A) Trade notes payable
B) Short-term zero-interest-bearing notes payable
C) The discount on short-term notes payable
D) All of these are included
2. Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?
A) Amount of loss is reasonably estimable and event occurs infrequently.
B) Amount of loss is reasonably estimable and occurrence of event is probable.
C) Event is unusual in nature and occurrence of event is probable.
D) Event is unusual in nature and event occurs infrequently.
3. A contingency can be accrued when
A) it is certain that funds are available to settle the disputed amount.
B) an asset may have been impaired.
C) the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred.
D) it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated.
4. Marx Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and
A) Marx Company admits guilt.
B) the court will decide the case within one year.
C) the damages appear to be material.
D) the cause for action occurred during the accounting period covered by the financial statements.
5. Use of the accrual method in accounting for product warranty costs
A) is required for federal income tax purposes.
B) is frequently justified on the basis of expediency when warranty costs are immaterial.
C) finds the expense account being charged when the seller performs in compliance with the warranty.
D) represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
6. The numerator of the acid-test ratio consists of
A) total current assets.
B) cash and marketable securities.
C) cash and net receivables.
D) cash, marketable securities, and net receivables.
7. If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will
A) exceed what it would have been had the effective-interest method of amortization been used.
B) be less than what it would have been had the effective-interest method of amortization been used.
C) be the same as what it would have been had the effective-interest method of amortization been used.
D) be less than the stated (nominal) rate of interest.
8. Edson Corp. signed a three-month, zero-interest-bearing note on November 1, 2008 for the purchase of $150,000 of inventory. The face value of the note was $152,205. Assuming Edson used a “Discount on Note Payable” account to initially record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2008 will include a
A) debit to Discount on Note Payable for $735.
B) debit to Interest Expense for $1,470.
C) credit to Discount on Note Payable for $735.
D) credit to Interest Expense for $1,470.
9. A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2008. Historically, 10% of customers mail in the rebate form. During 2008, 4,000,000 packages of light bulbs are sold, and 140,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2008 financial statements dated December 31?
A) $400,000; $400,000
B) $400,000; $260,000
C) $260,000; $260,000
D) $140,000; $260,000
10. Milner Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 box tops from Milner Frosted Flakes boxes and $1.00. The company estimates that 60% of the box tops will be redeemed. In 2008, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 box tops receiving 110,000 bowls. If the bowls cost Milner Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2008?
11. Vernon Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Vernon's lawyer states that it is probable that Vernon will lose the suit and be found liable for a judgment costing Vernon anywhere from $1,200,000 to $6,000,000. However, the lawyer states that the most probable cost is $3,600,000. As a result of the above facts, Vernon should accrue
A) a loss contingency of $1,200,000 and disclose an additional contingency of up to $4,800,000.
B) a loss contingency of $3,600,000 and disclose an additional contingency of up to $2,400,000.
C) a loss contingency of $3,600,000 but not disclose any additional contingency.
D) no loss contingency but disclose a contingency of $1,200,000 to $6,000,000.
12. A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. What is interest expense for 2008, using straight-line amortization?
13. The cost of an intangible asset includes all of the following except
A) purchase price.
B) legal fees.
C) other incidental expenses.
D) all of these are included.
14. When a company develops a trademark or trade name, the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark or trade name would not be allowed to be capitalized?
A) Attorney fees
B) Consulting fees
C) Research and development fees
D) Design costs
15. Wriglee, Inc. went to court this year and successfully defended its patent from infringe-ment by a competitor. The cost of this defense should be charged to
A) patents and amortized over the legal life of the patent.
B) legal fees and amortized over 5 years or less.
C) expenses of the period.
D) patents and amortized over the remaining useful life of the patent.
16. Which of the following is not an intangible asset?
A) Trade name
B) Research and development costs
17. The intangible asset goodwill may be
A) capitalized only when purchased.
B) capitalized either when purchased or created internally.
C) capitalized only when created internally.
D) written off directly to retained earnings.
18. Which of the following research and development related costs should be capitalized and amortized over current and future periods?
A) Research and development general laboratory building which can be put to alternative uses in the future
B) Inventory used for a specific research project
C) Administrative salaries allocated to research and development
D) Research findings purchased from another company to aid a particular research project currently in process
19. Lynne Corporation acquired a patent on May 1, 2008. Lynne paid cash of $20,000 to the seller. Legal fees of $800 were paid related to the acquisition. What amount should be debited to the patent account?
20. Smith Co. bought a window franchise from Paine, Inc., on January 2, 2008, for $100,000. A highly regarded independent research company estimated that the remaining useful life of the franchise was 50 years. Its unamortized cost on Paine's books at January 1, 2008, was $15,000. Smith has decided to write off the franchise over the longest possible period. How much should be amortized by Smith Co. for the year ended December 31, 2008?
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