Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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Details of Weaver Corporation's fixed assets at December 31, 20X3, are as
follows: Year acquired | . | Percent depreciated
| | Historical cost
| | Estimated current
cost | 20X1
| | 30 | | $100,000 | | $140,000 | 20X2 | | 20 | | 30,000 | | 38,000 | 20X3 | | 10 | | 40,000 | | 44,000 | | | | | | | |
Weaver calculates
depreciation at 10% per annum, using the straight-line method. A full year's depreciation
is charged in the year of acquisition. There were no disposals of fixed assets. In
Weaver's supplementary information restated into current cost, the net current cost (after
accumulated depreciation) of the fixed assets should be stated as a. | $116,000 | b. | $130,000 | c. | $168,000 | d. | $182,000 |
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2.
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The following schedule lists the consumer price index (all urban consumers) of
the indicated year: | 20X7: 100 | 20X8: 125 | 20X9 :
150 | | | |
Carl Corporation’s plant and equipment assets at
December 31, 20X9, are as follows: Date acquired | | Percent
depreciated | | Historical
cost | 20X7 | | 30 | | $30,000 | 20X8 | | 20 | | 20,000 | 20X9 | | 10 | | 10,000 | | | | | | $60,000 | | | | | |
Depreciation is calculated at 10% per annum, straight-line. A
full year's depreciation is charged in the year of acquisition. There were no disposals in
20X9. What amount of depreciation expense would be included in the income statement adjusted
for general inflation (historical cost/constant dollar accounting)? a. | $6,000 | b. | $7,200 | c. | $7,900 | d. | $9,000 |
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3.
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When computing information on a historical cost/constant dollar basis, which of
the following is classified as nonmonetary?
a. | Allowance for doubtful accounts. | b. | Accumulated depreciation of
equipment. | c. | Unamortized premium on bonds payable. | d. | Advances to unconsolidated
subsidiaries. |
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4.
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Following are four observations regarding the amounts reported in financial
statements that have been adjusted for general price-level changes. Which observation is
valid?
a. | The amount obtained by adjusting an asset's cost for general price-level changes
usually approximates its current fair value. | b. | The amounts adjusted for general price-level
changes are not departures from historical cost. | c. | When inventory increases and prices are rising,
last-in, first-out (LIFO) inventory accounting has the same effect on financial statements as amounts
adjusted for general price-level changes. | d. | When inventory remains constant and prices are
rising, LIFO inventory accounting has the same effect on financial statements as amounts adjusted for
general price-level changes. |
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Price level information:
Equipment purchased for $120,000 on
January 1, Year 1, when the price index was 100, was sold on December 31, Year 3 at a price of
$85,000. The equipment originally was expected to last six years with no salvage value and was
depreciated on a straight-line basis. The price index at the end of year 1 was 125, at Year 2
was 150 and at Year 3 was 175.
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5.
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Refer to the Price level information: The general price-level financial
statements prepared at the end of Year 1 would include
a. | Equipment of $150,000, accumulated depreciation of $25,000 and a gain of
$30,000. | b. | Equipment of $150,000, accumulated depreciation of $25,000 and no gain or
loss. | c. | Equipment of $150,000, accumulated depreciation of $20,000 and a gain of
$30,000. | d. | Equipment of $120,000, accumulated depreciation of $20,000 and a gain of
$30,000. |
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6.
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Refer to the Price level information: In general price-level comparative
financial statements prepared at the end of Year 2, the Year 1 financial statements should show
equipment (net of accumulated depreciation) at
a. | $150,000 | b. | $125,000 | c. | $100,000 | d. | $80,000 |
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7.
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Refer to the Price level information: The general price-level financial
statements prepared at the end of Year 2 should include depreciation expense of
a. | $35,000 | b. | $30,000 | c. | $25,000 | d. | $20,000 |
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8.
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FASB Statement No. 33 (now Codification Section 255-10) requires
that the current cost for inventories be measured as the
a. | Recoverable amount regardless of the current cost. | b. | Current cost
regardless of the recoverable amount. | c. | Higher of current cost or recoverable
amount. | d. | Lower of current cost or recoverable amount. |
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9.
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Dart Company was formed on January 1, 20X8. Selected balances from the
historical cost balance sheet at December 31, 20X9, were as follows: | Land (purchased January 1, 20X8) | $90,000 | | Marketable securities, nonconvertible bonds
(Purchased July 1, 20X8, and expected to be held to maturity) | 50,000 | | Long-term debt | 70,000 | | |
The Consumer Price Index was 100 for 20X8,
and 110 for 20X9. In a supplementary constant dollar balance sheet (adjusted for changing
prices) at December 31, 20X9, these selected account balances should be shown at
Marketable Long-term
Land
Securities
Debt a. | $90,000
$50,000
$70,000 | b. | $90,000
$55,000
$77,000 | c. | $99,000
$50,000
$70,000 | d. | $99,000
$55,000
$77,000 |
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Rice Wholesaling Corp. accounts for inventory on a FIFO basis. There were
8,000 units in inventory on January 1, 20X6. Costs were incurred and goods purchased as follows
during 20X6: 20X6 | | Historical costs | | Units Purchased | | Units Sold | | 1st
quarter | | $ 410,000 | | 7,000 | | 7,500 | | 2nd quarter | | 550,000 | | 8,500 | | 7,300 | | 3rd
quarter | | 425,000 | | 6,500 | | 8,200 | | 4th quarter | | 630,000 | | 9,000 | | 7,000 | | | | $2,015,000 | | 31,000 | | 30,000 | | | | | | | | | | | | | | | |
Rice
estimates that the current cost per unit of inventory was $57 at January 1, 20X6, and $71 at December
31, 20X6.
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10.
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In Rice's voluntary supplementary information restated into current cost,
the December 31, 20X6 inventory should be reported at
a. | $576,000 | b. | $585,000 | c. | $630,000 | d. | $639,000 |
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