Exam #2 Accounting: Cash Flows, Inventory, the Popularity of Lifo – Flashcards
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Which of the following best describes credit sales? -Sales to customers on account -Cash sales to customers that are new to the company -sales to customers using credit cards -sales to customers on account -sales with a high risk that the customer will return the product
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Sales to customers on account
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Oswego Clay Pipe Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Oswego record on April 12?
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Accounts receivable debit 46,000 Sales Revenue credit 46000
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Richard LLC accounts for possible bad debts using the allowance method. When an actual bad debt occurs, what effect does it have on the accounting equation? -Increases assets and increases stockholders' equity. -Decreases assets and decreases stockholders' equity. -Decreases assets and decreases liabilities. -No effect on the accounting equation.
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No effect on the accounting equation
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Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. This transaction would include a: -Credit to Cash. -Debit to Sales Discount. -Debit to Notes Receivable. -Credit to Notes Receivable.
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Debit to Notes Receivable
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At December 31, Amy Jo's Appliances had account balances in Accounts Receivable of $311,000 and $970 (credit) in Allowance for Uncollectible Accounts. An analysis of Amy Jo's December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for the year should be: -$6,220. -$6,450. -$5,250. -$7,190.
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$5,5250 (311,000 * 2%)-970= 5,250
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At the end of 2015, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2015, to record its estimated uncollectible accounts included a: -Credit to Allowance for Uncollectible Accounts of $12,000. -Debit to Bad Debt Expense of $7,500. -Credit to Allowance for Uncollectible Accounts of $7,500. -Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500.
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-Debit to Bad Debt Expense of $7,500; credit to Allowance for Uncollectible Accounts of $7,500. Bad Debt Expense = $12,000 − $4,500 = $7,500.
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The following information pertains to Lindsey Corp. at the end of the year: Credit Sales: 150,000 Accounts Payable 20,000 Accounts Receivable 30,000 Allowance for Uncollectible Accounts 800 debit Cash sales-$1,200. -$2,200. - $3,000. -$3,800.
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- 3,000 Bad debt expense = $150,000 x 2% = $3,000.
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Sandburg Veterinarian reports the following information for the year: Net Credit Sales 120,000 Average accounts receivable 20,000 cash collections on credit sales 100,000-6.0 -5.0 -1.2 -.2
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6.0 Receivables turnover ratio = net credits sales ($120,000)/average accounts receivable ($20,000) = 6.0.
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Using the allowance method, writing off an actual bad debt would include a: -Debit to Bad Debt Expense. - Credit to Accounts Receivable. -Debit to Accounts Receivable. -Credit to Allowance for Uncollectible Accounts.
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- Credit to Accounts Receivable
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Boynton Jewelers reported the following amounts at the end of the year: total sales = $550,000; sales discounts = $12,000; sales returns = $44,000; sales allowances = $17,000. What was the company's net revenues for the year? -$489,000. -$485,000. -$477,000. -$499,000.
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$499,000 Net revenues = $550,000 − $12,000 − $44,000 − $17,000 = $477,000.
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A company collects an account receivable previously written off. Indicate how this transaction would affect the following five financial statement items:
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Assets=no effect liabilities=no effect equity= no effect revenues= no effect expenses= no effect
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When using an aging method for estimating uncollectible accounts: -Older accounts are considered less likely to be collected. -The number of days the account is past due is not considered. -Older accounts are considered more likely to be collected. -No estimate of uncollectible accounts is made
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Older accounts are considered less likely to be collected.
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On December 31, 2015, Coolwear Inc. had balances in Accounts Receivable and Allowance for Uncollectible Accounts of $48,400 and $940, respectively. During 2016, Coolwear wrote off $820 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $1,140 at December 31, 2016. Bad debt expense for 2016 would be: -$320 -$1140 -$820 -$1020
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$1020 Bad debt expense = $1,140 − ($940 − $820) = $1,020.
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Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin would record this reduction by crediting Accounts Receivable and debiting: -Sales Revenue. -Sales Discounts. -Sales Returns. -Sales Allowances.
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Sales Allowances
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At the end of 2015, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (debit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2015, to record its estimated uncollectible accounts included a: -Credit to Allowance for Uncollectible Accounts of $12,000. -Debit to Bad Debt Expense of $16,500. -Credit to Allowance for Uncollectible Accounts of $16,500. -Debit to Bad Debt Expense of $16,500; credit to Allowance for Uncollectible Accounts of $16,500.
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Debit to Bad Debt Expense of $16,500; credit to Allowance for Uncollectible Accounts of $16,500. Bad Debt Expense = $12,000 + $4,500 = $16,500.
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On March 17, Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10, net 20. What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials? -$15,000. -$14,550. -$15,450 -$0
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$0 No revenue recorded on March 25. The revenue would have been recorded on March 17.
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On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. How would Flores record the sale on November 10?
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Accounts Receivable debit 8,000 Sales Revenue Credit 8,000
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Tom's Textiles shipped the wrong material to a customer, who refused to accept the order. This is an example of a: -Sales revenue. -Sales discount. -Sales return. -Sales allowance.
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Sales Return
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Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a: -Sales revenue. -Sales discount. -Sales return. -Sales allowance.
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Sales allowance
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On December 31, 2015, Andy Inc. has a debit balance of $1,500 for the Allowance for Uncollectible Accounts before any year-end adjustment. Andy Inc. also has the following information for its accounts receivable and the estimated percentages of bad debts for different past-due amounts: Age Group-Accounts Receivable- Estimated Percent Uncollectible (0-30)-$50,000-5% (31-60)-$20,000-10% (61-90)-$10,000-20% -$6,500. -$1,500. -$5,000. -$8,000.
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$8,000 Estimated uncollectible = ($50,000 × 5%) + ($20,000 × 10%) + ($10,000 × 20%) = $6,500. Bad Debt Expense = $6,500 + $1,500 = $8,000.
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On July 1, 2015, Herzog Mining lends cash and accepts a $9,000 note receivable that offers 10% interest and is due in nine months. How would Herzog record the transaction on April 1, 2016, when the borrower pays Herzog the correct amount owed?
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Cash debit 9,675 Notes Receivable credit 9,000 Interest Revenue credit 225 Interest Receivable credit 450Interest revenue = $9,000 x 10% x 3/12 = $225. Interest receivable = $9,000 x 10% x 6/12 = $450.
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Suppose that the balance of a company's Allowance for Uncollectible Accounts was $6,200 (credit) at the end of 2015, prior to any adjustments. The company estimated that the total of uncollectible accounts in its accounts receivable was $44,300 at the end of 2015. What amount of bad debt expense would appear in the company's 2015 income statement? -$38,100. -$105,700. -$33,000. -$50,500.
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$38,100 Bad Debt Expense = $44,300 - $6,200 = $38,100.
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On February 1, 2015, Sanger Corp. lends cash and accepts a $2,000 note receivable that offers 10% interest and is due in six months. What would Sanger record on August 1, 2015, when the borrower pays Sanger the correct amount owed?
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Cash Debit 2,100 Interest Revenue credit 100 Notes Receivable credit 2000 Interest revenue = $2,000 x 10% x 6/12 = $100.
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At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (debit). An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be: -$6,540. -$7,800. -$7,140. -$7,740.
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$7,740 ($238,000 x 3%) + $600 = $7,740.
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Under the direct write-off method, what adjustment is made at the end of the year to account for possible future bad debts? -Debit Bad Debt Expense. -Debit Allowance for Uncollectible Accounts. -Credit Accounts Receivable. -No adjustment is made.
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No Adjustment is made.
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Merchandise sold FOB destination indicates that: -The seller holds title until the merchandise is received at the buyer's location. -The merchandise has not yet been shipped. -The merchandise will not be shipped until payment has been received. -The seller transfers title to the buyer once the merchandise is shipped.
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The seller holds title until the merchandise is received at the buyers location
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The distinction between operating and nonoperating income relates to: -Continuity of income. -Principal activities of the reporting entity. -Consistency of income stream. -Reliability of measurements.
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Principle activities of the reporting entity.
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Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a perpetual inventory system?
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Inventory Debit 2,000 Accounts Payable credit 2,000
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Anthony Corporation reported the following amounts for the year: Net sales $296,000 Cost of Goods Sold 138,000 Average inventory 50,000-2.42. -2.76. -3.21. -2.14.
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2.76 Inventory turnover ratio = cost of goods sold ($138,000)/average inventory ($50,000) = 2.76.
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At the end of a reporting period, Gamble Corporation determines that its ending inventory has a cost of $300,000 and a market value of $230,000. What would be the effect(s) of the adjustment to write down inventory to market value? -Decrease total assets. -Decrease net income. -Increase retained earnings. -Decrease total assets and net income.
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Decrease total assets and net income
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If a company understates its count of ending inventory in Year 1, which of the following is true? -Costs of good sold is understated at the end of Year 1. -Profit is correct in Year 2. -The balance of retained earnings is overstated at the end of Year 1. -The balance of retained earnings is correct at the end of Year 2.
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The balance of retained earnings is correct at the end of Year 2
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Inventory records for Marvin Company revealed the following: Date-Transaction- #of Units- Unit costMar 1- Beg inventory- 1,000-7.20 Mar 10- Purchase- 600-7.25 Mar 16- Purchase- 800- 7.30 March 23- Purchase- 600- 7.35 Marvin sold 2,300 units of inventory during the month. Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary): -$5,087. -$5,107. -$5,077. -$5,005.
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$5,087 Weighted-average cost = [(1,000 x $7.20) + (600 x $7.25) + (800 x $7.30) + (600 x $7.35)]/3,000 = $7.2667. Ending inventory = 700 x $7.2667 = $5,087 (rounded).
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Consider the following year-end information for Spitzer Corporation: Cost of Goods Sold $420,000 Sales Revenue 800,000 Nonoperating Expenses 10,000 Operating Expenses 170,000 Income Tax Expense 80,000-$200,000. - $210,000. -$380,000. -$120,000.
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$210,000 Operating income = $800,000 − $420,000 − $170,000 = $210,000.
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The following information relates to inventory for Shoeless Joe Inc. March 1- Beg Inventory-20-$2 March 7- Purchase-15-$3 March 11- Sale - 25- $7 March 12- Purchase-20- $4-$55. -$170. -$110. -$70.
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$110 Ending inventory = ($3 × 10) + ($4 × 20) = $110.
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In a period of rising costs, which inventory valuation method would a company likely choose if they want to have the highest possible balance of inventory on the balance sheet? -Weighted-average cost -FIFO -LIFO -Periodic
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FIFO
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Under the principle of lower-of-cost-or-market, when a company has 10 units of inventory A with market value of $50 and a cost of $60, what is the adjustment? -Debit Inventory $100; credit Cost of Goods Sold $100. -Debit Inventory $500; credit Cost of Goods Sold $500. -Debit Cost of Goods Sold $100; credit Inventory $100. -Debit Cost of Goods Sold $500; credit Inventory $500.
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Debit Cost of Goods Sold $100; credit Inventory $100. Need to reduce inventory cost to the lower market value. 10 x $10 = $100.
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In a perpetual inventory system, the purchase of inventory is debited to: -Purchases -Costs of Goods Sold -Inventory -Accounts Payable `
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Inventory
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Using the information below, determine the ending inventory value applying the lower-of-cost-or-market method. Inventory Item- Quantity-Cost- Market Cutlets-200-$14-$14 Chops-400-$16-$14 Shanks-300-$15-$12 -$13,300. -$12,000. - $11,600. -$13,700.
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$11,600 Cutlets = $12 × 200 = $2,400. Chops = $14 × 400 = $5,600. Shanks = $12 × 300 = $3,600. Ending inventory = $2,400 + $5,600 + $3,600 = $11,600.
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During periods when inventory costs are rising, ending inventory will most likely be: -Greater under LIFO than FIFO. -Less under average cost than LIFO. -Greater under average cost than FIFO. -Greater under FIFO than LIFO.
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Greater under FIFO than LIFO
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LeGrand Corporation reported the following amounts in its income statement: Sales Revenue $440,000 Advertising Expense 60,000 Interest Expense 10,000 Salaries Expense 55,000 Utilities Expense 25,000 Income tax expense 45,000 cost of goods sold 180,000 What was LeGrand's net income?-$120,000. -$60,000. -$110,000. -$65,000.
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$65,000 Net income = $440,000 − $180,000 − ($60,000 + $55,000 + $25,000) − $10,000 − $45,000 = $65,000.
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Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover, compared to Company B's, would be:
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Gross Profit -Higher Inventory Turnover- Lower
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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a periodic inventory system?
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Accounts Payable debit 2,000 Purchase Discounts Credit 40 Cash Credit 1,960Purchase discount = $2,000 × 2% = $40.
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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a perpetual inventory system?
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Accounts Payable Debit 2,000 Inventory Credit 40 Cash Credit 1,960Purchase discount = $2,000 × 2% = $40.
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Given the information in the table below, what is the company's gross profit? Sales Revenue $350,000 Accounts Receivable 280,000 Ending Inventory 230,000 Cost of Goods Sold 180,000 Sales Returns 50,000 Sales Discount 20,000 -$280,000. -$170,000. -$50,000. -$100,000.
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$100,000 Net sales = $350,000 − $50,000 − $20,000 = $280,000. Gross profit = $280,000 − $180,000 = $100,000.
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Inventory records for Marvin Company revealed the following: Date- Transaction-#of Units-Unit Cost Mar 1-Beg Inventory-1,000-$7.20 Mar 10- Purchase-600-7.25 Mar 16- Purchase-800-7.30 Mar 23- Purchase-600-7.35-$16,800. -$16,760. -$16,540. -$16,660.
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16,660 Cost of goods sold = (1,000 x $7.20) + (600 x $7.25) + (700 x $7.30) = $16,660.
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Good, Inc. sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a periodic inventory system? -No entry is required for cost of goods sold and inventory. -Debit Cost of Goods Sold $700; credit Inventory $700. -Debit Cost of Goods Sold $1,200; credit Inventory $1,200. -Debit Inventory $700; credit Cost of Goods Sold $700.
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No entry is required for cost of goods sold and inventory
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Anthony Corporation reported the following amounts for the year: Net sales $296,000 Cost of Goods Sold 138,000 Average Inventory 50,000 -53.4%. -51.9%. -50.3%. -46.6%.
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53.4% Gross profit ratio = gross profit ($296,000 − $138,000)/net sales ($296,000) = 53.4% (rounded).
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In a periodic inventory system, the purchase of inventory is debited to: -Purchases. -Cost of goods sold. -Inventory. -Accounts payable.
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Purchases
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The primary reason for the popularity of LIFO is that it gives: -Better matching of physical flow and cost flow. -A lower income tax obligation when inventory costs are rising. -Simplified recordkeeping. -A simpler method to apply.
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A lower income tax obligation when inventory costs are rising.
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Inventory records for Dunbar Incorporated revealed the following: Date-Transaction-#of Units-Unit Cost Apr 1- Beg Inventory-500-2.40 Apr 20- Purchase-400-2.50Dunbar sold 700 units of inventory during the month. Ending inventory assuming LIFO would be: -$500 -490 -470 -480
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$480 Ending inventory = 200 x $2.40 = $480.
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Gains on the sale of fixed assets for cash: -Are the excess of the book value over the cash received. -Are recorded as a debit. -Are reported on a net-of-tax basis if material. -Are the excess of the cash received over the book value.
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Are the excess of the cash received over the book value.
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Berry Co. purchases a patent on January 1, 2015, for $40,000 and the patent has an expected useful life of five years with no residual value. Assuming Berry Co. uses the straight-line method, what is the carrying value of the patent on December 31, 2016? -$21,000. -$33,000. -$24,000. -$26,000.
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$24,000 $40,000/5 years = $8,000 amortization per year. Cost $40,000 LESS: Accumulated Amortization(16,000) =Carrying Value 12/31/16 $24,000
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Which of the following is considered a "contra" account? -Unearned Revenue. -Goodwill. -Accumulated Depreciation. -Cost of Goods Sold.
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Accumulated Depreciation
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Career Services, Incorporated sold some office equipment for $52,000 on December 31, 2015. The journal entry to record the sale would include which of the following if the original cost of the equipment was $80,000 with a residual value of $5,000 and a useful life of 10 years? Assume the machine was purchased on January 1, 2012 and depreciated using the straight-line method. -Gain of $2,000. -Loss of $9,500. -Gain of $9,500. -Loss of $2,000.
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Gain of $2,000 [($80,000 − $5,000)/10 years] = $7,500 depreciation per year. After four years, the book value would be [$80,000 − ($7,500 x 4 years)] = $50,000. The asset was sold for $52,000 or a $2,000 gain over book value.
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Lake Incorporated purchased all of the outstanding stock of Huron Company paying $850,000 cash. Lake assumed all of the liabilities. Book values and fair values of acquired assets and liabilities were: Current Assets (net) Book Value: 130,000 Fair Value: 125,000 Property, plant, erupt (net) Book:600,000 Fair: 750,000 Liabilities Book:175,000 Fair: 175,000 Lake would record goodwill of: -$0. -$150,000. -$345,000. -$850,000.
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$150,000 Purchase Price 850,000 Less Fair value of net assets: Assets(125,000+750,000) Less:Liabilities assumed 175,000 (700,000) Goodwill ===150,000
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The following financial information is from Cook Company: Accounts Payable $55,000 Land 90,000 Inventory 10,500 Accounts Receivable 7,500 Equiptment 8,000 Unearned Revenue 58,500 Short term Investments 20,000 Notes Receivable (due in 8months) 45,500 Interest Payable 2,000 Patents 75,000What is the amount of long-term assets assuming the accounts above reflect normal activity? -$342,500. - $173,000. -$273,500. -$98,000.
answer
173,000 $90,000 + $8,000 + $75,000 = $173,000.
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Research and development costs should be: -Expensed in the period incurred. -Expensed in the period they are determined to be unsuccessful. -Deferred pending determination of success. -Expensed if unsuccessful, capitalized if successful.
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Expensed in the period incurred
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Real Angus Steakhouse purchased land for $75,000 cash. They also incurred commissions of $4,500, property taxes of $5,000, and title insurance of $800. The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date. For what amount should Real Angus Steakhouse record the land? -$83,500. - $84,300. -$85,300. -$75,000.
answer
84,300 $75,000 + $4,500 + $4,000 + $800 = $84,300.
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Abbott Company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. Abbott should record: -a gain of $1,000. -a loss of $1,000. -neither a gain nor a loss - the computer was sold at its book value. -neither a gain nor a loss - the gain that occurred in this case would not be recognized.
answer
a gain of 1,000 $10,000/5 = depreciation of $2,000 per year. After four years, the book value would be $10,000 − ($2,000 x 4 years) = $2,000. The asset was sold for $3,000 or a $1,000 gain over book value.
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The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and $800,000, respectively. What is Hidden Valley's return on assets? -10%. - 20%. -160%. -18%.
answer
20% $100,000/[($450,000 + $550,000)/2] = 20%.
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Kansas Enterprises purchased equipment for $60,000 on January 1, 2015. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the straight-line method, the book value at December 31, 2015 would be: -$44,000. -$49,000. -$55,000. -$60,000.
answer
49,000 Book value = $60,000 − $11,000 = $49,000.
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A machine has a cost of $15,000, an estimated residual value of $3,000, and an estimated useful life of four years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount will be reported for accumulated depreciation? -$9,000. - $6,000. -$7,500. -$3,000.
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6,000 ($15,000 − $3,000)/4 years = $3,000 per year x 2 years = $6,000.
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The legal life of a patent is:
answer
twenty years
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Kansas Enterprises purchased equipment for $60,000 on January 1, 2015. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the double-declining balance method, depreciation expense for 2015 would be: -$24,000. -$22,000. -$19,000. -$20,000.
answer
24,000 Depreciation expense = $60,000 x .40 = $24,000. Depreciation rate = 2/5 = .40.
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Kansas Enterprises purchased equipment for $60,000 on January 1, 2015. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the double-declining balance method, depreciation expense for 2016 would be: -$22,000. -$13,200. - $14,400. -$24,000.
answer
14,400 Depreciation expense = [($60,000 − ($60,000 x .40)] x .40 = $14,400. Depreciation rate = 2/5 = .40.
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Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods' accountant debited the asset account, Equipment. Was this treatment an error, and if so, what will be the effect on Woods' financial statements? -No, the repair was accounted for correctly. - Yes, the error overstated assets and net income. -Yes, in the years following, net income will be overstated. -Yes, the error understated net income.
answer
Yes, the error overstated assets and net income
question
Productive assets that are physically used up, or depleted are: -equiptment -land -land improvements -natural resources
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natural resources
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The balance sheet of Hidden Valley Farms reports total assets of $450,000 and $550,000 at the beginning and end of the year, respectively. Net income and sales for the year are $100,000 and $800,000, respectively. What is Hidden Valley's asset turnover? -1.6times -1.8 times -1.5 times -.2times
answer
1.6 times $800,000/[($450,000 + $550,000)/2] = 1.6 times.
question
Research and development costs should be capitalized when the: -Future benefit is probable and the amount can be reasonably estimated. -Future benefit is reasonably possible and the amount can be reasonably estimated. -Future benefit is probable and the amount cannot be reasonably estimated. - None of these
answer
None of these
question
Landon Co. purchased a $500,000 tract of land that is intended to be the site of a new office complex. Landon incurred additional costs and realized salvage proceeds as follows: Demolition of existing building on site 75,000 Legal and other fees to close escrow 15,000 Proceeds from sale of demolition scrap 10,000 What would be the capitalized cost of the land? -$500,000. -$575,000. - $580,000. -$590,000.
answer
580,000 Purchase 500,000 Demolition Costs 75,000 Legal Fees 15,000 Sale of Scrap (10,000) total cost of land 580,000
question
Bricktown Exchange purchases a copyright for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the company uses the straight-line method, what is the amortization expense for the first year? -$0. -$2,000. -$3,333. -$10,000.
answer
10,000 $50,000/5 years = $10,000.
question
In testing for recoverability of an operational asset, an impairment loss is required if the: -Asset's book value exceeds the present value of its expected future cash flows. -Expected future cash flows exceeds the asset's book value. -Present value of expected future cash flows exceeds its carrying value. Correct- Asset's book value exceeds the expected future cash flows.
answer
Asset's book value exceeds the expected future cash flows
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Bricker Enterprises purchased a machine for $100,000 on October 1, 2015. The estimated service life is ten years with a $10,000 residual value. Bricker records partial-year depreciation based on the number of months in service. Depreciation expense for the year ended December 31, 2015, using straight-line depreciation, is: -$1,500. -$7,500. -$2,250. -$2,500.
answer
2,250 Depreciation expense = [($100,000 − 10,000)/10 years] x 3/12 = $2,250.
question
An exclusive 20-year right to manufacture a product or to use a process is a: -patent -copyright -trademark -franchise
answer
patent
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Return on assets is equal to: -Profit margin plus asset turnover. -Profit margin minus asset turnover. -Profit margin times asset turnover. -Profit margin divided by asset turnover.
answer
Profit margin times asset turnover.
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Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Brian Inc. record? -Debit Cash, $8,000; Credit Notes Receivable, $8,000. -Debit Notes Receivable, $8,000; Credit Cash, $8,000. -Debit Cash, $8,000; Credit Notes Payable, $8,000. -Debit Notes Payable, $8,000; Credit Cash, $8,000.
answer
Debit Cash, $8,000; Credit Notes Payable, $8,000.
question
In December, 2014, Quebecor Printing received magazine subscriptions for 2015 from a customer, who paid $500 in cash. What would be the appropriate journal entry for this event? -Debit Cash, $500; credit Subscription Revenue, $500. -Debit Cash, $500; credit Unearned Revenue, $500. -Debit Subscription Revenue, $200; credit Cash, $200. -No journal entry is necessary.
answer
Debit Cash, $500; credit Unearned Revenue, $500
question
Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the restaurant charge you for the lunch (excluding any tax) and how much do they owe for sales tax? -$8.39 for lunch and $0.42 for sales tax. -$8.39 for lunch and no sales tax. -$8.81 for lunch and $0.42 for sales tax. -$7.99 for lunch and $0.40 for sales tax.
answer
$7.99 for lunch and $0.40 for sales tax. $8.39/1.05 = $7.99.
question
A company's liquidity refers to its: -Ability to collect accounts receivable. -Ability to sell inventory efficiently. -Ability to generate profits from operations. -Ability to pay currently maturing debts.
answer
-Ability to pay currently maturing debts.
question
Which of the following is true regarding FICA taxes? -FICA taxes are paid only by the employee. -FICA taxes are paid only by the employer. -FICA taxes are paid in equal amounts by the employee and the employer. -FICA taxes are paid in different amounts by the employee and the employer.
answer
FICA taxes are paid in equal amounts by the employee and the employer
question
Which of the following statements regarding liquidity ratios is true? -A low current ratio generally indicates the ability to pay current liabilities on a timely basis. -A low acid-test ratio generally indicates the ability to pay current liabilities on a timely basis. -All current assets are due within one year and therefore have essentially equal liquidity. - A high working capital generally indicates the ability to pay current liabilities on a timely basis.
answer
A high working capital generally indicates the ability to pay current liabilities on a timely basis.
question
On November 1, 2015, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2016. The Bagel Factory records the appropriate adjusting entry for the note on December 31, 2015. In recording the payment of the note plus accrued interest at maturity on May 1, 2016, The Bagel Factory would -Debit Interest Expense, $2,000. -Debit Interest Expense, $1,000. -Debit Interest Payable, $2,000. -Debit Interest Expense, $3,000.
answer
debit interest expense 2,000 Interest expense in 2016 = [($100,000 x 6%) x 4/12] = $2,000.
question
The current ratio is -Current assets divided by current liabilities. -Cash and short-term investments divided by current liabilities. -Cash, short-term investments, and accounts receivable divided by current liabilities. -Cash, short-term investments, accounts receivable, and inventory divided by current liabilities
answer
Current Assets divided by current liabilities
question
United Supply has a $5 million liability at December 31, 2015, of which $1 million is payable in each of the next five years. United Supply reports the liability on the balance sheet as: -A $5 million current liability. -A $5 million long-term liability. - A $1 million current liability and a $4 million long-term liability. -A $4 million current liability and a $1 million long-term liability.
answer
A $1 million current liability and a $4 million long-term liability.
question
Which of the following is not a current liability? -Accounts payable. - A note payable due in 2 years. -Current portion of long-term debt. -Sales tax payable.
answer
A note payable due in 2 years
question
Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax rate is 6%, what are Union Apparel's sales for the month? -$500,000. -$518,128. - $520,000. -$551,200.
answer
520,000 $551,200/1.06 = $520,000.
question
Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation? -As a liability for $100,000 with disclosure of the range. -As a liability for $150,000 with disclosure of the range. -As a liability for $200,000 with disclosure of the range. -As a disclosure only. No liability is reported.
answer
As a disclosure only. No liability is reported. A contingent liability is not recorded if the likelihood of loss is only reasonably possible.
question
Mike Gundy is a college football coach making a base salary of $2,400,000 a year ($200,000 per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the FICA maximum base amount is $113,700, through what month will Social Security be withheld? -Social Security will be withheld only in January. -Social Security will be withheld through the entire year. -Social Security will be withheld through the month of March. -Social Security will be withheld through the month of June.
answer
Social Security will be withheld only in January. The coach's monthly salary of $200,000 exceeds the FICA maximum base amount of $113,700, so the total amount of Social Security for the year will be withheld in January.
question
When a gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be: -Reported in the income statement and disclosed. -Offset against stockholders' equity. -Disclosed, but not recognized in the income statement. -Reported in the income statement, but not disclosed.
answer
Disclosed, but not recognized in the income statement.
question
Region Jet has a $50 million liability at December 31, 2015, of which $10 million is payable in 2016. In its December 31, 2015 balance sheet, the company reports the $50 million debt as -A $50 million current liability on the balance sheet. -A $50 million long-term liability on the balance sheet. -A $10 million current liability and a $40 million long-term liability on the balance sheet. -A $40 million current liability and a $10 million long-term liability on the balance sheet.
answer
A $10 million current liability and a $40 million long-term liability on the balance sheet.
question
When a company collects sales tax from a customer, the event is recorded by: -A debit to Sales Tax Expense and a credit to Sales Tax Payable. -A debit to Cash and a credit to Sales Tax Payable. -A debit to Sales Tax Payable and a credit to Sales Tax Expense. -A debit to Sales Tax Payable and a credit to Cash.
answer
A debit to Cash and a credit to Sales Tax Payable.
question
On December 1, 2015, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2016. Old World Deli records the appropriate adjusting entry for the note on December 31, 2015. What amount of cash will be needed to pay back the note payable plus any accrued interest on June 1, 2016? -$300,000. -$301,250. -$306,250. -$307,500.
answer
307,500 $300,000 + [$300,000 x 5% x 6/12] = $307,500.
question
Given a choice, most companies would prefer to report a liability as long-term rather than current because: -It may cause the firm to appear less risky to investors and creditors. -It may reduce interest rates on borrowing. -It may cause the company to appear more stable commanding a higher stock price for new stock listings.
answer
All of these
question
Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should First Bank record? -Debit Cash, $8,000; Credit Notes Receivable, $8,000. -Debit Notes Receivable, $8,000; Credit Cash, $8,000. -Debit Cash, $8,000; Credit Notes Payable, $8,000. -Debit Notes Payable, $8,000; Credit Cash, $8,000.
answer
Debit Notes Receivable, $8,000; Credit Cash, $8,000.
question
The Pita Pit borrowed $100,000 on November 1, 2015, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2016. In connection with this note, The Pita Pit should report interest expense at December 31, 2015, in the amount of: -$0. -$1,000. -$2,000. -$6,000.
answer
2,000 [($100,000 x 12%) x 2/12] = $2,000.
question
On November 1, 2015, New Morning Bakery signed a $200,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2016. New Morning Bakery should record which of the following adjusting entries at December 31, 2015? -Debit Interest Expense and credit Interest Payable, $2,000. -Debit Interest Expense and credit Cash, $2,000. -Debit Interest Expense and credit Interest Payable, $6,000. -Debit Interest Expense and credit Cash, $6,000.
answer
-Debit Interest Expense and credit Interest Payable, $2,000. [($200,000 x 6%) x 2/12] = $2,000.
question
Which of the following is not an employer payroll cost? -FICA taxes. -Federal and state unemployment taxes. -Federal and state income taxes. -Employer contributions to a retirement plan.
answer
Federal and state income taxes
question
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be -Disclosed, but not reported as a liability. -Disclosed and reported as a liability. -Neither disclosed nor reported as a liability. -Reported as a liability, but not disclosed.
answer
-Disclosed, but not reported as a liability.
question
Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the actual direct deposit of payroll for the first week of January? -$5,404. - $5,708. -$4,792. -$8,000.
answer
5,708 Total Salaries Expense [(10*40hrs) * $20]=8000 Less : withholdings Federal income tax (8,000*.15)=1200 State Income tax (8,000*.06)=480 FICA taxes (8,000*.0765)=612 total withholdings =2,292 Actal Direct Deposit 5,708
question
The acid-test ratio is -Current assets divided by current liabilities. -Cash and short-term investments divided by current liabilities. -Cash, short-term investments, and accounts receivable divided by current liabilities. -Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.
answer
Cash, short-term investments, and accounts receivable divided by current liabilities.
question
Accounts receivable are best described as: a. liabilities of the company that represent the amount owed to suppliers. b. amounts that have previously been received from customers c. Assets of the company representing the amount owed by customers. d. Amounts that have previously been paid to suppliers.
answer
c. Assets of the company representing the amount owed by customers.
question
On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17? a $12,400. b $11,760. c $12,000. d $12,240.
answer
c. 12,200
question
Refer to the information in the previous question. What is the amount of net revenues (sales minus sales discounts) as of March 23? a $0. b $11,760. c $12,000. d $12,240.
answer
b. 11,760
question
Suppose the balance of Allowance for Uncollectible Accounts at the end of the current year is $400 (credit) before any adjustment. The company estimates future uncollectible accounts to be $3,200. At what amount would bad debt expense be reported in the current year's income statement? a $400. b $2,800. c $3,200. d $3,600.
answer
b. 2,800
question
Suppose the balance of Allowance for Uncollectible Accounts at the end of the current year is $400 (debit) before any adjustment. The company estimates future uncollectible accounts to be $3,200. At what amount would bad debt expense be reported in the current year's income statement? a $400. b $2,800. c $3,200. d $3,600.
answer
3,600
question
Kidz Incorporated reports the following aging schedule of its accounts receivable with the estimated percent uncollectible. What is the total estimate of uncollectible accounts using the aging method? Age group- amount receivable- estimated percent uncollectible (0-60days)-20,000-2% (61-90 days)- 6000- 15% more than 90 days - 2000- 50% total-28000 b $1,150. c $1,900. d $2,300. e $5,900.
answer
c. 1,900
question
Using the allowance method, the entry to record a write-off of accounts receivable will include: a A debit to Bad Debt Expense. b A debit to Allowance for Uncollectible Accounts. c No entry because an allowance for uncollectible accounts was established in an earlier period. d A debit to Service Revenue.
answer
B. A debit to Allowance for Uncollectible Accounts
question
The direct write-off method is generally not permitted for financial reporting purposes because: a Compared to the allowance method, it would allow greater flexibility to managers in manipulating reported net income. b This method is primarily used for tax purposes. c It is too difficult to accurately estimate future bad debts. d Expenses (bad debts) are not properly matched with the revenues (credit sales) they help to generate.
answer
d Expenses (bad debts) are not properly matched with the revenues (credit sales) they help to generate.
question
On January 1, 2012, Roberson Supply borrows $10,000 from Nees Manufacturing by signing a 9% note due in eight months. Calculate the amount of interest revenue Nees will record on September 1, 2012, the date that the note is due. a $300. b $600. c $900. d $1,000
answer
b. 600
question
At the beginning of 2012, Clay Ventures has total accounts receivable of $100,000. By the end of 2012, Clay reports net credit sales of $900,000 and total accounts receivable of $200,000. What is the receivables turnover ratio for Clay Ventures? a 2.0. b 4.5. c 6.0. d 9.0
answer
c. 6.0
question
Which of following companies earn revenues by selling inventory? a Service companies. b Manufacturing companies. c Merchandising companies. d Both manufacturing and merchandising companies
answer
d. Both manufacturing and merchandising companies
question
At the beginning of the year, Bennett Supply has inventory of $3,500. During the year, the company purchases an additional $12,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $4,000. What amount will Bennett report for cost of goods sold? a $11,000. b $11,500. c $12,000. d $12,500
answer
b. 11,500
question
Which of the following levels of profitability in a multiple-step income statement represents revenues from the sale of inventory less the cost of that inventory? a Gross profit. b Operating income. c Income before income taxes. d Net income.
answer
a. Gross profit
question
Madison Outlet has the following inventory transactions for the year: Date- Transaction- #of units- unit cost-totalcostjan1. begin inventory- 200-2000 mar 14 purchase-15-300-4500 total: 6,500 jan 1-dec 31 total sales to customers 12 What amount would Madison report for cost of goods sold using FIFO? a $2,600. b $2,900. c $3,600. d $3,900
answer
a. 2,600
question
Which inventory cost flow assumption generally results in the lowest reported amount for cost of goods sold when inventory costs are rising? a Lower-of-cost-or-market. b First-in, first-out (FIFO). c Last-in, first-out (LIFO). d Weighted-average cost.
answer
b. First in, first out (FIFO)
question
Using a perpetual inventory system, the purchase of inventory on account would be recorded as: a Debit Cost of Goods Sold; credit Inventory. b Debit Inventory; credit Sales Revenue. c Debit Purchases; credit Accounts Payable. d Debit Inventory; credit Accounts Payable.
answer
d. Debit Inventory; credit Accounts Payable.
question
At the end of a reporting period, Maxwell Corporation determines that its ending inventory has a cost of $1,000 and a market value of $800. What would be the effect(s) of the adjustment to write down inventory to market value? a Decrease total assets. b Decrease net income. c Decrease retained earnings. d All of the above.
answer
d. All of the above.
question
For the year, Simmons Incorporated reports net sales of $100,000, cost of goods sold of $80,000, and an average inventory balance of $40,000. What is Simmons' gross profit ratio? a 20%. b 25%. c 40%. d 50%.
answer
a. 20%
question
Using a periodic inventory system, the purchase of inventory on account would be recorded as: a Debit Cost of Goods Sold; credit Inventory. b Debit Inventory; credit Sales Revenue. c Debit Purchases; credit Accounts Payable. d Debit Inventory; credit Accounts Payable.
answer
c Debit Purchases; credit Accounts Payable.
question
Suppose Ajax Corporation overstates its ending inventory amount. What effect will this have on the reported amount of cost of goods sold in the year of the error? a Overstate cost of goods sold. b Understate cost of goods sold. c Have no effect on cost of goods sold. d Not possible to determine with information given.
answer
b Understate cost of goods sold.
question
We normally record a long-term asset at the: a Cost of the asset only. b Cost of the asset plus all costs necessary to get the asset ready for use. c Appraised value. d Cost of the asset, but subsequently adjust it up or down to appraised value.
answer
b Cost of the asset plus all costs necessary to get the asset ready for use.
question
Sandwich Express incurred the following costs related to its purchase of a bread machine. Cost of the equipment 20,000 sales tax 8% 1,600 shipping 2,200 installation 1,400 total costs 25,200 At what amount should Sandwich Express record the bread machine? a $20,000. b $21,600. c $23,800. d $25,200.
answer
d. 25,200
question
Research and development costs generated internally: a Are recorded as research and development assets. b Are capitalized and then amortized. c Should be included in the cost of the patent they relate to. d Should be expensed.
answer
d. Should be expensed
question
Which of the following expenditures should be recorded as an expense? a Repairs and maintenance that maintain current benefits. b Adding a major new component to an existing asset. c Replacing a major component of an existing asset. d Successful legal defense of an intangible asset.
answer
a. Repairs and maintenance that maintain current benefits.
question
Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life? a Short service life, high residual value, and straight-line depreciation. b Long service life, high residual value, and straight-line depreciation. c Short service life, low residual value, and double-declining-balance depreciation. d Long service life, high residual value, and double-declining-balance depreciation.
answer
b Long service life, high residual value, and straight-line depreciation.
question
The book value of an asset is equal to the: a Replacement cost. b Asset's cost less accumulated depreciation. c Asset's fair value less its historical cost. d Historical cost plus accumulated depreciation.
answer
b. Assets cost less accumulated depreciation
question
The balance in the Accumulated Depreciation account represents: a The amount charged to expense in the current period. b A contra expense account. c A cash fund to be used to replace plant assets. d The amount charged to depreciation expense since the acquisition of the plant asset.
answer
d The amount charged to depreciation expense since the acquisition of the plant asset.
question
Which of the following statements is true regarding the amortization of intangible assets? a Intangible assets with a limited useful life are not amortized. b The service life of an intangible asset is always equal to its legal life. c The expected residual value of most intangible assets is zero. d In recording amortization, Accumulated Amortization is always credited.
answer
c. The expected residual value of most intangible assets is zero.
question
Equipment originally costing $95,000 has accumulated depreciation of $30,000. If it sells the equipment for $55,000, the company should record: a No gain or loss. b A gain of $10,000. c A loss of $10,000. d A loss of $40,000.
answer
c. A loss of 10,000
question
The return on assets is equal to the: a Profit margin plus asset turnover. b Profit margin minus asset turnover. c Profit margin times asset turnover. d Profit margin divided by asset turnover.
answer
C. Profit margins times asset turnover.
question
Which of the following statements regarding liabilities is not true? (LO8-1) a Liabilities can be for services rather than cash. b Liabilities are reported in the balance sheet for almost every business. c Liabilities result from future transactions. d Liabilities represent probable future sacrifices of benefits.
answer
c. Liabilities result from future transactions.
question
Current liabilities: a May include contingent liabilities. b Include obligations payable within one year or one operating cycle, whichever is shorter. c Can be satisfied only with the payment of cash. d Are preferred by most companies over long-term liabilities.
answer
a. May include contingent liabilities.
question
If Express Jet borrows $100 million on October 1, 2015, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 2015? a $0. b $1 million. c $1.5 million. d $6 million.
answer
c. 1.5 million
question
We record interest expense on a note payable in the period in which: a We pay cash for interest. b We incur interest. c We pay cash and incur interest. d We pay cash or incur interest.
answer
b. We incur interest.
question
Which of the following is not deducted from an employee's salary? a FICA taxes. b Unemployment taxes. c Income taxes. d Employee portion of insurance and retirement payments.
answer
b. Unemployment taxes
question
The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as: a Sales tax expense. b Sales tax revenue. c Sales tax receivable. d Sales tax payable.
answer
d. Sales tax payable.
question
Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be: a Disclosed but not reported as a liability. b Disclosed and reported as a liability. c Neither disclosed nor reported as a liability. d Reported as a liability but not disclosed.
answer
a. Disclosed but not reported as a liability
question
Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will settle the lawsuit for an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation? a As a liability for $75,000 with disclosure of the range. b As a liability for $125,000 with disclosure of the range. c As a liability for $175,000 with disclosure of the range. d As a disclosure only. No liability is reported.
answer
a As a liability for $75,000 with disclosure of the range.
question
The acid-test ratio is: a Current assets divided by current liabilities. b Cash and current investments divided by current liabilities. c Cash, current investments, and accounts receivable divided by current liabilities. d Cash, current investments, accounts receivable, and inventory divided by current liabilities.
answer
c Cash, current investments, and accounts receivable divided by current liabilities.
question
Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio? a Increase the current ratio and increase the acid-test ratio. b No change to the current ratio and decrease the acid-test ratio. c Decrease the current ratio and decrease the acid-test ratio. d Increase the current ratio and decrease the acid-test ratio.
answer
b No change to the current ratio and decrease the acid-test ratio.
