財務報表分析（英文版·第11版）測試題TestBank Chap004 Analyzing Investing Activities

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Chapter04

AnalyzingInvestingActivities

MultipleChoiceQuestions

1.

Whichofthefollowingwouldrarelybeclassifiedasacurrentasset?

A.

Prepaidinsurance

B.

Goodwill

C.

Marketablesecurities

D.

Work-in-process

2.

Whichofthefollowingwouldnotbeclassifiedasacurrentasset?

A.

Inventory

B.

Accountspayable

C.

Accountsreceivable

D.

Prepaidexpenses

3.

Anassetisconsideredtobeliquidif:

A.

itisreadilyconvertedintoafixedasset.

B.

itisanintangibleasset.

C.

itisreadilyconvertedintocash.

D.

itispartofretainedearnings.

4.

Analysisofacompany'sassetswillhelpevaluateits:

I.liquidity.

II.solvency.

III.operationalcapacity.

IV.financingability.

A.

I,II,III,andIV

B.

I,II,andIV

C.

II,III,andIV

D.

I,II,andIII

5.

ForControlFurnitureCo.,

TorestateYear2006LIFOinventoriestoaFIFObasis,weusethefollowinganalyticalentry:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

ThefollowinginformationcanbefoundinABCCo.'sfinancialstatements.

Assumeataxrateof35%.InventoriesvaluedusingtheLIFOmethodrepresentedapproximately80%ofconsolidatedinventories.

6.

Whatwillbethevalueofinventoryfor2006ifABCusedFIFOvaluation?

A.

$633,485

B.

$570,430

C.

$633,381

D.

$488,581

7.

Whatwillbetheretainedearningsfor2006ifABCusedFIFOvaluation?

A.

$3,205,271

B.

$3,566,918

C.

$3,893,000

D.

$4,096,430

8.

Whatwillbetheretainedearningsfor2005ifABCusedFIFOvaluation?

A.

$3,205,271

B.

$3,566,918

C.

$3,893,000

D.

$4,096,430

9.

TheuseofLIFOratherthanFIFOforinventorycostingundernormaleconomicconditionsresultsin:

I.lowernetincome.

II.highertotalassets.

III.higherretainedearnings.

IV.unchangedretainedearnings.

A.

IIandIII

B.

I,II,andIV

C.

Ionly

D.

IandIV

10.

WhichofthefollowingisnotacommoncharacteristicofacompanychoosingtouseLIFOratherthanFIFO?

A.

Highercostofgoodssold

B.

Highervariabilityininventorybalances

C.

Greaterexpectedtaxsavings

D.

Largerinsize

11.

FinancialStatementsofABCCorp.indicatesthatendinginventorylevelsin2005and2006were$200,000and$350,000respectively.Costofgoodssoldfor2005and2006were$1,900,000and$2,200,000respectively.Purchasesin2006were:

A.

$1,950,000

B.

$2,150,000

C.

$2,350,000

D.

$1,850,000

12.

Theinventorycostingmethodusedbyacompany(LIFO,FIFO,etc.)willaffect:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

13.

WhichofthefollowingstepsisrequiredtoadjustLIFOtoFIFO?

A.

InventoryneedstobecalculatedasreportedLIFOinventoryplusLIFOreserve.

B.

IncreasedeferredtaxpayablebyLIFOreservetimesTaxrate.

C.

RetainedearningsneedtobecalculatedasreportedretainedearningsplusLIFOreservetimes(1-Taxrate).

D.

Alloftheabove

14.

OneadvantageofLIFOoverFIFOundernormalconditionsisthat:

A.

itreportshigherretainedearnings.

B.

itresultsinhighercashflows.

C.

itresultsinhighercurrentratios.

D.

itresultsinhighergrossmargins.

15.

Whichofthefollowingisnotaneffectofcapitalization?

A.

Capitalizationusuallyreducesnetincome.

B.

Capitalizationusuallyyieldsasmoothernetincome.

C.

Capitalizationusuallydecreasesthevolatilityofthereturnoninvestment.

D.

Capitalizationusuallyincreasesnetincome.

16.

Companiesaresupposedtowrite-downvalueofassetsifapermanentimpairmentofvalueorlossofutilityoccurs.Ifacompanywritesdownitsassetsthisyear,theeffecton:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

17.

Awrite-downinassetvalueis:

A.

averyrareoccurrence.

B.

notallowedunderGAAP.

C.

resultsinadirectdebittostockholders'equity.

D.

requiredifanassetisdeemedtohavepermanentimpairmentofvalue.

18.

Whichofthefollowingisnotconsideredanintangibleasset?

A.

Goodwill

B.

Customerlists

C.

Prepaidadvertisingexpenses

D.

Memberships

19.

TargetInc.has30millionsharesoutstandingandtradesat$50pershare.Targethasnetidentifiableassetswithabookvalueof$1,000millionandafairvalueof$1,200million.AcquirerCorporationpurchasesallofTargetInc.stockfor$60pershare.HowmuchwillAcquirerrecordsasgoodwilluponacquiringTarget?

A.

$300million

B.

$500million

C.

$600million

D.

$800million

20.

Whichofthefollowingisincorrectwithrespecttorecognizedgoodwillonthebalancesheet?

A.

Itshouldnotbeamortized.

B.

Itariseswhenanothercompanyispurchasedorwheninternallygenerated.

C.

Itshouldbewritten-downifthefuturebenefitsnolongerexist.

D.

Itmaybenegative.

21.

UndercurrentUSGAAP,goodwillis:

I.amortizedoveraperiodnottoexceed40years.

II.testedannuallyforimpairment.

III.exclusiveofseparatelyidentifiableintangibleassets.

IV.recordedonlyuponpurchaseofanotherentity.

A.

I,II,III,andIV

B.

II,III,andIV

C.

I,II,andIII

D.

IIandIV

ThefollowinginformationcanbefoundinManufacturerCompany'sfinancialstatements.

22.

IfManufacturerusedFIFO,itsretainedearningsasoftheendoffiscal2006wouldbe:

A.

$540,000.

B.

$440,000.

C.

$524,000.

D.

$506,000.

23.

IfManufacturerusedFIFO,itsnetincomeforfiscal2006wouldbe:

A.

$165,000.

B.

$149,000.

C.

$135,000.

D.

$131,000.

24.

LookGoodCorporationhascurrentassetsof$1.1millionandcurrentliabilitiesof$1million.Itisclosetoyear-end,anditwouldliketoincreaseitscurrentratio.Whichofthefollowingwillachievethis?

A.

Encouragecustomerstopaytheirbillsmorequickly.

B.

Increaseshort-termborrowingsby$0.1million.

C.

Sellbuildingfor$0.2millionincash.

D.

Liquidatesomeofitstradingmarketablesecurities.

25.

LIFOliquidationoccurswhen:

A.

afirmchangesfromLIFOtoanotherinventorymethod.

B.

afirmexperiencesanincreaseincostofrawmaterials.

C.

theLIFOreservesdeclineinvalue.

D.

thequantityofgoodssoldisgreaterthanthequantityproduced.

26.

Allotherthingsbeingequal,ifaLIFOliquidationoccursduringaperiodofrisingprices,whichofthefollowingstatementsabouttheeffectsonafirm'sfinancialstatementsisgenerallytrue?

I.Costofgoodssoldincreases.

II.Grossprofitmarginincreases.

III.Taxesdecrease.

IV.Netincomeincreases.

A.

Ionly

B.

IIonly

C.

IandIIIonly

D.

IIandIVonly

27.

Whichofthefollowingstatementsaboutinventoriesistrue?

A.

U.S.generallyacceptedaccountingprinciples(GAAP)requiretheuseoflowerofcostormarketvaluationbasisforinventories.

B.

Last-In,First-Out(LIFO)inventoryaccountingmakesmanagementofincomemoredifficultthanFirst-In,First-Out(FIFO)accounting.

C.

Duringinflation,LIFOinventoryaccountingtendstooverstatethecurrentratio.

D.

FIFOinventorybalancesgenerallycontainoldandoutdatedcoststhathavelittleornorelationshiptocurrentcosts.

28.

Afirmhasacurrentratiogreaterthan1.0.Ifthefirm'sendinginventoryisunderstatedby$3,000andbeginninginventoryisoverstatedby$5,000,thefirm'snetincomeandcurrentratiowillbe:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

29.

Acorporationwantstoincreaseitscurrentratiofromitspresentlevelof1.2beforeitendsthefiscalyear.Theactionhavingthedesiredeffectis:

A.

delayingthenextpayroll.

B.

writingdownimpairedassets.

C.

sellingfurnitureforcash.

D.

sellingcurrentmarketablesecuritiesatcashfortheirbookvalue.

30.

Afirmhasacurrentratiogreaterthan1.0.Duringthecourseoftheyearthefirmsells$60millionofaccountsreceivablewithlimitedrecourse.Ifithadnotsoldthereceivablesitwouldhavetakenoutashort-termloan.Theeffectofsellingthereceivablesis:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

31.

Depreciationisbasedontheprincipleof:

A.

allocation.

B.

appropriation.

C.

lowerofcostormarket.

D.

approbation.

32.

Whichofthefollowingisnotananalysisissuearisingwithimpairment?

A.

Evaluatingtheappropriatenessoftheamountoftheimpairment

B.

Evaluatingtheappropriatenessofthetimingoftheimpairment

C.

Analyzingtheeffectoftheimpairmentonasset

D.

Analyzingtheeffectoftheimpairmentonincome

BelowisselectedinformationtakenfromthebalancesheetofHuyCorporationasof12/31/06.

33.

TheaveragetotallifespanofHuy'sdepreciableassetsasof2006is:

A.

2years.

B.

7years.

C.

14years.

D.

34years.

34.

TheaverageageofHuy'sdepreciableassetsasof2006is:

A.

2years.

B.

7years.

C.

14years.

D.

34years.

35.

Duringfiscal2006,Huysoldfullydepreciatedassetsthatoriginallycost$20,000for$4,000.In2006,theypurchasedassetsthatcost:

A.

$5,000.

B.

$6,000.

C.

$10,000.

D.

$30,000.

36.

Goodwillis:

A.

theexcessofthepurchasepriceofnetassetsoverthebookvalueofnetassets.

B.

theexcessoftheappraisedvalueofnetassetsoverthebookvalueofnetassets.

C.

theexcessofthepurchasepriceofnetassetsoverthefairvalueofnetassets.

D.

theexcessoftheappraisedvalueofnetassetsoverthefairvalueofnetassets.

37.

WithrespecttoLIFO,whichofthefollowingisincorrect?

A.

IfacompanyusesLIFOfortaxpurposes,itmustuseitforGAAPpurposes.

B.

IftheLIFOreserveincreasesinagivenyear,costofgoodssoldundertheLIFOinventorycostingishigherthanitwouldhavebeenifFIFOhadbeenusedforthatyear.

C.

LIFOresultsinbettermatchingontheincomestatementthanFIFO.

D.

LIFOresultsininventorylevelsonthebalancesheetthatareclosertocurrentcostthanFIFO.

38.

WhichofthefollowingisabenefitofsecuritizationthroughtheuseofaproperlystructuredSPEtoacompany?

I.Removereceivablesfromthebalancesheet

II.Removedebtfromthebalancesheet

III.Lowerfinancingcosts

IV.RecognizegainsonthesaleofassetstotheSPE

A.

I,II,III,andIV

B.

I,II,andIII

C.

IandIV

D.

IIandIII

True/FalseQuestions

39.

Solvencyreferstotheabilityofacompanytomeetitsshort-termobligations.

True

False

40.

Prepaidexpensesareusuallyclassifiedascurrentassets.

True

False

41.

Accountsreceivableareusuallynotclassifiedasacurrentasset.

True

False

42.

Thecashoperatingcycleistheamountofdaysbetweenmakingasaleandcollectingmoneyfromcustomers.

True

False

43.

Ifmanagementunderestimatestheallowancefornon-collectibleaccounts,thiswillcausenetincomefortheperiodtobeoverstated.

True

False

44.

Formingaspecialpurposeentity(SPE)isacommonwaycompaniessecuritizereceivables.

True

False

45.

Ifacompanyfactorsitsaccountsreceivables,thiswillhavetheeffectofmakingitscashcycleappearshorter.

True

False

46.

UnderGAAP,thechoiceofinventorycostingmethod(LIFO,FIFO,etc.)mustbedeterminedbythephysicalflowofthegoods.

True

False

47.

TheLIFOconformityrulestatesthatifacompanyusesLIFOfortaxpurposes,itmustalsouseitforfinancialreportingpurposes.

True

False

48.

LIFOprovidesabettermatchofcurrentexpensestorevenuesontheincomestatement,whileFIFOprovidesabetterendinginventoryfigurebymorecloselyreflectingcurrentcosts.

True

False

49.

Changesininventorylevelshavebeenshowntobeusefulinpredictingfuturesalesandearnings.

True

False

50.

OneadvantageofFIFOoverLIFOisthatitminimizesthedistortioncausedbyinflationonnetincome.

True

False

51.

Inaperiodofrisingprices,usingFIFOwouldproducealowercostofgoodssoldthanusingLIFO.

True

False

52.

Anincreasingaccountsreceivablesbalanceisalwaysagoodsignasitmeansthecompanyhasmorecurrentassetsandismoreliquid.

True

False

53.

Allproperty,plant,andequipmentmustbedepreciatedoveraperiodnottoexceedfortyyears.

True

False

54.

Capitalizationofinterestcostsresultsinhigherreportednetincomeintheperiodofcapitalizationandlowernetincomeinfutureperiods.

True

False

55.

Gainsandlossesfromthesaleofproperty,plant,andequipmentshouldbeincludedincostofgoodssoldasinrealitytheyreflectthecostofproducinggoodsforsale.

True

False

56.

SoftwaredevelopmentcostsaretreatedthesamewayasresearchanddevelopmentcostsunderGAAP(GenerallyAcceptedAccountingPrinciples).

True

False

57.

Whenthediscountedamountofexpectedcashflowsfromanassetisgreaterthantheasset'sbookvalue,theassetisdeemedtobeimpaired.

True

False

58.

Thecostofsoftwaredevelopedforinternaluseshouldbecapitalizedonlyafterithasreachedtechnologicalfeasibility.

True

False

59.

Depreciationisamethodformatchingcostsoflong-livedassetstorevenuesgeneratedfromtheiruse.

True

False

60.

Ifthewrite-offisoccurringbecauseofanindustrywidedownturnormarketcrash,itisusefultocomparethepercentagesofthewrite-offwiththosetakenbyothercompaniesintheindustry.

True

False

61.

Depreciationisavaluationexercise.

True

False

EssayQuestions

62.

CalculatingCOGSandInventoryunderLIFOandFIFO

DonuldCompanysellsmanyproducts.Solisoneofitspopularitems.BelowisananalysisoftheinventorypurchasesandsalesofSolforthemonthofSeptember.DonuldCompanyusestheperiodicinventorysystem.

INSTRUCTIONS

a.UsingtheFIFOassumption,calculatetheamountchargedtocostofgoodssoldforSeptember.(Showcomputations)

b.UsingtheLIFOassumption,calculatetheamountassignedtotheinventoryonhandonSeptember30.(Showcomputations)

c.CalculatetheLIFOreservethatwouldbereportedinthecompany'sbooksonSeptember30ifusingLIFO.

63.

AdjustingfromLIFOtoFIFO

BelowareselectednumbersextractedfromHarnischfeger'sYearX2financialstatements(numbersareinthousands).

Harnischfeger'sFootnoteoninventoriesisasfollows(numbersinthousands):

InventoriesatOctober31consistedofthefollowing:

InventoriesvaluedusingtheLIFOmethodrepresentedapproximately56%and80%ofconsolidatedinventoriesatOctober31,X2andX1,respectively.

a.CalculateforYearX2:

i)thegrossmarginpercentage

ii)thecurrentratio

iii)inventoryturnover

b.EstimatethefollowingnumbersifHarnischfegerusedFIFOforallinventories:

i)thegrossmargin

ii)thecurrentratio

iii)inventoryturnover

c.Compareyouranswersinparta)andb)andcomment.

64.

AccountsReceivableandInventoryTurnover

Analystsmaintainthattwoofthemostimportantratiosareinventoryturnoverandaccountsreceivableturnover.

a.YouareanalyzingABCCompany,acomputermanufacturer.Younoticethatinventoryturnoverthisyearissignificantlylowerthanprioryears.Providethreeexplanationsthatwouldbeconsistentwiththisobservation.Explainwhetherthesewouldbeofconcerntoyouandwhattheeffectmightbeonnextperiod'sfinancialresults.

b.YouareanalyzingABCCompany,acomputermanufacturer.Younoticethataccountsreceivableturnoverthisyearissignificantlylowerthanprioryears.Providethreeexplanationsthatwouldbeconsistentwiththisobservation.Explainwhetherthesewouldbeofconcerntoyou.

65.

ClassificationasAsset

Indicatewhichofthefollowingitemswouldbeclassifiedasassetsonthebalancesheets.

66.

FixedAssets

BelowisselectedinformationtakenfromthebalancesheetofLongLiCorporationasof12/31/06.

Fromtheoperatingsectionofthestatementofcashflows,youdeterminethatthedepreciationexpensefortheyearwas$2,000andlossonsalesofassetswas$5,000.Theinvestingsectionrevealsthatthecompanypurchasedequipmentfor$14,000andsoldequipmentfor$2,000.

Inthefootnotestothefinancialstatements,thecompanystates:

Atthebeginningof2006,wedeterminedthattheusefullifeofourassetswashigherthanoriginallybelieved.Accordinglywehaveincreasedtheusefullifefrom10yearsto15yearsin2006.

a.Whatwasthegrossbookvalueoftheequipmentthatwassold?

b.Whatwasthenetbookvalueoftheequipmentthatwassold?

c.Withrespecttothechangeintheusefullivesoftheassets:

i.Whatistheeffecton2005'sfinancialstatements?

ii.Whatistheeffecton2006'sfinancialstatements?

67.

Property,Plant,andEquipment

Youareanalyzingtwocompaniesthatoperateinthesameindustry.Theyarebothgrowingcapital-intensivemanufacturingcompanies,GuerrCorp.andFilkCorp.Adiligentreadingoftheirannualreportsrevealsthefollowing:

Youknowthattheseaccountingdifferenceswillaffectthecomparabilityofthetwocompany'sfinancialresults.

Considereachoftheaboveitems(depreciationmethod,averagedepreciablelivesandleases)separatelyanddetermineallotherthingsbeingequal,whetherthefollowingratioswillbehigher,lowerorthesameforGuerrwhencomparedtoFilk.Explainyouranswers.

i.Observedprice-to-earningratiointheinitialyears

ii.Price-to-freecashflowintheinitialyears

iii.Price-to-bookvalueintheinitialyears

68.

Non-comparableaccountingmethods

Youarecomparingthefinancialstatementsoftwocompanies,ReadyPLCandMarletInc.,whichoperateinthesameindustrybutdifferentcountries.ReadyInc.isaBritishcompanyandpreparesitsfinancialstatementsusingBritishaccountingrules.MarletisaU.ScompanyandpreparesitsstatementsusingU.S.GAAP.

Thefollowingdifferencesinaccountingmethodsarenoted:

YouwanttorestatethefinancialstatementsofMarletinordertomakethemcomparablewithReadyPLC.Identifytheadjustmentsyouwouldmakeandtheeffectonthefinancialstatements.

Chapter04AnalyzingInvestingActivitiesAnswerKey

MultipleChoiceQuestions

1.

Whichofthefollowingwouldrarelybeclassifiedasacurrentasset?

A.

Prepaidinsurance

B.

Goodwill

C.

Marketablesecurities

D.

Work-in-process

2.

Whichofthefollowingwouldnotbeclassifiedasacurrentasset?

A.

Inventory

B.

Accountspayable

C.

Accountsreceivable

D.

Prepaidexpenses

3.

Anassetisconsideredtobeliquidif:

A.

itisreadilyconvertedintoafixedasset.

B.

itisanintangibleasset.

C.

itisreadilyconvertedintocash.

D.

itispartofretainedearnings.

4.

Analysisofacompany'sassetswillhelpevaluateits:

I.liquidity.

II.solvency.

III.operationalcapacity.

IV.financingability.

A.

I,II,III,andIV

B.

I,II,andIV

C.

II,III,andIV

D.

I,II,andIII

5.

ForControlFurnitureCo.,

TorestateYear2006LIFOinventoriestoaFIFObasis,weusethefollowinganalyticalentry:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

ThefollowinginformationcanbefoundinABCCo.'sfinancialstatements.

Assumeataxrateof35%.InventoriesvaluedusingtheLIFOmethodrepresentedapproximately80%ofconsolidatedinventories.

6.

Whatwillbethevalueofinventoryfor2006ifABCusedFIFOvaluation?

A.

$633,485

B.

$570,430

C.

$633,381

D.

$488,581

7.

Whatwillbetheretainedearningsfor2006ifABCusedFIFOvaluation?

A.

$3,205,271

B.

$3,566,918

C.

$3,893,000

D.

$4,096,430

8.

Whatwillbetheretainedearningsfor2005ifABCusedFIFOvaluation?

A.

$3,205,271

B.

$3,566,918

C.

$3,893,000

D.

$4,096,430

9.

TheuseofLIFOratherthanFIFOforinventorycostingundernormaleconomicconditionsresultsin:

I.lowernetincome.

II.highertotalassets.

III.higherretainedearnings.

IV.unchangedretainedearnings.

A.

IIandIII

B.

I,II,andIV

C.

Ionly

D.

IandIV

10.

WhichofthefollowingisnotacommoncharacteristicofacompanychoosingtouseLIFOratherthanFIFO?

A.

Highercostofgoodssold

B.

Highervariabilityininventorybalances

C.

Greaterexpectedtaxsavings

D.

Largerinsize

11.

FinancialStatementsofABCCorp.indicatesthatendinginventorylevelsin2005and2006were$200,000and$350,000respectively.Costofgoodssoldfor2005and2006were$1,900,000and$2,200,000respectively.Purchasesin2006were:

A.

$1,950,000

B.

$2,150,000

C.

$2,350,000

D.

$1,850,000

12.

Theinventorycostingmethodusedbyacompany(LIFO,FIFO,etc.)willaffect:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

13.

WhichofthefollowingstepsisrequiredtoadjustLIFOtoFIFO?

A.

InventoryneedstobecalculatedasreportedLIFOinventoryplusLIFOreserve.

B.

IncreasedeferredtaxpayablebyLIFOreservetimesTaxrate.

C.

RetainedearningsneedtobecalculatedasreportedretainedearningsplusLIFOreservetimes(1-Taxrate).

D.

Alloftheabove

14.

OneadvantageofLIFOoverFIFOundernormalconditionsisthat:

A.

itreportshigherretainedearnings.

B.

itresultsinhighercashflows.

C.

itresultsinhighercurrentratios.

D.

itresultsinhighergrossmargins.

15.

Whichofthefollowingisnotaneffectofcapitalization?

A.

Capitalizationusuallyreducesnetincome.

B.

Capitalizationusuallyyieldsasmoothernetincome.

C.

Capitalizationusuallydecreasesthevolatilityofthereturnoninvestment.

D.

Capitalizationusuallyincreasesnetincome.

16.

Companiesaresupposedtowrite-downvalueofassetsifapermanentimpairmentofvalueorlossofutilityoccurs.Ifacompanywritesdownitsassetsthisyear,theeffecton:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

17.

Awrite-downinassetvalueis:

A.

averyrareoccurrence.

B.

notallowedunderGAAP.

C.

resultsinadirectdebittostockholders'equity.

D.

requiredifanassetisdeemedtohavepermanentimpairmentofvalue.

18.

Whichofthefollowingisnotconsideredanintangibleasset?

A.

Goodwill

B.

Customerlists

C.

Prepaidadvertisingexpenses

D.

Memberships

19.

TargetInc.has30millionsharesoutstandingandtradesat$50pershare.Targethasnetidentifiableassetswithabookvalueof$1,000millionandafairvalueof$1,200million.AcquirerCorporationpurchasesallofTargetInc.stockfor$60pershare.HowmuchwillAcquirerrecordsasgoodwilluponacquiringTarget?

A.

$300million

B.

$500million

C.

$600million

D.

$800million

20.

Whichofthefollowingisincorrectwithrespecttorecognizedgoodwillonthebalancesheet?

A.

Itshouldnotbeamortized.

B.

Itariseswhenanothercompanyispurchasedorwheninternallygenerated.

C.

Itshouldbewritten-downifthefuturebenefitsnolongerexist.

D.

Itmaybenegative.

21.

UndercurrentUSGAAP,goodwillis:

I.amortizedoveraperiodnottoexceed40years.

II.testedannuallyforimpairment.

III.exclusiveofseparatelyidentifiableintangibleassets.

IV.recordedonlyuponpurchaseofanotherentity.

A.

I,II,III,andIV

B.

II,III,andIV

C.

I,II,andIII

D.

IIandIV

ThefollowinginformationcanbefoundinManufacturerCompany'sfinancialstatements.

22.

IfManufacturerusedFIFO,itsretainedearningsasoftheendoffiscal2006wouldbe:

A.

$540,000.

B.

$440,000.

C.

$524,000.

D.

$506,000.

23.

IfManufacturerusedFIFO,itsnetincomeforfiscal2006wouldbe:

A.

$165,000.

B.

$149,000.

C.

$135,000.

D.

$131,000.

24.

LookGoodCorporationhascurrentassetsof$1.1millionandcurrentliabilitiesof$1million.Itisclosetoyear-end,anditwouldliketoincreaseitscurrentratio.Whichofthefollowingwillachievethis?

A.

Encouragecustomerstopaytheirbillsmorequickly.

B.

Increaseshort-termborrowingsby$0.1million.

C.

Sellbuildingfor$0.2millionincash.

D.

Liquidatesomeofitstradingmarketablesecurities.

25.

LIFOliquidationoccurswhen:

A.

afirmchangesfromLIFOtoanotherinventorymethod.

B.

afirmexperiencesanincreaseincostofrawmaterials.

C.

theLIFOreservesdeclineinvalue.

D.

thequantityofgoodssoldisgreaterthanthequantityproduced.

26.

Allotherthingsbeingequal,ifaLIFOliquidationoccursduringaperiodofrisingprices,whichofthefollowingstatementsabouttheeffectsonafirm'sfinancialstatementsisgenerallytrue?

I.Costofgoodssoldincreases.

II.Grossprofitmarginincreases.

III.Taxesdecrease.

IV.Netincomeincreases.

A.

Ionly

B.

IIonly

C.

IandIIIonly

D.

IIandIVonly

27.

Whichofthefollowingstatementsaboutinventoriesistrue?

A.

U.S.generallyacceptedaccountingprinciples(GAAP)requiretheuseoflowerofcostormarketvaluationbasisforinventories.

B.

Last-In,First-Out(LIFO)inventoryaccountingmakesmanagementofincomemoredifficultthanFirst-In,First-Out(FIFO)accounting.

C.

Duringinflation,LIFOinventoryaccountingtendstooverstatethecurrentratio.

D.

FIFOinventorybalancesgenerallycontainoldandoutdatedcoststhathavelittleornorelationshiptocurrentcosts.

28.

Afirmhasacurrentratiogreaterthan1.0.Ifthefirm'sendinginventoryisunderstatedby$3,000andbeginninginventoryisoverstatedby$5,000,thefirm'snetincomeandcurrentratiowillbe:

A.

OptionA

B.

OptionB

C.

OptionC

D.

OptionD

29.

Acorporationwantstoincreaseitscurrentratiofromitspresentlevelof1.2beforeitendsthefiscalyear.Theactionhavingthedesiredeffectis:

A.

delayingthenextpayroll.

B.

writingdownimpairedassets.

C.

sellingfurnitureforcash.

D.

sellingcurrentmarketablesecuritiesatcashfortheirbookvalue.

30.

Afirmhasacurrentratiogreaterthan1.0.Duringthecourseoftheyearthe