Accounting 2301 - Final Exam
Use the following information to answer questions 51 and 52. 12/31/06 Accounts receivable $1,050,000 Allowance (90,000) Cash realizable value $960,000 During 2007 sales on account were $290,000 and collections on account were $172,000. Also during 2007 the company wrote off $16,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $108,000. 52. Bad debts expense for 2007 is a. $ 34,000 b. $ 18,000 c. $108,000 d. $ 2,000
a. $ 34,000
5. Using the LIFO inventory method, the value of the ending inventory on June 30 is a. $1,385. b. $1,425. c. $1,455. d. $1,475.
a. $1,385.
7. Using the average cost method, the amount allocated to the ending inventory on June 30 is a. $1,418. b. $1,475. c. $1,425. d. $1,400.
a. $1,418.
92. On January 1, a machine with a useful life of five years and a residual value of $15,000 was purchased for $45,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation? a. $10,800 b. $18,000 c. $14,400 d. $8,640
a. $10,800
112. A corporation issues $100,000, 10%, 5-year bonds on January 1, 2007, for $95,800. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2007's adjusting entry is a. $10,840. b. $10,000. c. $9,160. d. $840.
a. $10,840.
Use the following information for questions 160-162. Joy Elle's Vegetable Market had the following transactions during 2007: 1. Issued $25,000 of par value common stock for cash. 2. Recorded and paid wages expense of $10,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $1,000. 5. Sold a long-term investment (cost $3,000) for cash of $3,000. 6. Recorded cash sales of $20,000. 7. Bought inventory for cash of $2,000. 8. Acquired an investment in IBM stock for cash of $6,000. 9. Converted bonds payable to common stock in the amount of $10,000. 10. Repaid a 6 year note payable in the amount of $11,000. 161. What is the net cash provided by financing activities? a. $13,000. b. $25,000. c. $14,000. d. $9,000.
a. $13,000.
Use the following information to answer questions 48 & 49. 12/31/06 Accounts receivable $525,000 Allowance (45,000) Cash realizable value 480,000 During 2007 sales on account were $145,000 and collections on account were $86,000. Also, during 2007 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $54,000. 49. Bad debt expense for 2007 is: a. $17,000 b. $ 9,000 c. $54,000 d. $ 1,000
a. $17,000
83. A company sells a plant asset that originally cost $180,000 for $60,000 on December 31, 2007. The accumulated depreciation account had a balance of $90,000 after the current year's depreciation of $15,000 had been recorded. The company should recognize a a. $30,000 loss on disposal. b. $30,000 gain on disposal. c. $60,000 loss on disposal. d. $60,000 gain on disposal.
a. $30,000 loss on disposal.
Use the following information for questions 151-153. Starr Corporation's December 31, 2007 Balance Sheet showed the following: 8% preferred stock, $20 par value, cumulative, 20,000 shares authorized; 10,000 shares issued $ 200,000 Common stock, $10 par value, 2,000,000 shares authorized; 1,300,000 shares issued, 1,280,000 shares outstanding 13,000,000 Paid-in capital in excess of par value - preferred stock 40,000 Paid-in capital in excess of par value - common stock 18,000,000 Retained earnings 5,100,000 Treasury stock (10,000 shares) 420,000 151. Starr's total paid-in capital was a. $31,240,000. b. $31,660,000. c. $30,820,000. d. $18,040,000.
a. $31,240,000.
79. Joe's Quik Shop bought equipment for $25,000 on January 1, 2006. Joe estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2007, Joe decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2007? a. $4,000 b. $2,000 c. $3,333 d. $5,000
a. $4,000
89. A computer company has $3,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,400,000. What is the amount of net income or loss after these research and development costs are accounted for? a. $600,000 loss b. $2,400,000 net income c. $0 d. Cannot be determined from the information provided
a. $600,000 loss
113. A corporation issues $100,000, 8%, 5-year bonds on January 1, 2007, for $104,200. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2007's adjusting entry is a. $7,160. b. $8,000. c. $8,840. d. $840.
a. $7,160.
The adjusted cash balance per books on August 31 is a. $8,320. b. $8,020. c. $4,620. d. $4,920.
a. $8,320.
59. A company purchased land for $72,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the cost principle, the cost of land would be recorded at a. $82,800. b. $72,000. c. $77,800. d. $84,000.
a. $82,800.
134. If Kiner Company issues 1,000 shares of $5 par value common stock for $70,000, the account a. Common Stock will be credited for $5,000. b. Paid-in Capital in Excess of Par Value will be credited for $5,000. c. Paid-in Capital in Excess of Par Value will be credited for $70,000. d. Cash will be debited for $65,000.
a. Common Stock will be credited for $5,000.
94. Which of the following most likely would be classified as a current liability? a. Dividends payable b. Bonds payable in 5 years c. Three-year notes payable d. Mortgage payable as a single payment in 10 years
a. Dividends payable
176. If a $100,000, 8%, 10 year semi-annual bond is sold to yield 9%. Assuming no transaction costs the cash proceeds will be: a. less then the face value b. equal to face value c. greater then the face value d. more than $180,000
a. less then the face value
Use the following information for questions 96-98. Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson Brick Company signs a $200,000, 6%, 9-month note. 97. What is the adjusting entry required if Allenson Brick Company prepares financial statements on June 30? a. Interest Expense 6,000 Interest Payable 6,000 b. Interest Expense 6,000 Cash 6,000 c. Interest Payable 6,000 Cash 6,000 d. Interest Payable 6,000 Interest Expense 6,000
a. Interest Expense 6,000 Interest Payable 6,000
181. In the Statement of Cash Flows, an example of an investing activity would be: a. Purchasing equipment for cash. b. Buying inventory from a supplier on credit. c. Selling stock to an investor for credit. d. Repaying the principle on a bank loan.
a. Purchasing equipment for cash.
14. A very small company would have the most difficulty in implementing which of the following internal control activities? a. Separation of duties b. Limited access to assets c. Periodic independent verification d. Sound personnel procedures
a. Separation of duties
147. Which of the following statements regarding the date of a cash dividend declaration is not accurate? a. The dividend can be rescinded once it has been declared. b. The corporation is committed to a legal, binding obligation. c. The board of directors formally authorizes the cash dividend. d. A liability account must be increased.
a. The dividend can be rescinded once it has been declared.
143. Which of the following is not a right or preference associated with preferred stock? a. The right to vote b. First claim to dividends c. Preference to corporate assets in case of liquidation d. To receive dividends in arrears before common stockholders receive dividends
a. The right to vote
103. A legal document that indicates the name of the issuer, the face value of the bond and such other data is called a. a bond certificate. b. a bond debenture. c. trading on the equity. d. a convertible bond.
a. a bond certificate.
169. An exchange of similar productive assets was completed between Company A and Company Z. Prior to the exchange, Company A owned Asset A; Company Z owned Asset Z. Companies A and Z swapped Assets A and Z. Company A also paid $44,000 cash to Company Z in the exchange. Additional information: Asset A Asset Z Book Value $60,000 $94,000 Market Value $55,000 $99,000 In recording the exchange, Company A will report: a. a loss of $5,000 b. a portion of a $5,000 loss c. a gain of $44,000 d. a loss of $99,000
a. a loss of $5,000
121. When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by a. adding the amount of discount amortized for that period to the amount of cash paid for interest during the period. b. subtracting the amount of discount amortized for that period from the amount of cash paid for interest during the period. c. multiplying the face value of the bonds by the stated interest rate. d. multiplying the face value of the bonds by the market interest rate.
a. adding the amount of discount amortized for that period to the amount of cash paid for interest during the period.
9. Each of the following is a feature of internal control except a. an extensive marketing plan. b. bonding of employees. c. separation of duties. d. recording of all transactions.
a. an extensive marketing plan.
132. The amount of stock that may be issued according to the corporation's charter is referred to as the a. authorized stock. b. issued stock. c. unissued stock. d. outstanding stock.
a. authorized stock.
105. Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called a. callable bonds. b. early retirement bonds. c. options. d. debentures.
a. callable bonds.
157. Investing activities include a. collecting cash on loans made. b. obtaining cash from creditors. c. obtaining capital from owners. d. repaying money previously borrowed.
a. collecting cash on loans made.
67. The declining-balance method of depreciation produces a(n) a. decreasing depreciation expense each period. b. increasing depreciation expense each period. c. declining percentage rate each period. d. constant amount of depreciation expense each period.
a. decreasing depreciation expense each period.
165. Comprehensive income would not include a. dividends declared. b. unrealized gains on available-for-sale securities. c. discontinued operations. d. extraordinary gains and losses.
a. dividends declared.
129. The par value of a stock a. is legally significant. b. reflects the most recent market price. c. is selected by the SEC. d. is indicative of the worth of the stock.
a. is legally significant.
124. The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that a. is less than the amount of cash to be paid for interest for the period. b. exceeds the amount of cash to be paid for interest for the period. c. equals the amount of cash to be paid for interest for the period. d. has no predictable relationship with the amount of cash to be paid for interest for the period.
a. is less than the amount of cash to be paid for interest for the period.
158. Generally, the most important category on the statement of cash flows is cash flows from a. operating activities. b. investing activities. c. financing activities. d. significant noncash activities.
a. operating activities.
155. The order of presentation of activities on the statement of cash flows is a. operating, investing, and financing. b. operating, financing, and investing. c. financing, operating, and investing. d. financing, investing, and operating.
a. operating, investing, and financing.
16. Mrs. Smith has worked for Arcco Inc. for 20 years without taking a vacation. An internal control feature that would address this situation would be a. other controls. b. establishment of responsibility. c. physical controls. d. documentation procedures.
a. other controls.
4. The inventory method which results in the highest gross profit for June is a. the FIFO method. b. the LIFO method. c. the weighted average unit cost method. d. not determinable.
a. the FIFO method.
33. The Allowance for Doubtful Accounts is necessary because a. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay. b. uncollectible accounts that are written off must be accumulated in a separate account. c. a liability results when a credit sale is made. d. management needs to accumulate all the credit losses over the years.
a. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.
93. A current liability is a debt that can reasonably be expected to be paid a. within one year, or the operating cycle, whichever is longer. b. between 6 months and 18 months. c. out of currently recognized revenues. d. out of cash currently on hand.
a. within one year, or the operating cycle, whichever is longer.
87. Which of the following is not considered an intangible asset? a. Goodwill b. An oil well c. A franchise d. A patent
b. An oil well
1. Using the LIFO inventory method, the value of the ending inventory on June 30 is a. $1,040.00 b. $1,072.50 c. $1,305.00 d. $1,320.00
b. $1,072.50
69. On November 1, 2006, Dark Company places a new asset into service. The cost of the asset is $9,000 with an estimated 5-year life and $1,000 salvage value at the end of its useful life. What is the depreciation expense for 2007 if Dark Company uses the straight-line method of depreciation? a. $400 b. $1,600 c. $266.67 d. $900
b. $1,600
64. Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be a. $14,160. b. $11,760. c. $9,840. d. $9,600.
b. $11,760.
91. A plant asset cost $96,000 and is estimated to have a $12,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be a. $8,040. b. $13,500. c. $11,812. d. $9,190.
b. $13,500.
Use the following information for questions 115-118. Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006. The bonds had a face value of $200,000, pay interest annually on December 31st. Porter uses the straight-line method of amortization. 115. What is the amount of interest Porter must pay the bondholders in 2006? a. $16,920 b. $16,000 c. $16,320 d. $1,692
b. $16,000
76. Machinery was purchased for $85,000. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $15,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be a. $19,700 b. $16,700 c. $14,300 d. $14,000
b. $16,700
122. On January 1, Jean Loptein Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Jean Loptein uses the effective-interest method of amortizing bond discount. At the end of the first year, Jean Loptein should report unamortized bond discount of a. $164,700. b. $171,300. c. $154,830. d. $153,000.
b. $171,300.
46. A company has net credit sales of $900,000 for the year and it estimates that uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000 prior to adjustment, its balance after adjustment will be a credit of a. $18,000 b. $19,000 c. $17,980 d. $17,000
b. $19,000 (Note: Another "allowance method" for recording uncollectible accounts receivable is the "Percentage of Sales" method. With this method, the Bad Debt expense is estimated as a percent of net sales for the period. This method is a little easier, because you don't have to compute the adjustment to Allowance for Doubtful accounts; rather, you just make the year-end adjusting entry using whatever the ending balance of Net Sales is, and your percent estimate. See Review for more)
Use the following information for questions 115-118. Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006. The bonds had a face value of $200,000, pay interest annually on December 31st. Porter uses the straight-line method of amortization. 117. What is the carrying value of the bonds on January 1, 2008? a. $200,000 b. $209,200 c. $190,800 d. $210,350
b. $209,200
148. Sun Inc. has 5,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2007. What is the annual dividend on the preferred stock? a. $60 per share b. $30,000 in total c. $3,000 in total d. $0.60 per share
b. $30,000 in total
164. The net income reported on the income statement for the current year was $220,000. Depreciation was $50,000. Accounts receivable and inventories decreased by $10,000 and $30,000, respectively. Prepaid expenses and accounts payable increased, respectively, by $1,000 and $8,000. How much cash was provided by operating activities? a. $281,000 b. $317,000 c. $301,000 d. $239,000
b. $317,000
45. In 2007 the Fitzu Co. had net credit sales of $750,000. On January 1, 2007, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2007, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $200,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2007? a. $20,000. b. $34,000. c. $36,000. d. $30,000.
b. $34,000.
174. Calhoun Crockery sold merchandise; the total proceeds collected, including a 7% sales tax, amounted to $74,900. What is the amount that should be recorded as a current liability? a. $0 b. $4,900 c. $5,243 d. $7,000
b. $4,900
56. The interest on a $4,000, 10%, 1-year note receivable is a. $4,000. b. $400. c. $4,400. d. $4,040.
b. $400.
53. Papa Bear Corporation's unadjusted trial balance includes the following balances (assume normal balances) : Accounts Receivable $1,119,000 Allowances for Doubtful Accounts $ 21,300 Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debts expense will the company record? a. $67,140 b. $45,840 c. $44,562 d. $68,418
b. $45,840
32. Larson Company on July 15 sells merchandise on account to Stuart Co. for $1,000, terms 2/10, n/30. On July 20 Stuart Co. returns merchandise worth $400 to Larson Company. On July 24 payment is received from Stuart Co. for the balance due. What is the amount of cash received? a. $600 b. $588 c. $580 d. $1,000
b. $588
a. $4,000 b. $6,000 c. $5,000 d. $6,900
b. $6,000
163. A company had net income of $705,000. Depreciation expense is $78,000. During the year, accounts receivable and inventory increased $45,000 and $120,000, respectively. Prepaid expenses and accounts payable decreased $6,000 and $12,000, respectively. There was also a loss on the sale of equipment of $9,000. How much cash was provided by operating activities? a. $603,000. b. $621,000. c. $843,000. d. $879,000.
b. $621,000.
Use the following information for questions 72-74. Brinkman Corporation bought equipment on January 1, 2007 .The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years. 72. The depreciable cost of the equipment is a. $90,000 b. $75,000 c. $50,000 d. $12,500
b. $75,000
171. On July 1, 2003, PLEE Corporation purchased factory equipment for $50,000. Salvage value was estimated at $2,000. The equipment will be depreciated over 10 years using the double-declining-balance method. Counting the year of acquisition as one-half year, PLEE should record 2004 depreciation expense of: a. $8,640 b. $9,000 c. $8,000 d. $10,000
b. $9,000
127. Which of the following statements reflects the transferability of ownership rights in a corporation? a. If a stockholder decides to transfer ownership, he must transfer all of his shares. b. A stockholder may dispose of part or all of his shares. c. A stockholder must obtain permission of the board of directors before selling shares. d. A stockholder must obtain permission from at least three other stockholders before selling shares.
b. A stockholder may dispose of part or all of his shares.
40. Manning Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment? a. Bad Debts Expense 10,000 Allowance for Doubtful Accounts 10,000 b. Bad Debts Expense 8,000 Allowance for Doubtful Accounts 8,000 c. Bad Debts Expense 8,000 Accounts Receivable 8,000 d. Bad Debts Expense 10,000 Accounts Receivable 10,000
b. Bad Debts Expense 8,000 Allowance for Doubtful Accounts 8,000
Use the following information for questions 99-101. West County Bank agrees to lend the Block Builders Company $100,000 on January 1. Block Builders Company signs a $100,000, 6%, 6-month note. 99. The entry made by Block Builders Company on January 1 to record the proceeds and issuance of the note is a. Interest Expense 3,000 Cash. 97,000 Notes Payable 100,000 b. Cash 100,000 Notes Payable 100,000 c. Cash 100,000 Interest Expense 3,000 Notes Payable 103,000 d. Cash 100,000 Interest Expense 3,000 Notes Payable 100,000 Interest Payable 3,000
b. Cash 100,000 Notes Payable 100,000
Use the following information for questions 96-98. Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson Brick Company signs a $200,000, 6%, 9-month note. 96. The entry made by Allenson Brick Company on January 1 to record the proceeds and issuance of the note is a. Interest Expense 9,000 Cash. 191,000 Notes Payable 200,000 b. Cash 200,000 Notes Payable 200,000 c. Cash 200,000 Interest Expense 9,000 Notes Payable 209,000 d. Cash 200,000 Interest Expense 9,000 Notes Payable 200,000 Interest Payable 9,000
b. Cash 200,000 Notes Payable 200,000
102. Ramsey Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 60,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions? a. Subscriptions Receivable 600,000 Subscription Revenue 600,000 b. Cash 600,000 Unearned Subscription Revenue 600,000 c. Subscriptions Receivable 100,000 Unearned Subscription Revenue 100,000 d. Prepaid Subscriptions 600,000 Cash 600,000
b. Cash 600,000 Unearned Subscription Revenue 600,000
182. Which of the following is not a required section of the Statement of Cash Flows: a. Cash flow from operating activities. b. Cash flow from the company's major customers. c. Cash flow from investing activities. d. Cash flow from financing activities.
b. Cash flow from the company's major customers.
18. Which one of the following would not cause a bank to debit a depositor's account? a. Bank service charge b. Collection of a note receivable c. Wiring of funds to other locations d. Checks marked NSF
b. Collection of a note receivable
136. Specialty Packaging Corporation began business in 2007 by issuing 20,000 shares of $5 par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2007 balance sheet, Specialty Packaging would report a. Common Stock of $200,000. b. Common Stock of $100,000. c. Common Stock of $160,000. d. Paid-in Capital of $150,000.
b. Common Stock of $100,000.
137. Foley Manufacturing Corporation purchased 3,000 shares of its own previously issued $10 par common stock for $69,000. As a result of this event, a. Foley's Common Stock account decreased $30,000. b. Foley's total stockholders' equity decreased $69,000. c. Foley's Paid-in Capital in Excess of Par Value account decreased $39,000. d. All of the above.
b. Foley's total stockholders' equity decreased $69,000.
58. Garber Company lends Newell Company $20,000 on April 1, accepting a four-month, 6% interest note. Garber Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared? a. Note Receivable 20,000 Cash 20,000 b. Interest Receivable 100 Interest Revenue 100 c. Cash 100 Interest Revenue 100 d. Interest Receivable 300 Interest Revenue 300
b. Interest Receivable 100 Interest Revenue 100
126. Which of the following would not be true of a privately held corporation? a. It is sometimes called a closely held corporation. b. Its shares are regularly traded on the New York Stock Exchange. c. It does not offer its shares for sale to the general public. d. It is usually smaller than a publicly held company.
b. Its shares are regularly traded on the New York Stock Exchange.
146. Stock dividends and stock splits have the following effects on retained earnings: Stock Splits Stock Dividends a. Increase No change b. No change Decrease c. Decrease Decrease d. No change No change
b. No change Decrease
Use the following information for questions 99-101. West County Bank agrees to lend the Block Builders Company $100,000 on January 1. Block Builders Company signs a $100,000, 6%, 6-month note. 101. What entry will Block Builders Company make to pay off the note and interest at maturity assuming that interest has been accrued to June 30? a. Notes Payable 103,000 Cash 103,000 b. Notes Payable 100,000 Interest Payable 3,000 Cash 103,000 c. Interest Expense 3,000 Notes Payable 100,000 Cash 103,000 d. Interest Payable 1,500 Notes Payable 100,000 Interest Expense 1,500 Cash 103,000
b. Notes Payable 100,000 Interest Payable 3,000 Cash 103,000
Use the following information for questions 96-98. Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson Brick Company signs a $200,000, 6%, 9-month note. 98. What entry will Allenson Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30? a. Notes Payable 209,000 Cash 209,000 b. Notes Payable 200,000 Interest Payable 9,000 Cash 209,000 c. Interest Expense 9,000 Notes Payable 200,000 Cash 209,000 d. Interest Payable 6,000 Notes Payable 200,000 Interest Expense 3,000 Cash 209,000
b. Notes Payable 200,000 Interest Payable 9,000 Cash 209,000
8. Which one of the following is not an objective of a system of internal controls? a. Safeguard company assets b. Overstate liabilities in order to be conservative c. Enhance the accuracy and reliability of accounting records d. Reduce the risks of errors
b. Overstate liabilities in order to be conservative
86. Which of the following is not an intangible asset arising from a government grant? a. Goodwill b. Patent c. Trademark d. Trade name
b. Patent
154. In addition to the three basic financial statements, which of the following is also a required financial statement? a. The "Cash Budget" b. Statement of Cash Flows c. Statement of Cash Inflows and Outflows d. The "Cash Reconciliation"
b. Statement of Cash Flows
166. In preparing a typical bank reconciliation, how would outstanding checks be handled? a. Added to "balance per bank." b. Subtracted from "balance per bank." c. As an item that requires a general ledger adjustment. d. They would be ignored.
b. Subtracted from "balance per bank."
128. Which one of the following is not an ownership right of a stockholder in a corporation? a. To vote in the election of directors b. To declare dividends on the common stock c. To share in assets upon liquidation d. To share in corporate earnings
b. To declare dividends on the common stock
149. Which of the following statements is not true about a 2-for-1 split? a. Par value per share is reduced to half of what it was before the split. b. Total contributed capital increases. c. The market price probably will decrease. d. A stockholder with ten shares before the split owns twenty shares after the split.
b. Total contributed capital increases.
110. The interest expense recorded on an interest payment date is increased a. by the amortization of premium on bonds payable. b. by the amortization of discount on bonds payable. c. only if the bonds were sold at face value. d. only if the market rate of interest is less than the stated rate of interest on that date.
b. by the amortization of discount on bonds payable.
13. From an internal control standpoint, the asset most susceptible to improper diversion and use is a. prepaid insurance. b. cash. c. buildings. d. land.
b. cash.
145. The effect of a stock dividend is to a. decrease total assets and stockholders' equity. b. change the composition of stockholders' equity. c. decrease total assets and total liabilities. d. increase the book value per share of common stock.
b. change the composition of stockholders' equity.
19. A deposit made by a company will appear on the bank statement as a a. debit. b. credit. c. debit memorandum. d. credit memorandum.
b. credit.
106. Bonds that are issued against the general credit of the borrower are called a. callable bonds. b. debenture bonds. c. secured bonds. d. term bonds.
b. debenture bonds.
39. To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts. b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts. c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. d. debit to Loss on Credit Sales and a credit to Accounts Receivable.
b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
139. The acquisition of treasury stock by a corporation a. increases its total assets and total stockholders' equity. b. decreases its total assets and total stockholders' equity. c. has no effect on total assets and total stockholders' equity. d. requires that a gain or loss be recognized on the income statement.
b. decreases its total assets and total stockholders' equity.
21. All of the following bank reconciliation items would result in an adjusting entry on the company's books except a. interest earned. b. deposits in transit. c. fee for collection of note by bank. d. NSF check of customer.
b. deposits in transit.
15. In a small business, the lack of certain separations of duties can best be overcome by a. bonding the employees. b. getting the owner actively involved. c. hiring only honest employees. d. holding one person responsible for a given set of transactions.
b. getting the owner actively involved.
135. Paid-in Capital in Excess of Par Value a. is credited when no-par stock does not have a stated value. b. is reported as part of paid-in capital on the balance sheet. c. represents the amount of legal capital. d. normally has a debit balance.
b. is reported as part of paid-in capital on the balance sheet.
142. Treasury shares plus outstanding shares equal a. authorized stock. b. issued stock. c. unissued stock. d. distributable stock.
b. issued stock.
108. The present value of a bond is also known as its a. face value. b. market price. c. future value. d. deferred value.
b. market price.
144. Dividends in arrears on cumulative preferred stock a. never have to be paid, even if common dividends are paid. b. must be paid before common stockholders can receive a dividend. c. should be recorded as a current liability until they are paid. d. enable the preferred stockholders to share equally in corporate earnings with the common stockholders.
b. must be paid before common stockholders can receive a dividend.
34. The matching principle a. requires that all credit losses be recorded when an individual customer cannot pay. b. necessitates the recording of an estimated amount for bad debts. c. results in the recording of a known amount for bad debt losses. d. is not involved in the decision of when to expense a credit loss.
b. necessitates the recording of an estimated amount for bad debts.
141. The number of shares of issued stock equals a. unissued shares minus authorized shares. b. outstanding shares plus treasury shares. c. authorized shares minus treasury shares. d. outstanding shares plus authorized shares
b. outstanding shares plus treasury shares.
131. The term legal capital is a descriptive term for a. stockholders' equity. b. par value. c. residual equity. d. market value.
b. par value.
120. When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by a. adding the amount of premium amortized for that period to the amount of cash paid for interest during the period. b. subtracting the amount of premium amortized for that period from the amount of cash paid for interest during the period. c. multiplying the face value of the bonds by the stated interest rate. d. multiplying the face value of the bonds by the market interest rate.
b. subtracting the amount of premium amortized for that period from the amount of cash paid for interest during the period.
125. The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n) a. interest rate that is close to the market interest rate. b. uniform rate of interest. c. more variable interest rate. d. interest rate that increases or decreases slightly over time.
b. uniform rate of interest.
The following data should be used in solving Questions 177, 178, 179 and 180. Each of the questions is mutually exclusive of the other questions. Alpha Corporation has the following Shareholders' Equity section of the Balance Sheet at 1/1/2004: Preferred Stock, 10%, $100 Par Value, 10,000 shares authorized, 1,000 issued, and outstanding $ 100,000 Additional Paid In Capital - Preferred Stock 240,000 Common Stock, $10 Par Value, 100,000 shares authorized, 50,000 shares issued and outstanding 500,000 Additional Paid In Capital - Common Stock 800,000 Total Paid In Capital $1,640,000 Retained Earnings 2,000,000 Total Shareholders' Equity $ 3,640,000 180. Assume that Alpha has Net Income for the year of $360,000. Assuming that Alpha paid its Preferred Stock Dividends based only on the information given, what is the dollar amount of Earnings Per Share for Alpha for the year? a. $ 6.86 b. $ 7.05 c. $ 7.00 d. $ 7.20
c. $ 7.00
Use the following information to answer questions 51 and 52. 12/31/06 Accounts receivable $1,050,000 Allowance (90,000) Cash realizable value $960,000 During 2007 sales on account were $290,000 and collections on account were $172,000. Also during 2007 the company wrote off $16,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $108,000. 51. The change in the cash realizable value from the balance at 12/31/06 to 12/31/07 was a a. $100,000 increase b. $118,000 increase c. $ 84,000 increase d. $102,000 increase
c. $ 84,000 increase
2. Using the FIFO inventory method, the amount allocated to ending inventory for June is a. $1,040.00 b. $1,072.50 c. $1,305.00 d. $1,320.00
c. $1,305.00
6. Using the FIFO inventory method, the amount allocated to ending inventory for June is a. $1,385. b. $1,425. c. $1,455. d. $1,475.
c. $1,455.
78. Greg's Copy Shop bought equipment for $60,000 on January 1, 2006. Greg estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2007, Greg decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2007? a. $20,000 b. $8,000 c. $10,000 d. $15,000
c. $10,000
Use the following information for questions 72-74. Brinkman Corporation bought equipment on January 1, 2007 .The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years. 73. The depreciation expense using the straight-line method of depreciation is a. $17,500 b. $18,000 c. $12,500 d. none of the above
c. $12,500
Use the following information for questions 115-118. Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006. The bonds had a face value of $200,000, pay interest annually on December 31st. Porter uses the straight-line method of amortization. 116. What is the amount of interest expense Porter will show with relation to these bonds for the year ended December 31, 2007? a. $16,000 b. $16,920 c. $14,850 d. $12,550
c. $14,850
The following data should be used in solving Questions 177, 178, 179 and 180. Each of the questions is mutually exclusive of the other questions. Alpha Corporation has the following Shareholders' Equity section of the Balance Sheet at 1/1/2004: Preferred Stock, 10%, $100 Par Value, 10,000 shares authorized, 1,000 issued, and outstanding $ 100,000 Additional Paid In Capital - Preferred Stock 240,000 Common Stock, $10 Par Value, 100,000 shares authorized, 50,000 shares issued and outstanding 500,000 Additional Paid In Capital - Common Stock 800,000 Total Paid In Capital $1,640,000 Retained Earnings 2,000,000 Total Shareholders' Equity $ 3,640,000 179. Assume Alpha's Board of Directors declares a cash dividend to all Shareholders. The Preferred Shareholders will receive their assured amount and the Common Shareholders will receive $ .10 per share. What will be the total dollar amount of the dividend? a. $110,000 b. $105,000 c. $15,000 d. $55,000
c. $15,000
173. Crenshaw Corporation sells widgets. Each widget carries a multi-year warranty. Crenshaw estimates the cost of warranty work to be 3% of current sales. 20X4 sales was $5 million and $30,000 was spent on warranty work during 20X4. The balance in Estimated Warranty Liability at 12-31-X3 was $70,000. What is the balance in Estimated Warranty Liability at 12-31-X4 and the balance in Warranty Expense for 20X4, respectively? a. $150,000; $ 30,000 b. $190,000; $ 30,000 c. $190,000; $150,000 d. $120,000; $150,000
c. $190,000; $150,000
Using the above information, determine the cash balance per books (before adjustments) for the Barns Company. a. $13,685 b. $21,700 c. $2,485 d. $21,000
c. $2,485
Use the following information for questions 151-153. Starr Corporation's December 31, 2007 Balance Sheet showed the following: 8% preferred stock, $20 par value, cumulative, 20,000 shares authorized; 10,000 shares issued $ 200,000 Common stock, $10 par value, 2,000,000 shares authorized; 1,300,000 shares issued, 1,280,000 shares outstanding 13,000,000 Paid-in capital in excess of par value - preferred stock 40,000 Paid-in capital in excess of par value - common stock 18,000,000 Retained earnings 5,100,000 Treasury stock (10,000 shares) 420,000 152. Starr declared and paid a $50,000 cash dividend on December 15, 2007. If the company's dividends in arrears prior to that date were $12,000, Starr's common stockholders received a. $38,000. b. $18,000. c. $22,000. d. no dividend.
c. $22,000.
167. During 2004, ABC Company had $750,000 of net credit sales. Accounts Receivable had a December 31, 2004, balance of $250,000. No amounts have been added to the Allowance for Doubtful Accounts during 2004. Before adjustment on December 31, 2004, the Allowance for Doubtful Accounts had a credit balance of $2,000. ABC estimates that 3% of net credit sales will become uncollectible. What will be the adjusted balance in Allowance for Doubtful Accounts at December 31? a. $22,500 b. $20,500 c. $24,500 d. $7,500
c. $24,500
123. On January 1, Cleopatra Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $2,144,192. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Bond Interest Expense is for a. $240,000. b. $251,162. c. $257,304. d. $280,000.
c. $257,304.
43. Using the allowance method, the uncollectible accounts for the year is estimated to be $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the balance after adjustment? a. $7,000 b. $21,000 c. $28,000 d. $35,000
c. $28,000
66. A company purchased factory equipment on April 1, 2007, for $48,000. It is estimated that the equipment will have a $6,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2007, is a. $4,800 b. $4,200 c. $3,150 d. $3,600
c. $3,150
41. Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment what is the amount of bad debt expense for that period? a. $25,000 b. $8,000 c. $33,000 d. $17,000
c. $33,000
70. On January 1, a machine with a useful life of five years and a residual value of $5,000 was purchased for $25,000. What is the depreciation expense for year 2 under straight-line depreciation? a. $5,000 b. $15,000 c. $4,000 d. $12,000
c. $4,000
The adjusted cash balance per books on June 30 is a. $5,075. b. $4,940. c. $4,775. d. $5,055.
c. $4,775.
82. A company sells a plant asset that originally cost $150,000 for $50,000 on December 31, 2007. The accumulated depreciation account had a balance of $60,000 after the current year's depreciation of $15,000 had been recorded. The company should recognize a a. $100,000 loss on disposal. b. $40,000 gain on disposal. c. $40,000 loss on disposal. d. $25,000 loss on disposal.
c. $40,000 loss on disposal.
172. Since 2001, TSAY Steel has replaced all its major manufacturing equipment and now has the following equipment recorded in the appropriate accounts. TSAY uses a calendar year as its fiscal year. A forge purchased January 1, 2000, for $100,000. Ordinary and necessary installation costs were $20,000, and the forge has an estimated 5-year life with a salvage value of $10,000. A grinding machine costing $45,000 purchased January 1, 2002. The machine has an estimated 5-year life with a salvage value of $5,000. A lathe purchased January 1, 2004 for $60,000. The lathe has an estimated 5-year life and a salvage value of $7,000. Using the straight-line depreciation method, TSAY's 2004 depreciation expense is: a. $45,000 b. $40,334 c. $40,600 d. $40,848
c. $40,600
Use the following information to answer questions 48 & 49. 12/31/06 Accounts receivable $525,000 Allowance (45,000) Cash realizable value 480,000 During 2007 sales on account were $145,000 and collections on account were $86,000. Also, during 2007 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $54,000. 48. The change in the cash realizable value from the balance at 12/31/06 to 12/31/07 was a. $50,000 increase b. $59,000 increase c. $42,000 increase d. $51,000 increase
c. $42,000 increase
90. Given the following account balances at year end, compute the total intangible assets on the balance sheet of Anisha Enterprises. Cash $1,500,000 Accounts Receivable 4,000,000 Trademarks 1,000,000 Goodwill 4,500,000 Research & Development Costs 2,000,000 a. $11,500,000 b. $7,500,000 c. $5,500,000 d. $9,500,000
c. $5,500,000
150. What is the total stockholders' equity based on the following account balances? Common Stock $400,000 Paid-In Capital in Excess of Par 50,000 Retained Earnings 175,000 Treasury Stock 25,000 a. $650,000 b. $625,000 c. $600,000 d. $450,000
c. $600,000
Use the following information for questions 72-74. Brinkman Corporation bought equipment on January 1, 2007 .The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years. 74. The book value of the equipment at the beginning of the third year would be a. $90,000 b. $75,000 c. $65,000 d. $25,000
c. $65,000
The adjusted cash balance per books on April 30 is a. $9,225. b. $8,820. c. $8,325. d. $9,165.
c. $8,325.
60. Elway Company purchases land for $85,000 cash. Elway assumes $2,500 in property taxes due on the land. The title and attorney fees totaled $1,000. Elway has the land graded for $2,200. They paid $10,000 for paving of a parking lot. What amount does Elway record as the cost for the land? a. $88,200 b. $100,700 c. $90,700 d. $85,000
c. $90,700
Use the following information for questions 160-162. Joy Elle's Vegetable Market had the following transactions during 2007: 1. Issued $25,000 of par value common stock for cash. 2. Recorded and paid wages expense of $10,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $1,000. 5. Sold a long-term investment (cost $3,000) for cash of $3,000. 6. Recorded cash sales of $20,000. 7. Bought inventory for cash of $2,000. 8. Acquired an investment in IBM stock for cash of $6,000. 9. Converted bonds payable to common stock in the amount of $10,000. 10. Repaid a 6 year note payable in the amount of $11,000. 162. What is the net cash provided by investing activities? a. $6,000. b. $16,000 c. ($3,000). d. $3,000.
c. ($3,000).
42. Laurs Company uses the percentage of receivables method for recording bad debts expense. The Accounts Receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment? a. Bad Debts Expense 10,000 Allowance for Doubtful Accounts 10,000 b. Bad Debts Expense 8,000 Allowance for Doubtful Accounts 8,000 c. Bad Debts Expense 6,000 Allowance for Doubtful Accounts 6,000 d. Bad Debts Expense 12,000 Accounts Receivable 12,000
c. Bad Debts Expense 6,000 Allowance for Doubtful Accounts 6,000
10. Which of the following is not a limitation of internal control? a. Cost of establishing control procedures should not exceed their benefit b. The human element c. Collusion d. The size of the company
c. Collusion
Use the following information for questions 99-101. West County Bank agrees to lend the Block Builders Company $100,000 on January 1. Block Builders Company signs a $100,000, 6%, 6-month note. 100. What is the adjusting entry required if Block Builders Company prepares financial statements on March 30? a. Interest Expense 3,000 Interest Payable 3,000 b. Interest Expense 3,000 Cash 3,000 c. Interest Expense 1,500 Interest Payable 1,500 d. Interest Payable 1,500 Interest Expense 1,500
c. Interest Expense 1,500 Interest Payable 1,500
133. If Morgan Company issues 2,000 shares of $5 par value common stock for $140,000, the account a. Common Stock will be credited for $140,000. b. Paid-in Capital in Excess of Par Value will be credited for $10,000. c. Paid-in Capital in Excess of Par Value will be credited for $130,000. d. Cash will be debited for $130,000.
c. Paid-in Capital in Excess of Par Value will be credited for $130,000.
63. In computing depreciation, salvage value is a. the fair market value of a plant asset on the date of acquisition. b. subtracted from accumulated depreciation to determine the plant asset's depreciable cost. c. an estimate of a plant asset's value at the end of its useful life. d. ignored in all the depreciation methods.
c. an estimate of a plant asset's value at the end of its useful life.
109. If the market rate of interest is greater than the contractual rate of interest, bonds will sell a. at a premium. b. at face value. c. at a discount. d. only after the stated rate of interest is increased.
c. at a discount.
30. Accounts receivable are valued and reported on the balance sheet a. in the investment section. b. at gross amounts less sales returns and allowances. c. at cash realizable value. d. only if they are not past due.
c. at cash realizable value.
88. Goodwill a. is only recorded when generated internally. b. can be subdivided and sold in parts. c. can only be identified with the business as a whole. d. can be defined as normal earnings less accumulated amortization.
c. can only be identified with the business as a whole.
104. Bonds that may be exchanged for common stock at the option of the bondholders are called a. options. b. stock bonds. c. convertible bonds. d. callable bonds.
c. convertible bonds.
62. Depreciation is a process of a. asset devaluation. b. cost accumulation. c. cost allocation. d. asset valuation.
c. cost allocation.
37. An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debts Expense for $4,000. b. debit to Allowance for Doubtful Accounts for $2,800. c. debit to Bad Debts Expense for $2,800. d. credit to Allowance for Doubtful Accounts for $4,000.
c. debit to Bad Debts Expense for $2,800.
38. An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debts Expense for $4,000. b. debit to Allowance for Doubtful Accounts for $5,200. c. debit to Bad Debts Expense for $5,200. d. credit to Allowance for Doubtful Accounts for $4,000.
c. debit to Bad Debts Expense for $5,200.
159. The payment of a cash dividend would be classified as a(n) a. operating activity. b. investing activity. c. financing activity. d. significant noncash activity.
c. financing activity.
81. Additions and improvements a. occur frequently during the ownership of a plant asset. b. normally involve immaterial expenditures. c. increase the company's investment in productive facilities. d. typically only benefit the current accounting period.
c. increase the company's investment in productive facilities.
114. When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of a. interest paid over the life of the bond. b. interest paid over the life of the bond plus the amount of premium at sale point. c. interest paid over the life of the bond minus the amount of premium at sale point. d. premium at sale point.
c. interest paid over the life of the bond minus the amount of premium at sale point.
156. Financing activities involve a. lending money. b. acquiring investments. c. issuing debt. d. acquiring long-lived assets.
c. issuing debt.
36. When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when a. a sale is made. b. an account becomes bad and is written off. c. management estimates the amount of uncollectibles. d. a customer's account becomes past due.
c. management estimates the amount of uncollectibles.
11. Companies that fail to maintain an adequate system of internal control a. may be subject to charges of fraud. b. will be automatically dissolved. c. may be subject to fines and officer imprisonment. d. may be forced to sell their assets.
c. may be subject to fines and officer imprisonment.
12. The custodian of a company asset should a. have access to the accounting records for that asset. b. be someone outside the company. c. not have access to the accounting records for that asset. d. be an accountant.
c. not have access to the accounting records for that asset.
55. When calculating interest on a promissory note with the maturity date stated in terms of days, the a. maker pays more interest if 365 days are used instead of 360. b. maker pays the same interest regardless if 365 or 360 days are used. c. payee receives more interest if 360 days are used instead of 365. d. payee receives less interest if 360 days are used instead of 365.
c. payee receives more interest if 360 days are used instead of 365.
31. Three accounting issues associated with accounts receivable are a. depreciating, returns, and valuing. b. depreciating, valuing, and collecting. c. recognizing, valuing, and accelerating collections. d. accrual, bad debts, and accelerating collections.
c. recognizing, valuing, and accelerating collections.
77. A change in the estimated useful life of equipment requires a. a retroactive change in the amount of periodic depreciation recognized in previous years. b. that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset. c. that the amount of periodic depreciation be changed in the current year and in future years. d. that income for the current year be increased.
c. that the amount of periodic depreciation be changed in the current year and in future years.
170. ZETO Company acquired a new construction crane. The crane cost $1,000,000. In addition, Zeto paid delivery cost of $50,000, setup and installation of $75,000, and truck repairs of $5,000 (it seems that during setup, a large beam was accidentally dropped on the hood of one of Zeto's trucks). ZETO should record the crane in its accounting records at: a. $1,000,000 b. $1,050,000 c. $1,075,000 d. $1,125,000
d. $1,125,000
3. Using the average cost method, the amount allocated to the ending inventory on June 30 is a. $1,170. b. $1,320. c. $1,260. d. $1,200.
d. $1,200.
47. An analysis and aging of the accounts receivable of Yates Company at December 31 reveal these data: Accounts receivable $ 1,600,000 Allowance for doubtful accounts per books before adjustment (credit) 100,000 Amounts expected to become uncollectible 130,000 What is the cash realizable value of the accounts receivable at December 31 after adjustment? a. $1,370,000 b. $1,500,000 c. $1,600,000 d. $1,470,000
d. $1,470,000
107. A bond with a face value of $100,000 and a quoted price of 102¼ has a selling price of a. $120,225. b. $102,025. c. $100,225. d. $102,250.
d. $102,250.
168. During 2004, Allied Associates had $750,000 of net credit sales. Accounts Receivable had a December 31, 2004, balance of $250,000. No amounts have been added to the Allowance for Doubtful Accounts during 2004. Before adjustment on December 31, 2004, the Allowance for Doubtful Accounts had a credit balance of $2,000. Allied estimates that 6% of receivables will become uncollectible. What will be the adjusted balance in Allowance for Doubtful Accounts at December 31? a. $43,000 b. $47,000 c. $45,000 d. $15,000
d. $15,000
119. Turner Company issued $300,000 of 6%, 5-year bonds at 98. Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date? a. $18,000 b. $9,000 c. $18,600 d. $19,200
d. $19,200
75. Bates Company purchased equipment on January 1, 2006, at a total invoice cost of $600,000. The equipment has an estimated salvage value of $15,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used? a. $120,000 b. $240,000 c. $117,000 d. $234,000
d. $234,000
61. Stories Company purchased equipment and these costs were incurred: Cash price $22,500 Sales taxes 1,800 Insurance during transit 320 Installation and testing 430 Total costs $25,050 Stories will record the acquisition cost of the equipment as a. $22,500. b. $24,300. c. $24,620. d. $25,050.
d. $25,050.
111. On January 1, 2007, $1,000,000, 10-year, 10% bonds, were issued for $970,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is a. $9,700. b. $3,000. c. $808. d. $250.
d. $250.
44. Using the allowance method, the uncollectible accounts for the year is estimated to be $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what is the amount of bad debt expense for the period? a. $7,000 b. $21,000 c. $28,000 d. $35,000
d. $35,000
Use the following information for questions 151-153. Starr Corporation's December 31, 2007 Balance Sheet showed the following: 8% preferred stock, $20 par value, cumulative, 20,000 shares authorized; 10,000 shares issued $ 200,000 Common stock, $10 par value, 2,000,000 shares authorized; 1,300,000 shares issued, 1,280,000 shares outstanding 13,000,000 Paid-in capital in excess of par value - preferred stock 40,000 Paid-in capital in excess of par value - common stock 18,000,000 Retained earnings 5,100,000 Treasury stock (10,000 shares) 420,000 153. Starr's total stockholders' equity was a. $36,760,000. b. $31,240,000. c. $36,340,000. d. $35,920,000.
d. $35,920,000.
The adjusted cash balance per books on October 31 is a. $4,710. b. $4,010. c. $2,860. d. $4,860.
d. $4,860.
175. On January 1, 2004, Graves Inc sold a $1,000,000, 8%, 10 year semi-annual bond to the public for $934,960 yielding 9%. Determine the interest expense Graves will report on June 30, 2004. a. $40,000 b. $45,000 c. $37,398 d. $42,073
d. $42,073
65. Equipment with a cost of $192,000 has an estimated salvage value of $18,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours? a. $48,000 b. $52,500 c. $49,500 d. $43,500
d. $43,500
Use the following information for questions 160-162. Joy Elle's Vegetable Market had the following transactions during 2007: 1. Issued $25,000 of par value common stock for cash. 2. Recorded and paid wages expense of $10,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $1,000. 5. Sold a long-term investment (cost $3,000) for cash of $3,000. 6. Recorded cash sales of $20,000. 7. Bought inventory for cash of $2,000. 8. Acquired an investment in IBM stock for cash of $6,000. 9. Converted bonds payable to common stock in the amount of $10,000. 10. Repaid a 6 year note payable in the amount of $11,000. 160. What is the net cash provided by operating activities? a. $20,000. b. $18,000. c. $10,000. d. $8,000.
d. $8,000.
a. $1,600 b. $1,500 c. $1,000 d. $900
d. $900
71. A plant asset was purchased on January 1 for $40,000 with an estimated salvage value of $8,000 at the end of its useful life. The current year's Depreciation Expense is $4,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $20,000. The remaining useful life of the plant asset is a. 10 years. b. 8 years. c. 5 years. d. 3 years.
d. 3 years.
The following data should be used in solving Questions 177, 178, 179 and 180. Each of the questions is mutually exclusive of the other questions. Alpha Corporation has the following Shareholders' Equity section of the Balance Sheet at 1/1/2004: Preferred Stock, 10%, $100 Par Value, 10,000 shares authorized, 1,000 issued, and outstanding $ 100,000 Additional Paid In Capital - Preferred Stock 240,000 Common Stock, $10 Par Value, 100,000 shares authorized, 50,000 shares issued and outstanding 500,000 Additional Paid In Capital - Common Stock 800,000 Total Paid In Capital $1,640,000 Retained Earnings 2,000,000 Total Shareholders' Equity $ 3,640,000 177. Assume Alpha sells 500 shares of Preferred Stock for $400 per share. What will be the dollar amount of the increase to Preferred Stock, APIC- Preferred Stock, and Retained Earnings? Increase Increase Additional Paid In Capital Increase Retained Preferred Stock - Preferred Stock Earnings a. 200,000 0 0 b. 150,000 50,000 0 c. 0 200,000 0 d. 50,000 150,000 0 D
d. 50,000 150,000 0
68. Which of the following methods will result in the highest depreciation in the first year? a. Sum-of-year's-digits b. Time valuation c. Straight-line d. Declining-balance
d. Declining-balance
57. Sloan Company receives a $3,000, 3-month, 6% promissory note from Day Company in settlement of an open accounts receivable. What entry will Sloan Company make upon receiving the note? a. Notes Receivable 3,045 Accounts Receivable—Day Company 3,045 b. Notes Receivable 3,045 Accounts Receivable—Day Company 3,000 Interest Revenue 45 c. Notes Receivable 3,000 Interest Receivable 45 Accounts Receivable—Day Company 3,000 Interest Revenue 45 d. Notes Receivable 3,000 Accounts Receivable—Day Company 3,000
d. Notes Receivable 3,000 Accounts Receivable—Day Company 3,000
a. Reduce its cash account by $1,425. b. Reduce its cash account by $75. c. Increase its cash account by $165. d. Reduce its cash account by $315.
d. Reduce its cash account by $315.
20. Which of the following would be deducted from the balance per books on a bank reconciliation? a. Outstanding checks b. Deposits in transit c. Notes collected by the bank d. Service charges
d. Service charges
80. Which of the following is not true of ordinary repairs? a. They primarily benefit the current accounting period. b. They can be referred to as revenue expenditures. c. They maintain the expected productive life of the asset. d. They increase the productive capacity of the asset.
d. They increase the productive capacity of the asset.
54. Under the allowance method of accounting for bad debts, why must uncollectible accounts receivable be estimated at the end of the accounting period? a. To allow the collection department to schedule work for the next accounting period. b. To determine the gross realizable value of accounts receivable. c. The IRS rules require the company to make the estimate. d. To match bad debt expense to the period in which the revenues were earned.
d. To match bad debt expense to the period in which the revenues were earned.
138. Treasury stock is a. stock issued by the U.S. Treasury Department. b. stock purchased by a corporation and held as an investment in its treasury. c. corporate stock issued by the treasurer of a company. d. a corporation's own stock, which has been reacquired and held for future use.
d. a corporation's own stock, which has been reacquired and held for future use.
140. Treasury stock should be reported in the financial statements of a corporation as a(n) a. investment. b. liability. c. deduction from total paid-in capital. d. deduction from total paid-in capital and retained earnings.
d. deduction from total paid-in capital and retained earnings.
84. Intangible assets are the rights and privileges that result from ownership of long-lived assets that a. must be generated internally. b. are depreciated over their useful life. c. have been exchanged at a gain. d. do not have physical substance.
d. do not have physical substance.
95. Very often, failure to record a liability means failure to record a(n) a. revenue. b. asset conversion. c. footnote. d. expense.
d. expense.
130. Par value a. represents what a share of stock is worth. b. represents the original selling price for a share of stock. c. is established for a share of stock after it is issued. d. is the value assigned per share in the corporate charter.
d. is the value assigned per share in the corporate charter.
35. If the amount of uncollectible account expense is overstated at year end a. net income will be overstated. b. stockholders' equity will be overstated. c. Allowance for Doubtful accounts will be understated. d. net Accounts Receivable will be understated.
d. net Accounts Receivable will be understated.
The following data should be used in solving Questions 177, 178, 179 and 180. Each of the questions is mutually exclusive of the other questions. Alpha Corporation has the following Shareholders' Equity section of the Balance Sheet at 1/1/2004: Preferred Stock, 10%, $100 Par Value, 10,000 shares authorized, 1,000 issued, and outstanding $ 100,000 Additional Paid In Capital - Preferred Stock 240,000 Common Stock, $10 Par Value, 100,000 shares authorized, 50,000 shares issued and outstanding 500,000 Additional Paid In Capital - Common Stock 800,000 Total Paid In Capital $1,640,000 Retained Earnings 2,000,000 Total Shareholders' Equity $ 3,640,000 178. Assume Alpha reacquires share of their own Common Stock to hold in the Treasury. They pay $ 30.00 per share. With this purchase, the impact on Total Paid-in Capital and the total Shareholders' Equity, respectively, will be: a. increase/increase b. decrease/decrease c. increase/decrease d. none/decrease
d. none/decrease
85. Goodwill can be recorded a. when customers keep returning because they are satisfied with the company's products. b. when the company acquires a good location for its business. c. when the company has exceptional management. d. only when there is an exchange transaction involving the purchase of an entire business.
d. only when there is an exchange transaction involving the purchase of an entire business.
17. A bank statement a. lets a depositor know the financial position of the bank as of a certain date. b. is a credit reference letter written by the depositor's bank. c. is a bill from the bank for services rendered. d. shows the activities that increased or decreased the depositor's account balance.
d. shows the activities that increased or decreased the depositor's account balance.
