Accounting 2010 - Exam 2

Chico Company paid $950,000 for a basket purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture $190,000; Building $740,000, Land $132,000. Based on this information, the amount of cost that would be allocated to the office furniture is closest to:

$171,000

At the end of the accounting period, Houston Company had $7,400 of par value common stock issued, additional paid-in capital in excess of par value − common of $9,400, retained earnings of $8,000, and $5,250 of treasury stock. The total amount of stockholders' equity is:

$19,550

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During Year 2, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?

$2,200

Madison Company issued an interest-bearing note payable with a face amount of $24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. Based on this information alone, the amount of total liabilities appearing on Madison's Year 1 balance sheet would be:

$24,800

The inventory records for Radford Company reflected the following Beginning inventory on May 1: 100 units @ $4.00 First purchase on May 7: 300 units @ $4.40 Second purchase on May 17: 500 units @ $4.60 Third purchase on May 23: 100 units @ $4.80 Sales on May 31: 900 units @ $7.80 What is the amount of gross margin assuming the weighted average cost flow method is used?

$2970

On January 1, Year 1, Friedman Company purchased a truck that cost $48,000. The truck had an expected useful life of 8 years and an $8,000 salvage value. The company uses the double-declining balance method. The book value of the truck at the end of Year 1 is:

$36,000

Rosewood Company made a loan of $16,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be:

$720 and $240

For Year 1, the Sacramento Corporation had beginning and ending Retained Earnings balances of $173,225 and $190,900 respectively. Also during Year 1, the corporation declared and paid cash dividends of $15,700 and issued stock dividends valued at $12,500. Total expenses were $33,916. Based on this information, what was the amount of total revenue for Year 1?

$79,791

On January 1, Year 1, Missouri Company purchased a truck that cost $57,000. The truck had an expected useful life of 10 years and a $6,000 salvage value. The amount of depreciation expense recognized in Year 2 assuming that Missouri uses the double declining-balance method is:

$9,120

Which of the following statements is a reason why a company would buy treasury stock?

**Because management believes the market price of the stock is undervalued** **To have stock available to issue to employees in stock option plans** **To avoid a hostile takeover**

Accurate description of the Allowance for Doubtful Accounts

**The account is a contra asset account** **The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables** **The account is increased when the company's' estimate of uncollectible accounts expense is recorded**

Which of the following is a reason why a corporation may choose not to pay dividends?

**The board and management prefer to reinvest all net income for future growth** **The corporation does not have adequate cash** **The corporation does not have adequate retained earnings**

Benitez Company had sales of $320,000 in Year 1. The company expects to incur warranty expenses amounting to 4% of sales. There were $4,200 of warranty obligations paid in cash during Year 1. Based on this information:

**Warranty expenses would decrease net earnings by $12,800 in Year 1.** **Cash would decrease by $4,200 as a result of the accounting events associated with warranties in Year 1.** **The warranties payable account would increase by $8,600 in Year 1.**

Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, Year 4, for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in:

A $16,000 cash inflow in the investing activities section of the cash flow statement

Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet?

A corporation

Which of the following entities would report income tax expense on its income statement?

A corporation

Which of the following statements best describes the term "par value?"

An amount used in determining a corporations legal capital

Which of the following would not be classified as a tangible long-term asset? *Delivery truck *Timber stand *Copyright *Land

Copyright

The year-end adjusting entry to recognize uncollectible accounts expense will:

Decrease assets and decrease stockholder's equity

Kincaid's entry required to recognize the uncollectible accounts expense for Year 2 will:

Decrease total assets and net income

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true?

Ending inventory will be lower if Blake uses the weighted average cost flow method than if the FIFO cost flow method was used

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

FIFO

Interest charges on notes payable may be based on a(n):

Fixed or variable interest rate

Fred and Barney started a partnership. Fred invested $20,000 in the business and Barney invested $32,000. The partnership agreement stipulated that profits would be divided as follows: Each partner would receive a 15% return on invested capital with the remaining income being distributed equally between the two partners. Assuming that the partnership earned $38,000 during an accounting period, the amount of income assigned to the two partners would be:

Fred: $18,100 Barney: $19,900

Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's french fries. Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote. As a result of the lawsuit, Burger Barn should:

Ignore the lawsuit in its financial statements

Ogilvie Corporation issued 12,000 shares of no-par stock for $40 per share. Ogilvie was authorized to issue 35,000 shares. What effect will this event have on the company's financial statements?

Increase assets by $480,000; and increase stockholder's equity by $480,000

The primary reason for a business to allow customers to purchase goods or services on account is to:

Increase sales

Which of the following represents the impact of a taxable cash sale of $500 on the accounting equation if the sales tax rate is 4%?

Increase to cash for $520; increase to sales tax payable for $20; increase to sales revenue for $500

When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)?

LIFO

Untangible assets

Lack physicla substance and are not financial instruments. **patents, copyrights, goodwill, customer list, trademarks, trade names, franchises**

Which of the following would be classified as a tangible asset?

Land

Bonds payable are usually classified on the balance sheet as:

Long-term liabilities

Which of the following terms designates the maximum number of shares of stock that a corporation may issue?

Number of shares authorized

Which of the following statements about types of business entities is true?

One advantage of a corporation is the ability to raise capital

Tangible assets

Property, plant, equipment; long-lived assets used in the regular operations of the business. **physical property (land), buildings, tools, machinery, furniture, wasting resources (timberland & minerals)**

On January 1, Year 1, Eller Company purchased an asset that had cost $24,000. The asset had an 8-year useful life and an estimated salvage value of $1,000. Eller depreciates its assets on the straight-line basis. On January 1, Year 5, the company spent $6,000 to improve the quality of the asset. Based on this information, the recognition of depreciation expense in Year 5 would:

Reduce total stockholder's equity by $4,375

Monthly remittance of sales tax:

Reduces liabilities. ** assets(cash) and liabilities(sales tax payables)**

At the end of the current accounting period, Ringgold Company recorded depreciation of $15,000 on its equipment. The effect of this entry on the company's balance sheet is to decrease:

Stockholder's equity and decrease assets

Which of the following statements about the impact of treasury stock on the amounts reported on the balance sheet is correct?

The balance in the treasury stock account reduces total stockholders' equity

Under Straight line depreciation

The depreciation amount will be same throughout the useful life

Regardless of the specific type of long-term debt, which of the following is normally required with debt transactions?

To repay the interest and repay the debt

Which of the following is a disadvantage of a sole proprietorship?

Unlimited liability

When do the effects of product warranties appear on the statement of cash flows?

When there is a settlement of a warranty claim made by a customer

Madison Company issued an interest-bearing note payable with a face amount of $24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. The amount of cash flow from operating activities on the Year 1 statement of cash flows would be:

Zero. no cash revenue was earned; np interest paid. **financing activity problem (borrowed money)**

Kincaid's entry to recognize the write-off of the uncollectible accounts will:

not affect total assets or stockholder's equity

Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,700 in Year 1 and $1,400 in Year 2. Assume no other transactions. The amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows would be:

$1,120 outflow

Currie Company borrowed $20,000 from the Sierra Bank by issuing a 10% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $8,042. Based on this information, the amount of the interest expense associated with the second payment would be:

$1,396