Question

Please answer these questions:

1. The future value of a single sum is determined by multiplying the future value factor by its present value. True or False.
2. In all cases when FIFO is used, the cost of goods sold would be the same whether a perpetual or periodic system is used. True or False.
3. Avoidable interest is the amount of interest cost that a company could theoretically avoid if it had not made expenditures for the asset. True or False.
4. The declining-balance method does not deduct the salvage value in computing the depreciation base. True or False.
5. Select the correct option: To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should: a) include markups but not markdowns. b) include markups and markdowns. c) ignore both markups and markdowns. d) include markdowns but not markups.
6. Which of the following would be considered research and development? a) Routine efforts to refine an existing product. b) Periodic alterations to existing production lines. c) Marketing research to promote a new product. d) Construction of prototypes.

Answer 1

Answer 1. True.

Explanation: Future value of a single sum is the present value multiplied by the future value factor (FVIF) at a given rate (r) & period (n)

Answer 2. True.

Explanation: Under the FIFO inventory method, the goods purchased first are sold first thus in both perpetual and periodic systems the cost of goods sold would be the same.

Answer 3. - True.

Explanation: Theoretically avoidable interest represents the interest amount that the company could avoid if expenditures for the asset are not made. The amount of interest to capitalize is limited to the actual cost of interest or avoidable interest whichever is lower.

Answer 4. True.

Explanation: Under the declining-balance method, the salvage value is not deducted from the cost for computing the depreciation base. Instead, the depreciation of the asset under this method ceases when the net book value of the asset equals the salvage value.

Answer 5. a) include markups but not markdowns

Explanation: Under the conventional retail inventory method, to get a better estimation of lower of cost or NRV, markdowns are not considered while computing the ratio of cost to retail.  

Answer 6. d) Construction of prototypes.

Explanation: Research and development includes activities which enhance the potential products or processes. Thus construction, desigining & testing of prototypes is  considered under research and development