a. Percentage of sales
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct write-off
2. At the close of its first year of operations, December 31, 2007, Linn Company had accounts receivable of $540,000, after deducting the related allowance for doubtful accounts. During 2007, the company had charges to bad debt expense of $90,000 and wrote off, as uncollectible, accounts receivable of $40,000. What should the company report on its balance sheet at December 31, 2007, as accounts receivable before the allowance for doubtful accounts?
3. Sandy, Inc. had the following bank reconciliation at March 31, 2007:
Balance per bank statement, 3/31/07 $37,200
Add: Deposit in transit 10,300
Less: Outstanding checks 12,600
Balance per books, 3/31/07 $34,900
Data per bank for the month of April 2007 follow:
All reconciling items at March 31, 2007 cleared the bank in April. Outstanding checks at April 30, 2007 totaled $6,000. There were no deposits in transit at April 30, 2007. What is the cash balance per books at April 30, 2007?
4. Which inventory costing method most closely approximates current cost for each of the following:
Ending Inventory Cost of Goods Sold
a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO
5. Harder Corporation uses the perpetual inventory method. On March 1, it purchased $30,000 of inventory, terms 2/10, n/30. On March 3, Harder returned goods that cost $3,000. On March 9, Harder paid the supplier. On March 9, Harder should credit
a. purchase discounts for $600.
b. inventory for $600.
c. purchase discounts for $540.
d. inventory for $540.
Kiner Co. has the following data related to an item of inventory:
Inventory, March 1 100 units @ $4.20
Purchase, March 7 350 units @ $4.40
Purchase, March 16 70 units @ $4.50
Inventory, March 31 130 units
6. The value assigned to ending inventory if Kiner uses LIFO is
7. The value assigned to cost of goods sold if Kiner uses FIFO is
8. Gear Co.'s accounts payable balance at December 31, 2007 was $1,500,000 before considering the following transactions:
Goods were in transit from a vendor to Gear on December 31, 2007. The invoice price was $70,000, and the goods were shipped f.o.b. shipping point on December 29, 2007. The goods were received on January 4, 2008.
Goods shipped to Gear, f.o.b. shipping point on December 20, 2007, from a vendor were lost in transit. The invoice price was $50,000. On January 5, 2008, Gear filed a $50,000 claim against the common carrier.
In its December 31, 2007 balance sheet, Gear should report accounts payable of
9. When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?
a. Sales price
b. Net realizable value
c. Historical cost
d. Net realizable value reduced by a normal profit margin
10. Remington Company sells product 1976NLC for $40 per unit. The cost of one unit of 1976NLC is $36, and the replacement cost is $34. The estimated cost to dispose of a unit is $8, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?
11. The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the
a. net realizable value.
b. net realizable value less the normal profit margin.
c. replacement cost.
d. original cost.
12. During self-construction of an asset by Jannero Pargo Company, the following were among the costs incurred:
Fixed overhead for the year $1,000,000
Portion of $1,000,000 fixed overhead that would
be allocated to asset if it were normal production 40,000
Variable overhead attributable to self-construction 35,000
What amount of overhead should be included in the cost of the self-constructed asset?
a. $ -0-
13. On January 2, 2007, Renn Corp. replaced its boiler with a more efficient one. The following information was available on that date:
Purchase price of new boiler $150,000
Carrying amount of old boiler 10,000
Fair value of old boiler 4,000
Installation cost of new boiler 20,000
The old boiler was sold for $4,000. What amount should Renn capitalize as the cost of the new boiler?
14. Bigbie Company purchased a depreciable asset for $600,000. The estimated salvage value is $30,000, and the estimated useful life is 10,000 hours. Bigbie used the asset for 1,100 hours in the current year. The activity method will be used for depreciation. What is the depreciation expense on this asset?
15. A plant asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-the-years'-digits method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset?
a. Decrease Decrease
b. Decrease Increase
c. Increase Decrease
d. Increase Increase
16. Which of the following intangible assets should not be amortized?
b. Customer lists
c. Perpetual franchises
d. All of these intangible assets should be amortized.
17. ELO Corporation purchased a patent for $180,000 on September 1, 2006. It had a useful life of 10 years. On January 1, 2008, ELO spent $44,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2008?
18. Riley Co. incurred the following costs during 2007:
Modification to the formulation of a chemical product $160,000
Trouble-shooting in connection with breakdowns during commercial
Costs of marketing research for new product 200,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 215,000
In its income statement for the year ended December 31, 2007, Riley should report research and development expense of
19. A company gives each of its 50 employees (assume they were all employed continuously through 2007 and 2008) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2007, they made $14 per hour and in 2008 they made $16 per hour. During 2008, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2007 and 2008 balance sheets, respectively?
a. $67,200; $93,600
b. $76,800; $96,000
c. $67,200; $96,000
d. $76,800; $93,600
20. 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.
21. 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 amortiza-tion been used.
d. be less than the stated (nominal) rate of interest.
22. Amstop Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2007 at 97 plus accrued interest. The bonds are dated January 1, 2007, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
23. On its December 31, 2006 balance sheet, Lane Corp. reported bonds payable of $6,000,000 and related unamortized bond issue costs of $320,000. The bonds had been issued at par. On January 2, 2007, Lane retired $3,000,000 of the outstanding bonds at par plus a call premium of $70,000. What amount should Lane report in its 2007 income statement as loss on extinguishment of debt (ignore taxes)?
24. Which of the following is a correct statement of one of the capitalization criteria?
a. The lease transfers ownership of the property to the lessor.
b. The lease contains a purchase option.
c. The lease term is equal to or more than 75% of the estimated economic life of the leased property.
d. The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.
25. Which of the following is an advantage of leasing?
a. Off-balance-sheet financing
b. Less costly financing
c. 100% financing at fixed rates
d. All of these
26. On December 1, 2008, Perez Corporation leased office space for 10 years at a monthly rental of $90,000. On that date Perez paid the landlord the following amounts:
Rent deposit $ 90,000
First month's rent 90,000
Last month's rent 90,000
Installation of new walls and offices 495,000
The entire amount of $765,000 was charged to rent expense in 2008. What amount should Perez have charged to expense for the year ended December 31, 2008?
27. Johnson Company had 500 units of "Tank" in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of "Tank". Johnson then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Johnson
a. is FIFO.
b. is LIFO.
c. is weighted average.
d. cannot be determined from the information given.
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