ACG 31001.Which of the following is NOT normally an objective of financial reporting?a. To provide information about an ...
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ACG 3100
1.Which of the following is NOT normally an objective of financial reporting?
a. To provide information about an entity's assets and claims against those assets
b. To provide information that is useful in assessing an entity's sources and uses of cash
c. To provide information that is useful in lending and investing decisions
d. To provide information about an entity's liquidation value
2.As independent (or external) auditors, CPAs are primarily responsible for
a. preparing financial statements in conformity with GAAP.
b. certifying the accuracy of financial statements.
c. expressing an opinion as to the fairness of financial statements.
d. filing financial statements with the SEC.
3.The assumed continuation of a business entity in the absence of evidence to the contrary is an example
of the accounting concept of
a. accrual.
b. consistency.
c. comparability.
d. going concern.
4.According to the FASB's conceptual framework, the process of reporting an item in the financial
statements of an entity is
a. realization.
b. recognition.
c. matching.
d. allocation.
5.Generally accepted accounting principles
a. are accounting adaptations based on the laws of economic science.
b. derive their credibility and authority from legal rulings and court precedents.
c. derive their credibility and authority from the federal government through the financial
reporting section of the SEC.
d. derive their credibility and authority from general recognition and acceptance by the
accounting profession.
6.On June 30, a company paid $3,600 for insurance premiums for the current year and debited the
amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount
expired. The omission has the following effect on the financial statements prepared December 31:
a. overstates owners' equity.
b. overstates assets.
c. understates net income.
d. overstates both ownersâ equity and assets.
7.Which of the following criteria must be met before an event should be recorded for accounting
purposes?
a. The event must be an arm's-length transaction.
b. The event must be repeatable in a future period.
c. The event must be measurable in financial terms.
d. The event must be disclosed in the reported footnotes.
8.Adjusting entries normally involve
a. real accounts only.
b. nominal accounts only.
c. real and nominal accounts.
d. liability accounts only.
9.If an inventory account is understated at year end, the effect will be to overstate the
a. net purchases.
b. gross margin.
c. cost of goods available for sale.
d. cost of goods sold.
10.Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively. If
collections from clients during the period were $80,000, then total services rendered on account
were apparently
a. $76,000.
b. $84,000.
c. $104,000.
d. $108,000.
11.The following balances have been excerpted from Edwards' balance sheets:
Prepaid Insurance ............
Interest Receivable ..........
Salaries Payable .............
December 31, 2013
$ 6,000
3,700
61,500
December 31, 2012
$ 7,500
14,500
53,000
Edwards Company paid or collected during 2013 the following items:
Insurance premiums paid ......
Interest collected ...........
Salaries paid ................
$ 41,500
123,500
481,000
The interest revenue on the income statement for 2013 was
a. $90,500.
b. $112,700.
c. $117,500.
d. $156,500.
12.Comet Corporation's liability account balances at June 30, 2013, included a 10 percent note payable.
The note is dated October 1, 2011, and carried an original principal amount of $600,000. The note
is payable in three equal annual payments of $200,000 plus interest. The first interest and
principal payment was made on October 1, 2012. In Comet's June 30, 2013, balance sheet, what
amount should be reported as Interest Payable for this note?
a. $10,000
b. $15,000
c. $30,000
d. $45,000
13.The correct order to present current assets is
a. cash, inventories, prepaid items, accounts receivable.
b. cash, inventories, accounts receivable, prepaid items.
c. cash, accounts receivable, prepaid items, inventories.
d. cash, accounts receivable, inventories, prepaid items.
14.Unearned rent would normally appear on the balance sheet as a
a. plant asset.
b. current liability.
c. long-term liability.
d. current asset.
15.Which of the following is NOT a long-term investment?
a. Stock held to exert influence on another company
b. Land held for speculation
c. Trademarks
d. Cash surrender value of life insurance
16.The operating cycle
a. measures the time elapsed between cash disbursement for inventory and cash collection of
the sales price.
b. refers to the seasonal variations experienced by business enterprises.
c. should be used to classify assets and liabilities as current if it is less than one year.
d. cannot exceed one year.
17.Wolfe Co. was incorporated on July 1, 2014, with $200,000 from the issuance of stock and borrowed
funds of $30,000. During the first year of operations, net income was $10,000. On December 15,
Wolfe paid an $800 cash dividend. No additional activities affected owners' equity in 2014. At
December 31, 2014, Wolfe's liabilities had increased to $37,600. In Wolfe's December 31, 2014,
balance sheet, total assets should be reported at
a. $239,200.
b. $240,000.
c. $246,800.
d. $276,800.
18.Volta Electronics Inc. reported the following items on its December 31, 2014, trial balance:
Accounts Payable ........................................
Advances to Employees ...................................
Unearned Rent Revenue ...................................
Estimated Liability Under Warranties ....................
Cash Surrender Value of Officers' Life Insurance ........
Bonds Payable ...........................................
Discount on Bonds Payable ...............................
Trademarks ..............................................
$108,900
4,500
28,800
25,800
7,500
555,000
22,500
3,900
The amount that should be recorded on Voltaâs balance sheet as total liabilities is
a. $696,000.
b. $700,500.
c. $703,500.
d. $741,000.
19.In contrast with a multiple-step income statement, a single-step income statement does not show the
amount of
a. income taxes on continuing operations.
b. cost of goods sold.
c. gross profit.
d. earnings per share.
20.The term "comprehensive income" as defined by the FASB
a. must be reported on the face of the income statement.
b. includes all changes in equity during a period except those resulting from investments by
and distributions to owners.
c. is the net change in owners' equity for the period.
d. is synonymous with the term "net income."
21.The following amounts are from Silverton Co.'s 2014 income statement:
Sales .................................................
Sales returns and allowances ..........................
Cost of goods sold ....................................
Utilities expense .....................................
Interest revenue ......................................
Income tax on operations ..............................
Extraordinary loss due to earthquake, net of tax ......
Interest expense ......................................
Salaries expense ......................................
Loss on sale of investments ...........................
$340,000
5,000
132,000
66,000
1,000
28,000
5,000
4,000
46,000
3,000
What amount would Silverton show for income from continuing operations on a multiple-step
format income statement?
a. $52,000
b. $68,000
c. $57,000
d. $96,000
22.Saginaw Inc. decided on August 1, 2014, to dispose of a component of its business. The component
was sold on November 30, 2014. Saginaw's income for 2014 included income of $250,000 from
operating the discontinued segment from January 1 to the sale date. Saginaw incurred a loss on
the November 30 sale of $220,000. Ignoring income taxes, what amount should be reported in the
2014 income statement as the net income or loss under "Discontinued Operations"?
a. $220,000 loss
b. $30,000 loss
c. $30,000 income
d. $250,000 income
23.The financial statements of Mannassass Corporation for 2014 and 2015 contained the following
errors:
2014
Ending Inventory
Rent Expense
2015
$14,000 overstated
$4,800 understated
$20,000 understated
$6,600 overstated
Assuming that none of the errors were detected or corrected, by what amount will 2014 operating
income be overstated or understated?
a. $9,200 overstated
b. $9,200 understated
c. $18,800 understated
d. $18,800 overstated
24.In a statement of cash flows, receipts from sales of property, plant, and equipment would be classified
as cash inflows from
a. liquidating activities.
b. operating activities.
c. investing activities.
d. financing activities.
25.In a statement of cash flows (indirect method), depreciation is treated as an adjustment to reported net
income because depreciation
a. is an inflow of cash to a reserve account for asset replacement.
b. reduces the reported net income and involves an inflow of cash.
c. reduces the reported net income but does not involve an outflow of cash.
d. usually represents a significant portion of operating expenses.
26.Which of the following statements regarding cash equivalents is correct?
a. A one-year Treasury note could not qualify as a cash equivalent.
b. All investments meeting the FASB's criteria for cash equivalents must be reported as such.
c. The date a security is purchased determines its "original maturity" for cash equivalent
classification purposes.
d. Once established, management's policy for classifying items as cash equivalents cannot be
changed.
27.Which of the following would not be classified as an operating activity?
a. Interest income
b. Income tax expense
c. Dividend income
d. Payment of dividends
28.The amount reported as "Cash" on a company's balance sheet normally should exclude
a. postdated checks that are payable to the company.
b. cash in a payroll account.
c. undelivered checks written and signed by the company.
d. petty cash.
29.When a specific customer's account is written off by a company using the allowance method, the
effect on net income and the net realizable value of the accounts receivable is
a.
b.
c.
d.
Net Income
Increase
Decrease
None
Decrease
Net Realizable Value
of Accounts Receivable
Increase
Decrease
None
None
30.The following information is from the records of Sumter, Inc. for the year ended December 31, 2014.
Allowance for Doubtful Accounts, January 1, 2014 ..
Sales, 2014 .......................................
Sales Returns and Allowances, 2014 ................
$
6,000
2,920,000
32,000
(cr)
If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful
accounts expense for 2014 is
a.
b.
c.
d.
$22,800.
$23,200.
$28,880.
$34,880.
31.In preparing the bank reconciliation of Yardley Company for the month of July, the following
information is available:
Balance per bank statement, 7/31 .....................
Deposits in transit, 7/31 ............................
Outstanding checks, 7/31 .............................
Deposit erroneously recorded by bank to Yardleyâs
account, 7/18 ......................................
Bank service charges for July ........................
$60,075
9,375
8,625
375
75
What is the correct cash balance at July 31?
a. $52,875
b. $54,375
c. $54,825
d. $60,450
32.Lawson Corporation's checkbook balance on December 31, 2014, was $8,000. In addition, Lawson
held the following items in its safe on December 31:
Check payable to Lawson Corporation, dated January 2,
2015, not included in December 31 checkbook balance..
Check payable to Lawson Corporation, deposited December
20, and included in December 31 checkbook balance, but
returned by bank on December 30, stamped "NSF." The check
was redeposited January 2, 2015, and cleared January 7 ..
Post-dated checks .......................................
Check drawn on Lawson Corporation's account, payable to a
vendor, dated and recorded December 31, but not mailed
until January 15, 2015 ..................................
$2,000
400
150
1,000
The proper amount to be shown as cash on Lawsonâs balance sheet at December 31, 2014, is
a. $7,600.
b. $8,000.
c. $8,600.
d. $9,750.
33.Which of the following would be considered part of the category "trade receivables"?
a. Advances to employees
b. Amounts due from customers
c. Dividends receivable
d. Income tax refunds receivable
34.The installment method of recognizing revenue
a. should be used only in cases in which no reasonable basis exists for estimating the
collectibility of receivables.
b. is not a generally accepted accounting principle under any circumstances.
c. should be used for book purposes only if it is used for tax purposes.
d. is an acceptable alternative accounting principle for a firm that makes installment sales.
35.The cost recovery method is
a. used only when circumstances surrounding a sale are so uncertain that earlier recognition
is impossible.
b. the most common method of accounting for real estate sales.
c. similar to percentage-of-completion accounting.
d. never acceptable under generally accepted accounting principles.
36.Goods on consignment should be included in the inventory of
a. the consignor but not the consignee.
b. both the consignor and the consignee.
c. the consignee but not the consignor.
d. neither the consignor nor the consignee.
37.Gunner Construction, Inc. has consistently used the percentage-of-completion method of recognizing
revenue. During 2014, Gunner started work on a $2,500,000 fixed-price construction contract.
The accounting records disclosed the following data for the year ended December 31, 2014:
Costs incurred ........................................
Estimated cost to complete ............................
Progress billings .....................................
Collections ...........................................
$
465,000
2,085,000
550,000
350,000
How much loss should Gunner have recognized in 2014?
a. $15,000
b. $35,000
c. $50,000
d. $315,000
38.Commodity L sells for $12.00; selling expenses are $2.40; normal profit is $3.00. If the cost of
Commodity L is $7.80 and the replacement cost is $6.00, the lower of cost or market is
a. $5.40.
b. $6.60.
c. $6.00.
d. $7.80.
39.Montana Company is a wholesale electronics distributor. On December 31, 2014, it prepared the
following partial income statement:
Gross sales ...............................
Sales discounts ...........................
Net sales .................................
Cost of goods sold:
Beginning inventory .....................
Net purchases ...........................
$800,400
400
$800,000
$300,000
300,000
Given this information, if Montana Company's gross margin is 30 percent of net sales, what is the
correct ending inventory balance?
a. $40,000
b. $240,000
c. $360,000
d. $600,000
40.Which of the following statements is true?
a. A company must use the FIFO cost flow assumption for taxes as well as for financial
accounting and reporting.
b. A company may use FIFO for inventory valuation purposes on the balance sheet provided
that LIFO cost of goods sold is reported on the income statement.
c. Application of LIFO for financial reporting purposes must strictly follow IRS regulations
relating to LIFO.
d. LIFO is the only inventory method that must be used for financial reporting purposes if
used for tax purposes.
41.A company using a periodic inventory system neglected to record a purchase of merchandise on
account at year-end. This merchandise was omitted from the year-end physical count. How will
these errors affect inventory at year-end and cost of goods sold for the year?
Inventory
a.
b.
c.
d.
Cost of
Goods Sold
No effect
Understate
Understate
No effect
Understate
No effect
Understate
Overstate
42.If goods shipped FOB destination are in transit at the end of the year, they should be included in the
inventory balance of the
a. seller.
b. common carrier.
c. buyer.
d. bank.
43.Digipro Inc. is a wholesaler of photography equipment. The activity for the VTC cameras
during July is shown below:
Date
Balance/
Transaction
Units
Cost
July 1
7
12
21
22
29
Inventory
Purchase
Sales
Purchase
Sales
Purchase
2,000
3,000
3,600
5,000
3,800
1,600
$36.00
37.00
37.88
38.11
If Digipro Inc. uses the average cost method to account for inventory, the ending inventory of
VTC cameras at July 31 is reported as
a. $153,400.
b. $156,912.
c. $158,736.
d. $159,464.
44.An asset is being constructed for an enterprise's own use. The asset has been financed with a specific
new borrowing. The interest cost incurred during the construction period as a result of
expenditures for the asset is
a. a part of the historical cost of acquiring the asset to be written off over the estimated useful
life of the asset.
b. interest expense in the construction period.
c. recorded as a deferred charge and amortized over the term of the borrowing.
d. a part of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the construction of the asset.
45.Which of the following research and development related costs should be capitalized and amortized
over current and future periods?
a. Labor and material costs incurred in building a prototype model.
b. Cost of testing equipment that will also be used in another separate research and
development project scheduled to begin next year.
c. Administrative salaries allocated to research and development.
d. Research findings purchased from another company to aid a particular research project
currently in process.
46.An improvement made to a machine increased its fair market value and its production capacity by 25
percent without extending the machine's useful life. The cost of the improvement should be
a. expensed.
b. debited to Accumulated Depreciation.
c. capitalized in the machine account.
d. allocated between Accumulated Depreciation and the machine account.
47.On February 12, Oceans Company purchased a tract of land as a factory site for $190,000. An
existing building on the property was razed and construction was begun on a new factory building
in March of the same year. Additional data are available as follows:
Cost of razing old building ..........................
Title insurance and legal fees to purchase land ......
Architect's fees .....................................
New building construction cost .......................
$ 55,000
7,500
52,500
975,000
The recorded cost of the completed factory building should be
a. $1,165,000
b. $1,220,000
c. $1,027,500
d. $1,082,500
48. The Morris Corporation acquired land, buildings, and equipment from a bankrupt company at a
lump-sum price of $180,000. At the time of acquisition, Morris paid $12,000 to have the assets
appraised. The appraisal disclosed the following values:
Land ..................................................
Buildings .............................................
$120,000
80,000
Equipment .............................................
40,000
What cost should be assigned to the land, buildings, and equipment, respectively?
a. $64,000, $64,000, and $64,000
b. $90,000, $60,000, and $30,000
c. $96,000, $64,000, and $32,000
d. $120,000, $80,000, and $40,000
49.Stanley Company purchased a machine that was installed and placed in service on January 2, 2013, at
a total cost of $680,000. Residual value was estimated at $70,000. The machine is being
depreciated over ten years by the double-declining-balance method. For the year 2014, Stanley
should record depreciation expense of
a. $108,800
b. $97,600
c. $68,000
d. $61,000
50.The Chisholm Company purchased a machine on November 1, 2005, for $148,000. At the time of
acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage
value of $4,000. Chisholm has recorded monthly depreciation using the straight-line method. On
July 1, 2014, the machine was sold for $13,000. What should be the loss recognized from the sale
of the machine?
a. $4,000
b. $5,000
c. $10,200
d. $13,000
1.Which of the following is NOT normally an objective of financial reporting?
a. To provide information about an entity's assets and claims against those assets
b. To provide information that is useful in assessing an entity's sources and uses of cash
c. To provide information that is useful in lending and investing decisions
d. To provide information about an entity's liquidation value
2.As independent (or external) auditors, CPAs are primarily responsible for
a. preparing financial statements in conformity with GAAP.
b. certifying the accuracy of financial statements.
c. expressing an opinion as to the fairness of financial statements.
d. filing financial statements with the SEC.
3.The assumed continuation of a business entity in the absence of evidence to the contrary is an example
of the accounting concept of
a. accrual.
b. consistency.
c. comparability.
d. going concern.
4.According to the FASB's conceptual framework, the process of reporting an item in the financial
statements of an entity is
a. realization.
b. recognition.
c. matching.
d. allocation.
5.Generally accepted accounting principles
a. are accounting adaptations based on the laws of economic science.
b. derive their credibility and authority from legal rulings and court precedents.
c. derive their credibility and authority from the federal government through the financial
reporting section of the SEC.
d. derive their credibility and authority from general recognition and acceptance by the
accounting profession.
6.On June 30, a company paid $3,600 for insurance premiums for the current year and debited the
amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount
expired. The omission has the following effect on the financial statements prepared December 31:
a. overstates owners' equity.
b. overstates assets.
c. understates net income.
d. overstates both ownersâ equity and assets.
7.Which of the following criteria must be met before an event should be recorded for accounting
purposes?
a. The event must be an arm's-length transaction.
b. The event must be repeatable in a future period.
c. The event must be measurable in financial terms.
d. The event must be disclosed in the reported footnotes.
8.Adjusting entries normally involve
a. real accounts only.
b. nominal accounts only.
c. real and nominal accounts.
d. liability accounts only.
9.If an inventory account is understated at year end, the effect will be to overstate the
a. net purchases.
b. gross margin.
c. cost of goods available for sale.
d. cost of goods sold.
10.Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively. If
collections from clients during the period were $80,000, then total services rendered on account
were apparently
a. $76,000.
b. $84,000.
c. $104,000.
d. $108,000.
11.The following balances have been excerpted from Edwards' balance sheets:
Prepaid Insurance ............
Interest Receivable ..........
Salaries Payable .............
December 31, 2013
$ 6,000
3,700
61,500
December 31, 2012
$ 7,500
14,500
53,000
Edwards Company paid or collected during 2013 the following items:
Insurance premiums paid ......
Interest collected ...........
Salaries paid ................
$ 41,500
123,500
481,000
The interest revenue on the income statement for 2013 was
a. $90,500.
b. $112,700.
c. $117,500.
d. $156,500.
12.Comet Corporation's liability account balances at June 30, 2013, included a 10 percent note payable.
The note is dated October 1, 2011, and carried an original principal amount of $600,000. The note
is payable in three equal annual payments of $200,000 plus interest. The first interest and
principal payment was made on October 1, 2012. In Comet's June 30, 2013, balance sheet, what
amount should be reported as Interest Payable for this note?
a. $10,000
b. $15,000
c. $30,000
d. $45,000
13.The correct order to present current assets is
a. cash, inventories, prepaid items, accounts receivable.
b. cash, inventories, accounts receivable, prepaid items.
c. cash, accounts receivable, prepaid items, inventories.
d. cash, accounts receivable, inventories, prepaid items.
14.Unearned rent would normally appear on the balance sheet as a
a. plant asset.
b. current liability.
c. long-term liability.
d. current asset.
15.Which of the following is NOT a long-term investment?
a. Stock held to exert influence on another company
b. Land held for speculation
c. Trademarks
d. Cash surrender value of life insurance
16.The operating cycle
a. measures the time elapsed between cash disbursement for inventory and cash collection of
the sales price.
b. refers to the seasonal variations experienced by business enterprises.
c. should be used to classify assets and liabilities as current if it is less than one year.
d. cannot exceed one year.
17.Wolfe Co. was incorporated on July 1, 2014, with $200,000 from the issuance of stock and borrowed
funds of $30,000. During the first year of operations, net income was $10,000. On December 15,
Wolfe paid an $800 cash dividend. No additional activities affected owners' equity in 2014. At
December 31, 2014, Wolfe's liabilities had increased to $37,600. In Wolfe's December 31, 2014,
balance sheet, total assets should be reported at
a. $239,200.
b. $240,000.
c. $246,800.
d. $276,800.
18.Volta Electronics Inc. reported the following items on its December 31, 2014, trial balance:
Accounts Payable ........................................
Advances to Employees ...................................
Unearned Rent Revenue ...................................
Estimated Liability Under Warranties ....................
Cash Surrender Value of Officers' Life Insurance ........
Bonds Payable ...........................................
Discount on Bonds Payable ...............................
Trademarks ..............................................
$108,900
4,500
28,800
25,800
7,500
555,000
22,500
3,900
The amount that should be recorded on Voltaâs balance sheet as total liabilities is
a. $696,000.
b. $700,500.
c. $703,500.
d. $741,000.
19.In contrast with a multiple-step income statement, a single-step income statement does not show the
amount of
a. income taxes on continuing operations.
b. cost of goods sold.
c. gross profit.
d. earnings per share.
20.The term "comprehensive income" as defined by the FASB
a. must be reported on the face of the income statement.
b. includes all changes in equity during a period except those resulting from investments by
and distributions to owners.
c. is the net change in owners' equity for the period.
d. is synonymous with the term "net income."
21.The following amounts are from Silverton Co.'s 2014 income statement:
Sales .................................................
Sales returns and allowances ..........................
Cost of goods sold ....................................
Utilities expense .....................................
Interest revenue ......................................
Income tax on operations ..............................
Extraordinary loss due to earthquake, net of tax ......
Interest expense ......................................
Salaries expense ......................................
Loss on sale of investments ...........................
$340,000
5,000
132,000
66,000
1,000
28,000
5,000
4,000
46,000
3,000
What amount would Silverton show for income from continuing operations on a multiple-step
format income statement?
a. $52,000
b. $68,000
c. $57,000
d. $96,000
22.Saginaw Inc. decided on August 1, 2014, to dispose of a component of its business. The component
was sold on November 30, 2014. Saginaw's income for 2014 included income of $250,000 from
operating the discontinued segment from January 1 to the sale date. Saginaw incurred a loss on
the November 30 sale of $220,000. Ignoring income taxes, what amount should be reported in the
2014 income statement as the net income or loss under "Discontinued Operations"?
a. $220,000 loss
b. $30,000 loss
c. $30,000 income
d. $250,000 income
23.The financial statements of Mannassass Corporation for 2014 and 2015 contained the following
errors:
2014
Ending Inventory
Rent Expense
2015
$14,000 overstated
$4,800 understated
$20,000 understated
$6,600 overstated
Assuming that none of the errors were detected or corrected, by what amount will 2014 operating
income be overstated or understated?
a. $9,200 overstated
b. $9,200 understated
c. $18,800 understated
d. $18,800 overstated
24.In a statement of cash flows, receipts from sales of property, plant, and equipment would be classified
as cash inflows from
a. liquidating activities.
b. operating activities.
c. investing activities.
d. financing activities.
25.In a statement of cash flows (indirect method), depreciation is treated as an adjustment to reported net
income because depreciation
a. is an inflow of cash to a reserve account for asset replacement.
b. reduces the reported net income and involves an inflow of cash.
c. reduces the reported net income but does not involve an outflow of cash.
d. usually represents a significant portion of operating expenses.
26.Which of the following statements regarding cash equivalents is correct?
a. A one-year Treasury note could not qualify as a cash equivalent.
b. All investments meeting the FASB's criteria for cash equivalents must be reported as such.
c. The date a security is purchased determines its "original maturity" for cash equivalent
classification purposes.
d. Once established, management's policy for classifying items as cash equivalents cannot be
changed.
27.Which of the following would not be classified as an operating activity?
a. Interest income
b. Income tax expense
c. Dividend income
d. Payment of dividends
28.The amount reported as "Cash" on a company's balance sheet normally should exclude
a. postdated checks that are payable to the company.
b. cash in a payroll account.
c. undelivered checks written and signed by the company.
d. petty cash.
29.When a specific customer's account is written off by a company using the allowance method, the
effect on net income and the net realizable value of the accounts receivable is
a.
b.
c.
d.
Net Income
Increase
Decrease
None
Decrease
Net Realizable Value
of Accounts Receivable
Increase
Decrease
None
None
30.The following information is from the records of Sumter, Inc. for the year ended December 31, 2014.
Allowance for Doubtful Accounts, January 1, 2014 ..
Sales, 2014 .......................................
Sales Returns and Allowances, 2014 ................
$
6,000
2,920,000
32,000
(cr)
If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful
accounts expense for 2014 is
a.
b.
c.
d.
$22,800.
$23,200.
$28,880.
$34,880.
31.In preparing the bank reconciliation of Yardley Company for the month of July, the following
information is available:
Balance per bank statement, 7/31 .....................
Deposits in transit, 7/31 ............................
Outstanding checks, 7/31 .............................
Deposit erroneously recorded by bank to Yardleyâs
account, 7/18 ......................................
Bank service charges for July ........................
$60,075
9,375
8,625
375
75
What is the correct cash balance at July 31?
a. $52,875
b. $54,375
c. $54,825
d. $60,450
32.Lawson Corporation's checkbook balance on December 31, 2014, was $8,000. In addition, Lawson
held the following items in its safe on December 31:
Check payable to Lawson Corporation, dated January 2,
2015, not included in December 31 checkbook balance..
Check payable to Lawson Corporation, deposited December
20, and included in December 31 checkbook balance, but
returned by bank on December 30, stamped "NSF." The check
was redeposited January 2, 2015, and cleared January 7 ..
Post-dated checks .......................................
Check drawn on Lawson Corporation's account, payable to a
vendor, dated and recorded December 31, but not mailed
until January 15, 2015 ..................................
$2,000
400
150
1,000
The proper amount to be shown as cash on Lawsonâs balance sheet at December 31, 2014, is
a. $7,600.
b. $8,000.
c. $8,600.
d. $9,750.
33.Which of the following would be considered part of the category "trade receivables"?
a. Advances to employees
b. Amounts due from customers
c. Dividends receivable
d. Income tax refunds receivable
34.The installment method of recognizing revenue
a. should be used only in cases in which no reasonable basis exists for estimating the
collectibility of receivables.
b. is not a generally accepted accounting principle under any circumstances.
c. should be used for book purposes only if it is used for tax purposes.
d. is an acceptable alternative accounting principle for a firm that makes installment sales.
35.The cost recovery method is
a. used only when circumstances surrounding a sale are so uncertain that earlier recognition
is impossible.
b. the most common method of accounting for real estate sales.
c. similar to percentage-of-completion accounting.
d. never acceptable under generally accepted accounting principles.
36.Goods on consignment should be included in the inventory of
a. the consignor but not the consignee.
b. both the consignor and the consignee.
c. the consignee but not the consignor.
d. neither the consignor nor the consignee.
37.Gunner Construction, Inc. has consistently used the percentage-of-completion method of recognizing
revenue. During 2014, Gunner started work on a $2,500,000 fixed-price construction contract.
The accounting records disclosed the following data for the year ended December 31, 2014:
Costs incurred ........................................
Estimated cost to complete ............................
Progress billings .....................................
Collections ...........................................
$
465,000
2,085,000
550,000
350,000
How much loss should Gunner have recognized in 2014?
a. $15,000
b. $35,000
c. $50,000
d. $315,000
38.Commodity L sells for $12.00; selling expenses are $2.40; normal profit is $3.00. If the cost of
Commodity L is $7.80 and the replacement cost is $6.00, the lower of cost or market is
a. $5.40.
b. $6.60.
c. $6.00.
d. $7.80.
39.Montana Company is a wholesale electronics distributor. On December 31, 2014, it prepared the
following partial income statement:
Gross sales ...............................
Sales discounts ...........................
Net sales .................................
Cost of goods sold:
Beginning inventory .....................
Net purchases ...........................
$800,400
400
$800,000
$300,000
300,000
Given this information, if Montana Company's gross margin is 30 percent of net sales, what is the
correct ending inventory balance?
a. $40,000
b. $240,000
c. $360,000
d. $600,000
40.Which of the following statements is true?
a. A company must use the FIFO cost flow assumption for taxes as well as for financial
accounting and reporting.
b. A company may use FIFO for inventory valuation purposes on the balance sheet provided
that LIFO cost of goods sold is reported on the income statement.
c. Application of LIFO for financial reporting purposes must strictly follow IRS regulations
relating to LIFO.
d. LIFO is the only inventory method that must be used for financial reporting purposes if
used for tax purposes.
41.A company using a periodic inventory system neglected to record a purchase of merchandise on
account at year-end. This merchandise was omitted from the year-end physical count. How will
these errors affect inventory at year-end and cost of goods sold for the year?
Inventory
a.
b.
c.
d.
Cost of
Goods Sold
No effect
Understate
Understate
No effect
Understate
No effect
Understate
Overstate
42.If goods shipped FOB destination are in transit at the end of the year, they should be included in the
inventory balance of the
a. seller.
b. common carrier.
c. buyer.
d. bank.
43.Digipro Inc. is a wholesaler of photography equipment. The activity for the VTC cameras
during July is shown below:
Date
Balance/
Transaction
Units
Cost
July 1
7
12
21
22
29
Inventory
Purchase
Sales
Purchase
Sales
Purchase
2,000
3,000
3,600
5,000
3,800
1,600
$36.00
37.00
37.88
38.11
If Digipro Inc. uses the average cost method to account for inventory, the ending inventory of
VTC cameras at July 31 is reported as
a. $153,400.
b. $156,912.
c. $158,736.
d. $159,464.
44.An asset is being constructed for an enterprise's own use. The asset has been financed with a specific
new borrowing. The interest cost incurred during the construction period as a result of
expenditures for the asset is
a. a part of the historical cost of acquiring the asset to be written off over the estimated useful
life of the asset.
b. interest expense in the construction period.
c. recorded as a deferred charge and amortized over the term of the borrowing.
d. a part of the historical cost of acquiring the asset to be written off over the term of the
borrowing used to finance the construction of the asset.
45.Which of the following research and development related costs should be capitalized and amortized
over current and future periods?
a. Labor and material costs incurred in building a prototype model.
b. Cost of testing equipment that will also be used in another separate research and
development project scheduled to begin next year.
c. Administrative salaries allocated to research and development.
d. Research findings purchased from another company to aid a particular research project
currently in process.
46.An improvement made to a machine increased its fair market value and its production capacity by 25
percent without extending the machine's useful life. The cost of the improvement should be
a. expensed.
b. debited to Accumulated Depreciation.
c. capitalized in the machine account.
d. allocated between Accumulated Depreciation and the machine account.
47.On February 12, Oceans Company purchased a tract of land as a factory site for $190,000. An
existing building on the property was razed and construction was begun on a new factory building
in March of the same year. Additional data are available as follows:
Cost of razing old building ..........................
Title insurance and legal fees to purchase land ......
Architect's fees .....................................
New building construction cost .......................
$ 55,000
7,500
52,500
975,000
The recorded cost of the completed factory building should be
a. $1,165,000
b. $1,220,000
c. $1,027,500
d. $1,082,500
48. The Morris Corporation acquired land, buildings, and equipment from a bankrupt company at a
lump-sum price of $180,000. At the time of acquisition, Morris paid $12,000 to have the assets
appraised. The appraisal disclosed the following values:
Land ..................................................
Buildings .............................................
$120,000
80,000
Equipment .............................................
40,000
What cost should be assigned to the land, buildings, and equipment, respectively?
a. $64,000, $64,000, and $64,000
b. $90,000, $60,000, and $30,000
c. $96,000, $64,000, and $32,000
d. $120,000, $80,000, and $40,000
49.Stanley Company purchased a machine that was installed and placed in service on January 2, 2013, at
a total cost of $680,000. Residual value was estimated at $70,000. The machine is being
depreciated over ten years by the double-declining-balance method. For the year 2014, Stanley
should record depreciation expense of
a. $108,800
b. $97,600
c. $68,000
d. $61,000
50.The Chisholm Company purchased a machine on November 1, 2005, for $148,000. At the time of
acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage
value of $4,000. Chisholm has recorded monthly depreciation using the straight-line method. On
July 1, 2014, the machine was sold for $13,000. What should be the loss recognized from the sale
of the machine?
a. $4,000
b. $5,000
c. $10,200
d. $13,000
