ACCT 200 Exam 2

When a company incurs costs for minor repairs to keep an asset in good working order, the costs ______. are expensed in the period incurred may either be expensed or capitalized are capitalized as assets

are expensed in the period incurred

Issuing a bond to borrow money is a(n) ______ transaction. asset source asset exchange asset use claims exchange

asset source

Making an interest payment for a bond issued at face value is a(n) ______ transaction. asset exchange claims exchange asset source asset use

asset use

Balance sheets that distinguish between current and noncurrent items are called ______ balance sheets. classified multi-step current categorized

classified

The GAAP principle of ______ generally requires that companies use the same inventory cost flow method from one accounting period to the next. matching comparability consistency full disclosure

comparability

A potential obligation arising from a past event is called a(n) ________ liability.

contingent

Intangible assets with an identifiable useful life include ______. (Select all that apply) trademarks copyrights goodwill patents

copyrights patents

Interest is normally shown as a(n) __________ item on the income statement and a(n) __________ activity on the statement

nonoperating, operating

A company experienced an event that caused total assets and liabilities to decrease and a cash outflow to appear on the statement of cash flows. This event could have been ______. (Select all that apply) recognizing accrued interest revenue recognizing accrued interest expense paying off the principal balance of a loan paying off an accrued interest payable

paying off the principal balance of a loan paying off an accrued interest payable

Exclusive legal right to produce and sell a product that has one or more unique features is granted by a ______. copyright patent trademark

patent

When the market rate of interest is lower than the stated rate of interest, bonds will sell at a(n) _________ to reduce the effective rate of interest to the market rate.

premium

Western Company loaned Eastern Company money. This event affects Western Company's ______. (Select all that apply) statement of changes in stockholders equity statement of cash flows balance sheet income statement

statement of cash flows balance sheet

Which of the following intangible assets is the value attributable to favorable factors such as reputation, location, and superior products? Copyrights Franchises Goodwill Trademarks

Goodwill

Which of the following would be classified as a tangible asset? Land Goodwill Copyright Trademark

Land

West Company borrowed $34,000 on September 1, Year 1 from the Valley Bank. West agreed to pay interest annually at the rate of 9% per year. The note issued by West carried an 18-month term. Based on this information the amount of interest expense appearing on West's Year 1 income statement would be: $0. $306. $765. $1,020.

$1,020

Eureka Company issued $100,000 in bonds payable on January 1, Year 1. The bonds were issued at face value and carried 5-year term to maturity. They had a 7% stated rate of interest that was payable in cash on January 1st of each year beginning January 1, Year 2. Based on this information, the amount of total liabilities appearing on the December 31, Year 1 balance sheet would be: $100,000. $7,000. $99,300. $107,000.

$107,000

On January 1, Year 1, Li Company purchased an asset that cost $85,000. The asset had an expected useful life of five years and an estimated salvage value of $17,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $8,500. Based on this information, the amount of depreciation expense to be recognized at the end of Year 4 is: $13,600. $17,850. $35,700. $22,100.

$17,850

On Jan 1, Year 2, the Accounts receivable balance was $37,000 and the balance in the Allowance for doubtful accounts was $2,800. On Jan 15, Year 2, an $800 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is: $36,200. $33,400. $35,000. $34,200.

$34,200

On March 1, Bartholomew Company purchased a new stamping machine with a list price of $76,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $1,900; sales tax paid, $4,320; installation costs, $1,300; routine maintenance during the first month of operation, $1,800. The cost recorded for the machine was: $78,420. $72,200. $81,520. $79,720.

$79,720 76000 - (76000*.05) + 1900 + 1300 + 4320

On January 6, Year 1, the Mount Jackson Corporation purchased a tract of land for a factory site for $825,000. An existing building on the site was demolished and the construction of the new factory building was completed on October 11, Year 1. Additional cost data are shown below: Construction cost of new building: $1,000,000 Realtor's and attorney's fees: 18,200 Architect's fees relating to construction of new building: 84,000 Cost to demolish old building: 77,100 Salvage recovery from old building: (13,000) Which of the following correctly states the capitalized cost of the land and the new factory building, respectively? $907,300 and $1,084,000 $825,000 and $1,166,300 $843,200 and $1,148,100 $920,300 and $1,071,000

$907,300 and $1,084,000 Land: 825000+18200+77100-13000 Building: 1000000+84000

Which of the following statements regarding patents are true? Patent rights are normally controlled by state government authorities. A patent grants a company or an individual the exclusive right to a product or process. Research and development costs incurred to develop patentable products are usually capitalized in the patent account. The legal life of a patent is 20 years.

A patent grants a company or an individual the exclusive right to a product or process. The legal life of a patent is 20 years.

What is the equation for Cost of goods available for sale?

CGAFS = Beginning Inventory + any purchases made during

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

Depreciation

Which inventory cost flow method will produce tax advantages in a deflationary environment? LIFO FIFO Weighted average

FIFO

Which inventory cost flow method will produce the highest income and asset values in an inflationary environment? Weighted average FIFO LIFO

FIFO

True or False: Companies that use LIFO for income tax reporting must use the same inventory cost flow method for their financial statements.

False

Which of the following statements about aging accounts receivable is true? An existing balance in the Allowance for Doubtful Accounts account is ignored when when determining uncollectible accounts expense. Newer accounts are less likely to be collected. The total of the aging schedule represents the amount of uncollectible accounts expense. Higher percentages are applied to older accounts.

Higher percentages are applied to older accounts.

Which of the following statements is true? LIFO may be the preferred cost flow method even when it results in lower reported income and asset values. Companies that use FIFO for physical flow must use FIFO for cost flow, regardless of tax consequences. GAAP requires consistency between the cost flow method used for financial reporting and that used for tax reporting.

LIFO may be the preferred cost flow method even when it results in lower reported income and asset values.

Which of the following is not subject to depreciation? Computers Buildings Land Office furniture

Land

Benson company purchased two identical inventory items. The item first purchased cost $40. The second item cost $42. If one of the items is sold, which costflpw method would produce the highest amount of cost of goods sold? Last-in, first-out (LIFO) First-in, first-out (FIFO) Weighted average

Last-in, first-out (LIFO)

Which of the following would be classified as a long-term operational asset? Notes receivable Trademark Inventory Accounts receivable

Trademark

True or False: The person responsible for making payment on the due date is the maker of the promissory note.

True

True or false: Two companies that experience the exact same accounting events could report different amounts of depreciation expense.

True

Whats the equation for uncollectible accounts expense?

Uncollectible accounts expense = ending required allowance balance - beginning doubtful account balance + written off accounts balance

If the likelihood of a future obligation arising is probable (likely) and its amount can be reasonably estimated, ______. a liability must be recognized in the financial statements the estimated amount must be disclosed in the notes to the financial statements the estimated amount is determined for managerial purposes only no action is required until the amount is certain

a liability must be recognized in the financial statements

The term used when recognizing expense for intangible assets with identifiable useful lives is _________

amortization

Because the percent of receivables method focuses on determining the best estimate of the allowance account, it is often called the _______ _______ approach

balance sheet

What is the equation for cost of goods sold?

beginning inventory + purchases - ending inventory = cost of goods sold

The gain or loss on the disposal of an asset is equal to the sales price minus ______. book value accumulated depreciation original asset cost

book value

When a company makes a cash payment for interest on a bond that was issued at face value, ______ decreases. (Select all that apply) cash flow from operating activities retained earnings bonds payable cash flow from investing activities cash

cash flow from operating activities retained earnings cash

The year-end adjusting entry to recognize uncollectible accounts expense will: decrease assets and decrease stockholders' equity. increase assets and decrease stockholders' equity. increase liabilities and increase stockholders' equity. decrease liabilities and increase stockholders' equity.

decrease assets and decrease stockholders equity

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? Reduce liabilities and increase stockholders equity increase total assets and increase stockholders equity have no effect on total assets, liabilities or stockholders equity Increase total assets and decrease liabilities

have no effect on total assets, liabilities or stockholders equity

The purchase price plus any costs necessary to get an asset in the location and condition for its intended use is called the ________ cost of the asset.

historical

Because the percent of revenue method focuses on determining the uncollectible accounts expense, it is often called the _______ ________ approach.

income statement

Recognizing depreciation expense affects the ______. (Select all that apply) statement of cash flows income statement balance sheet

income statement balance sheet

Fran Company recognized accrued interest revenue. On Fran's financial statements, net income ______. is not affected but cash flow from operating activities increases is not affected and neither is cash flow from operating activities increases and so does cash flow from operating activities increases but cash flow from operating activities is not affected

increases but cash flow from operating activities is not affected

The GAAP principle of ______ generally requires that companies use the same inventory cost flow method from one accounting period to the next. full disclosure matching comparability consistency

matching

The average time it takes a business to convert cash to inventory, inventory to accounts receivable, and accounts receivable back to cash is commonly called the ____________ cycle.

operating

If the likelihood of a future obligation arising is reasonably possible, but not likely; or if it is probable, but cannot be reasonably estimated, ______. the estimated amount must be disclosed in the notes to the financial statements the estimated amount is determined for managerial purposes and is not shown in the financial statements or related notes a liability must be estimated and reported on the balance sheet the estimated amount is shown as an expense on the income statement

the estimated amount must be disclosed in the notes to the financial statements

Madison Company issued an interest-bearing note payable with a face amount of $24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. The amount of cash flow from operating activities on the Year 1 statement of cash flows would be: $1,920. $800. $24,000. zero.

zero