For what reason would retailers like The Gap select an accounting period that ends on or near the end of January?
a. The company originally started business operations on that date.
b. Business activity has reached a slow period that is suited to the preparation of its financial statements at the end of the year.
C. The company’s CPAs are attempting to spread out the workload.
d. The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year.
Question 2 1.5 points Save
Which one of the following accounts most likely would appear on the income statement of a merchandise company, but not on the income statement of a service company?
a. Cost of Goods Sold
b. Selling Expenses
c. Administrative Expenses
d. Income Tax Expense
Question 3 1.5 points Save
Gerald’s Department Store
Gerald’s Department Store. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below:
Sales $175,000
Purchases 90,000
Inventory (Beginning) 23,000
Inventory (Ending) 17,000
Purchase returns and allowances 3,000
Purchase discounts 7,000
Transportation-in 4,000
Sales discounts 8,000
Sales returns and allowances 5,000
Refer to Gerald’s Department Store. Calculate Gerald’s net sales.
a. $162,000
b. $167,000
c. $170,000
d. $175,000
Question 4 1.5 points Save
Silvertone Corp. sold merchandise to a customer on credit. The invoice amount was $1,000; the invoice date was June 10; credit terms were 1/10, n/30. Which one of the following statements is true?
a.The customer can take a $10 discount if the invoice is paid on June 30
b. The customer should pay $1,000 if the invoice is paid on July 9
c. The customer must pay a $10 penalty if payment is made after July 9.
d. The customer must pay $1,010 if payment is made after June 20.
Question 5 1.5 points Save
The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the
a. matching principle
b. full disclosure principle
c. revenue realization principle
d. historical cost principle
Question 6 1.5 points Save
Which one of the following statements is false?
a. The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system.
b. The inventory account is updated only at the end of the accounting period under the periodic inventory system.
c. A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system.
d. A purchases account is used only under the periodic inventory system.
Question 7 1.5 points Save
Which one of the following is correct?
a. Inventory losses can be identified and controlled better under the perpetual system.
b. Inventory can only be sold at the end of an accounting period under the periodic system.
c. There is no difference in cost to implement a perpetual as compared to a periodic system.
D, The perpetual system eliminates the need for an annual inventory count
Question 8 1.5 points Save
At the year end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of
a. The seller
b.The buyer
c. The shipping company
d. Neither the buyer nor the seller
Question 9 1.5 points Save
Which method assigns the cost of the most recent items purchased to ending inventory?
a. Specific identification
b.Weighted average cost
c.FIFO
d. LIFO
Question 10 1.5 points Save
Which method assigns the cost of the most recent items purchased to cost of goods sold?
a. Specific identification
b. Weighted average cost
c. FIFO
d. LIFO
Question 11 1.5 points Save
For which type of inventory would a company most likely use the specific identification method?
a. Barbie dolls
b. Cartons of milk
c.Custom designed diamond rings
d. Gasoline in storage tanks at a gasoline station
Question 12 1.5 points Save
Which inventory costing method results in the highest inventory balance during a period of rising prices?
a. Weighted average cost
b. FIFO
c. LIFO
d. Both FIFO and LIFO result in the same inventory balance
Question 13 1.5 points Save
During a period of increasing cost prices, which inventory costing method will yield the lowest cost of goods sold?
a. Any method in which the company uses a periodic inventory system
b. FIFO
c. LIFO
d. Weighted Average Cost
Question 14 1.5 points Save
If the amount assigned to ending inventory is incorrect,
a. The balance sheet is affected, but the income statement is not
b. The income statement is affected, but the balance sheet is not
c. The balance sheet is affected, but cost of goods sold is not
d. Both the balance sheet and the income statement are affected
Question 15 1.5 points Save
When the market value of inventory items has declined below its cost, which method would be the most appropriate in complying with GAAP?
a.Gross Profit
b. LIFO
c. Lower of Cost or market
d. Retail
Question 16 1.5 points Save
In which one of the following situations is the gross profit method of estimating inventory value useful?
a. In determining the replacement cost of inventory for year-end financial statements
b. In calculating the amount of inventory destroyed in a fire when periodic inventory records also are destroyed.
c. In converting ending inventory valued at cost to retail for interim financial statements.
d. In estimating the amount of inventory that should be purchased for the upcoming year.
Question 17 1.5 points Save
How are cash equivalents reported or disclosed in the financial statements?
a.They appear only on the statement of cash flows
b.They are included with short-term investments under current assets on the balance sheet.
c.They are included with cash under current assets on the balance sheet.
d.They are disclosed only in a footnote to the balance sheet.
Question 18 1.5 points Save
Which one of the following is not a cash equivalent?
a. 30-day certificate of deposit
b. 60-day Corporate commercial
c. 90-day U. S. treasury bill
d. 180-day note issued by a local or state government
Question 19 1.5 points Save
Which one of the following procedures is not part of preparing a bank reconciliation of a checking account
a. Tracing deposits listed on the bank statement to the books to identify deposits in transit
b. Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks
c. Identifying items added on the bank statement which have not been recorded as cash receipts by the company
d. Preparing adjustments to reverse the transactions recorded for checks that are still outstanding
Question 20 1.5 points Save
Which one of the following items would be added to the balance per bank statement in a bank reconciliation?
a. Outstanding checks
b. Deposits in transit
c. Service charge
d. Interest on customer note
Question 21 1.5 points Save
Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation?
a. Outstanding checks
b. Deposit in transit
c. Service charges
d. Interest on customer note
Question 22 1.5 points Save
Which one of the following procedures is incorrect for setting up and maintaining a petty cash fund?
a. A check is prepared for a fixed amount; when the check is cashed, the money is entrusted to a petty cash custodian.
b. An entry is recorded to establish the fund and obtain the cash.
c. When appropriate documentation is presented, cash payments are made from the fund; the petty cash custodian retains the documentation.
d. When the petty cash fund is replenished, an entry is recorded to recognize an increase in the petty cash account.
Question 23 1.5 points Save
If a company erroneously records a $500 deposit as $400 in its books, which of the following must occur when reconciling the bank statement?
a. The company will have to increase the balance per the bank statement by $100.
b. The company will have to increase the balance per the books by $100.
c.The company will have to decrease the balance per bank statement by $100.
d. None of the above
Question 24 1.5 points Save
Which internal control procedure is followed when management authorizes the purchasing department to order goods and services for the company?
a. Segregation of duties
b. Safeguarding of assets and records
c. Independent verifications
d. Proper authorizations
Question 25 1.5 points Save
Which internal control procedure is followed when storage areas are secured with limited access?
a. Segregation duties
b. Safeguarding assets and records
c. Independent verifications
d. Proper authorizations
Question 26 1.5 points Save
Which internal control procedure is violated when the cashier at the checkout stand also records the daily receipts in the journal?
a. Segregation of duties
b. Independent review and appraisal
c. Independent verifications
d. Proper authorizations
Question 27
Zenephia Corp. invested cash in a 9-month certificate of deposit (CD) on October 1, 2010. If Zenephia has an accounting period which ends on December 31, 2010, when would it most likely recognize interest revenue from the CD?
a. On December 31, 2010 only
b. On July 1, 2011 only
c. Both December 31, 2010 and July 1, 2011
d. On October 1, 2010
Question 28 1.5 points Save
What are the effects on the accounting equation from the purchase of a short-term investment?
a.Assets and owners’ equity decrease
b. No effects–assets increase and decrease by the same amount
c. Assets and liabilities decrease
d.Owners’ equity decreases and liabilities increase
Question 29
Which one of the following is an accurate description of Allowance for Doubtful Accounts?
a. Contra Account
b.Liability Account
c. Revenue Account
d. Expense Account
Question 30
If a company uses the direct write-off method of accounting for bad debts,
a. It is applying the matching principle
b. It will record bad debt expense only when an account is determined to be uncollectible
c. It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible accounts
d. It will report accounts receivable in the balance sheet at their net realizable value
Question 31
Which one of the approaches for the allowance method of accounting for bad debts emphasizes the net realizable value of accounts receivable on the balance sheet?
a. The percentage of accounts receivable approach
b. The percentage of net credit sales approach
c.The direct write-off method
d.The uncollectible approach
Question 32 Beginning accounts receivable were $10,000. All sales were on account and totaled $700,000. Cash collected from customers totaled $650,000. Calculate the ending accounts receivable balance.
a. $40,000
b.$50,000
c. $60,000
d.$70,000
Question 33
The Allowance for Doubtful Accounts represents:
a. Cash set aside to make up for bad debt losses
b. The amount of uncollectible accounts written off to date
c. The difference between total sales made on credit and the amount collected from those credit sales
d. The difference between the face value of accounts receivable and the net realizable value of accounts receivable
Question 34
Victory Corporation
The data presented below is for Victory Corporation for the year ended December 31, 2010.
.Sales (100% on credit) $1,500,000
Sales returns 60,000
Accounts Receivable (December 31, 2010) 250,000
Allowance for Doubtful Accounts (Before adjustment at December 31, 2010) 3,000
Estimated amount of uncollectible accounts based on an aging analysis 31,000
Refer to Victory Corp. If Victory estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2010?
a. $25,800
b. $27,000
c. $28,800
d. $30,000
Question 35
During 2010, the accounts receivable turnover rate for Stern Company increased from 10 to 14 times per year. Which one of the following statements is the most likely explanation for the change?
a. The company’s credit department has followed up with customers whose account balances are past due in order to generate quicker collections
b. The company has decreased sales to its most credit worthy customers
c. The company has increased the amount of time customers have to pay their accounts before they are past due
d. The company has extended credit to more risky customers in order to increase sales
Question 36
The party to a promissory note that agrees to repay money on the maturity date of the note is called the
a. Lender
b. Maker of the note
c. Payee of the note
d. Recipient of the note
Question 37
How will the payee of the promissory note record the note on its books?
A. The promissory note will be recorded as an asset
b.The promissory note will be recorded as a liability
c. The promissory note will be recorded as revenue
d.The promissory note will be recorded as an expense
Question 38
Discounting a note receivable
a. Requires using an account called discount on notes receivable
b. Is the process of lending money
c. Slows the collection process
d. Is the process of selling a promissory note
Question 39
Walnut Farm received a promissory note from a customer on March 1, 2010. The face amount of the note is $8,000; the terms are 90 days and 9% interest.
Refer to the Walnut Farm. What is the total amount of interest that Walnut Farm will receive when the note is paid?
a. $ 60
b. $ 90
c. $180
d. $720
Question 40 Whitecloud, Inc.
The data presented below is for Whitecloud, Inc. for 2010.
a.Credit sales during the year $2,100,000
b.Accounts receivable – December 31, 2010 295,000
c.Allowance for doubtful accounts – December 31, 2010 28,000
d.Bad debt expense for the year 17,000
Refer to Whitecloud, Inc. What amount will Whitecloud show on its year-end balance sheet for the net realizable value of its accounts receivable?
a. $295,000
b. $267,000
c. $250,000
d. $ 28,000
Question 41 1.5 points Save
Exhibit 8-1 Use the information concerning Lamory, Inc. to answer the questions that follow:
Lamory, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2009 and was used 2,700 hours in 2009 and 2,600 hours in 2010.
Refer to Exhibit 8-1. What amount will Lamory, Inc. report as depreciation expense over the 8-year life of the equipment?
a. $60,000
b. $72,000
c. $75,000
d. $80,000
Question 42 1.5 points Save
Exhibit 8-1 Use the information concerning Lamory, Inc. to answer the questions that follow:
Lamory, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2009 and was used 2,700 hours in 2009 and 2,600 hours in 2010.
Refer Exhibit 8-1. If Lamory uses the straight-line method, what is the book value at December 31, 2011?
a. $46,875
d. $51,875
c. $62,500
d. $67,500
Question 43 1.5 points Save
Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet?
a.Accumulated Depreciation–Buildings
b.Buildings
c. Depreciation Expense–Buildings
d. Land
Question 44 1.5 points Save
On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called
a. Accumulated Amortization
b.Accumulated Depreciation
c. Amortization Expense
d. Depreciation Expense
Question 45 1.5 points Save
Which of the following costs related to the purchase of production equipment incurred by SAB Company during 2009 would be considered a revenue expenditure?
a.Installation costs for equipment
b.Purchase price of the equipment less the cash discount
c. Repair and maintenance costs during the equipment’s first year of service
d. Transportation charges to deliver the equipment to SAB Company
Question 46 1.5 points Save
Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should
a. not be amortized.
b. be reported on the statement of retained earnings in the year in which acquired.
c. be amortized over a reasonable period of time not to exceed 40 years.
d. be debited to an expense account entirely in the year in which acquired.
Question 47 1.5 points Save
Goodwill can be recorded as an asset when a(n)
a. business has above normal profitability compared to other businesses in its industry.
B.business can determine that it has created customer goodwill and name recognition.
c. offer is received to purchase the business at a price in excess of the value of the assets.
d. business is purchased and payment is made in excess if the value of the net assets.
Question 48 1.5 points Save
Which of the following sets of factors is needed to calculate depreciation on plant and equipment?
a. The asset’s acquisition cost, replacement cost, and its estimated residual value
b. The estimated residual value of the asset, its replacement cost, and its market value
c. The asset’s replacement cost, its estimated life, and its estimated residual value
d. The estimated life of the asset, its acquisition cost, and its estimated residual value
Question 49 1.5 points Save
If a company constructs an asset over a period of time and borrows money, the amount of interest incurred during construction on the borrowed money is
a.capitalized as part of the cost of the plant asset.
b.amortized over the construction period.
c. reported as interest expense on the income statement.
d. reported as depletion on the income statement.
Question 50 1.5 points Save
Research and development costs are
a. treated as an expense when incurred.
b. capitalized but not amortized.
c. capitalized and amortized over the periods that will probably benefit from the research and development.
d. included with the cost of the patent resulting from the research and development.
Question 51 1.5 points Save
Paul Gibbs bought a pub. The purchase price was $695,000. An appraiser provided the following appraisal values: land $320,000: building $370,000 and equipment $60,000. What cost should be allocated to the building?
a. $370,000
b. $695,000
c. $342,867
d. $399,281
Question 52 1.5 points Save
Cookeville Transportation Company sold an old truck on December 31, 2007, for $18,400 cash. The following data was available when the truck sold:
Acquisition cost $75,000
.Estimated residual value at time of acquisition 8,000
.Accumulated depreciation on December 31, 2007 after adjustment 53,600
When this transaction is recorded, it should include a
a. debit of $3,000 to the Loss on Disposal account
b. credit of $21,400 to the Truck account
c.credit of $3,000 to the Gain on Disposal account
d. credit of $5,000 to the Gain on Disposal account
Question 53 1.5 points Save
All of the following are intangible assets except
a. patents
b.goodwill
c.franchises
d. accounts receivable
Question 54 1.5 points Save
Exhibit 8-5 Use the information provided for the Pegleg Shrimp Company to answer the questions that follow.
On January 1, 2009, Pegleg Shrimp Company purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method.
Refer to Exhibit 8-5. What was the depreciation expense for Pegleg Shrimp for the year ended December 31, 2009?
a. $ -0-
b. $195,000
c. $390,000
d. $400,000