Exam 2 Accounting Review Questions
A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?
2,000
Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?
400
If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?
450,000
The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?
60,000
Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase?
700,000
When a customer pays in advance for a product or service the advance payment received by the company is recorded as
A debit to an asset and a credit to a liability account
Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:
A gain of 5000
Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record
A loss of 10,000
Which of the following represents a characteristic of a liability
A probable future sacrifice of economic benefits, arising from present obligations to other entities, resulting from past transactions or events
If equipment is retired, which of the following accounts would be debited
Accumulated depreciation
Which of the following is not a current liability
An unused line of credit
The asset's cost less accumulated depreciation is called
Book Value
The acid test ratio
Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities
A long term asset is recorded at the
Cost of the asset plus all the costs necessary to the asset ready for use
Which of the following is reported as a current liability
Current portion of long term debt
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?
Debit Cash, 5000 Credit Notes Receivable, 5000
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record?
Debit Notes Receivable, 5000 credit Cash, 5000
On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1:
Debit interest expense and credit interest payable, 4,000
Which of the following correctly describes the nature of depreciation?
Depreciation represents the allocation of cost of property plant and equipment over its service life
Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be
Disclosed and reported as a liability
Which of the following increases an employer's payroll costs?
Employer's FICA contribution
Which of the following is paid by both the employee and the employer
FICA Taxes
Which of the following intangible assets are not amortized
Goodwill
Which of the following statements regarding liabilities is not true
Liabilities result from future transactions
Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n):
Liability
Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?
Long service life, high residual value, and straight line depreciation
Current liabilities
May include contingent liabilities
Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?
No asset or gain is reported
Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio?
No change to the current ratio and decrease the acid test ratio
Which of the following expenditures should be recorded as an expense
Ordinary repairs and maintenance
Which of the following is not recorded as an intangible asset in the balance sheet
Research and development
Which of the following will result in higher depreciation expense in the first year of the asset's life?
Short service life and low residual value
The amount of the gain on the sale of equipment equals
The selling price minus the book value of the equipment
Which of the following statements is false regarding the amortization of intangible assets
The service life of an intangible asset is always equal to its legal life
Which of the following is not deducted from an employee's salary
Unemployment taxes
Accumulated depreciation is
a contra asset
An exclusive 20 year right to manufacture a product or to use a process is a
patent
