accounting practice test 2

Which financial statement(s) is (are) affected when depreciation expense is recognized?

Income statement and balance sheet

Which of the following correctly describes an installment note?

An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note.

Interest charges on notes payable may be based on a(n):

fixed or variable interest rate.

When the common stock account is disclosed on the balance sheet, it is reported at:

par or stated value.

The term "double taxation" refers to which of the following?

Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation

Houff Company uses the allowance method to account for uncollectible accounts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company's accounting equation?

Have no effect on total assets, liabilities or stockholders' equity

Find weighted average cost

( BI + All purchases) / Units = Answer (B x $ )

Find recognition of depreciation expense w/ straight- line basis:

( Cost - Salvage) / useful years = OG depreciation (A) A x remaining years = accumulated depreciation (B) (Cost - B + improvement - salvage) / remaining years = Answer

Find annual depreciation by double-declining and the book value

(Cost + FOB) x [2 x (1/useful yrs)] =Depreciation yr 1 (A) (Cost + FOB) - A = Ending book balance yr 1 (B) B x [2 x (1/useful yrs) = Depreciation yr 2 (C) B - C = Ending book balance yr 2 (D) D - Salvage = Depreciation yr 3 (Answer # 1) E - D = Ending book balance yr 3 (Answer #2)

Find uncollectible Accounts expense:

(Receivable amount x %) + all off them like that = A BAB + uncollectible - Write-offs = EAB (B) A - Allowance for doubt + Write-offs = Answer

Which of the following is a reason why a corporation may choose not to pay dividends?

-The board and management prefer to reinvest all net income for future growth -The corporation does not have adequate retained earnings -The corporation does not have adequate cash

Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in:

A $16,000 cash inflow in the investing activities section of the cash flow statement.

Alberta Company accepts a credit card as payment for $450 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Alberta's financial statements.

A L E R E Net Cash 432 n/a 432 450 18 432 n/a

Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet?

A corporation

Which of the following entities would report income tax expense on its income statement?

A corporation

Find cost allocated

Appraised amount / total appraised values = % % x purchase price = Answer

Find depreciation with double declining with multiple items in 1 price:

Appraised value / ( All appraised values) = % Cost x % = Cost of equipment Continue with double declining from then on

Where is treasury stock reported on a corporation's balance sheet?

As a deduction from total stockholders' equity, following retained earnings

Find total revenue

BRE + Revenue - Expenses - Cash Dividends - Stock Dividends = ERE

Find the net realizable value

Beginning balance + Revenue on account − Collections = Ending accounts receivable balance (A) Revenue x % = Uncollectible accounts (B) Beginning balance + (B) − Write-offs = Ending allowance for doubtful accounts balance (C) A - C = Net realizable value

The party who borrows money in a note payable is known as the:

Both Maker and Issuer.

Sales tax on financial statements

Cash: Sales + (Sales x %) Sales tax payable: Sales x % Sales Revenue: Sales

Cash: Common Stock: Paid-in: Stock Equity:

Cash: Shares x Per Common Stock: Shares x Par Paid-in: (Shares x Per) - (Shares x Par) Stock Equity: # Paid-in + # Common Stock

Find total stockholders equity

Common Stock + Paid-in Capital Excess of Par Value + Retained Earnings - Treasury Stock = Answer

Find gross margin FIFO

Cost of goods sold= All purchases (B x $) Gross Margin = Sales - cost of goods sold = Answer

The recognition of depreciation expense acts to:

Decrease assets and stockholders' equity, and does not affect cash flow.

Which of the following terms is used to identify the process of expense recognition for property, plant and equipment?

Depreciation

Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's french fries. Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote. As a result of the lawsuit, Burger Barn should:

Ignore the lawsuit in its financial statements.

Find the amount of income

Investment x % = A Investment x % = B Revenue - (A + B) = Remainder (C) C/2 = D D + A = Answer #1 D + B = Answer #2

At a time of declining prices, which cost flow method will result in the highest ending inventory?

LIFO

When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)?

LIFO

Which of the following is not considered an advantage of the corporate form of business organization?

Lack of government regulation

Which of the following would be classified as a tangible asset?

Land

Find interest revenue

Loan x % x (X/12) = Interest April - December (Answer # 1) Loan x % x (Remander months/ 12) = Interest January - March (Answer # 2)

Find total amount of liabilities

Note payable x % x (A/12) = A (interest payable) Note payable + A = Answer

Find accrual of interest

Note x % x (A/12) = Interest expense Increase liabilities & Decrease stock

Which of the following terms designates the maximum number of shares of stock that a corporation may issue?

Number of shares authorized

Which of the following statements about types of business entities is true?

One advantage of a corporation is ability to raise capital.

Find the amount of uncollectible accounts expense

Revenue on account x % = Answer

Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?

The account is a liability

Which of the following statements about the impact of treasury stock on the amounts reported on the balance sheet is correct?

The balance in the treasury stock account reduces total stockholders' equity

Which of the following is not normally a preference given to the holders of preferred stock?

The right to vote before the common stockholders at the corporation's annual meeting.

Which of the following is a negative or contra equity account?

Treasury stock

Warranties of financial statements

Warranty expense: Sales x % Cash: Warranty obligations paid Warranties payable account: (Sales x %) - obligations paid

When do the effects of product warranties appear on the statement of cash flows?

When there is a settlement of a warranty claim made by a customer

Find interest expense in year 2

Yr 1 interest expense: Borrowed x % = A Yr 1 Principal reduction: Payments - A = B Yr 2 Principle balance: Borrowed - B = C Yr 2 Interest expense: C x % = Answer

Find Gross Margin using Weighted Average Cost Flow

[(BI & purchases x %) + all off them like that ] / total amount of units = A Sales of (Last sale x last cost) − Cost of goods sold of (Last sale x A ) = Answer

In an inflationary environment:

a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

The par value of a company's stock:

has little connection to the market value of the stock.

The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to:

have no effect on total assets or stockholders' equity.

The primary reason for a business to allow customers to purchase goods or services on account is to:

increase sales.

Bonds payable are usually classified on the balance sheet as:

long-term liabilities

On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The asset had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its assets on the straight-line basis. On January 1, Year 5, the company spent $6,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in Year 5 would:

reduce total stockholders' equity by $4,375.

A company that uses the allowance method to account for uncollectible accounts:

reports the net realizable value of its accounts receivable on the balance sheet