Exam 7: Tackling the General Ledger

The Radman Company began operation on January 1 of this year. It bought 600 units of inventory at $3 each on January 3, then it bought 400 units at $4 each in December. During the year it sold 900 items. Assuming it uses the weighted average method of accounting, its ending inventory of 100 units would be measured at

In GAAP, the principal difference between the "fair value" and the "net realizable value" of a financial asset is how transaction costs are treated.

Under FASB rules, a retail store's inventory of clothing should be shown on its balance sheet at

For external reporting, which method of accounting for inventory is not allowed under GAAP?

The valuation method that slowly reduces the stated amount of an asset over time, in a systematic fashion, is

Both IFRS and GAAP allow companies to choose the same methods of assigning costs to inventory: FIFO, LIFO, weighted average cost, and specific identification.

One advantage of the "historical cost" method of accounting is that it can be readily verified.

A company is trying to value certain 20-year City of Atlanta bonds it owns, which mature in 2025. It finds that on December 31, there were no sales of these particular bonds, but there were market sales of City of Atlanta 15-year bonds, which mature in 2028. The information about the 15-year bonds is an example of a:

A company that uses fair value accounting for a group of assets has more opportunity than a company that uses historical cost to manage earnings by selectively selling those assets whose value has risen.

A company owns some installment notes that were issued by one of its customers. The customer is not a public company, and its debt is not publicly traded. The company values these notes based in part on market interest rates, and partly on its own judgment of the credit-worthiness of the supplier. The company's own judgment is an example of a:

Under GAAP, the economic asset a company has developed by its advertising, which has resulted in a widely recognized brand name, is valued on the balance sheet using

The term for the estimated amount that must be spent to replace an asset is net realizable value.

The term for a market that is totally efficient, with perfect information and zero transaction costs, is a "complete" market.

If a company records its bonds payable at fair value, and the market price of the bonds rises, the company will record a loss.

One problem with GAAP is that it allows companies to change their methods of accounting for important asset and liability accounts without disclosing the change to financial statement users.

The market for U.S. Treasury bonds is closer to a perfect market than the market for houses.

Under GAAP, the same rules are used to value gain contingencies and loss contingencies.

Over the last 50 years, the trend in GAAP has been toward allowing more use of fair value accounting.

When a company buys several assets together, for a single price, in a "basket purchase," the company must allocate the total purchase price among these assets based on the amounts that were on the books of the company that sold the assets.

The Penman Company began operation on January 1 of this year. It bought 600 units of inventory at $3 each on January 3, then it bought 400 units at $4 each in December. During the year it sold 900 items. Assuming it uses the LIFO method of accounting, its ending inventory of 100 units would be measured at