MGMT 20000 — Exam 2

Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain?

$0; dont record gains until they actually happen

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4?

$5000

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. What is the amount of interest expense to report in 20X2?

$8,000

How is depreciation expense using the straight-line method calculated?

(assets cost - residual value) / service life

A multiple-step income statement provides the advantage of: a. Separating revenues and expenses based on their different types of activities. b. Placing all revenues after all expenses. c. Excluding the effects of income taxes in the calculation of net income. d. Placing all revenues before all expenses.

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

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. What does this mean?

2/10 customer will receive a 2% discount if amount is paid within 10 days n/30 if discount isn't taken, full payment is due within 30 days

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.

When a company provides services on account, which of the following accounts is debited? service revenue cash AR accounts payable

AR credit service revenue

Over the entire service life of an asset, which depreciation method records the highest total depreciation?

All the methods result in the same total depreciation.

How do you calculate inventory turnover ratio?

Cost of goods sold / Average Value of inventory

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

Debit Purchases; credit Accounts Payable.

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 Cash for $500. Debit Sales Discount for $10. Credit Service Revenue for $500. Credit Accounts Receivable for $490.

Debit Sales Discount for $10

Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs?

FIFO

Fan Company purchases inventory on account. The entry to record this purchase using a perpetual inventory system would include a debit to:

Inventory

Which cost flow assumption must be used for financial reporting if it is also used for tax reporting?

LIFO

Media Printing is being sued for $10.5 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible. How do you record the adjusting entry?

No journal entry required

Using the allowance method, the entry to record a write-off of accounts receivable will include: a. A debit to Allowance for Uncollectible Accounts. b. No entry because an allowance for uncollectible accounts was established in an earlier period. c. A debit to Bad Debt Expense. d. A debit to Service Revenue.

a. A debit to Allowance for Uncollectible Accounts.

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life? a. Long service life, high residual value, and straight-line depreciation. b. Short service life, low residual value, and double-declining-balance depreciation. c. Long service life, high residual value, and double-declining-balance depreciation. d. Short service life, high residual value, and straight-line depreciation.

a. Long service life, high residual value, and straight-line depreciation.

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

a. Ordinary repairs and maintenance.

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

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

What is the calculation for receivables turnover ratio?

average AR / net sales

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as: a. A debit to a revenue and a credit to an asset account. b. A debit to an asset and a credit to a liability account. c. A debit to an asset and a credit to a revenue account. d. A debit to a liability and a credit to a revenue account.

b. A debit to an asset and a credit to a liability account.

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as a. Sales tax receivable. b. Sales tax payable. c. Sales tax revenue. d. Sales tax expense.

b. Sales tax payable.

Which of the following is true in comparing the current ratio with the acid-test ratio? a. The acid-test ratio will always be at least as large as the current ratio. b. The current ratio will always be at least as large as the acid-test ratio. c. Sometimes the current ratio will be larger and sometimes the acid-test ratio will be larger. d. The denominator in the ratios will differ.

b. The current ratio will always be at least as large as the acid-test ratio.

The asset's cost less accumulated depreciation is called:

book value

The effect of writing off a specific account receivable is: a. An increase in the Allowance for Uncollectible Accounts. b. An increase in the amount of Accounts Receivable. c. A reduction in the Allowance for Uncollectible Accounts. d. An increase in the amount of Bad Debt Expense.

c. A reduction in the Allowance for Uncollectible Accounts.

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

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

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? a. Increase the current ratio and decrease the acid-test ratio. b. Increase the current ratio and increase the acid-test ratio. c. No change to the current ratio and decrease the acid-test ratio. d. Decrease the current ratio and decrease the acid-test ratio.

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

We record interest expense on a note payable in the period in which a. We pay cash or incur interest. b. We pay cash and incur interest. c. We incur interest. d. We pay cash for interest.

c. We incur interest.

A sales discount is recorded by the seller as a(n):

contra revenue

What are the following: cash AR allowance for uncollectible accounts inventory

current assets

What is the calculation for working capital?

current assets - current liabilities

Record firework sales for the first half of the month totaling $146,000. All of these sales are on account.

debit AR 146000 credit sales revenue 146000

Record payment of $101,000 to inventory suppliers on accounts payable.

debit accounts payable 101000 credit cash 101000

How do you record the repayment of the note and payment of interest at maturity?

debit notes payable debit interest payable (whats in that year) debit interest expense (what is still to come) credit cash

How do you record the acceptance of a note?

debit notes receivable credit cash

How do you record the employer payroll tax expense?

debit payroll tax expense credit FICA tax payable credit unemployment tax payable

How do you close the expense accounts?

debit retained earnings credit expense accounts

How do you record the employee salary, withholdings, and salaries payable?

debit salaries expense credit employee income tax payable credit FICA tax payable credit salaries payable (what expense - witholdings)

Record payment of cash for monthly salaries, $53,100.

debit salaries expense credit cash

On an income statement, how is gross profit calculated?

net revenue (sales revenue - discounts - allowances) - cost of goods sold

What is the calculation for asset turnover ratio?

net sales / average total assets

Do you record a contingent gain?

no

Property, plant, and equipment are recorded at:

the original cost of the asset + all expenditures necessary to get the asset ready for use

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 warranty expense reported in the income statement this year? $25,000. $5,000. $30,000. $10,000.

$30,000.

Pizza Shop 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 Pizza Shop report warranty liability at the end of the current year? $720. $0. $320. $400.

$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

Jelly Co. filed suit against Peanut, Inc., seeking damages for copyright violations. Peanuts' legal counsel believes it is probable that Peanut will settle the lawsuit for an estimated amount in the range of $200,000 to $400,000, with all amounts in the range sidered equally likely. How should Peanut report this litigation? A) As a liability for $200,000 with disclosure of the range. B) As a liability for $300,000 with disclosure of the range. C) As a liability for $400,000 with disclosure of the range. D) As a disclosure only. No liability is reported.

A) As a liability for $200,000 with disclosure of the range.

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

2) At December 31, Tremble Music had account balances in Accounts Receivable of $300.000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be: A) $1,000. B) $I5,000. C) $16,000. D) $14,000.

B) $15,000

The replacement of a major component increased the productive capacity of equipment from 10 units per hour to 18 units per hour. The expenditure for the replacement component should be debited to: A) Repairs Expense. R) Mointenance Expense. C) Equipment. D) Gain from Repairs.

C) Equipment

Given the information in the table below, what is the company's gross profit? Sales revenue $ 350,000 Accounts receivable $ 280,000 Ending inventory $ 230.000 Cost of goods sold $ 180.000 Sales returns &50.000 Sales discounts $20,000 A) $280,000. B) $170.000. C) $50.000. D) $100.000.

D) $100.000

9) A company purchased a piece of equipment for $60,000 and the equipment has an expected useful life of five years. Its residual value is estimated to be $4,000. Assuming the company uses the double-declining-balance depreciation method, what is the depreciation expense for the equipment for the second full year? A) S22.400. B) $24.000. C) $15.040. D) S14.400.

D) $14,400

The lower of cost and net realizable value rule causes losses in the value of inventory to be recognized in the period when: A) The inventory is purchased. B) Cash collection from the customer fails to occur. C) The inventory is sold. D) The value of inventory declines below cost.

D) The value of inventory declines below cost.

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

Debit Accounts Receivable; credit Sales Revenue.

A company incurred the following costs associated with the purchase of a piece of land that it will use to re-build an office building: - Purchase price of the land - Sale of salvaged parts already on land - Demolition of the old building - Ground-breaking ceremony (food and supplies) - Land preparation and leveling What should be recorded in the purchase of the land?

Everything but groundbreaking ceremony. Add rest up and subtract sale of salvaged parts

Under the direct write-off method, uncollectible accounts are recorded: a. In the period the account is determined actually uncollectible. b. In the period the account is estimated to be uncollectible. c. Never. d. In the period following the account being actually uncollectible.

In the period the account is determined actually uncollectible.

If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account: a. Net accounts receivable do not change b. Net accounts receivable decrease. c. Net accounts receivable increase. d. The effect on net account receivables depends on the relationship between the allowance account balance and the amount of the write off.

Net accounts receivable do not change

Media Printing is the plaintiff in a(n) $8.5 million lawsuit filed against a competitor in the high-end color-printer market. Media Printing expects to win the case and be awarded between $6.0 and $8.5 million. How do you record the adjusting entry?

No journal entry required

Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n): a. asset b. expense c. liability d. revenue

c. liability

On a classified balance sheet, what is include in Stockholders' Equity?

common stock retained earnings

Accumulated depreciation is what kind of account?

contra asset

Depreciation represents the allocation of the ____________________ over its service life.

cost of property, plant, and equipment

What are the following: accounts payable interest payable income tax payable deferred revenue

current liabilities

If equipment is retired, which of the following accounts would be debited? a. Depreciation expense. b. Cash. c. Equipment. d. Accumulated depreciation.

d. Accumulated depreciation.

Which of the following represents a characteristic of a liability? a. A probable future sacrifice of economic benefits. b. Arising from present obligations to other entities. c. Resulting from past transactions or events. d. All of these are characteristics of a liability.

d. All of these are characteristics of a liability.

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

d. An addition which increases future benefits.

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: a. Neither disclosed or reported as a liability. b. Reported as a liability but not disclosed. c. Disclosed and reported as a liability. d. Disclosed but not reported as a liability.

d. Disclosed but not reported as a liability.

How do you record the write-offs of accounts receivable?

debit allowance for uncollectible accounts credit AR

Record write-off of accounts receivable as uncollectible, $5,900.

debit allowance for uncollectible accounts 5900 credit AR

How do you record the adjusting entry for uncollectible accounts?

debit bad debt expense credit allowance for uncollectible accounts

The company records an adjusting entry for $12,510 for estimated future uncollectible accounts.

debit bad debt expense 12510 credit allowance for uncollectible accounts 12510

How do you record an entry for sales tax payable?

debit cash credit sales revenue credit sales tax payable

How do you record the cash sale of tickets before the season begins?

debit cash credit deferred revenue

How do you record the issuance of a note?

debit cash credit notes payable

Record sale of gift cards totaling $10,200

debit cash 10200 credit deferred revenue 10200

Record receipt of $126,500 from customers on accounts receivable.

debit cash 126500 credit AR 126500

Record firework sales for the second half of the month totaling $154,000. Sales include $17,000 for cash and $137,000 on account.

debit cash 17000 debit AR 137000 credit sales revenue 154000

Firework sales for the first half of the month total $146,000. The cost of the units sold is $79,300. Record the cost of the units sold.

debit cost of goods sold 79300 credit inventory 79300

How do you record the adjusting entry after one game of the season has been completed?

debit deferred revenue credit sales revenue

A company sold gift cards. $4100 of the gift cards sold were redeemed. How do you record the entry?

debit deferred revenue 4100 credit sales revenue 4100

How do you Record the adjusting entry for depreciation?

debit depreciation expense credit accumulated depriciation

The company has accrued income taxes at the end of January of $14,100. How do you record the entry?

debit income tax expense 14100 credit income tax payable 14100

How do you record the adjusting entry for interest?

debit interest expense credit interest payable

The company has accrued interest on notes payable for January. How do you record the entry?

debit interest expense credit interest payable

How do you record the adjusting entry for interest for the company that has loaned out money?

debit interest receivable credit interest revenue

Record purchase of additional inventory on account, $158,000.

debit inventory 158000 credit accounts payable 158000

Media Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $450,000 and $850,000. How do you record the adjusting entry?

debit loss (if range, book lowest) credit contingent liability

How do you close the revenue accounts?

debit sales revenue credit retained earnings

The entry to write down inventory from cost to net realizable value at the end of the year includes a:

debit to cost of goods sold

How do you record the entry for estimating warranty costs?

debit warranty expense credit warranty liability

How do you record the entry for warranty claims?

debit warranty liability credit cash

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

double-declining-balance method

Who pays the following: FICA income tax withdrawals

employee

Who pays FICA?

employee and employer

Who pays the following: FICA unemployment tax benefits choose to offer

employer

On an income statement, what does the total operating expenses section consist of?

expenses (NOT income or interest)

How is interest of notes calculated?

face value * annual interest rate * fraction of the year

Which intangible asset is not amortized?

goodwill

Which ratio is more favorable with current ratio and the acid-test (quick) ratio?

higher

What type of assets are the following: ••Patents ••Trademarks ••Copyrights ••Franchises ••Goodwill

intangible assets

What are the following: notes payable

long-term liabilities

Return on assets is equal to:

net income / average total assets

What is the calculation for asset return ratio?

net income / average total assets

What is the calculation for profit margin?

net income / net sales

If the likelihood of payment is reasonably possible, is a liability recorded?

no

In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now.

one; one

Which level of profitability in a multiple-step income statement best represents profitability from primary activities of the company?

operating income

An exclusive 20-year right to manufacture a product or to use a process is a:

patent

A contingent liability is recorded only if a loss is __________ and the amount is ______________________

probable reasonably estimable

What are the following: land equipment accumulated depreciaiton

property, plant, and equipment (long-term assets)

How do you calculate the acid-test (quick) ratio?

quick assets (cash + current investments + accounts receivable) / current liabilities

A contingent liability that is probable and can be reasonably estimated must be

recorded

How do you calculate current ratio?

total current assets/total current liabilities