Exam 7: Tackling the General Ledger

Under GAAP, if a company has an investment in the stock of another company, which it is holding as a long-term investment, and the value of this investment rises during the year:

The Liu Company started the year with 1,000 units in inventory, which cost $3 each. During January, it bought 7,000 units, which cost $4 each. During January, it sold 6,000 units, leaving it with 2,000 units at the end of the month. If it uses the weighted average method of accounting for inventory, the ending inventory value is

When the prices that a company must pay its vendors are rising, the method of accounting for inventory that normally results in the lowest ending inventory is

During periods of inflation, historical cost typically results in understating the true economic income of companies with significant fixed assets and inventory.

While large public companies must amortize goodwill, the GAAP framework for small- and medium-size companies does not allow their goodwill to be amortized.

The Early Corp. buys Farley Corp., for a total purchase price of $250 million. At the time of the acquisition, Farley's total identifiable assets had a fair value of $200 million. Their historical cost to Farley was $180 million. Farley's identifiable liabilities had a fair value which was the same as their historical cost of $120 million. The goodwill that should be recorded at the time of the purchase is

A company spends money researching a new idea, and believes it has come up with something that has significant future economic benefit. The valuation method that will be used for this research idea under GAAP, is

Under GAAP, a company's manufacturing equipment is typically stated at

Under "absorption costing," the cost of an inventory item includes an allocation of fixed overhead costs.

Under GAAP, when inventory is valued at the "lower of cost or market," "market" typically means:

Which of the following statements regarding valuations used in accounting is not correct?

One difference between IFRS and GAAP is that IFRS allows companies to measure fixed assets at fair value.

The historical cost of an asset tends to become less relevant as the asset is held for long periods of time.

Under GAAP, a company's investment in marketable equity securities is typically stated at:

Which of the following is an advantage of fair value accounting for financial assets over historical cost accounting?

Under GAAP rules, the unrealized holding gains or losses on marketable securities that are owned as long-term investments are shown as part of "other comprehensive income," not as part of net income.

The amount that a company would receive by selling an asset in orderly markets, minus transaction costs, is called

Under "direct costing," the cost of an inventory item includes an allocation of fixed overhead costs.

GAAPP requires companies to record their bonds payable at fair value.

The cost of buying an asset can sometimes include the amount of some future obligations that were incurred as part of acquiring the asset.