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PART I-FIXED ASSET
1. Plant assets are:
A. Tangible assets used in the operation of a business that have a useful life of more
than one accounting period.
B. Current assets.
C. Held for sale.
D. Intangible assets used in the operations of a business that have a useful life of more
than one accounting period.
E. Tangible assets used in the operation of business that have a useful life of less than
one accounting period.
2. Plant assets are:
A. Current assets.
B. Used in operations.
C. Natural resources.
D. Long-term investments.
E. Intangible.
3. The relevant factor(s) in computing depreciation include:
A. Cost.
B. Salvage value.
C. Useful life.
D. Depreciation method.
E. All of these.
4. Salvage value is:
A. Also called residual value.
B. Also called scrap value.
C. An estimate of the asset's value at the end of its benefit period.
D. A factor relevant to determining depreciation.
E. All of these.
5. Depreciation:
A. Measures the decline in market value of an asset.
B. Measures physical deterioration of an asset.
C. Is the process of allocating to expense the cost of a plant asset.
D. Is an outflow of cash from the use of a plant asset.
E. Is applied to land.
6. A change in an accounting estimate is:
A. Reflected in past financial statements.
B. Reflected in future financial statements and also requires modification of past
statements.
C. Reflected in current and future years' financial statements, not in prior statements.
D. Not allowed under current accounting rules.
E. Considered an error in the financial statements.
7. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle
cost $23,000 and its estimated salvage value is $1,500. After 4 years of straight-line
depreciation, the asset's total estimated useful life was revised from 8 years to 6 years
and there was no change in the estimated salvage value. The depreciation expense in
year 5 equals:
 A. $5,375.00.
B. $2,687.50.
C. $5,543.75.
D. $10,750.00.
E. $2,856.25.
8. A company used straight-line depreciation for an item of equipment that cost
$12,000, had a salvage value of $2,000, and had a five-year useful life. After
depreciating the asset for three complete years, the salvage value was reduced to
$1,200 and its total useful life was increased from 5 years to 6 years. Determine the
amount of depreciation to be charged against the machine during each of the
remaining years of its useful life:
A. $1,000.
B. $1,800.
C. $1,467.
D. $1,600.
E. $2,160.
9. Thomas Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of
$100,000. The asset is expected to have a salvage value of $15,000 at the end of its five-
year useful life. If the asset is depreciated on the double-declining-balance method, the
asset's book value on December 31, Year 3 will be:
A. $27,540
B. $21,600
C. $32,400
D. $18,360
E. $90,000
10. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1. The
asset will be depreciated using the straight-line method over its four-year useful life.
Assuming the asset's salvage value is $2,000, what will be the amount of accumulated
depreciation on this asset on December 31, Year 4?
A. $5,000.00
B. $4,166.67
C. $16,666.68
D. $20,000.00
E. $19,166.67
11. A company purchased a delivery van for $23,000 with a salvage value of $3,000 on
September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line
method, how much depreciation expense should the company recognize on December
31, Year 1?
A. $1,000.
B. $1,333.
C. $1,533.
D. $4,000.
E. $4,600.
12. A company purchased a cash register on January 1 for $5,400. This register has a useful
life of 10 years and a salvage value of $400. What would be the depreciation expense for
the second year of its useful life using the double-declining-balance method?
A. $500.
B. $800.
C. $864.
D. $1,000.
E. $1,080.
13. A company purchased a rope braiding machine for $190,000. The machine has a useful
 life of 8 years and a residual value of $10,000. It is estimated that the machine could
produce 750,000 units of climbing rope over its useful life. In the first year, 105,000
units were produced. In the second year, production increased to 109,000 units. Using
the units-of-production method, what is the amount of depreciation that should be
recorded for the second year?
A. $25,200.
B. $26,160.
C. $26,660.
D. $27,613.
E. $53,160.
14. An asset's book value is $18,000 on June 30, Year 6. The asset is being depreciated at an
annual rate of $3,000 on the straight-line method. Assuming the asset is sold on
December 31, Year 7 for $15,000, the company should record:
A. A loss on sale of $1,500.
B. A gain on sale of $1,500.
C. Neither a gain nor a loss is recognized on this type of transaction.
D. A gain on sale of $3,000.
E. A loss on sale of $3,000.
15. An asset's book value is $36,000 on January 1, Year 6. The asset is being depreciated
$500 per month using the straight-line method. Assuming the asset is sold on July 1,
Year 7 for $25,000, the company should record:
A. Neither a gain or loss is recognized on this type of transaction.
B. A gain on sale of $2,000.
C. A loss on sale of $1,000.
D. A gain on sale of $1,000.
E. A loss on sale of $2,000.
16. Wilson Engineering purchased a depreciable asset costing $45,000 on January 1, Year
1. The asset is estimated to have a salvage value of $5,000 and an estimated useful life
of 8 years. Straight-line depreciation is used. If the asset is sold on July 1, Year 5 for
$20,000, the journal entry to record the sale will include:
A. A credit to cash for $20,000.
B. A debit to accumulated depreciation for $22,500.
C. A debit to loss on sale for $10,000.
D. A credit to loss on sale for $10,000.
E. A debit to gain on sale for $2,500.
17. A depreciable asset costing $75,000 is purchased on September 1, Year 1. The asset is
estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-
declining-balance depreciation is used. If the asset is sold on December 31, Year 3 for
$13,000, the journal entry to record the sale will include:
A. A credit to gain on sale for $8,000.
B. A debit to loss on sale for $2,625.
C. A credit to accumulated depreciation for $59,375.
D. A debit to loss on sale for $3,042.
E. A credit to gain on sale for $4,979.
18. An asset can be disposed of by:
A. Discarding it.
B. Selling it.
C. Exchanging it for another asset.
D. Donating it to charity.
E. All of these.
19. A company sold a machine that originally cost $100,000 for $60,000 cash. The
accumulated depreciation on the machine was $40,000. The company should recognize
 a:
A. $0 gain or loss.
B. $20,000 gain.
C. $20,000 loss.
D. $40,000 loss.
E. $60,000 gain.
20. A company discarded a display case originally purchased for $8,000. The accumulated
depreciation was $7,200. The company should recognize a(an):
A. $0 gain or loss.
B. $800 loss.
C. $800 gain.
D. $8,000 loss.
E. $7,200 loss.
21. A company had a bulldozer destroyed by fire. The bulldozer originally cost $125,000
with accumulated depreciation of $60,000. The proceeds from the insurance company
were $90,000. The company should recognize:
A. A loss of $25,000.
B. A gain of $25,000.
C. A loss of $65,000.
D. A gain of $65,000.
E. A gain of $90,000.
22. The formula for computing annual straight-line depreciation is:
A. Depreciable cost divided by useful life in units.
B. Cost plus salvage value divided by the useful life in years.
C. Cost less salvage value divided by the useful life in years.
D. Cost multiplied by useful life in years.
E. Cost divided by useful life in units.
23. The total cost of an asset less its accumulated depreciation is called:
A. Historical cost.
B. Book value.
C. Present value.
D. Current (market) value.
E. Replacement cost.
24. A method that charges the same amount of expense to each period of the asset's useful life
is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.
25. A method that allocates an equal portion of the total depreciable cost for a plant
asset to each unit produced is called:
A. Accelerated depreciation.
B. Declining-balance depreciation.
C. Straight-line depreciation.
D. Units-of-production depreciation.
E. Modified accelerated cost recovery system (MACRS) depreciation.

PART II - RECEIVABLES
26. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount
of a bad debt being written off, the entry to record the write-off against the allowance
account results in:
 A. An increase in the expenses of the current period.
B. A reduction in current assets.
C. A reduction in equity.
D. No effect on the expenses of the current period.
E. A reduction in current liabilities.
27. On October 29 of the current year, a company concluded that a customer's $4,400
account receivable was uncollectible and that the account should be written off. What
effect will this write-off have on this company's net income and total assets assuming the
allowance method is used to account for bad debts?
A. Decrease in net income; no effect on total assets.
B. No effect on net income; no effect on total assets.
C. Decrease in net income; decrease in total assets.
D. Increase in net income; no effect on total assets.
E. No effect on net income; decrease in total assets.
28. The allowance method based on the idea that a given percent of a company's credit
sales for the period are uncollectible is:
A. The percent of sales method.
B. The percent of accounts receivable method.
C. The aging of accounts receivable method.
D. Direct write-off method.
E. Factoring method.
29. A method of estimating bad debts expense that involves a detailed examination of
outstanding accounts and their length of time past due is the:
A. Direct write-off method.
B. Aging of accounts receivable method.
C. Percentage of sales method.
D. Aging of investments method.
E. Percent of accounts receivable method.
30. An accounting procedure that (1) estimates and reports bad debts expense from credit
sales during the period the sales are recorded, and (2) reports accounts receivable at
the estimated amount of cash to be collected is the:
A. Allowance method of accounting for bad debts.
B. Aging of notes receivable.
C. Adjustment method for uncollectible debts.
D. Direct write-off method of accounting for bad debts.
E. Cash basis method of accounting for bad debts.
31. On December 31 of the current year, a company's unadjusted trial balance included the
following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful
Accounts, credit balance of $951. What amount should be debited to Bad Debts Expense,
assuming 6% of outstanding accounts receivable at the end of the current year will be
uncollectible?
A. $951.
B. $3,992.
C. $4,884.
D. $5,835.
E. $6,786.
32. A company has $90,000 in outstanding accounts receivable and it uses the allowance
method to account for uncollectible accounts. Experience suggests that 6% of
outstanding receivables are uncollectible. The current debit balance (before
adjustments) in the allowance for doubtful accounts is $800. The journal entry to
record the adjustment to the allowance account includes a debit to Bad Debts Expense
for:
 A. $4,600
B. $5,400
C. $6,200
D. $6,800
E. None of these
33. Electron borrowed $75,000 cash from TechCom by signing a promissory note.
TechCom's entry to record the transaction should include a:
A. Debit to Notes Receivable for $75,000.
B. Debit to Accounts Receivable for $75,000.
C. Credit to Notes Receivable for $75,000.
D. Debit Notes Payable for $75,000.
E. Credit to Sales for $75,000.
34. The amount due on the maturity date of a $6,000, 60-day 8%, note receivable is:
A. $6,000.
B. $6,480.
C. $5,520.
D. $6,080
E. $5,920.
35. Paoli Pizza bought $5,000 worth of merchandise from TechCom and signed a 90-day,
10% promissory note for the $5,000. TechCom's journal entry to record the sales
portion of the transaction is:
A. Debit Accounts Receivable $5,000; credit Sales $5,000.
B. Debit Notes Receivable $5,000; credit Sales $5,000.
C. Debit Accounts Receivable $5,125; credit Sales $5,125.
D. Debit Notes Receivable $5,125; credit Sales $5,125.
E. Debit Notes Receivable $5,000; debit Interest Receivable $125; credit Sales $5,125.
36. MixRecording Studios purchased $7,800 in electronic components from TechCom.
MixRecording Studios signed a 60-day, 10% promissory note for $7,800. TechCom's
journal entry to record the sales portion of the transaction is:
A. Debit Accounts Receivable $7,800; credit Sales $7,800.
B. Debit Accounts Receivable $7,930; credit Sales $7,930.
C. Debit Notes Receivable $7,800; credit Sales $7,800.
D. Debit Notes Receivable $7,930; credit Sales $7,930.
E. Debit Notes Receivable $7,800; debit Interest Receivable $130; credit Sales $7,930.
37. When the maker of a note honors a note this indicates that the note is:
A. Signed.
B. Paid in full.
C. Guaranteed.
D. Notarized.
E. Cosigned.
38. Failure by a promissory note's maker to pay the amount due at maturity is known as:
A. Protesting a note.
B. Closing a note.
C. Dishonoring a note.
D. Discounting a note.
E. Depreciating a note.
39. Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom
make on January 15 of the next year when the note is paid?
A. Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B. Debit Cash $4,920; credit Notes Receivable $4,920.
C. Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable
 $20; credit Notes Receivable $4,800.
D. Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable
$100; credit Notes Receivable $4,800.
E. Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800.
40. Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom
make on December 31, to record the accrued interest on the note?
A. Debit Cash $20; credit Notes Receivable $20.
B. Debit Cash $100; credit Notes Receivable $100.
C. Debit Interest Receivable $20; credit Interest Revenue $20.
D. Debit Interest Receivable $100; credit Interest Revenue $100.
E. Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.
41. The formula for computing interest on a note is principal of the note times the annual
interest rate times time expressed in fraction of year.
True False
42. The person that borrows money and signs a promissory note is called the payee.
True False
43. A company borrowed $1,000 by signing a six month promissory note at 5% interest.
The total amount of interest is $25.
True False
44. A company borrowed $6,000 by signing a 4-month promissory note at 12%. The total
interest on the note is $720.
True False
45. Sellers generally prefer to receive notes receivable rather than accounts receivable
when the credit period is long and the receivable is for a large amount.
True False
46. Receivables can be used to obtain cash by either selling them or using them as security for a
loan.
True False
47. The process of using accounts receivable as security for a loan is known as factoring
accounts receivable.
True False
48. Since pledged accounts receivables only serve as collateral for a loan and are not sold, it
is not necessary to disclose the pledging.
True False
49. A company factored $35,000 of its accounts receivable and was charged a 2% factoring
fee. The journal entry to record this transaction would include a debit to Cash of
$35,000, a debit to Factoring Fee Expense of $700, and credit to Accounts Receivable of
$35,700.
True False
50. The quality of receivables refers to the likelihood of collection without loss.
True False

PART III - CASH

51. Internal control in technologically advanced accounting systems depends more on the
design and operation of the information system and less on the analysis of its resulting
documents.
True False
52. Two important limitations of internal control systems are (1) human error or human
fraud, and (2) cost- benefit.
True False
53. Fraud does not include collusion, which is necessary to thwart separation of duties.
True False
54. Separation of duties divides responsibility for a transaction or a series of related
transactions between two or more individuals or departments. Separation of duties
reduces the risk of error and fraud.
True False
55. Cash equivalents are short-term highly liquid investment assets that are readily
converted to a known cash amount, and have maturities of one year.
True False
56. Liquidity refers to a company's ability to pay its near-term obligations.
True False
57. Money orders, cashier's checks, and certified checks are examples of cash equivalents.
True False
58. Basic bank services such as bank accounts, bank deposits, and checking contribute to
the control and safeguarding of cash.
True False
59. The payee is the person who signs a check, authorizing its payment.
True False
60. Electronic funds transfer (EFT) is the electronic transfer of cash from one party to another.
True False
61. Cancelled checks are checks the bank has paid and deducted from the customer's
account during the period.
True False
62. A check involves 3 parties: the maker who signs the check, the payee who is the
recipient, and the bank on which the check is drawn.
True False
63. Internal control devices for banking activities include signature cards, deposit tickets,
checks, and bank statements.
True False
64. On a bank statement, deposits are listed as debits because the bank increases its cash
account when the deposit is made.
True False
65. The days' sales uncollected ratio measures a company's ability to manage its debt.
True False
66. The following information is available for Holland Company at December
Money market fund balance $ 2,790
Certificate of deposit maturing June 30 of next year $ 15,000
Postdated checks from customers $ 1,475
Cash in bank account $22,431
NSF checks from customers returned by bank $ 650
Cash in petty cash fund S 200
Inventory of postage stamps$ 18 U.S. Treasury bill purchased on December 15 and maturing on
February 28 of following year $ 10,000
Based on this information, Holland Company should report Cash and Cash Equivalents
on December 31 of:
A. $35,421
B. $50,421
C. $37,546
D. $36,246
E. $40,439

67. The following information is available for Johnson Manufacturing Company at June
Cash in bank account $ 6,455
Inventory of postage stamps $ 74
Money market fund balance $12,400
Petty cash balance $ 350
 NSF checks from customers returned by$ 867
Postdated
bank checks received from$ 391
Money orders
customers $ 257
A nine-month certificate of deposit
on December 31 of current year
maturing $ 8,000
Based on this information, Johnson Manufacturing Company should report Cash and
Cash Equivalents on June 30 of:
A. $15,062
B. $20,146
C. $20,072
D. $19,205
E. $19,462
68. Basic bank services include:
A. Bank accounts.
B. Bank deposits.
C. Checking.
D. Electronic funds transfer.
E. All of these.
69. A check involves three parties:
A. The writer, the cashier, and the bank.
B. The maker, the payee, and the bank.
C. The maker, the manager, and the payee.
D. The bookkeeper, the payee, and the bank.
E. The signer, the cashier, and the company.
70. A remittance advice is:
A. An explanation for a payment by check.
B. A bank statement.
C. A voucher.
D. An EFT.
E. A cancelled check.
71. Outstanding checks refer to checks that have been:
A. Written, recorded, sent to payees, and received and paid by the bank.
B. Written and not yet recorded in the company books.
C. Held as blank checks.
D. Written, recorded on the company books, sent to the payee, but have not yet been paid
by the bank.
E. Issued by the bank.
72. On a bank reconciliation, the amount of an unrecorded bank service charge should be:
A. Added to the book balance of cash.
B. Deducted from the book balance of cash.
C. Added to the bank balance of cash.
D. Deducted from the bank balance of cash.
E. Noted in memorandum form only.
73. A check that was outstanding on last period's bank reconciliation was not among the
cancelled checks returned by the bank this period. As a result, in preparing this period's
reconciliation, the amount of this check should be:
A. Added to the book balance of cash.
B. Deducted from the book balance of cash.
C. Added to the bank balance of cash.
D. Deducted from the bank balance of cash.
E. Ignored in preparing the period's bank reconciliation
74. A company made a bank deposit on September 30 that did not appear on the bank
statement dated as of September 30. In preparing the September 30 bank
 reconciliation, the company should:
A. Deduct the deposit from the bank statement balance.
B. Send the bank a debit memorandum.
C. Deduct the deposit from the September 30 book balance and add it to the October 1
book balance.
D. Add the deposit to the book balance of cash.
E. Add the deposit to the bank statement balance.
75. If a check correctly written and paid by the bank for $794 is incorrectly recorded in the
company's books for $749, how should this error be treated on the bank
reconciliation?
A. Subtract $45 from the bank's balance.
B. Add $45 to the bank's balance.
C. Subtract $45 from the book balance.
D. Add $45 to the book balance.
E. Subtract $45 from the bank's balance and add $45 to the book's balance.

PART IV-INVENTORIES
76. Companies are allowed to use FIFO for financial reporting and LIFO for tax reporting,
according to IRS requirements.
True False
77. An error in the period-end inventory balance will cause an error in the
calculation of cost of goods sold.
True False
78. Errors in the period-end inventory balance only affect the current period's
records and financial statements.
True False
79. An inventory error is sometimes said to be self-correcting because it causes an
offsetting error in the next period.
True False
80. An understatement of the ending inventory balance will understate cost of goods sold
and overstate net income.
True False
81. Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and
average inventory of $1,965 million. Its inventory turnover equals:
A. 0.21.
B. 4.51.
C. 4.79.
D. 76.1 days.
E. 80.9 days.
82. Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and
average inventory turnover of $1,965 million. Its days' sales in inventory equals:
A. 0.21.
B. 4.51.
C. 4.79.
D. 76.1 days.
E. 80.9.days.
83. Acceptable methods of assigning specific costs to inventory and cost of goods sold
include all of the following except:
A. LIFO method.
B. FIFO method.
C. Specific identification method.
D. Weighted average method.
 E. Retail method.
84. A company had inventory on November 1 of 5 units at a cost of $20 each. On November
2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25
each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual
inventory method, what was the value of the inventory on November 8 after the sale?
A. $304
B. $296
C. $288
D. $280
E. $276
85. Axme Corporation uses a weighted-average perpetual inventory system.
August 2, 10 units were purchased at $12 per unit.
August 18, 15 units were purchased at $14 per unit.
August 29, 12 units were sold.
What was the amount of the cost of goods sold for this sale?
A. $148.00.
B. $150.50.
C. $158.40.
D. $210.00.
E. $330.00.
86. In applying the lower of cost or market method to inventory valuation, market is defined
as:
A. Historical cost.
B. Current replacement cost.
C. Current sales price.
D. FIFO.
E. LIFO.
87. Generally accepted accounting principles require that the inventory of a company be
reported at:
A. Market value.
B. Historical cost.
C. Lower of cost or market.
D. Replacement cost.
E. Retail value.
88. The conservatism constraint:
A . Prescribes that when multiple estimates of amounts to be received or paid in the
future are equally . likely, then the least optimistic amount should be used.
B. Prescribes that a company use the same accounting methods period after period.
C. Prescribes that revenues and expenses be reported in the period in which they are
earned or incurred.
D. Prescribes that all items of a material nature be included in financial statements.
E. Prescribes that all inventory items be reported at full cost.
89. A company normally sells its product for $20 per unit. However, the selling price has
fallen to $15 per unit. This company's current inventory consists of 200 units purchased
at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of
this company's inventory at the lower of cost or market.
A. $2,550.
B. $2,600.
C. $2,700.
D. $3,000.
E. $3,200.
90. A company has the following per unit original costs and replacement costs for its
inventory:
 Part A: 50 units with a cost of $5, and replacement cost of $4.50
Part B: 75 units with a cost of $6, and
replacement cost of $6.50 Part C: 160 units
with a cost of $3, and replacement cost of $2.50
Under the lower of cost or market method, the total value of this company's ending
inventory is:
A. $1,180.00.
B. $1,075.00.
C. $1,075.00 or $1,112.50, depending upon whether LCM is applied to individual items
or the inventory as a whole.
D. $1,112.50.
E. $1,180.00 or $1,075.00, depending upon whether LCM is applied to individual items
or to the inventory as a whole.
91. Jackson Company has sales of $300,000 and cost of goods available for sale of
$270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending
inventory under the gross profit method would be:
A. $60,000
B. $180,000
C. $30,000
D. $90,000
E. Impossible to determine from the information provided.
92. Georgia Peach Company reported net sales in June of the current year of $1,000,000.
At the beginning of June, the company reported beginning inventory of $368,000.
Cost of goods purchased during June amounted to $217,500. The company reported
ending inventory at the end of June of $226,750.
The company's gross profit rate for June of the current year was:
A. 35.9%
B. 18.8%
C. 81.2%
D. 64.1%
E. Impossible to determine from the information provided.
93. On July 24 of the current year, The Georgia Peach Company experienced a natural
disaster that destroyed the company's entire inventory. At the beginning of July, the
company reported beginning inventory of $226,750. Inventory purchased during July
(until the date of the disaster) was $197,800. Sales for the month of July through July 24
were $642,500. Assuming the company's typical gross profit ratio is 50%, estimate the
amount of inventory destroyed in the natural disaster.
A. $212,275
B. $103,300
C. $217,950
D. $321,250
E. $157,788
94. Flaxco purchases inventory from overseas and incurs the following costs: the cost of the
merchandise is $50,000, credit terms are 2/10, n/30 that apply only to the $50,000; FOB
shipping point freight charges are $1,500; insurance during transit is $500; and import
duties are $1,000. Flaxco paid within the discount period and incurred additional costs
of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that
should be assigned to the inventory.
A. $50,000
B. $53,000
C. $52,000
D. $51,500
 E. $53,200
95. Some companies choose to avoid assigning incidental costs of acquiring merchandise
to inventory by recording them as expenses when incurred. The argument that
supports this is called:
A. The matching principle.
B. The materiality constraint.
C. The cost principle.
D. The conservation constraint principle.
E. The lower of cost or market principle.
96. In applying the lower of cost or market method to inventory valuation, market is defined
as the current selling price.
True False
97. A company has inventory with a market value of $217,000 and a cost of $241,000.
According to the lower of cost or market, the inventory should be written down to
$217,000.
True False
98. The lower of cost or market rule for inventory valuation must be applied to each
individual unit separately, and not to major categories of inventory or to the entire
inventory.
True False
99. The conservatism constraint requires that when more than one estimate of the amounts
to be received or paid in the future exists and these estimates are about equally likely,
then the less optimistic amount is used.
True False
100. A company's total cost of inventory was $305,000 and its market value is $297,000.
Under the lower cost or market, the amount reported should be $305,000.
True False