Intro to Financial Accounting Exam 2

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2015. The machine was purchased for $80,000 on January 1, 2011, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of the sale? (a) $18,000. (b) $54,000. (c) $22,000. (d) $46,000.

(a) $18,000. [ (80,000 / 10) x 4.5 ] = 36,000; (80,000 - 36,000) - 26,000 = 18,000

Schopenhauer Company exchanged an old machine, with a book value of $39,000 and a fair value of $35,000, and paid $10,000 cash for a similar new machine. The transaction has commercial substance. At what amount should the machine acquired in the exchange be recorded on Schopenhauer's books? (a) $45,000. (b) $46,000. (c) $49,000. (d) $50,000.

(a) $45,000. 35,000 + 10,000

Blinka Retailers accepted $50,000 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 Blinka Retailers will include a credit to Sales Revenue of $50,000 and a debit(s) to: (a) Cash $48,000 and Service Charge Expense $2,000 (b) Accounts Receivable $48,000 and Service Charge Expense $2,000 (c) Cash $50,000 (d) Accounts Receivable $50,000

(a) Cash $48,000 and Service Charge Expense $2,000

Which of the following was not a result of the Sarbanes-Oxley Act? (a) Companies must file financial statements with the Internal Revenue Service. (b) All publicly traded companies must maintain adequate internal controls. (c) The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. (d) Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

(a) Companies must file financial statements with the Internal Revenue Service.

Which of the following approaches for bad debts is best described as a balance sheet method? (a) Percentage-of-receivables basis. (b) Direct write-off method. (c) Percentage-of-sales basis. (d) Both percentage-of-receivables basis and direct write-off method.

(a) Percentage-of-receivables basis.

Accounts and notes receivable are reported in the current assets section of the balance sheet at: (a) cash (net) realizable value. (b) net book value. (c) lower-of-cost-or-market value. (d) invoice cost.

(a) cash (net) realizable value.

A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $4 in cash. In recording the check, the company should: (a) debit Cash Over and Short for $2. (b) debit Petty Cash for $94. (c) credit Cash for $94. (d) credit Petty Cash for $2.

(a) debit Cash Over and Short for $2. [100 - (94 +4)]

The control features of a bank account do not include: (a) having bank auditors verify the correctness of the bank balance per books. (b) minimizing the amount of cash that must be kept on hand. (c) providing a double record of all bank transactions. (d) safeguarding cash by using a bank as a depository.

(a) having bank auditors verify the correctness of the bank balance per books.

An organization uses internal control to enhance the accuracy and reliability of accounting records and to: (a) safeguard assets. (b) eliminate fraud. (c) produce correct financial statements. (d) deter employee dishonesty.

(a) safeguard assets.

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of goods sold is: (a) $390,000. (b) $370,000. (c) $330,000. (d) $420,000.

(a) $390,000.

Which of the following should not be included in the physical inventory of a company? (a) Goods held on consignment from another company. (b) Goods shipped on consignment to another company. (c) Goods in transit from another company shipped FOB shipping point. (d) None of the above.

(a) Goods held on consignment from another company.

In a worksheet using a perpetual inventory system, Inventory is shown in the following columns: (a) adjusted trial balance debit and balance sheet debit. (b) income statement debit and balance sheet debit. (c) income statement credit and balance sheet debit. (d) income statement credit and adjusted trial balance debit.

(a) adjusted trial balance debit and balance sheet debit.

The steps in the accounting cycle for a merchandising company are the same as those in a service company except: (a) an additional adjusting journal entry for inventory may be needed in a merchandising company. (b) closing journal entries are not required for a merchandising company. (c) a post-closing trial balance is not required for a merchandising company. (d) a multiple-step income statement is required for a merchandising company.

(a) an additional adjusting journal entry for inventory may be needed in a merchandising company.

Under a perpetual inventory system, when goods are purchased for resale by a company: (a) purchases on account are debited to Inventory. (b) purchases on account are debited to Purchases. (c) purchase returns are debited to Purchase Returns and Allowances. (d) freight costs are debited to Freight-Out.

(a) purchases on account are debited to Inventory.

In 2015, Roso Carlson Company had net credit sales of $750,000. On January 1, 2015, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2015, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2015? (a) $10,050. (b) $10,500. (c) $22,500. (d) $40,500.

(b) $10,500. (750,000 x 3%) + (18,000 - 30,000)

Jefferson Company purchased a piece of equipment on January 1, 2015. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2016 under the double-declining-balance method? (a) $6,500. (b) $11,250. (c) $15,000. (d) $6,562.

(b) $11,250. 60,000 x 25% = 15,000; (60,000-15,000) x 25% = 11,250

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2015. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report. (a) $230,000. (b) $215,000. (c) $228,000. (d) $193,000.

(b) $215,000.

Net sales for the month are $800,000, and bad debts are expected to be 1.5% of net sales. The company uses the percentage-of-sales basis. If Allowance for Doubtful Accounts has a credit balance of $15,000 before adjustment, what is the balance after adjustment? (a) $15,000. (b) $27,000. (c) $23,000. (d) $31,000.

(b) $27,000. (800,000 * 1.5% ) + 15,000

King Company has sales of $150,000 and cost of goods available for sale of $135,000. If the gross profit rate is 30%, the estimated cost of the ending inventory under the gross profit method is: (a) $15,000. (b) $30,000. (c) $45,000. (d) $75,000.

(b) $30,000. [ $150,000 - (30% x $150,000) ] = $105,000 ; $135,000 - $105,000 = 30,0000

Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2, 2015. On July 31, 2015, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2015, should be: (a) $150,000. (b) $35,000. (c) $185,000. (d) $170,000.

(b) $35,000.

Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is: (a) $5,000. (b) $55,000. (c) $60,000. (d) $65,000.

(b) $55,000. 60,000 - 5000

A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount received as payment in full on June 23 is: (a) $700. (b) $686. (c) $685. (d) $650.

(b) $686.

Santana Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Santana's days in inventory is: (a) 73 days. (b) 121.7 days. (c) 102.5 days. (d) 84.5 days.

(b) 121.7 days. $285,000 / [ (80,000 + 110,000) / 2 ] = 3; 365/3= 121.7

Foti Co. accepts a $1,000, 3-month, 6% promissory note in settlement of an account with Bartelt Co. The entry to record this transaction is as follows. (a) Notes Receivable 1,015 Accounts Receivable 1,015 (b) Notes Receivable 1,000 Accounts Receivable 1,000 (c) Notes Receivable 1,000 Sales Revenue 1,000 (d) Notes Receivable 1,030 Accounts Receivable 1,030

(b) Notes Receivable 1,000 Accounts Receivable 1,000

Depreciation is a process of: (a) valuation. (b) cost allocation. (c) cash accumulation. (d) appraisal.

(b) cost allocation.

When there is a change in estimated depreciation: (a) previous depreciation should be corrected. (b) current and future years' depreciation should be revised. (c) only future years' depreciation should be revised. (d) None of the above.

(b) current and future years' depreciation should be revised.

Permitting only designated personnel to handle cash receipts is an application of the principle of: (a) segregation of duties. (b) establishment of responsibility. (c) independent internal verification. (d) human resource controls.

(b) establishment of responsibility.

Physical controls do not include: (a) safes and vaults to store cash. (b) independent bank reconciliations. (c) locked warehouses for inventories. (d) bank safety deposit boxes for important papers.

(b) independent bank reconciliations.

If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, the gross profit is: (a) $30,000. (b) $90,000. (c) $340,000. (d) $400,000.

(b) $90,000.

Cost of goods available for sale consists of two elements: beginning inventory and: (a) ending inventory. (b) cost of goods purchased. (c) cost of goods sold. (d) All of the above.

(b) cost of goods purchased.

Pauline Company overstated its inventory by $15,000 at December 31, 2014. It did not correct the error in 2014 or 2015. As a result, Pauline's stockholders' equity was: (a) overstated at December 31, 2014, and understated at December 31, 2015. (b) overstated at December 31, 2014, and properly stated at December 31, 2015. (c) understated at December 31, 2014, and understated at December 31, 2015. (d) overstated at December 31, 2014, and overstated at December 31, 2015.

(b) overstated at December 31, 2014, and properly stated at December 31, 2015.

Falk Company's ending inventory is understated $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are: (a) understated, overstated. (b) overstated, understated. (c) overstated, overstated. (d) understated, understated.

(b) overstated, understated.

When goods are purchased for resale by a company using a periodic inventory system: (a) purchases on account are debited to Inventory. (b) purchases on account are debited to Purchases. (c) purchase returns are debited to Purchase Returns and Allowances. (d) freight costs are debited to Purchases.

(b) purchases on account are debited to Purchases.

Poppins Company has the following: Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 $12 Purchase, Nov. 8 5,000 $13 If Poppins has 9,000 units on hand at December 31, the cost of the ending inventory under FIFO is: (a) $99,000. (b) $108,000. (c) $113,000. (d) $117,000.

(c) $113,000. [ (5000 * $13) + (4000 * $12) ]

Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000, terms 2/10, n/30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler Company. On June 24, payment is received from Chaz Co. for the balance due. What is the amount of cash received? (a) $700. (b) $680. (c) $686. (d) None of the above.

(c) $686. (1000-300) x 98%

Lake Coffee Company reported net sales of $180,000, net income of $54,000, beginning total assets of $200,000, and ending total assets of $300,000. What was the company's asset turnover? (a) 0.90. (b) 0.20. (c) 0.72. (d) 1.39.

(c) 0.72. 180,000 / [ (200,000 + 300,000) / 2 ]

Oliveras Company had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in accounts receivable at the beginning of the year was $100,000, and the end of the year it was $150,000. What were the accounts receivable turnover and the average collection period in days? (a) 4.0 and 91.3 days. (b) 5.3 and 68.9 days. (c) 6.4 and 57 days. (d) 8.0 and 45.6 days.

(c) 6.4 and 57 days. 800,000 / [ ($100,000 + $150,000) / 2 ]=6.4 and 364/6.4

One of the following statements about promissory notes is incorrect. The incorrect statement is: (a) The party making the promise to pay is called the maker. (b) The party to whom payment is to be made is called the payee. (c) A promissory note is not a negotiable instrument. (d) A promissory note is often required from high-risk customers.

(c) A promissory note is not a negotiable instrument.

Which of the following items in a cash drawer at November 30 is not cash? (a) Money orders. (b) Coins and currency. (c) An NSF check. (d) A customer check dated November 28.

(c) An NSF check.

Which of the following statements correctly describes the reporting of cash? (a) Cash cannot be combined with cash equivalents. (b) Restricted cash funds may be combined with cash. (c) Cash is listed first in the current assets section. (d) Restricted cash funds cannot be reported as a current asset.

(c) Cash is listed first in the current assets section.

Which of the following is not an element of the fraud triangle? (a) Rationalization. (b) Financial pressure. (c) Segregation of duties. (d) Opportunity.

(c) Segregation of duties.

Indicate which of the following statements is true. (a) Since intangible assets lack physical substance, they need be disclosed only in the notes to the financial statements. (b) Goodwill should be reported as a contra account in the stockholders' equity section. (c) Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements. (d) Intangible assets are typically combined with plant assets and natural resources, and shown in the property, plant, and equipment section.

(c) Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the notes to the financial statements.

Which of the following statements about Visa credit card sales is incorrect? (a) The credit card issuer makes the credit investigation of the customer. (b) The retailer is not involved in the collection process. (c) Two parties are involved. (d) The retailer receives cash more quickly than it would from individual customers on account.

(c) Two parties are involved.

In a bank reconciliation, deposits in transit are: (a) deducted from the book balance. (b) added to the book balance. (c) added to the bank balance. (d) deducted from the bank balance.

(c) added to the bank balance.

Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12 million. If no salvage value is expected and 2 million tons are mined and sold in the first year, the entry to record depletion will include a: (a) debit to Accumulated Depletion of $2,000,000. (b) credit to Depletion Expense of $1,200,000. (c) debit to Depletion Expense of $1,200,000. (d) credit to Accumulated Depletion of $2,000,000.

(c) debit to Depletion Expense of $1,200,000. (12 mil / 20 mil) x 2 mil

The principles of internal control do not include: (a) establishment of responsibility. (b) documentation procedures. (c) management responsibility. (d) independent internal verification.

(c) management responsibility.

The sales accounts that normally have a debit balance are: (a) Sales Discounts. (b) Sales Returns and Allowances. (c) Both (a) and (b). (d) Neither (a) nor (b).

(c) Both (a) and (b).

Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system? (a) Purchases. (b) Freight-In. (c) Cost of Goods Sold. (d) Purchase Discounts.

(c) Cost of Goods Sold.

In periods of rising prices, LIFO will produce: (a) higher net income than FIFO. (b) the same net income as FIFO. (c) lower net income than FIFO. (d) higher net income than average-cost.

(c) lower net income than FIFO.

A single-step income statement: (a) reports gross profit. (b) does not report cost of goods sold. (c) reports sales revenues and "Other revenues and gains" in the revenues section of the income statement. (d) reports operating income separately.

(c) reports sales revenues and "Other revenues and gains" in the revenues section of the income statement.

Gross profit will result if: (a) operating expenses are less than net income. (b) sales revenues are greater than operating expenses. (c) sales revenues are greater than cost of goods sold. (d) operating expenses are greater than cost of goods sold.

(c) sales revenues are greater than cost of goods sold.

To record the sale of goods for cash in a perpetual inventory system: (a) only one journal entry is necessary to record cost of goods sold and reduction of inventory. (b) only one journal entry is necessary to record the receipt of cash and the sales revenue. (c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory. (d) two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue.

(c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

Poppins Company has the following: Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 $12 Purchase, Nov. 8 5,000 $13 If Poppins has 9,000 units on hand at December 31, the cost of the ending inventory under LIFO is: a) $113,000. (b) $108,000. (c) $99,000. (d) $100,000.

(d) $100,000. [ (8000 * $11) + (1000 * $12) ]

Able Towing Company purchased a tow truck for $60,000 on January 1, 2013. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2015, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2015) and the salvage value to $2,000. What was the depreciation expense for 2015? (a) $6,000. (b) $4,800. (c) $15,000. (d) $12,100.

(d) $12,100. [ (60,000 - 12,000) /10 ] x 2 =9600; (60,000 - 9600 - 2000) /4 = 12100

Micah Bartlett Company purchased equipment on January 1, 2014, 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. The amount of accumulated depreciation at December 31, 2015, if the straight-line method of depreciation is used, is: (a) $80,000. (b) $160,000. (c) $78,000. (d) $156,000.

(d) $156,000. [ (400,000 - 10,000) / 5 ] x 2

Erin Danielle Company purchased equipment and incurred the following costs. Cash price $24,000 Sales taxes 1,200 Insurance during transit 200 Installation and testing 400 Total costs $25,800 What amount should be recorded as the cost of the equipment? (a) $24,000. (b) $25,200. (c) $25,400. (d) $25,800.

(d) $25,800.

Hughes Company has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is: (a) $5,000. (b) $55,000. (c) $60,000. (d) $65,000.

(d) $65,000. 60000+5000

An analysis and aging of the accounts receivable of Prince Company at December 31 reveals the following data. Accounts receivable $800,000 Allowance for doubtful accounts per books before adjustment 50,000 Amounts expected to become uncollectible 65,000 The cash realizable value of the accounts receivable at December 31, after adjustment, is: (a) $685,000. (b) $750,000. (c) $800,000. (d) $735,000.

(d) $735,000. 800,000 - 65,000

Hansel 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 Hansel has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is: (a) $84,000. (b) $70,000. (c) $56,000. (d) $75,250.

(d) $75,250. ( (5,000 x $8) + (15,000 x $10) + (20,000 x $12) ) / 40,000 = $10.75 ; $10.75 x 7,000= 75,250

Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system? (a) Establishment of responsibility. (b) Segregation of duties. (c) Independent internal verification. (d) All of these control activities are relevant to a computerized system.

(d) All of these control activities are relevant to a computerized system.

Ginter Co. holds Kolar Inc.'s $10,000, 120-day, 9% note. The entry made by Ginter Co. when the note is collected, assuming no interest has been previously accrued, is: (a) Cash 10,300 Notes Receivable 10,300 (b) Cash 10,000 Notes Receivable 10,000 (c) Accounts Receivable 10,300 Notes Receivable 10,000 Interest Revenue 300 (d) Cash 10,300 Notes Receivable 10,000 Interest Revenue 300

(d) Cash 10,300 Notes Receivable 10,000 Interest Revenue 300 [ $10,000 + ($10,000 x 120/360 x 9%) ]

Which of these would cause the inventory turnover to increase the most? (a) Increasing the amount of inventory on hand. (b) Keeping the amount of inventory on hand constant but increasing sales. (c) Keeping the amount of inventory on hand constant but decreasing sales. (d) Decreasing the amount of inventory on hand and increasing sales.

(d) Decreasing the amount of inventory on hand and increasing sales.

In a perpetual inventory system: (a) LIFO cost of goods sold will be the same as in a periodic inventory system. (b) average costs are a simple average of unit costs incurred. (c) a new average is computed under the average-cost method after each sale. (d) FIFO cost of goods sold will be the same as in a periodic inventory system.

(d) FIFO cost of goods sold will be the same as in a periodic inventory system.

Receivables are frequently classified as: (a) accounts receivable, company receivables, and other receivables. (b) accounts receivable, notes receivable, and employee receivables. (c) accounts receivable and general receivables. (d) accounts receivable, notes receivable, and other receivables.

(d) accounts receivable, notes receivable, and other receivables.

The multiple-step income statement for a merchandising company shows each of the following features except: (a) gross profit. (b) cost of goods sold. (c) a sales revenue section. (d) an investing activities section.

(d) an investing activities section.

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is: (a) outstanding checks. (b) deposit in transit. (c) a bank error. (d) bank service charges.

(d) bank service charges.

In exchanges of assets in which the exchange has commercial substance: (a) neither gains nor losses are recognized immediately. (b) gains, but not losses, are recognized immediately. (c) losses, but not gains, are recognized immediately. (d) both gains and losses are recognized immediately.

(d) both gains and losses are recognized immediately.

Additions to plant assets are: (a) revenue expenditures. (b) debited to the Maintenance and Repairs Expense account. (c) debited to the Purchases account. (d) capital expenditures.

(d) capital expenditures.

The use of prenumbered checks in disbursing cash is an application of the principle of: (a) establishment of responsibility. (b) segregation of duties. (c) physical controls. (d) documentation procedures.

(d) documentation procedures.

Norton Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inventory under lower-of-cost-or-market is: (a) $91,000. (b) $80,000. (c) $18,200. (d) $16,000.

(d) $16,000. (200 x $80)

Ann Torbert purchased a truck for $11,000 on January 1, 2014. The truck will have an estimated salvage value of $1,000 at the end of 5 years. Using the units-of-activity method, the balance in accumulated depreciation at December 31, 2015, can be computed by the following formula: (a) ($11,000 / total estimated activity) x Units of activity for 2015 (b) ($10,000 / total estimated activity) x Units of activity for 2015 (c) ($11,000 / total estimated activity) x Units of activity for 2014 and 2015 (d) ($10,000 / total estimated activity) x Units of activity for 2014 and 2015

(d) ($10,000 / total estimated activity) x Units of activity for 2014 and 2015

Which of the following appears on both a single-step and a multiple-step income statement? (a) Inventory. (b) Gross profit. (c) Income from operations. (d) Cost of goods sold.

(d) Cost of goods sold.

Which of the following statements is false? (a) If an intangible asset has a finite life, it should be amortized. (b) The amortization period of an intangible asset can exceed 20 years. (c) Goodwill is recorded only when a business is purchased. (d) Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.

(d) Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.

In determining cost of goods sold in a periodic system: (a) purchase discounts are deducted from net purchases. (b) freight-out is added to net purchases. (c) purchase returns and allowances are deducted from net purchases. (d) freight-in is added to net purchases.

(d) freight-in is added to net purchases.

Factors that affect the selection of an inventory costing method do not include: (a) tax effects. (b) balance sheet effects. (c) income statement effects. (d) perpetual vs. periodic inventory system.

(d) perpetual vs. periodic inventory system.