1. For Property, Plant & Equipment, the concept of "book value" (or, "carrying value") is defined as...
a. The lower of acquisition cost or market value of the PP&E
b. The residual value of the PP&E
c. The total amount of depreciation recognized since acquisition of the PP&E
d. The acquisition cost of the PP&E less accumulated depreciation
2. The allowance method of accounting for uncollectible receivables is based on...
a. Fair value accounting
b. The revenue recognition principle
c. The matching principle
d. The accounting equation
3. Which one of the following items would Pierce Enterprises report as a current liability in its balance sheet dated Dec 31, 2014?
a. A note receivable due from a customer on June 1, 2015
b. A note payable due on December 1, 2016
c. An investment classified as "available-for-sale" with a maturity date of July 31, 2015
d. The remaining principal balance of a loan payable due on September 30, 2015
4. Sharma Fuel Corp. operates several retail gas stations in the Southeast U.S. The company purchases inventory at wholesale prices from its suppliers. Assume that over the past 12 months, wholesale prices for gasoline have steadily increased. Under its standard accounting policies, Sharma applies the FIFO method for inventory costing.
On its income statement for this year, how would the amount reported for gross profit under FIFO compare to the amount reported if the company had used the LIFO method instead?
a. Gross profit would have been higher under LIFO than under FIFO.
b. Gross profit would have been lower under LIFO than under FIFO.
c. Gross profit would have been identical under LIFO or FIFO.
5. Dante International reports the following information on its common stock:
- Par value $2.00 per share
- Number of shares...
o Authorized 100,000
o Issued 80,000
o Outstanding 75,000
The company declares and pays a cash dividend of $0.50 per share. Which one of the following statements is true?
a. Total expenses will increase by $40,000
b. Total equity will decrease $37,500
c. Total assets will increase by $40,000
d. 4,000 additional shares of common stock will be issued
6. In question #5 above, the difference between the number of shares issued and outstanding is explained by...
a. The amount of stock dividends distributed by the company
b. Shares held as treasury stock
c. Shares held as trading securities
d. A 2-for-1 stock split
7. Lower Corporation began business on Jan 1, 2014. During January, the company recorded the following transactions:
- Purchased 100 units of inventory from a supplier on account for $6.00 per unit.
(Payment is due to the supplier next month.)
- Sold 60 units to a customer on account for $8.00 per unit. (Payment is due from the customer next month.)
- Purchased equipment for $10,000 on account from an equipment dealer, in exchange for a note payable (due Jan 1, 2016; annual interest rate 18%). The equipment was installed and used in operations starting Jan 1, 2014. Management estimates that the equipment will be productive for 5 years, and has a residual value of $1,000. The company applies the straight-line method of depreciation.
What amount should Lower Corp. report as net income (loss) for the month of January?
a. $480
b. $120
c. $(30)
d. $(180)
e. $(3480)
8. Refer to the information for Lower Corp. in question 7 above. Assume that the market value of the remaining inventory at Jan 31 is $7.00 per unit. What amount, if any, should Lower Corp. report as inventory on its balance sheet as of Jan 31, 2014?
a. none
b. $240
c. $280
d. $400
9. On January 2, 2011, Chuck Corporation issued a serial bond as follows:
- Principal $2,000,000
- Stated interest rate 4%
- Interest paid semi-annually on July 1 and January 2
- Principal payments of $100,000 are due each year on January 2, starting Jan 2, 2012
- Maturity date January 2, 2031
- Issue price $2,000,000
On its balance sheet as of Dec 31, 2013, what amount of the bond principal should Chuck report as a non-current liability?
a. $2,000,000
b. $1,900,000
c. $1,800,000
d. $1,700,000
10. Refer to question #9 above. What amount of interest payable should Chuck report on its balance sheet as of December 31, 2011?
a. None
b. $40,000
c. $80,000
d. $160,000
11. Below is the inventory record for Mathur Company for July:
- Beginning balance: 10 units costing $60 per unit
- July 5 purchase: 20 units costing $50 per unit
- July 24 purchase: 15 units costing $70 per unit
Assume that Mathur uses the specific identification method for inventory costing.
During the month, the company sold 25 units for $100.00 per unit. The actual units sold were from these inventory batches:
- 10 were from beginning inventory
- 10 were from the July 5 purchase
- 5 were from the July 24 purchase
What is the company's gross profit for July?
a. $2,500
b. $1,000
c. $2,050
d. $1,050
12. Refer to the information in question 11 above. Assume instead that the company uses the LIFO method for inventory costing. Under LIFO, what is the company's gross profit for July?
a. $2,500
b. $950
c. $1,150
d. $1,050
13. On December 2, 2010, Wort International purchased 200 shares of Holman Corporation common stock. (Holman Corporation has 245,000 shares issued and outstanding). Information related to this investment is given below.
- Acquisition cost: $21.00 per share
- Classification: trading securities
- Cash dividend received on December 10, 2010: $2.00 per share
- Market value of stock on December 31, 2010: $18.50 per share
As a result of this investment, Wort's net income for the year ended Dec 31, 2010 will...
a. Not be affected
b. Increase by $400
c. Decrease by $4200
d. Decrease by $100
14. Asante Company began business on Jan 2, 2012. The following transactions occurred during January:
- Sales to customers:
o Sales on account $340,000
o Cash sales $50,000
- Collections on account $120,000
- Accounts written off as uncollectible $10,000
Asante uses the allowance method to account for uncollectible receivables. At the end of January, management estimates that 10% of the outstanding receivables balance at month end will ultimately prove to be uncollectible.
What amount should be reported for the net realizable value of accounts receivable as
of Jan 31, 2012?
a. $340,000
b. $390,000
c. $189,000
d. $210,000
15. Horne Manufacturing recorded the following transactions for the year ending Dec 31, 2014:
- Sales to customers on account during the year: $78,000
- Collections from customers on account during the year: $51,000
- Estimated amount of bad debt expense for the year: $8,000
- Cost of goods sold: $56,500
- Cash dividends paid: $12,000
- Capital contributed by investors: $10,000 (cash)
Horne reported retained earnings of $210,000 at the beginning of 2014. What should the company report as retained earnings at the end of 2014?
a. $221,500
b. $223,500
c. $210,000
d. $211,500
16. Oliff Corporation, a retailer, sells products to its customers on account. Oliff gives customers 30 days to pay in full. However, if the customer pays within 10 days, Oliff gives a 10% sales discount on the balance due on account.
Oliff made the following two sales on account:
Customer A
- Oct 2: Oliff sold 45 units @ $10 each
- Oct 5: customer returned 5 units and received appropriate adjustment on account
- Oct 15: customer paid balance due on account
Customer B
- Oct 4: Oliff sold 60 units @ $12 each
- Oct 11: customer paid balance due on account
What is the amount of net sales that Oliff should recognize from these two customers?
a. $1170
b. $1120
c. $1080
d. $1048
17. Lawson Consulting has two active insurance policies as follows:
Property Insurance Policy
Date purchased: Oct 1, 2011
Coverage period: Oct 1, 2011 to Oct 1, 2013
Cost: $1920
Liability Insurance Policy
Date purchased: Aug 1, 2012
Coverage period: Aug 1, 2012 to Aug 1, 2015
Cost: $1080
What amount should Lawson report as prepaid insurance in its balance sheet dated Dec 31, 2012?
a. none
b. $1650
c. $3000
d. $1450
18. Under U.S. GAAP, which of the following assets should be reported on the balance sheet at fair value?
a. Goodwill
b. Inventory
c. Available-for-sale investment securities
d. Patents