accounting exam 3
Tyler Company purchased equipment that cost $260,000 cash on January 1, Year 1. The equipment had an expected useful life of five years and an estimated salvage value of $10,000. Tyler depreciates its assets under the straight-line method. What is the amount of depreciation expense appearing on the Year 1 income statement?
50000
Madison Company owned an asset that had cost $44,000. The company sold the asset for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Which of the following statements is true?
A $16,000 cash inflow in the investing activities section of the cash flow statement.
Which of the following opinions is the least favorable opinion issued by an external auditor?
Adverse opinion
Beta Company purchased a truck on January 1, Year 1. Sigma Company also purchased a truck on the same date. The trucks were identical in every respect. Even so, Beta decided to depreciate its truck using straight-line depreciation while Sigma decided to use the double-declining-balance method. All other things being equal,
Beta Company will show a greater amount of total assets on its Year 1 balance sheet than Sigma will show.
Which of the following is not a commonly accepted internal control activity?
Hiring only college graduates
Which of the following statements is true?
Interest revenue will be shown as a credit on a bank statement.
The MACRS method of determining depreciation expense has been established by the
Internal Revenue Service.
Which of the following is not an internal control procedure designed to safeguard cash?
Keep cash in locations that are accessible by multiple employees
The acronym MACRS stands for which of the following?
Modified Accelerated Cost Recovery System
Which of the following is an internal control procedure designed to protect cash receipts?
Record cash collections immediately., Provide customers with receipts, Deposit cash collections immediately. All of the answers described internal control procedures designed to protect cash receipts.
On January 1, Year 1, Dinwiddie Company purchased a car that cost $45,000. The car has an expected useful life of 5 years and a $10,000 salvage value. Which of the following statements is true?
The amount of depreciation expense recognized in Year 4 would be greater if Dinwiddie depreciates the car under the straight-line method than if the double-declining-balance method is used.
Which of the following opinions is the most favorable opinion issued by an external auditor?
Unqualified opinion
Which of the following procedures are typically used when a petty cash fund is established?
assigning a petty cash custodian, use of petty cash vouchers, physical control over the petty cash fund, all of these procedures are used when a petty cash fund is established
What account is used to record the amount of cash shortages or overages relative to a petty cash system?
cash short and over
Which of the following is not one of the nine features of an internal control system?
customer service comment cards
Which of the following terms is used to describe the process of expense recognition for property, plant and equipment?
depreciation
The accounts receivable turnover ratio is calculated by
dividing the amount of credit sales by the average balance of accounts receivable.
All costs associated with a machine after it is operational are expensed in the period they are incurred. This statement is
false
An error is considered material if it would trigger an IRS audit
false
An unqualified audit opinion suggests that all aspects of financial statements are in compliance with generally accepted accounting principles (GAAP). This statement is
false
The implementation of an effective internal control system eliminates the possibility of fraud. This statement is
false
The primary focus of financial statement audits is the discovery of fraud.
false
The use of estimates and revision of estimates are uncommon in financial reporting.
false
Which of the following intangible assets has an indefinite useful life?
goodwill
What term is used to describe the situation where the value of an intangible asset may be significantly diminished?
impairment
Depletion is the term used to recognize expense associated with
natural resources
Wild company purchased an asset on December 1, Year 1. Based on the Modified Accelerated Cost Recovery System (MACRS), Wild can deduct
one half of one full year of depreciation on its Year 1 tax return.
Which of the following is an administrative control?
performance evaluation
Internal control is a process designed to ensure
reliable financial reporting., effective and efficient operations., compliance with applicable laws and regulations., Internal control is designed to ensure all of the items described in the answers.
Which method of depreciation is used by most U.S. companies for financial reporting purposes?
straight-line
Which of the following normally has an associated contra account?
tangible long-term assists
All other things being equal, a company using double-declining balance depreciation will show higher depreciation expense in the first year of an asset's useful life than a company using straight-line depreciation. This statement is
true
An operating cycle is the length of time it takes to convert inventory to accounts receivable plus the time it takes to convert the account receivable back to cash. This statement is
true
Cash is difficult to protect because it is easy to transfer and its ownership difficult to prove. These statements are
true
Establishment of a petty cash fund is an asset exchange transaction.
true
Goodwill is recognized only when it is purchased. This statement is
true
Land is different from other tangible assets in that its utility is not diminished by its use. This statement is
true
Two companies that experience identical accounting events may still report different amounts of net income. This statement is
true
it is legal for a company to use one method of depreciation for tax reporting purposes and a different method for financial reporting purposes. This statement is
true
