21. When a plant asset is acquired by issuance of common stock, the cost of the
ID: 2601619 • Letter: 2
Question
21. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the
a. par value of the stock.
b. stated value of the stock.
c. book value of the stock.
d. fair value of the stock.
22. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?
a. Prices decreased.
b. Prices remained unchanged.
c. Prices increased.
d. Price trend cannot be determined from information given.
23. In the context of dollar-value LIFO, what is a LIFO layer?
a. The difference between the LIFO inventory and the amount used for internal reporting purposes.
b. The LIFO value of the inventory for a given year.
c. The inventory in base year dollars.
d. The LIFO value of an increase in the inventory for a given year.
24. The credit balance that arises when a net loss on a purchase commitment is recognized should be
a. presented as a current liability.
b. subtracted from ending inventory.
c. presented as an appropriation of retained earnings.
d. presented in the income statement.
25. The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to
a. the machinery account.
b. a separate deferred charge account.
c. miscellaneous tax expense (which includes all taxes other than those on income).
d. accumulated depreciation--machinery.
Explanation / Answer
Solution 21:
When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the fair value of the stock. Therefore option "d" is correct.
Solution 22:
if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method; it means inventory value under FIFO method is lesser than inventory value under LIFO method. FIFO method value inventory at their current prices while LIFO method value inventory at their historical prices.
Therefore, if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method; it means prices are decreased. Hence option "a" is correct.
Solution 23:
LIFO layer is the LIFO value of an increase in the inventory for a given year. Therefore option "d" is correct.
Solution 24:
The credit balance that arises when a net loss on a purchase commitment is recognized should be presented as a current liability. Therefore option "a" is correct
Solution 25:
The debit for a sales tax properly levied and paid on the purchase of machinery preferably would be a charge to the machinery account. Therefore option "a" is correct.
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