exam II accounting

How is common stock listed in the stockholders' equity section of the balance sheet?

As part of paid-in capital

Which of the following measures provides an indication of how efficient a company is in employing its assets?

Asset turnover ratio

Which statement is true about additions to plant assets?

they are recorded as assets

More and more companies are making serious efforts to measure their corporate social responsibility outcomes because

they realize that their long term profitability and sustainability is closely linked to environmental and community well being just like the rest of us.

What type of receivables result from sales transactions? -Trade receivables -Non-trade receivables -Long-term receivables -Other receivables

trade receivables

Which of the following is not an example of a tangible asset?

trademark and trade names

By using the LIFO method of inventory accounting, a company like Exxon

will report lower earnings during rising prices of inputs and pay lower taxes.

occurs when a company makes an expenditure which increases the useful life, productive capacity or operating efficiency of an asset

a capital expenditure.

What type of receivable is evidenced by a formal instrument and normally requires the payment of interest?

a note receivable

Which of the following is true of the FIFO inventory method? a) It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold. b) It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory. c) It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory. d) It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold.

a) It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

Which of the following is not an inventory account? -Work in process -Finished goods -Raw materials -Equipment

equipment

Plant assets are accounted for at:

historical cost

The cash register tape indicates cash sales are $2,000 and sales taxes are $155. To record this information, the company must

increase Cash for $2,155, increase Sales by $2,000 and increase Sales Tax Payable by $155.

Which of the following should be classified as an "other" receivable? -Interest receivable -Accounts receivable -Notes receivable -Trade receivable

interest receivable

While estimating the ROI of marketing campaigns may be an inexact exercise, it is still worth doing because -forces marketing executives to think hard about benefits before approving expenditures. -aligns the focus of marketing department with the goal of the firm to create shareholder wealth. -enables better allocation of scarce resources. -it helps with all of these

it helps with all of these

When calculating the marketing ROI,

it is difficult to estimate the profit from as well as the investment that goes into a marketing initiative.

Morrow Snowboards most likely switched to a perpetual inventory system because - never needs physical inventory count. -is less costly to implement. -it provides continuous inventory status and better control over stock-out situations. -this system reduces the cost of holding inventory.

it provides continuous inventory status and better control over stock-out situations.

Which of the following would most likely employ the specific identification method of inventory costing?

jewelry store

Which of the following is not a depreciable asset?

land (Land is not a depreciable asset. Land improvements, equipment, and buildings are depreciated to allocate their costs to the fiscal periods in which they render a benefit.)

Which of the following is not an acceptable inventory costing method?

last in, last out

Google can capitalize _________ associated with the successful trademarking of "Glass" on its balance sheet.

legal cost

bonds payable is usually a

long-term liability

The time period for classifying a liability as current is one year or the operating cycle, whichever is

longer

In periods of rising prices, what will LIFO produce?

lower net income than FIFO

Which of the following is not a feature associated only with preferred stock? Mandatory dividends. Dividend preference. Preference to assets in the event of liquidation. Cumulative dividends.

mandatory dividends

A company could use other gains and losses to

manipulate its stock price. reduce reported sales, general and administrative expenses. exaggerate income from operations. do all of these.

Cooper Company has the following units and costs: Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system? -$108,000 -$99,000 -$113,000 -$117,000

$100,000 (Ending inventory = (8,000 × $11) + (1,000 × $12) = $100,000)

Cooper Company has the following units and costs: Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system? -$108,000 -$99,000 -$113,000 -$117,000

$113,000 (Ending inventory = (5,000 × $13) + (4,000 × $12) = $113,000)

Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a balance of $5,000 before adjustment. What is the balance of the allowance account after adjustment?

$12000 (The ending balance required in the allowance account is 7.5% times $160,000, or $12,000. Since there is already a balance of $5,000 in the allowance account, the difference of $7,000 should be added, resulting in a balance of $12,000.)

A company has the following asset account balances: Buildings and equipment $9,200,000 Accumulated depreciation 1,200,000 Patents 750,000 Land Improvements 1,000,000 Land 5,000,000 How much will be reported on the balance sheet under property, plant, & equipment?

$14,000,000 (Buildings and equipment less accumulated depreciation ($9,200,000-$1,200,000), land improvements ($1,000,000), and land ($5,000,000), are included for a total of $14,000,000.)

Flanders Company purchased an asset on January 1, 2016 for $60,000. The asset has an estimated salvage value of $3,000. Its estimated useful life is 8 years. What is the balance in accumulated depreciation using the straight-line method at December 31, 2017?

$14,250 (The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($60,000 - $3,000)/8 years = $7,125. At the end of the second year, there will be two years of accumulated depreciation in the account for a total of $14,250.)

Cuso Company purchased equipment on January 1, 2016, 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 balance in accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used?

$156,000 (Since the asset has been in use for two years, the balance in accumulated depreciation at December 31, 2017, is equal to two times the annual depreciation expense: ($400,000 - $10,000)/5 = $78,000 per year. Total accumulated depreciation = $78,000 per year × 2 years = $156,000)

Corristan Company purchased equipment and incurred these costs: Cash price $24,000 Sales taxes 1,200 Insurance during transit 200 Annual maintenance costs ____400 Total costs $25,800 The equipment account should be increased by `

$25,400 (All costs necessary to get the asset ready to use should be included as part of the cost of the equipment because these are the costs that are necessary to acquire, safely transport, and prepare it for its intended use ($24,000 + $1,200 + $200 = $25,400). The annual maintenance costs are expensed.)

Given the following account balances at year end, how much is amortization expense on Anisha Enterprises income statement for the current year if Anisha thinks all of its intangibles should be amortized over ten years? Sales revenue $45,000,000 Patents 1,500,000 Accounts receivable 4,000,000 Land 15,000,000 Equipment 25,000,000 Trademarks 1,000,000 Goodwill 4,500,000 Research & development 2,000,000

$250000 (The intangibles are trademarks patents and goodwill. Only trademarks and patents are amortized. ($1,000,000 + $1,500,000)/10 = $250,000)

Andre Company collected $4,515 from cash sales to customers, which includes both sales revenue and 5% sales taxes. How much should be recognized as sales revenue?

$4,300 The amount of sales can be computed by dividing total cash received by one plus the sales tax rate of 5%. The computation is as follows: $4,515/1.05 = $4,300.

A company has the following asset account balances: Buildings and equipment $6,200,000 Accumulated depreciation 1,800,000 Patents 950,000 Inventory 1,000,000 Goodwill 4,000,000 How much is the total amount reported on the balance sheet under property, plant & equipment?

$4,400,000 (Buildings and equipment less accumulated depreciation are the only amounts included under Plant & Equipment: $6,200,000 - $1,800,000 = $4,400,000.)

Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory?

$40,000 ($20,000 + $560,000 - $540,000 = $40,000)

A company purchased a dump truck for $25,000. In addition, freight charges were $500, and an additional payment of $800 was made to paint the company's logo on the truck. The estimated salvage value and useful life are $3,800 and 5 years, respectively. How much is annual depreciation expense under the straight-line method?

$4500 (The purchase price includes all costs necessary to get the truck ready to use: $25,000 + $500 + $800 = $26,300. The annual depreciation is calculated as the sum of the purchase price less the salvage value divided by the useful life: ($26,300 - $3,800) / 5 years = $4,500.)

Given the following account balances at year-end, how much are total intangible assets on the balance sheet of Alisha Enterprises? Sales revenue $45,000,000 Cash 1,500,000 Accounts receivable 4,000,000 Land 15,000,000 Equipment 25,000,000 Trademarks 1,000,000 Goodwill 4,500,000 Research & development 2,000,000

$5,500,000 (The intangibles are trademarks ($1,000,000) and goodwill ($4,500,000) totaling $5,500,000)

A company sold for $3,000 a plant asset that had a cost of $10,000 and accumulated depreciation of $7,500. What gain or loss did the company experience?

$500 gain (Book value is $2,500 ($10,000 - $7,500). Since the proceeds ($3,000) exceed the book value ($2,500) by $500, there is a gain)

At the beginning of the year, Powers Company purchased a piece of machinery for $50,000. It has a salvage value of $5,000, an estimated useful life of 9 years, and estimated units of output of 90,000 units. Actual units produced during the first year were 11,000. How much is depreciation expense for the first year under the straight-line method?

$5000 (The annual depreciation is calculated as the purchase price ($50,000), less the salvage value ($5,000) divided by the useful life (9 years) resulting in an annual depreciation value of $5,000.)

On September 1, 2017, West Buy purchased an asset for $9,000, with a $1,500 estimated salvage value, and a 4-year useful life. How much is the 2017 depreciation expense using the straight-line method?

$625 (The purchase price ($9,000) less salvage value ($1,500) is divided by the useful life times the portion of a year that will be expensed: ($9,000 - $1,500)/4 × 4/12 = $625.)

Davidson Electronics has the following: Units Unit Cost Inventory, Jan. 1 5,000 $ 8 Purchase, April 2 15,000 10 Purchase, Aug. 28 20,000 12 If Davidson has 7,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system? -$84,000 -$70,000 -$56,000 -$75,250

$75,250 (Average inventory = [(5,000 × $8) + (15,000 × $10) + (20,000 × $12)] ÷ (5,000 + 15,000 + 20,000) = $430,000 ÷ 40,000 units = $10.75 per unit. Ending inventory = $10.75 × 7,000 units = $75,250)

On March 1, 2017, Moreno Company purchased a patent from another company for $90,000. The estimated useful life of the patent is 10 years, and its remaining legal life is 15 years. How much is amortization expense for 2017?

$7500 (Amortization is calculated using the straight-line method: $90,000 ÷ 10 years × 10/12 = $7,500)

Morrow Snowboards announced that it would implement a periodic inventory count in addition to implementing a perpetual inventory system because -a periodic count helps lower overall inventory needed to be kept on hand. -a physical count is required under the GAAP. -a periodic count helps in identifying any shrinkages or damages to inventory that cannot be sold. -a physical count is necessary to estimate the cost of goods sold.

-a periodic count helps in identifying any shrinkages or damages to inventory that cannot be sold.

On June 1, 2017, Brislin Company sold some equipment for $22,000. The original cost was $80,000, the estimated salvage value was $8,000, and the expected useful life was 8 years. The equipment was fully depreciated. How much is the gain or loss on the sale?

14000 gain (The book value at the date of sale is the salvage value since the asset is fully depreciated. The gain or loss is the selling price less the book value: $22,000 - $8,000 = $14,000 gain.)

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?

20% (Net income ($15,000) divided by net sales ($75,000) equals profit margin of 20%)

RyTronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What amount of bad debt expense will be recorded if the Allowance for Doubtful Accounts has a balance of $800 before adjustment?

3,200 (To increase the current balance of $800 to the required amount of $4,000, Bad Debts Expense will be increased by $3,200.)

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, 2017. On July 31, 2017, Pierce paid $15,000 for legal fees in a successful defense of the patent. The total amount by which the Patents account should be increased through July 31, 2017 is

35000

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. Assume there are no other revenues, other expenses, or income tax expense. How much is the gross profit rate?

46.7% (The gross profit of $35,000 divided by net sales of $75,000 = gross profit ratio of 46.7%.)

What is depreciation?

A cost allocation method

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise on account. The purchase will increase

Accounts Payable.

Which of the following does not affect retained earnings?

Additional investment by stockholders

Which of the following will be shown on the income statement for a merchandising company? -Gross profit. -Cost of goods sold. -A sales revenue section. -All of the answer choices are correct.

All of the answer choices are correct.

At what point and how are sales taxes incurred by customers recorded?

At the time of the sale as a liability.

When a bond is sold at a premium, at what amount is it reported on the balance sheet?

Carrying value (The face value is presented on the balance sheet with the amount of the unamortized premium added to it. When combined, these two values represent the carrying value of the bonds.)

At what value are accounts receivable reported on the balance sheet?

Cash realizable value

What type of accounts are Sales Returns and Allowances and Sales Discounts?

Contra revenue accounts

Assume that Jackson Traders has $5 million in the account: Allowance for Doubtful Accounts at the beginning of the period. The managers believe that given the improved state of the economy this balance is too high and should be reduced by $1 million. What are the entries required to adjust this account to the new balance?

Debit Allowance for Doubtful Accounts - $1 million; Credit Bad Debt Expense - $1 million.

On which dates are cash dividends recorded?

Declaration date and the payment date

To be classified as a current liability, how or when must a debt be expected to be paid?

Either out of existing current assets or by crediting other current liabilities.

Which of the following would be a difficult environmental problem for a company to overcome on its own? A company handling hazardous medical waste. Filtering out chemicals before effluents are discharged into rivers. Scrubbing toxic gases released by an electric utility running on coal. Eliminating mercury found in fish in the Atlantic.

Eliminating mercury found in fish in the Atlantic.

In a period of rising prices which inventory method will result in the greatest amount of income tax expense?

FIFO

How are dividends in arrears reported in the financial statements?

In a footnote

Which of the following is true of the FIFO inventory method? -It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory. -It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory. -It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold. -It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

Which one of the following will result in gross profit?

Net sales less cost of goods sold

Which one of the following is not a consideration that affects the selection of an inventory costing method?

Perpetual versus periodic inventory system

Which of the following statements is false? -If an intangible asset has a finite life, its cost should be amortized. -Research and development costs increase expenses when incurred, except when the research and development expenditures result in a successful patent. -The amortization period of an intangible life can exceed 20 years. -Goodwill is recorded only when a business is purchased.

Research and development costs increase expenses when incurred, except when the research and development expenditures result in a successful patent.

Which of the following is not a characteristic of a plant asset?

Service life is expected to be less than one year.

Which of the following statements is true? -LIFO inventory valuation requires physical flow of goods to be representative of the cost flow. -Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow. -FIFO inventory valuation requires physical flow of goods to be representative of the cost flow. - All of these answer choices are correct.

Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.

With respect to plant assets, which of the following need not be disclosed in the financial statements or notes to the financial statements? - Accumulated depreciation by major classes of assets. - Useful life of each plant asset. - The balances of major classes of assets. - Depreciation methods used.

Useful life of each plant asset.

Which of the following is not a stockholder's right?

The right to participate in management decisions.

For what reason might a company acquire treasury stock?

To reissue the shares to officers and employees under bonus and stock compensation plans.

In the stockholders' equity section of the balance sheet, from what is the cost of treasury stock deducted?

Total paid-in capital and retained earnings

The Jacksonville Jaguars sell season tickets to NFL football games. There are 10 home games during the season, which runs from August through December. During February, 65,000 season tickets were sold for $12,000,000 cash. Which account will be increased by the Jacksonville Jaguars upon receipt of the $12,000,000?

Unearned Ticket Revenue (Since the tickets are for future performances, Unearned Ticket Revenue should be increased)

A plant asset: Has physical substance. Is used in the operations of a business. Is not intended for sale to customers. All of the above.

all of the above

An investor wants to know if a company is manipulating its earnings with the help of allowances for doubtful accounts? What is the best way to do this? -Look at the level of doubtful accounts as a percentage of sales and percentage of receivables for past years. -Compare the level of doubtful accounts as a percentage of sales and percentage of receivables with peers in the same industry. -Analyze the earnings trends without allowances for doubtful allowances and identify earnings pressures if any. -All of these.

all of these

A permanent decline in the market value of an asset is called

an impairment

When a plant asset is retired, the remaining book value of the asset is recorded with

an increase to the Loss on Disposal of Plant Assets account.

Which one of the following costs will not be included in the cost of equipment?

annual insurance

Which one of the following is not a typical current liability?

bonds payable

When using the straight-line depreciation method, which of the following is not a factor affecting the computation of depreciation?

book value (Book value is equal to acquisition cost less accumulated depreciation. The factors affecting the computation of depreciation include acquisition cost, useful life, and salvage value.)

An example of a plant asset is:

building

Which of the following is not an example of a plant asset?

coffee beans

Inventory costing methods place primary reliance on assumptions about the flow of

cost

What method is normally used to account for treasury stock?

cost method

Which of the following is not a way to express the useful life of a depreciable asset? -Five years -Ten thousand machine hours -Thirty thousand units -Cost of acquisition

cost of acquisition

When there is a change in estimated depreciation

current and future years' depreciation should be revised.

Milk Sugar Love purchased an ice cream truck costing $20,000 by paying $5,000 cash and signing a promissory note for the remainder. The journal entry should include a:

debit to truck

Which depreciation method calculates annual depreciation expense based on book value at the beginning of each year?

declining balance

Cristy Company has identified that Drump Company's receivable account of $100,000 is uncollectible. The adjustment needed to write off the account under the allowance method will - increase Bad Debts Expense by $100,000. -decrease Accounts Receivable by $100,000. -increase Allowance by Doubtful Accounts for $100,000. -decrease Cash by $100,000.

decrease Accounts Receivable by $100,000.

If a company uses the allowance method for uncollectible accounts, a write-off of $800 will - increase Allowance for Doubtful Accounts by $800. -decrease Bad Debts Expense by $800. -decrease Allowance for Doubtful Accounts by $800. -increase Bad Debts Expense by $800.

decrease Allowance for Doubtful Accounts by $800.

When prices of inputs are falling, FIFO method of inventory valuation

overstates cost of goods sold.

Which of the following costs should not be included in the cost of a building?

parking lot repaving

Which of the following gives the recipient the right to manufacture, sell, or otherwise control an invention for a period of 20 years?

patent

Net pay is recorded as salaries and wages __________. Payroll deductions are recorded as liabilities.

payable

When recording payroll,

payroll deductions are recorded as liabilities

Which of the following is not a typical current liability? Federal unemployment taxes payable Prepaid rent Unearned passenger ticket revenue Current maturities of long-term deb

prepaid rent

If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty?

the company purchased another company

If a company such as IBM, includes other gains and losses in its sales, general and administrative expenses,

the investors may be confused and will not know the true sales, general and administrative expenses.