Accounting 201H Final Exam

Two-Wheel Products Company sells bicycles for $120 with a 30-day warranty against defects. Experience indicates that 6% of the bicycles will have a defect and that the necessary repairs will cost $16 per bicycle. Sales for May were $108,000; 20 units sold in May were found defective and repaired that month. What is the May 31 journal entry for the estimated liability for product warranties? A) Product Warranty Expense 544 Estimated Liability for Product Warranty 544 B) Product Warranty Expense 320 Estimated Liability for Product Warranty 320 C) Estimated Liability for Product Warranty 864 Product Warranty Expense 864 D) Estimated Liability for Product Warranty 544 Product Warranty Expense 544 E) None of the Above

A

Assume that Susan Garcia earns $12 per hour and she worked 40 hours this week. The Social Security rate is 6.2% and the Medicare rate is 1.45%, and her entire earnings are subject to both FICA taxes. Also, $60 in income taxes and $20 of union dues are withheld. Garcia's net take-home pay should be: A) $363.28 B) $400.00 C) $320.00 D) $369.40 E) None of the above

A, $363.28

A plant asset is acquired by a business on January 1, 20x5, for $10,000. The asset's estimated residual value is $2,000 and its estimated life is 5 years. Management chooses to use straight-line depreciation. On January 1, 20x7, management revises the total useful life to 6 years and the residual value to be zero. Compute the balance in Accumulated Depreciation on December 31, 20x7: A) $4,900 B) $3,200 C) $3,600 D) $2,667

A, $4,900

The following item appeared on the December 31, 20x6, balance sheet of the Cyclery: Receivables, less allowance of $650.........$6,700 On January 5, 20x7, owner Sean Viesters wrote off a $100 customer account. After the write-off, what is the value of the net receivables? A) $6,700 B) $6,600 C) $6,150 D) $6,900

A, $6,700

The book value of an asset at the beginning of the year was $13,000. The equipment originally cost $23,000. Depreciation expense for the year was $4,000. The book value of the asset at the end of the year is: A) $9,000 B) $17,000 C) $14,000 D) $19,000

A, $9,000

Triclinium Company signed an 18-month, $20,000, 8% note on June 1, 20x6. The amount of interest to be accrued on December 31, 20x6, is: A) $933 B) $1,600 C) $519 D) $800

A, $933

Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue? A) April B) February C) January D) Evenly in each of the three months

A, April

Monthly sales were $200,000. It was estimated that 4% of the units sold would have to be replaced under warrant.y On the date of the sale the company should record a debit to: A) Warranty expense for $8,000 B) Sales for $8,000 C) Warranty Payable for $8,000 D) No entry is required since the actual liability amount is not known

A, Warranty expense for $8,000

On January 1, Brad Inc. sold $30,000 in products to a customer on account. Then, on January 10, Brad collected the cash on that account. What is the impact on Brad's accounting equation from the collection of that cash on January 10? A) No net effect on the accounting equation B) Assets increase and liabilities decrease C) Assets decrease and liabilities decrease D) Assets increase and stockholder's equity increases

A, no net effect on the accounting equation

Which transaction would not be recorded under cash-basis accounting? A) Purchasing supplies on account B) Purchasing one year of rent in advance C) Paying salaries to employees D) Providing services to customers for cash

A, purchasing supplies on account

At the end of an asset's useful life, the balance in Accumulated Depreciation will be: A) The same amount under all the depreciation methods B) Greater under units-of-production depreciation than under straight-line depreciation C) A lesser amount under double-declining-balance depreciation than under units-of-production depreciation D) A greater amount under straight-line depreciation than under double-declining-balance depreciation

A, the same amount under all the depreciation methods

Williams & Haverford Corporation uses the percentage-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $2,000,000 and management estimates 5% will be uncollectible. Allowance for Doubtful Accounts prior to adjustment has a credit balance of $10,000. The amount of expense reported on the income statement will be: A) $90,000 B) $100,000 C) $110,000 D) $10,000

B, $100,000

Given the following data, calculate the cost of ending inventory using the Average-cost method, rounding to the nearest dollar. 1/1 Beginning Inventory 30 units @ $10 per unit 3/5 Purchases 20 units @ $14 per unit 5/30 Purchases 30 units @ $15 per unit 12/31 Ending Inventory 20 units A) $200 B) $258 C) $300 D) $260

B, $258

On November 1 of the current year, Jamie Simmons received $5,400 for legal services to be performed evenly throughout the next twelve months. An adjusted trial balance prepared on December 31 of the current year will show a credit balance in Unearned Revenue in the amount of: A) $0 B) $4,500 C) $900 D) $5,400

B, $4,500

Glablock Incorporated uses the percentage-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $1,000,000, and management estimates 4% will be uncollectible. Allowance for Doubtful Accounts prior to adjustment has a debit balance of $1,900. The amount of expense reported on the income statement and the balance in Allowance for Uncollectible Accounts, respectively, will be: A) $40,000, $41,900 B) $40,000, $38,100 C) $38,100, $40,000 D) $41,900, $40,000

B, $40,000, $38,100

On January 2, 20x5, Kansas Corporation acquired equipment for $140,000 which had an estimated life of 5 years or 20,000 hours. The estimated salvage value is $40,000. What is the balance in Accumulated Depreciation on December 31, 20x5, if Kansas Corporation uses the double-declining-balance method of depreciation? A) $43,200 B) $56,000 C) $23,200 D) $36,000

B, $56,000

Miller's Landing Corporation purchased equipment on January 1, 20x3 for $150,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $30,000. After using the equipment for 3 years, Miller's Landing Corporation determined that the equipment could be used for a total of 12 years. Assuming Miller's Landing Corporation uses straight-line depreciation, compute depreciation expense for the year ending December 3,1 20x6. A) $7,000 B) $9,333 C) $10,000 D) $12,667

B, $9,333

A bank deposit of $150 recorded by the bank as $250 should appear on the bank reconciliation as: A) A deduction from the book balance of $150 B) A deduction from the bank balance of $100 C) An addition to the book balance of $100 D) A deduction from the bank balance of $250

B, A deduction from the bank balance of $100

Amortization is most closely associated with which asset? A) Natural gas lease B) Copyright C) Building D) All of these answers are correct

B, Copyright

Piecework Company sold some office furniture for $4,500 cash. The furniture cost $24,000 and had accumulated depreciation through the date of sale totaling $21,700. The journal entry to record the sale of the furniture will include a: A) Credit to Loss on Sale of Furniture for $19,500 B) Credit to Gain on Sale of Furniture for $2,200 C) Debit to Loss on Sale of Furniture for $19,500 D) Debit to Gain on Sale of Furniture for $2,200

B, Credit to gain on sale of furniture for $2,200

What effects would the accrual of $80 of interest on a note payable have on financial statements? I. Balance Sheet: Liabilities are decreased by $80 II. Income Statement: Expenses are increased by $80 III. Balance Sheet: Retained Earnings are decreased by $80 IV: Balance Sheet: Cash assets are decreased by $80 V: Balance Sheet: Liabilities are increased by $80 A) I, II, III B) I, III, V C) II, IV, V D) II, III, IV E) IV, V

B, I, III, V

On December 31, 20x6, the payee on a $6,000, 90-day, 8% note dated November 1, 20x6, will recognize: A) Interest Payable $120 B) Interest Receivable $80 C) Interest Payable $80 D) Interest Receivable $120

B, Interest Receivable, $80

The use of the FIFO Method increases taxable income when: A) Prices are constant B) Prices are increasing C) Prices are declining D) FIFO will always yield the lowest possible taxes

B, Prices are increasing

Which of the following statements is true? A) Accumulated depreciation represents an increasing amount of cash to be used to replace the existing asset B) Accumulated depreciation is that portion of a plant asset's cost that has been recorded previously as an expense C) Depreciation means that a business sets aside cash to replace assets as they become fully depreciated D) Depreciation is a process of objective valuation

B, accumulated depreciation is that portion of a plant asset's cost that has been recorded previously as an expense

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should First Bank record? A) Debit cash, $8,000; Credit notes receivable, $8,000 B) Debit notes receivable, $8,000; Credit cash, $8,000 C) Debit cash, $8,000; Credit notes payable, $8,000 D) Debit notes payable, $8,000; Credit cash, $8,000

B, debit notes receivable and credit cash

Claims held by the stockholders of a corporation are alternately known as: A) Retained earnings B) Paid-in capital plus retained earnings C) Paid-in capital D) Earned income

B, paid-in capital plus retained earnings

Claycomb Company sold goods for which it received total cash payments of $142,600. A 9% excise tax and 6% sales tax were included in the total cash payments. Sales revenue recorded should be: A) $121,210 B) $129,766 C) $124,000 D) $134,044 E) None of the above

C, $124,000

The balance in Accounts Receivable was $800,000 at the beginning of the year and $500,000 at the end of the year. Sales for the year totaled $2,400,000. During the year $200,000 in customer accounts were written off. How much cash was collected from customers during the period? A) $1,900,000 B) $2,700,000 C) $2,500,000 D) $2,900,000

C, $2,500,000

On January 2, 20x5, Kansas Corporation acquired equipment for $140,000. The estimated life of the equipment is 5 years of 20,000 hours. The estimated residual value is $40,000. If Kansas Corporation uses the straight-line method of depreciation, what will be the debit to Depreciation Expense for the year ended December 31, 20x6, during which period the asset was used 4,500 hours? A) $22,500 B) $31,500 C) $20,000 D) $28,000

C, $20,000

ArtWorks Company reported $42,000 in depreciation expense for the current year using the double-declining-balance method. The company estimates that it saved net cash of $6,000 in income taxes by using double-declining-balance instead of the straight-line method. The company as a 40% tax rate. What would depreciation expense have been using the straight-line method? A) $57,000 B) $52,000 C) $27,000 D) $32,000

C, $27,000

Smith Inc. records sales at amounts that include sales tax. During June, total sales of $90,000, including 6% sales tax, were recorded. The sales tax liability for June (rounded to the nearest dollar): A) $5,274 B) $84,500 C) $5,094 D) $89,570 E) None of the above

C, $5,094

Counte Company's cash balance at the end of the month was $5,500. After comparing the company's records with the monthly bank statement, Counte's accountant identified the following reconciling items: outstanding checks, $900; deposits in transit, $600; bank service charge, $20; NSF check, $200. What is the adjusted bank balance? A) $4,980 B) $5,580 C) $5,280 D) The adjusted bank balance cannot be determined

C, $5,280

Using the aging-of-accounts-receivable method to estimate uncollectibles, Greeley Corporation estimates that $6,000 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a debit balance of $2,000. After all necessary adjusting entries are made, the balance in Allowance for Uncollectible Accounts will be: A) $2,000 B) $4,000 C) $6,000 D) $8,000

C, $6,000

A company started the year with $200 of supplies. During the year the company purchased addition supplies costing $1,200. There were $800 of supplies on hand at the end of the year. An adjusted trial balance prepared at the end of the accounting period will show the following balance in Supplies: A) $1,400 B) $600 C) $800 D) $0

C, $800

Which one of the following would be considered a contingent liability? A) A company owes $100,000 on inventory purchased on credit B) A company has $845,000 worth of bonds outstanding C) A company estimates that it will probably have to pay $1,200,000 to the Department of Environmental Protection for a chemical spill D) The company has access to a line of credit with a bank in the amount of $1,500,000 E) The company believes that it is reasonably possible that it will lose a lawsuit but is unable to determine the possible damages

C, A company estimates that it will probably have to pay $1,200,000 to the Department of Environmental Protection for a chemical spill

Which of the following is not a liability? A) Notes Payable B) Current portion of long-term debt C) An unused line of credit D) Unearned revenue

C, An unused line of credit

Given the following data, by how much would taxable income change if FIFO is used rather than LIFO? Beginning Inventory 1,000 units at $25 Purchases 2,400 units at $30 Units Sold 1,500 A) Increase by $7,500 B) Increase by $5,000 C) Decrease by $5,000 D) Decrease by $7,500

C, Decrease by $5,000

A revision of an estimate which extends the asset's useful life: A) Should be ignored until the last year of the asset's life B) Increases depreciation expense and decreases owner's equity C) Decreases depreciation expense and increases owner's equity D) Requires restatement of prior years' financial statements

C, Decreases depreciation expense and increases owner's equity

The revenue principle requires that a business record revenue when the business: A) Receives an order from a customer for goods or services B) Prepares the invoice (bill) for goods or services C) Delivers goods or services to a customer D) Receives payment from a customer for goods or services

C, Delivers goods or services to a customer

Blier Company has a current ratio of 3.00. Which of the following events would cause its current ratio to increase? A) Collection of an A/R B) Purchase of Supplies on Account C) Payment of an A/P D) Purchase of Equipment on Account

C, Payment of an A/P

On September 1, Wall Street Company paid $4,800 for one year of rent, in advance. Which of the following accounts and amounts will appear on the adjusted trial balance prepared on December 31? A) Rent expense, $3,200 B) Prepaid rent, $1,600 C) Rent expense, $1,600 D) Prepaid rent, $4,800

C, Rent expense, $1,600

How does an accrued expense adjustment affect the financial statements? A) The adjustment decreases expenses and increases assets B) The adjustment decreases expenses and increases liabilities C) The adjustment increases expenses and increases liabilities D)The adjustment increases expenses and decreases assets

C, The adjustment increases expenses and increases liabilities

If liabilities increase $120,000 during a given period and stockholder's equity decreases $25,000 during the same period, assets must: A) Decrease $145,000 B) Decrease $95,000 C) Increase $95,000 D) Increase $145,000

C, increase $95,000

A company has a contingent loss that can be estimated and has a reasonably possible chance of occurrence. What reporting does FASB require regarding this contingency? A) It should be accrued and reported on the financial statements B) It should be ignored until the actual loss materializes C) It should be reported in the notes to the financial statements D) It should be accrued and reported on the financial statements, and reported in the notes to the financial statements

C, it should be reported in the notes to the financial statements

On January 2, 20x5, Shandley Corporation acquired equipment for $120,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated residual value is $20,000. What is the amount of depreciation expense for 20x7, if Shandley Corporation uses the asset 3,800 hours and uses the double declining balance of depreciation? A) $10,368 B) $25,920 C) $20,000 D) $17,280

D, $17,280

The bank statement balance is $6,800 and shows a service charge of $25, interest earned of $10, and an NSF check for $300. Deposits in transit total $1,200; outstanding checks are $640. What is the adjusted bank balance? A) $6,240 B) $6,485 C) $7,045 D) $7,360

D, $7,360

Anie's Flowers recently paid to have the engine in its delivery van overhauled. The estimated useful life of the van was originally estimated to be 4 years. The overhaul is expected to extend the useful life of the van to 6 years. The overhaul is regarded as a(n): A) Revenue expenditure B) Equity expenditure C) Matching expenditure D) Capital expenditure

D, Capital Expenditure

When inventory prices have remained constant for several accounting periods, the FIFO costing method will generally result in: A) A lower inventory value than under LIFO B) A higher cost of goods sold than under LIFO C) A higher gross profit than under LIFO D) No material difference than under LIFO

D, No material difference than under LIFO

The entry to establish the petty cash fund is: A) Miscellaneous Expense Debit Cash Credit B) Miscellaneous Expense Debit Petty Cash Credit C) Cash Debit Petty Cash Credit D) Petty Cash Debit Cash Credit

D, Petty cash debit, cash credit

When inventory prices are increasing, the FIFO costing method will generally yield a cost of goods sold that is: A) Equal to the gross profit under the LIFO method B) Equal to the cost of goods sold under the LIFO method C) Higher than the costs of goods sold under the LIFO method D) Less than the costs of goods sold under the LIFO method

D, less than the costs of goods sold under the LIFO method

The term deferral refers to an event: A) Where the liability for an expense is recorded AFTER the expense is actually incurred B) Where the recognition of an expense or revenue is recorded BEFORE the cash is paid or received C) Where the liability for an expense is recorded BEFORE the expense is actually incurred D) Where the recognition of an expense or revenue is recorded AFTER the cash is paid or received

D, where the recognition of an expense or revenue is recorded AFTER the cash is paid or received

According to US GAAP, which criteria must be met in order to recognize a contingent liability? A) The obligation is certain to require payment at some point in the future B) The obligation is probable C) The obligation can be estimated D) The obligation is reasonably possible E) Answers B and C

E, Answers B and C