Please see *BOTH* Word attachments for complete question list!
MULTIPLE CHOICE QUESTIONS
Please indicate your answer to the following questions by highlighting
the correct answer. Each correct answer is worth 2 points (70 total
1. The basis of estimating expected uncollectible accounts that
emphasizes the matching of expenses with revenues is the
a. percentage of receivables basis.
b. percentage of sales basis.
c. lower of cost or market basis.
d. direct write-off method.
2. A corporation issued $600,000 of 6%, 5-year bonds on January 1,
at 102. Interest is paid semiannually on January 1 and July 1. If the
corporation uses the straight-line method of amortization, the amount of
bond interest expense to be recognized on July 1 is
3. A $200,000, 5%, 20-year bond was issued at 99. The proceeds
received from the bond issuance are
4. The Ewing Company purchases 1,000 shares of its common stock for
$20,000. The $20,000 amount should be debited to
a. an asset account.
b. Treasury Stock.
c. Common Stock.
d. Retained Earnings.
5. Equipment was purchased for $36,000 and has a book value of $12,000
and a depreciable cost of $30,000. The estimated salvage value is
6. Anne Company has total cash register receipts of $6,825. This total
includes a 5% sales tax. The entry to record the receipts will include
a. debit to Sales Tax Expense for $325.
b. credit to Sales for $6,000.
c. credit to Sales Taxes Payable for $825.
d. credit to Sales Taxes Payable for $325.
7. Depletion expense is computed using the
a. double-declining-balance method.
b. effective interest method.
c. straight-line method.
d. units-of-activity method.
8. A company purchased a delivery truck on January 1, 2005, for
$18,000. It is estimated that the delivery truck will have a $4,000
salvage value at the end of its 5-year useful life. If the company
recorded depreciation expense of $2,800 for the year 2006 on the
delivery truck, the depreciation method used by the company is
a. not determinable.
b. the straight-line method.
c. the units-of-activity method.
d. the double-declining-balance method.
9. Which one of the following payroll taxes does not result in a
payroll tax expense for the employer?
a. FICA tax
b. Federal income tax
c. Federal unemployment tax
d. State unemployment tax
10. If a bond has a stated rate of interest of 6%, but the market rate
of interest is 8%, the bond
a. will sell at a discount.
b. will sell at a premium.
c. may sell at either a premium or a discount.
d. will sell at its face value.
11. If a bond has a stated rate of 10% and is discounted at 10%, then
the proceeds received at issuance will be
a. equal to the face value of the bonds.
b. greater than the face value of the bonds.
c. less than the face value of the bonds.
12. A subsidiary ledger is
a. used in place of the general ledger if the general ledger is
destroyed or stolen.
b. a group of accounts used by branches and subsidiaries of a
c. a group of accounts with a common characteristic that provides
detailed information about a control account in the general ledger.
d. used to post excess transactions if a general ledger account becomes
full during an accounting period.
13. If a liability is dependent on a future event, it is called a
a. potential liability.
b. hypothetical liability.
c. probabilistic liability.
d. contingent liability.
14. A contingency that is remote
a. should be disclosed in the financial statements.
b. must be accrued as a loss.
c. does not need to be disclosed.
d. is recorded as a contingent liability.
15. The cost of a purchased building includes all of the following
a. closing costs.
b. real estate broker's commission.
c. remodeling costs.
d. All of these are included.
16 A company purchased land for $70,000 cash. Real estate brokers'
commission was $5,000 and $7,000 was spent for demolishing an old
building on the land before construction of a new building could start.
Under the cost principle, the cost of land would be recorded at
17. A gain or loss on disposal of a plant asset is determined by
a. replacement cost of the asset with the asset's original cost.
b. book value of the asset with the asset's original cost.
c. original cost of the asset with the proceeds received from its
d. book value of the asset with the proceeds received from its sale.
18. If a plant asset is retired before it is fully depreciated, and the
salvage value received is less than the asset's book value,
a. a gain on disposal occurs.
b. a loss on disposal occurs.
c. there is no gain or loss on disposal.
d. additional depreciation expense must be recorded.
19. The best way to study the relationship of the components of
financial statements is to prepare
common size statements.
a trend analysis.
20. In performing a vertical analysis, the base for prepaid expenses
a. total current assets.
b. total assets.
c. total liabilities.
d. prepaid expenses in a previous year.
21. Quine Company had credit sales of $600,000. The beginning accounts
receivable balance was $80,000 and the ending accounts receivable
balance was $60,000. Cash collections from customers were
22. Harbor Company reported net income of $30,000 for the year ended
December 31, 2006. During the year, inventories decreased by $7,000,
accounts payable decreased by $8,000, depreciation expense was $10,000
and a gain on disposal of equipment of $4,500 was recorded. Net cash
provided by operations in 2006 using the indirect method was
23. Sawyer Company reported cost of goods sold of $350,000 for the year
ended December 31, 2006. During the year, inventories decreased $7,000
and accounts payable decreased $6,000. The cash payments to suppliers
in 2006, using the direct method was
24. On January 1, 2006, Franklinton Company sold bonds with a cost of
$55,000 for $60,000. The annual interest payment on the bond had been
received on December 31, 2005. The entry to record the sale of the
bonds will include:
a. a credit to Cash.
b. a credit to Interest Receivable.
c. a credit to Debt Investments.
d. a debit to Loss on the Sale of Debt Investments.
25. Keifert Company had a balance in the Merchandise Inventory account
of $260,000 at the beginning of the year and a balance of $340,000 at
the end of the year. The inventory turnover ratio for 2006 was 4 times.
If gross profit as a percentage of sales was 40%, the amount of sales
for 2006 was
26. Simms Company has a 70% interest in the stock of Werton Company.
What level of investment does Simms hold?
27. A current liability is a debt that can reasonably expected to be
a. within one year.
b. between 6 months and 18 months.
c. out of currently recognized revenues.
d. out of cash currently on hand.
28. The interest expense on a $1,000, 4%, 3-month note is
29. The amount of sales tax collected by a retail store when making
a. a miscellaneous revenue for the store.
b. a current liability.
c. not recorded because it is a tax paid by the customer.
d. recorded as an operating expense.
30. The market rate of interest is often called the
a. stated rate.
b. effective rate.
c. coupon rate.
d. contractual rate.
31. Which one of the following would not be considered an advantage of
the corporate form of organization?
a. Limited liability of owners
b. Separate legal existence
c. Continuous life
d. Government regulation
32. Which of the following factors does not affect the initial market
price of a stock?
a. The company's anticipated future earnings
b. The par value of the stock
c. The current state of the economy
d. The expected dividend rate per share
33. If Vickers Company issues 1,000 shares of $5 par value common stock
a. Common Stock will be credited for $70,000.
b. Paid-In Capital in Excess of Par Value will be credited for $5,000.
c. Paid-In Capital in Excess of Par Value will be credited for
d. Cash will be debited for $65,000.
34. Reeves Company originally issued 1,000 shares of $10 par value
common stock for $30,000 ($30 per share). Reeves subsequently purchases
100 shares of treasury stock for $27 per share and resells the 100
shares of treasury stock for $29 per share. In the entry to record the
sale of the treasury stock, there will be a
a. credit to Common Stock for $2,700.
b. credit to Treasury Stock for $1,000.
c. debit to Paid-In Capital in Excess of Par Value of $3,000.
d. credit to Paid-In Capital from Treasury Stock for $200.
35. Dividends are declared out of
a. Capital Stock.
b. Paid-in Capital in Excess of Par Value.
c. Retained Earnings.
d. Treasury Stock.
Problem 1 - Accounts Receivable (10 points)
Dolan Company uses the allowance method to account for uncollectible
accounts. Prepare the appropriate journal entries to record the
following transactions during 2006. You may omit journal entry
June 20 The account of Ken Unruh for $1,000 was deemed to be
uncollectible and is written off as a bad debt.
Oct. 14 Received a check for $1,000 from Ken Unruh, whose account had
previously been written off as uncollectible.
Dec. 31 Use the following information for the year-end adjusting entry:
The balance of Accounts Receivable and Allowance for Doubtful Accounts
at year end are $131,000 and $2,900, respectively. It is estimated that
bad debts will be 3% of accounts receivable.
Problem 2 - Bonds Payable (20 points)
Tipten Company issues $200,000 of 8%, 10-year bonds on January 1, 2006,
at 103. Interest is payable semiannually on July 1 and January 1. The
company uses the straight-line method of amortization.
(a) Journalize the entries for the bonds on (1) January 1, 2006, (2)
July 1, 2006, and (3) December 31, 2006.
(b) Show the balance sheet presentation of the bonds at December 31,
(c) Assume on July 1 2006, after paying interest, Tipten calls bonds
having a face value of $100,000. The call price is 101. Record the
redemption of the bonds.
Problem 3 - Plant Asset Depreciation and Disposal Entries (16 points)
Prepare the necessary journal entries to record the following
transactions in 2006 for Jano Company.
March 1 Discarded old store equipment that originally cost $24,000 and
had a book value of $6,000 on the date of disposal. Assume depreciation
on the equipment has already been recorded for the current year.
July 31 Sold a delivery truck for $5,000. The delivery truck originally
cost $28,000 and had accumulated depreciation of $20,000 on the date of
sale. Assume the depreciation on the truck has already been recorded for
the current year.
Dec 31 Recorded straight-line depreciation on asset with cost of
$34,000, salvage value of $2,000 and useful life of 4 years.
Problem 4 - Calculation of Ratios (24 points)
The financial information below was taken from the annual financial
statements of Harris Company.
Current assets $240,000 $212,000
Current liabilities 80,000 90,000
Total liabilities 182,000 160,000
Total assets 520,000 480,000
Sales 400,000 370,000
Cost of goods sold 240,000 220,000
Inventory 100,000 125,000
Receivables 100,000 60,000
Net income 50,000 48,000
Net cash provided by operating activities 30,000 25,000
Calculate the following ratios for Harris Company for 2006.
1. Current ratio.
2. Average collection period.
3. Current cash debt coverage ratio.
4. Debt to total assets ratio.
5. Cash debt coverage ratio.
6. Return on assets.
7. Profit margin ratio.
8. Asset turnover ratio.
Problem 5 - Payroll (10 points)
Ann Welch's regular hourly wage is $18 an hour. She receives overtime
pay at the rate of time and a half. The FICA tax rate is 8%. Ann is paid
every two weeks. For the first pay period in January, Ann worked 86
hours of which 6 were overtime hours. Ann's federal income tax
withholding is $400 and her state income tax withholding is $170. Ann
has authorized that $50 be withheld from her check each pay period for
Compute Barb Welch's gross earnings and net pay for the pay period
showing each payroll deduction in arriving at net pay.
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