Financial Accounting - Exam 4.

A coal company invests $12 million in a mine estimated to have 20 million tons of coal & no salvage value. It is expected that mine will be in operation for 5 years. In the first year, 1,000,000 tons of coal are extracted & sold. What is the cost transferred from minerals to inventory available for sale for the first year? a. $600,000. b. $240,000. c. $80,000. d. $24,000.

a. $600,000.

Jeff Retailers accepted $75,000 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 Jeff Retailers will include a credit to Sales of $75,000 & a debit(s) to: a. Cash $72,000 & Service Charge Expense $3,000. b. Accounts Receivable $72,000 & Service Charge Expense $3,000. c. Cash $72,000 & Interest Income $3,000. d. Accounts Receivable $75,000.

a. Cash $72,000 & Service Charge Expense $3,000.

Under the allowance method, writing off an identified uncollectible account: a. affects only balance sheet accounts. b. affects both balance sheet & income statement accounts. c. affects only income statement accounts. d. is not acceptable practice.

a. affects only balance sheet accounts.

The term "receivables" refers to: a. amounts due from individuals or companies. b. merchandise to be collected from individuals or companies. c. cash to be paid to creditors. d. cash to be paid to debtors.

a. amounts due from individuals or companies.

The retailer considers Visa & MasterCard sales as: a. cash sales. b. promissory sales. c. credit sales. d. contingent sales.

a. cash sales.

All of the following factors in computing depreciation are estimates except: a. cost. b. residual value. c. salvage life. d. useful life.

a. cost.

Accountants do not attempt to measure the change in a plant asset's market value during ownership because: a. the assets are not held for resale. b. plant assets cannot be sold. c. losses would have to be recognized. d. it is management's responsibility to determine fair values.

a. the assets are not held for resale.

When estimating the useful life of an asset, accountants do not consider: a. the cost to replace the asset at the end of its useful life. b. obsolescence factors. c. expected repairs & maintenance. d. the intended use of the asset.

a. the cost to replace the asset at the end of its useful life.

If a company sells its accounts receivables to a factor, a. the seller pays a commission to the factor. b. the factor pays a commission to the seller. c. there is a gain on the sale of the receivables. d. the seller defers recognition of sales revenue until the account is collected.

a. the seller pays a commission to the factor.

Syfy Company on July 15 sells merchandise on account to Eureka Company for $3,000, terms 2/10, n/30. On July 20, Eureka Company returns merchandise worth $1,200 to Syfy Company. On July 24 payment is received from Eureka Company for the balance due. What is the amount of cash received? a. $1,740. b. $1,764. c. $1,800. d. $3,000.

b. $1,764.

A customer charges a treadmill at Annie's Sport Shop. The price is $4,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. What is the amount of the first month finance charge? a. $12. b. $30. c. $120. d. $360.

b. $30

A company purchased factory equipment on April 1, 2013, for $80,000. It is estimated the equipment will have a $10,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2013 is: a. $8,000. b. $7,000. c. $5,250. d. $6,000.

b. $7,000.

A company purchased office equipment for $40,000 & estimated a salvage value of $8,000 at the end of its 4-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is: a. 20%. b. 25%. c. 50%. d. 5%.

b. 25%.

When a specific account becomes uncollectible & must be written off: a. Allowance for Doubtful Accounts should be credited. b. Accounts Receivable should be credited. c. Bad Debts Expense should be credited. d. Sales should be debited.

b. Accounts Receivable should be credited.

Which one of the following items is not consider a part of the cost of a truck purchased for business use? a. Sales tax. b. Truck license. c. Freight charges. d. Cost of lettering on side of truck.

b. Truck license.

An alternative name for Bad Debts Expense is: a. Deadbeat Expense. b. Uncollectible Accounts Expense. c. Collection Expense. d. Credit Loss Expense.

b. Uncollectible Accounts Expense.

The declining-balance method of depreciation produces: a. a decreasing depreciation expense each period. b. an increasing depreciation expense each period. c. a declining percentage rate each period. d. a constant amount of depreciation expense each period.

b. an increasing depreciation expense each period.

If a company fails to record estimated bad debts expense: a. cash realizable value is understated. b. expenses are understated. c. revenues are understated. d. receivables are understated.

b. expenses are understated.

A debit balance in the Allowance for Doubtful Accounts: a. in the normal balance for that account. b. indicates that actual bad debt write-offs gave exceeded previous provisions for bad debts. c. indicates that actual bad debt write-offs have been less that what was estimated. d. cannot occur if the percentage of sales method of estimating bad debts is used.

b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

If a department store fails to make the entry to accrue the finance charges due from customers: a. accounts receivable will be overstated. b. interest revenue will be understated. c. interest expense will be overstated. d. interest expense will be understated.

b. interest revenue will be understated.

Research and development costs: a. are classified as intangible assets. b. must be expensed when incurred under generally accepted accounted principles. c. should be included in the cost of the patent they relate to. d. are capitalized & then amortized over a period not to exceed 40 years.

b. must be expensed when incurred under generally accepted accounted principles.

The receivable that is usually evidenced by a formal instrument of credit is a(n): a. trade receivable. b. note receivable. c. accounts receivable. d. income tax receivable.

b. note receivable.

Interest is usually associated with: a. accounts receivable. b. notes receivable. c. doubtful accounts. d. bad debts.

b. notes receivable.

The existing balance is Allowance for Doubtful Accounts is considered in computing bad debts expense in the: a. direct write-off method. b. percentage of receivables basis. c. percentage of sales basis. d. percentage of receivables & percentage of sales basis.

b. percentage of receivables basis.

The maturity value of a $4,000, 9%, 60-day note receivable dated February 10th is: a. $4,000. b. $4,030. c. $4,060. d. $4,360.

c. $4,060.

Magneto Company had net credit sales during the year of $1,200,000 & cost of goods sold of $720,000. The balance in accounts receivable at the beginning of the year was $180,000, & the end of the year it was $120,000. What was the accounts receivable turnover rate? a. 5.0. b. 6.7. c. 8.0. d. 10.0.

c. 8.0.

Mattox Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the reconstruction period. There are signifcant architect fees, excavation fees, & building permit fees. Which of the following statements is true? a. Excavation fees are capitalized but building permits are not. b. Architect fees are capitalized but building permit fees are not. c. Interest is capitalized during the construction as part of the cost of the building. d. The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

c. Interest is capitalized during the construction as part of the cost of the building.

Which of the following assets does not decline in service potential over the course of its useful life? a. Equipment. b. Furnishings. c. Land. d. Fixtures.

c. Land.

Bad Debts Expense is considered: a. an avoidable cost in doing business on a credit basis. b. an internal control weakness. c. a necessary risk of doing business on a credit basis. d. avoidable unless there is a recession.

c. a necessary risk of doing business on a credit basis.

Depreciation is the process of allocating the cost of a plant asset over its service life in: a. an equal & equitable manner. b. an accelerated & accurate manner. c. a systematic & rational manner. d. a conservative market-based manner.

c. a systematic & rational manner.

In computing depreciation, salvage value is: a. the fair value of a plant asset on the date of the acquisition. b. subtracted from accumulated depreciation to determine the plant asset's depreciable cost. c. an estimate of a plant asset's value at the end of its useful life. d. ignored in all the depreciation methods.

c. an estimate of a plant asset's value at the end of its useful life.

Bad Debts Expense is reported on the income statement as: a. part of cost of goods sold. b. reducing gross profit. c. an operating expense. d. a contra-revenue account.

c. an operating expense.

Trade accounts receivable are valued & reported on the balance sheet: a. in the investment section. b. at gross amounts less sales returns & allowances. c. at net realizable value. d. only if they are not past due.

c. at net realizable value.

An aging of a company's accounts receivable indicates that $10,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has an $1,100 credit balance, the adjustment to record bad debts for the period will require a: a. debit to Bad Debts Expense for $10,000. b. debit to Allowance for Doubtful Accounts for $8,900. c. debit to Bad Debts Expense for $8,900. d. credit to Allowance for Doubtful Accounts for $10,000.

c. debit to Bad Debts Expense for $8,900.

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when: a. a sale is made. b. an account becomes bad & is written off. c. management estimates the amount of uncollectibles. d. a customer's account becomes past-due.

c. management estimates the account of uncollectibles.

The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles: a. will increase income in the period it is collected. b. will decrease income in the period it is collected. c. requires a correcting entry for the period in which the account was written off. d. does not affect income in the period it is collected.

c. requires a correcting entry for the period in which the account was written off.

Under the allowance method of accounting for uncollectible accounts: a. the cash realizable value of accounts receivable is greater before an account is written off than after it is written off. b. Bad Debts Expense is debited when a specific account is written off as uncollectible. c. the cash realizable value of accounts receivable in the balance sheet is the same before & after an account is written off. d. Allowance for Doubtful Accounts is closed each year to Income Summary.

c. the cash realizable value of accounts receivable in the balance sheet is the same before & after an account is written off.

Notes of accounts receivables that result from sales transactions are often called: a. non-sale receivables. b. non-trade receivables. c. trade receivables. d. service receivables.

c. trade receivables.

Angie's Blooms purchased a delivery van with a list price of $30,000. The company was given a $3,000 cash discount by the dealer, & paid $1,500 sales tax. Annual insurance on the van is $750. As a result of the purchase, by how how much will Angie's Blooms increase its van account? a. $30,000. b. $27,000. c. $29,250. d. $28,500.

d. $28,500.

Using the percentage of receivable method for recording bad debts expense, estimated uncollectible accounts are $27,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment, what is the amount of bad debts expense for that period? a. $8,000. b. $19,000. c. $27,000. d. $35,000.

d. $35,000.

Wesley Hospital installs a new parking lot. The paving cost $40,000 & the lights to illuminate the new parking area cost $20,000. Which of the following statements is true with respect to these additions? a. $40,000 should be debited to the Land account. b. $20,000 should be debited to Land Improvements. c. $60,000 should be debited to the Land account. d. $60,000 should be debited to Land Improvements.

d. $60,000 should be debited to Land Improvements.

A company purchased land for $80,000 cash. Real estate brokers' commission was $5,000 & $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at: a. $97,000. b. $80,000. c. $85,000. d. $92,000.

d. $92,000.

The balance in the Accumulated Depreciation amount represents the: a. cash fund to be used to replace plant assets. b. amount to be deducted from the cost of the plant asset to arrive at its fair market value. c. amount charged to expense in the current period. d. amount charged to expense since the acquisition of the plant asset.

d. amount charged to expense since the acquisition of the plant asset.

The book value of an asset is equal to: a. asset's fair value less its historical cost. b. blue book value relied on by secondary markets. c. replacement cost of the asset. d. asset's cost less accumulated depreciation.

d. asset's cost less accumulated depreciation.

The sales of receivable by a business: a. indicates that the business is in financial difficulty. b. is generally the major revenue item on its income statement. c. is an indication that the business is owned by a factor. d. can be a quick way to generate cash for operating needs.

d. can be a quick way to generate cash for operating needs.

Intangible assets are the rights & privileges that result from ownership of long-lived assets that: a. must be generated internally. b. are depletable natural resources. c. have been exchanged at a gain. d. do not have physical substance.

d. do not have physical substance.

Allowance for Doubtful Accounts on the balance sheet: a. is offset against total current assets. b. increases the cash realizable value of accounts receivable. c. appears under the heading "Other Assets." d. is offset against accounts receivable.

d. is offset against accounts receivable.

Land improvements should be depreciated over the useful life of the: a. land. b. buildings on the land. c. land or land improvements, whichever is longer. d. land improvements.

d. land improvements.

Goodwill can be recorded: a. when customers keep returning because they are satisfied with the company's products. b. when the company acquires a good location for its business. c. when the company has exceptional management. d. only when there is an exchange transaction involving the purchase of an entire business.

d. only when there is an exchange transaction involving the purchase of an entire business.

Under the direct write-off method (tax method) of accounting for uncollectible accounts, Bad Debts Expense is debited: a. when a credit sale is past due. b. at the end of each accounting period. c. whenever a pre-determined amount of credit sales have been made. d. when a specific account receivable is determined to be uncollectible.

d. when a specific account receivable is determined to be uncollectible.