Exam 7: Tackling the General Ledger

In a "perfect" market, entry values are the same as exit values.

Under GAAP, intangible assets that are developed internally are generally not recognized.

The Tang Company started the year with 300 units in inventory, which cost $2 each. During January, it bought 700 units, which cost $3 each. During January, it sold 800 units. The amount the Tang Company should show as the value of the 200 items left in its ending inventory, using the weighted average method, is

Land is typically depreciated over a 40-year life.

Even if company financial statements use different valuation methods for different accounts, people can still base contractual arrangements on financial statement information.

A primary disadvantage of the amortized cost method of accounting for fixed assets is that the resulting values may not reflect the possible disposal value of the asset.

Which of the following assets is typically accounted for at fair value?

Under GAAP, the cost of inventory normally includes the amount paid to the vendor, but not the cost of shipping the item from the vendor to the company.

The term "exit price" means:

Problems with using historical cost accounting include all of the following, except:

One characteristic of a "complete" market is perfect information.

If costs are rising, then the LIFO method will generally result in higher cost of goods sold than FIFO.

One reason many U.S. companies use the LIFO method of accounting for inventory is that they believe it saves them money on taxes.

The "exit price" of an asset is what it can be sold for, ignoring any transaction costs.

What is the major reason GAAP usually does not use liquidation values to measure assets?

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 their relative fair market value.

Under GAAP, a retailer's company's inventory is typically stated at

The Nachman 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 FIFO method of accounting, its ending inventory of 100 units would be measured at

Which of the following is not an advantage of historical cost, when compared to fair value?

The FASB's defines "fair value" of a financial asset as the price it would be sold at in an orderly market, with willing market participants. Transaction costs are not considered.