ACCT 207 Exam 2
Danford Trucking purchased a tractor trailer for $147,000. Danford uses the units-of-activity method for depreciating its trucks and expects to drive the truck 1,000,000 miles over its 12-year useful life. Salvage value is estimated to be $21,000. If the truck is driven 80,000 miles in its first year, how much depreciation expense should Danford record? a. $11,760. b. $10,888. c. $9,333. d. $10,080.
$10,080
A company purchased factory equipment for $450,000. It is estimated that the equipment will have a $45,000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation, the amount of annual depreciation recorded for the second year after purchase would be a. $162,000. b. $97,200. c. $108,000. d. $180,000.
$108,000
In the month of November Gavin Company Inc. wrote checks in the amount of $55,500. In December, checks in the amount of $75,948 were written. In November, $50,808 of these checks were presented to the bank for payment, and $65,298 in December. What is the amount of outstanding checks at the end of December? a. $10,650. b. $21,300. c. $4,692. d. $15,342
$15,342
Equipment costing $105,000 with a salvage value of $21,000 and an estimated life of 8 years has been depreciated using the straight-line method for 2 years. Assuming a revised estimated total life of 6 years and no change in the salvage value, the depreciation expense for Year 3 would be a. $15,750. b. $10,500. c. $14,000. d. $21,000.
$15,750
On July 1, 2017, Linden Company purchased the copyright to Norman Computer Tutorials for $210,000. It is estimated that the copyright will have a useful life of 5 years. The amount of amortization expense recognized for the year 2017 would be a. $19,687. b. $38,850. c. $21,000. d. $42,000.
$21,000
Hopson Company incurred $900,000 of research and development costs in its laboratory to develop a new product. It spent $120,000 in legal fees for a patent granted on January 2, 2017. On July 31, 2017, Hopson paid $90,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2017? a. $210,000. b. Some other amount. c. $1,110,000. d. $900,000.
$210,000
Mitchell Corporation bought equipment on January 1, 2017. The equipment cost $300,000 and had an expected salvage value of $50,000. The life of the equipment was estimated to be 6 years. The book value of the equipment at the beginning of the third year would be a. $250,000. b. $300,000. c. $83,333. d. $216,666.
$216,666
Expected direct materials purchases in Rees Company are $210,000 in the first quarter and $270,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are: a. $288,000. b. $270,000. c. $216,000. d. $234,000
$234,000
Equipment was purchased for $150,000. Freight charges amounted to $7,000 and there was a cost of $20,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $30,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be a. $29,400. b. $35,400. c. $24,600. d. $24,000.
$29,400
An asset was purchased for $400,000. It had an estimated salvage value of $80,000 and an estimated useful life of 10 years. After 5 years of use, the estimated salvage value is revised to $64,000 but the estimated useful life is unchanged. Assuming straight-line depreciation, depreciation expense in Year 6 would be a. $33,600. b. $24,000. c. $48,000. d. $35,200.
$35,200
On July 1, 2016, Fleming Company sells machinery for $240,000. The machinery originally cost $600,000, had an estimated 5-year life and an expected salvage value of $100,000. The Accumulated Depreciation account had a balance of $350,000 on January 1, 2016, using the straight-line method. The gain or loss on disposal is a. $40,000 gain. b. $20,000 loss. c. $10,000 loss. d. $10,000 gain.
$40,000 gain
Arnold Company purchases a new delivery truck for $45,000. The sales taxes are $2,500. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck? a. $49,040. b. $46,920. c. $48,920. d. $47,500.
$48,920
Using the allowance method, the uncollectible accounts for the year are estimated to be $50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment? a. $41,000 b. $50,000 c. $9,000 d. $59,000
$50,000
A company sells a plant asset that originally cost $360,000 for $120,000 on December 31, 2017. The accumulated depreciation account had a balance of $180,000 after the current year's depreciation of $30,000 had been recorded. The company should recognize a a. $60,000 loss on disposal. b. $40,000 gain on disposal. c. $120,000 gain on disposal. d. $120,000 loss on disposal.
$60,000 loss on disposal
The maturity value of a $60,000, 9%, 40-day note receivable dated July 3 is a. $66,000. b. $60,000. c. $60,600. d. $65,400.
$60,600
Hoover Company had beginning inventory of $15,000 at March 1, 2017. During the month, the company made purchases of $65,000. The inventory at the end of the month is $17,300. What is cost of goods sold for the month of March? a. $65,000 b. $80,000 c. $82,300 d. $62,700
$62,700
The accounts receivable balance after posting net collections from customers for 2008 for Jesse's Toy Store is $75,000. The customers took advantage of sales discounts of $5,000 and returned $1,500 of merchandise on account. Management feels that approximately 1% of net accounts receivable will be uncollectible. The net realizable value of the accounts receivable is a. $80,685 b. $77,715 c. $74,250 d. $67,815
$74,250
If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much tax savings resulted from using LIFO? a. $2,000 b. $800 c. $1,200 d. There would be no tax savings.
$800
In 2017 Wilkinson Company had net credit sales of $2,250,000. On January 1, 2017, Allowance for Doubtful Accounts had a credit balance of $54,000. During 2017, $90,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $600,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2017? a. $25,000 b. $96,000 c. $60,000 d. $90,000
$96,000
Falcon Corp. reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2008. Its beginning balance of Accounts Receivable was $150,000. The accounts receivable balance decreased by $10,000 during 2008. Rounded to two decimal places, what is Falcon's accounts receivable turnover rate for 2008? a. 7.59 b. 10.32 c. 10.67 d. 11.03
11.03
Which one of the following is not a cash equivalent? a. 30-day certificate of deposit b. 60-day Corporate commercial paper c. 90-day U.S. Treasury bill d. 180-day note issued by a local or state government
180-day note issued by a local or state government
The financial statements of the Belfry Manufacturing Company reports net sales of $600,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? a. 73.0 times b. 36.5 times c. 48.7 times d. 24.3 times
36.5 times
Which one of the following items is not included in cash? a. A bank certificate of deposit for 1 year b. A savings account at a bank c. A checking account balance d. Petty cash account e. All of the above are included in cash.
A bank certificate of deposit for 1 year
Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate? a. Both current and future years will be affected by the revision. b. Revisions in useful life are permitted if approved by the IRS. c. Retroactive changes must be made to correct previously recorded depreciation. d. Only future years will be affected by the revision.
Both current and future years will be affected by the revision
Which one of the following sections would not appear on a cash budget? a. Investing. b. Cash disbursements. c. Cash receipts. d. Financing
Investing
Which of the following items would not be a reconciling item? a. Canceled checks b. Outstanding checks c. NSF checks d. Deposit in transit
Canceled checks
Each of the following documents is used in the control of cash receipts except: a. Cash register tapes b. Check lists (or pre-lists) c. Canceled checks from customers d. Bank deposit slips
Canceled checks from customers
Simonic Retailers accepted $80,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales Revenue of $80,000 and a debit(s) to a. Cash $76,800 and Service Charge Expense $3,200. b. Cash $76,800 and Interest Expense $3,200. c. Accounts Receivable $76,800 and Service Charge Expense $3,200. d. Accounts Receivable $80,000
Cash $76,800 and Service Charge Expense $3,200
Each of the following documents is used in the control of cash disbursements except: a. Purchase requisitions b. Purchase orders c. Receiving reports d. Cash register tapes
Cash register tapes
Which of the following is not a limitation of internal control? a. Cost of establishing control procedures should not exceed their benefit. b. The size of the company. c. The human element. d. Collusion
Collusion
Which one of the following best describes the allowance for doubtful account? a. Contra Account b. Liability Account c. Income Statement Account d. Cash flow Account
Contra Account
If beginning inventory is understated by $10,000, the effect of this error in the current period is a. Cost of Goods Sold-Overstated; Net Income-Overstated b. Cost of Goods Sold-Understated; Net Income-Understated c. Cost of Goods Sold-Understated; Net Income-Overstated d. Cost of Goods Sold-Overstated; Net Income-Understated
Cost of Goods Sold-Understated; Net Income-Overstated
The operating expenses section of an income statement for a merchandising company would not include a. Cost of goods sold. b. Utilities expense. c. Freight-out. d. Insurance expense.
Cost of goods sold
In periods of rising prices, which is an advantage of using the LIFO inventory costing method? a. Net income will be the highest and thus reflect the prosperity of the company. b. Ending inventory will include latest (most recent) costs and thus be more realistic. c. Phantom profits are reported d. Cost of goods sold will include latest (most recent) costs and thus will be more realistic.
Cost of goods sold will include latest (most recent) costs and thus will be more realistic
If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the: a. allowance. b. discount. c. contra asset. d. return.
allowance
Young Company lends Dobson industries $40,000 on January 1, 2017, accepting a 9-month, 9% interest note. If Dobson dishonors the note and does not pay it in full at maturity but Young expects that it will eventually be able to collect the debt, which of the following entries should most likely be made by Young Company? a. DR Cash 40,000;CR Notes Receivable 40,000 b. DR Accounts Receivable 42,700;CR Notes Receivable 40,000;CR Interest Receivable 2,700 c. DR Accounts Receivable 40,000;CR Notes Receivable 40,000 d. DR Accounts Receivable 42,700;CR Notes Receivable 40,000;CR Interest Revenue 2,700
DR Accounts Receivable 42,700;CR Notes Receivable 40,000;CR Interest Revenue 2,700
Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry: a. DR Miscellaneous Expense; CR Accounts Receivable b. No adjusting entry is necessary. c. DR Accounts Receivable; CR Cash d. DR Cash; CR Accounts Receivable
DR Accounts Receivable; CR Cash
In 2017, Blanchard Corporation has plant equipment that originally cost $120,000 and has accumulated depreciation of $48,000. A new processing technique has rendered the equipment obsolete, so it is retired. Which of the following entries should Blanchard use to record the retirement of the equipment? a. DR Plant Equipment 120,000; CR Accumulated Depreciation - Equipment 48,000; CR Loss on Disposal of Plant Assets 72,000 b. DR Loss on Disposal of Plant Assets 72,000; CR Equipment 72,000 c. DR Loss on Disposal of Plant Assets 72,000; CR Accumulated Depreciation - Equipment 72,000 d. DR Accumulated Depreciation - Equipment 48,000; DR Loss on Disposal of Plant Assets 72,000; CR Equipment 120,000
DR Accumulated Depreciation - Equipment 48,000; DR Loss on Disposal of Plant Assets 72,000; CR Equipment 120,000
Gipson Furniture factors $700,000 of receivables to Kwik Factors, Inc. Kwik Factors assesses a 3% service charge on the amount of receivables sold. Gipson Furniture factors its receivables regularly with Kwik Factors. What journal entry does Gipson make when factoring these receivables? a. DR Cash 679,000; DR Service Charge Expense 21,000; CR Accounts Receivable 700,000 b. DR Cash 679,000; DR Loss on Sale of Receivables 21,000; CR Accounts Receivable 700,000 c. DR Cash 500,000; CR Accounts Receivable 679,000; CR Gain on Sale of Receivables 21,000 d. DR Cash 679,000; CR Accounts Receivable 679,000
DR Cash 679,000; DR Service Charge Expense 21,000; CR Accounts Receivable 700,000
Young Company lends Dobson industries $40,000 on August 1, 2017, accepting a 9-month, 9% interest note. If Young prepares its financial statements as of December 31, 2017, what adjusting entry must it make? a. DR Accounts Receivable 1,500; CR Interest Receivable 1,500 b. DR Notes Receivable 1,500; CR Interest Revenue 1,500 c. DR Cash 1,500; CR Interest Revenue 1,500 d. DR Interest Receivable 1,500; CR Interest Revenue 1,500
DR Interest Receivable 1,500; CR Interest Revenue 1,500
Rosen Company receives a $9,000, 3-month, 6% promissory note from Bay Company in settlement of an open accounts receivable. What entry will Rosen Company make upon receiving the note? a. DR Notes Receivable 5,000;DR Interest Receivable 135; CR Accounts Receivable—Bay Company 9,000; CR Interest Revenue 135 b. DR Notes Receivable 9,135; CR Accounts Receivable—Bay Company 9,135 c. DR Notes Receivable 9,000; CR Accounts Receivable—Bay Company 9,000 d. DR Notes Receivable 9,135; CR Accounts Receivable—Bay Company 9,000; CR Interest Revenue 135
DR Notes Receivable 9,000; CR Accounts Receivable—Bay Company 9,000
Which one of the following is not a principle of sound accounts receivable management? a. Determine to whom to extend credit. b. Determine a payment period. c. Delay cash receipts from receivables if necessary. d. Monitor collections.
Delay cash receipts from receivables if necessary
Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most? a. FIFO b. Income tax expense for the period will be the same under all assumptions c. LIFO d. Average cost
FIFO
In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory? a. Average cost method b. LIFO method c. FIFO method
FIFO method
Which one of the following is not an objective of a system of internal controls? a. Fairness of the financial statements. b. Enhance the accuracy and reliability of accounting records. c. Reduce the risks of errors. d. Safeguard company assets.
Fairness of the financial statements
Sports Central accepted a credit card account receivable in exchange for $5,000 of services provided to a customer. The credit card company charges a 5% service charge. Recording the sales transaction in the company's accounting records will have what effect on the accounting equation? a. Increase assets and equity by $4,750 b. Decrease assets and equity by $250 c. Increase assets by $5,000 d. Increase equity by $5,000
Increase assets and equity by $4,750
A dishonored note receivable a. Creates a claim against the maker for the amount of principal only. b. Must be written off by the lender. c. Is one that is not paid in full within 10 days of maturity. d. Is no longer negotiable.
Is no longer negotiable
Collier Company has implemented a just-in-time system, which relies on suppliers to deliver goods for resale as needed. This implementation is most consistent with which of the following basic principles of cash management? a. Planning the timing of major expenditures. b. Delaying the payment of liabilities. c. Increasing the speed of receivables collection. d. Keeping inventory levels low
Keeping inventory levels low
When inventories are written down due to the application of the lower of cost or market (LCM) rule, the account that is usually increased is a. Cost of goods sold b. Inventories c. Loss from the decline in inventory value d. Accumulated depreciation: inventory
Loss from the decline in inventory value
Which of the following is not a requirement of Sarbanes-Oxley? a. Annual report must include an internal control report b. External auditors can no longer provide human resource services c. External auditors can no longer provide brokerage services d. Must establish an internal control system that guarantees financial accuracy
Must establish an internal control system that guarantees financial accuracy
Which of the following accounts is classified as a contra revenue account? a. Sales Returns and Allowances b. Sales Revenue c. Cost of Goods Sold d. Purchase Discounts
Sales Returns and Allowances
Having only one person authorized to both prepare and sign checks is a violation of what internal control procedure? a. Segregation of duties b. Safeguarding of assets and records c. Independent verifications d. Design and use of business documents
Segregation of duties
Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated? a. Segregation of duties. b. Documentation procedures. c. Establishment of responsibilities. d. None, Ron has proven to be trustworthy and has enough experience to do a good job.
Segregation of duties
When using the periodic inventory system, which of the following is not a step in determining cost of goods purchased? a. Subtract purchase returns and allowances b. Subtract cost of ending inventory c. Add freight-in d. All of these are necessary steps
Subtract cost of ending inventory
All of the following statements are true regarding the LIFO reserve except: a. Companies using LIFO are required to report the LIFO reserve. b. The financial statement differences of using LIFO normally increase the longer a company uses LIFO. c. The equation (LIFO inventory - LIFO reserve = FIFO inventory) adjusts the inventory balance from LIFO to FIFO. d. Current ratios and the inventory turnover can be significantly affected if a company has material LIFO reserves.
The equation (LIFO inventory - LIFO reserve = FIFO inventory) adjusts the inventory balance from LIFO to FIFO.
Accounts receivable are valued and reported on the balance sheet a. at gross amounts less sales returns and allowances. b. in the investments section. c. only if they are not past due. d. at cash realizable value.
at cash realizable value
The situation that requires a departure from the cost basis of accounting to the lower of cost or market basis in valuing inventory is necessitated by a. a decline in the value of the inventory. b. a desire for more profit. c. an increase in the value of the inventory. d. an increase in selling price.
a decline in the value of the inventory
A credit balance in Cash Over and Short account is shown as a. an expense. b. a liability. c. a revenue. d. an asset
a revenue
Under a perpetual inventory system: a. the account purchase returns and allowances is credited when goods are returned to vendors. b. accounting records continuously disclose the amount of inventory. c. there is no need for a year-end physical count. d. increases in inventory resulting from purchases are debited to purchases
accounting records continuously disclose the amount of inventory
If a check correctly written and paid by the bank for $628 is incorrectly recorded on the company's books for $682, the appropriate treatment on the bank reconciliation would be to a. deduct $54 from the bank's balance. b. add $54 to the book's balance. c. deduct $628 from the book's balance. d. subtract $54 from the book's balance.
add $54 to the book's balance
Management should select the depreciation method that a. is easiest to apply. b. has been used most often in the past by the company. c. best measures the plant asset's market value over its useful life. d. best measures the plant asset's contribution to revenue over its useful life.
best measures the plant asset's contribution to revenue over its useful life
All leases are classified as either a. operating leases or current leases b. capital leases or long-term leases. c. capital leases or operating leases. d. long-term leases or current leases.
capital leases or operating leases
The retailer considers Visa and MasterCard sales as a. promissory sales. b. credit sales. c. cash sales. d. contingent sales
cash sales
When two or more people get together for the purpose of circumventing prescribed controls, it is called a. bonding of employees. b. a fraud committee. c. collusion. d. a division of duties
collusion
Inventory costing methods place primary reliance on assumptions about the flow of a. costs b. good c. resale prices d. values
costs
The respective normal account balances of Sales, Sales Returns and Allowances, and Sales Discounts are a. credit, debit, debit. b. credit, debit, credit. c. debit, credit, debit. d. credit, credit, credit.
credit, debit, debit
A company using a perpetual inventory system that returns goods previously purchased on credit would: a. debit Cash and credit Accounts Payable. b. debit Accounts Payable and credit Inventory. c. debit Accounts Payable and credit Purchases. d. debit Sales and credit Accounts Payable
debit Accounts Payable and credit Inventory
You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to a. debit Allowance for Doubtful Accounts and credit Bad Debt Expense. b. debit Allowance for Doubtful Accounts and credit Accounts Receivable. c. debit Bad Debt Expense and credit Accounts Receivable. d. debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
debit Allowance for Doubtful Accounts and credit Accounts Receivable
A $300 petty cash fund has cash of $55 and receipts of $240. The journal entry to replenish the account would include a a. credit to Petty Cash for $245. b. credit to Cash for $240. c. debit to Cash Over and Short for $5. d. debit to Cash for $240
debit to Cash Over and Short for $5
In a perpetual inventory system, cost of goods sold is recorded a. on an annual basis. b. on a monthly basis. c. each time a sale occurs. d. on a daily basis
each time a sale occurs
Entries are made to the Petty Cash account when a. recording shortages in the fund. b. establishing the fund. c. making payments out of the fund. d. replenishing the fund
establishing the fund
The cash receipts section of a cash budget includes all of the following except a. receipts of interest and dividends. b. cash sales. c. collections from customers. d. expected borrowings
expected borrowings
In recording the acquisition cost of an entire business a. goodwill is recorded as the excess of cost over the book value of identifiable net assets. b. goodwill, if it exists, is never recorded. c. goodwill is recorded as the excess of cost over the fair value of identifiable net assets. d. assets are recorded at the seller's book values.
goodwill is recorded as the excess of cost over the fair value of identifiable net assets
All of the following statements regarding impairments are true except a. impairments are generally recorded when the book value falls below the market value. b. immediate recognition of impairment write-downs is now required. c. an impairment is a permanent decline in an asset's market value. d. after an impairment write-down, depreciation is generally lower in a subsequent periods
impairments are generally recorded when the book value falls below the market value
A loss on disposal of a plant asset is reported in the financial statements a. as a direct decrease to the capital account on the balance sheet. b. as a direct increase to the capital account on the balance sheet. c. in the Other Revenues and Gains section of the income statement. d. in the Other Expenses and Losses section of the income statement.
in the Other Expenses and Losses section of the income statement
The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that a. expenses an asset over a single year because capital acquisitions must be expensed in the year purchased. b. must be used for financial statement purposes. c. is used for tax purposes. d. is required by the SEC
is used for tax purposes
The four subdivisions for plant assets are a. furnishings and fixtures, land, buildings, and equipment. b. intangibles, land, buildings, and equipment. c. land, land improvements, buildings, and equipment. d. property, plant, equipment, and land.
land, land improvements, buildings, and equipment
A debit balance in Cash Over and Short is reported as a a. contra asset. b. miscellaneous asset. c. miscellaneous revenue. d. miscellaneous expense
miscellaneous expense
One might infer from a debit balance in Allowance for Doubtful Accounts that a. a posting error has been made. b. the direct method is being used. c. more accounts have been written off than had been estimated. d. Bad Debt Expense has been overestimated
more accounts have been written off than had been estimated
The custodian of a company asset should a. be someone outside the company. b. have access to the accounting records for that asset. c. be an accountant. d. not have access to the accounting records for that asset
not have access to the accounting records for that asset
If disposal of a plant asset occurs during the year, depreciation is a. not recorded for the year. b. recorded for the fraction of the year to the date of the disposal. c. recorded for the whole year. d. not recorded if the asset is scrapped.
recorded for the fraction of the year to the date of the disposal
All of the following are true regarding bank statements except a. the bank statement will show a debit if a check is paid for a company issuing the check. b. the bank statement is a copy of the bank's records sent to the customer for periodic review. c. the bank statement balance will always agree with the company recorded balance. d. the bank statement will show a credit for deposits received from a company.
the bank statement balance will always agree with the company recorded balance
Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited a. at the end of each accounting period. b. whenever a pre-determined amount of credit sales have been made. c. when an account is determined to be uncollectible. d. when a credit sale is past due.
when an account is determined to be uncollectible
The Allowance for Doubtful Accounts is necessary because a. uncollectible accounts that are written off must be accumulated in a separate account. b. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay. c. a liability results when a credit sale is made. d. management needs to accumulate all the credit losses over the years.
when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay
