Test CHAPTER 7-13 accounting

Dynamic, Inc. had credit sales of $675,000 for March. Accounts receivable of $6,000 were determined to be worthless and were written off during March. Accounts receivable total $575,000 at March 31. Management feels that based on past experience, approximately 2% of net credit sales will prove to be uncollectible.   Refer to the above data. Assuming Dynamic, Inc. uses the income statement approach (an allowance method) to account for uncollectible accounts, uncollectible accounts expense for March is:

Select one:

a. $11,500.

b. $17,500.

c. $19,500.

d. $13,500.

Question 5

Which of the following is not an example of internal control over cash?

Select one:

a. Preparation of a cash budget.

b. Daily deposits of cash receipts at the bank.

c. Combining the functions of signing checks with the approval of expenditures.

d. Preparation of bank reconciliation.

Question 6

Castle TV, Inc. purchased 1,000 monitors on January 5 at a per-unit cost of $185, and another 1,000 units on January 31 at a per-unit cost of $230. In the period from February 1 through year-end, the company sold 1,800 units of this product. At year-end, 200 units remained in inventory.   Refer to the above data. Assume that Castle TV, Inc. uses the LIFO flow assumption. The cost of the 200 units in the year-end inventory is:

Select one:

a. $37,000.

b. $46,000.

c. $41,500.

d. Some other amount.

Question 7

The higher a company's inventory turnover rate, the higher its gross profit.

Select one:

True

False

Question 8

The principle of consistency states that:

Select one:

a. Companies are prohibited from ever changing their accounting methods.

b. Every company in the same industry must use the same accounting principle.

c. There must be a consistent blend to the accounting principles.

d. If changes in accounting principles are made the reasons for the change and the effects on the company's net income must be disclosed.

Question 9

Castle TV, Inc. purchased 1,000 monitors on January 5 at a per-unit cost of $185, and another 1,000 units on January 31 at a per-unit cost of $230. In the period from February 1 through year-end, the company sold 1,800 units of this product. At year-end, 200 units remained in inventory.   Refer to the above data. Assume that the replacement cost of this monitor at year-end is $210 per unit. Using LIFO flow assumption and the lower-of-cost-or-market rule, the ending inventory amounts to:

Select one:

a. $46,000.

b. $42,000.

c. $37,000.

d. Some other amount.

Question 10

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by:

Select one:

a. Receiving deliveries of materials from suppliers just before the materials are used in the production process.

b. Completing the manufacturing process just before the deadline established by the customer.

c. An automated factory that reduces production time below that of other companies in the industry.

d. Selling finished products before they go out of style.

Question 11

Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:

Select one:

a. Is obsolete.

b. Has been written down to a carrying value below cost.

c. Is shown at the lesser of cost or sales value.

d. None of the above.

Question 12

Special purpose entities (SPEs) are established by corporations to accomplish specific purposes such as borrowing money.

Select one:

True

False

Question 13

Gross pay less withholding tax and less worker's compensation is considered net pay.

Select one:

True

False

Question 14

In estimating annual pension expense, which of the following factors would not be taken into consideration?

Select one:

a. Current financial condition of the company.

b. Expected rate of return to be earned on pension fund assets.

c. Employee turnover rates.

d. Compensation levels and estimated rate of pay increases.

Question 15

Employers are required to pay all of the following on the wages paid to each employee except:

Select one:

a. Social security taxes

b. Worker's compensation insurance

c. Medicare taxes

d. Health insurance benefits.

Question 16

When a company has a fully funded pension plan, they only need to record the present value of pension payments as a current liability.

Select one:

True

False

Question 17

On April 1, year 1, Greenway Corporation issues $20 million of 10%, 20-year bonds payable at par. Interest on the bonds is payable semiannually each April 1 and October 1.   Refer to the above data. On April 1, Year 1, the journal entry to record issuance of the bonds will include:

Select one:

a. A credit to Interest Payable of $1,000,000.

b. A debit to Cash of $20,000,000.

c. A credit to Bonds Payable of $2,100,000.

d. A debit to Cash of $21,000,000.

Question 18

On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.   Refer to the above data. At December 31, Year 1, the adjusting entry with respect to this note includes a:

Select one:

a. Credit to Interest Payable for $1,600.

b. Credit to Notes Payable for $1,600.

c. Debit to Interest Expense for $3,200.

d. Credit to Cash for $3,200.

Question 19

When par value capital stock is issued, capital stock is credited with the par value of the shares issued, regardless of whether the issuance price is equal to par, more than par, or less than par.

Select one:

True

False

Question 20

The par value of the common stock of a large listed corporation:

Select one:

a. Tends to establish a ceiling for the market price of the stock.

b. Tends to establish a floor for the market price of the stock.

c. Represents legal capital and is not related to the market price of the stock.

d. Is increased by net income and decreased by dividends.

Question 21

Stockholders of a corporation are personally liable for the debts of the corporation if all shares of stock are owned by the officers of the corporation.

Select one:

True

False

Question 22

If preferred stock is convertible, it is so at the option of the:

Select one:

a. Board of directors.

b. CEO.

c. CFO.

d. Stockholders.

Question 23

When assets are donated to a corporation, a revenue account should be credited for the fair market value of the assets received.

Select one:

True

False

Question 24

The fair market value of Lewis Company's net identifiable assets is $5,000,000. Martin Corporation purchases Lewis' entire business for $5,800,000. Which of the following statements is not correct?

Select one:

a. Martin Corporation paid $800,000 for goodwill generated by Lewis Company.

b. Martin feels that Lewis Company has the ability to generate earnings in excess of a normal return on net identifiable assets.

c. Martin will record amortization expense over a period not to exceed 40 years.

d. Lewis Company will record goodwill of $800,000 on its balance sheet.

Question 25

The systematic write-off of intangible assets to expense is called depletion.

Select one:

True

False

Question 26

The Sarbanes-Oxley Act requires that companies disclose whether they have a code of ethics that applies to the CEO, CFO, and Chief Accounting Officer.

Select one:

True

False

Question 27

When straight-line depreciation is in use, the depreciation rate of an asset is equal to

Select one:

a. 1 divided by the life of the asset

b. 1 divided by the cost of the asset

c. The cost of the asset divided by the life of the asset

d. The cost of the asset less its salvage value divided by the life of the asset.

Question 28

If the 150% declining balance method is being used and an asset has a useful life of 20 years what is the depreciation rate?

Select one:

a. 7.5%

b. 10%

c. 15%

d. Some other amount

Question 29

Which of the following is a capital expenditure?

Select one:

a. Sales tax paid in conjunction with the purchase of office equipment.

b. Monthly rent of a delivery truck.

c. Research and development costs.

d. Small expenditures to acquire long-lived assets, such as $13 to purchase a wastebasket.

Question 30

Discontinued operations should be shown on the statement of retained earnings net of taxes.

Select one:

True

False

Question 31

Stock dividend and treasury stock At the beginning of the current year, King Cole, Inc. had 300,000 shares of capital stock outstanding and total stockholders' equity of $1,200,000. During the year, the company earned net income of $325,000, declared cash dividends of $150,000, distributed a 5% stock dividend of 15,000 shares when the market price of the stock was $16 per share, and purchased 3,000 shares of treasury stock at a cost of $13 per share. Compute the following at the end of the current year: (a) Total stockholders' equity: (b) Number of shares of stock outstanding: (c) Book value per share:

Question 32

The FASB has not compiled a comprehensive list of what is considered to be an extraordinary item, thus the determination is a matter of judgment.

Select one:

True

False

Question 33

An example of an extraordinary gain or loss is:

Select one:

a. A large loss arising from inability to collect an account receivable from a bankrupt customer.

b. A large gain from disposal of a segment of the business.

c. A gain or loss from sale of an expensive machine no longer needed in the business.

d. None of these answers.

Question 34

Extraordinary items and the results of discontinued operations are shown in the income statement net of any related income tax effects.

Select one:

True

False

Question 35

Prior period adjustments appear in the statement of retained earnings and in the income statement for the current year.

Select one:

True

False

Question 36

Which of the following is not classified among the operating activities in a statement of cash flows?

Select one:

a. Payment of interest on a bank loan.

b. Payment of the principal amount owed on a bank loan.

c. Payment of an account payable to a merchandise supplier.

d. Payment of income taxes.

Question 37

All of the following are considered cash equivalents except

Select one:

a. Marketable securities

b. Money market funds

c. Commercial paper

d. Treasury bills

Question 38

Products that tie in with a company's other products are called complementary products.

Select one:

True

False

Question 39

Which of the following would not be presented in the cash from operating activities section of the statement of cash flows when the indirect method is used?

Select one:

a. Gain on the sale of investments.

b. Depreciation expense.

c. Neither a nor b would be shown.

d. Both a and b would be shown.

Question 40

In 2009, Anderson Company purchased equipment for $363,000 and also sold some special purpose machinery with a book value of $155,000 for $182,000. In its statement of cash flows for 2009, Anderson should report the following with respect to the above transactions:

Select one:

a. $363,000 net cash used by investing activities.

b. $181,000 net cash used by investing activities; $27,000 net cash provided by operating activities.

c. $181,000 net cash used by investing activities.

d. $363,000 cash used by investing activities; $182,000 cash provided by financing activities.