ACC231 Fall 2017 Exam 3
Student Name Student ID Number
Course Abbreviation and Number: ACC 231
Course Title: Uses of Accounting Information
Class #: 70138
Professor Mindy Wolfe
Date of Exam Friday, November 3, 2017
Time Period Start time: 7:30am End time: 8:15
Number of Exam Pages 8 (including this cover sheet)
Additional Materials Allowed Cordless calculators may be used. The calculator must
be standalone with no communication or data storage
features.
Both the examination paper and multiple choice scantron must be submitted.
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ACC231 Fall 2017 Exam 3
1) Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident that it will
win the case and will be awarded the full amount. Amplify, Inc. feels it is highly probable
(greater than a 50% probability) that it will lose the case and have to pay Sound City the full
amount. Which of the following is correct?
A) Both Amplify, Inc. and Sound City would record nothing.
B) Amplify, Inc. would record a loss and contingent liability for $50,000; Sound City would
record nothing.
C) Sound City would record a gain and lawsuit receivable for $50,000 and Amplify wold record
nothing.
D) Sound City would record a gain and lawsuit receivable for $50,000.
2) The normal balance of the account "Allowance for Doubtful Accounts" is a _______ because
_______.
A) Credit; it is a contra account to Accounts Receivable (a debit account)
B) Credit; it is a contra account to Bad Debt Expense (a debit account)
C) Debit; it is a contra account to Revenue (a credit account)
D) Debit; it is an expense in the income statement
3) The exclusive right to benefit from a creative work, such as a film, is a:
A) Copyright.
B) Franchise.
C) Patent.
D) Trademark.
4) On September 1, 2018, Daylight Donuts signed a $100,000, 9%, six-month note payable with
the amount borrowed plus accrued interest due six months later on March 1, 2019. Daylight
Donuts should report interest expense at December 31, 2018, for:
A) $3,000.
B) $4,500.
C) $1,500.
D) $0.
5) Which one of the following regarding the book value of an asset is correct?
A) It reflects the original cost of the asset less accumulated depreciation.
B) It is the original cost at which the asset was purchased.
C) It is the fair value of the asset if the asset is sold.
D) It is the original cost of the asset minus the depreciation expense for that asset during the year.
6) On December 1, 2018, Old World Deli signed a $300,000, 5%, six-month note payable with
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the amount borrowed plus accrued interest due six months later on June 1, 2019. Old World Deli
records the appropriate adjusting entry for the note on December 31, 2018. What amount of cash
will be needed to pay back the note payable plus interest on June 1, 2019?
A) $300,000.
B) $306,250.
C) $307,500.
D) $301,250.
7) In December 2017, Quebecor Printing received $500 in cash for magazine subscriptions for
2018 from a customer. What is the journal entry for this transaction?
A) No journal entry is necessary.
B) Debit Cash, $500; credit Unearned Revenue, $500.
C) Debit Subscription Revenue, $200; credit Cash, $200.
D) Debit Cash, $500; credit Subscription Revenue, $500.
8) The first step in using the Aging of Receivables Allowance Method to estimate bad debts is to
calculate the desired ending balance in which account?
A) Bad debt expense.
B) Credit sales.
C) Accounts receivable.
D) Allowance for doubtful accounts.
9) One advantage of the % of credit sales-allowance method for accounting for uncollectible
accounts is that the company reports:
A) Bad debt expense in the same period as the credit sale.
B) Greater total sales to customers.
C) Fewer returns by customers.
D) Greater total cash collected from customers.
10) Productive assets that are physically used up or depleted are:
A) Equipment.
B) Land improvements.
C) Land.
D) Natural resources.
11) The depreciation method that records higher depreciation expense in an asset's early life and
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less depreciation expense later in an asset's life is the
A) expense method.
B) basket purchase method.
C) double-declining balance method.
D) straight-line method.
12) During a lump sum purchase Fruitasia bought land, a building, and equipment for $800,000.
The estimated fair values of the land, building, and equipment are $100,000, $700,000, and
$200,000, respectively. At what amount would the company record the land?
A) $800,000.
B) $90,000.
C) $100,000.
D) $80,000.
13) Verizon's slogan "Can you hear me now?" is a protected slogan called a and
has an indefinite life.
A) patent.
B) copyright.
C) brand name.
D) trademark.
14) Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note. What
entry should Bear Essentials record?
A) Debit Cash, $50,000; Credit Notes Receivable, $50,000.
B) Debit Notes Payable, $50,000; Credit Cash, $50,000.
C) Debit Notes Receivable, $50,000; Credit Cash, $50,000.
D) Debit Cash, $50,000; Credit Notes Payable, $50,000.
15) When using an aging method for estimating uncollectible accounts:
A) Older accounts are considered less likely to be collected.
B) The number of days the account is past due is not considered.
C) No estimate of uncollectible accounts is made.
D) Older accounts are considered more likely to be collected.
16) Under the direct write-off method, what adjustment is made at the end of the year to account
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for possible future bad debts?
A) Credit Accounts Receivable.
B) Debit Bad Debt Expense.
C) No adjustment is made.
D) Debit Allowance for Uncollectible Accounts.
17) Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000 down
payment and a 12% note for the balance. This transaction would include a:
A) Debit to Sales Discount.
B) Credit to Cash.
C) Debit to Notes Receivable.
D) Credit to Notes Receivable.
18) Camp Elim obtains a $125,000, 6%, five-year loan for a new camp bus on January 1, 2018.
If the monthly payment is $2,416.60, by how much will the carrying value decrease when the
first payment is made on January 31, 2018?
A) $1,791.60
B) $2,416.60
C) $1,000.60
D) $625.00
19) Juarez Mining purchased a vein of coal ore for $3,800,000. It is estimated that 30,000,000
tons of ore are available to be extracted. The estimated depletion rate for each ton of ore
(rounded to the nearest cent) is:
A) $7.89.
B) $1.00.
C) $1.30.
D) $0.13.
20) You have exam C. Please fill in the C bubble on your scantron.
A)
B)
C)
D)
21) As each payment on a mortgage is made:
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A) The amounts paid for both interest and principal increase proportionately.
B) The amount of interest expense decreases.
C) The amount of interest expense increases.
D) The amount of interest expense is unchanged.
22) On February 1, 2018, Middleton Corp. lends cash and accepts a $1,000 note receivable that
offers 12% interest and is due in six months. How much interest revenue will Middleton Corp.
report during 2018?
A) $100.
B) $240.
C) $120.
D) $60.
23) The following data were obtained from the bank statement and from the process of
reconciling it:
Bank service charges = $20
Deposit outstanding = $150
Interest earned on the bank account = $10
Checks outstanding = $400
Which items should be deducted from and added to the bank balance in completing the
reconciliation?
A) Deduct interest earned; add deposit outstanding.
B) Deduct deposit outstanding; add checks outstanding.
C) Deduct checks outstanding; add deposit outstanding.
D) Deduct checks outstanding; add service charges and deposit outstanding.
24) At times, businesses require advance payments from customers that will be applied to the
purchase price when goods are delivered or services provided. These customer advances
represent:
A) A component of stockholders' equity.
B) Long-term assets until the product or service is provided.
C) Revenue upon receipt of the advance payment.
D) Liabilities until the product or service is provided.
25) A bond issue with a face value of $500,000 has a stated interest rate of 10%. The current
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market rate of interest is also 10%. These bonds will sell at a price that is:
A) More than $500,000.
B) Less than $500,000.
C) Equal to $500,000.
D) The answer cannot be determined from the information provided.
26) Bond X and Bond Y are both issued by the same company. Each of the bonds has a face
value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays
7% interest. The current market rate of interest is 7%. Which of the following is correct?
A) Both bonds will sell for the same amount.
B) Both bonds will sell at a premium.
C) Bond X will sell for more than Bond Y.
D) Bond Y will sell for more than Bond X.
27) Kansas Enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is
expected to have a five-year life, with a residual value of $5,000 at the end of five years.
Using the straight-line method, depreciation expense for 2018 would be:
A) $60,000.
B) $12,000.
C) $11,000.
D) None of these.
28) When a company collects sales tax from a customer, the event is recorded with a(n)
_________ in Cash and a(n) _________ in Sales Tax Payable:
A) decrease; increase
B) decrease; decrease
C) increase; increase
D) increase; decrease
29) Longhorn paid $95,000 to purchase Cattleman's, Inc. The fair value of Cattleman's assets is
$90,000 and the fair value of its liabilities is $15,000. Longhorn should record goodwill on this
purchase of:
A) $5,000.
B) $3,600.
C) $20,000.
D) $23,600.
30) Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash. They also incurred a
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shipping cost of $400 to get the equipment to its factory. The fair value of this equipment is
$7,000. For what amount should Bad Brads BBQ record the equipment?
A) $5,000.
B) $5,400.
C) $7,400.
D) $7,000.
31) In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are
payable more than ____ year(s) from now.
A) one; two
B) one; one
C) one; ten
D) two; two
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