ch. 8-9 test 4

The sale or transfer of accounts receivable in order to raise funds is called a. pledging. b. factoring. c. leasing. d. collateralizing.

b

Accountants do not attempt to measure the change in a plant asset's market value during ownership because a. the assets are not held for resale. b. plant assets cannot be sold. c. losses would have to be recognized. d. it is management's responsibility to determine fair values.

A

Cost allocation of an intangible asset is referred to as a. amortization. b. depreciation. c. accretion. d. capitalization.

A

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n) a. operating expense. b. interest expense. c. other expense. d. contra asset.

A

The Allowance for Doubtful Accounts is necessary because a. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay. b. uncollectible accounts that are written off must be accumulated in a separate account. c. a liability results when a credit sale is made. d. management needs to accumulate all the credit losses over the years.

A

The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that a. is used for tax purposes. b. must be used for financial statement purposes. c. is required by the SEC. d. expenses an asset over a single year because capital acquisitions must be expensed in the year purchased.

A

The calculation of depreciation using the declining-balance method a. ignores salvage value in determining the amount to which a constant rate is applied. b. multiplies a constant percentage times the previous year's depreciation expense. c. yields an increasing depreciation expense each period. d. multiplies a declining percentage times a constant book value.

A

The four subdivisions of plant assets are a. land, land improvements, buildings, and equipment. b. intangibles, land, buildings, and equipment. c. furnishings and fixtures, land, buildings, and equipment. d. property, plant, equipment, and land.

A

The retailer considers Visa and MasterCard sales as a. cash sales. b. promissory sales. c. credit sales. d. contingent sales.

A

When estimating the useful life of an asset, accountants do not consider a. the cost to replace the asset at the end of its useful life. b. vulnerability to obsolescence. c. expected repairs and maintenance. d. the intended use of the asset.

A

Which of the following is not an intangible asset arising from a government grant? a. Goodwill b. Patent c. Trademark d. Trade name

A

Which one of the following is not an accounting problem (issue) associated with accounts receivable?a. Depreciating accounts receivableb. Recognizing accounts receivablec. Valuing accounts receivabled. Accelerating cash receipts from accounts receivable

A

A debit balance in the Allowance for Doubtful Accounts a. is the normal balance for that account. b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. c. indicates that actual bad debt write-offs have been less than what was estimated. d. cannot occur if the percentage of receivables method of estimating bad debts is used.

B

A note receivable is a negotiable instrument which a. eliminates the need for a bad debts allowance. b. can be transferred to another party by endorsement. c. takes the place of checks in a business firm. d. can only be collected by a bank.

B

An expenditure for which of the following items would be considered a revenue expenditure? a. Plant asset b. Ordinary repair c. Addition d. Improvements

B

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

Interest is usually associated with a. accounts receivable. b. notes receivable. c. doubtful accounts. d.bad debts

B

Receivables are a. one of the most liquid assets and thus are always considered current assets. b. claims that are expected to be collected in cash. c. shown on the income statement at cash realizable value. d.always the result of revenue recognition

B

Research and development costs a. are classified as intangible assets. b. must be expensed when incurred under generally accepted accounting principles. c. should be included in the cost of the patent they relate to. d. are capitalized and then amortized over a period not to exceed 20 years.

B

The Land account would include all of the following costs except a. drainage costs. b. the cost of building a fence. c. commissions paid to real estate agents. d. the cost of tearing down a building.

B

The accounts receivable turnover is used to analyze a. profitability. b. liquidity. c. risk. d. long-term solvency.

B

The expense recognition principle a. requires that all credit losses be recorded when an individual customer cannot pay. b. necessitates the recording of an estimated amount for bad debts. c. results in the recording of a known amount for bad debt losses. d. is not involved in the decision of when to expense a credit loss.

B

When an account becomes uncollectible and must be written off a. Allowance for Doubtful Accounts should be credited. b. Accounts Receivable should be credited. c. Bad Debt Expense should be credited. d. Sales Revenue should be debited.

B

When customers make purchases with a national credit card, the retailer a. is responsible for maintaining customer accounts. b. is not involved in the collection process. c. absorbs any losses from uncollectible accounts. d. receives cash equal to the full price of the merchandise sold.

B

When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded a. in the year after the credit sale is made. b. in the same year as the credit sale. c. as each credit sale is made. d. when an account is written off as uncollectible.

B

Which of the following is not an advantage of leasing a long-term asset? a. shared tax benefits b. no depreciation c. reduced risk of obsolescence d. lower down payment

B

Which one of the following items is not considered a part of the cost of a truck purchased for business use? a. Sales tax b. Truck license c. Freight charges d. Cost of lettering on side of truck

B

A change in the estimated useful life of equipment requires a. a retroactive change in the amount of periodic depreciation recognized in previous years. b. that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset. c. that the amount of periodic depreciation be changed in the current year and in future years. d. that income for the current year be increased.

C

A high accounts receivable turnover ratio indicates a. the company's sales are increasing. b. a large proportion of the company's sales are on credit. c. customers are making payments very quickly. d. customers are making payments slowly.

C

Additions and improvements a. occur frequently during the ownership of a plant asset. b. normally involve immaterial expenditures. c. increase the company's investment in productive facilities. d. typically only benefit the current accounting period.

C

Bad Debt Expense is reported on the income statement as a. part of cost of goods sold. b. an expense subtracted from net sales to determine gross profit. c. an operating expense. d. a contra revenue account.

C

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n) a. equal and equitable manner. b. accelerated and accurate manner. c. systematic and rational manner. d. conservative market-based manner.

C

Goodwill a. is only recorded when generated internally. b. can be subdivided and sold in parts. c. can only be identified with the business as a whole. d. can be defined as normal earnings less accumulated amortization.

C

If a company incurs legal costs in successfully defending its patent, these costs are recorded by debiting a. Legal Expense. b. the Intangible Loss account. c. the Patent account. d. a revenue expenditure account.

C

Management should select the depreciation method that a. is easiest to apply. b. best measures the plant asset's market value over its useful life. c. best measures the plant asset's contribution to revenue over its useful life. d. has been used most often in the past by the company.

C

Receivables might be sold to a. lengthen the cash-to-cash operating cycle. b. take advantage of deep discounts on the cash realizable value of receivables. c. generate cash quickly. d. finance companies at an amount greater than cash realizable value.

C

The face value of a note refers to the amount a. that can be received if sold to a factor. b. borrowed plus interest received at maturity from the maker. c. at which the note receivable is recorded. d. remaining after a service charge has been deducted.

C

The two key parties to a promissory note are the a. maker and a bank. b. debtor and the payee. c. maker and the payee. d. sender and the receiver.

C

Three accounting issues associated with accounts receivable are a. depreciating, returns, and valuing. b. depreciating, valuing, and collecting. c. recognizing, valuing, and accelerating collections. d.accrual, bad debts, and accelerating collections

C

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when a. a sale is made. b. an account becomes bad and is written off. c. management estimates the amount of uncollectible accounts. d. a customer's account becomes past due.

C

Which of the following assets does not decline in service potential over the course of its useful life? a. Equipment b. Furnishings c. Land d. Fixtures

C

Which of the following assets is not properly classified as property, plant, and equipment? a. A building used as a factory b. Land used in ordinary business operations c. A truck held for resale by an automobile dealership d. Land improvements, such as parking lots and fences

C

Which of the following is included in the cost of constructing a building? a. Cost of paving a parking lot. b. Cost of repairing vandalism damage incurred shortly after construction is complete. c. Interest incurred during construction. d. Cost of removing the demolished building existing on the land when it was purchased.

C

Which of the following receivables would not be classified as an "other receivable"? a. Advance to an employee b. Refundable income tax c. Notes receivable d.Interest receivable

C

Which of the following would probably be the most significant type of a claim held by a company? a. notes receivable b. non-trade receivables c. accounts receivable d. interest receivable

C

A gain or loss on disposal of a plant asset is determined by comparing the a. replacement cost of the asset with the asset's original cost. b. book value of the asset with the asset's original cost. c. original cost of the asset with the proceeds received from its sale. d. book value of the asset with the proceeds received from its sale.

D

A patent should a. be amortized over a period of 20 years. b. not be amortized. c. be amortized over its useful life or 20 years, whichever is longer. d. be amortized over its useful life or 20 years, whichever is shorter.

D

All of the following statements about the useful life factor associated with depreciation are true except a. useful life is also called service life. b. useful life is an estimate of productive life. c. past experience with similar assets is helpful in establishing useful life. d. useful life is also called expected trade-in value.

D

All of the following statements regarding impairments are true except a. an impairment is a permanent decline in an asset's market value. b. after an impairment write-down, depreciation is generally lower in subsequent periods. c. immediate recognition of impairment write-downs is now required. d. impairments are generally recorded when the book value falls below the market value.

D

Goodwill a. may be expensed upon purchase if desired. b. can be sold by itself to another company. c. can be purchased and charged directly to stockholders' equity. d. is only recorded when the purchase of an entire business occurs.

D

If a plant asset is retired and is fully depreciated, a. a gain on disposal will be recorded. b. phantom depreciation must be taken as though the asset were still on the books. c. a loss on disposal will be recorded. d. no gain or loss on disposal will be recorded.

D

Intangible assets a. should be reported under the heading Property, Plant, and Equipment. b. are not reported on the balance sheet because they lack physical substance. c. should be reported as Current Assets on the balance sheet. d. should be reported as a separate classification on the balance sheet.

D

Intangible assets are the rights and privileges that result from ownership of long-lived assets that a. must be generated internally. b. are depreciated over their useful life. c. have been exchanged at a gain. d. do not have physical substance.

D

Land improvements should be depreciated over the useful life of the a. land. b. buildings on the land. c. land or land improvements, whichever is longer. d. land improvements.

D

The account Allowance for Doubtful Accounts is classified as a(n) a. liability. b. contra account to Bad Debt Expense. c. expense. d.contra account to Accounts Receivable

D

The direct write-off method of accounting for uncollectible accounts a. emphasizes the matching of expenses with revenues. b. emphasizes balance sheet relationships. c. emphasizes cash realizable value. d. is not generally accepted as a basis for estimating bad debts.

D

The sale of receivables by a business a. indicates that the business is in financial difficulty. b. is generally the major revenue item on its income statement. c. is an indication that the business is owned by a captive finance company. d. can be a quick way to generate cash for operating needs.

D

Two methods of accounting for uncollectible accounts are the a. allowance method and the accrual method. b. allowance method and the net realizable method. c. direct write-off method and the accrual method. d. direct write-off method and the allowance method.

D

Under the direct write-off method of accounting for uncollectible accounts, Bad Debt Expense is debited a. when a credit sale is past due. b. at the end of each accounting period. c. whenever a pre-determined amount of credit sales have been made. d. when an account is determined to be uncollectible.

D

Which of the following is a way of disposing of a note receivable? a. Holding it until it is paid on the maturity date. b. Selling it to receive cash before the maturity date. c. Holding it until the maker defaults on the maturity date. d.All of these are ways to dispose of notes receivable

D