Which integers are divisible by 5 but leave a remainder of 1 when divided by 3?
Accounting 225 Exam 2 Study Guide 1. On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What is the amount of net revenues (sales minus sales discounts) as of March 23 a. $0 b. $12,240 c. $12,000 d. $11,760 2. A sales discount is recorded by the seller as: a. a contra asset b. a contra revenue c. an expense d. a liability 3. On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17 a. $11,760 b. $12,240 c. $12,400 d. $12,000 4. At the beginning of the year, Bennett Supply has inventory of $3,500. During the year, the company purchases an additional $12,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $4,000. What amount will Bennett report for cost of good sold a. $12,500 b. $11,000 c. $11,500 d. $12,000 5. Which of the following companies earn revenues by selling inventory a. service companies b. merchandising companies c. manufacturing companies d. both manufacturing and merchandising companies 6. Using a perpetual inventory system, the purchase of inventory on account would be recorded as: a. Debit Cost of Goods Sold; credit Inventory b. Debit Inventory; credit Sales Revenue c. Debit Inventory; credit Accounts Payable d. Debit Purchases; credit Accounts Payable 7. Using a periodic inventory system, the purchase of inventory on account would be recorded as: a. Debit Inventory; credit Sales Revenue b. Debit Inventory; credit Accounts Payable c. Debit Cost of Goods Sold; credit Inventory d. Debit Purchases; credit accounts Payable 8. Which of the following represents the balance of Cost of Goods Sold at the end of the year a. The cost of inventory not yet sold by the end of the year b. the cost of inventory sold during the year c. the cost of inventory at the beginning of the year d. the cost of inventory purchased during the year 9. Fan Company sells inventory on account. The entry to record this sale using a perpetual inventory system would include a: a. debit to accounts receivable b. credit to service revenue c. debit to cost of goods sold d. debits to accounts receivable and cost of goods sold and a credit to service revenue USE THIS TABLE FOR QUESTIONS 10 & 11 (this is a company’s inventory transactions for the year) DATE TRANSACTION # OF UNITS UNIT COST Jan 1 Beginning inventory 200 $4 Apr 20 Purchase 800 4.25 Sep 8 Purchase 400 4.50 10. Assuming this company sells 1,000 units calculate COGS under LIFO a. $4,350 b. $4,200 c. $1,650 d. $1,800 11. Assuming this company sells 1,000 units, calculate ending inventory under FIFO a. $1,800 b. $4,350 c. $1,650 d. $4,200 12. Which cost flow assumption generally results in the highest reported amount of net income in periods of rising inventory costs a. LIFO b. Weightedaverage c. FIFO d. Income will be the same under each assumption 13. The entry to record the write down of inventory to market under the lowerofcostormarket method includes a: a. Credit to Sales Revenue b. Debit to Cost of Goods Sold c. Debit to Inventory d. Credit to Accounts Payable 14. At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a market value of $1,900. What would be the effect of the adjustment to writedown inventory to market value a. Decrease in net income b. No effect on net income or ending inventory c. Increase in net income d. Increase in cost of ending inventory 15. What does the Inventory Turnover Ratio measure a. The company’s ability to collect accounts b. The company’s liquidity c. The company’s inventory purchased vs inventory on hand d. The company’s ability to sell inventory 16. We normally record a longterm asset at the: a. Cost of the asset plus all costs necessary to get the asset ready for use b. Cost of the asset, but subsequently adjust it up or down to appraised value c. Cost of the asset only d. Appraised value 17. Which of the following expenditures should be recorded as an asset a. Depreciation during the first year of an existing building b. Property taxes incurred on an existing building c. Interest costs during the construction period of a new building d. Repair of a machine 18. Accumulated depreciation is: a. A contraasset b. A liability c. An asset d. An expense account 19. Which of the following correctly describes the nature of depreciation a. Depreciation represent the valuation of an intangible asset over its service life b. Depreciation represents the allocation of the cost of property, plant and equipment over its service life c. Depreciation represents the valuation of property, plant, and equipment over its service life d. Depreciation represents the allocation of the cost of an intangible asset over its service life 20. The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straightline method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year a. $60,000 b. $100,000 c. $80,000 d. $82,000 21. Over the entire service life of an asset, which depreciation method records the highest total depreciation a. The double declining method b. The straightline method c. All the methods result in the same total depreciation d. The activitybased method 22. The book value of an asset is equal to the: a. Asset’s fair value less its historical cost b. Replacement cost c. Asset’s cost less accumulated depreciation d. Historical cost plus accumulated depreciation 23. Which of the following depreciation methods typically results in the highest depreciation expense during the first year of an asset's life a. Straightline method b. activitybased method c. each method will result in the same depreciation during the first year d. double declining balance method 24. If equipment is retired, which of the following accounts would be debited a. Equipment b. Depreciation expense c. Cash d. Accumulated depreciation 25. Equipment originally costing $95,000 has accumulated depreciation of $30,000. If it sells the equipment for $55,000, the company should record: a. A loss of $10,000 b. A gain of $10,000 c. A loss of $40,000 d. No gain or loss 26. Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record: a. A loss of $5,000 b. A loss of $70,000 c. A gain of $70,000 d. A gain of $5,000 27. The return on assets is equal to the: a. Profit margin plus asset turnover b. Profit margin divided by asset turnover c. Profit margin minus asset turnover d. Profit margin times asset turnover 28. Which of the following is properly recorded as an intangible asset a. An internally developed trademark b. A piece of land c. An internally developed copyright d. A purchased patent 29. Which of the following statements is true regarding the amortization of intangible assets a. The expected residual value of most intangible assets is zero b. In recording amortization, Accumulated Amortization is always credited c. Intangible assets with a limited useful life are not amortized d. The service life of an intangible asset is always equal to its legal life 30. Which of the following statements is correct a. Goodwill is created when one company pays more than fair market value to purchase another company’s products b. Goodwill is amortized c. Goodwill is evaluated annually for possible impairment d. Goodwill is created when one company pays less than the value of the net assets to buy another company 31. The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as: a. Sales tax receivable b. Sales tax revenue c. Sales tax expense d. Sales tax payable 32. Current Liabilities: a. May include contingent liabilities b. Include obligations payable within one year or one operating cycle, whichever is shorter c. Are preferred by most companies over longterm liabilities d. Can be satisfied only with the payment of cash 33. Which of the following is not deducted from an employee's salary a. Income taxes b. FICA taxes c. Unemployment taxes d. Employee portion of insurance and retirement payments 34. A contingent liability that is probable and can be reasonably estimated must be a. Paid b. Disclosed c. Not disclosed d. Recorded 35. If bonds are issued with a stated interest rate higher than the market interest rate, the bonds will be issued at a. A premium b. A discount or premium depending on the maturity date c. A discount d. Face amount 36. Which of the following leases is essentially the purchase of an asset with debt financing a. A capital lease b. An operating lease c. Both an operating lease and a capital lease d. Neither an operating lease nor a capital lease 37. Assume that Airline Accessories' current ratio is greater than 1. Which of the following will decrease its current ratio a. Purchasing inventory on account b. Purchasing equipment, signing a longterm note c. Issuing common stock for cash d. Collecting an accounts receivable 38. Under the direct writeoff method, uncollectible accounts are recorded: a. In the period following the account being actually uncollectible b. Never c. In the period the account is determine actually uncollectible d. In the period the account is estimated to be uncollectible 39. The direct writeoff method is generally not permitted for financial reporting purposes because: a. Expenses (bad debts) are not properly matched with the revenues (credit sales) they help to generate b. This method is primarily used for tax purposes c. Compared to the allowance method, it would allow greater flexibility to managers in manipulating reported net income d. It is too difficult to accurately estimate future bad debts 40. On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a credit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be: a. $6,100 b. $5,100 c. $5,600 d. $5,000 41. On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be: a. $5,000 b. $6,100 c. $5,100 d. $5,600 42. Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net realizable value of accounts receivable is: a. $104,000 b. $96,000 c. $96,200 d. $100,000 43. At the beginning of 2012, Clay Ventures has total accounts receivable of $100,000. By the end of 2012, Clay reports net credit sales of $900,000 and total accounts receivables of $200,000. What is the receivables turnover ratio for Clay Ventures a. 9.0 b. 4.5 c. 2.0 d. 6.0 45. On January 1, 2012, Roberson Supply borrows $10,000 from Nees Manufacturing by signing a 9% note due in eight months. Calculate the amount of interest revenue Nees will record on September 1, 2012, the date that the note is due. a. $600 b. $900 c. $300 d. $1,000 46. On April 1, 2015, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 2016. On December 31, 2015, Nelsen will accrue interest revenue of: a. $2,000 b. $8,000 c. $6,000 d. $0 47. On April 1, 2015, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 2016. On March 31, 2016, Nelson Inc. will record interest revenue of: a. $6,000 b. $0 c. $8,000 d. $2,000 48. Accounts receivable are best described as: a. Liabilities of the company that represent the amount owed to suppliers b. Amounts that have previously been received from customers c. Assets of the company representing the amount owed by customers d. Amounts that have previously been paid to suppliers 49. Suppose the balance of Allowance for Uncollectible Accounts at the end of the current year is $400 (credit) before any adjustment, The company estimates future uncollectible accounts to be $3,200. At what amount would bad debt expense be reported in the current year’s income statement a. $400 b. $2,800 c. $3,200 d. $3,600 50. Using the allowance method, the entry to record a writeoff of accounts receivable will include: a. A debit to bad debt expense b. A debit to allowance for uncollectible accounts c. No entry because an allowance for uncollectible accounts was established in an earlier period d. A debit to service revenue 51. Which of the following levels of profitability in a multiplestep income statement represents revenues from the sale of inventory less the cost of that inventory a. Gross profit b. Operating income c. Income before income taxes d. Net income 52. Suppose Ajax corporation overstates its ending inventory amount, What effect will this have on the reported amount of cost of goods sold in the year of the error a. Overstate cost of goods sold b. Understate cost of goods sold c. Have no effect on cost of goods sold d. Not possible to determine with information given 53. Research and development costs generated internally: a. Are recorded as research and development assets b. Are capitalized and then amortized c. Should be included in the cost of the patent they relate to d. Should be expensed 54. Which of the following expenditures should be recorded as an expense a. Repairs and maintenance that maintain current benefits b. Adding a major new component to an existing asset c. Replacing a major component of an existing asset d. Successful legal defense of an intangible asset 55. Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset’s life a. Short service life, high residual value, and straightline depreciation b. Long service life, high residual value, and straightline depreciation c. Short service life, low residual value, and doubledecliningbalance depreciation d. Long service life, high residual value, and doubledecliningbalance depreciation 56. The balance in the accumulated depreciation account represents: a. The amount charged to expense in the current period b. A contra expense account c. A cash fund to be used to replace plant assets d. The amount charged to depreciation expense since the acquisition of the plant asset 57. Which of the following statements regarding liabilities is not true a. Liabilities can be for services rather than cash b. Liabilities are reported in the balance sheet for almost every business c. Liabilities result from future transactions d. Liabilities represent probable future sacrifices of benefits 58. We record interest expense on a note payable in the period in which a. We pay cash for interest b. We incur interest c. We pay cash and incur interest d. We pay cash or incur interest 59. Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible a contingent liability should be: a. Disclosed but not reported as a liability b. Disclosed and reported as a liability c. Neither disclosed nor reported as a liability d. Reported as a liability but not disclosed 60. The acid test ratio is a. Current assets divided by current liabilities b. Cash and current investments divided by current liabilities c. Cash, current investments, and accounts receivable divided by current liabilities d. Cash, current investments, accounts receivable, and inventory divided by current liabilities MATCH THE FOLLOWING TERMS WITH THE DEFINITIONS: 1. Accounts receivable a.Contra asset account representing the amount of accounts receivable that we do not expect to collect 2. Aging method b. An account with a balance that is opposite or “contra” to that of its related revenue account 3. Allowance for uncollectible accounts c. Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses. 4. Allowance method d. The amount of cash owed to the company by its customers from the sale of products or service on account. 5. Average collection period e. Recording bad debt expense at the time we know the account is uncollectible. 6. Bad debt expense f. Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio. 7. Contra revenue account g. Using a higher percentage for “old” accounts than for “new” accounts when estimating uncollectible accounts. 8. Credit sales h. Transfer of products and services to a customer today while hearing the risk of collecting payment from that customer in the future. Also known as sales on account or service on account. 9. Direct writeoff method i. The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charge to the current period. 10. Net accounts receivable j. The amount of ash the firm expects to collect. 11. Net realizable value k. Method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected. 12. Net revenues l. Seller reduces the customer’s balance owed or provides at least a partial refund because of some deficiency in the company’s product or service. 13. Notes receivable m. A company’s total revenues less any discounts, returns, and allowances. 14. Percentageofreceivables method n. Number of times during a year that the average accounts receivable balance is collected. It equals net credit sales divided by average accounts receivable. 15. Receivables turnover ratio o. Formal credit arrangements evidenced by a written debt instrument, or note. 16. Sales allowance p. The difference between total accounts receivable and the allowance for uncollectible accounts. 17. Sales discount q. Customer returns a product 18. Sales return r. Approximate number of days the average inventory is held. It equals 365 days divided by the inventory turnover ratio 19. Trade discount s. Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time. 20. Uncollectible accounts t. Cost to transport inventory to the company, which is included as part of inventory cost. 21. Average days in inventory u. Customers’ accounts that no longer are considered collectible. 22. Cost of goods sold v. Inventory costing method that assumes the first units purchase and the first ones sold. 23. First in, first out method (FIFO) w. Reduction in the listed price of a product or service. 24. Freightin x. Cost of the inventory that was sold during the period. 25. Freightout y. Operating income plus nonoperating revenues less nonoperating expenses. 26. Gross profit z. The number of times a firm sells its average inventory balance during a reporting period. It equals cost of goods sold divided by average inventory. 27. Gross profit ratio aa. Items a company intends for sale to customers. 28. Income before income taxes bb. An adjustment used to convert a company’s own inventory records maintained on a FIFO basis to LIFO basis for preparing financial statements 29. Inventory cc. Cost of freight on shipments to customers, which is included in the income statement either as part of cost of goods sold or as a selling expense. 30. Inventory turnover ratio dd. Measure of the amount by which the sale price of inventory exceeds its cost per dollar of sales. It equals gross profit divided by net sales. 31. Last in, first out method (LIFO) ee. IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting. 32. LIFO adjustment ff. Method where companies report inventory in the balance sheet at the lower of cost or market value, where market value equals replacement cost. 33. LIFO conformity rules gg. Inventory costing method that assumes the last units purchased are the first ones sold. 34. Lowerofcostormarket (LCM) method hh. The difference between net sales and cost of goods sold. 35. Multiplestep income statement ii. Difference between all revenues an all expenses for the period. 36. Net income jj. Inventory costing method that matches or identifies each unit of inventory with its actual cost. 37. Operating income kk. Profitability from normal operation that equals gross profit less operating expenses. 38. Periodic inventory system ll. Inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the good available for sale. 39. Perpetual inventory system mm. An income statement that reports multiple levels of income. 40. Replacement cost nn. Allocates a higher depreciation in the earlier years of the asset’s life and lower depreciation in later years. 41. Specific identification method oo. The cost to replace an inventory item in its identical form. 42. Weightedaverage cost method pp. A contra asset account representing the total depreciation taken to date. 43. Accelerated depreciation method qq. Occurs when a new major component is added to an existing asset. 44. Accumulated depreciation rr. Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand. 45. Activitybased method ss. Recording all losses in one year to make a bad year even worse. 46. Addition tt. Net sales divided by average total assets, which measures the sales per dollar of assets invested. 47. Amortization uu. Equal to the original cost of the asset minus the current balance in Accumulated depreciation. 48. Asset turnover vv. Allocation of the cost of an intangible asset over its service life. 49. Basket purchase ww. Inventory system that maintains a continual record of inventory purchased and sold. 50. Big bath xx. Record an expenditure as an asset. 51. Book value yy. Allocates an asset’s cost based on its use. 52. Capitalize zz. An exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software. 53. Copyright aaa. Purchase of more than one asset at the same time for one purchase price. 54. Decliningbalance method bbb. Allocation of the cost of a tangible asset over its service life. 55. Depletion ccc. Longterm assets that lack physical substance, and whose existence is often based on a legal contract. 56. Depreciation ddd. An accelerated depreciation method that records more depreciation in earlier years and less depreciation in later years. 57. Franchise eee. Local outlets that pay for the exclusive right to use the franchisor company’s name and to sell its products within a specified geographical area. 58. Goodwill fff. Improvements to land such as paving, lighting and landscaping that unlike land itself, are subject to depreciation. 59. Impairment ggg. Occurs when the future cash flows generated for a long term asset fall below its book value. 60. Improvement hhh. Large enough to influence a decision. 61. Intangible assets iii. The value of a company as a whole, over and above the value of its identifiable net assets. Equals the purchased price less the fair value of the net assets acquired. 62. Land improvements jjj. Assets like oil, natural gas and timber that we can physically use up or deplete. 63. Material kkk. The cost of replacing a major component of an asset. 64. Natural resources lll. Allocation of the cost of a natural resource over its service life. 65. Patent mmm. Net income divided by net sales’ indicates the earning per dollar of sales. 66. Profit margin nnn. How long the company expects to receive benefits from the asset before disposing of it; also referred to as useful life. 67. Repairs and maintenance ooo. Expenses that maintain a given level of benefits in the period incurred. 68. Residual value ppp. An exclusive right to manufacture a product or use a process. 69. Return on assets qqq. Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities 70. Service life rrr. A word, slogan, or symbol that distinctively identifies a company, product or service. 71. Straightline method sss.Borrowing from another company rather than from a bank. 72. Trademark ttt. The amount the company expects to receive from selling the asset at the end of its service life’ also referred to as salvage value. 73. Acidtest ratio uuu. Allocates an equal amount of depreciation to each year of the assets service life 74. Commercial paper vvv. Net income divided by average total assets’ measures the amount of net income generated for each dollar invested in assets. 75. Contingencies www. Uncertain situations that can result in a gain or a loss for a company. 76. Contingent gain xxx. Debts that, in most cases, are due within one year. However, when a company has an operating cycle of longer than a year its current liabilities are defined by the length of the operating cycle, rather than by the length of one year. 77. Contingent liability yyy. An agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt. 78. Current liabilities zzz. Debt that will be paid within the next year. 79. Current portion of longterm debt aaaa. An existing uncertain situation that might result in a loss. 80. Current ratio bbbb. Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities. 81. Debt covenant cccc. An existing uncertain situation that might result in a gain. 82. FICA taxes dddd. A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past. 83. Fringe benefits eeee. Having sufficient cash to pay currently maturing debts. 84. Liability ffff. An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork. 85. Line of credit gggg. Includes only cash, current investments, and accounts receivable. 86. Liquidity hhhh. Sales tax collected from customers by the seller, representing current liabilities payable to the government. 87. Notes payable iiii. Based on the federal insurance contributions act; tax withheld from employees’ paychecks and matched by employers for social security and medicare. 88. Quick assets jjjj. A tax to cover federal and state unemployment costs paid by the employed on behalf of its employees. 89. Sales tax payable kkkk. Written promises to repay amounts borrowed plus interest. 90. Unearned revenue llll. The difference between current assets and current liabilities. 91. Unemployment taxes mmmm. A liability account used to record cash received in advance of the sale or service. 92. Working capital nnnn. Additional employee benefits paid for by the employer. ANSWERS: multiple choice: 1.D 2.B 3.D 4.C 5.D 6.C 7.D 8.B 9.D 10.A 11.A 12.C 13.B 14.A 15.D 16.A 17.C 18.A 19.B 20.A 21.C 22.C 23.D 24.D 25.A 26.D 27.D 28.D 29.A 30.A 31.D 32.A 33.C 34.D 35.A 36.A 37.A 38.C 39.A 40.B 41.B 42.B 43.D 45.A 46.C 47.D 48.C 49.B 50. B 51.A 52.B 53.D 54.A 55.B 56.D 57.C 58.B 59.A 60.C matching: 1.d 2.g 3.a 4.c 5.f 6.i 7.n 8.h 9.e 10.p 11.j 12.m 13.o 14.k 15.n 16.l 17.s 18.q 19.w 20.u 21.r 22.x 23.v 24.t 25.cc 26.hh 27.dd 28.y 29.aa 30.z 31.gg 32.bb 33.ee 34.ff 35.mm 36.ii 37.kk 38.rr 39.ww 40.oo 41.jj 42.ll 43.nn 44.pp 45.yy 46.qq 47.vv 48.tt 49.aaa 50.ss 51.uu 52.xx 53.zz 54.ddd 55.lll 56.bbb 57.eee 58.iii 59.ggg 60.kkk 61.ccc 62.fff 63.hhh 64.jjj 65.ppp 66.mmm 67.ooo 68.ttt 69.vvv 70.nnn 71.uuu 72.rrr 73.qqq 74.sss 75.www 76.cccc 77.aaaa 78.xxx 79.zzz 80.bbbb 81.yyy 82.iiii 83.nnnn 84.dddd 85.ffff 86.eeee 87.kkkk 88.gggg 89.hhhh 90.mmmm 91.kkkk 92.llll