ACTG Exam #3 (Ch 8-10) Study Set
When extending credit an your policy is too loose, you run the risk of losing sales. TRUE or FALSE {CHAPTER 8}
FALSE
Kingbird Inc purchased land adjacent to its plant to improve access for trucks making deliveries. Expenditures incurred in purchasing the land were as follows: - purchase price, $57,400 - broker's fees, $6,280 - title search and other fees, $5,360 - demolition of an old building on the property $5,750 - grading, $1,250 - digging foundation for the road, $3,030 - laying and paving driveway, $27,800 - lighting, $7,880 - signs, $1580 List the items AND amounts that should be included in Land account {CHAPTER 9}
Purchase price: $57,400 Broker's Fee: $6,280 Title Search and Other Fees: $5,360 Grading: $1,250 Demolition of Old Building: $5,750 Land Acquisition Cost (TOTAL): $76,040
Net credit sales for the month are $800,000. The accounts receivable balance is $160,000. The allowance is calculated at 7.5% of the receivables balance using the percentage-of-receivables basis. If Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment, what is the balance AFTER adjustment? (1) $12,000 (2) $7,000 (3) $17,000 (4) $31,000 {CHAPTER 8}
(1) $12,000 The ending balance required in the allowance account is 7.5% × $160,000, or $12,000. Since there is already a balance of $5,000 in Allowance for Doubtful Accounts, the difference of $7,000 should be added, resulting in a balance of $12,000, not (b) $7,000, (c) $17,000, or (d) $31,000.
The interest on a $13,000 6%, 60 day note receivable is... (use 360 days) (1) $130 (2) $520 (3) $260 (4) $390 {CHAPTER 8}
(1) $130
Hayes Company incurs the following costs associated with the purchase of land. Calculate the cost of the land to be recorded in the general journal: - Purchase Price: $100,000 - Cost to raze old warehouse: $6,000 ($7,500 cost - $1,500 proceeds from salvaged materials) - Attorney's fees: $1,000 - Real estate brokers' commission: $8,000 Which is the right amount? (1) $116,500 (2) $115,000 (3) $100,000 (4) $106,000 {CHAPTER 9}
(2) $115,000
Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2022. The machine was purchased for $80,000 on January 1, 2018, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale? (1) $18,000 loss. (2) $54,000 loss. (3) $22,000 gain. (4) $46,000 gain. {CHAPTER 9}
(1) $18,000 loss. First, the book value needs to be determined. The accumulated depreciation as of June 30, 2022, is $36,000 [($80,000/10) × 4.5 years]. Thus, the cost of the machine less accumulated depreciation equals $44,000 ($80,000 − $36,000). The loss recorded at the time of sale is $18,000 ($26,000 − $44,000), not (b) $54,000, (c) $22,000, or (d) $46,000.
During 2022 Metlock Inc. had sales on account of $748,000, cash sales of $313,000, and collections on account of $523,000. In addition, they collected $10,000 which had been written off as uncollectible in 2021. As a result of these transactions, the change in the accounts receivable indicates a (1) $225,000 increase (2) $540,000 increase (3) $215,000 increase (4) $538,000 increase {CHAPTER 8}
(1) $225,000 increase
Bean Company borrows $88,500 on SEPTEMBER 1 with a 12%, one-year note. What is the accrued interest on Dec 31 of the same year? (1) $3,540 (2) $10,620 (3) $2,655 (4) $4,425 {CHAPTER 10}
(1) $3,540
Wendy Construction issues a five-year, interest-bearing $25,000 note with the following key information: - January 1, 2011 - note is issued for $25,000. - Each January 1 - $5,000 to be paid. - On the Dec 31, 2011 what portion is reported as a CURRENT liability? (1) $5,000 (2) $25,000 (3) $20,000 (4) $30,000 {CHAPTER 10}
(1) $5,000
Which accounting method for Allowance for Doubtful Accounts is acceptable under GAAP? (1) Allowance Method (2) Direct Write Off Method (3) No answer provided {CHAPTER 8}
(1) Allowance Method)
All of the following below are needed for the calculation of depreciation except: (1) Book Value (2) Residual Value (3) Useful Life (4) Cost {CHAPTER 9}
(1) Book Value **NOTE: Residual value is SAME as Salvage value
Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Good Stuff Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to: (1) Cash $48,000 and Service Charge Expense $2,000. (2) Accounts Receivable $48,000 and Service Charge Expense $2,000. (3) Cash $50,000. (4) Accounts Receivable $50,000. {CHAPTER 8}
(1) Cash $48,000 and Service Charge Expense $2,000. The entry includes a credit to Sales Revenue for $50,000, a $48,000 debit to Cash, and a debit to Service Charge Expense for $2,000. The other choices are therefore incorrect.
Accounts and notes receivables are reported in the current assets section of the balance sheet at: (1) Cash (net) realizable value (2) Net book value (3) Lower-of-cost-or-market-value (4) Invoice cost {CHAPTER 8}
(1) Cash (net) realizable value Accounts and notes receivable are reported in the current assets section of the balance sheet at cash (net) realizable value, not (b) net book value, (c) lower-of-cost-or-market value, or (d) invoice cost.
The benefits to leasing include each of the following except: (1) Higher resale value. (2) Reduced risk of obsolescence. (3) Little or no down payment. (4) Shared tax advantages. {CHAPTER 9}
(1) Higher resale value. Higher resale value is not a benefit of leasing. The benefits of leasing include (b) reduced risk of obsolescence, (c) little or no down payment, and (d) shared tax advantages.
Indicate which of the following expenditures should be classified as land, land improvements, buildings, equipment, or none of these (1) Parking lots (2) Electricity used by a machine (3) Excavation costs (4) Interest on building construction loan (5) Cost of trial runs for machinery (6) Drainage costs (7) Cost to install a machine (8) Fences (9) Unpaid (past) property taxes assumed (10) Cost of tearing down a building when land and a building on it are purchased {CHAPTER 9}
(1) Land improvements (2) NONE (3) Buildings (4) Buildings (5) Equipment (6) Land (7) Equipment (8) Land Improvements (9) Land (10) Land
When an account is written using the allowance method, the... (1) Net accounts receivable will stay the same (2) Net accounts receivable will decrease (3) Cash realizable value of total accounts receivable will increase (4) Allowance account will increase {CHAPTER 8}
(1) Net accounts receivable will stay the same
Identify the following expenditures as CAPITAL expenditure or REVENUE expenditures (1) Replacement of worn out gears on factory machinery (2) Construction of a new wing on an office building (3) Painting the exterior of a building (4) Oil change on a company truck (5) Replacing an old computer chip with a faster chip, which increases productive capacity. No extension of useful life expected (6) Overhaul of a truck motor. One year extension in useful life is expected. (7) Purchase a wastebasket at cost of $10 (8) Painting and lettering of a used truck upon acquisition of a truck {CHAPTER 9}
(1) Revenue (2) Capital (3) Revenue (4) Revenue (5) Capital (6) Capital (7) Revenue (8) Capital
Which account is sued to recognize that a customer has chosen to accept an early payment incentive? (1) Sales Discount (2) Sales Returns & Allowances {CHAPTER 8}
(1) Sales Discount
The only depreciation method that does NOT adjust its' annual depreciation expense for a mid-year purchase is: (1) Units of Activity (2) Straight Line (3) None. All methods adjust for a mid year purchase. (4) Double Declining {CHAPTER 9}
(1) Units of Activity
Jefferson Company purchased a piece of equipment on January 1, 2022. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2023 under the double-declining-balance method? (1) $6,500. (2) $11,250. (3) $15,000. (4) $6,562. {CHAPTER 9}
(2) $11,250. For the double-declining method, the depreciation rate would be 25% or (1/8 × 2). For 2022, annual depreciation expense is $15,000 ($60,000 book value × 25%); for 2023, annual depreciation expense is $11,250 [($60,000 − $15,000) × 25%], not (a) $6,500, (c) $15,000, or (d) $6,562.
Pierce Company incurred $150,000 of research and development costs in its laboratory to develop a new product. It spent $20,000 in legal fees for a patent granted on January 2, 2022. On July 31, 2022, Pierce paid $15,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2022? (1) $150,000. (2) $35,000. (3) $185,000. (4) $170,000. {CHAPTER 9}
(2) $35,000. Because the $150,000 was spent developing the patent rather than buying it from another firm, it is debited to Research and Development Expense. Only the $35,000 spent on legal fees ($20,000 for granting patent and $15,000 for defense) can be debited to Patents, not (a) $150,000, (c) $185,000, or (d) $170,000.
The interest on a $20,000, 8%, 90 day note receivable is...(use 360 days) (1) $200 (2) $400 (3) $2400 (4) $1200 {CHAPTER 8}
(2) $400
Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is: (1) $5,000. (2) $55,000. (3) $60,000. (4) $65,000. {CHAPTER 8}
(2) $55,000. By crediting Allowance for Doubtful Accounts for $55,000, the new balance will be the required balance of $60,000. This adjusting entry debits Bad Debt Expense for $55,000 and credits Allowance for Doubtful Accounts for $55,000, not (a) $5,000, (c) $60,000, or (d) $65,000.
Which of the following is NOT a step is managing Accounts Receivable? (1) Determine who gets credit and how much they get (2) Accepting payment anytime a customer is willing to make a payment (3) Collecting as quickly as possible (4) Monitoring collections {CHAPTER 8}
(2) Accepting payment anytime a customer is willing to make a payment
Depreciation is a process of: (1) Valuation. (2) Cost allocation. (3) Cash accumulation. (4) Appraisal {CHAPTER 9}
(2) Cost allocation. Depreciation is a process of allocating the cost of an asset over its useful life, not a process of (a) valuation, (c) cash accumulation, or (d) appraisal.
When there is a change in estimated depreciation: (1) Previous depreciation should be corrected. (2) Current and future years' depreciation should be revised. (3) Only future years' depreciation should be revised. (4) None of the above. {CHAPTER 9}
(2) Current and future years' depreciation should be revised. When there is a change in estimated depreciation, the current and future years' depreciation computation should reflect the new estimates. The other choices are incorrect because (a) previous years' depreciation should not be adjusted when new estimates are made for depreciation, and (c) when there is a change in estimated depreciation, the current and future years' depreciation computation should reflect the new estimates. Choice (d) is wrong because there is a correct answer.
Michael Co. accepts a $1,000, 3-month, 12% promissory note in settlement of an account with Tani Co. The entry to record this transaction is: (1) DR Notes Receivable $1,030, CR Accounts Receivable $1,030 (2) DR Notes Receivable $1,000, CR Accounts Receivable $1,000 (3) DR Notes Receivable $1,000, CR Sales Revenue $1,000 (4) DR Notes Receivable $1,020, CR Accounts Receivable $1,020 {CHAPTER 8}
(2) DR Notes Receivable $1,000, CR On the date Michael accepts the note, Notes Receivable is debited for $1,000 and Accounts Receivable is credited for $1,000. Interest is accrued only with the passage of time. The other choices are therefore incorrect.
Depreciation expense has a plus/normal side of ___________ and is included on the _________________. (1) CR, Income statement (2) DR, Income statement (3) DR, Balance Sheet (4) CR, Balance Sheet {CHAPTER 9}
(2) DR, Income statement
Which of the following is NOT a measure of liquidity? (1) Working capital (2) Debt to assets ratio (3) Current cash debt coverage (4) Current ratio {CHAPTER 10}
(2) Debt to assets ratio
Which of the following is NOT an accounting problem/issue associated with accounts receivable? (1) Valuing accounts receivable (2) Depreciating accounts receivable (3) Accelerating cash receipts from accounts receivable (4) Recognizing accounts receivable {CHAPTER 8}
(2) Depreciating accounts receivable
When calculating interest on a promissory note of less than one year, with the maturity date stated in terms of days, the... (1) Payee receives LESS interest if 260 days are used instead of 365 (2) Payee receives MORE if 360 days are used instead of 365 (3) Maker pays MORE INTEREST if 365 days are used instead of 360 (4) Maker pays SAME INTEREST regardless of if 365 or 360 days are used {CHAPTER 8}
(2) Payee receives MORE interest if 360 days are used instead of 365
Which of the following is NOT true regarding a promissory note? (1) Promissory notes give a stronger legal claim to the holder than accounts receivable (2) Promissory notes may NOT be transferred to another party by endorsement (3) Promissory notes MAY be bearer notes and not specifically identify the payee by name (4) Promissory notes MAY be sold to another party {CHAPTER 8}
(2) Promissory notes may NOT be transferred to another party bye endorsement
When the delivery truck needs an oil change and 10,000 tune up, it charged as a: (1) Capital Expenditure (2) Revenue Expenditure (3) No answer text provided {CHAPTER 9}
(2) Revenue Expenditure
An asset purchased on January 1 for $60,000 has estimated salvage value of $3,000. The current useful life is 8 years. How much is total accumulated depreciation using the straight-line method at the end of the second year of life? (1) $15,000 (2) $7,125 (3) $14,250 (4) $7,500 {CHAPTER 9}
(3) $14,250
In 2022, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2022, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2022, $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-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to Allowance for Doubtful Accounts at December 31, 2022? (1) $20,000. (2) $75,000. (3) $32,000. (4) $30,000. {CHAPTER 8}
(3) $32,000 After the write-offs are recorded, Allowance for Doubtful Accounts will have a debit balance of $12,000 ($18,000 credit beginning balance combined with a $30,000 debit for the write-offs). The desired balance, using the percentage-of-receivables basis, is a credit balance of $20,000 ($200,000 × 10%). In order to have an ending balance of $20,000, the required adjustment to Allowance for Doubtful Accounts is $32,000, not (a) $20,000, (b) $75,000, or (d) $30,000.
Kersee Company on June 15 sells merchandise on account to Eng Co. for $1,000 terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received? (1) $700 (2) $680 (3) $686 (4) None of the above {CHAPTER 8}
(3) $686 Because payment is made within the discount period of 10 days, the amount received is $700 ($1,000 − $300 return) minus the discount of $14 ($700 × 2%), for a cash amount of $686, not (a) $700 or (b) $680. Choice (d) is wrong as there is a correct answer.
Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover? (1) 0.90 (2) 0.20 (3) 0.72 (4) 1.39 {CHAPTER 9}
(3) 0.72 Asset turnover = Net sales ($180,000)/Average total assets [($200,000 + $300,000)/2] = 0.72 times, not (a) 0.90, (b) 0.20, or (d) 1.39 times.
Prall Corporation sells its goods on terms of 2/10, n/30. It has an accounts receivable turnover of 7. What is its average collection period (days)? (1) 2,555 days (2) 30 days (3) 52 days (4) 210 days {CHAPTER 8}
(3) 52 days Average collection period = Number of days in the year (365) ÷ Accounts receivable turnover (7) = 52 days, not (a) 2.555, (b) 30, or (d) 210.
Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. What was the accounts receivable turnover and average collection period in days? (1) 4.0 and 91.3 days. (2) 5.3 and 68.9 days. (3) 6.4 and 57 days. (4) 8.0 and 45.6 days. {CHAPTER 8}
(3) 6.4 and 57 days. Accounts receivable turnover = Net credit sales ($800,000) ÷ Average net accounts receivable [($100,000 + $150,000)/2] = 6.4. The average collection period in days = (365 ÷ 6.4) = 57 days. The other choices are therefore incorrect.
A company would minimize its depreciation expense in the first year of owning an asset if it used: (1) A high estimated life, a high salvage value, and declining-balance depreciation. (2) A low estimated life, a high salvage value, and straight-line depreciation. (3) A high estimated life, a high salvage value, and straight-line depreciation. (4) A low estimated life, a low salvage value, and declining-balance depreciation. {CHAPTER 9}
(3) A high estimated life, a high salvage value, and straight-line depreciation. A high estimated life spreads the cost over a longer period of time, resulting in a smaller expense each year. The high salvage value limits the cost to be allocated. Straight-line depreciation yields a smaller depreciation charge in the first year than the declining-balance method. The other choices are therefore incorrect.
A receivable that is evidenced by a formal instrument and that normally requires the payment of interest is: (1) An account receivable (2) A trade receivable (3) A note receivable (4) A classified receivable {CHAPTER 8}
(3) A note receivable A note receivable represent claims for which formal instruments of credit are issued as evidence of the debt. The note normally requires the payment of the principal and interest on a specific date. Choices (a) account receivable, (b) trade receivable, and (d) classified receivable rarely require the payment of interest if paid within a 30-day period.
Which of these statements about promissory notes is INCORRECT? (1) The party making the promise to pay is called the maker. (2) The party to whom payment is to be made is called the payee. (3) A promissory note is not a negotiable instrument. (4) A promissory note is more liquid than an account receivable. {CHAPTER 8}
(3) A promissory note is not a negotiable instrument. Promissory notes are negotiable instruments, meaning if sold, the seller can transfer to another party by endorsement. The other choices are true statements.
Sellers allow customers to use credit cards for which of the following reasons: (1) To avoid having to evaluate a customer's credit standing for each sale (2) To increase total sales (3) All of the above (4) To transfer the credit risk to the credit card user {CHAPTER 8}
(3) All of the above
Sellers allow customers to use credit cards: (1) To transfer the credit risk to the credit card issuer. (2) To increase total sales (3) All of the answers are correct. (4) To avoid having an evaluate a customer's credit standing for each sale. {CHAPTER 10}
(3) All of the answers are correct
You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will NOT make any future payments. Assuming you use the allowance method, the entry you make is... (1) Dr ADA, Cr Bad debt expense (2) Dr Bad debt expense, Cr ADA (3) Dr ADA, Cr Accounts receivable (4) Dr Bad debt expense, Cr Accounts receivable {CHAPTER 8}
(3) Debit ADA, Credit A/R
Which of the following Intangible Assets are NOT amortized: (1) Trade names (2) Copyrights (3) Goodwill (4) Patents {CHAPTER 9}
(3) Goodwill
Allowance for Doubtful Accounts on the balance sheet.... (1) Appears under the heading "Other Assets" (2) Is offset against total current assets (3) Is deducted from accounts receivable (4) Increases the cash realizable value of accounts receivable {CHAPTER 8}
(3) Is deducted from accounts receivable
Which PP&E asset category does NOT depreciate? (1) Equipment (2) Land Improvements (3) Land (4) Buildings {CHAPTER 9}
(3) Land
All of the following are ways a company can finance itself, EXCEPT for: (1) Selling Stock (2) Borrowing from a bank (3) Paying its liabilities (4) Issuing bonds {CHAPTER 10}
(3) Paying its liabilities
Which of the following payroll taxes HAVE annual (yearly) caps/limits? (1) Federal Income Taxes (2) State Income Taxes (3) Social Security (4) Medicare {CHAPTER 10}
(3) Social Security
If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty? (1) The company is a valuable company worth investing in. (2) The company has a well-established brand name. (3) The company purchased another company. (4) The goodwill will generate a lot of positive business for the company for many years to come. {CHAPTER 9}
(3) The company purchased another company. In order to report goodwill, a company must have entered into an exchange transaction that involves the purchase of another business. Choices (a) the company is a valuable company worth investing in, (b) the company has a well-established brand name, and (d) the goodwill will generate a lot of positive business for the company for many years to come are not necessarily valid assumptions.
Which of these statements about Visa credit card sales is INCORRECT? (1) The credit card issuer conducts the credit investigation of the customer. (2) The retailer is not involved in the collection process. (3) The retailer must wait to receive payment from the issuer. (4) The retailer receives cash more quickly than it would from individual customers. {CHAPTER 8}
(3) The retailer must wait to receive payment from the issuer. There is no wait for payment. The retailer receives payment at the time the credit card is accepted from the customer. The other choices are true statements.
Indicate which one of these statements is true. (1) Since intangible assets lack physical substance, they need to be disclosed only in the notes to the financial statements. (2) Goodwill should be reported as a contra account in the stockholders' equity section. (3) Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. (4) Intangible assets are typically combined with plant assets and inventory and then shown in the property, plant, and equipment section. {CHAPTER 9}
(3) Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. Reporting only totals of major classes of assets in the balance sheet is appropriate. Additional details can be shown in the notes to the financial statements. The other choices are false statements.
Able Towing Company purchased a tow truck for $60,000 on January 1, 2022. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2024, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2024) and the salvage value to $2,000. What was the depreciation expense for 2024? (1) $6,000. (2) $4,800. (3) $15,000. (4) $12,100. {CHAPTER 9}
(4) $12,100. First, calculate accumulated depreciation from January 1, 2022, through December 31, 2023, which is $9,600 {[($60,000 − $12,000)/10 years] × 2 years}. Next, calculate the revised depreciable cost, which is $48,400 ($60,000 − $9,600 − $2,000). Thus, the depreciation expense for 2024 is $12,100 ($48,400/4), not (a) $6,000, (b) $4,800, or (c) $15,000.
Cuso Company purchased equipment on January 1, 2021, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2022, if the straight-line method of depreciation is used? (1) $80,000. (2) $160,000. (3) $78,000. (4) $156,000. {CHAPTER 9}
(4) $156,000. Accumulated depreciation will be the sum of 2 years of depreciation expense. Annual depreciation for this asset is ($400,000 − $10,000)/5 = $78,000. The sum of 2 years' depreciation is therefore $156,000 ($78,000 + $78,000), not (a) $80,000, (b) $160,000, or (c) $78,000.
Wendy Construction issues a five-year, interest-bearing $25,000 note with the following key information: - January 1, 2011 - note is issued for $25,000. - Each January 1 - $5,000 to be paid. - On the Dec 31, 2011 what portion is reported as a LONG-TERM liability? (1) $5,000 (2) $30,000 (3) $25,000 (4) $20,000 {CHAPTER 10}
(4) $20,000
Lenard Company incurs the following costs associated with the purchase of a delivery truck. Calculate the cost of the delivery truck to be recorded in the general journal: - Purchase Price: $22,000 - Sales Tax: $1,320 - Painting & lettering: $500 - Motor Vehicle License: $80 - Insurance: $1,600 Which amount is right? (1) $22,000 (2) $23,600 (3) $22,500 (4) $23,820 {CHAPTER 9}
(4) $23,820 **NOTE: Motor vehicle license ($80) and Insurance ($1,600) are excluded because these are yearly/annual operating costs so they are included in operating expenses and not the cost basis of the asset.
Corrieten Company purchased equipment and incurred these costs: - Cash price: $24,000 - Sales taxes: $1,200 - Insurance during transit: $200 - Installation and testing: $400 = Total costs: $25,800 What amount should be recorded as the cost of the equipment? (1) $24,000. (2) $25,200. (3) $25,400. (4) $25,800. {CHAPTER 9}
(4) $25,800. All of the costs ($1,200 + $200 + $400) in addition to the cash price ($24,000) should be included in the cost of the equipment because they were necessary expenditures to acquire the asset and make it ready for its intended use. The other choices are therefore incorrect.
A purchase of equipment for $18,000 also involves freight charges of $500 and installation costs of $2,500. The estimate salvage value and useful life are $2,00 and 4 years, respectively. Under the straight-line method, how much is annual depreciation expense? (1) $4,625 (2) $4,500 (3) $4,125 (4) $4,750 {CHAPTER 9}
(4) $4,750
Use the same information as in Question 11, except that Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. In this situation, the amount of bad debt expense that should be reported for the year is: (1) $5,000. (2) $55,000. (3) $60,000. (4) $65,000. {CHAPTER 8}
(4) $65,000. By crediting Allowance for Doubtful Accounts for $65,000, the new balance will be the required balance of $60,000. This adjusting entry debits Bad Debt Expense for $65,000 and credits Allowance for Doubtful Accounts for $65,000, not (a) $5,000, (b) $55,000, or (c) $60,000.
An analysis and aging of the accounts receivable of Raja Company at December 31 reveal these data: Accounts receivable: $800,000 Allowance for doubtful accounts per books before adjustment (credit): $50,000 Amounts expected to become uncollectible: $65,000 What is the cash realizable value of the accounts receivable at December 31, after adjustment? (1) $685,000. (2) $750,000. (3) $800,000. (4) $735,000. {CHAPTER 8}
(4) $735,000 The cash realizable value of the accounts receivable is Accounts Receivable ($800,000) less the expected ending balance in Allowance for Doubtful Accounts after adjustments ($65,000) = $735,000, not (a) $685,000, (b) $750,000, or (c) $800,000.
Pharaoh Company unadjusted trial balance includes the following balances (assume normal balances): Account Receivable. $1900000 Allowance for doubtful acts $38900 Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt expense will the company record? (1) $72,970 (2) $112,730 (3) $118,100 (4) $75,100 {CHAPTER 8}
(4) $74,100
Receivables are frequently classified as.. (1) Accounts receivable, company receivables, and other receivables (2) Account receivables, notes receivable, and employee receivables (3) Account receivables and general receivables (4) Account receivable, notes receivable, and other receivables {CHAPTER 8}
(4) Account receivable, notes receivable, and other receivables The other choices are incorrect because receivables are not frequently classified as (a) company receivables, (b) employee receivables, or (c) general receivables.
Which of the following measures provides an indication of how efficient a company is in employing its assets? (1) Current ratio. (2) Profit margin. (3) Debt to assets ratio. (4) Asset turnover. {CHAPTER 9}
(4) Asset turnover. The asset turnover indicates how efficiently a company is employing its assets. The other choices are incorrect because (a) the current ratio is an indicator of liquidity and the company's ability to pay its obligations when they come due, (b) the profit margin is an indicator of how profitable a company is, and (c) the debt to assets ratio indicates the proportion of assets that are financed by debt rather than by equity.
To be classified as a CURRENT liability, a debt must be expected to be paid (1) By creating other current liabilities (2) Out of existing current assets (3) Neither optics (4) Both options {CHAPTER 10}
(4) Both options
Accumulated Depreciation has a plus/normal side of ___________ and is included on the _________________. (1) CR, Income statement (2) DR, Income statement (3) DR, Balance Sheet (4) CR, Balance Sheet {CHAPTER 9}
(4) CR, Balance Sheet
Depreciation is a process of: (1) Appraisal (2) Cash accumulation (3) Valuation (4) Cost allocation {CHAPTER 9}
(4) Cost allocation
Schleis Co. holds Murphy Inc.'s $10,000, 120-day, 9% note. The entry made by Schleis Co. when the note is collected, assuming no interest has previously been accrued, is: (1) DR Cash $10,300, CR Notes Receivable $10,300 (2) DR Cash $10,000, CR Notes Receivable $10,000 (3) DR Accounts Receivable $10,300, CR Notes Receivable $10,000 AND, CR Interest Revenue $300 (4) DR Cash $10,300, CR Notes Receivable $10,000, AND CR Interest Revenue $300 {CHAPTER 8}
(4) DR Cash $10,300, CR Notes Receivable $10,000, AND CR Interest Revenue $300 When Schleis receives payment, it will increase cash, reduce the notes receivable account, and recognize interest earned for the term of the note. Interest = $10,000 × 9% × 120/360 = $300. Total cash received = $10,000 + $300 = $10,300. The other choices are therefore incorrect.
If a company is concerned about extending credit to a risky customer, it could do any of the following EXCEPT: (1) Require the customer to pay cash in advance. (2) Require the customer to provide a letter of credit or a bank guarantee. (3) Contact references provided by the customer, such as banks and other suppliers. (4) Provide the customer a lengthy payment period to increase the chance of paying. {CHAPTER 8}
(4) Provide the customer a lengthy payment period to increase the chance of paying. A longer payment period will increase the chances the customer will not pay. The other choices are incorrect as companies might require risky customers to (a) pay cash in advance, (b) provide letters of credit or bank guarantees, or (c) ask for references from banks and suppliers to determine their payment history.
Which of the following statements is FALSE? (1) If an intangible asset has a finite life, it should be amortized. (2) The amortization period of an intangible asset can exceed 20 years. (3) Goodwill is recorded only when a business is purchased. (4) Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent. {CHAPTER 9}
(4) Research and development (R&D) .... Costs are expensed when incurred, REGARDLESS of whether the research and development expenditures result in a successful patent or not. The other choices are true statements.
All of the following companies, EXCEPT would commonly record Unearned Revenues: (1) Magazine Publishers (2) Airlines (3) Sports Teams (4) Retailers (like Target) {CHAPTER 10}
(4) Retailers (like Target)
Under the allowance method of accounting for bad debts, WHY must uncollectible accounts receivable be estimated at the end of an accounting period? (1) To allow the collection department to schedule work for the next accounting period (2) The IRS rules require the company to make the estimate (3) To determine the gross realizable value of accounts receivable (4) To match bad debt expense to the period in which the revenues were earned {CHAPTER 8}
(4) To match bad debt expense to the period in which the revenues were earned
Under the allowance method, when a specific amount is written off.. (1) Total assets will increase (2) Net income will decrease (3) Total assets will decrease (4) Total assets will be unchanged {CHAPTER 8}
(4) Total assets will be UNCHANGED
The biggest weakness of the direct write-off method for Accounts Receivable is that it: (1) Is too difficult to calculate (2) All of the answers are correct (3) Is based on estimates (4) Violates the matching Principle {CHAPTER 8}
(4) Violates the matching principle
A company can accelerate its cash receipts by all of the following EXCEPT: (1) Offering discounts for early payment. (2) Accepting national credit cards for customer purchases. (3) Selling receivables to a factor. (4) Writing off receivables. {CHAPTER 8}
(4) Writing off receivables Writing off receivables will result in a company failing to collect any money. Instead, choices (a) offering discounts for early payment, (b) accepting national credit cards for customer purchases, and (c) selling receivables to a factor will all allow a company to accelerate its cash receipts.
Kant Enterprises purchased a truck for $11,000 on January 1, 2021. The truck will have an estimated salvage value of $1,000 at the end of 5 years. If you use the units-of-activity method, the balance in accumulated depreciation at December 31, 2022, can be computed by the following formula: (1). ($11,000 ÷ Total estimated activity) × Units of activity for 2022. (2). ($10,000 ÷ Total estimated activity) × Units of activity for 2022. (3). ($11,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022. (4). ($10,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022. {CHAPTER 9}
(4). ($10,000 ÷ Total estimated activity) × Units of activity for 2021 and 2022. The units-of-activity method takes salvage value into consideration; therefore, the depreciable cost is $10,000. This amount is divided by total estimated activity. The resulting number is multiplied by the units of activity used in 2021 and 2022 to compute the accumulated depreciation at the end of 2022, the second year of the asset's use. The other choices are therefore incorrect.
Net Realizable Value is calculated as: (1) Accounts Receivable - Accounts Payable (2) Accounts Receivable + Sales (3) Accounts Receivable + Allowance for Doubtful Accounts (4) Accounts Receivable - Allowance for Doubtful Accounts {CHAPTER 8}
4) Accounts Receivable - Allowance for Doubtful Accounts
Additions to plant assets are: (1) Revenue expenditures. (2) Debited to the Maintenance and Repairs Expense account. (3) Debited to the Purchases account. (4) Capital expenditures. {CHAPTER 9}
4) Capital expenditures. When an addition is made to plant assets, it is intended to INCREASE productive capacity, INCREASE the assets' useful life, or INCREASE the efficiency of the assets. This is called a capital expenditure.
The "Allowance for Doubtful Accounts" is what type of account? What's it's normal (+) side on? {CHAPTER 8}
Asset account, Credit
The journal entry to recognize sales on account is: Accounts Payable $100 Sales Revenue $100 TRUE or FALSE {CHAPTER 8}
FALSE
Total Cost - Depreciation Expense = Net Book Value TRUE or FALSE {CHAPTER 9}
FALSE
The aging method of determining bad debts expense is based on the knowledge that the LONGER a receivable is past due, the MORE likely the balance will be collected. TRUE or FALSE {CHAPTER 8}
FALSE
The book value of a plant asset is always equal to its fair market value. TRUE or FALSE {CHAPTER 9}
FALSE
A convertible bond gives bondholders extra protection by requiring that assets be pledged as collateral. TRUE or FALSE {CHAPTER 10}
FALSE
Accounts Receivable Turnover- the lower the number the better. TRUE or FALSE {CHAPTER 8}
FALSE
Accounts receivable are one of the company's LEAST liquid assets. TRUE or FALSE. {CHAPTER 8}
FALSE
Allowance for Doubtful Accounts is closed at the end of the fiscal year. TRUE or FALSE {CHAPTER 8}
FALSE
Once an account is written off, companies do NOT allow customers to pay it off later. TRUE or FALSE {CHAPTER 8}
FALSE
Social Security was enacted in 1942 by Richard Nixon as a result of the Great Depression. TRUE or FALSE {CHAPTER 10}
FALSE
The Return on Assets for Federal Express is 30%, when it had net sales of $37,500, net income of $2,225. Its Balance Sheet had total assets of $125,800 at the beginning of the year and $124,400 at the end of the year. TRUE or FALSE {CHAPTER 9}
FALSE
A concentration of credit risk is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of the company. TRUE or FALSE {CHAPTER 8}
TRUE
A major advantage of national credit cards (like Visa) to retailers (like Target) is that the credit card company (Visa) bears the risk if the customer doesn't pay their account. TRUE or FALSE {CHAPTER 8}
TRUE
Bonds are a safer investment than Preferred Stock. TRUE or FALSE {CHAPTER 10}
TRUE
EmployER's do NOT pay income taxes for their employEEs. TRUE or FALSE {CHAPTER 10}
TRUE
Patents are exclusive rights to manufacture, use or sell a particular product or process. TRUE or FALSE {CHAPTER 9}
TRUE
Recording depreciation in each period is an application of the matching principle. TRUE or FALSE {CHAPTER 9}
TRUE
The average collection period is frequently used to assess the effectiveness of a company's credit and collection policies. TRUE or FALSE {CHAPTER 8}
TRUE
The straight-line depreciation method is the easiest and most widely used, but it also the least accurate. TRUE or FALSE {CHAPTER 9}
TRUE
The units-of-activity method of depreciation most accurately matches expenses against revenue. TRUE or FALSE {CHAPTER 9}
TRUE
When Target collects sales taxes from its customers, it is recorded as a CURRENT liability on its books. TRUE or FALSE {CHAPTER 10}
TRUE
