. Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account
a.increases the allowance for uncollectible accounts.
b.has no effect on the allowance for uncollectible accounts.
c.has no effect on net income.
d.decreases net income.
2.The following accounts were abstracted from Todd Co.'s unadjusted trial balance at December 31, 2007:
Debit Credit
Accounts receivable$750,000
Allowance for uncollectible accounts8,000
Net credit sales$3,000,000
Todd estimates that 2% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2007, the allowance for uncollectible accounts should have a credit balance of
a.$60,000.
b.$52,000.
c.$23,000.
d.$15,000.
3.On January 1, 2006, Marr Co. exchanged equipment for a $400,000 zero-interest-bearing note due on January 1, 2009. The prevailing rate of interest for a note of this type at January 1, 2006 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Marr's 2007 income statement?
a.$0
b.$30,000
c.$33,000
d.$40,000
4.In preparing its August 31, 2007 bank reconciliation, Adel Corp. has available the following information:
Balance per bank statement, 8/31/07$21,650
Deposit in transit, 8/31/073,900
Return of customer's check for insufficient funds, 8/30/07600
Outstanding checks, 8/31/072,750
Bank service charges for August100
At August 31, 2007, Adel's correct cash balance is
a.$22,800.
b.$22,200.
c.$22,100.
d.$20,500.
5. 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
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/07$34,900
Data per bank for the month of April 2007 follow:
Deposits$46,700
Disbursements49,700
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?
a.$28,200
b.$31,900
c.$34,200
d.$38,500
6.How should the following costs affect a retailer's inventory valuation?
Freight-inInterest on Inventory Loan
a.IncreaseNo effect
b.IncreaseIncrease
c.No effectIncrease
d.No effectNo effect
7.The following information applied to Grey, Inc. for 2007:
Merchandise purchased for resale$300,000
Freight-in8,000
Freight-out5,000
Purchase returns2,000
Grey's 2007 inventoriable cost was
a.$300,000.
b.$303,000.
c.$306,000.
d.$311,000.
= $300,000 + $8,000 - $2,000
8. Cole Corp.'s accounts payable at December 31, 2007, totaled $800,000 before any necessary year-end adjustments relating to the following transactions:
On December 27, 2007, Cole wrote and recorded checks to creditors totaling $350,000 causing an overdraft of $100,000 in Cole 's bank account at December 31, 2007. The checks were mailed out on January 10, 2008.
On December 28, 2007, Cole purchased and received goods for $150,000, terms 2/10, n/30. Cole records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, 2008.
Goods shipped f.o.b. destination on December 20, 2007 from a vendor to Cole were received January 2, 2008. The invoice cost was $65,000.
At December 31, 2007, what amount should Cole report as total accounts payable?
a.$1,362,000.
b.$1,297,000.
c.$1,050,000.
d.$950,000.
$800,000 + $350,000 + $147,000 = $1,297,000.
9.Tysen Retailers purchased merchandise with a list price of $50,000, subject to trade discounts of 20% and 10%, with no cash discounts allowable. Tysen should record the cost of this merchandise as
a.$35,000.
b.$36,000.
c.$39,000.
d.$50,000.
= $50,000*0.9*0.8
10.Dark Co. recorded the following data pertaining to raw material X during January 2007:
Units
DateReceivedCostIssuedOn Hand
1/1/07Inventory$8.003,200
1/11/07Issue1,6001,600
1/22/07Purchase4,000$9.405,600
The moving-average unit cost of X inventory at January 31, 2007 is
a.$8.70.
b.$8.85.
c.$9.00.
d.$9.40.
[(1,600 × $8.00) + (4,000 × $9.40)] ÷ 5,600 = $9.00
11.During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods?
FIFOLIFO
a.YesNo
b.YesYes
c.NoYes
d.NoNo
12. Noll Co. had 450 units of product A on hand at January 1, 2007, costing $42 each. Purchases of product A during January were as follows:
DateUnitsUnit Cost
Jan. 10600$44
1875046
2830048
A physical count on January 31, 2007 shows 600 units of product A on hand. The cost of the inventory at January 31, 2007 under the LIFO method is
a.$28,200.
b.$26,700.
c.$25,500.
d.$24,600.
13. Carr Co. adopted the dollar-value LIFO inventory method on December 31, 2007. Carr's entire inventory constitutes a single pool. On December 31, 2007, the inventory was $320,000 under the dollar-value LIFO method. Inventory data for 2008 are as follows:
12/31/08 inventory at year-end prices$440,000
Relevant price index at year end (base year 2007)110
Using dollar value LIFO, Carr's inventory at December 31, 2008 is
a.$352,000.
b.$408,000.
c.$400,000.
d.$440,000.
14.Teel Distribution Co. has determined its December 31, 2007 inventory on a FIFO basis at $250,000. Information pertaining to that inventory follows:
Estimated selling price$255,000
Estimated cost of disposal10,000
Normal profit margin30,000
Current replacement cost225,000
Teel records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2007, the loss that Teel should recognize is
a.$0.
b.$5,000.
c.$20,000.
d.$25,000.
15.Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value
a.when it is below the net realizable value less the normal profit margin.
b.when it is below the net realizable value and above the net realizable value less the normal profit margin.
c.when it is above the net realizable value.
d.regardless of net realizable value.
16. The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the
a.net realizable value.
b.net realizable value less the normal profit margin.
c.replacement cost.
d.original cost.
17.Gore Company's accounting records indicated the following information:
Inventory, 1/1/07$ 600,000
Purchases during 20073,000,000
Sales during 20073,800,000
A physical inventory taken on December 31, 2007, resulted in an ending inventory of $700,000. Gore's gross profit on sales has remained constant at 25% in recent years. Gore suspects some inventory may have been taken by a new employee. At December 31, 2007, what is the estimated cost of missing inventory?
a.$50,000.
b.$150,000.
c.$200,000.
d.$250,000.
$3,850,000*75% = $2,850,000 (COGS)
$600,000 + $3,000,000 - $2,850,000 - $700,000 = $50,000
18.Eaton Co. uses the retail inventory method to estimate its inventory for interim statement purposes. Data relating to the computation of the inventory at July 31, 2007, are as follows:
Cost Retail
Inventory, 2/1/07$ 200,000$ 250,000
Purchases1,000,0001,575,000
Markups, net175,000
Sales1,750,000
Estimated normal shoplifting losses20,000
Markdowns, net110,000
Under the lower-of-cost-or-market method, Eaton's estimated inventory at July 31, 2007 is
a.$72,000.
b.$84,000.
c.$96,000.
d.$120,000.
($200,000 + $1,000,000) ÷ ($250,000 + $1,575,000 + $175,000) = 0.6
($250,000 + $1,575,000 + $175,000 - $20,000 - $110,000 - $1,750,000) × 0.6
= $72,000
19. On December 31, 2006, Lilly Co. adopted the dollar-value LIFO retail inventory method. Inventory data for 2007 are as follows:
LIFO Cost Retail
Inventory, 12/31/06$300,000$420,000
Inventory, 12/31/07?550,000
Increase in price level for 200710%
Cost to retail ratio for 200770%
Under the LIFO retail method, Lilly's inventory at December 31, 2007, should be
a.$361,600.
b.$385,000.
c.$391,000.
d$400,100.
$550,000 ÷ 1.1 = $500,000
$300,000 + (($500,000 - $420,000) × 1.1 × 0.7) = $361,600
20.On December 1, 2007, Logan Co. purchased a tract of land as a factory site for $800,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2007 were as follows:
Cost to raze old building$70,000
Legal fees for purchase contract and to record ownership10,000
Title guarantee insurance16,000
Proceeds from sale of salvaged materials8,000
In Logan 's December 31, 2007 balance sheet, what amount should be reported as land?
a.$826,000.
b.$862,000.
c.$888,000.
d.$896,000.
$800,000 + 70,000 + 10,000 + 16,000 -8,000 = $888,000
21.Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be
a.classified as other income.
b.deducted from the cost of the land.
c.netted against the costs to clear the land and expensed as incurred.
d.netted against the costs to clear the land and amortized over the life of the plant.
22.Gray Football Co. had a player contract with Vance that is recorded in its books at $3,600,000 on July 1, 2007. Day Football Co. had a player contract with Simms that is recorded in its books at $4,500,000 on July 1, 2007. On this date, Gray traded Vance to Day for Simms and paid a cash difference of $450,000. The fair value of the Simms contract was $5,400,000 on the exchange date. The exchange had no commercial substance. After the exchange, the Simms contract should be recorded in Gray's books at
a.$4,050,000.
b.$4,500,000.
c.$4,950,000.
d.$5,400,000.
23.PettyCounty owned an idle parcel of real estate consisting of land and a factory building. Petty gave title to this realty to Larson Co. as an incentive for Larson to establish manufacturing operations in the County. Larson paid nothing for this realty, which had a fair market value of $250,000 at the date of the grant. Larson should record this nonmonetary transaction as a
a.memo entry only.
b.credit to Contribution Revenue for $250,000.
c.credit to extraordinary income for $250,000.
d.credit to Donated Capital for $250,000.
24.On September 10, 2007, Flint Co. incurred the following costs for one of its printing presses:
Purchase of attachment$55,000
Installation of attachment5,000
Replacement parts for renovation of press18,000
Labor and overhead in connection with renovation of press7,000
Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized?
a.$0.
b.$67,000.
c.$78,000.
d.$85,000.
25.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 boiler10,000
Fair value of old boiler4,000
Installation cost of new boiler20,000
The old boiler was sold for $4,000. What amount should Renn capitalize as the cost of the new boiler?
a.$170,000.
b.$166,000.
c.$160,000.
d.$150,000.
26.Gant Co. purchased a machine on July 1, 2007, for $400,000. The machine has an estimated useful life of five years and a salvage value of $80,000. The machine is being depreciated from the date of acquisition by the 150% declining-balance method. For the year ended December 31, 2007, Gant should record depreciation expense on this machine of
a.$120,000.
b.$80,000.
c.$60,000.
d.$48,000.
27.A machine with a five-year estimated useful life and an estimated 10% salvage value was acquired on January 1, 2005. The depreciation expense for 2007 using the double-declining balance method would be original cost multiplied by
a.90% × 40% × 40%.
b.60% × 60% × 40%.
c.90% × 60% × 40%.
d.40% × 40%.
28.On April 1, 2005, Reiley Co. purchased new machinery for $240,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method. The accumulated depreciation on this machinery at March 31, 2007, should be
a.$160,000.
b.$144,000.
c.$96,000.
d.$80,000.
29.A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods?
Straight-lineProductive Output
a.YesNo
b.YesYes
c.No Yes
d.NoNo
30.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?
Gain Loss
a.DecreaseDecrease
b.DecreaseIncrease
c.IncreaseDecrease
d.IncreaseIncrease
31.Nolan Company acquired a tract of land containing an extractable natural resource. Nolan is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows:
Land$7,000,000
Estimated restoration costs1,500,000
If Nolan maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material?
a.$1.70
b.$1.50
c.$1.40
d.$1.20
32. In January 2007, Jenn Mining Corporation purchased a mineral mine for $4,200,000 with removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated value of $400,000 after the ore has been extracted. Jenn incurred $1,150,000 of development costs preparing the property for the extraction of ore. During 2007, 340,000 tons were removed and 300,000 tons were sold. For the year ended December 31, 2007, Jenn should include what amount of depletion in its cost of goods sold?
a.$516,800
b.$456,000
c.$594,000
d.$673,200
33.On June 30, 2007, Cey, Inc. exchanged 2,000 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2007 at a cost of $55,000. At the exchange date, Seely common stock had a fair value of $45 per share, and the patent had a net carrying value of $110,000 on Gore's books. Cey should record the patent at
a.$55,000.
b.$60,000.
c.$90,000.
d.$110,000.
34.January 2, 2004, Koll, Inc. purchased a patent for a new consumer product for $180,000. At the time of purchase, the patent was valid for 15 years; however, the patent’s useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2007, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2007, assuming amortization is recorded at the end of each year?
a.$18,000
b.$108,000
c.$126,000
d.$144,000
35.On January 1, 2003, Unruh Company purchased a copyright for $800,000, having an estimated useful life of 16 years. In January 2007, Unruh paid $120,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2007, should be
a.$0.
b.$50,000.
c.$57,500.
d.$60,000.
36.Which of the following legal fees should be capitalized?
Legal fees toLegal fees to successfully
obtain a copyrightdefend a trademark
a.NoNo
b.NoYes
c.YesYes
d.YesNo
37.Which of the following costs of goodwill should be amortized over their estimated useful lives?
Costs of goodwill from a
business combinationCosts of developing
accounted for as a purchase goodwill internally
a.NoNo
b.NoYes
c.YesYes
d.YesNo
38.During 2007, Leon Co. incurred the following costs:
Testing in search for process alternatives$ 350,000
Costs of marketing research for new product250,000
Modification of the formulation of a process510,000
Research and development services performed by Beck Corp. for Leon325,000
In Leon's 2007 income statement, research and development expense should be
a.$510,000.
b.$835,000.
c.$1,185,000.
d.$1,435,000.
39.Which of the following is generally associated with payables classified as accounts payable?
Periodic PaymentSecured
of Interestby Collateral
a.NoNo
b.NoYes
c.YesNo
d.YesYes
40.On January 1, 2007, Didde Co. leased a building to Ellis Corp. for a ten-year term at an annual rental of $80,000. At inception of the lease, Didde received $320,000 covering the first two years' rent of $160,000 and a security deposit of $160,000. This deposit will not be returned to Ellis upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $320,000 should be shown as a current and long-term liability, respectively, in Didde's December 31, 2007 balance sheet?
Current LiabilityLong-term Liability
a.$0$320,000
b.$80,000$160,000
c.$160,000$160,000
d.$160,000$80,000
41.Included in Sauder Corp.'s liability account balances at December 31, 2006, were the following:
7% note payable issued October 1, 2006, maturing September 30, 2007$250,000
8% note payable issued April 1, 2006, payable in six equal annual
installments of $150,000 beginning April 1, 2007600,000
Sauder 's December 31, 2006 financial statements were issued on March 31, 2007. On January 15, 2007, the entire $600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2007, Sauder consummated a noncancelable agreement with the lender to refinance the 7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2006 balance sheet, the amount of the notes payable that Sauder should classify as short-term obligations is
a.$175,000.
b.$125,000.
c.$50,000.
d.$0.
42.Dexter Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $480,000 at December 31, 2006 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $120,000 at December 31, 2006. Outstanding service contracts at December 31, 2006 expire as follows:
During 2007During 2008During 2009
$100,000$160,000$70,000
What amount should be reported as unearned service contract revenues in Dexter's December 31, 2006 balance sheet?
a.$360,000.
b.$330,000.
c.$240,000.
d.$220,000.
43.Lett Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be
a.zero.
b.the maximum of the range.
c.the mean of the range.
d.the minimum of the range.
44.On July 1, 2007, Pryce Co. issued 1,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2007 and mature on April 1, 2017. Interest is payable semiannually on April 1 and October 1. What amount did Pryce receive from the bond issuance?
a.$1,015,000
b.$1,000,000
c.$990,000
d.$965,000
45.On January 1, 2007, Gomez Co. issued its 10% bonds in the face amount of $3,000,000, which mature on January 1, 2017. The bonds were issued for $3,405,000 to yield 8%, resulting in bond premium of $405,000. Gomez uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2007, Gomez's adjusted unamortized bond premium should be
a.$405,000.
b.$377,400.
c.$364,500.
d.$304,500.
46.On January 1, 2007, Nott Co. sold $1,000,000 of its 10% bonds for $885,296 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Nott report as interest expense for the six months ended June 30, 2007?
a.$44,266
b.$50,000
c.$53,118
d.$60,000
47.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)?
a.$0
b.$70,000
c.$160,000
d.$230,000
48.Starr Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Starr within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a
a.gain, net of income taxes.
b.loss, net of income taxes.
c.part of continuing operations.
d.deferred credit to be amortized over the life of the new debt.
49. Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?