Accounting Exam 2

A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks. True False

False

The factor which determines whether or not goods should be included in a physical count of inventory is management's judgment. physical possession. legal title. whether or not the purchase price has been paid.

legal title.

Carey Company buys land for $50000 on 12/31/17. As of 3/31/18, the land has appreciated in value to $50700. On 12/31/18, the land has an appraised value of $51800. By what amount should the Land account be increased in 2018? $0 $1800 $1100 $700

$0

A company purchased factory equipment on April 1, 2018 for $160000. It is estimated that the equipment will have a $20000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2018 is $16000. $14000. $10500. $12000.

$10500. Solution: [($160000 - $20000) ÷ 10] × 9/12 = $10500.[((Cost - Salvage value) ÷ Useful life) x Fraction of a year = Depreciation expense]

Jefferson Company purchased a piece of equipment on January 1, 2014. The equipment cost $60,000 and had an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2015 under the double-declining-balance method? $11,250. $6,500. $15,000. $6,562.

$11,250. Solution: 25% or (1/8 x 2). For 2014, annual depreciation expense is $15,000 = $60,000 (book value) x 25%; for 2015, annual depreciation expense is $11,250 = [($60,000 - $15,000) x 25%

Equipment was purchased for $60,000. 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. Depreciation expense each year using the straight-line method will be $14,160. $9,600. $11,760. $9,840.

$11,760 Solution: $60,000 + $2,800 + $8,000 - $12,000 = $58,800. $58,800/5 years = $11,760 annual depreciation using the straight-line method.

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 $170,000. $150,000. $35,000. $185,000

$35,000

Partridge Bookstore had 500 units on hand at January 1, costing $9 each. Purchases and sales during the month of January were as follows: Date PurchasesSalesJan. 14 375 @ $1417 250 @ $10 25 250 @ $11 29 260 @ $16 Partridge does not maintain perpetual inventory records. According to a physical count, 365 units were on hand at January 31.The cost of the inventory at January 31, under the FIFO method is: $3650. $3285. $4015. $3900.

$3900. Solution: (250 × $11) + [(365 - 250) × $10] = $3900.[(Total of december 25 purchase + ((Number of units in ending inventory - Number of units in january 25 purchase) x January 10 unit purchase price) = Cost of ending inventory]

A plant asset cost $288000 and is estimated to have a $36000 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 $27570. $40500. $24120. $35436.

$40500. Solution: ($288000 - 0) × .25 = $72000; ($288000 - $72000) × .25 = $54000; ($288000 - $126000) × .25 = $40500.[((Cost - Accumulated depreciation) x Double-declining-balance rate = 1st year depreciation expense); ((Cost - Accumulated depreciation) x Double-declining-balance rate = 2nd year depreciation expense); ((Cost - Accumulated depreciation) x Double-declining-balance rate = 2nd year depreciation expense)]

Nicholson Company purchased equipment on January 1, 2016, for $80000 with an estimated salvage value of $20000 and estimated useful life of 8 years. On January 1, 2018, Nicholson decided the equipment will last 12 years from the date of purchase. The salvage value is still estimated at $20000. Using the straight-line method the new annual depreciation will be: $6000. $4500. $5000. $6667.

$4500 Solution: ($80000 - $20000) × 2/8 = $15000; ($80000 - $15000 - $20000)/(12 - 2) = $4500.[((Cost - Salvage value) x Fraction of useful life used = Accumulated depreciation); ((Cost - Accumulated depreciation - Salvage value) ÷ Remaining useful life = Revised annual depreciation)]

On October 1, 2018, Holt Company places a new asset into service. The cost of the asset is $120000 with an estimated 5-year life and $30000 salvage value at the end of its useful life. What is the depreciation expense for 2018 if Holt Company uses the straight-line method of depreciation? $6000 $4500 $24000 $12000

$4500 Solution: [($120000 - $30000) ÷ 5] × 3/12 = $4500.[((Cost - Salvage value) ÷ Useful life) x Fraction of a year used = Depreciation expense]

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 the 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 $60,000. $65,000. $5,000. $55,000.

$55,000. 60,000 + 5,000 (Uncollectible Amount + Allowance for Doubtful Accounts)

Voight Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.), respectively. An aging of accounts receivable indicated that $128,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is $198,000. $58,000. $70,000. $128,000.

$58,000. Solution: 128,000-70,000 (Uncollectible Amount - Allowance for Doubtful Accounts)

A company just starting business made the following four inventory purchases in June. DateNumber of units purchasedT otal cost June 1150 units$ 390 June 10200 units 585 June 15200 units 630 June 28150 units 510 $2115 A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is $683. $825. $1290. $1432.

$683. Solution: $390 + [($585 ÷ 200) × 100] = $683.[Cost of june 1 purchase + ((Cost of june 10 purchase ÷ Number of units in june 10 purchase) x (Ending inventory units - June 1 units)) = Ending inventory cost]

Presto Company purchased equipment and these costs were incurred: Cash price $65000 Sales taxes 3600 Insurance during transit 640 Installation and testing 860 Total costs $70100 Presto will record the acquisition cost of the equipment as: $68600. $69240. $70100. $65000.

$70100

Your answer is correct. Hull Company acquires land for $86000 cash. Additional costs are as follows:Removal of shed$ 300Filling and grading1500Salvage value of lumber of shed120Broker commission1130Paving of parking lot10000Closing costs560Hull will record the acquisition cost of the land as $89610. $89370. $87690. $96000.

$89370 Solution: $86000 + $300 + $1500 - $120 + $1130 + $560 = $89370.(Cash purchased + Removal of shed + Filling and grading - Salvage value of lumber of shed + Broker commission + Closing costs = Cost of land) (Always SUBTRACT salvage value)

A truck was purchased for $180000 and it was estimated to have a $36000 salvage value at the end of its useful life. Monthly depreciation expense of $3000 was recorded using the straight-line method. The annual depreciation rate is: 2%. 8%. 25%. 20%.

25%. Solution: 3000 x 12 / 180000-36000 = .25

If a company has net sales of $700000 and cost of goods sold of $455000, the gross profit percentage is 35%. 65%. 100%. 25%.

35%. Solution: 700,000-455,000/700,000

A company purchased office equipment for $40000 and estimated a salvage value of $8000 at the end of its 5-year useful life. The constant percentage to be applied against book value each year if the double-declining-balance method is used is 20%. 5%. 25%. 40%.

40%. Solution: 1/5 x 2= .40 (1/useful life x double balance

On March 1, 2019, Concord Corporation acquired real estate on which it planned to construct a small office building. The company paid $85,000 in cash. An old warehouse on the property was razed at a cost of $8,800; the salvaged materials were sold for $1,600. Additional expenditures before construction began included $1,800 attorney's fee for work concerning the land purchase, $5,200 real estate broker's fee, $7,800 architect's fee, and $14,900 to put in driveways and a parking lot.

99200

The bank charged to the company account a check written by another company.

Add to the balance per bank

What steps can a manufacturing company take to avoid shortage of parts if it follows just in time inventory practices? Reduce dependence on one supplier. Have contingency plans for emergency situations. All of these. Spread its plant apart to avoid transport issues.

All of these.

Under the allowance method, estimated uncollectible receivables are credited to Bad Debt Expense. Allowance for Doubtful Accounts. Accounts Receivable. Uncollectible Accounts Expense.

Allowance for Doubtful Accounts.

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: Cash 10,300 Notes Receivable 10,300 Cash 10,300 Notes Receivable 10,000 Interest Revenue 300 Cash 10,000 Notes Receivable 10,000 Accounts Receivable 10,300 Notes Receivable 10,000 Interest Revenue 300

Cash 10,300 Notes Receivable 10,000 Interest Revenue 300

The more inventory a company has in stock, the greater the company's profit. True False

False

Which of the following expressions is incorrect? Sales revenue - cost of goods sold - operating expenses = net income Net income + operating expenses = gross profit Operating expenses - cost of goods sold = gross profit Gross profit - operating expenses = net income

Operating expenses - cost of goods sold = gross profit

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

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

A factor purchases receivables from businesses for a fee and collects the remittances directly from customers. True False

True

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts. True False

True

The major difference between the balance sheets of a service company and a merchandising company is inventory. True False

True

"Cash equivalents are the same as cash." Do you agree?

Yes

The controller of Diaz Co. believes that the yearly allowance for doubtful accounts for Diaz Co. should be 2% of net credit sales. The president of Diaz Co., nervous that the stockholders might expect the company to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 4%. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Diaz Co. b)Does the president's request pose an ethical dilemma for the controller?

Yes

Allowance for Doubtful Accounts is an operating expense. closed at the end of the fiscal year. a contra asset account. added to Accounts Receivable on the balance sheet.

a contra asset account.

Cheyenne Corp. sells equipment on September 30, 2019, for $20,600 cash. The equipment originally cost $73,600 and as of January 1, 2019, had accumulated depreciation of $42,300. Depreciation for the first 9 months of 2019 is $5,250.

a.) Depreciation Expense 5250 (Debit) Accumulated Depreciation of Equipment 5250 (Credit) b.) Accumulated Depreciation of Equipment 47550 (Debit) Cash 20,600 (Debit) Loss on Disposal of Plant Assets 5450 (Debit) Equipment 73,600 (Credit)

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is deposits in transit. a bank error. bank service charges. outstanding checks.

bank service charges.

The sale of receivables by a business: is an indication that the business is owned by a factor. can be a quick way to generate cash for operating needs. is generally the major revenue item on its income statement. indicates that the business is in financial difficulty.

can be a quick way to generate cash for operating needs.

A truck which had an original cost of $72,000 and accumulated depreciation of $11,000 was sold for $57,000. The journal entry to record the sale will include a: debit to Loss on Disposal for $15,000. credit to Equipment for $57,000. debit to Loss on Disposal for $4,000. credit to Loss on Disposal for $4,000.

debit to Loss on Disposal for $4,000

The entry to record depletion expense: decreases stockholders' equity and assets. decreases net income and increases liabilities. decreases assets and liabilities. decreases assets and increases liabilities.

decreases stockholders' equity and assets

The direct write-off method of accounting for bad debts uses a contra-asset account. uses an allowance account. does not require estimates of bad debt losses. is the preferred method under generally accepted accounting principles.

does not require estimates of bad debt losses.

If a company fails to record estimated bad debt expense, revenues are understated. receivables are understated. expenses are understated. cash realizable value is understated.

expenses are understated.

In a manufacturing business, inventory that is ready for sale is called finished goods inventory. store supplies inventory. raw materials inventory. work in process inventory.

finished goods inventory.

The operating cycle of a merchandiser is generally longer than it is for a service company. generally shorter than it is for a service company. always one year in length. about the same as for a service company.

generally longer than it is for a service company.

Interest is usually associated with notes receivable. doubtful accounts. bad debts. accounts receivable.

notes receivable.

A seller may encourage early payment by reducing the balance due. offering a discount for early payment. offering free merchandise. all of these answer choices are correct

offering a discount for early payment.

Gross profit is net income less cost of goods sold. sales revenue less cost of goods sold. sales revenue less operating expenses. net income less operating expenses.

sales revenue less cost of goods sold.

The direct write-off method: debits Allowance for Doubtful Accounts to record write-offs of accounts. shows only actual losses from uncollectible accounts. estimates bad debt losses. is acceptable for financial reporting purposes.

shows only actual losses from uncollectible accounts.

A bank statement: is a credit reference letter written by the depositor's bank. is a bill from the bank for services rendered. shows the activity which increased or decreased the depositor's account balance. lets a depositor know the financial position of the bank as of a certain date.

shows the activity which increased or decreased the depositor's account balance.

All of the following would be classified as inventory except: work in process. finished goods. raw materials. supplies.

supplies.

Companies follow just in time inventory management policies: as it allows the company the flexibility of manufacturing and storing finished goods far in advance of sales. because it is the best way to manage inventories in all situations. because it frees up the company's production systems from being closely tied into its vendors' information systems. to minimize the cost of carrying inventory and prevent capital from being locked up in non-productive uses.

to minimize the cost of carrying inventory and prevent capital from being locked up in non-productive uses.

Inventory items on an assembly line in various stages of production are classified as merchandise inventory. work in process. raw materials. finished goods.

work in process.