated

a) net income is understated.
b) working capital is understated.
c) the current ratio is overstated.
d) cost of goods sold is understated.
41. In a periodic inventory system, if ending inventory is understated,

a) net income is understated.
b) working capital is overstated.
c) the current ratio is overstated.
d) cost of goods sold is understated.
42. The following information was reported by Belleville Inc. for 2020:
Merchandise purchased for resale $25,000
Freight-in 1,750
Freight-out 1,000
Purchase returns 500
Based on this data, Belleville’s 2020 inventoriable cost was
a) $28,250.
b) $27,750.
c) $26,250.
d) $25,000.
43. Arizona Inc. uses the perpetual inventory system, and recorded the following
data pertaining to raw material X during January 2020:
Units
Date Received Cost Issued On Hand
Jan 1 Inventory $4.00 3,200
Jan 11 Issue (sold) 1,600 1,600
Jan 22 Purchase 4,000 $4.70 5,600
The moving-average unit cost of raw material X inventory at January 31, 2020 is
a) $4.70.
b) $4.50.
c) $4.43.
d) $4.35.
44. The cost of inventory is made up of

a) cost to purchase inventory only.
b) cost of purchase and allocated direct labour only.
c) cost of purchase, allocated direct labour, and allocated overhead.
d) cost of allocated direct labour and allocated overhead only.
45. Which of the following is correct regarding vendor rebates?

a) Vendor rebates are generally recorded as a reduction from sales.
b) The rebate is never recognized until it is actually received.
c) If the rebate meets asset recognition criteria, the receivable is allocated to goods
sold.
d) Vendor rebates are generally recorded as a reduction in the purchase cost of
inventory.
46. Which of the following is correct?

a) Selling costs are product costs.
b) Manufacturing overhead costs are product costs.
c) Interest costs for routine inventories are product costs.
d) Direct labour costs are usually period costs.
47. Which of the following best describes the concept of product costs?
a) They are costs that are "attached" to inventory.
b) They are costs that are usually expenses.
c) They usually don't include freight charges.
d) They usually don't include conversion costs.
48. Conversion costs include

a) all materials plus direct labour.
b) all materials plus variable overhead allocated.
c) direct labour plus variable and fixed overhead allocated.
d) direct labour plus fixed overhead allocated.
49. All of the following costs should be charged to expense in the period in which
they are incurred EXCEPT for
a) manufacturing overhead costs for a product manufactured and sold in the same
accounting period.
b) costs that will not benefit any future period.
c) costs from idle manufacturing capacity resulting from an unexpected plant
shutdown.
d) costs of normal shrinkage and scrap incurred for the manufacture of a product in
ending inventory.
50. Which of the following types of interest cost incurred in connection with the
purchase or manufacture of inventory should be capitalized as a product cost?
a) purchase discounts lost
b) interest incurred during the production of discrete projects such as ships or real
estate projects
c) interest incurred on notes payable to vendors for routine purchases made on a
repetitive basis
d) interest on a building mortgage
51. An EXCEPTION to the general rule that costs should be charged to expense in
the period incurred is
a) factory overhead costs incurred on a product manufactured but not sold during
the current accounting period.
b) interest costs for financing of inventories that are routinely manufactured in large
quantities on a repetitive basis.
c) general and administrative fixed costs incurred in connection with the purchase
of inventory.
d) sales commission and salary costs incurred in connection with the sale of
inventory.
52. Which of the following statements regarding borrowing costs is correct?

a) Neither ASPE nor IFRS usually require disclosure of these items.
b) They are usually amortized until the majority of the underlying products have
been sold.
c) They are usually treated as period costs if they are incurred to bring inventories
to a condition ready for sale.
d) If interest is capitalized, ASPE requires this policy and the amount capitalized to
be disclosed.
53. Which of the following best describes the concept of standard costs?
a) They are the costs that should be incurred per unit of finished goods inventory.
b) They are the costs that are actually incurred per unit of finished goods inventory.
c) When using standard costs, unallocated overhead is capitalized.
d) Standard costs are always acceptable for reporting purposes.
54. A “basket purchase” is a purchase of

a) a group of units with similar characteristics at a single lump-sum price.
b) individual units with similar characteristics priced individually.
c) a group of units with different characteristics at a single lump-sum price.
d) individual units with different characteristics priced individually.
55. To record a “basket purchase” or to allocate a joint product cost, which method
is the most rational?
a) average cost
b) relative sales value
c) fair value
d) amortized cost
56. If two factories produce the exact same product having the same costs, and
factory costs are completely allocated to the individual products, the factory
operating at 80% capacity (while the other operates at 100% capacity)
a) would have a lower rate of cost allocation to each unit of production.
b) would have a higher rate of cost allocation to each unit of production.
c) would have the same rate of cost allocation to each unit of production as the
100% capacity operation.
d) would be operating at a loss, because of unused capacity.
57. Borrowing costs

a) are never included in the costs of inventories.
b) must only be included in inventory cost if they relate to inventories produced in
large quantities and on a repetitive basis.
c) are capitalized if incurred to finance activities that help bring inventories to a
condition available for sale.
d) none of the above
58. Which of the following does NOT correctly describe a perpetual inventory
system?
a) Cost of goods sold is calculated every time a sale is made.
b) Assuming shrinkage of zero, inventory and cost of goods sold do not have to be
updated at the end of the period.
c) The use of this system eliminates the requirement for an annual physical
inventory count.
d) Assuming a FIFO cost flow, cost of goods sold would equal that calculated by the
periodic system.
59. At the end of its accounting year, Colin Corp.'s physical inventory count
indicated that 180,000 units of inventory, costing $1.75 each, were on hand. The
company's perpetual inventory system reported a balance of $357,600. The year-
end adjusting entry is
a) debit Inventory and credit Loss on Inventory Due to Count, $42,600.
b) debit Loss on Inventory Due to Count and credit Inventory, $42,600.
c) debit Inventory and credit Loss on Inventory Due to Count, $92,400.
d) debit Loss on Inventory Due to Count and credit Inventory, $92,400.
Windsor Ltd. uses FIFO to cost its inventory. The following information is available
for Windsor’s inventory of product # 205:
Beginning inventory: 240 units @ $6.28 per unit
March 1: Purchase of 500 units @ $7.00 per unit
April 10: Sale of 200 units @ $10.20 per unit
60. Assuming Windsor uses the periodic inventory system, the entry to account for
the March 1 purchase is
a) debit Inventory and credit Accounts Payable, $3,500.
b) debit Purchases and credit Accounts Payable, $3,500.
c) debit Accounts Payable and credit Purchases, $3,500.
d) debit Accounts Payable and credit Inventory, $3,500.
61. Assuming Windsor uses the perpetual inventory system, the entry to account for
the March 1 purchase is
a) debit Inventory and credit Accounts Payable, $3,500.
b) debit Purchases and credit Accounts Payable, $3,500.
c) debit Accounts Payable and credit Purchases, $3,500.
d) debit Accounts Payable and credit Inventory, $3,500.
The following information was available from the inventory records of Key Company
for January:
Units Unit Cost Total Cost
Balance at January 1 3,000 $9.77 $29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917
Sales:
January 7 (2,500)
January 31 (4,200)
Balance at January 31 1,000
62. Assuming that Key uses the periodic inventory system, what should the
inventory be at January 31, using the weighted-average inventory method, rounded
to the nearest dollar?
a) $10,237
b) $10,260
c) $10,360
d) $10,505
63. Assuming that Key uses the perpetual inventory system, what should the
inventory be at January 31, using the moving-average inventory method, rounded
to the nearest dollar?
a) $10,237
b) $10,260
c) $10,360
d) $10,505
Transactions for Durham Ltd. for the month of June were:

Purchases Sales
June 1 (balance) 400 @ $3.20 June 2 300 @ $5.50
3 1,100 @ 3.10 6 800 @ 5.50
7 600 @ 3.30 9 500 @ 5.50
15 900 @ 3.40 10 200 @ 6.00
22 250 @ 3.50 18 700 @ 6.00
25 150 @ 6.00
Durham Ltd. uses the periodic inventory system.
64. The ending inventory on a FIFO basis is

a) $2,100.
b) $2,065.
c) $1,920.
d) $1,900.
65. The ending inventory on a weighted average cost basis, rounded to the nearest
dollar, is
a) $1,956.
b) $1,970.
c) $1,980.
d) $1,995.
66. Tehran Ltd. uses FIFO to cost its inventory. The following information is available
for Tehran's inventory of product # 101:
Beginning inventory: 120 units @ $3.14 per unit
March 1: Purchase of 250 units @ $3.50 per unit
April 10: Sale of 100 units @ $5.10 per unit
Assuming Tehran uses the perpetual inventory system, the second entry to account
for the April 10 sale is
a) debit Cost of Goods Sold and credit Inventory, $350.
b) debit Cost of Goods Sold and credit Purchases, $350.
c) debit Cost of Goods Sold and credit Inventory, $314.
d) debit Cost of Goods Sold and credit Purchases, $314.
67. Which of the following does NOT correctly describe a periodic inventory system?
a) Cost of goods sold is calculated every time a sale is made.
b) Cost of goods sold is a residual amount.
c) Assuming a FIFO cost flow, cost of goods sold would equal that calculated by the
perpetual system.
d) Inventory and cost of goods sold must be updated at the end of the period.
68. When using a periodic inventory system,

a) a Purchases account is not used.
b) a Cost of Goods Sold account is used.
c) two entries are required to record a sale.
d) a Cost of Goods Sold account is not used.
69. Which of the following is a characteristic of a perpetual inventory system?

a) Inventory purchases are debited to a Purchases account.
b) Inventory records are not kept for every item.
c) Cost of goods sold is recorded with each sale.
d) Cost of goods sold is determined as the amount of purchases less the change in
inventory.
70. Why are inventories included in the computation of net income?

a) to determine cost of goods sold
b) to determine sales revenue
c) to determine merchandise returns
d) Inventories are not included in the computation of net income.
71. When using the moving-average cost formula with a perpetual system,
a) a weighted-average cost is calculated at year end.
b) a new unit cost is calculated each time a sale is made.
c) a new unit cost is calculated each time a purchase is made.
d) a new unit cost is calculated both when a sale is made and when a purchase is
made.
72. data related to an item of inventory:

Inventory, March 1 100 units @ $8.10
Purchase, March 7 350 units @ $8.50
Purchase, March 16 70 units @ $9.10
Inventory, March 31 150 units
If Ritz Ltd. uses FIFO, the value assigned to cost of goods sold is
a) $3,105.
b) $3,187.
c) $2,295.
d) $1,369.
73. At January 1, 2020, Nevada Ltd. had 150 units of product A on hand, costing $32
each. Purchases of product A during January were as follows:
Date Units Unit Cost
Jan 10 200 $33.00
18 250 34.50
28 100 36.00
A physical count on January 31, 2020 shows 200 units of product A on hand. The
cost of the inventory at January 31, 2020 under the FIFO cost formula is
a) $6,150.
b) $6,375.
c) $6,600.
d) $7,050.
74. Which of the following does NOT correctly describe the specific identification
cost formula?
a) This method is most appropriate when goods are not interchangeable.
b) This method is most appropriate when goods are interchangeable.
c) This method is generally used for expensive, one-of-a-kind merchandise.
d) This method is often used for merchandise with serial numbers such as
automobiles.
75. An inventory cost formula in which the oldest costs incurred rarely have an
efect on the ending inventory valuation is
a) FIFO.
b) moving-average cost.
c) LIFO.
d) weighted average.
76. All else being equal, which of the following statements is correct for a company
that uses the FIFO costing formula with a perpetual inventory system (compared to
a periodic system)?
a) The value of the ending inventory would be higher under a periodic system.
b) The value of the ending inventory would be lower under a periodic system.
c) The value of the ending inventory would be the same under both systems.
d) The periodic system would not require any additional entries at the end of the
period.
77. Which of the following does NOT correctly describe the weighted average cost
formula?
a) It prices inventory on the basis of the average cost of beginning inventory.
b) It prices inventory on the basis of the average cost of goods available for sale
during the period.
c) It takes into account that the volume of goods acquired at each price is diferent.
d) It includes the cost of beginning inventory in the calculations.
78. Which of the following does NOT correctly describe the FIFO cost formula?
a) This method assumes that the oldest inventory costs are the first costs recorded
for cost of goods sold.
b) This method assumes that most current inventory costs are the first costs
recorded for cost of goods sold.
c) This method approximates the physical flow of most types of goods.
d) This method is permitted under both ASPE and IFRS.
79. Which of the following statements is INCORRECT regarding the overriding

objectives underlying inventory standards?
a) Report an inventory cost on the statement of financial position that is
representative of the inventory’s recent cost.
b) Choose an approach that corresponds as closely as possible to the physical flow
of goods.
c) Use the same method for all inventory assets that have similar economic
characteristics.
d) It is permissible under ASPE to use any inventory method, including LIFO.
80. The inventory costing method that can be used only for goods that are NOT
ordinarily interchangeable is the
a) LIFO method.
b) specific identification method.
c) weighted average cost method.
d) FIFO method.
81. The following inventory transactions took place for NPR Corporation for the
month of May:
Date Event Quantity Cost/Selling Price

May 1 Beginning Inventory 1,000 $3.55
May 5 Purchase 6,000 3.10
May 15 Sale 3,000 6.00
May 20 Sale 2,000 6.00
May 25 Sale 7,000 6.00
The ending inventory balance for NPR Corporation, assuming the company uses a
perpetual inventory system, and a first-in, first-out (FIFO) cost formula is
a) $15,000.
b) $14,400.
c) $12,850.
d) $13,800.
The following information is available for Anselmo Corporation's inventories:

December 31, 2019:
At cost: $585,000
At lower of cost and net realizable value (NRV): $525,000
December 31, 2020:
At cost: $780,000
At lower of cost and net realizable value (NRV): $740,000
Anselmo uses a periodic inventory system and an allowance account to adjust its
inventory from cost to the lower of cost and NRV.
82. Anselmo's 2019 journal entry to adjust its inventory from cost to the lower of
cost and net realizable value (NRV) will include a
a) debit of $60,000 to Loss on Inventory Due to Decline in NRV.
b) credit of $60,000 to Loss on Inventory Due to Decline in NRV.
c) debit of $60,000 to Allowance to Reduce Inventory to NRV.
d) credit of $60,000 to Inventory.
83. Anselmo's 2020 journal entry to adjust its inventory from cost to the lower of
cost and net realizable value (NRV) will include a
a) debit of $40,000 to Loss on Inventory Due to Decline in NRV.
b) debit of $40,000 to Allowance to Reduce Inventory to NRV.
c) debit of $20,000 to Allowance to Reduce Inventory to NRV.
d) credit of $40,000 to Recovery of Loss Due to Decline in Inventory.
84. Washington Distribution Co. has determined its December 31, 2020, inventory
on a FIFO basis at $240,000. Information pertaining to that inventory follows:
Estimated selling price $255,000
Estimated cost of disposal 10,000
Normal profit margin 30,000
Washington records losses that result from applying the lower of cost and net
realizable value rule. At December 31, 2020, the loss that Washington should
recognize is
a) $0.
b) $5,000.
c) $15,000.
d) $25,000.
85. The primary basis of accounting for inventories is cost. A departure from the
cost basis of pricing inventory is required where there is evidence that when the
goods are sold in the ordinary course of business, their
a) selling price will be less than their replacement cost.
b) replacement cost will be more than their net realizable value.
c) future utility will be less than their cost.
d) cost will be less than their replacement cost.
86. In no case can "net realizable value" (in the lower of cost and net realizable
value rule) be more than
a) estimated selling price in the ordinary course of business.
b) estimated selling price in the ordinary course of business less reasonably
predictable costs of completion and disposal.
c) estimated selling price in the ordinary course of business less reasonably
predictable costs of completion and disposal and an allowance for a normal profit
margin.
d) estimated selling price in the ordinary course of business less reasonably
predictable costs of completion and disposal, an allowance for a normal profit
margin, and an adequate reserve for possible future losses.
87. When inventory declines in value below original (historical) cost, and this
decline is considered other than temporary, what is the maximum amount that the
inventory can be valued at?
a) net realizable value
b) selling price
c) historical cost
d) net realizable value reduced by a normal profit margin
88. The use of a “replacement cost” definition of “market” is based on the

assumption that
a) a decline in an item’s replacement cost results in a decline in its selling price.
b) prices will fall in the same proportion as input costs fall.
c) replacement cost is appropriate for all situations.
d) using “net realizable value less a normal profit margin” will arbitrarily shift profits
from one period to another.
89. Which of the following does NOT correctly describe the concept of net realizable
value (NRV)?
a) Estimates of NRV are based on the best evidence available at and shortly after
the statement of financial position date.
b) NRV generally does not change over time.
c) NRV generally changes over time.
d) A new estimate of NRV is required at each statement of financial position date.
90. Lower of cost and net realizable value

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 income tax purposes.
91. 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.
92. The lower of cost and NRV principle specifies that the comparison is usually
applied on
a) total inventory.
b) individual categories of inventory.
c) an item-by-item basis.
d) major categories of inventory.
93. Enviro Corporation had the following items as inventory as at December 31,
2020:
Item No. Quantity Unit Cost NRV
A1 130 $8.00 $8.40
B4 190 5.00 4.90
C2 190 12.00 12.90
D3 160 11.00 10.90
Assume that Enviro uses a perpetual inventory system and that none of the
inventory items can be grouped together for accounting purposes. The year-end
adjusting entry should include a charge to cost of goods sold of
a) $223.
b) $188.
c) $35.
d) $0.
94. Which of the following criteria does NOT have to be met in order to be able to
value inventory above cost?
a) The cost of disposal can be estimated.
b) The sale is assured.
c) There is an active market for the product.
d) The sale must already have occurred.
95. Which of the following inventories may NOT be valued at fair value less costs to
sell?
a) grain and livestock futures
b) biological assets
c) farm equipment
d) agricultural produce
96. Under IFRS, bearer plants used to grow produce including tea bushes, grape
vines, and rubber trees are accounted for
a) as agricultural assets, in accordance with IAS41.
b) using the cost or revaluation method.
c) as inventory, at cost, in accordance with IAS2.
d) as inventory, at fair value less costs to sell, in accordance with IAS2.
97. Under ASPE, agricultural produce, forest products, and mineral products
inventories may be accounted for at net realizable value if
a) there is a well-established industry practice of doing so.
b) arbitrary cost allocation would be too costly.
c) costs to bring them to market are expected to be minimal.
d) the company’s financial results appear more favourable by doing so.
98. Rounded to the nearest whole percent, a markup of 35% on cost is equivalent to
what percentage of gross profit on selling price?
a) 26%
b) 29%
c) 40%
d) 60%
99. Portland Ltd. estimates the cost of its physical inventory at March 31 for use in
its interim financial statements. The rate of markup on cost is 25%. The following
account balances are available:
Inventory, March 1 $200,000
Purchases 168,000
Purchase returns 7,000
Sales during March 350,000
What is the estimated dollar value of the inventory at March 31?
a) $18,000
b) $175,000
c) $81,000
d) $368,000
100. On January 1, 2020, the merchandise inventory of Shoesmith Corp. was

$600,000. During 2020, Shoesmith purchased $1,150,000 of merchandise and
recorded sales of $1,350,000. The gross profit rate on these sales was 35%. What is
the estimated dollar value of the inventory at December 31?
a) $877,500
b) $872,500
c) $562,500
d) $472,500
101. For calendar 2020, cost of goods available for sale for Janus Corp. was
$820,000. The average gross profit rate was 30%. Sales for the year were
$600,000. What is the estimated dollar value of the inventory at December 31?
a) $400,000
b) $420,000
c) $328,000
d) $88,000
102. On April 15 of the current year, a fire destroyed the entire inventory of Nourish,
a retail store. The following data are available:
Sales, January 1 through April 15 $473,000
Inventory, January 1 60,000
Purchases, January 1 through April 15 372,000
Markup on cost 25%
The amount of the inventory loss is estimated to be
a) $327,000.
b) $67,000.
c) $159,250.
d) $53,600.
103. Tennessee Ltd.'s accounting records reported the following information:

Inventory, Jan 1, 2020 $ 300,000
Purchases during 2020 1,500,000
Sales during 2020 2,000,000
A physical inventory taken on December 31, 2020, resulted in an ending inventory
of $350,000. Tennessee’s gross profit on sales has remained constant at 30% in
recent years. Tennessee suspects some inventory may have been taken by a new
employee. At December 31, 2020, what is the estimated cost of the missing
inventory?
a) $400,000
b) $100,000
c) $75,000
d) $50,000
104. The gross profit method of inventory valuation is NOT suitable when
a) a portion of the inventory is destroyed.
b) there is a substantial increase in inventory during the year.
c) there is no beginning inventory because it is the first year of operation.
d) the gross profit percentage applicable to the goods in ending inventory is
diferent from the percentage applicable to the goods sold during the period.
105. Which statement is NOT true about the gross profit method of inventory
valuation?
a) It may be used to estimate inventories for interim statements.
b) It may be used to estimate inventories for annual statements.
c) It may be used by auditors.
d) It may be used to provide a rough check on the accuracy of the physical
inventory count.
106. The gross profit percentage is calculated by

a) dividing cost of goods sold by net sales.
b) dividing gross profit on sales by cost of goods sold.
c) dividing gross profit on sales by net sales.
d) dividing gross profit on sales by goods available for sale.
107. The gross profit method of inventory valuation

a) can be used as a substitute for the annual physical count of inventory.
b) assumes past percentages are appropriate for the current period.
c) uses markups but not markdowns.
d) is designed to approximate inventory valuation at the lower of cost and net
realizable value.
108. Which of the following statements with respect to the gross profit method of
estimating inventory is NOT correct?
a) It may be used for interim reporting.
b) It may be used to estimate ending inventory when inventory has been destroyed.
c) It uses the interrelationship between the accounts used in the cost of goods sold
calculation.
d) The use of this method eliminates the need for performing an actual inventory
count.
109. Which of the following is NOT a premise upon which the gross profit method of
estimating inventory is based?
a) Beginning inventory plus purchases equals cost of goods available for sale.
b) The gross profit must be equal to the contribution margin on goods sold.
c) Goods not included in cost of goods sold must be on hand in ending inventory.
d) When an estimate of cost of goods sold is deducted from cost of goods available
for sale, the result is an estimate of ending inventory.
110. The gross profit method is normally used

a) for insurance purposes, in cases where inventory has been destroyed.
b) for all of these (all of these are examples of how the gross profit method is used).
c) to provide a rough check on the accuracy of a physical inventory count.
d) by auditors to estimate a company’s inventory for quarterly reporting.
111. Which of the following statements regarding presentation and disclosure of
inventories is INCORRECT?
a) Major spare parts and standby equipment may be recognized as inventory if they
are not expected to provide benefits beyond the current accounting period.
b) Inventories are one of the most significant assets of manufacturing and
merchandising companies.
c) The classification of inventory seldom requires the exercise of professional
judgement.
d) Minor spare parts and servicing equipment are usually classified as inventory.
112. Which of the following is NOT a required inventory disclosure under ASPE?
a) any portion of foreign exchange gain/loss specifically attributable to inventory
items
b) choice of accounting policies adopted to measure the inventory
c) carrying amount of inventory pledged as collateral for liabilities
d) amount of inventory recognized as an expense in the period
113. The inventory turnover ratio is calculated as

a) cost of goods sold divided by average inventory.
b) average inventory divided by cost of goods sold.
c) cost of goods sold times average inventory.
d) average assets divided by cost of goods sold.
114. The inventory turnover ratio is calculated by dividing the cost of goods sold by
a) beginning inventory.
b) ending inventory.
c) average inventory.
d) number of days in the year.
115. The average days to sell inventory ratio is calculated as

a) average inventory divided by inventory turnover.
b) inventory turnover divided by cost of goods sold.
c) inventory turnover divided by 365 days.
d) 365 days divided by inventory turnover.
116. The 2020 financial statements of Barclay Ltd. reported beginning inventory of
$130,000, ending inventory of $140,000, and cost of goods sold of $650,000 for the
year. To one decimal, Barclay’s inventory turnover ratio for 2020 is
a) 2.9 times.
b) 3.4 times.
c) 4.0 times.
d) 4.8 times.
117. For 2020, Colorado Corp.’s cost of goods sold was $562,500 and their sales
were $1,200,000. Assuming an inventory turnover of 3.5 for the year, what was the
company’s average inventory? (Round to the nearest dollar.)
a) $251,786
b) $170,682
c) $160,714
**118. Total merchandise available for sale is $119,000 at cost and $148,000 at
retail. Net markdowns are $10,000 and sales are $50,000. The cost-to-retail ratio
(rounded) is
a) 80%.
b) 86%.
c) 82%.
d) 63%.
*119. Use the following information for questions *119–*120.
Tang Inc. uses the retail inventory method. The following information is available for
the current year:
Cost Retail
Beginning inventory $117,000 $183,000
Purchases 442,000 623,000
Freight-in 8,000 —
Employee discounts — 3,000
Net markups — 22,000
Net markdowns — 30,000
Sales — 585,000
If the ending inventory is to be estimated using the retail method, the calculation of
the cost-to-retail ratio should be based on cost and retail of
a) $450,000 and $645,000.
b) $567,000 and $828,000.
c) $559,000 and $795,000.
d) $567,000 and $798,000.
*120. The ending inventory at retail should be

a) $210,000.
b) $216,000.
c) $225,000.
d) $240,000.
*121. Maine Co. uses the retail inventory method to estimate its inventory for
interim statement purposes. Data relating to the calculation of the inventory at July
31, 2020, are as follows:
Cost Retail
Inventory, July 1/20 $ 200,000 $ 360,000
Purchases 1,200,000 1,575,000
Markups, net 175,000
Sales 1,700,000
Estimated normal shoplifting losses 20,000
Markdowns, net 110,000
Maine's estimated inventory at July 31, 2020, using the retail method is
a) $210,000.
b) $196,000.
c) $197,980.
d) $185,782.
122. At December 31, 2020, the following information was available from
Hampshire Corp.'s accounting records:
Cost Retail
Inventory, Jan 1 $147,000 $ 215,000
Purchases 763,000 1,155,000
Additional markups _______ 40,000
Available for sale $910,000 $1,410,000
Sales for the year totalled $1.1 million. Markdowns amounted to $10,000. Under the
lower of average cost and market method, Hampshire’s estimated inventory at
December 31, 2020 was
a) $188,500.
b) $195,000.
c) $200,071.
d) $205,070.
**123. The impact of the retail inventory method upon gross profit can be described
as
a) use of the retail method increases gross profit.
b) use of the retail inventory method does not impact gross profit.
c) use of the retail method decreases gross profit.
d) use of the retail method has an averaging efect for varying rates of gross profit.
*124. The retail inventory method is NOT used

a) as a control measure to determine inventory shortages.
b) to allow the calculation of net income without taking a physical inventory count.
c) to control quantities of merchandise on hand.
d) to calculate the gross profit percentage.

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6/18/2020 PROPERTY

2. Examples of property, plant, and equipment include

4. Which of the following would NOT be included in the cost of an item of

8.How should variable overhead costs incurred to self-construct an asset be recorded?

16. When accounting for asset exchanges,

19. Frosty Ltd.

Use the following information for questions 32–33.

32. The cost of the land should be

33. The cost of the building should be

40. Under IFRS, biological assets should normally be measured at

42. The cost model of accounting for PP&E assets

43. The revaluation model of accounting for PP&E assets

46. The fair value model of accounting for PP&E assets

Use the following information for questions 49–50.

58. Which of the following statements is correct?

59. Which of the following statements is correct?

60. Which of the following statements is correct?

61. Which of the following statements is correct?

*64. Borrowing costs that are capitalized should

Use the following information for questions *70–*71.

*69. The weighted-average accumulated expenditures on the construction project during

*70. The actual interest cost incurred during 2020

Use the following information for questions *72–*73.

*73. The adjusting entry to record the revaluation will include a

1.Which of the following is INCORRECT regarding depreciation?

2.Factors to consider in the depreciation process do NOT include

3.Deciding which PP&E components to depreciate separately is called

4.An asset’s useful life

5.Depreciation commences or continues when

7.A principal objection to the straight-line method of depreciation is that it

8. For income statement purposes, depreciation is a decreasing expense if the

11. Which of the following is NOT a time-based depreciation method?

13. If income tax efects are ignored, accelerated depreciation methods

21. On January 2, 2019, Urban Ltd. purchased equipment to be used in its

22. Consider an asset for which the following information is

30. Depletion expense

37. Changes in the depreciation rate are accounted for as a(n)

44. Which of the following is NOT likely to be an indicator of possible asset

45. The cost recovery impairment model

46. The rational entity impairment model

51. Long-lived assets that are held for sale

52. Depreciation should be discontinued when an asset has been

57. On January 1, 2020, the Accumulated Depreciation—Machinery account of

61. A general description of the depreciation methods applicable to major classes of

62. The asset turnover ratio is calculated by dividing

63. The rate of return on assets (ROA) is calculated by dividing

65. In 2020, Elephant Corporation's financial statements included the following

Use the following data for questions 69–71.

66. To two decimals, what is Wren Corp.’s asset turnover ratio?

67. To two decimals, what is Wren Corp.’s profit margin ratio?

68. To two decimals, what is Wren Corp.’s rate of return on assets

69. Disclosures relating to PP&E assets are

*70. A major objective of capital cost allowance for tax depreciation is to

Use the following information to answer questions *73–*74.

1.Which of the following is NOT a debt security?

3.Which of the following is NOT an equity instrument?

5.How investments are accounted for does NOT usually depend on

7.Generally, transaction costs are

Use the following information for questions 70–71.

Use the following information for questions 72–73.

Use the following information to answer questions 73–74.

119. Use the following information for questions 119–*120.