Final Exam

What is the present value of $28,000 to be received at the end of each 6 periods, discounted at 9%?

$125,605.72

Mayer Company signed a lease for an office building for a period of 12 years. Under the lease agreement, a security deposit of $9,200 is made. The deposit will be returned at the expiration of the lease with interest compounded at 4% per year. What amount will Mayer receive at the time the lease expires?

$14,729.49

Terry and Jessica Benedict invested $6,000 in a savings account paying 4% annual interest when their daughter, Kristi, was born. They also deposited $1,000 on each of her birthdays until she was 18 (including her 18th birthday). How much was in the savings account on her 18th birthday (after the last deposit)?

$37,800.31

Collection of a $600 accounts receivable a. increases an asset $600; decreases an asset $600 b. increases an asset $600; decreases a liability $600 c. decreases liability $600; increases stockholders' equity $600 d. decreases an asset $600; decreases a liability $600

a. increases an asset $600; decreases an asset $600

Accrued expenses are: a. incurred but not yet paid or recorded b. paid and recorded in an asset account after they are used or consumed c. paid and recorded in an asset account before they are used or consumed d. incurred and already paid or recorded

a. incurred but not yet paid of recorded

Howard Company had a transaction that caused a $5,000 increase in both assets and total liabilities. This transaction could have been a(n) a. Purchase of office equipment for $12,000, paying $7,000 in cash and issuing a note payable for the balance b. Investment of $5,000 cash in the business by the stockholders c. Purchase of office equipment for $5,000 cash d. Repayment of a $5,000 bank loan

a. Purchase of office equipment for $12,000, paying $7,000 in cash and issuing a note payable for the balance

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

Executive, Inc has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that would a. Increase wages expense $8,000 b.Decrease wages payable $2,000 c. Decrease cash $8,000 d. Increase wages payable $2,000

a. Increase wages expense $8,000

At December 31, 2017 Keen Company had retained earnings of $1,292,000. During 2017 they issued stock for $49,000, and paid dividends of $17,000. Net income for 2017 was $201,000. The retained earnings balance at the beginning of 2017 was a. $1,476,000 b. $1,108,000 c. $1,157,000 d. $1,427,000

b. $1,108,000

The interest on a $10,000, 6%, 60-day note receivable is a. $680 b. $100 c. $200 d. $300

b. $100

The amount you must deposit now in your savings account paying 6% interest, in order to accumulate $20,000 for a down payment 5 years from now on a new Ferrari 458 is a. $4,000 b. $14,945.20 c. $19,924.40 d. $14,000

b. $14,945.20

In the first month of operations, the total of the debit entries to the cash account amounted to $1,200 and the total of the credit entries to the cash account amounted to $900. The cash account has a a. $900 credit balance b. $300 debit balance c. $1,200 debit balance d. $300 credit balance

b. $300 debit balance

Henson Company began the year with retained earnings of $330,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year? a. $490,000 b. $410,000 c. $790,000 d. $450,000

b. $410,000

Equipment with a cost of $225,000 has an estimated salvage value of $15,000 and an estimated life of 4 years. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year? a. $56,250 b. $52,500 c. $56,700 d. $54,375

b. $52,500

At December 1, 2017, Oreo Company's accounts receivable balance was $5,600. During December, Oreo had credit sales of $15,000 and collected accounts receivable of $12,000. At December 31, 2017, the accounts receivable balance is a. $5,600 debit b. $8,600 debit c. $20,600 debit d. $8,600 credit

b. $8,600 debit

When a company purchases treasury stock, which of the following statements is true? a. Treasury stock is considered to be an asset because cash is paid for the stock. b. The cost of the treasury stock reduces stockholders' equity. c. Dividends continue to be paid on the treasury stock because it is still issued. d. Since treasury stock is held by the original issuer, it is no longer considered to be issued.

b. The cost of the treasury stock reduces stockholders' equity.

If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at a. a premium b. a discount c. par d. either a discount or premium

b. a discount

If total liabilities decreased by $4,000, then a. stockholders' equity must have decreased by $4,000 b. assets must have decreased by $4,000, or stockholders' equity must have increased by $4,000 c. assets and stockholders' equity each increased by $2,000 d. assets must have increased by $4,000

b. assets must have decreased by $4,000 or stockholders' equity must have increased by $4,000

Accrued revenues are: a. received and recorded as liabilities before they are recognized b. recognized and recorded as liabilities before they are received c. recognized but not yet received or recorded d. recognized and already received and recorded

c. recognized but not yet received or recorded

On July 1, 2016, Linden Company purchased 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 2016 would be a. $28,000 b. $13,125 c. $25,900 d. $14,000

d. $14,000

If $30,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years? a. $25,644 b. $36,000 c. $35,096 d. $36,500

d. $36,500

Kathy's Blooms purchased a delivery van with a $50,000 list price. The company was given a $5,000 cash discount by the dealer, and paid $2,500 sales tax. Annual insurance on the van is $1,250. As a result of the purchase, by how much will Kathy's Blooms increase its van account? a. $50,000 b. $45,000 c. $48,750 d. $47,500

d. $47,500

Under the allowance method, the uncollectible accounts for the year is estimated to be $40,000. If the balance for the allowance for doubtful accounts is a $9,000 debit before adjustment, what is the amount of bad debt expense for the period? a. $9,000 b. $31,000 c. $40,000 d. $49,000

d. $49,000

Wesley Hospital installs a new parking lot. The paving cost $45,000 and the lights to illuminate the new parking area cost $18,000. Which of the following statements is true with respect to these additions? a. $45,000 should be debited to the land account b. $18,000 should be debited to land improvements c. $63,000 should be debited to the land account d. $63,000 should be debited to land improvements

d. $63,000 should be debited to land improvements

Which of the following items is not a cash equivalent? a. Commercial paper b. A three-year treasury note purchased two months before its maturity c. Money market funds d. A corporate bond investment which has 5 years until maturity when they are purchased

d. A corporate bond investment which has 5 years until maturity when they are purchased

Which of the following is not a current liability? a. Salaries and wages payable b. Accounts payable c. Taxes payable d. Bonds payable

d. Bonds payable

Comstock Company provided consulting services and billed the client $2,500. As a result of this event a. assets remained unchanged b. assets increased by $2,500 c. equity increased by $2,500 d. Both assets and equity increased by $2,500

d. Both assets and equity increased by $2,500

The closing entry process consists of closing: a. all asset and liability accounts b. out the retained earnings account c. all permanent accounts d. all temporary accounts

d. all temporary accounts

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

In a classified balance sheet, assets are usually classified as a. current assets; long-term assets; property, plant, and equipment; and intangible assets b. current assets; long-term investments; property, plant, and equipment; and common stocks c. current assets; long-term investments; tangible assets; and intangible assets d. current assets; long-term investments; property, plant, and equipment; and intangible assets

d. current assets; long-term investments; property, plant, and equipment; and intangible assets

Unearned revenue is classified as a(n): a. asset account b. revenue account c. contra revenue account d. liability

d. liability

The contractual interest rate on a bond is often referred to as the a. callable rate b. the maturity rate c. market rate d. stated rate

d. stated rate

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be: a. debit unearned service revenue and credit cash b. debit unearned service revenue and credit service revenue c. debit unearned service revenue and credit prepaid expense d. debit unearned service revenue and credit accounts receivable

b. debit unearned service revenue and credit service revenue

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

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that a. bond interest is deductible for tax purposes b. interest must be paid on a periodic basis regardless of earnings c. income to stockholders may increase as a result of trading on the equity d. the bondholders do not have voting rights

b. interest must be paid on a periodic basis regardless of earnings

The ability of a business to pay obligations that are expected to become due within the next year or operating cycle is a. leverage b. liquidity c. profitability d. wealth

b. liquidity

On July 1, 2016, Fleming Company sells machinery for $120,000. The machinery originally cost $300,000, had an estimated 5-year life and an expected salvage value of $50,000. The accumulated depreciation account had a balance of $175,000 on January 1, 2016, using the straight-line method. The gain or loss on disposal is a. $20,000 gain b. $5,000 loss c. $10,000 loss d. $5,000 gain

a. $20,000 gain

Equipment was purchased for $68,000 on January 1, 2015. 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, 2016, if the straight-line method of depreciate is used? a. $26,720 b. $13,360 c. $11,440 d. $22,880

a. $26,720

On January 15, 2016, the accounts receivable balance was $7,000 and the balance in the allowance for doubtful accounts was $700. On January 16, 2016, a $200 uncollectible account was written-off. The net realizable value of accounts receivable on January 16 immediately after the write-off is: a. $6,300 b. $6,800 c. $6,500 d. $7,900

a. $6,300

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

Deferred expenses are: a. paid and recorded in an asset account before they are used or consumed b. paid and recorded in an asset account after they are used or consumed c. incurred but not yet paid or recorded d. incurred and already paid or recorded

a. paid and recorded in an asset account before they are used or consumed

Deferred revenues are: a. received and recorded as liabilities before they are recognized b. recognized and recorded as liabilities before they are received c. recognized but not yet received or recorded d. recognized and already received and recorded

a. received and recorded as liabilities before they are recognized

Using accrual accounting, expenses are recorded and reported only: a. when they are incurred whether or not cash is paid b. when they are incurred and paid at the same time c. if they are paid before they are incurred d. if they are paid after they are incurred

a. when they are incurred whether or not cash is paid

Gross profit equals the difference between net sales and a. Operating expenses b. Cost of goods sold c. Net income d. Cost of goods sold plus operating expenses

b. Cost of goods sold

If a company fails to adjust for accrued expenses, what effect will this have on that month's financial statements? a. Failure to make an adjustment does not affect the financial statements. b. Expenses will be understated and net income and stockholders' equity will be overstated. c. Assets will be overstated and net income and stockholders' equity will be understated. d. Assets will be overstated and net income and stockholders' equity will be overstated.

b. Expenses will be understated and net income and stockholders' equity will be overstated.

If the shipping terms indicate that the buyers owns the goods upon shipment from the seller, this arrangement is known as a. Goods in transit b. FOB shipping point c. FOB destination d. FOB carrier

b. FOB shipping point

Which financial statement is prepared first? a. Balance sheet b. Income statement c. Retained earnings statement d. Statement of cash flows

b. Income statement

If cost of goods sold is $12,000 and the ending inventory balance is $6,000, the a. Beginning inventory is $18,000 b. Net income is $6,000 c. Cost of goods available for sale is $18,000 d. Purchases are $6,000

c. Cost of goods available for sale is $18,000

Operating expenses would include a. Interest expense b. Income tax expense c. Freight-out d. Freight-out and interest

c. Freight-out

If expenses are overstated on the income statement, net income a. Will be unaffected b. Will be overstated c. Will be understated d. Cannot be determined from the information given

c. Will be understated

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause: a. net income to be understated b. an overstatement of assets and an overstatement of liabilities c. an understatement of expenses and an understatement of liabilities d. an overstatement of expenses and an overstatement of liabilities

c. an understatement of expenses and an understatement of liabilities

Cash flows from borrowing and paying off a 90-day bank loan are classified as a. operating activities b. investing activities c. financing activities

c. financing activities

Under the allowance method, bad debts 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 that it will not collect d. several times during the accounting period

c. for an amount that the company estimates that it will not collect

If the market rate of interest is 10%, a $10,000, 12% bond, 10-year bond that pays interest annually would sell at an amount a. less than face value b. equal to face value c. greater than face value d. that cannot be determined

c. greater than face value