Financial Accounting Final Exam

A truck is purchased on credit. For this transaction, identify the effect on the accounting equation. a)Assets increase and liabilities increase. b)Assets increase and owners' equity increases. c)Liabilities increase and owners' equity decreases. d)Liabilities decrease and assets decrease.

Assets increase and liabilities increase

A LIFO liquidation occurs when a company sells fewer units than it buys during the period.

False

A LIFO reserve represents the amount by which cost of goods sold on a FIFO basis exceeds the cost of goods sold on a LIFO basis for the current year.

False

A building with a cost of $163,000 and accumulated depreciation of $32,000 was sold for a $11,000 gain. When using the indirect method, the cash generated from this investing activity was $131,000.

False

A change in estimate of an asset's residual value involves restating the income statements of past periods for the estimate change.

False

A check written by a company but not yet presented to the bank for payment is called a check in transit.

False

A company using the periodic inventory system must total the selling prices of the units on hand at the end of the period to value the ending inventory.

False

A debit is a negative entry.

False

A note payable due in two years is a current liability.

False

A trial balance can be distributed to stockholders in place of the balance sheet.

False

Acquisition cost is also known as historical cost with respect to property plant and equipment.

False

Acquisition costs are also known as replacement costs.

False

All changes in long-term liabilities are reflected in the financing activities category of the statement of cash flows.

False

Bad Debts Expense is a contra account that is used to reduce accounts receivable to its net realizable value.

False

Bad Debts expense is debited and Accounts Receivable is credited at the end of the period to recognize bad debts under the allowance method.

False

Cash flows from purchases of merchandise are classified as investing activities.

False

Compound interest is a repeated calculation of the interest on the principal over certain periods of time.

False

Cost of goods available for sale is equal to beginning inventory less cost of goods sold.

False

Depreciation has no effect on income taxes, since it only reduces a plant asset's book value.

False

Discount on Bonds Payable is classified as a current liability.

False

Dividends paid appears on both the income statement and the statement of retained earnings.

False

If a company purchases equipment by issuing a note payable, its total assets will not change.

False

If an investor has the right to retire the bonds, they are referred to as callable.

False

If the December 31, 2016, balance of accounts payable is higher than the January 1, 2016, balance, then the amount of cash payments will exceed the purchases on account for the year.

False

If you plan to invest $10,000 and want to determine how much will be accumulated in six years if you earn interest at 7% per year, you would calculate this using the future value of an annuity.

False

In the statement of cash flows, an increase in a current liability will appear as an increase in the Financing category.

False

Income taxes payable are recognized as an expense once they are paid to the respective government or taxing authority.

False

Interest is capitalized on all purchased assets.

False

Most long-term liabilities are related to a firm's investing activities.

False

Net income was $61,000 for the year. The accumulated depreciation balance increased by $14,000 over the year. There were no sales of fixed assets or changes in noncash current assets or liabilities. Under the indirect method, the cash flow from operations is $47,000.

False

On a bank reconciliation, outstanding checks are added to the cash balance per the bank statement

False

On the balance sheet, a company reports plant assets by subtracting residual value from the original cost of the plant asset.

False

One of the problems with the use of the allowance method to account for bad debts is that it often violates the matching principle.

False

Purchases and sales of cash equivalents are reported as investing activities on a statement of cash flows.

False

Research and development costs should be presented as intangible assets

False

Research and development costs should be presented as intangible assets.

False

Selling on credit protects a company from the risk that some of its receivables will never be collected.

False

Some cash equivalents appear in the long term investment section of a balance sheet.

False

The Property, Plant, and Equipment category includes long-term investments.

False

The direct write-off method estimates the amount of bad debts before they occur.

False

The effective interest rate method of amortization amortizes the discount or premium in a manner that produces a constant amount of interest expense from period to period.

False

The issuance of common stock in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.

False

The ledgers are an example of an accounting book of original entry.

False

The purchase of inventory for cash will cause the current ratio to decrease.

False

The reason the allowance method of recognizing bad debts is used is primarily because it recognizes the maximum amount of write-off in each period.

False

The sum of the carrying value and the redemption price at the time bonds are redeemed results in the gain or loss on redemption.

False

The three forms or states in the development of inventory for a manufacturer are direct materials, direct labor, and finished goods.

False

Under FIFO, the units in the ending inventory represent the oldest purchase(s).

False

When Carson Real Estate Company sells equipment for a loss, the Loss on Sale of Asset is treated as accumulated depreciation.

False

When Company X buys stock in Company Y, Company X is referred to as the investee.

False

When a bond is issued at a discount, the interest expense each year is less than the cash payment for interest.

False

When a bond issue is retired early, the amount of unamortized discount or premium is notconsidered in the calculation of a gain or loss.

False

When a company uses coupon or premium offers in conjunction with the sale of its products, there is no need to record any contingent liability.

False

When making a general journal entry, there can only be one debit and one credit.

False

When plant assets are purchased in a group, each asset increases the respective plant asset account for its fair market value at the time of acquisition.

False

When plant assets are reported, the current period's depreciation expense is subtracted from the original cost on the balance sheet.

False

When the market rate of interest is less than the face rate, then the bond issue will be sold at a discount.

False

The reason the allowance method of recognizing bad debts is used is primarily because it recognizes the maximum amount of write-off in each period.

Fasle

On the statement of cash flows, the ______________________________ section involves the purchase and sale of products and services.

Operating Activities

A company uses the same depreciation method as other firms in the same industry. Because of this, investors will have enhanced comparability of the financial reporting results.

True

A company's chart of accounts will reflect the nature of its business.

True

A construction company that builds skyscrapers is likely to have an operating cycle longer than one year.

True

A decrease in accounts receivable represents an increase in a company's cash flow from operating activities.

True

Accounts receivable are shown on the balance sheet at their net realizable value.

True

Acquisition cost is also known as historical cost with respect to property plant and equipment.

True

Because the allowance method results in better matching, accounting standards require its use rather than the direct write-off method, unless bad debts are immaterial.

True

Convertible bonds normally sell at a higher price than non-convertible bonds.

True

Credit terms of n/30 mean that the net amount of the invoice, less any returns or allowances, is due within 30 days of the date of the invoice.

True

Depreciation does not describe the increase or decrease in the market value of the asset.

True

Depreciation is a noncash expense that is added back to net income in determining cash provided from operating activities under the indirect method.

True

If a company has a number of day's sales in inventory equal to 60, that means that it takes about two months on average to sell its inventory.

True

If ending inventory is overstated, then net income is overstated as well.

True

If ending inventory is understated, then cost of goods sold is overstated.

True

Income taxes payable is a current liability.

True

On a bank reconciliation, interest earned for the month is added to the cash balance per the books.

True

Petty cash typically is composed of coins and currency kept on hand in a business to make minor disbursements.

True

Purchase discounts decrease the total cost of merchandise acquired.

True

The Loss on Sale of Asset indicates the amount by which the asset's sales price is less than its book value.

True

The accounting equation must balance after each transaction.

True

The buyer must include goods purchased FOB shipping point in its inventory account if the goods are still in transit.

True

The credit side of an account is the right side while the debit side is the left side.

True

The establishment of a petty cash fund has no effect on the company's total cash balance.

True

The face rate is also called the nominal or stated rate.

True

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

True

The investment in stock of another company is considered a significant activity and thus is reported on the statement of cash flows.

True

The issue price of a bond is always present valued using the market rate of interest.

True

The most common type of receivables is accounts receivable.

True

The statement of cash flows summarizes the operating, investing, and financing activities of a business for a period of time.

True

The three distinct types of cost to a manufacturer are direct materials, direct labor, andmanufacturing overhead.

True

The use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place.

True

Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur

True

Under the indirect method, an increase in accounts payable is added to net income to determine cash flow from operating activities.

True

When land and building are acquired for a lump sum, the purchase amount should be allocated on the basis of the market values of the two assets.

True

Which pair of accounts has the same set of rules for debit and credit entries? a) Common Stock (Capital Stock) and Accounts Payable b) Salaries Expense and Retained Earnings c) Cash and Notes Payable b) Sales Revenue and Accounts Receivable

a) Common Stock (Capital Stock) and Accounts Payable

On January 15, 2016, the accounts receivable balance was $7,000 and the balance in the allowance for doubtful accounts was $700. On January 16, 2016, a $200 uncollectible account was written-off. The net realizable value of accounts receivable on January 16 immediately after the write-off is: a)$6,300 b)$6,800 c)$6,500 d)$7,900

a)$6,300

Checks presented for payment and paid by the bank are known as a)Canceled checks b)Certified checks c)NSF checks d)Outstanding checks

a)Canceled checks

Which of the following items would not be a reconciling item? a)Canceled checks b)NSF checks c)Outstanding checks d)Deposits in transit

a)Canceled checks

Among the assets listed below, which one is considered the most liquid? a)Cash b)Accounts receivable c)Merchandise inventory d)Prepaid expenses

a)Cash

Which one of the following is an accurate description of Allowance for Doubtful Accounts? a)Contra account b)Liability account c)Revenue account d)Expense account

a)Contra account

Which of the following is a noncurrent asset? a)Land b)Accounts receivable c)Cash d)None of these choices.

a)Land

The data presented below is for Falconi, Inc. for 2016. Credit sales during the year $2,100,000 Accounts receivable—December 31, 2016 295,000 Allowance for doubtful accounts—December 31, 2016 28,000 Bad debt expense for the year 17,000 ​ What is the effect on liquidity when Falconi records its estimate for bad debt expense using the allowance method? a)Liquidity decreases b)Liquidity increases c)Liquidity stays the same d)Liquidity both increases and decreases

a)Liquidity decreases

Which of the following accounts are normally reported as noncurrent liabilities on a classified balance sheet? a)Notes payable due in 5 years and bonds payable b)Interest payable and mortgage payable c)Income taxes payable and salaries payable d)Capital stock and accounts payable

a)Notes payable due in 5 years and bonds payable

Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation? a)Outstanding checks b)Deposit in transit c)Service charges d)Interest on customer note

a)Outstanding checks

Liquidity relates to a company's ability to do which of the following? a)The ability to pay its financial obligations as they become due b)The ability to stay in business over the long run c)The ability to pay dividends to its stockholders d)The ability to collect the amount their customers owe the company

a)The ability to pay its financial obligations as they become due

How would interest earned on a checking account be dealt with in a bank reconciliation? a)added to company's book balance b)deducted from company's book balance c)added to bank statement balance d)deducted from bank statement balance

a)added to company's book balance

A check drawn by a company for $360 in payment of a liability was recorded in the journal as $630. This item would be included on the bank reconciliation as a(n) a)addition to the balance per the company's records b)addition to the balance per the bank statement c)deduction from the balance per the bank statement d)deduction from the balance per the company's records

a)addition to the balance per the company's records

A company should choose a depreciation method that a)best allocates the original cost of the asset to the periods benefited by the use of the asset. b)saves the most taxes. c)minimizes net income d)shows the highest amount of net income.

a)best allocates the original cost of the asset to the periods benefited by the use of the asset.

Using the straight-line depreciation method will cause a company to incur ____ tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation. a)more b)less c)equal d)This cannot be determined from the information given.

a)more

Roki Inc. uses the periodic inventory system. June 1 On hand, 50 units @ $15.00 each $ 750.00 5 Purchased 115 units @ $15.10 each 1,736.50 14 Purchased 75 units @ $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units ​ If Roki uses the weighted average cost inventory method, the amount assigned to the June 30th inventory would be a.) $1,359.90 b.) $1,549.00 c.) $1,486.50 d.) $1,591.50

a.) $1,359.90

Lynx Corp.The data presented below for Lynx Corp. is for the year ended December 31, 2016: Sales (100% on credit)$1,000,000Sales returns30,000Accounts Receivable (December 31, 2016)170,000Allowance for Doubtful Accounts [Cr. Balance] (Before adjustment at December 31, 2016) 1,300Estimated amount of uncollectible accounts based on aging analysis14,000 ​ ​ See the data for Lynx Corp. If Lynx Corp. uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2016? a.) $12,700 b.) $13,700 c.) $14,000 d.) $15,300

a.) $12,700

On January 15, 2016, the accounts receivable balance was $7,000 and the balance in the allowance for doubtful accounts was $700. On January 16, 2016, a $200 uncollectible account was written-off. The net realizable value of accounts receivable on January 16 immediately after the write-off is: a.) $6,300 b.) $6,800 c.) $6,500 d.) $7,900

a.) $6,300

Which one of the following items is not included in cash? a.) A bank certificate of deposit for one year b.) A savings account at the bank c.) A checking account at the bank d.) All of the above are included in cash

a.) A bank certificate of deposit for one year

Checks presented for payment and paid by the bank are known as: a.) Canceled checks b.) Certified checks c.) NSF checks d.) Outstanding checks

a.) Canceled checks

Rent owed to the landlord is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet? a.) Current liability b.) Long-term liability c.) Current asset d.) Owners' equity

a.) Current liability

When the market value of inventory items has declined below its cost, which method would be the most appropriate in complying with GAAP? a.) Lower of Cost or market b.) LIFO c.) Retail d.) Gross Profit

a.) Lower of Cost or market

If a company overstates its ending inventory balance for 2017 by $10,000, and overstates its ending inventory balance for 2016 by $5,000 what are the effects on its net income for 2017 and 2016? ​ Effect on 2017 Net Income Effect on 2016 Net Income a.) Overstated by $5,000 Overstated by $5,000 b.) Overstated by $15,000 Overstated by $10,000 c.) Overstated by $10,000 Overstated by $5,000 d.) Understated by $5,000 Overstated by $10,000

a.) Overstated by $5,000 Overstated by $5,000

Calhoun, Inc. purchased equipment at the beginning of 2016 for $180,000. Calhoun decided to depreciate the equipment over a 5-year period using the double-declining-balance method. Calhoun estimated the equipment's residual value at $30,000. Which of the following statements is correct concerning Rose's financial statements at December 31, 2016? a.) The book value of the equipment is $108,000. b.) The book value of the equipment is $72,000. c.) The total accumulated depreciation is $90,000. d.) Depreciation expense for 2016 is $60,000.

a.) The book value of the equipment is $108,000.

How would deposits in transit be dealt with in a bank reconciliation? a.) added to bank statement balance b.) deducted from company's book balance c.) they would be ignored d.) None of these choices

a.) added to bank statement balance

How would interest earned on a checking account be dealt with in a bank reconciliation? a.) added to company's book balance b.) deducted from company's book balance c.) added to bank statement balance d.) deducted from bank statement balance

a.) added to company's book balance

One effect on the accounting equation when a firm borrows money is a) stockholders' equity decreases. b) assets increase. c) liabilities decrease. d) assets decrease.

b) assets increase

Benton CorporationThe data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016 $334,000 Credit sales during 2016 850,000 Collections from credit customers during 2016 725,000 Customer accounts written off as uncollectible during 2016 12,000 Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts) ​ 1,700 Estimated uncollectible accounts based on an aging analysis 13,200 ​ ​ Refer to the data for Benton Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2016? a)$ 2,900 b)$11,500 c)$23,500 d)$26,900

b)$11,500

On January 1, 2016, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2016. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. ​ The net realizable value of receivables appearing on the 2016 balance sheet will amount to: a)$14,105 b)$14,155 c)$14,900 d)$15,450

b)$14,155

Mellon CorporationThe data presented below is for Mellon Corporation for the year ended December 31, 2016: Sales (100% on credit)$1,500,000Sales returns60,000Accounts Receivable (December 31, 2016)250,000 Allowance for Doubtful Accounts [Credit Balance] (Before adjustment at December 31, 2016 ​ 3,000 Estimated amount of uncollectible accounts based on an aging analysis31,000 ​ ​ Refer to the information for Mellon Corporation.If Mellon uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense? a)$216,000 b)$219,000 c)$222,000 d)$250,000

b)$219,000

Greer Company purchased land for $256,000. Additional costs include a $15,300 fee to a broker, a survey fee of $2,400, $1,750 to construct a fence and a legal fee of $8,500. What is the cost of the land? a)$256,000 b)$282,200 c)$284,600 d)$281,000

b)$282,200

The accountant for Lola Corp. was preparing a bank reconciliation as of February 28, 2016. The following items were identified: Lola's book balance $35,900 Outstanding checks 12,050 Interest earned on checking accounts 75 Customer's NSF check returned by the bank 325 There was an error in recording a customer's check as the check was recorded by Lola as $110, but the correct amount of $101 was recorded by the bank. Lola's adjusted cash balance at February 28, 2016 is a)$23,591 b)$35,641 c)$35,659 d)$47,691

b)$35,641

Which one of the following statements best describes the term "outstanding check?" a)A check written by the company and presented to the bank for payment. b)A check written by the company but not yet presented to the bank for payment. c)A check written by a customer that has been presented to the bank for payment. d)A check written by a customer that has not yet been presented to the bank for payment.

b)A check written by the company but not yet presented to the bank for payment.

Fenchurch Corp. uses the direct write-off method to account for bad debts. What are the effects on the accounting equation of the entry to record the write-off of a customer's account balance? a)Assets and liabilities decrease. b)Assets and owners' equity decrease. c)Owners' equity decrease and liabilities increase. d)No effect; assets increase and decrease by the same amount.

b)Assets and owners' equity decrease.

What are the effects on the accounting equation when a company makes the adjustment to record bad debt expense using the allowance method? a)Assets and owners' equity increase. b)Assets and owners' equity decrease. c)Assets increase and owners' equity decreases. d)Assets decrease and owners' equity increases.

b)Assets and owners' equity decrease.

If a company uses the allowance method to account for bad debts, when will the company's owners' equity decrease? a)At the date a customer's account is written off b)At the end of the accounting period when an adjusting entry for bad debts is recorded c)At the date a customer's account is determined to be uncollectible d)When the accounts receivable amount becomes past due

b)At the end of the accounting period when an adjusting entry for bad debts is recorded

The entry required to recognize the bad debts expense for 2016 will act to: a)Increase total assets and retained earnings b)Decrease total assets and retained earnings c)Decrease total assets and increase net income d)Increase total assets and decrease net income

b)Decrease total assets and retained earnings

Which one of the following items would be added to the balance per bank statement in a bank reconciliation? a)Outstanding checks b)Deposits in transit c)Service charge d)Interest on customer note

b)Deposits in transit

Planet & Co. reported net income for the current year. Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income? a)Cash dividends were paid to stockholders during the year. b)Depreciation expense was recorded for the year. c)A bank loan was repaid during the year. d)Equipment was purchased for cash during the year.

b)Depreciation expense was recorded for the year.

f a company uses the direct write-off method of accounting for bad debts, a)It is applying the matching principle. b)It will record bad debt expense only when an account is determined to be uncollectible. c)It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible accounts. d)It will report accounts receivable in the balance sheet at their net realizable value.

b)It will record bad debt expense only when an account is determined to be uncollectible.

The party to a promissory note that agrees to repay money on the maturity date of the note is called the a)Lender b)Maker of the note c)Payee of the note d)Recipient of the note

b)Maker of the note

Which statement summarizes the income earned and the dividends paid? a)Statement of cash flows b)Statement of retained earnings c)Balance sheet d)Income statement

b)Statement of retained earnings

If a company erroneously records a $500 deposit as $400 in its books, which of the following must occur when reconciling the bank statement? a)The company will have to increase the balance per the bank statement by $100. b)The company will have to increase the balance per the books by $100. c)The company will have to decrease the balance per bank statement by $100. d)None of the above

b)The company will have to increase the balance per the books by $100.

A gain is recognized on the disposal of plant assets when: a)The sales price is greater than the book value and less than the residual value. b)The sales price is greater than the book value and greater than the residual value. c)The sales price is less than both the book value and the residual value. d)The sales price is greater than the residual value but less than the book value.

b)The sales price is greater than the book value and greater than the residual value.

Which one of the following is not considered to be a cash equivalent? a)Corporate commercial paper due in 90 days after purchase b)U.S. Treasury bills with an original maturity of six months c)A money market account with a stock brokerage firm d)A certificate of deposit with a term of 75 days when acquired

b)U.S. Treasury bills with an original maturity of six months

Which of the following statements would be true if you own stock in a company? a)You are an owner of the retained earnings and capital stock of the company. b)You have a claim to the assets of the business c)You have the right to receive interest on an annual basis. d)You have the right to a portion of the company's revenues each accounting period.

b)You have a claim to the assets of the business

How would customer's NSF checks be dealt with in a bank reconciliation? a)added to company's book balance b)deducted from company's book balance c)added to bank statement balance d)deducted from bank statement balance

b)deducted from company's book balance

If the landlord has rent _________, then the tenant has rent _________. a)revenue; revenue b)revenue; expense c)expense; revenue d)expense; expense

b)revenue; expense

Using different depreciation methods for book purposes versus tax purposes for the same asset is a)not allowed since the amount can only be calculated one way or the other, not both. b)the direct result of the differing goals of financial and tax accounting. c)contrary to GAAP. d)against the Internal Revenue Code, and as such, against the law.

b)the direct result of the differing goals of financial and tax accounting.

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2016, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on December 31, 2016 (if a 360 day year is assumed)? a.) $ -0- b.) $ 60 c.) $120 d.) $180

b.) $ 60

Bennington Corp. issued a $40,000, 10-year bond at the face rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period? a.) $800 b.) $1,600 c.) $3,200 d.) $4,000

b.) $1,600

Benton CorporationThe data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016 $334,000 Credit sales during 2016 850,000 Collections from credit customers during 2016 725,000 Customer accounts written off as uncollectible during 2016 12,000 Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts) ​ 1,700 Estimated uncollectible accounts based on an aging analysis 13,200 ​ ​ Refer to the data for Benton Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2016? a.) $ 2,900 b.) $11,500 c.) $23,500 d.) $26,900

b.) $11,500

Roki Inc. uses the periodic inventory system. June 1 On hand, 50 units @ $15.00 each $ 750.00 5 Purchased 115 units @ $15.10 each 1,736.50 14 Purchased 75 units @ $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units ​ If Roki uses the LIFO inventory method, the cost of goods sold for June would be a.) $2,200.00 b.) $2,272.50 c.) $2,296.08 d.) $1,354.00

b.) $2,272.50

Lynx Corp.The data presented below for Lynx Corp. is for the year ended December 31, 2016: Sales (100% on credit)$1,000,000Sales returns30,000Accounts Receivable (December 31, 2016)170,000Allowance for Doubtful Accounts [Cr. Balance] (Before adjustment at December 31, 2016) 1,300Estimated amount of uncollectible accounts based on aging analysis14,000 ​ ​ See the data for Lynx Corp. If Lynx Corp. estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense for 2016? a.) $9,560 b.) $9,700 c.) $1,700 d.) None of these choices

b.) $9,700

Hawk Store counted some of its inventory twice. As a result, its operating expenses will be a.) Understated b.) Correct only if Hawk Store calculates it cost of goods sold correctly c.) Overstated d.) Correct since operating expenses are not affected by inventory costs

b.) Correct only if Hawk Store calculates it cost of goods sold correctly

Deposits made by a company but not yet reflected in a bank statement are called a.) Debit memoranda b.) Deposits in transit c.) Credit memoranda d.) None of the above

b.) Deposits in transit

Which one of the following items would be added to the balance per bank statement in a bank reconciliation? a.) Outstanding checks b.) Deposits in transit c.) Service charge d.) Interest on customer note

b.) Deposits in transit

Which method assigns the cost of the most recent items purchased to ending inventory? a.) LIFO b.) FIFO c.) Specific identification d.) Weighted average cost

b.) FIFO

If a company uses the direct write-off method of accounting for bad debts, a.) It is applying the matching principle. b.) It will record bad debt expense only when an account is determined to be uncollectible. c.) It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible accounts. d.) It will report accounts receivable in the balance sheet at their net realizable value.

b.) It will record bad debt expense only when an account is determined to be uncollectible.

Which of the following would not appear on an income statement? a)Sales revenue b)Answered Cost of goods sold c)Answer Accounts receivable d)Insurance expense

c) Answer Accounts receivable

Wexford Co. purchased a new delivery truck at the beginning of 2016. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2016. The truck was driven 20,000 miles during 2016 and 24,000 miles during 2017. The number of expected miles over five years is 100,000. ​ Refer to information for Wexford Co. ​ Wexford's is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2016? a)Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings. b)Straight-line depreciation creates both the larger expense and the larger tax savings. c) Double-declining-balance depreciation creates both the larger expense and the larger tax savings. d)Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings.

c) Double-declining-balance depreciation creates both the larger expense and the larger tax savings.

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2016, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on the maturity date of the note? a)$ -0- b)$ 60 c)$120 d)$180

c)$120

Benton CorporationThe data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016 $334,000 Credit sales during 2016 850,000 Collections from credit customers during 2016 725,000 Customer accounts written off as uncollectible during 2016 12,000 Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts) ​ 1,700 Estimated uncollectible accounts based on an aging analysis 13,200 ​ ​ Refer to the data for Benton Corporation. If the aging approach is used to estimate bad debts, what should the balance in the Allowance for Doubtful Accounts be after the bad debts adjustment? a)$26,900 b)$14,900 c)$13,200 d)$11,500

c)$13,200

Gentech Corp. prepared a bank reconciliation as of June 30, 2016. The following items were identified: Gentech's bank balance $14,300 Deposits in transit $1,000 Outstanding checks 1,300 Bank service charges 50 Customer's NSF check returned by the bank 150 ​ Gentech's adjusted cash balance at June 30, 2016 is a)$13,800 b)$14,100 c)$14,000 d)$14,300

c)$14,000

Darrin Brown bought a pub. The purchase price was $695,000. An appraiser provided the following appraisal values: land $320,000: building $370,000 and equipment $60,000. What cost should be allocated to the building? a)$370,000 b)$695,000 c)$342,867 d)$399,281

c)$342,867

Mayflower Company had a machine with a cost of $123,000 and accumulated depreciation of $87,000 that was sold at for a gain of $5,000. What amount of cash was received from the sale? a)$30,000. b)$36,000. c)$41,000. d)$128,000.

c)$41,000.

Benton CorporationThe data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016 $334,000 Credit sales during 2016 850,000 Collections from credit customers during 2016 725,000 Customer accounts written off as uncollectible during 2016 12,000 Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts) ​ 1,700 Estimated uncollectible accounts based on an aging analysis 13,200 ​ ​ Refer to the data for Benton Corporation. ​ What is the balance of Accounts Receivable at December 31, 2016? a)$209,000 b)$225,000 c)$447,000 d)$459,000

c)$447,000

Which of the following is not classified as a noncurrent liability? a)Bonds payable b)Capital lease obligations c)Current portion of long-term debt d)Mortgage payable

c)Current portion of long-term debt

Why is depreciation added to net income in the Operating Activities category of the statement of cash flows when the indirect method is used? a)Depreciation expense is a negative amount in the Investing Activities section and therefore is a positive amount in the Operating Activities section. b)Depreciation provides cash and therefore must be added to net income. c)Depreciation was deducted in arriving at net income on the accrual basis of accounting; however, it did not require the use of cash. d)Depreciation reduced the book value of plant assets and, therefore, must be reported as an investing activity.

c)Depreciation was deducted in arriving at net income on the accrual basis of accounting; however, it did not require the use of cash.

Which of the following categories on a statement of cash flows is used to report the cash flow effects of transactions involving a company's stock? a)Operating Activities b)Investing Activities c)Financing Activities d)Profit Activities

c)Financing Activities

Which one of the following is not an accurate description of Allowance for Doubtful Accounts? a)Contra account b)Balance sheet account c)Income statement account d)Current asset account

c)Income statement account

hich one of the following is not an accurate description of Allowance for Doubtful Accounts? a)Contra account b)Balance sheet account c)Income statement account d)Current asset account

c)Income statement account

Checks returned by a bank because customers did not have sufficient funds in their account are called a)Canceled checks b)Certified checks c)NSF checks d)Outstanding checks

c)NSF checks

Which statement is true concerning operating assets? a)Operating assets have no physical properties. b)A company's operating assets are important to its short-term liquidity. c)Operating assets are used over two or more periods to generate revenues. d)All operating assets are reported on the balance sheet

c)Operating assets are used over two or more periods to generate revenues.

Items should be reported as part of the company's "inventory" at year end, if they are a) Sold during the period. b)Determined to be part of cost of goods sold. c)Purchased from a creditor, available for sale, and paid for the following year. d)Held in anticipation of an increase in market value

c)Purchased from a creditor, available for sale, and paid for the following year.

Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2016. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2016. Park paid the amount due on June 13, 2016. ​ Park uses a perpetual inventory system. When will the cost of merchandise sold be recorded as an expense? a)The end of the accounting period b)The date the merchandise was purchased c)The date the merchandise is sold d)Cannot be determined without further information

c)The date the merchandise is sold

Roki Inc. uses the periodic inventory system. June 1 On hand, 50 units @ $15.00 each $ 750.00 5 Purchased 115 units @ $15.10 each 1,736.50 14 Purchased 75 units @ $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units ​ If the June 30th inventory included 45 units from the June 5th purchase and 45 units from the June 14th purchase, Roki's cost of goods sold for June under the specific identification method would be a.) $2,945.00 b.) $3,626.50 c.) $2,263.00 d.) $2.373.00

c.) $2,263.00

Grove City Corp. ​ On January 1, 2016, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. ​ What was the depreciation expense for Grove City Corp. for the year ended December 31, 2017? a.) $ -0- b.) $160,000 c.) $320,000 d.) $400,000

c.) $320,000

Benton CorporationThe data below is for Benton Corporation for 2016. Accounts Receivable—January 1, 2016 $334,000 Credit sales during 2016 850,000 Collections from credit customers during 2016 725,000 Customer accounts written off as uncollectible during 2016 12,000 Allowance for Doubtful Accounts [Credit Balance] (After write-off of uncollectible accounts) ​ 1,700 Estimated uncollectible accounts based on an aging analysis 13,200 ​ ​ Refer to the data for Benton Corporation. ​ What is the balance of Accounts Receivable at December 31, 2016? a.) $209,000 b.) $225,000 c.) $447,000 d.) $459,000

c.) $447,000

On January 2, 2016, Roof Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders a.) $574,540. b.) $520,000. c.) $500,000. d.) only the last interest payment.

c.) $500,000.

Roki Inc. uses the periodic inventory system. June 1 On hand, 50 units @ $15.00 each $ 750.00 5 Purchased 115 units @ $15.10 each 1,736.50 14 Purchased 75 units @ $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units ​ How many units did Roki, Inc. sell during June? a.) 90 b.) 100 c.) 150 d.) 50

c.) 150

A check drawn by a company for $360 in payment of a liability was recorded in the journal as $630. What entry is required in the company's accounts? a.) debit Accounts Payable; credit Cash b.) debit Cash; credit Accounts Receivable c.) debit Cash; credit Accounts Payable d.) debit Accounts Receivable; credit Cash

c.) debit Cash; credit Accounts Payable

Wexford Co. Wexford Co. purchased a new delivery truck at the beginning of 2016. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2016. The truck was driven 20,000 miles during 2016 and 24,000 miles during 2017. The number of expected miles over five years is 100,000. ​ Refer to information about Wexford Co. ​ Wexford Co. wants to use the depreciation method that will result in the highest depreciation expense for 2016. Which method should be used? a.) straight-line b.) units-of-production c.) double-declining-balance d.) all methods create the same income in 2016

c.) double-declining-balance

XYZ Corp. made cash sales to customers. What effect does this transaction have on the accounting equation? a)Liabilities increase and stockholders' equity increases. b)There is no effect on the accounting equation as one asset account increases while another asset account decreases. c)Assets increase and liabilities increase. d)Assets increase and stockholders' equity increases.

d) Assets increase and stockholders' equity increases.

The Dinho Corporation identified the following data when preparing their April bank reconciliation: Bank statement balance $45,000 Dinho's book balance (before adjustments) ? Outstanding checks 4,500 NSF checks 1,400 Service charges 300 Deposits in transit 5,000 Interest earned on checking account 25 In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000. The correct amount was recorded by the bank as $1,200.What is the net amount of the adjustment to Dinho's cash balance as a result of the bank reconciliation? a)$1,675 increase b)$1,700 increase c)$1,675 decrease d)$1,475 decrease

d)$1,475 decrease

Using the following information, what is the amount of cost of goods sold? Purchases $32,000 Purchases discounts $960 Merchandise inventory September 1 5,700 Merchandise inventorySeptember 30 6,370 Sales returns and allowances 910 Sales 63,000 Purchases returns and allowances 1,200 Freight In 1,040 a)$26,900 b)$20,530 c)$28,130 d)$30,210

d)$30,210

Which one of the following statements is true concerning assets? a)They are recorded at market value and then adjusted for inflation. b)They are recorded at market value for financial reporting purposes as historical cost may be arbitrary. c)Assets are used using the time-period approach. d)Accountants use the term historical cost to refer to the original cost of an asset.

d)Accountants use the term historical cost to refer to the original cost of an asset.

Flake Company accepted a check from Ramos Company as payment for services rendered by Flake Company. Later Flake's bank statement revealed that Ramos' check was an NSF check. Recognizing the NSF check on Flake's books would act to: a)Decrease total assets b)Decrease total owners' equity c)Both a. and b. d)Have no effect on Total Assets

d)Have no effect on Total Assets

Payment is made for land purchased earlier on credit. For this transaction, identify the effect on the accounting equation. a)Assets increase and liabilities increase. b)Assets increase and stockholders' equity increases. c)Liabilities increase and stockholders' equity decrease. d)Liabilities decrease and assets decrease.

d)Liabilities decrease and assets decrease.

Which of the following accounts is increased by a credit entry? a)Cash b)Equipment c)Accounts receivable d)None of these choices.

d)None of these choices.

Assuming a company uses the allowance method, the entry to recognize the write-off of the specific uncollectible accounts will act to: a)Increase total assets and total equity b)Increase total assets and decrease total equity c)Decrease total assets and total equity d)Not affect total assets or total equity

d)Not affect total assets or total equity

Which one of the following is an investing activity of a business? a)Paying for purchases of inventory b)Issuing stock for cash c)Borrowing money from a bank d)Purchasing a manufacturing plant for cash

d)Purchasing a manufacturing plant for cash

Which of the following statements about current liabilities is true? a)Current liabilities are listed in order of decreasing amounts in the current liability section of the balance sheet. b)The amount of current liabilities has little implication for a company's liquidity. c)The current liability section never contains any portion of long-term liabilities. d)The current ratio is defined as current assets divided by current liabilities

d)The current ratio is defined as current assets divided by current liabilities

Allowance for Doubtful Accounts represents: a)Cash set aside to make up for bad debt losses b)The amount of uncollectible accounts written off to date c)The difference between total sales made on credit and the amount collected from those credit sales d)The difference between the gross amount of accounts receivable and the net realizable value of accounts receivable

d)The difference between the gross amount of accounts receivable and the net realizable value of accounts receivable

During November, ABC, Inc. purchased office supplies for cash. The supplies will be used in November. What effect does this purchase transaction have on the accounting equation? a)Assets increase and stockholders' equity decreases. b)Assets increase and liabilities increase. c)Assets decrease and liabilities decrease. d)There is no effect on the accounting equation as one asset account increases while another asset account decreases.

d)There is no effect on the accounting equation as one asset account increases while another asset account decreases.

Payment is received from customers who were billed earlier for services provided for them. For this transaction, identify the effect on the accounting equation. a)Assets increase and liabilities increase. b)Assets increase and stockholders' equity increases. c)Liabilities increase and stockholders' equity decreases. d)There is no effect on the accounting equation as one asset account increases while another asset account decreases.

d)There is no effect on the accounting equation as one asset account increases while another asset account decreases.

If the balance on the bank statement does not equal the balance in the cash account, then it can be assumed that: a)The company has no errors in its records concerning the cash account. b)The bank has made errors in preparing the statement. c)The company has made errors in is records concerning the cash account. d)There will be items reconciling the difference.

d)There will be items reconciling the difference.

Land is not depreciated because it a)appreciates in value. b)does not have an established depreciable life. c)has a useful life that is limited to the period of time a company is in business. d)will provide future benefits for a company for an unlimited period of time.

d)will provide future benefits for a company for an unlimited period of time.

Roki Inc. uses the periodic inventory system. June 1 On hand, 50 units @ $15.00 each $ 750.00 5 Purchased 115 units @ $15.10 each 1,736.50 14 Purchased 75 units @ $15.20 each 1,140.00 Total cost of goods available for sale $3,626.50 30 On hand, 90 units ​ If Roki uses the FIFO inventory method, the amount assigned to the June 30 inventory would be a.) $1,354.00 b.) $1,590.42 c.) $1,594.00 d.) $1,366.50

d.) $1,366.50

Grove City Corp. ​ On January 1, 2016, Grove City Corp. purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. ​ What was the depreciation expense for Grove City Corp. for the year ended December 31, 2016? a.) $ -0- b.) $195,000 c.) $390,000 d.) $400,000

d.) $400,000

If the balance on the bank statement does not equal the balance in the cash account, then it can be assumed that: a.) The company has no errors in its records concerning the cash account. b.) The bank has made errors in preparing the statement. c.) The company has made errors in is records concerning the cash account. d.) There will be items reconciling the difference.

d.) There will be items reconciling the difference.

Wexford Co. Wexford Co. purchased a new delivery truck at the beginning of 2016. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2016. The truck was driven 20,000 miles during 2016 and 24,000 miles during 2017. The number of expected miles over five years is 100,000. ​ Refer to information for Wexford Co. ​ By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the truck? a.) The salvage value of $7,000. b.) Cost less total depreciation. c.) Cost plus total depreciation. d.) Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

d.) Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

If receipts from cash sales of $7,500 were recorded incorrectly as $5,700 in the company's books, then this item would be included on the bank reconciliation as a(n) a.) deduction from the balance per company's records b.) addition to the balance per bank statement c.) deduction from the balance per bank statement d.) addition to the balance per company's records

d.) addition to the balance per company's records

The effect of recording depreciation for the year is a(n) a.) decrease in net income and no change in assets. b.) decrease in assets but no change in owners' equity. c.) increase in assets and an increase in net income. d.) decrease in assets and a decrease in net income.

d.) decrease in assets and a decrease in net income.

Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for a.) financial reporting purposes and a different method for tax purposes. b.) financial reporting purposes because depreciation is not allowed for tax purposes. c.) tax purposes because it results in a larger net income in the early years of a plant asset's life d.) tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

d.) tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

The ability of a company to pay its debt when due refers to ____________________

liquidity