Multiple choice questions on accounts receivables and capital expenditure.
1.The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach
a.gives a reasonably correct statement of receivables in the balance sheet.
b.best relates bad debt expense to the period of sale.
c.is the only generally accepted method for valuing accounts receivable.
d.makes estimates of uncollectible accounts unnecessary.
2. Which of the following is a capital expenditure?
a.Payment of an account payable
b.Retirement of bonds payable
c.Payment of Federal income taxes
d.None of these
3.If a corporation purchases a lot and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on
a.the significance of the cost allocated to the building in relation to the combined cost of the lot and building.
b.the length of time for which the building was held prior to its demolition.
c.the contemplated future use of the parking lot.
d.the intention of management for the property when the building was acquired.
4. Which of the following should not be included in the current liabilities section of the balance sheet?
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
5. Which of the following contingencies need not be disclosed in the financial statements or the notes thereto?
a.Probable losses not reasonably estimable
b.Environmental liabilities that cannot be reasonably estimated
c.Guarantees of indebtedness of others
d.All of these must be disclosed.
6. A contingent liability
a.definitely exists as a liability but its amount and due date are indeterminable.
b.is accrued even though not reasonably estimated.
c.is not disclosed in the financial statements.
d.is the result of a loss contingency.
7. When the effective interest method is used to amortize bond premium or discount, the periodic amortization will
a.increase if the bonds were issued at a discount.
b.decrease if the bonds were issued at a premium.
c.increase if the bonds were issued at a premium.
d.increase if the bonds were issued at either a discount or a premium.
8.On January 1, 2004, Lopez Co. issued its 10% bonds in the face amount of $2,000,000, which mature on January 1, 2014. The bonds were issued for $2,270,000 to yield 8%, resulting in bond premium of $270,000. Lopez uses the effective interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2004, Lopez's adjusted unamortized bond premium should be
a.$270,000.
b.$251,600.
c.$243,000.
d.$203,000.
9.Which of the following is not correct in regard to trading securities?
a.They are held with the intention of selling them in a short period of time.
b.Unrealized holding gains and losses are reported as part of net income.
c.Any discount or premium is not amortized.
d.All of these are correct.
10. When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?
a.The investor should always use the equity method to account for its investment.
b.The investor should use the equity method to account for its investment unles circum-stances indicate that it is unable to exercise "significant influence" over the investee.
c.The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.
d.The investor should always use the fair value method to account for its investment.