Accounting Exam 2

Phantom borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Phantom report interest expense for the year ended December 31, 2022?

$1,500,000

Using a perpetual system, the sale of inventory on account would be recorded as? More than one may be correct.

1)Debit Accounts Receivable; credit Sales Revenue 2)Debit Cost of Goods Sold; credit Inventory

At the end of its first year of operations, a company estimates future uncollectible accounts to be $4,500. The company's year end adjusting entry would include..

A credit to Allowance for Uncollectible Accounts for $4,500.

The entry to record the estimate for uncollectible accounts includes:

A debit to Bad Debt Expense.

Using a periodic system, the sale of inventory on account would be recorded as? More than one may be correct.

Debit Accounts Receivable; credit Sales Revenue

Using a periodic inventory system, recording the sale of inventory on account would include:

Debit Accounts Receivable; credit Sales Revenue.

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25?

Debit Sales Discount for $10.

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1:

Debit interest expense and credit interest payable, $4,000.

At the beginning of the year, Bennett Supply has inventory of $3,500. During the year, the company purchases an additional $12,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $4,000. What amount will Bennett report for cost of goods sold?

$11,500

On March 17, Fox Lumber sells materials to WhitneyConstruction for $12,000, terms 2/10 n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17?

$12,000

Equipment was purchased for $50,000. The equipment is expected to be used 15,000 hours over its useful life and then have a residual value of $10,000. In the first two years of operation, the equipment was used 2, 700 hours and 3,300 hours respectively. What is the equipment's accumulated depreciation at the end of the second year using the activity method of depreciation?

$16,000

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of:

$2,000.

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much is the estimated warranty liability reported in the balance sheet this year?

$25,000.

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much warranty expense should the company record this year?

$30,000

Suppose the balance of the allowance for uncollectible accounts at the end of the current year is $800 (credit) before any adjustment entry. The company estimates future uncollectible accounts to be $5,600. At what amount would bad debt expense be reported in the current year's income statement?

$4,800.

Farber sells toaster ovens with a one year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Farber report warranty liability at the end of the current year?

$400

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

$450,000

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?

$60,000

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six year and the residual value to $8,000. What is depreciation expense in the third year?

$8,000

Which of the following expenditures should be recorded as an expense? More than one may be correct.

1.)Oil change on a delivery truck. 2.)Tune up on a delivery truck.

At the end of its first year of operations, a company estimates future uncollectible accounts to be $4,500. The company's year-end adjusting entry would include

A credit to Allowance for Uncollectible Accounts for $4,500.

At the end of a reporting period, Gaston Corporation determines that its ending inventory has a cost of $6,500 and a net realizable value of $5,800. The adjustment to write down inventory to net realizable value would include:

A credit to inventory for $700.

Using the allowance method, the entry to record a write-off of accounts receivable will include

A debit to Allowance for Uncollectible Accounts.

Using the allowance method, the entry to record a write-off of accounts receivable will include..

A debit to Allowance for Uncollectible Accounts.

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:

A gain of $5,000.

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record:

A loss of $10,000

Equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $30,000, the company should record:

A loss of $10,000.

The direct write-off method is generally not permitted for financial reporting purposes because

Accounts receivable are not stated for the amount of cash expected to be collected.

Fan Company sells inventory on account. The entry or entries to record this sale using a perpetual inventory system would include a:

All of the these are included to record the sale. Debit to Accounts Receivable. Debit to Cost of Goods Sold. Credit to Sales Revenue

Which of the following expenditures should be recorded as an asset?

An addition which increases future benefit.

Which of the following is not a current liability?

An unused line of credit.

Digital Company filed suit against Western Corporation, seeking damanges for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation?

As a liability for $75,000 with disclosure of the range.

A long-term asset is recorded at the:

Cost of the asset plus all costs necessary to get the asset ready for its intended use.

Which of the following correctly describes the nature of depreciation?

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be:

Disclosed but not reported as a liability.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be

Disclosed but not reported as a liability.

Which of the following depreciation methods typically results in the highest depreciation expense during the first year of an asset's life?

Double declining balance method.

Which inventory cost flow assumption generally results in the lowest reported amount for cost of goods sold when inventory costs are rising?

First in, First out (FIFO)

Which of the following levels of profitability in a multiple-step income statement represents revenues from the sale of inventory less the cost of that inventory?

Gross profit.

Under the direct write-off method, uncollectible accounts are recorded:

In the period the account is determined actually uncollectible.

Which of the following statements is true regarding the amortization of intangible assets?

Intangible assets with a unlimited useful life are not amortized.

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

Last-in, first-out (LIFO).

Receivables Turnover Ratio

Net Credit Sales / Average Accounts Receivable

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of office supplies for cash affect each ratio?

No change to the current ratio and decrease the acid-test ratio.

Using the allowance method, the effect on the current year's financial statements of writing off an account receivable generally is to...

No impact on Total Assets or Net Income

Which of the following transactions would result in an account receivable?

Providing services to customers on account.

The company's profitability on each dollar invested in assets is represented by which of the following ratios:

Return on Assets

A multiple-step income statement provides the advantage of:

Separating revenues and expenses based on their different types of activities.

The balance in the Accumulated Depreciation account represents

The amount charged to depreciation expense since the acquisition of the plant asset.

Which of the following represents the balance of Cost of Goods Sold at the end of the year?

The cost of inventory sold during the year.

Interest expense is recorded in the period in which:

The interest is incurred.

Which of the following statements is false regarding the amortization of intangible assets?

The service life of an intangible asset is always equal to its legal life.

If a company uses the allowance method of accounting for uncollectible accounts and collects cash on an account receivable previously written off:

There is no change in total assets.

Using the allowance method, the effect on the current year's financial statements of writing off an account receivable generally is to

a. Decrease total assets. b. Decrease net income. Neither a. nor b.

The book value of an asset is equal to the

asset's cost less accumulated depreciation

We record interest expense on a note payable in the period in which

interest is incurred.

Gross profit is defined as:

sales revenue minus cost of goods sold