Chapter 5 multiple choice

5. What assets should be amortized using the straight-line method? a. Intangible assets with definite lives b. Intangible assets with indefinite lives c. Natural resources d. All of the above

a

Consider the following information: beginning inventory, 10 units @ $20 per unit; first purchase, 35 units @ $22 per unit; second purchase, 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the FIFO method of inventory costing? a. $1,090 b. $1,060 c. $1,180 d. $1,200

a

How many of the following statements regarding goodwill are true? Goodwill is not reported unless purchased in an exchange. Goodwill must be reviewed annually for possible impairment. Impairment of goodwill results in a decrease in net income. a. Three b. Two c. One d. None

a

Leslie, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2016 and had an estimated useful life of 25 years and a residual value of $20,000. The company's depreciation expense for 2016 was $15,000 on the building. What was the original cost of the building? a. Page 428 $395,000 b. $500,000 c. $520,000 d. Cannot be determined from the information given.

a

Miga Company and Porter Company both bought a new delivery truck on January 1, 2014. Both companies paid exactly the same cost, $30,000, for their respective vehicles. As of December 31, 2017, the net book value of Miga's truck was less than Porter Company's net book value for the same vehicle. Which of the following is an acceptable explanation for the difference in net book value? a. Miga Company estimated a lower residual value, but both estimated the same useful life and both elected straight-line depreciation. b. Both companies elected straight-line depreciation, but Miga Company used a longer estimated life. c. Because GAAP specifies rigid guidelines regarding the calculation of depreciation, this situation is not possible. d. Miga Company is using the straight-line method of depreciation, and Porter Company is using the double-declining-balance method of depreciation.

a

Net income was $850,000. Beginning and ending assets were $8,500,000 and $9,600,000, respectively. What was the return on assets (ROA)? a. 9.39% b. 10.59% c. 9.94% d. 10.41%

a

Page 365 If the ending balance in accounts payable decreases from one period to the next, which of the following is true? a. Cash payments to suppliers exceeded current period purchases. b. Cash payments to suppliers were less than current period purchases. c. Cash receipts from customers exceeded cash payments to suppliers. d. Cash receipts from customers exceeded current period purchases.

a

Which of the following is false regarding a perpetual inventory system? a. Physical counts are not needed since records are maintained on a transaction-by-transaction basis. b. The balance in the inventory account is updated with each inventory purchase and sale transaction. c. Cost of goods sold is increased as sales are recorded. d. The account Purchases is not used as inventory is acquired

a

Which of the following is not a component of the cost of inventory? a. Administrative overhead b. Direct labor c. Raw materials d. Factory overhead

a

1. If average total assets increase, but net income, net sales, and average stockholders' equity remain the same, what is the impact on the return on assets ratio? a. Increases. b. Decreases. c. Remains the same. d. Cannot be determined without additional information.

b

2. If a company plans to differentiate its products by offering low prices and discounts for items packaged in bulk (like a discount retailer that requires memberships for its customers), which component in the ROA profit driver analysis is the company attempting to boost? a. Net profit margin. b. Asset turnover. c. Financial leverage. d. All of the above.

b

4. Which of the following is one of the possible nonrecurring items that must be shown in a separate line item below the Income from Continuing Operations subtotal in the income statement? a. Gains and losses from the sale of fixed assets. b. Discontinued operations. c. Extraordinary items. d. Both a and b.

b

5. Which of the following reports is filed annually with the SEC? a. Form 10-Q b. Form 10-K c. Form 8-K d. Press release

b

A company has been successful in reducing the amount of sales returns and allowances. At the same time, a credit card company reduced the credit card discount from 3 percent to 2 percent. What effect will these changes have on the company's net sales, all other things equal? a. Net sales will not change. b. Net sales will increase. c. Net sales will decrease. d. Either (b) or (c).

b

Sales discounts with terms 2/10, n/30 mean: a. 10 percent discount for payment within 30 days. b. 2 percent discount for payment within 10 days, or the full amount (less returns) due within 30 days. c. Two-tenths of a percent discount for payment within 30 days. d. None of the above.

b

Under what method(s) of depreciation is an asset's net book value the depreciable base (the amount to be depreciated)? a. Straight-line method b. Declining-balance method c. Units-of-production method d. All of the above

b

When using the allowance method, as bad debt expense is recorded, a. Total assets remain the same and stockholders' equity remains the same. b. Total assets decrease and stockholders' equity decreases. c. Total assets increase and stockholders' equity decreases. d. Total liabilities increase and stockholders' equity decreases.

b

Which of the following is not a normal function of a financial analyst? a. Issue earnings forecasts. b. Examine the records underlying the financial statements to certify their conformance with GAAP. c. Make buy, hold, and sell recommendations on companies' stock. d. Advise institutional investors on their securities holdings.

b

An increasing inventory turnover ratio a. Indicates a longer time span between the ordering and receiving of inventory. b. Indicates a shorter time span between the ordering and receiving of inventory. c. Indicates a shorter time span between the purchase and sale of inventory. d. Indicates a longer time span between the purchase and sale of inventory.

c

Consider the following information: beginning inventory, 10 units @ $20 per unit; first purchase, 35 units @ $22 per unit; second purchase, 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the LIFO method of inventory costing? a. $1,090 b. $1,060 c. $1,180 d. $1,200

c

Consider the following information: ending inventory, $24,000; sales, $250,000; beginning inventory, $30,000; selling and administrative expenses, $70,000; and purchases, $90,000. What is cost of goods sold? a. $86,000 b. $94,000 c. $96,000 d. 84,000

c

Gross sales total $300,000, one-half of which were credit sales. Sales returns and allowances of $15,000 apply to the credit sales, sales discounts of 2 percent were taken on all of the net credit sales, and credit card sales of $100,000 were subject to a credit card discount of 3 percent. What is the dollar amount of net sales? a. $227,000 b. $229,800 c. $279,300 d. $240,000

c

If a company reported the following items on its income statement (cost of goods sold $6,000, income tax expense $2,000, interest expense $500, operating expenses $3,500, sales revenue $14,000), what amount would be reported for the subtotal "income from operations"? a. $8,000 b. $2,000 c. $4,500 d. $4,000

c

The classified balance sheet format allows one to ascertain quickly which of the following? a. The most valuable asset of the company. b. The specific due date for all liabilities of the company. c. What liabilities must be paid within the upcoming year. d. None of the above.

c

Upon review of the most recent bank statement, you discover that you recently received an "insufficient funds check" from a customer. Which of the following describes the actions to be taken when preparing your bank reconciliation? Balance per Books Balance per Bank Statement a. No change Decrease b. Decrease Increase c. Decrease No change d. Increase Decrease

c

When a company issues stock with a par value, what columns are typically presented in the statement of stockholders' equity? a. Common Stock; Additional Paid-In Capital; and Property, Plant, and Equipment, Net. b. Cash; and Property, Plant, and Equipment, Net. c. Common Stock; Additional Paid-In Capital; and Retained Earnings. d. Common Stock; Additional Paid-In Capital; and Cash.

c

Which inventory method provides a better matching of current costs with sales revenue on the income statement and outdated values for inventory on the balance sheet? a. FIFO b. Average cost c. LIFO d. Specific identification

c

Which of the following is not a component of net sales? a. Sales returns and allowances b. Sales discounts c. Cost of goods sold d. Credit card discounts

c

Which of the following regarding the lower of cost or market rule for inventory are true? (1) The lower of cost or market rule is an example of the historical cost principle. (2) When the net realizable value of inventory drops below the cost shown in the financial records, net income is reduced. (3) When the net realizable value of inventory drops below the cost shown in the financial records, total assets are reduced. a. (1) b. (2) c. (2) and (3) d. All three

c

You have determined that Company X estimates bad debt expense with an aging of accounts receivable schedule. Company X's estimate of uncollectible receivables resulting from the aging analysis equals $250. The beginning balance in the allowance for doubtful accounts was $220. Write-offs of bad debts during the period were $180. What amount would be recorded as bad debt expense for the current period? a. $180 b. $250 c. $210 d. $220

c

6. A company wishes to report the highest earnings possible for financial reporting purposes. Therefore, when calculating depreciation, a. It will follow the MACRS depreciation tables prescribed by the IRS. b. It will select the shortest lives possible for its assets. c. It will select the lowest residual values for its assets. d. It will estimate higher residual values for its assets.

d

6. Page 260 Which of the following would normally not be found in the notes to the financial statements? a. Accounting rules applied in the company's financial statements. b. Additional detail supporting numbers reported in the company's financial statements. c. Relevant financial information not presented in the company's financial statements. d. All of the above would be found in the notes to the financial statements.

d

Company X is going to retire equipment that is fully depreciated with no residual value. The equipment will simply be disposed of, not sold. Which of the following statements is false? a. Total assets will not change as a result of this transaction. b. Net income will not be impacted as a result of this transaction. c. This transaction will not impact cash flow. d. All of the above statements are true.

d

Maks, Inc., uses straight-line depreciation for all of its depreciable assets. Maks sold a used piece of machinery on December 31, 2017, that it purchased on January 1, 2016, for $10,000. The asset had a five-year life, zero residual value, and $2,000 accumulated depreciation as of December 31, 2016. If the sales price of the used machine was $7,500, the resulting gain or loss upon the sale was which of the following amounts? a. Loss of $500 b. Gain of $500 c. Loss of $1,500 d. Gain of $1,500 e. No gain or loss upon the sale.

d

The inventory costing method selected by a company will affect a. The balance sheet. b. The income statement. c. The statement of retained earnings. d. All of the above.

d

When a company using the allowance method writes off a specific customer's $100,000 account receivable from the accounting system, which of the following statements are true? 1. Total stockholders' equity remains the same. 2. Total assets remain the same. 3. Total expenses remain the same. a. 2 b. 1 and 3 c. 1 and 2 d. 1, 2, and 3

d

When recording depreciation, which of the following statements is true? a. Total assets increase and stockholders' equity increases. b. Total assets decrease and total liabilities increase. c. Total assets decrease and stockholders' equity increases. d. None of the above are true.

d

Which of the following best describes the proper presentation of accounts receivable in the financial statements? a. Gross accounts receivable plus the allowance for doubtful accounts in the asset section of the balance sheet. b. Gross accounts receivable in the asset section of the balance sheet and the allowance for doubtful accounts in the expense section of the income statement. c. Gross accounts receivable less bad debt expense in the asset section of the balance sheet. d. Gross accounts receivable less the allowance for doubtful accounts in the asset section of the balance sheet.

d

Which of the following is not a step toward effective internal control over cash? a. Require signatures from a manager and one financial officer on all checks. b. Require that cash be deposited daily at the bank. c. Require that the person responsible for removing the cash from the register have no access to the accounting records. d. All of the above are steps toward effective internal control.

d

(Chapter Supplement) Irish Industries purchased a machine for $65,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of $3,000. At the beginning of the sixth year, a major overhaul was made costing $5,000, and the total estimated useful life was extended to 13 years with a residual value of $3,000. Depreciation expense for Year 6 is: a. $1,885 b. $2,000 c. $3,250 d. $3,625 e. $4,500

e