Advertisement Upgrade to remove ads

b. $1,072.50

1. Using the LIFO inventory method, the value of the ending inventory on June 30 is
a. $1,040.00
b. $1,072.50
c. $1,305.00
d. $1,320.00

c. $1,305.00

2. Using the FIFO inventory method, the amount allocated to ending inventory for June is
a. $1,040.00
b. $1,072.50
c. $1,305.00
d. $1,320.00

d. $1,200.

3. Using the average cost method, the amount allocated to the ending inventory on June 30 is
a. $1,170.
b. $1,320.
c. $1,260.
d. $1,200.

a. the FIFO method.

4. The inventory method which results in the highest gross profit for June is
a. the FIFO method.
b. the LIFO method.
c. the weighted average unit cost method.
d. not determinable.

a. $1,385.

5. Using the LIFO inventory method, the value of the ending inventory on June 30 is
a. $1,385.
b. $1,425.
c. $1,455.
d. $1,475.

c. $1,455.

6. Using the FIFO inventory method, the amount allocated to ending inventory for June is
a. $1,385.
b. $1,425.
c. $1,455.
d. $1,475.

a. $1,418.

7. Using the average cost method, the amount allocated to the ending inventory on June 30 is
a. $1,418.
b. $1,475.
c. $1,425.
d. $1,400.

b. Overstate liabilities in order to be conservative

8. Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets
b. Overstate liabilities in order to be conservative
c. Enhance the accuracy and reliability of accounting records
d. Reduce the risks of errors

a. an extensive marketing plan.

9. Each of the following is a feature of internal control except
a. an extensive marketing plan.
b. bonding of employees.
c. separation of duties.
d. recording of all transactions.

c. Collusion

10. Which of the following is not a limitation of internal control?
a. Cost of establishing control procedures should not exceed their benefit
b. The human element
c. Collusion
d. The size of the company

c. may be subject to fines and officer imprisonment.

11. Companies that fail to maintain an adequate system of internal control
a. may be subject to charges of fraud.
b. will be automatically dissolved.
c. may be subject to fines and officer imprisonment.
d. may be forced to sell their assets.

c. not have access to the accounting records for that asset.

12. The custodian of a company asset should
a. have access to the accounting records for that asset.
b. be someone outside the company.
c. not have access to the accounting records for that asset.
d. be an accountant.

b. cash.

13. From an internal control standpoint, the asset most susceptible to improper diversion and use is
a. prepaid insurance.
b. cash.
c. buildings.
d. land.

a. Separation of duties

14. A very small company would have the most difficulty in implementing which of the following internal control activities?
a. Separation of duties
b. Limited access to assets
c. Periodic independent verification
d. Sound personnel procedures

b. getting the owner actively involved.

15. In a small business, the lack of certain separations of duties can best be overcome by
a. bonding the employees.
b. getting the owner actively involved.
c. hiring only honest employees.
d. holding one person responsible for a given set of transactions.

a. other controls.

16. Mrs. Smith has worked for Arcco Inc. for 20 years without taking a vacation. An internal control feature that would address this situation would be
a. other controls.
b. establishment of responsibility.
c. physical controls.
d. documentation procedures.

d. shows the activities that increased or decreased the depositor's account balance.

17. A bank statement
a. lets a depositor know the financial position of the bank as of a certain date.
b. is a credit reference letter written by the depositor's bank.
c. is a bill from the bank for services rendered.
d. shows the activities that increased or decreased the depositor's account balance.

b. Collection of a note receivable

18. Which one of the following would not cause a bank to debit a depositor's account?
a. Bank service charge
b. Collection of a note receivable
c. Wiring of funds to other locations
d. Checks marked NSF

b. credit.

19. A deposit made by a company will appear on the bank statement as a
a. debit.
b. credit.
c. debit memorandum.
d. credit memorandum.

d. Service charges

20. Which of the following would be deducted from the balance per books on a bank reconciliation?
a. Outstanding checks
b. Deposits in transit
c. Notes collected by the bank
d. Service charges

b. deposits in transit.

21. All of the following bank reconciliation items would result in an adjusting entry on the company's books except
a. interest earned.
b. deposits in transit.
c. fee for collection of note by bank.
d. NSF check of customer.

a. $8,320.

The adjusted cash balance per books on August 31 is
a. $8,320.
b. $8,020.
c. $4,620.
d. $4,920.

c. $8,325.

The adjusted cash balance per books on April 30 is
a. $9,225.
b. $8,820.
c. $8,325.
d. $9,165.

c. $2,485

Using the above information, determine the cash balance per books (before adjustments) for the Barns Company.
a. $13,685
b. $21,700
c. $2,485
d. $21,000

d. $4,860.

The adjusted cash balance per books on October 31 is
a. $4,710.
b. $4,010.
c. $2,860.
d. $4,860.

c. $4,775.

The adjusted cash balance per books on June 30 is
a. $5,075.
b. $4,940.
c. $4,775.
d. $5,055.

d. Reduce its cash account by $315.

a. Reduce its cash account by $1,425.
b. Reduce its cash account by $75.
c. Increase its cash account by $165.
d. Reduce its cash account by $315.

b. $6,000

a. $4,000
b. $6,000
c. $5,000
d. $6,900

d. $900

a. $1,600
b. $1,500
c. $1,000
d. $900

c. at cash realizable value.

30. Accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at cash realizable value.
d. only if they are not past due.

c. recognizing, valuing, and accelerating collections.

31. 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.

b. $588

32. Larson Company on July 15 sells merchandise on account to Stuart Co. for $1,000, terms 2/10, n/30. On July 20 Stuart Co. returns merchandise worth $400 to Larson Company. On July 24 payment is received from Stuart Co. for the balance due. What is the amount of cash received?

a. $600
b. $588
c. $580
d. $1,000

a. when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.

33. 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.

b. necessitates the recording of an estimated amount for bad debts.

34. The matching 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.

d. net Accounts Receivable will be understated.

35. If the amount of uncollectible account expense is overstated at year end
a. net income will be overstated.
b. stockholders' equity will be overstated.
c. Allowance for Doubtful accounts will be understated.
d. net Accounts Receivable will be understated.

c. management estimates the amount of uncollectibles.

36. 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 uncollectibles.
d. a customer's account becomes past due.

c. debit to Bad Debts Expense for $2,800.

37. An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a
a. debit to Bad Debts Expense for $4,000.
b. debit to Allowance for Doubtful Accounts for $2,800.
c. debit to Bad Debts Expense for $2,800.
d. credit to Allowance for Doubtful Accounts for $4,000.

c. debit to Bad Debts Expense for $5,200.

38. An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record bad debts for the period will require a
a. debit to Bad Debts Expense for $4,000.
b. debit to Allowance for Doubtful Accounts for $5,200.
c. debit to Bad Debts Expense for $5,200.
d. credit to Allowance for Doubtful Accounts for $4,000.

b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.

39. To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a
a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
d. debit to Loss on Credit Sales and a credit to Accounts Receivable.

b. Bad Debts Expense 8,000
Allowance for Doubtful Accounts 8,000

40. Manning Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
a. Bad Debts Expense 10,000
Allowance for Doubtful Accounts 10,000
b. Bad Debts Expense 8,000
Allowance for Doubtful Accounts 8,000
c. Bad Debts Expense 8,000
Accounts Receivable 8,000
d. Bad Debts Expense 10,000
Accounts Receivable 10,000

c. $33,000

41. Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment what is the amount of bad debt expense for that period?
a. $25,000
b. $8,000
c. $33,000
d. $17,000

c. Bad Debts Expense 6,000
Allowance for Doubtful Accounts 6,000

42. Laurs Company uses the percentage of receivables method for recording bad debts expense. The Accounts Receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
a. Bad Debts Expense 10,000
Allowance for Doubtful Accounts 10,000
b. Bad Debts Expense 8,000
Allowance for Doubtful Accounts 8,000
c. Bad Debts Expense 6,000
Allowance for Doubtful Accounts 6,000
d. Bad Debts Expense 12,000
Accounts Receivable 12,000

c. $28,000

43. Using the allowance method, the uncollectible accounts for the year is estimated to be $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the balance after adjustment?
a. $7,000
b. $21,000
c. $28,000
d. $35,000

d. $35,000

44. Using the allowance method, the uncollectible accounts for the year is estimated to be $28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what is the amount of bad debt expense for the period?
a. $7,000
b. $21,000
c. $28,000
d. $35,000

b. $34,000.

45. In 2007 the Fitzu Co. had net credit sales of $750,000. On January 1, 2007, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2007, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $200,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2007?

a. $20,000.
b. $34,000.
c. $36,000.
d. $30,000.

b. $19,000 (Note: Another "allowance method" for recording uncollectible accounts receivable is the "Percentage of Sales" method. With this method, the Bad Debt expense is estimated as a percent of net sales for the period. This method is a little easier, because you don't have to compute the adjustment to Allowance for Doubtful accounts; rather, you just make the year-end adjusting entry using whatever the ending balance of Net Sales is, and your percent estimate. See Review for more)

46. A company has net credit sales of $900,000 for the year and it estimates that uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000 prior to adjustment, its balance after adjustment will be a credit of
a. $18,000
b. $19,000
c. $17,980
d. $17,000

d. $1,470,000

47. An analysis and aging of the accounts receivable of Yates Company at December 31 reveal these data:

Accounts receivable $ 1,600,000
Allowance for doubtful
accounts per books before
adjustment (credit) 100,000
Amounts expected to become
uncollectible 130,000

What is the cash realizable value of the accounts receivable at December 31 after adjustment?
a. $1,370,000
b. $1,500,000
c. $1,600,000
d. $1,470,000

c. $42,000 increase

Use the following information to answer questions 48 & 49.

12/31/06
Accounts receivable $525,000
Allowance (45,000)
Cash realizable value 480,000


During 2007 sales on account were $145,000 and collections on account were $86,000. Also, during 2007 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $54,000.

48. The change in the cash realizable value from the balance at 12/31/06 to 12/31/07 was

a. $50,000 increase
b. $59,000 increase
c. $42,000 increase
d. $51,000 increase

a. $17,000

Use the following information to answer questions 48 & 49.

12/31/06
Accounts receivable $525,000
Allowance (45,000)
Cash realizable value 480,000


During 2007 sales on account were $145,000 and collections on account were $86,000. Also, during 2007 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $54,000.

49. Bad debt expense for 2007 is:

a. $17,000
b. $ 9,000
c. $54,000
d. $ 1,000

c. $ 84,000 increase

Use the following information to answer questions 51 and 52.

12/31/06

Accounts receivable $1,050,000
Allowance (90,000)
Cash realizable value $960,000

During 2007 sales on account were $290,000 and collections on account were $172,000. Also during 2007 the company wrote off $16,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $108,000.

51. The change in the cash realizable value from the balance at 12/31/06 to 12/31/07 was a
a. $100,000 increase
b. $118,000 increase
c. $ 84,000 increase
d. $102,000 increase

a. $ 34,000

Use the following information to answer questions 51 and 52.

12/31/06

Accounts receivable $1,050,000
Allowance (90,000)
Cash realizable value $960,000

During 2007 sales on account were $290,000 and collections on account were $172,000. Also during 2007 the company wrote off $16,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $108,000.

52. Bad debts expense for 2007 is
a. $ 34,000
b. $ 18,000
c. $108,000
d. $ 2,000

b. $45,840

53. Papa Bear Corporation's unadjusted trial balance includes the following balances (assume normal balances)
:
Accounts Receivable $1,119,000
Allowances for Doubtful Accounts $ 21,300

Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debts expense will the company record?

a. $67,140
b. $45,840
c. $44,562
d. $68,418

d. To match bad debt expense to the period in which the revenues were earned.

54. Under the allowance method of accounting for bad debts, why must uncollectible accounts receivable be estimated at the end of the accounting period?

a. To allow the collection department to schedule work for the next accounting period.
b. To determine the gross realizable value of accounts receivable.
c. The IRS rules require the company to make the estimate.
d. To match bad debt expense to the period in which the revenues were earned.

c. payee receives more interest if 360 days are used instead of 365.

55. When calculating interest on a promissory note with the maturity date stated in terms of days, the
a. maker pays more interest if 365 days are used instead of 360.
b. maker pays the same interest regardless if 365 or 360 days are used.
c. payee receives more interest if 360 days are used instead of 365.
d. payee receives less interest if 360 days are used instead of 365.

b. $400.

56. The interest on a $4,000, 10%, 1-year note receivable is
a. $4,000.
b. $400.
c. $4,400.
d. $4,040.

d. Notes Receivable 3,000
Accounts Receivable—Day Company 3,000

57. Sloan Company receives a $3,000, 3-month, 6% promissory note from Day Company in settlement of an open accounts receivable. What entry will Sloan Company make upon receiving the note?
a. Notes Receivable 3,045
Accounts Receivable—Day Company 3,045
b. Notes Receivable 3,045
Accounts Receivable—Day Company 3,000
Interest Revenue 45
c. Notes Receivable 3,000
Interest Receivable 45
Accounts Receivable—Day Company 3,000
Interest Revenue 45
d. Notes Receivable 3,000
Accounts Receivable—Day Company 3,000

b. Interest Receivable 100
Interest Revenue 100

58. Garber Company lends Newell Company $20,000 on April 1, accepting a four-month, 6% interest note. Garber Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?
a. Note Receivable 20,000
Cash 20,000
b. Interest Receivable 100
Interest Revenue 100
c. Cash 100
Interest Revenue 100
d. Interest Receivable 300
Interest Revenue 300

a. $82,800.

59. A company purchased land for $72,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the cost principle, the cost of land would be recorded at

a. $82,800.
b. $72,000.
c. $77,800.
d. $84,000.

c. $90,700

60. Elway Company purchases land for $85,000 cash. Elway assumes $2,500 in property taxes due on the land. The title and attorney fees totaled $1,000. Elway has the land graded for $2,200. They paid $10,000 for paving of a parking lot. What amount does Elway record as the cost for the land?

a. $88,200
b. $100,700
c. $90,700
d. $85,000

d. $25,050.

61. Stories Company purchased equipment and these costs were incurred:
Cash price $22,500
Sales taxes 1,800
Insurance during transit 320
Installation and testing 430
Total costs $25,050
Stories will record the acquisition cost of the equipment as
a. $22,500.
b. $24,300.
c. $24,620.
d. $25,050.

c. cost allocation.

62. Depreciation is a process of
a. asset devaluation.
b. cost accumulation.
c. cost allocation.
d. asset valuation.

c. an estimate of a plant asset's value at the end of its useful life.

63. In computing depreciation, salvage value is
a. the fair market value of a plant asset on the date of acquisition.
b. subtracted from accumulated depreciation to determine the plant asset's
depreciable cost.
c. an estimate of a plant asset's value at the end of its useful life.
d. ignored in all the depreciation methods.

b. $11,760.

64. Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
a. $14,160.
b. $11,760.
c. $9,840.
d. $9,600.

d. $43,500

65. Equipment with a cost of $192,000 has an estimated salvage value of $18,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
a. $48,000
b. $52,500
c. $49,500
d. $43,500

c. $3,150

66. A company purchased factory equipment on April 1, 2007, for $48,000. It is estimated that the equipment will have a $6,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2007, is
a. $4,800
b. $4,200
c. $3,150
d. $3,600

a. decreasing depreciation expense each period.

67. The declining-balance method of depreciation produces a(n)
a. decreasing depreciation expense each period.
b. increasing depreciation expense each period.
c. declining percentage rate each period.
d. constant amount of depreciation expense each period.

d. Declining-balance

68. Which of the following methods will result in the highest depreciation in the first year?
a. Sum-of-year's-digits
b. Time valuation
c. Straight-line
d. Declining-balance

b. $1,600

69. On November 1, 2006, Dark Company places a new asset into service. The cost of the asset is $9,000 with an estimated 5-year life and $1,000 salvage value at the end of its useful life. What is the depreciation expense for 2007 if Dark Company uses the straight-line method of depreciation?

a. $400
b. $1,600
c. $266.67
d. $900

c. $4,000

70. On January 1, a machine with a useful life of five years and a residual value of $5,000 was purchased for $25,000. What is the depreciation expense for year 2 under straight-line depreciation?
a. $5,000
b. $15,000
c. $4,000
d. $12,000

d. 3 years.

71. A plant asset was purchased on January 1 for $40,000 with an estimated salvage value of $8,000 at the end of its useful life. The current year's Depreciation Expense is $4,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the end of the year is $20,000. The remaining useful life of the plant asset is
a. 10 years.
b. 8 years.
c. 5 years.
d. 3 years.

b. $75,000

Use the following information for questions 72-74.

Brinkman Corporation bought equipment on January 1, 2007 .The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years.

72. The depreciable cost of the equipment is
a. $90,000
b. $75,000
c. $50,000
d. $12,500

c. $12,500

Use the following information for questions 72-74.

Brinkman Corporation bought equipment on January 1, 2007 .The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years.

73. The depreciation expense using the straight-line method of depreciation is
a. $17,500
b. $18,000
c. $12,500
d. none of the above

c. $65,000

Use the following information for questions 72-74.

Brinkman Corporation bought equipment on January 1, 2007 .The equipment cost $90,000 and had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years.

74. The book value of the equipment at the beginning of the third year would be
a. $90,000
b. $75,000
c. $65,000
d. $25,000

d. $234,000

75. Bates Company purchased equipment on January 1, 2006, at a total invoice cost of $600,000. The equipment has an estimated salvage value of $15,000 and an estimated useful life of 5 years. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used?
a. $120,000
b. $240,000
c. $117,000
d. $234,000

b. $16,700

76. Machinery was purchased for $85,000. Freight charges amounted to $3,500 and there was a cost of $10,000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $15,000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be
a. $19,700
b. $16,700
c. $14,300
d. $14,000

c. that the amount of periodic depreciation be changed in the current year and
in future years.

77. 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. $10,000

78. Greg's Copy Shop bought equipment for $60,000 on January 1, 2006. Greg estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2007, Greg decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2007?
a. $20,000
b. $8,000
c. $10,000
d. $15,000

a. $4,000

79. Joe's Quik Shop bought equipment for $25,000 on January 1, 2006. Joe estimated the useful life to be 5 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2007, Joe decides that the business will use the equipment for a total of 6 years. What is the revised depreciation expense for 2007?
a. $4,000
b. $2,000
c. $3,333
d. $5,000

d. They increase the productive capacity of the asset.

80. Which of the following is not true of ordinary repairs?
a. They primarily benefit the current accounting period.
b. They can be referred to as revenue expenditures.
c. They maintain the expected productive life of the asset.
d. They increase the productive capacity of the asset.

c. increase the company's investment in productive facilities.

81. 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. $40,000 loss on disposal.

82. A company sells a plant asset that originally cost $150,000 for $50,000 on December 31, 2007. The accumulated depreciation account had a balance of $60,000 after the current year's depreciation of $15,000 had been recorded. The company should recognize a
a. $100,000 loss on disposal.
b. $40,000 gain on disposal.
c. $40,000 loss on disposal.
d. $25,000 loss on disposal.

a. $30,000 loss on disposal.

83. A company sells a plant asset that originally cost $180,000 for $60,000 on December 31, 2007. The accumulated depreciation account had a balance of $90,000 after the current year's depreciation of $15,000 had been recorded. The company should recognize a
a. $30,000 loss on disposal.
b. $30,000 gain on disposal.
c. $60,000 loss on disposal.
d. $60,000 gain on disposal.

d. do not have physical substance.

84. 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. only when there is an exchange transaction involving the purchase of an entire business.

85. Goodwill can be recorded
a. when customers keep returning because they are satisfied with the company's products.
b. when the company acquires a good location for its business.
c. when the company has exceptional management.
d. only when there is an exchange transaction involving the purchase of an entire business.

b. Patent

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

b. An oil well

87. Which of the following is not considered an intangible asset?
a. Goodwill
b. An oil well
c. A franchise
d. A patent

c. can only be identified with the business as a whole.

88. 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.

a. $600,000 loss

89. A computer company has $3,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,400,000. What is the amount of net income or loss after these research and development costs are accounted for?

a. $600,000 loss
b. $2,400,000 net income
c. $0
d. Cannot be determined from the information provided

c. $5,500,000

90. Given the following account balances at year end, compute the total intangible assets on the balance sheet of Anisha Enterprises.
Cash $1,500,000
Accounts Receivable 4,000,000
Trademarks 1,000,000
Goodwill 4,500,000
Research & Development Costs 2,000,000

a. $11,500,000
b. $7,500,000
c. $5,500,000
d. $9,500,000

b. $13,500.

91. A plant asset cost $96,000 and is estimated to have a $12,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be
a. $8,040.
b. $13,500.
c. $11,812.
d. $9,190.

a. $10,800

92. On January 1, a machine with a useful life of five years and a residual value of $15,000 was purchased for $45,000. What is the depreciation expense for year 2 under the double-declining-balance method of depreciation?
a. $10,800
b. $18,000
c. $14,400
d. $8,640

a. within one year, or the operating cycle, whichever is longer.

93. A current liability is a debt that can reasonably be expected to be paid
a. within one year, or the operating cycle, whichever is longer.
b. between 6 months and 18 months.
c. out of currently recognized revenues.
d. out of cash currently on hand.

a. Dividends payable

94. Which of the following most likely would be classified as a current liability?
a. Dividends payable
b. Bonds payable in 5 years
c. Three-year notes payable
d. Mortgage payable as a single payment in 10 years

d. expense.

95. Very often, failure to record a liability means failure to record a(n)
a. revenue.
b. asset conversion.
c. footnote.
d. expense.

b. Cash 200,000
Notes Payable 200,000

Use the following information for questions 96-98.

Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson Brick Company signs a $200,000, 6%, 9-month note.

96. The entry made by Allenson Brick Company on January 1 to record the proceeds and issuance of the note is
a. Interest Expense 9,000
Cash. 191,000
Notes Payable 200,000
b. Cash 200,000
Notes Payable 200,000
c. Cash 200,000
Interest Expense 9,000
Notes Payable 209,000
d. Cash 200,000
Interest Expense 9,000
Notes Payable 200,000
Interest Payable 9,000

a. Interest Expense 6,000
Interest Payable 6,000

Use the following information for questions 96-98.

Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson Brick Company signs a $200,000, 6%, 9-month note.

97. What is the adjusting entry required if Allenson Brick Company prepares financial statements on June 30?
a. Interest Expense 6,000
Interest Payable 6,000
b. Interest Expense 6,000
Cash 6,000
c. Interest Payable 6,000
Cash 6,000
d. Interest Payable 6,000
Interest Expense 6,000

b. Notes Payable 200,000
Interest Payable 9,000
Cash 209,000

Use the following information for questions 96-98.

Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson Brick Company signs a $200,000, 6%, 9-month note.

98. What entry will Allenson Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

a. Notes Payable 209,000
Cash 209,000
b. Notes Payable 200,000
Interest Payable 9,000
Cash 209,000
c. Interest Expense 9,000
Notes Payable 200,000
Cash 209,000
d. Interest Payable 6,000
Notes Payable 200,000
Interest Expense 3,000
Cash 209,000

b. Cash 100,000
Notes Payable 100,000

Use the following information for questions 99-101.

West County Bank agrees to lend the Block Builders Company $100,000 on January 1. Block Builders Company signs a $100,000, 6%, 6-month note.

99. The entry made by Block Builders Company on January 1 to record the proceeds and issuance of the note is
a. Interest Expense 3,000
Cash. 97,000
Notes Payable 100,000
b. Cash 100,000
Notes Payable 100,000
c. Cash 100,000
Interest Expense 3,000
Notes Payable 103,000
d. Cash 100,000
Interest Expense 3,000
Notes Payable 100,000
Interest Payable 3,000

c. Interest Expense 1,500
Interest Payable 1,500

Use the following information for questions 99-101.

West County Bank agrees to lend the Block Builders Company $100,000 on January 1. Block Builders Company signs a $100,000, 6%, 6-month note.

100. What is the adjusting entry required if Block Builders Company prepares financial statements on March 30?
a. Interest Expense 3,000
Interest Payable 3,000
b. Interest Expense 3,000
Cash 3,000
c. Interest Expense 1,500
Interest Payable 1,500
d. Interest Payable 1,500
Interest Expense 1,500

b. Notes Payable 100,000
Interest Payable 3,000
Cash 103,000

Use the following information for questions 99-101.

West County Bank agrees to lend the Block Builders Company $100,000 on January 1. Block Builders Company signs a $100,000, 6%, 6-month note.

101. What entry will Block Builders Company make to pay off the note and interest at maturity assuming that interest has been accrued to June 30?
a. Notes Payable 103,000
Cash 103,000
b. Notes Payable 100,000
Interest Payable 3,000
Cash 103,000
c. Interest Expense 3,000
Notes Payable 100,000
Cash 103,000
d. Interest Payable 1,500
Notes Payable 100,000
Interest Expense 1,500
Cash 103,000

b. Cash 600,000
Unearned Subscription Revenue 600,000

102. Ramsey Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 60,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?

a. Subscriptions Receivable 600,000
Subscription Revenue 600,000
b. Cash 600,000
Unearned Subscription Revenue 600,000
c. Subscriptions Receivable 100,000
Unearned Subscription Revenue 100,000
d. Prepaid Subscriptions 600,000
Cash 600,000

a. a bond certificate.

103. A legal document that indicates the name of the issuer, the face value of the bond and such other data is called
a. a bond certificate.
b. a bond debenture.
c. trading on the equity.
d. a convertible bond.

c. convertible bonds.

104. Bonds that may be exchanged for common stock at the option of the bondholders are called
a. options.
b. stock bonds.
c. convertible bonds.
d. callable bonds.

a. callable bonds.

105. Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called
a. callable bonds.
b. early retirement bonds.
c. options.
d. debentures.

b. debenture bonds.

106. Bonds that are issued against the general credit of the borrower are called
a. callable bonds.
b. debenture bonds.
c. secured bonds.
d. term bonds.

d. $102,250.

107. A bond with a face value of $100,000 and a quoted price of 102¼ has a selling price of
a. $120,225.
b. $102,025.
c. $100,225.
d. $102,250.

b. market price.

108. The present value of a bond is also known as its
a. face value.
b. market price.
c. future value.
d. deferred value.

c. at a discount.

109. If the market rate of interest is greater than the contractual rate of interest, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated rate of interest is increased.

b. by the amortization of discount on bonds payable.

110. The interest expense recorded on an interest payment date is increased
a. by the amortization of premium on bonds payable.
b. by the amortization of discount on bonds payable.
c. only if the bonds were sold at face value.
d. only if the market rate of interest is less than the stated rate of interest on that date.

d. $250.

111. On January 1, 2007, $1,000,000, 10-year, 10% bonds, were issued for $970,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is
a. $9,700.
b. $3,000.
c. $808.
d. $250.

a. $10,840.

112. A corporation issues $100,000, 10%, 5-year bonds on January 1, 2007, for $95,800. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2007's adjusting entry is
a. $10,840.
b. $10,000.
c. $9,160.
d. $840.

a. $7,160.

113. A corporation issues $100,000, 8%, 5-year bonds on January 1, 2007, for $104,200. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2007's adjusting entry is
a. $7,160.
b. $8,000.
c. $8,840.
d. $840.

c. interest paid over the life of the bond minus the amount of premium at sale
point.

114. When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of
a. interest paid over the life of the bond.
b. interest paid over the life of the bond plus the amount of premium at sale
point.
c. interest paid over the life of the bond minus the amount of premium at sale
point.
d. premium at sale point.

b. $16,000

Use the following information for questions 115-118.

Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006. The bonds had a face value of $200,000, pay interest annually on December 31st. Porter uses the straight-line method of amortization.

115. What is the amount of interest Porter must pay the bondholders in 2006?
a. $16,920
b. $16,000
c. $16,320
d. $1,692

c. $14,850

Use the following information for questions 115-118.

Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006. The bonds had a face value of $200,000, pay interest annually on December 31st. Porter uses the straight-line method of amortization.

116. What is the amount of interest expense Porter will show with relation to these bonds for the year ended December 31, 2007?
a. $16,000
b. $16,920
c. $14,850
d. $12,550

b. $209,200

Use the following information for questions 115-118.

Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006. The bonds had a face value of $200,000, pay interest annually on December 31st. Porter uses the straight-line method of amortization.

117. What is the carrying value of the bonds on January 1, 2008?
a. $200,000
b. $209,200
c. $190,800
d. $210,350

d. $19,200

119. Turner Company issued $300,000 of 6%, 5-year bonds at 98. Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?
a. $18,000
b. $9,000
c. $18,600
d. $19,200

b. subtracting the amount of premium amortized for that period from the amount
of cash paid for interest during the period.

120. When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by
a. adding the amount of premium amortized for that period to the amount of
cash paid for interest during the period.
b. subtracting the amount of premium amortized for that period from the amount
of cash paid for interest during the period.
c. multiplying the face value of the bonds by the stated interest rate.
d. multiplying the face value of the bonds by the market interest rate.

a. adding the amount of discount amortized for that period to the amount of
cash paid for interest during the period.

121. When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by
a. adding the amount of discount amortized for that period to the amount of
cash paid for interest during the period.
b. subtracting the amount of discount amortized for that period from the amount
of cash paid for interest during the period.
c. multiplying the face value of the bonds by the stated interest rate.
d. multiplying the face value of the bonds by the market interest rate.

b. $171,300.

122. On January 1, Jean Loptein Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Jean Loptein uses the effective-interest method of amortizing bond discount. At the end of the first year, Jean Loptein should report unamortized bond discount of
a. $164,700.
b. $171,300.
c. $154,830.
d. $153,000.

c. $257,304.

123. On January 1, Cleopatra Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $2,144,192. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Bond Interest Expense is for

a. $240,000.
b. $251,162.
c. $257,304.
d. $280,000.

a. is less than the amount of cash to be paid for interest for the period.

124. The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

a. is less than the amount of cash to be paid for interest for the period.
b. exceeds the amount of cash to be paid for interest for the period.
c. equals the amount of cash to be paid for interest for the period.
d. has no predictable relationship with the amount of cash to be paid for interest
for the period.

b. uniform rate of interest.

125. The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)
a. interest rate that is close to the market interest rate.
b. uniform rate of interest.
c. more variable interest rate.
d. interest rate that increases or decreases slightly over time.

b. Its shares are regularly traded on the New York Stock Exchange.

126. Which of the following would not be true of a privately held corporation?
a. It is sometimes called a closely held corporation.
b. Its shares are regularly traded on the New York Stock Exchange.
c. It does not offer its shares for sale to the general public.
d. It is usually smaller than a publicly held company.

b. A stockholder may dispose of part or all of his shares.

127. Which of the following statements reflects the transferability of ownership rights in a corporation?
a. If a stockholder decides to transfer ownership, he must transfer all of his shares.
b. A stockholder may dispose of part or all of his shares.
c. A stockholder must obtain permission of the board of directors before selling shares.
d. A stockholder must obtain permission from at least three other stockholders before selling shares.

b. To declare dividends on the common stock

128. Which one of the following is not an ownership right of a stockholder in a corporation?
a. To vote in the election of directors
b. To declare dividends on the common stock
c. To share in assets upon liquidation
d. To share in corporate earnings

a. is legally significant.

129. The par value of a stock
a. is legally significant.
b. reflects the most recent market price.
c. is selected by the SEC.
d. is indicative of the worth of the stock.

d. is the value assigned per share in the corporate charter.

130. Par value
a. represents what a share of stock is worth.
b. represents the original selling price for a share of stock.
c. is established for a share of stock after it is issued.
d. is the value assigned per share in the corporate charter.

b. par value.

131. The term legal capital is a descriptive term for
a. stockholders' equity.
b. par value.
c. residual equity.
d. market value.

a. authorized stock.

132. The amount of stock that may be issued according to the corporation's charter is referred to as the
a. authorized stock.
b. issued stock.
c. unissued stock.
d. outstanding stock.

c. Paid-in Capital in Excess of Par Value will be credited for $130,000.

133. If Morgan Company issues 2,000 shares of $5 par value common stock for $140,000, the account
a. Common Stock will be credited for $140,000.
b. Paid-in Capital in Excess of Par Value will be credited for $10,000.
c. Paid-in Capital in Excess of Par Value will be credited for $130,000.
d. Cash will be debited for $130,000.

a. Common Stock will be credited for $5,000.

134. If Kiner Company issues 1,000 shares of $5 par value common stock for $70,000, the account
a. Common Stock will be credited for $5,000.
b. Paid-in Capital in Excess of Par Value will be credited for $5,000.
c. Paid-in Capital in Excess of Par Value will be credited for $70,000.
d. Cash will be debited for $65,000.

b. is reported as part of paid-in capital on the balance sheet.

135. Paid-in Capital in Excess of Par Value
a. is credited when no-par stock does not have a stated value.
b. is reported as part of paid-in capital on the balance sheet.
c. represents the amount of legal capital.
d. normally has a debit balance.

b. Common Stock of $100,000.

136. Specialty Packaging Corporation began business in 2007 by issuing 20,000 shares of $5 par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2007 balance sheet, Specialty Packaging would report
a. Common Stock of $200,000.
b. Common Stock of $100,000.
c. Common Stock of $160,000.
d. Paid-in Capital of $150,000.

b. Foley's total stockholders' equity decreased $69,000.

137. Foley Manufacturing Corporation purchased 3,000 shares of its own previously issued $10 par common stock for $69,000. As a result of this event,
a. Foley's Common Stock account decreased $30,000.
b. Foley's total stockholders' equity decreased $69,000.
c. Foley's Paid-in Capital in Excess of Par Value account decreased $39,000.
d. All of the above.

d. a corporation's own stock, which has been reacquired and held for future use.

138. Treasury stock is
a. stock issued by the U.S. Treasury Department.
b. stock purchased by a corporation and held as an investment in its treasury.
c. corporate stock issued by the treasurer of a company.
d. a corporation's own stock, which has been reacquired and held for future use.

b. decreases its total assets and total stockholders' equity.

139. The acquisition of treasury stock by a corporation
a. increases its total assets and total stockholders' equity.
b. decreases its total assets and total stockholders' equity.
c. has no effect on total assets and total stockholders' equity.
d. requires that a gain or loss be recognized on the income statement.

d. deduction from total paid-in capital and retained earnings.

140. Treasury stock should be reported in the financial statements of a corporation as a(n)
a. investment.
b. liability.
c. deduction from total paid-in capital.
d. deduction from total paid-in capital and retained earnings.

b. outstanding shares plus treasury shares.

141. The number of shares of issued stock equals
a. unissued shares minus authorized shares.
b. outstanding shares plus treasury shares.
c. authorized shares minus treasury shares.
d. outstanding shares plus authorized shares

b. issued stock.

142. Treasury shares plus outstanding shares equal
a. authorized stock.
b. issued stock.
c. unissued stock.
d. distributable stock.

a. The right to vote

143. Which of the following is not a right or preference associated with preferred stock?
a. The right to vote
b. First claim to dividends
c. Preference to corporate assets in case of liquidation
d. To receive dividends in arrears before common stockholders receive
dividends

b. must be paid before common stockholders can receive a dividend.

144. Dividends in arrears on cumulative preferred stock
a. never have to be paid, even if common dividends are paid.
b. must be paid before common stockholders can receive a dividend.
c. should be recorded as a current liability until they are paid.
d. enable the preferred stockholders to share equally in corporate earnings with
the common stockholders.

b. change the composition of stockholders' equity.

145. The effect of a stock dividend is to
a. decrease total assets and stockholders' equity.
b. change the composition of stockholders' equity.
c. decrease total assets and total liabilities.
d. increase the book value per share of common stock.

b. No change Decrease

146. Stock dividends and stock splits have the following effects on retained earnings:
Stock Splits Stock Dividends
a. Increase No change
b. No change Decrease
c. Decrease Decrease
d. No change No change

a. The dividend can be rescinded once it has been declared.

147. Which of the following statements regarding the date of a cash dividend declaration is not accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.

b. $30,000 in total

148. Sun Inc. has 5,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2007. What is the annual dividend on the preferred stock?

a. $60 per share
b. $30,000 in total
c. $3,000 in total
d. $0.60 per share

b. Total contributed capital increases.

149. Which of the following statements is not true about a 2-for-1 split?

a. Par value per share is reduced to half of what it was before the split.
b. Total contributed capital increases.
c. The market price probably will decrease.
d. A stockholder with ten shares before the split owns twenty shares after the split.

c. $600,000

150. What is the total stockholders' equity based on the following account balances?
Common Stock $400,000
Paid-In Capital in Excess of Par 50,000
Retained Earnings 175,000
Treasury Stock 25,000

a. $650,000
b. $625,000
c. $600,000
d. $450,000

a. $31,240,000.

Use the following information for questions 151-153.

Starr Corporation's December 31, 2007 Balance Sheet showed the following:
8% preferred stock, $20 par value, cumulative, 20,000 shares
authorized; 10,000 shares issued $ 200,000
Common stock, $10 par value, 2,000,000 shares authorized;
1,300,000 shares issued, 1,280,000 shares outstanding 13,000,000
Paid-in capital in excess of par value - preferred stock 40,000
Paid-in capital in excess of par value - common stock 18,000,000
Retained earnings 5,100,000
Treasury stock (10,000 shares) 420,000

151. Starr's total paid-in capital was
a. $31,240,000.
b. $31,660,000.
c. $30,820,000.
d. $18,040,000.

See More

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

NEW! Voice Recording

Create Set