accounting exam 2

At the end of its first year of operations, a company establishes an allowance for future uncollectible accounts for $5,600. At what amount would bad debt expense be reported in the current year's income statement? Multiple Choice $800. $6,400. $4,800. $5,600.

$5,600.

Nija Incorporated reports the following aging schedule of its accounts receivable with the estimated percent uncollectible. What is the total estimate of uncollectible accounts using the aging method? Age GroupAmount ReceivableEstimated Percent Uncollectible 0 to 60 days $ 40,000 1% 61 to 90 days 15,000 20% More than 90 days past due 5,000 60% Total $ 60,000 Multiple Choice $400. $6,400. Correct $3,400. $3,000.

$6,400. Uncollectible for 0 to 60 days: (0.01 \times $40,000 = $400) Uncollectible for 61 to 90 days: (0.20 \times $15,000 = $3,000) Uncollectible for more than 90 days: (0.60 \times $5,000 = $3,000)

Service Revenue $ 100,000 Sales Discounts $ 2,000 Accounts Receivable $ 15,000 Sales Allowances $ 7,000 Cash $ 18,000 Multiple Choice $68,000. $91,000. $85,000. $98,000.

$91,000. Service Revenue - Sales discounts - Sales Allowances

On May 1, 20X1, Nees Manufacturing lends $10,000 to Roberson Supply using a 9% note due in 12 months. Nees has a December 31 year-end. Calculate the amount of interest revenue Nees will report in its 20X1 (current year) and 20X2 (next year) income statements. 20X1 = $600; 20X2 = $300. 20X1 = $300; 20X2 = $600. 20X1 = $0; 20X2 = $900. 20X1 = $900; 20X2 = $0.

20X1 = $600; 20X2 = $300. For 20X1: Interest = $10,000 × 9% × (8/12) = $600 For 20X2: Interest = $10,000 × 9% × (4/12) = $300

Suppose the balance of the allowance for uncollectible accounts at the end of the current year is $800 (credit) before any adjusting 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? Multiple Choice $5,600. $6,400. $4,800. $800.

4800 The bad debt expense is the difference between the new allowance and the beginning balance: $5,600 - $800 = $4,800

At the beginning of the year, Dawnetta Fashions has total accounts receivable of $300,000. By the end of the year, Dawnetta reports total credit sales of $1,500,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Dawnetta Fashions? Multiple Choice 1.5. 7.5. 5.0. 6.0.

6.0 Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 Average Accounts Receivable = ($300,000 + $200,000) / 2 = $250,000 Now, we can calculate the receivables turnover ratio: Receivables Turnover Ratio = $1,500,000 / $250,000 = 6.0

At the beginning of the year, Clay Ventures has total accounts receivable of $100,000. By the end of the year, Clay reports net credit sales of $900,000 and total accounts receivable of $200,000. What is the average collection period for Clay Ventures? Multiple Choice182.5 days.81.1 days.60.8 days.40.6 days.

60.8 Receivables Turnover Ratio = Total Credit Sales / Average Accounts Receivable Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 Average Accounts Receivable = ($100,000 + $200,000) / 2 = $150,000 Receivables Turnover Ratio = $900,000 / $150,000 = 6 Now, let's calculate the average collection period: Average Collection Period = 365 days / Receivables Turnover Ratio Average Collection Period = 365 days / 6 ≈ 60.8 days

Which of following best describes a merchandising company? Multiple Choice A company that purchases products that are primarily in finished form for resale to customers. A company that provides services to its customers. A company that produces products from raw materials, labor, and overhead. A company whose revenues exceed expenses.

A company that purchases products that are primarily in finished form for resale to customers.

The entry to record the estimate for uncollectible accounts includes: Multiple Choice A debit to Sales Revenue. A credit to Accounts Receivable. A debit to Allowance for Uncollectible Accounts. A debit to Bad Debt Expense.

A debit to Bad Debt Expense.

The amount of cash owed to the company by its customers from the sale of products or services on account is known as: Service Revenue. Accounts Receivable. Accounts Payable. Retained Earnings.

Accounts Receivable.

When a company provides services on account, which of the following accounts is debited? Service Revenue. Accounts Payable. Accounts Receivable. Cash.

Accounts Receivable.

If equipment is retired, which of the following accounts would be debited? Multiple Choice Accumulated depreciation. Equipment. Cash. Depreciation expense.

Accumulated depreciation.

The allowance method for uncollectible accounts Multiple Choice Is required by Generally Accepted Accounting Principles. Allows for the possibility that some accounts will not be collected. Reports net accounts receivable for the amount of cash expected to be collected. All of the answer choices are correct.

All of the answer choices are correct

Fan Company sells inventory on account. The entry or entries to record this sale using a perpetual inventory system would include a: Multiple Choice Debit to Accounts Receivable. Credit to Sales Revenue Debit to Cost of Goods Sold. All of the these are included to record the sale.

All of the these are included to record the sale.

Depreciation in accounting is the: Multiple Choice Decrease in selling price of an asset. Change in fair value of an asset. Decrease in fair value of an asset. Allocation of an asset's cost to an expense over time.

Allocation of an asset's cost to an expense over time.

Which of the following expenditures should be recorded as an asset? Multiple Choice Maintenance that maintain current benefits. An addition which increases future benefits. Unsuccessful legal defense of an intangible asset. Repairs that maintain current benefits.

An addition which increases future benefits.

The book value of an asset is equal to the Multiple Choice Asset's cost less accumulated depreciation. Replacement cost. Asset's fair value less its historical cost. Historical cost plus accumulated depreciation.

Asset's cost less accumulated depreciation.

Accounts receivable are best described as Amounts that have previously been received from customers. Amounts that have previously been paid to suppliers. Assets of the company representing the amount owed by customers. Liabilities of the company that represent the amount owed to suppliers.

Assets of the company representing the amount owed by customers.

Which of following companies record revenues when selling inventory? Multiple Choice Merchandising companies. Both manufacturing and merchandising companies. Service companies. Manufacturing companies.

Both manufacturing and merchandising companies.

A sales discount is recorded by the seller as a(n): Multiple Choice Expense. Contra revenue. Liability. Contra asset.

Contra revenue.

A long-term asset is recorded at the: Multiple Choice Cost of the asset less all costs necessary to the asset ready for use. Cost of the asset. Additional costs to get the asset ready for use. Cost of the asset plus all costs necessary to the asset ready for use.

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

Using a periodic inventory system, recording the sale of inventory on account would include: Multiple Choice Debit Inventory; credit Sales Revenue. Debit Accounts Receivable; credit Sales Revenue. Debit Inventory; credit Accounts Receivable. Debit Sales Revenue; credit Accounts Receivable.

Debit Accounts Receivable; credit Sales Revenue.

Using a perpetual inventory system, the purchase of inventory on account would be recorded as Multiple Choice Debit Cost of Goods Sold; credit Inventory. Debit Purchases; credit Accounts Payable. Debit Inventory; credit Sales Revenue. Debit Inventory; credit Accounts Payable.

Debit Inventory; credit Accounts Payable.

Using a periodic inventory system, the purchase of inventory on account would be recorded as Multiple Choice Debit Inventory; credit Sales Revenue. Debit Cost of Goods Sold; credit Inventory. Debit Purchases; credit Accounts Payable. Debit Inventory; credit Accounts Payable.

Debit Purchases; credit Accounts Payable.

The Cheese Factory incurred the following costs related to acquiring a new piece of equipment: Purchase price$50,000 Sales tax (8%)4,000 Shipping3,000 Installation2,000 Depreciation during the first month1,000 Total costs$60,000 What is the total capitalized cost of the equipment?

Depreciation is not included in the capitalized cost as it is an expense that is recognized over the useful life of the asset after it has been put into use $50,000+$4,000+$3,000+$2,000=$59,000

Under the allowance method for uncollectible accounts, the balance of Allowance for Uncollectible Accounts increases when: Multiple Choice Future bad debts are estimated. Never. Bad debts actually occur. Cash is received from customers.

Future bad debts are estimated.

Operating income is defined as: Multiple Choice Gross Profit minus Operating Expenses. Sales Revenue minus Cost of Goods Sold. Income before Income Tax Expense. All revenues minus all expenses.

Gross Profit minus Operating Expenses.

Using a perpetual inventory system, the sale of inventory on account would be recorded as Debit Cost of Goods Sold; credit Inventory. Debit Inventory; credit Sales Revenue. Debit Accounts Receivable; credit Sales Revenue. Multiple Choice III only I and III II only I only

I and III

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising? Multiple Choice Last-in, first-out (LIFO). Average cost. First-in, first-out (FIFO). Specific identification.

Last-in, first-out (LIFO).

Using the allowance method, the effect on the current year's financial statements of writing off an account receivable generally is to Decrease total assets. Decrease net income. Multiple Choice I and II Neither I nor II II only I only

Neither I nor II

Which of the following levels of profitability in a multiple-step income statement best represents profitability from primary activities of the company? Multiple Choice Operating income. Gross profit. Net income. Income before income taxes.

Operating income.

Which of the following expenditures should be recorded as an expense? Multiple Choice An improvement. Successful legal defense of an intangible asset. Ordinary repairs and maintenance. An addition which increases future benefits.

Ordinary repairs and maintenance.

An exclusive 20-year right to manufacture a product or to use a process is a: Multiple Choice Copyright. Trademark. Franchise. Patent.

Patent

Which of the following transactions would result in an account receivable? Receiving a loan from the bank. Paying for supplies previously purchased on account. Purchasing supplies on account. Providing services to customers on account.

Providing services to customers on account.

Which of the following is not reported as an intangible asset in the balance sheet? Multiple Choice Goodwill. Patents. Research and development. Trademarks.

Research and development.

The company's profitability on each dollar invested in assets is represented by which of the following ratios: Multiple Choice Asset turnover. Profit margin. Return on assets. Return on equity.

Return on assets.

Which of the following refers to the seller reducing the customer's balance owed because of some deficiency in the company's product or service? Sales Discount. Trade Discount. Allowance for Uncollectible Accounts. Sales Allowance.

Sales Allowance.

Gross profit is defined as: Multiple Choice All revenues minus all expenses. Sales Revenue minus Operating Expenses. Income before Income Tax Expense. Sales Revenue minus Cost of Goods Sold.

Sales Revenue minus Cost of Goods Sold.

A company's gross profit ratio measures: Multiple Choice The number of times the company sells its average inventory balance during the year. The amount by which the sale of inventory exceeds its cost per dollar of sales. The number of days the average inventory is held. The average amount of sales revenue per unit of inventory sold during the year.

The amount by which the sale of inventory exceeds its cost per dollar of sales.

The balance in the Accumulated Depreciation account represents Multiple Choice A cash fund to be used to replace plant assets. A contra expense account. The amount charged to depreciation expense since the acquisition of the plant asset. The amount charged to expense in the current period.

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

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record Multiple Choice A gain of $10,000. No gain or loss. A loss of $10,000. A loss of $40,000.

The book value of the equipment is the original cost minus the accumulated depreciation. In this case, the book value is $95,000 - $30,000 = $65,000. If the equipment is sold for $55,000, which is less than the book value, the company would record a loss. The loss is the difference between the book value and the sale price, which is $65,000 - $55,000 = $10,000.

Tasty Inn and Out incurred the following costs related to its purchase of equipment. Purchase price $10,000 Sales tax (7%) 700 Annual property insurance 500 Shipping 200 Initial safety testing 1,000 Total costs $12,400 What is the total capitalized cost of the equipment?

The capitalized cost of an asset includes the purchase price and all other costs necessary to prepare the asset for its intended use. In this case, the capitalized cost of the equipment would include the purchase price, sales tax, shipping, and initial safety testing. So, the total capitalized cost of the equipment is: $10,000+$700+$200+$1,000=$11,900

Which of the following statements is true regarding the amortization of intangible assets? Multiple Choice Intangible assets with a limited useful life are not amortized. The expected residual value of most intangible assets is zero. The service life of an intangible asset is always equal to its legal life. In recording amortization, Accumulated Amortization is always credited.

The expected residual value of most intangible assets is zero.

Bryer Company purchases all of the assets and liabilities of Stellar Company for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase? Multiple Choice $700,000. $0. $500,000. $800,000.

The fair value of the net assets is the difference between the fair value of the assets and the fair value of the liabilities, which is $2,000,000 - $1,200,000 = $800,000. Therefore, the goodwill associated with the purchase is the purchase price minus the fair value of the net assets, which is $1,500,000 - $800,000 = $700,000. So, the correct answer is $700,000.

A company's inventory turnover ratio measures: Multiple Choice The average cost at which inventory was purchased during the year. The quantity of inventory remaining at the end of the year. The profitability on sales of inventory during the year. The number of times the company sells its average inventory balance during the year.

The number of times the company sells its average inventory balance during the year.

The amount of the gain on the sale of equipment equals: Multiple Choice The selling price minus the fair value of the equipment. The selling price minus accumulated depreciation of the equipment. The selling price minus the book value of the equipment. The selling price minus the original cost of the equipment.

The selling price minus the book value of the equipment.

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)? (Do not round intermediate calculations.

The straight-line method of amortization distributes the cost of the franchise evenly over its useful life. So, the annual amortization expense would be $2,000,000 / 10 = $200,000. However, the franchise was purchased on October 1, so it was only in use for 3 months (October, November, December) in the first year. Therefore, the amortization expense for the first year would be $200,000 * (3/12) = $50,000

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. I n 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-based method?

The total depreciable amount is the cost of the equipment minus the residual value, which is $50,000 - $10,000 = $40,000. his amount is then divided by the total expected usage of the equipment, which gives us the depreciation rate per hour: $40,000 / 15,000 hours = $2.67 per hour. Then, we multiply this rate by the actual usage of the equipment in the first two years: $2.67 per hour * (2,700 hours + 3,300 hours) = $16,000.

If a company uses the allowance method of accounting for uncollectible accounts and collects cash on an account receivable previously written off: Multiple Choice There is no change in total assets. Total assets decrease. Total assets increase. The change in total assets depends on the relationship between the allowance account balance and the amount of the collection.

There is no change in total assets.

Suppose Ajax Corporation overstates its ending inventory amount. What effect will this have on the reported amount of cost of goods sold in the year of the error? Multiple Choice Understate cost of goods sold. Not possible to determine with information given. Overstate cost of goods sold. Have no effect on cost of goods sold.

Understate cost of goods sold.

The asset's cost less accumulated depreciation is called: Multiple Choice Replacement cost. Residual value. Book value. Net fair value.

book value

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? $100,000. $60,000. $82,000. $80,000.

the original cost of the equipment is $100,000 and the annual depreciation is $20,000. After two years, the accumulated depreciation would be $20,000 * 2 = $40,000. the book value of the equipment at the end of the second year is the original cost minus the accumulated depreciation, which is $100,000 - $40,000 = $60,000.