Accounting Exam 2

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:

$1120

Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. At the end of Year 5, assuming the equipment had not been sold, the book value of the office equipment using straight-line depreciation and double-declining-balance depreciation, respectively, would be:

$12,000 and $12,000.

For Year 1, the Sacramento Corporation had beginning and ending Retained Earnings balances of $160,900 and $214,900 respectively. Also during Year 1, the corporation declared and paid cash dividends of $26,900 and issued stock dividends valued at $16,500. Total expenses were $41,916. Based on this information, what was the amount of total revenue for Year 1?

$139,316

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.

On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $380,000. The appraised values of the assets are $20,000 for the land, $340,000 for the building and $40,000 for equipment. Phillips uses the double-declining-balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $5,000. The depreciation expense for Year 1 for the equipment is:

$19,000. $40,000 ÷ ($20,000 + $340,000 + $40,000) = 10% of total appraised value; $380,000 purchase price × 10% = $38,000 cost of equipment; $38,000 × (2 × 25% straight-line rate) = $19,000 depreciation expense in Year 1.

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

What is the amount of gross margin assuming the FIFO cost flow method is used?

$3000

On January 1, Year 2, the Accounts Receivable balance was $37,000 and the balance in the Allowance for Doubtful Accounts was $2,800. On January 15, Year 2, an $800 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:

$34,200.

On March 1, Bartholomew Company purchased a new stamping machine with a list price of $34,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $550; sales tax paid, $1,360; installation costs, $450; routine maintenance during the first month of operation, $500. The cost recorded for the machine was:

$34,660. Cost of machine = $34,000 − ($34,000 × 5%) + $550 transportation + $1,360 sales tax + $450 installation = $34,660.

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.

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 total liabilities that would appear on Riley's December 31 balance sheets for Year 1 and Year 2, respectively, would be:

$37,890 and $0.

The Miller Company recognized $190,000 of service revenue earned on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected $136,000 of cash from accounts receivable. The company estimates that it will be unable to collect 3% of its sales on account.

$5,700.

Domino Company uses the aging of accounts receivable method to estimate uncollectible accounts expense. Domino began Year 2 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $76,500 and $5,800, respectively. During the year, the company wrote off $4,640 in uncollectible accounts. In preparation for the company's Year 2 estimate, Domino prepared the following aging schedule:

$6,132

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.

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The amount of uncollectible accounts expense recognized in the Year 2 income statement will be:

$725

Anton Company uses the perpetual inventory method. Anton purchased 400 units of inventory that cost $12.00 each. At a later date the company purchased an additional 600 units of inventory that cost $16.00 each. If Anton uses the FIFO cost flow method and sells 700 units of inventory, the amount of cost of goods sold will be:

$9,600.

Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value. Using double-declining-balance depreciation, what the amount of depreciation expense and the amount of book value, respectively, that would appear on the December 31, Year 3 financial statements?

$960 and $12,000

At the end of the accounting period, Houston Company had $8,600 of par value common stock issued, additional paid-in capital in excess of par value − common of $11,200, retained earnings of $9,000, and $6,750 of treasury stock. The total amount of stockholders' equity is:

22050

Montana Company was authorized to issue 140,000 shares of common stock. The company had issued 63,000 shares of stock when it purchased 10,000 shares of treasury stock. The number of outstanding shares of common stock was:

53,000.

Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $16,000, the amount of net income or (loss) appearing on the December 31, Year 3 income statement would be:

600 ($36,000 cost − $12,000 salvage value) ÷ 5 years = $4,800 annual depreciation expense; $36,000 cost − (3 years × $4,800) accumulated depreciation = $21,600 book value at the end of Year 3. $16,000 proceeds from sale − $21,600 = ($5,600) loss on sale of equipment; $30,000 revenue − $19,000 cash expenses − $4,800 depreciation expense − $5,600 loss on sale = $600 net income

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 net income on the Year 2 income statement would be:

770

Flagler Corporation shows a total of $660,000 in its common stock account and $1,600,000 in its paid-in capital in excess of par value − common stock account. The par value of Flagler's common stock is $8. How many shares of Flagler stock have been issued?

82500

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:

9120 $57,000 × (2 × 10%) = $11,400 depreciation expense in Year 1. ($57,000 − $11,400) × (2 × 10%) = $9,120 depreciation expense in Year 2.

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 report income tax expense on its income statement?

A corporation.

The term "Retained Earnings" is best explained by which of the following statements?

A measure of capital generated through earnings.

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

All are correct 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 $260,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $3,300 of warranty obligations paid in cash during Year 1. Based on this information:

All are correct Warranty expenses would decrease net earnings by $7,800 in Year 1. Cash would decrease by $3,300 as a result of the accounting events associated with warranties in Year 1. The warranties payable account would increase by $4,500 in Year 1.

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

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

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

An amount used in determining a corporation's legal capital.

Which of the following represents the impact of a taxable cash sale of $400 on the accounting equation if the sales tax rate is 4%?

An increase to cash for $416, an increase to sales tax payable for $16, and an increase to sales revenue for $400.

Which of the following represents the impact of a taxable cash sale of $400 on the accounting equation if the sales tax rate is 5%?

An increase to cash for $420, an increase to sales tax payable for $20, and an increase to sales revenue for $400.

Which of the following correctly describes an installment note?

An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note.

The party who borrows money in a note payable is known as the:

Both Maker and Issuer.

Which of the following would not be classified as a tangible long-term asset?

Copyright

The term "double taxation" refers to which of the following?

Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on the dividends they receive from the corporation.

The recognition of depreciation expense acts to:

Decrease assets and stockholders' equity, and does not affect cash flow.

Which of the following terms is used to identify the process of expense recognition for property, plant and equipment?

Depreciation

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

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, increase stockholders' equity by $480,000.

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. The accrual of interest on December 31, Year 1 will:

Increase liabilities and decrease stockholders' equity by $2,000.

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

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

LIFO

Which of the following is not considered an advantage of the corporate form of business organization?

Lack of government regulation.

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 ability to raise capital.

Monthly remittance of sales tax:

Reduces liabilities.

Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?

The account is a liability.

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 what condition is a pending lawsuit recognized as a liability on a company's balance sheet?

The outcome is probable and can be reasonably estimated.

Which of the following is not normally a preference given to the holders of preferred stock?

The right to vote before the common stockholders at the corporation's annual meeting.

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.

Which financial statement(s) is (are) affected when depreciation expense is recognized?

Which financial statement(s) is (are) affected when depreciation expense is recognized?

In an inflationary environment:

a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

Which form of business organization is established as a legal entity separate from its owners?

a corporation

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

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:

choice D

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

decrease assets and decrease stockholders' equity.

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year, Kincaid reported $72,500 of credit sales. Kincaid also wrote off $550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $74,550. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. Kincaid's entry required to recognize the uncollectible accounts expense for Year 2 will:

decrease total assets and net income.

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

fixed or variable interest rate.

Hoover Company purchased two identical inventory items. The item purchased first cost $33.00. The item purchased second cost $35.00. Then Hoover sold one of the inventory items for $62.00. Based on this information, the amount of:

gross margin is $28.00 if Hoover uses the weighted average cost flow method.

The par value of a company's stock:

has little connection to the market value of the stock.

The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to:

have no effect on total assets or stockholders' equity.

When prices are falling, LIFO will result in:

higher income and a higher inventory valuation than will FIFO.

Ix Company issued 20,000 shares of $20 par value common stock at a market price of $32. As a result of this accounting event, the amount of stockholders' equity would:

increase by $640,000.

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

increase sales.

Which of the following is not subject to depreciation?

land

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.

The amount of accounts receivable that is actually expected to be collected is known as the:

net realizable value.

Alberta Company accepts a credit card as payment for $450 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Alberta's financial statements.

option c

When the common stock account is disclosed on the balance sheet, it is reported at:

par or stated value.

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 stockholders' equity by $4,375.

A company that uses the allowance method to account for uncollectible accounts:

reports the net realizable value of its accounts receivable on the balance sheet.

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 would be classified as a long-term operational asset?

trademark

Which of the following is a negative or contra equity account?

treasury stock

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

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.

Which of the following correctly states the capitalized cost of the land and the new factory building, respectively?

$1,637,600 and $1,898,000 $1,500,000 purchase price + $15,400 realtor's and attorney's fees + $133,200 cost to demolish old building − $11,000 salvage from old building = $1,637,600 cost of land; $1,760,000 construction cost + $138,000 architect's fees = $1,898,000 cost of new factory building