1. Notes or accounts receivables that result from sales transactions are often called
a. sales receivables.
b. non-trade receivables.
c. trade receivables.
d. merchandise receivables.
2. The term "receivables" refers to
a. amounts due from individuals or companies.
b. merchandise to be collected from individuals or companies.
c. cash to be paid to creditors.
d. cash to be paid to debtors.
3. Receivables are
a. One of the most liquid assets and thus are always considered current assets.
b. Claims that are expected to be collected in cash.
c. Shown on the Income Statement at cash realizable value.
d. Always the result of revenue recognition.
4. 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.
5. 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.
6. The account Allowance for Doubtful Accounts is classified as a(n)
a. liability.
b. contra account of Bad Debt Expense.
c. expense.
d. contra account to Accounts Receivable.
7. Under the allowance method, Bad Debt Expense is recorded
a. when an individual account is written off.
b. when the loss amount is known.
c. for an amount that the company estimates it will not collect.
d. several times during the accounting period.
8. 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.
9. Under the allowance method, writing off an uncollectible account
a. affects only balance sheet accounts.
b. affects both balance sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.
10. 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.
11. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited
a. when a credit sale is past due.
b. at the end of each accounting period.
c. whenever a pre-determined amount of credit sales have been made.
d. when an account is determined to be uncollectible.
12. Two methods of accounting for uncollectible accounts are the
a. allowance method and the accrual method.
b. allowance method and the net realizable method.
c. direct write-off method and the accrual method.
d. direct write-off method and the allowance method.
13. Allowance for Doubtful Accounts on the balance sheet
a. is offset against total current assets.
b. increases the cash realizable value of accounts receivable.
c. appears under the heading "Other Assets."
d. is deducted from accounts receivable.
14. 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
15. The interest on a $3,000, 9%, 90-day note receivable is
a. $67.50.
b. $270.00.
c. $22.50.
d. $45.00.
16. The financial statements of the Bolton Manufacturing Company reports net sales of $500,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the receivables turnover ratio for Bolton?
a. 7 times
b. 10 times
c. 16.7 times
d. 12.5 times
17. The financial statements of the Bolton Manufacturing Company reports net sales of $500,000 and accounts receivable of $50,000 and $30,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days?
a. 52.1
b. 29.2
c. 21.9
d. 36.5
18. Which of the following would not be included in the Equipment account?
a. Installation costs
b. Freight costs
c. Cost of trial runs
d. Electricity used by the machine
19. The four subdivisions for plant assets are
a. land, land improvements, buildings, and equipment.
b. intangibles, land, buildings, and equipment.
c. furnishings and fixtures, land, buildings, and equipment.
d. property, plant, equipment, and land.
20. Sanchez Company acquires land for $65,000 cash. Additional costs are as follows:
|
Removal of shed
|
$ 500
|
|
Filling and grading
|
1,500
|
|
Salvage value of lumber of shed
|
320
|
|
Broker commission
|
1,130
|
|
Paving of parking lot
|
10,000
|
|
Closing costs
|
850
|
Sanchez will record the acquisition cost of the land as
a. $68,660.
b. $69,300.
c. $68,980.
d. $65,000.
21. Land improvements should be depreciated over the useful life of the
a. land.
b. buildings on the land.
c. land or land improvements, whichever is longer.
d. land improvements.
22. 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.
23. Upton Company purchased equipment on January 1 at a list price of $50,000, with credit terms 2/10, n/30. Payment was made within the discount period. Upton paid $2,500 sales tax on the equipment, and paid installation charges of $880. Prior to installation, Upton paid $2,000 to pour a concrete slab on which to place the equipment. What is the total cost of the new equipment?
a. $52,380
b. $54,380
c. $55,380
d. $50,500
24. The balance in the Accumulated Depreciation account represents the
a. cash fund to be used to replace plant assets.
b. amount to be deducted from the cost of the plant asset to arrive at its fair market value.
c. amount charged to expense in the current period.
d. amount charged to expense since the acquisition of the plant asset.
25. Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n)
a. equal and equitable manner.
b. accelerated and accurate manner.
c. systematic and rational manner.
d. conservative market-based manner.
26. Recording depreciation each period is necessary in accordance with the
a. going concern principle.
b. cost principle.
c. matching principle.
d. asset valuation principle.
27. Equipment was purchased for $17,000 on January 1, 2006. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used?
a. $6,680.
b. $3,340.
c. $2,860.
d. $5,720.
28. Which of the following methods of computing depreciation is production based?
a. Straight-line
b. Declining-balance
c. Units-of-activity
d. None of these
Use the following information for questions 29-31.
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.
29. The depreciable cost of the equipment is
a. $90,000
b. $75,000
c. $50,000
d. $12,500
30. 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
31. 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
32. Ace Corporation sold equipment for $12,000. The equipment had an original cost of $36,000 and accumulated depreciation of $18,000. As a result of the sale,
a. net income will increase $12,000.
b. net income will increase $6,000.
c. net income will decrease $6,000.
d. net income will decrease $12,000.
33. Using the following data for Happy Home Industries, compute the return on assets ratio.
|
Net Income
|
$ 100,000
|
|
Total Assets 12/31/07
|
2,410,000
|
|
Total Assets 12/31/06
|
1,980,000
|
|
Net Sales
|
250,000
|
a. 4.1%
b. 10.4%
c. 4.6%
d. 11.4%
34. During 2007, Sitter Corporation reported net sales of $2,000,000, net income of $1,200,000, and depreciation expense of $100,000. Sitter also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. Sitter's asset turnover ratio is
a. 2 times.
b. 1.6 times.
c. 1.3 times.
d. .96 times.
35. Current liabilities are due
a. but not receivable for more than one year.
b. but not payable for more than one year.
c. and receivable within one year.
d. and payable within one year.
36. The interest charged on a $100,000 note payable, at the rate of 6%, on a 90-day note would be
a. $6,000.
b. $3,333.
c. $1,500.
d. $500.
37. The interest charged on a $50,000 note payable, at the rate of 6%, on a 60-day note would be
a. ................................................................................................ $3,000.
b. ................................................................................................ $1,500.
c. ................................................................................................ $750.
d. ................................................................................................ $500.
38. Interest expense on an interest-bearing note is
a. always equal to zero.
b. accrued over the life of the note.
c. only recorded at the time the note is issued.
d. only recorded at maturity when the note is paid.
39. On January 1, 2007, Brunson Company, a calendar-year company, issued $400,000 of notes payable, of which $100,000 is due on January 1 for each of the next four years.
The proper balance sheet presentation on December 31, 2007, is
a. Current Liabilities, $400,000.
b. Long-term Debt , $400,000.
c. Current Liabilities, $100,000; Long-term Debt, $300,000.
d. Current Liabilities, $300,000; Long-term Debt, $100,000.
40. Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations they are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made?
a. Cash
Unearned Revenue
b. Cash
Earned Revenue
c. Unearned Revenue
Earned Revenue
d. Cash Sales
41 Secured bonds are bonds that
a. are in the possession of a bank.
b. can be converted into common stock.
c. have specific assets of the issuer pledged as collateral.
d. mature in installments.
42. 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.
43. The present value of a bond is also known as its
a. face value.
b. market price.
c. future value.
d. deferred value.
44. 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.
45. On January 1, 2007, $1,000,000, 5-year, 10% bonds, were issued for $1,060,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize premium on bonds payable, the monthly amortization amount is
a. $8,833.
b. $12,000.
c. $1,200.
d. $1,000.
46. Two thousand bonds with a face value of $1,000 each, are sold at 102. The entry to record the issuance is
|
a. Cash
|
2,040,000
|
|
|
Bonds Payable
|
|
2,040,000
|
|
b. Cash
|
2,000,000
|
|
|
Premium on Bonds Payable
|
40,000
|
|
|
Bonds Payable
|
|
2,040,000
|
|
c. Cash
|
2,040,000
|
|
|
Premium on Bonds Payable
|
|
40,000
|
|
Bonds Payable
|
|
2,000,000
|
|
d. Cash
|
2,040,000
|
|
|
Discount on Bonds Payable
|
|
40,000
|
|
Bonds Payable
|
|
2,000,000
|
47. The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2007, contained the following accounts.
|
5-year Bonds Payable 8%
|
$1,000,000
|
|
Bond Interest Payable
|
50,000
|
|
Premium on Bonds Payable
|
100,000
|
|
Notes Payable (3 mo.)
|
40,000
|
|
Notes Payable (5 yr.)
|
165,000
|
|
Mortgage Payable ($15,000 due currently)
|
200,000
|
|
Salaries Payable
|
18,000
|
|
Taxes Payable (due 3/15 of next yr)
|
25,000
|
The total long-term liabilities reported on the balance sheet are
a. $1,365,000
b. $1,350,000
c. $1,465,000
d. $1,450,000
48. The 2007 financial statements of Shadow Co. contain the following selected data (in millions).
|
Current Assets
|
$ 75
|
|
Total Assets
|
120
|
|
Current Liabilities
|
40
|
|
Total Liabilities
|
85
|
|
Cash
|
8
|
|
Interest Expense
|
5
|
|
Income Taxes
|
10
|
|
Net Income
|
16
|
The debt to total assets ratio is
a. 70.8%
b. 53.3%
c. 1.41%
d. 6.2 times
49. Sunwood Company issued $500,000 of 6%, 5-year bonds at 98, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?
a. $490,000
b. $491,000
c. $492,000
d. $494,000
50. When the effective-interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated multiplying the
a. face value of the bonds at the beginning of the period by the contractual interest rate.
b. face value of the bonds at the beginning of the period by the effective interest rate.
c. carrying value of the bonds at the beginning of the period by the contractual interest rate.
d. carrying value of the bonds at the beginning of the period by the effective interest rate.