ACCT2331 Quizzes
The net amount expected to be received in cash from receivables is termed the A) cash realizable value B) cash-good value C) gross cash value D) cash-equivalent value
A) cash realizable value
Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally A) expensed when incurred B) capitalized as a part of the cost of the asset C) debited to the Accumulated Depreciation account D) not recorded until they become material in amount
A) expensed when incurred
Sales revenue less cost of goods sold is called A) gross profit B) operating income C) gross profit on sales D) net margin
A) gross profit
A stock split will A) have no effect on retained earnings B) increase total paid-in capital C) increase the total par value of the stock D) have no effect on the par value per share of stock
A) have no effect on retained earnings
A promissory note A) is not a formal credit instrument B) may be used to settle an accounts receivable C) has the party to whom the money is due as the maker D) cannot be factored to another party
B) may be used to settle an accounts receivable
The three main components of the fraud triangle are: A) rationalization, a desire to commit fraud and greed B) opportunity, motive and lack of ethics C) greed/need, opportunity and rationalization D) none of the above
C) greed/need, opportunity and rationalization
Additions and improvements A) occur frequently during the ownership of a plant asset B) normally involve immaterial expenditures C) increase the company's investment in productive facilities D) typically only benefit the current accounting period
C) increase the company's investment in productive facilities
The two key parties to a promissory note are the A) maker and a bank B) debtor and the payee C) maker and the payee D) sender and the receiver
C) maker and the payee
Under the allowance method, Bad Debt Expense is recorded A) when an individual account is written off B) when the loss amount is known C) for an amount that the company estimates it will not collect D) several times during the accounting period
C) for an amount that the company estimates it will not collect
Corporation
-easier to transfer ownership -easier to raise funds -no personal liability -double taxation
Sole Proprietorship
-simple to establish -owner controlled -tax advantages -personal liability
Partnership
-simple to establish -shared control -broader skills and resources -tax advantages -personal liability
Aber Company buys land for $145,000 on 12/31/13. As of 3/31/214, the land has appreciated in value to $152,000. On 12/31/14, the land has an appraised value of $155,400. By what amount should the Land account be increase in 2014? A) $0 B) $7,000 C) $3,400 D) $10,400
A) $0
A machine with a cost of $480,000 has an estimated salvage value of $30,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation fir the second full year, during which the machine was used 5,000 hours? A) $150,000 B) $90,000 C) $130,000 D) $160,000
A) $150,000
Equipment was purchased for $68,00 on January 1, 2013. freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2014, if the straight-line method of depreciation is used? A) $26,720 B) $13,360 C) $11,440 D) $22,880
A) $26,720
A company purchased land for $84,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the historical cost principle, the cost of land would be recorded at A) $94,800 B) $84,000 C) $89,800 D) $96,000
A) $94,800
Internal controls are so critical to a company that Congress passed the: A) Sarbanes-Oxley Act of 2002 B) Kemp-Oxley Act of 2002 C) Economic Stimulus Law of 2008 D) Public Company Accounting Oversight Board Act of 2002
A) Sarbanes-Oxley Act of 2002
Under a perpetual inventory system A) accounting records continuously disclose the amount of inventory B) increases in inventory resulting from purchases are debited to purchases C) there is no need for a year-end physical count D) the account purchase returns and allowances is credited when goods are returned to vendors
A) accounting records continuously disclose the amount of inventory
Under the allowance method, writing off an uncollectible account A) affects only balance sheet accounts B) affects both balance sheet and income statement accounts C) affects only income statement accounts D) is not acceptable practice
A) affects only balance sheet accounts
As the president of Harter Company, you notice that no discounts have been taken when settling accounts payables. What would be an acceptable explanation? A) all invoices have credit terms of n/30 B) there is not sufficient cash to pay within the discount period C) discounts are missed because no one knows how to enter them in the new accounting software D) the full amount of the invoice is being paid within the discount period and the treasurer is pocketing the discount amount
A) all invoices have credit terms of n/30
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 balance sheet lists: A) assets, liabilities and stockholders' equity B) the changes in retained earnings C) assets, liabilities, revenues and expenses D) revenues and expenses
A) assets, liabilities and stockholders' equity
The amount of stock that may be issued according to the corporation's charter is referred to as the A) authorized stock B) issued stock C) unissued stock D) outstanding stock
A) authorized stock
The date on which a cash dividend becomes a binding legal obligation is on the A) declaration date B) date of record C) payment date D) last day of the fiscal year end
A) declaration date
The declining-balance method of depreciation produces a(n) A) decreasing depreciation expense each period B) increasing depreciation expense each period C) declining percentage rate each period D) constant amount of depreciation expense each period
A) decreasing depreciation expense each period
Which one of the following is not an accounting problem (issue) associated with accounts receivable? A) depreciating accounts receivable B) recognizing accounts receivable C) valuing accounts receivable D) accelerating cash receipts from accounts receivable
A) depreciating accounts receivable
A dishonored note receivable A) is no longer negotiable B) must be written off by the lender C) creates a claim against the maker for the amount of principal only D) is one that is not paid in full within 10 days of maturity
A) is no longer negotiable
The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that A) is used for tax purposes B) must be used for financial statement purposes C) is required by the SEC D) expenses an asset over a single
A) is used for tax purposes
The four subdivision for plant assets are A) land, land improvements, buildings, and equipment B) intangibles, land, buildings, and equipment C) furnishings and fixtures, land buildings, and equipment D) property, plant, equipment, and land
A) land, land improvements, buildings, and equipment
Which statement is incorrect? A) periodic inventory systems provide better control over inventories than perpetual inventory systems B) computers and electronic scanners allow more companies to use a perpetual inventory system C) freight-in is debited to Inventory when a perpetual inventory system is used D) regardless of the inventory system that is used, companies should take a physical inventory count
A) periodic inventory systems provide better control over inventories than perpetual inventory systems
Which of the following is not true regarding a promissory note? A) promissory notes may not be transferred to another party by endorsement B) promissory notes may be sold to another party C) promissory notes give a stronger legal claim to the holder than accounts receivable D) promissory notes may be bearer notes and not specifically identify the payee by name
A) promissory notes may not be transferred to another party by endorsement
Cash for merchandise delivered to the customer in 2010 is received in 2011. Using the accrual basis of accounting, the revenue should appear on: A) the 2010 income statement B) the 2011 income statement C) neither the 2010 not the 2011 income statement D) both the 2010 and 2011 income statements
A) the 2010 income statement
Under a perpetual inventory system, acquisition of merchandise for resale is debited to A) the Inventory account B) the Purchases account C) the Supplies account D) the Cost of Goods Sold account
A) the inventory account
Which of the following is not a right or preference associated with preferred stock? A) the right to vote B) first claim to dividends C) preference to corporate assets in case of liquidation D) to receive dividends in arrears before common stockholders receive dividends
A) the right to vote
The Allowance for Doubtful Accounts is necessary because A) when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay B) uncollectible accounts that are written off must be accumulated in a separate account C) a liability results when a credit sale is made D) management needs to accumulate all the credit losses over the years
A) when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay
The interest on a $10,000, 6% 60-day note receivable is A) $680 B) $100 C) $200 D) $300
B) $100
Equipment was purchase for $90,000. Freight charges amounted to $4,200 and there was a cost of $12,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $18,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be A) $21,240 B) $17,640 C) $14,760 D) $14,400
B) $17,640
A plant asset cost $128,000 and is estimated to have a $16,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be A) $10,720 B) $18,000 C) $15,750 D) $12,250
B) $18,000
Arnold Company purchases a new delivery truck for $40,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck? A) $44,040 B) $43,920 C) $42,500 D) $41,920
B) $43,920
The interest on a $5,000, 10%, 1-year note receivable is A) $5,00 B) $500 C) $5,500 D) $5,450
B) $500
A credit sale of $700 is made on July 15, terms 2/10, net/30, on which a return of $50 is granted on July 18. What amount is received as payment in full on July 24? A) $700 B) $637 C) $650 D) $686
B) $637
A company purchased factory equipment for $350,000. It is estimated that the equipment will have a $35,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be A) $140,000 B) $84,000 C) $126,000 D) $75,600
B) $84,000
When an account becomes uncollectible and must be written off A) Allowance for Doubtful Accounts should be credited B) Accounts Receivable should be credited C) Bad Debt Expense should be credited D) Sales Revenue should be debited
B) Accounts Receivable should be credited
The rules for recording accounting transactions do NOT include which of the following? A) Every transaction's net amount on the left side of the equation must equal the net amount on the right side B) Both sides of the accounting equation must be affected C) Every transaction affects the financial statements of the business D) Total Assets must always equal total liabilities plus total equity
B) Both sides of the accounting equation must be affected
Tomlinson Packaging Corporation began business in 2016 by issuing 30,000 shares of $5 par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2016 balance sheet, Tomlinson Packaging would report A) Common Stock $300,000 B) Common Stock of $150,000 C) Common Stock of $240,000 D) Paid-in Capital of $200,000
B) Common Stock of $150,000
Holden Packaging Corporation began business in 2016 by issuing 80,000 shares of $5 par common stock for $8 per share and 20,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2016 balance sheet, Holden Packaging would report A) Common Stock of $800,000 B) Common Stock of $400,000 C) Common Stock of $640,000 D) Paid-In Capital of $600,000
B) Common Stock of $400,000
Logan Corporation issues 50,000 shares of $50 par value preferred stock for cash at $60 per share. The entry to record the transaction will consist of a debit to Cash for $3,000,000 and a credit or credits to A) Preferred Stock for $3,000,000 B) Preferred Stock for $2,500,000 and Paid-in Capital in Excess of Par Value-Preferred Stock for $500,000 C) Preferred Stock for $2,500,000 and Retained Earnings for $500,000 D) Paid-in Capital from Preferred Stock for $3,000,000
B) Preferred Stock for $2,500,000 and Paid-in Capital in Excess of Par Value-Preferred Stock for $500,000
Money given to companies to pay for future expenses in the business, such as Insurance, is called: A) Accrued Liabilities B) Prepaid expenses C) Revenues D) Expenses
B) Prepaid expenses
Which characteristic will NOT be found in an effective system of internal control? A) competent, reliable, and ethical personnel B) a combination of duties C) a separation of duties D) documents and records
B) a combination of duties
Under the direct write-off method of accounting for uncollectible accounts A) the allowance account is increased for the actual amount of bad debt at the time of write-off B) a specific account receivable is decreased for the actual amount of bad debt at the time of write-off C) balance sheet relationships are emphasized D) bad debt expense is always recorded in the period in which the revenue was recorded
B) a specific account receivable is decreased for the actual amount of bad debt at the time of write-off
Which of the following statements reflects the transferability of ownership rights in a corporation? A) if a stockholder decides to transfer ownership, he must transfer all of his shares B) a stockholder may dispose of part or all of his shares C) a stockholder must obtain permission of the board of directors before selling shares D) a stockholder must obtain permission from at least three other stockholders before selling shares
B) a stockholder may dispose of part or all of his shares
A company would not acquire treasury stock A) in order to reissue shares to officers B) as an asset investment C) in order to increase trading of the company's stock D) to have additional shares available to use acquisitions of other companies
B) as an asset investment
The allowance method of accounting for uncollectible accounts is required if A) the company makes any credit sales B) bad debts are significant in amount C) the company is a retailer D) the company charges interest on accounts receivable
B) bad debts are significant in amount
The effect of a stock dividend is to A) decrease total assets and stockholders' equity B) change the composition of stockholders' equity C) decrease total assets and total liabilities D) increase the book value per share of common stock
B) change the composition of stockholders' equity
Receivables are A) one of the most liquid assets and thus are always considered current assets B) claims that are expected to be collected in cash C) shown on the income statement at cash realizable value D) always the result of revenue recognition
B) claims that are expected to be collected in cash
To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a A) debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts B) debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts C) debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable D) debit to Loss on Credit Sales and a credit to Accounts Receivable
B) debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a A) debit to Bad Debt Expense for $4,500 B) debit to Bad Debt Expense for $6,100 C) debit to Bad Debt Expense for $2,900 D) credit to Allowance for Doubtful Accounts for $4,500
B) debit to Bad Debt Expense for $6,100
The acquisition of stock by a corporation A) increases its total assets and total stockholders' equity B) decreases its total assets and total stockholders' equity C) has no effect on total assets and total stockholders' equity D) requires that a gain or loss be recognized on the income statement
B) decreases its total assets and total stockholders' equity
Which of the following is a limitation of internal control? A) operational efficiency B) employee collusion C) accurate and reliable accounting records D) safeguarding company assets
B) employee collusion
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
Copyrights are granted by the federal government A) for the life of the creator for 70 years, whichever is longer B) for the life of the creator plus 70 years C) for the life of the creator or 70 years, whichever is shorter D) and therefore cannot be amortized
B) for the life of the creator plus 70 years
An intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party is: A) collusion B) fraud C) phishing D) lapping
B) fraud
Freight costs incurred by a seller on merchandise sold to customers will cause an increase A) in the selling expenses of the buyer B) in the operating expenses for the seller C) to the cost of goods sold of the seller D) to a contra-revenue account of the seller
B) in the operating expenses for the seller
A debit balance in the Allowance for Doubtful Accounts A) is the normal balance for that account B) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts C) indicates that actual bad debt write-offs have been less than what was estimated D) cannot occur if the percentage of receivables method of estimating bad debts is used
B) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts
A fidelity bond is a(n): A) employment contract for a specified period of time B) insurance policy that reimburses a company for employee theft C) contract prohibiting former employees from working for a competitor D) promise by a company to safeguard customers' personal information
B) insurance policy that reimburses a company for employee theft
Treasury shares plus outstanding shares equal A) authorized stock B) issued stock C) unissued stock D) distributable stock
B) issued stock
___ is the most common fraud, but ___ is the most expensive fraud. A) fraudulent financial reporting, misappropriation of assets B) misappropriation of assets, fraudulent financial reporting C) misdating stock options, misappropriation of assets D) cooking the books, misdating stock options
B) misappropriation of assets, fraudulent financial reporting
Research and development costs A) are classified as intangible assets B) must be expensed when incurred under generally accepted accounting principles C) should be included in the cost of the patent they relate to D) are capitalized and then amortized over a period not to exceed 20 years
B) must be expensed when incurred under generally accepted accounting principles
The expense recognition A) requires that all credit losses be recorded when an individual customer cannot pay A) requires that all credit losses be recorded when an individual customer cannot pay B) necessitates the recording of an estimated amount for bad debts C) results in the recording of a known amount for bad debt losses D) is not involved in the decision of when to expense a credit loss
B) necessitates the recording of an estimated amount for bad debts
Interest is usually associated with A) accounts receivable B) notes receivable C) doubtful accounts D) bad debts
B) notes receivable
A corporation has the following account balances: Common Stock, $1 par value, $80,000; Paid-In Capital in Excess of Par Value, $2,700,000. Based on this information, the A) legal capital is $2,780,000 B) number of shares issued is 80,000 C) number of shares outstanding is 2,780,000 D) average price per share issued is $3.48
B) number of shares issued is 80,000
Which one of the following is correct regarding inventory error? A) understating ending inventory has no effect on the following year's beginning inventory B) overstating ending inventory will result in overstated net income C) understating ending inventory will result in overstated retained earnings D) overstating ending inventory will also overstate cost of goods sold
B) overstating ending inventory will result in overstated net income
If a company is given credit terms of 2/10, n/30, it should A) hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time B) pay within the discount period and recognize a savings C) pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill D) recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price
B) pay within the discount period and recognize a savings
Which of the following is a true statement about inventory systems? A) periodic inventory systems require more detailed inventory records B) perpetual inventory systems require more detailed inventory records C) a periodic system requires cost of goods sold be determined after each sale D) a perpetual system determines cost of goods sold only at the end of the accounting period
B) perpetual inventory systems require more detailed inventory records
Sizemore, Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock 100,000 shares of $1 par value common stock outstanding at December 31, 2014. If the board of directors declares a $30,000 dividend, the A) preferred stockholders will receive 1/10th of what the common stockholders will receive B) preferred stockholders will receive the entire $30,000 C) $30,000 will be held as restricted retained earnings and paid out at some future date D) preferred stockholders will receive $15,000 and the common stockholders will receive $15,000
B) preferred stockholders will receive the entire $30,000
If a stockholder cannot attend a stockholders' meeting, he may delegate his voting rights by means of a(n) A) absentee ballot B) proxy C) certified letter D) telegram
B) proxy
Under the perpetual inventory system, which of the following accounts would not be used? A) sales revenue B) purchases C) cost of goods sold D) inventory
B) purchases
Gross profit equals the difference between A) net income and operating expenses B) sales revenue and cost of goods sold C) sales revenue and operating expenses D) sales revenue and cost of goods sold plus operating expenses
B) sales revenue and cost of goods sold
Requiring employees to take annual vacations is a part of which characteristic of internal control? A) assignment of responsibilities B) separation of duties C) proper authorization D) competent and reliable personnel
B) separation of duties
The term residual claim refers to a stockholders' right to A) receive dividends B) share in assets upon liquidation C) acquire additional shares when offered D) exercise a proxy vote
B) share in assets upon liquidation
A disadvantage of the corporate form of organization is A) professional management B) tax treatment C) ease of transfer of ownership D) lack of mutual agency
B) tax treatment
Prepaid expense accounts appear on: A) the income statement B) the balance sheet C) the statement of retained earnings and on the income statement D) both the income statement and balance sheet
B) the balance sheet
Stockholders of a corporation directly elect A) the president of the corporation B) the board of directors C) the treasurer of the corporation D) all of the employees of the corporation
B) the board of directors
If no-par stock is issued without a stated value, then A) the par value is automatically $1 per share B) the entire proceeds are considered to be legal ("paid in") capital C) there is no legal capital D) the corporation is automatically in violation of its state charter
B) the entire proceeds are considered to be legal ("paid in") capital
When stock is issued in exchange for a noncash asset, the value recorded for the shares issued is best determined by A) the book value of the noncash asset B) the market value of the shares C) the par value of the shares D) the contributed capital of the shares
B) the market value of the shares
Which one of the following is not an ownership right of a stockholder in a corporation? A) to vote in the election of directors B) to declare dividends on the common stock C) to share in assets upon liquidation D) to share in corporate earnings
B) to declare dividends on the common stock
Which one of the following items is not considered 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
A characteristic of a plant asset is that it is A) intangible B) used in the operations of a business C) held for sale in the ordinary course of the business D) not currently used in the business but held for future use
B) used in the operations of a business
On January 1, a machine with a useful life of five years and residual value of $15,000 was purchased for $75,00. What is depreciation expense for year 2 under straight-line depreciation? A) $15,00 B) $45,000 C) $12,000 D) $36,000
C) $12,000
Brewer Inc. has 5,000 shares of 8%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. The board of directors declared and paid a $15,000 dividend in 2013. In 2014, $60,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2014? A) $35,000 B) $30,000 C) $25,000 D) $20,000
C) $25,000
Whyte Clinic purchases land for $280,00 cash. The clinic assumes $3,000 in property taxes due on the and. The title and attorney fees totaled $2,000. The clinic had the land graded for $4,400. What amount does Whyte Clinic record as the cost for the land? A) $284,400 B) $280,000 C) $289,400 D) $285,000
C) $289,400
Outstanding stock of the West Corporation included 40,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par non-cumulative preferred stock. In 2013, West declared and paid dividends of $4,000. In 2014 West declared and paid dividends $12,000. How much of the 2014 dividend was distributed to preferred shareholders? A) $8,000 B) $14,000 C) $6,000 D) None of these answer choices are correct
C) $6,000
A company sells a plant asset that originally cost $225,000 for $75,000 on December 31, 2014. the accumulated depreciation account had a balance of $90,000 after the current year's depreciation of $22,500 had been recorded. The company should recognize a A) $150,000 loss on disposal B) $60,000 gain on disposal C) $60,000 loss on disposal D) $37,500 loss on disposal
C) $60,000 loss on disposal
The interest on a $6,000, 6% 90-day note receivable is A) $360 B) $180 C) $90 D) $270
C) $90
Pearson Company bought a machine on January 1, 2014. The machine cost $144,000 and had an expected salvage value of $24,000. The life of the machine was estimated to be 5 years. The book value of the machine at the beginning of the third years would by A) $144,000 B) $120,000 C) $96,000 D) $48,000
C) $96,000
Alt Corp. issues 3,000 shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are made to: A) Common Stock $30,000 and Paid-in Capital in Excess of Stated Value $12,000 B) Common Stock $28,000 C) Common Stock $30,000 and Paid-in Capital in Excess of Par Value $12,000 D) Common Stock $30,000 and Retained Earnings $12,000
C) Common Stock $30,000 and Paid-in Capital in Excess of Par Value $12,000
If common stock is issued for an amount greater than par value, the excess should be credited to A) Cash B) Retained Earnings C) Paid-In Capital in Excess of Par Value D) Legal Capital
C) Paid-In Capital in Excess of Par Value
If Norben Company issues 4,000 shares of $5 par value common stock for $140,000, the account A) Common Stock will be credited for $140,000 B) Paid-in Capital in Excess of Par Value will be credited for $20,000 C) Paid-in Capital in Excess of Par Value will be credited for $120,000 D) Cash will be debited for $120,000
C) Paid-in Capital in Excess of Par Value will be credited for $120,000
SOX created a new body to oversee the audits of public companies called the: A) Securities and Exchange Commission B) Association of Certified Public Accountants C) Public Company Accounting Oversight Board D) Association of Certified Fraud Examiners
C) Public Company Accounting Oversight Board
Which of the following is not properly classified as property, plant, and equipment? A) building used as a factory B) land used in ordinary business operations C) a truck held for resale by an automobile dealership D) land improvement, such as parking lots and fences
C) a truck held for resale by an automobile dealership
When a business makes a sale on account, the asset created is a(n): A) revenue B) expense C) account receivable D) account payable
C) account receivable
Which of the following would probably be the most significant type of a claim held by a company? A) notes receivable B) non-trade receivables C) accounts receivable D) interest receivable
C) account receivable
The adjusted trial balance is prepared: A) before the adjustments are journalized and posted B) after the adjustments are journalized but before they are posted C) after the adjustments are journalized and posted D) after the financial statements are prepared
C) after the adjustments are journalized and posted
In computing depreciation, salvage value is A) the fair value of a plant asset on the date 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
Accounts receivable are valued and reported on the balance sheet A) in the investments section B) at gross amounts less sales returns and allowances C) at cash realizable value D) only if they are not past due
C) at cash realizable value
Management should select the depreciation method that A) is easiest to apply B) best measures the plant asset's market value over its useful life C) best measures the plant asset's contribution to revenue over its useful life D) has been used most often in the past by the company
C) best measures the plant asset's contribution to revenue over its useful life
When using the periodic system the physical inventory count is used to determine A) only the sales value of goods in the ending inventory B) both the cost of the goods in ending inventory and the sales value of goods sold during the period C) both the cost of the goods sold and the cost of ending inventory D) only the cost of merchandise sold during the period
C) both the cost of the goods sold and the cost of ending inventory
Which one of the following items is not a consideration when recording periodic depreciation expense on plant assets? A) salvage value B) estimated useful life C) cash needed to replace the plant asset D) cost
C) cash needed to replace the plant asset
Two categories of expenses in merchandising companies are A) cost of goods sold and financing expenses B) operating expenses and financing expenses C) cost of goods sold and operating (sales & administrative) expenses D) other expenses and cost of goods sold
C) cost of goods sold and operating (sales & administrative) expenses
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 credit balance, the adjustment to record bad debts for the period will require a A) debit to bad expense for $4,500 B) debit to Allowance for Doubtful Accounts for $2,900 C) debit to Bad Debt Expense for $2,900 D) credit to Allowance for Doubtful Accounts for $4,500
C) debit to Bad Debt Expense for $2,900
An aging of a company's accounts receivable indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a A) debit to Bad Debt Expense for $4,500 B) debit to Allowance for Doubtful Accounts for $3,300 C) debit to Bad Debt Expense for $3,300 D) credit to Allowance for Doubtful Accounts $4,500
C) debit to Bad Debt Expense for $3,300
The term applied to the periodic expiration of a plant asset's cost/return of capital is A) amortization B) depletion C) depreciation D) cost expiration
C) depreciation
Recording depreciation each period is necessary in accordance with the A) going concern principle B) historical cost principle C) expense recognition principle D) asset valuation principle
C) expense recognition principle
A plan of organization and a system of procedures, implemented by company management and the board of directors, is called: A) the budget B) the audit C) internal control D) the Sarbanes-Oxley Act
C) internal control
Non-trade receivables should be reported separately from trade receivables. Why is this statement either true or false? A) is is true because trade receivables are current assets and non-trade receivables are long term B) it is false because all current receivables must be grouped together in one account C) it is true because non-trade receivables do not result from business operations and should not be included with accounts receivable D) it is false because management can decide how to report receivables
C) it is true because non-trade receivables do not result from business operations and should not be included with accounts receivable
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
The cost of an intangible asset with an indefinite life should A) be amortized over 20 years B) be amortized over the life of the creator plus 70 years C) not be amortized D) none of these answer choices are correct
C) not be amortized
Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system? A) a purchase of merchandise B) a return of merchandise inventory to the supplier C) payment of freight costs for goods shipped to a customer D) payment of freight costs for goods received from a supplier
C) payment of freight costs for goods shipped to a customer
If disposal of a plant asset occurs during the year, depreciation A) not recorded for the year B) recorded for the whole year C) recorded for the fraction of the year to the date of the disposal D) not recorded if the asset is scrapped
C) recorded for the fraction of the year to the date of the disposal
Inventory becomes part of cost of goods sold when a company A) pays for the inventory B) purchases the inventory C) sells the inventory D) receives payment from the customer
C) sells the inventory
A change in the estimated useful life of equipment requires A) retroactive change in the amount of periodic depreciation recognized in previous years B) that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset C) that the amount of periodic depreciation be changed in current year and in future years D) that the income for the current year be increased
C) that the amount of periodic depreciation be changed in current year and in future years
Which of the following statements about dividends is not accurate? A) dividends are generally reported quarterly as a dollar amount per share B) low dividends may mean high stock returns C) the board of directors is obligated to declare dividends D) payment of dividends from legal capital is illegal in many states
C) the board of directors is obligated to declare dividends
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 Debt 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 and 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 and after an account is written off
Under the corporate form of business organization A) a stockholder is personally liable for the debts of the corporation B) stockholders' acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation C) the corporation's life is stipulated in its charter D) stockholders wishing to sell their corporation shares must get the approval of other stockholder
C) the corporation's life is stipulated in its charter
Which of the following methods of computing depreciation is production based? A) straight-line B) declining-balance C) units-of-activity D) none of these answer choices are correct
C) units-of-activity
On July 1, 2014, Linden Company purchase the copyright to Norman Computer Tutorials for $140,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2014 would be A) $28,000 B) $13,125 C) $25,900 D) $14,000
D) $14,000
A company purchased land for $350,000 cash. Real estate brokers' commission was $25,000 and $35,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at A) $385,000 B) $350,000 C) $375,000 D) $410,000
D) $410,000
The Unearned Rent account has a $6,000 credit balance in the unadjusted trial balance. There is a $1,000 debit adjustment to Unearned Rent. The adjusted trial balance will show Unearned Rent as a: A) $7,000 debit balance B) $7,000 credit balance C) $5,000 debit balance D) $5,000 credit balance
D) $5,000 credit balance
A factory machine was purchased for $70,000 on January 1, 2014. It was estimated that it would have a $14,000 salvage value at the end of its 5-year useful life. It was also estimated that the machine would be run 40,000 hours in the 5 years. If the actual number of machine hours ran in 2014 was 4,000 hours and the company uses the units-of-activity method of depreciation, the amount of depreciation expense for 2014 would be A) $7,000 B) $11,200 C) $14,000 D) $5,600
D) $5,600
Denson, Inc. has 10,000 shares of 7%, $100 par value, non-cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2014. There were no dividends declared in 2013. The board of directors declares and pays a $120,000 dividend in 2014. What is the amount of dividends received by the common stockholders in 2014? A) $0 B) $70,000 C) $120,00 D) $50,000
D) $50,000
A machine was purchased for $54,000 and it was estimated to have a $9,000 salvage value at the end of its useful life. Monthly depreciation expense of $750 was recorded using the straight-line method. The annual depreciation rate is A) 25% B) 2% C) 16% D) 20%
D) 20%
A plant asset was purchase on January 1 for $75,000 with an estimated salvage value of $15,000 at the end of its useful life. The current year's Depreciation Expense is $5,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $25,000. The remaining useful life of the plant asset is A) 15 years B) 12 years C) 5 years D) 7 years
D) 7 years
Treasury stock is A) stock issued by the U.S. Treasury Department B) stock purchased by a corporation and held as an investment in its treasury C) corporate stock issued by the treasurer of a company D) a corporation's own stock, which has been reacquired and held for future use
D) a corporation's own stock, which has been reacquired and held for future use
The debt created by a business when it makes a purchase on account is a(n): A) account receivable B) revenue C) prepaid expense D) account payable
D) account payable
On January 1, Edmiston Corporation had 1,600,000 shares of $10 par value common stock outstanding. On March 31 the company declared a 10% stock dividend. Market value of the stock was $15/share. As as result of this event, A) Edmiston's Paid-In Capital in Excess of Par Value account increased $800,000 B) Edmiston's total stockholders' equity was unaffected C) Edmiston's Stock Dividends account increased $2,400,000 D) all of these answer choices are correct
D) all of these answer choices are correct
Which of the following is a way of disposing of a note receivable? A) honoring it on maturity date B) selling it to receive cash before the maturity date C) default by the maker D) all of these are ways to dispose of notes receivable
D) all of these are ways to dispose of notes receivable
The balance in the Accumulated Depreciation account 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 the 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
A patent should A) be amortized over a period of 20 years B) not be amortized C) be amortized over its useful life or 20 years, whichever is longer D) be amortized over its useful life or 20 years, whichever is shorter
D) be amortized over its useful life or 20 years, whichever is shorter
A gain or loss on disposal of a plant asset is determined by comparing the A) replacement cost of the asset with the asset's original cost B) book value of the asset with the asset's original cost C) original cost of the asset with the proceeds received from its sale D) book value of the asset with the proceeds received from its sale
D) book value of the asset with the proceeds received from its sale
The account Allowance for Doubtful Accounts is classified as a(n) A) liability B) contra account of Bad Debt Expense C) expense D) contra account to Accounts Receivable
D) contra account to Accounts Receivable
When a note is dishonored, the payee's entry includes a A) debit to Interest Revenue B) credit to Accounts Receivable C) debit to Interest Expense D) credit to Notes Receivable
D) credit to Notes Receivable
Which of the following methods will result in the highest depreciation in the first year? A) sum-of-year's-digits B) time valuation C) straight-line D) declining-balance
D) declining-balance
The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to A) decrease total liabilities and stockholders' equity B) increase total expenses and total liabilities C) increase total assets and stockholders' equity D) decrease total assets and stockholders' equity
D) decrease total assets and stockholders' equity
Treasury stock should be reported in the financial statements of a corporation as a(n) A) investment B) liability C) deduction from total paid-in capital D) deduction from total paid-in capital and retained earnings
D) deduction from total paid-in capital and retained earnings
The primary difference between a periodic and perpetual inventory system is that a periodic system A) keeps a record showing the inventory on hand at all time B) provides better control over inventories C) records the cost of the sale on the date the sale is made D) determines the inventory on hand only at the end of the accounting period
D) determines the inventory on hand only at the end of the accounting period
Two methods of accounting for uncollectible accounts are the A) allowance method and the accrual method B) allowance method and the net realizable method C) direct write-off method and the accrual method D) direct write-off method and the allowance method
D) direct write-off method and the allowance method
Intangible assets are the rights and privileges that result from ownership of long-lived assets that A) must be generated internally B) are depreciated over their useful life C) have not been exchanged at a gain D) do not have physical substance
D) do not have physical substance
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
D) does not affect income in the period it is collected
In a perpetual inventory system, cost of goods sold is recorded A) on a daily basis B) on a monthly basis C) on an annual basis D) each time a sale occurs
D) each time a sale occurs
Which of the following would not be included in the equipment account? A) installation costs B) freight costs C) cost of trial runs D) electricity used by the machine
D) electricity used by the machine
A merchandiser will earn an operating income of exactly $0 when A) net sales equals cost of goods sold B) cost of goods sold equals gross margin C) operating expenses equal net sales D) gross profit equals operating expenses
D) gross profit equals operating expenses
All of the following statements regarding impairments are true except A) an impairment is a permanent decline in an asset's market balue B) after an impairment write-down, depreciation is generally lower in subsequent periods C) immediate recognition of impairment write-downs is now required D) impairments are generally recorded when the book value falls below the market value
D) impairments are generally recorded when the book value falls below the market value
Which of the following is correct regarding LIFO and FIFO? A) in a period of increasing costs, assets will be greater for LIFO than FIFO B) in a period of decreasing costs, net income will be greater under FIFO than LIFO C) in a period of increasing costs, LIFO will result in greater nets income than FIFO D) in a period of decreasing costs, FIFO will result in lower total assets than LIFO
D) in a period of decreasing costs, FIFO will result in lower total assets than LIFO
A company received cash in exchange for issuing stock. This transaction increased assets and: A) increased expenses B) increased revenues C) increased liabilities D) increased equity
D) increased equity
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
If the amount of uncollectible account expense is understated at year end A) net income will be understated B) stockholders' equity will be understated C) Allowance for Doubtful accounts will be overstated D) net Accounts Receivable will be overstated
D) net Accounts Receivable will be overstated
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
Which of the following expressions is incorrect? A) gross profit - operating expenses = net income B) sales revenue - cost of goods sold - operating expenses = net income C) net income + operating expenses = gross profit D) operating expenses - cost of goods sold = gross profit
D) operating expenses - cost of goods sold = gross profit
Revenues are recorded when: A) the company signs a contract B) work is begun on the job C) cash is received from the customer D) the work is completed on the job, whether or not the cash is received
D) the work is completed on the job, whether or not the cash is received
Which of the following is not true of ordinary repairs? A) they primarily benefit the current accounting period B) they can be referred to as revenue expenditures C) they maintain the expected productive life of the asset D) they increase the productive capacity of the asset
D) they increase the productive capacity of the asset
If a company determines cost of goods sold each time a sale occurs, it A) must have a computer accounting system B) uses a combination of the perpetual and periodic inventory systems C) uses a periodic inventory system D) uses a perpetual inventory system
D) uses a perpetual inventory system