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BU127 Final

Terms in this set (60)

When the amount of a contingent liability can be estimated and its likelihood is possible but not probable, the company should:
A. include a description in the footnotes to the financial statements.
B. record the amount of the liability times the probability of its occurrence.
C. record the liability and estimated amount of the loss on the statement of financial position.
D. omit the information about the contingent liability from its financial statements and footnotes.
A. include a description in the footnotes to the financial statements.
When a company encounters a contingent liability that is remote in likelihood, the company should:
A. include a description in the foot notes to the financial statements.
B. record the amount of the liability times the probability of its occurrence.
C. record the liability and estimated amount of the loss on the statement of financial position.
D. omit the information about the contingent liability from its financial statements and footnotes.
D. omit the information about the contingent liability from its financial statements and footnotes.
If a company's gross salaries are $12,000, and it withholds $1,800 for income taxes and $800 for Employment Insurance and other deductions, the journal entry to record the employees' pay should include a:
A. debit to Salaries Expense for $9,400.
B. debit to Salaries Payable for $9,400.
C. credit to Salaries Payable for $12,000.
D. credit to Cash for $9,400.
D. credit to Cash for $9,400
A company receives $95 for merchandise sold to a consumer, of which $5 is for sales tax. The $5 of sales tax:
A. increases sales revenue.
B. increases current liabilities.
C. increases selling expenses.
D. none of the answers are acceptable.
B. increases current liabilities
If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would issue at an amount:
A. less than face value (discount).
B. equal to the face value (par).
C. greater than face value (premium).
D. that cannot be determined.
C. Greater than the face value (premium)

market rate> annual rate
Under the cost principle:
A. only reasonable and necessary costs of acquiring an asset should be recorded as a cost of the asset.
B. costs of preparing an asset for use should never be recorded as part of the cost of the asset.
C. all reasonable and necessary costs of acquiring an asset and preparing it for use should be recorded as a cost of the asset.
D. only the actual purchase price of the asset is recorded as the cost of the asset.
C. all reasonable and necessary costs of acquiring an asset and preparing it for use should be recorded as a cost of the asset
The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation. One-half of the total cost is paid in cash; the other half is financed. How should the company record this transaction?
A. Debit cash for $250,000, debit notes payable for $250,000, and credit equipment for $500,000.
B. Debit equipment for $500,000, credit cash for $250,000, and credit notes payable for $250,000.
C. Debit cash for $250,000, debit notes payable for $250,000 credit equipment for $450,000, and credit expenses for $50,000.
D. Debit equipment for $450,000, debit expenses for $50,000, credit cash for $250,000, and credit notes payable for $250,000.
B. Debit equipment for $500,000, credit cash for $250,000, and credit notes payable for $250,000.
Ordinary repairs and maintenance always:
A. are part of the asset cost of equipment and facilities.
B. are recorded as expenses.
C. are recorded as liabilities.
D. improve the asset beyond the current accounting period
B. are recorded as expenses
Which of the following statements most appropriately describes the purpose of depreciation of a long-lived tangible asset?
A. To indicate how the asset has physically deteriorated.
B. To show that the asset will eventually and gradually become obsolete.
C. To record that the asset's market value declines over time.
D. To match the cost of the asset to the period in which it generates revenue.
D. To match the cost of the asset to the period in which it generates revenue
Under what circumstance should a company record an asset impairment loss?
A. When residual value is greater than the repairs and maintenance expenses needed to keep the asset.
B. When net book value is less than the residual value of the asset.
C. When accumulated depreciation equals the purchase cost of the asset.
D. When net book value is greater than expected future cash flows for the asset.
D. When net book value is greater than expected future cash flows for the asset
How does an asset impairment loss impact a company's financial statements?
A. Raise expenses and lower both revenue and net income.
B. Lower assets, shareholders' equity, and net income.
C. Raise expenses and lower net income with no effect on any other items.
D. Raise liabilities and lower shareholders' equity.
B. Lower assets, shareholders' equity, and net income.
In recording the acquisition cost of an entire business:
A. goodwill is recorded as the excess of cost over the fair market value of identifiable net assets.
B. assets are recorded at the seller's book values.
C. goodwill, if it exists, is never recorded.
D. goodwill is recorded as the excess of cost over the book value of identifiable net assets.
A. goodwill is recorded as the excess of cost over the fair market value of identifiable net assets
Outstanding cheques $502
$43
Bank Service Charge $25
Deposits in transit $190
Interest received from bank $5
Customer cheque retruend by bank as NSF $20
Cash balance per bank statement $975
Cash balance per book statement $660



The amount of cash that should appear on the statement of financial position following completion of the reconciliation and adjustment of the accounting records is:
A. $660.
B. $640.
C. $620.
D. $305.
C. $620

Cash on balance sheet = Cash per bank + Deposits in transit - Outstanding cheques
$975 + $190 - ($502 + $43) = $620 or,
Cash on balance sheet = Cash per books + Interest received from bank - NSF checks - Bank service charges.
$660 + $5 - $20 - $25 = $620
Deposits in transit:
A. have been recorded by the company but not yet by the bank.
B. have been recorded by the bank but not yet by the company.
C. have not been recorded by the bank or the company.
D. are customers' cheques that have not yet been received by the company.
A. have been recorded by the company but not yet by the bank
Which of the following situations would cause the balance per bank to be more than the balance per books?
A. Deposits in transit.
B. Service charges.
C. Outstanding cheques.
D. Cheques from customers returned as NSF.
C. Outstanding cheques
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