Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition____ 3.. In a period of rising prices, the inventory method that results in the lowest income tax ___
Trang 1Financial Accounting, Fifth Edition Instructor
Designate the best answer for each of the following questions
Questions 1 and 2 are based on the following information:
Cain Company recently incurred the following costs:
(1) Purchase price of land and dilapidated building $250,000
(3) Net demolition costs of dilapidated building 39,000
(5) Architect's fees and building permits 30,000(6) Costs associated with new building construction 950,000(7) Costs associated with new furniture and equipment 250,000(8) Actual interest costs during building construction 168,000(9) Actual interest cost after completion of building construction 120,000(10) Costs of walks, driveways, and parking lot 55,000 1 The building should be recorded on Cain's books at
Trang 2Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition
3 Benson Supply bought equipment at a cost of $24,000 on January 2, 2000 It originally
had an estimated life of ten years and a salvage value of $4,000 Benson uses thestraight-line depreciation method On December 31, 2003, Benson decided the usefullife likely would end on December 31, 2007, with a salvage value of $2,000 Thedepreciation expense recorded on December 31, 2003, should be
5 Riodan Company sold old equipment for $25,000 The equipment had a cost of
$50,000 and accumulated depreciation of $30,000 The entry to record the sale of theequipment would include a
a loss on disposal of $25,000
b gain on disposal of $25,000
c loss on disposal of $5,000
d gain on disposal of $5,000
6 The cost of intangible assets should be
a amortized over the assets' estimated useful life, or 20 years, whichever is shorter
b amortized over a period not exceeding 5 years
c amortized over the assets' estimated useful life
d charged to an expense account at acquisition
7 In a period of rising prices, the inventory method that results in the lowest income tax
8 On November 30, Thatcher Company issued a $8,000, 6%, 4-month note to the
National Bank The entry on Thatcher's books to record the payment of the note atmaturity will include a credit to Cash for
a $8,000
b $8,480
c $8,160
d $8,320
9 The inventory methods that result in the most current costs in the income statement
and balance sheet are
Income Statement Balance Sheet
Trang 3Sales $130,000 Freight-in $10,000Ending Merchandise Inventory 12,000 Purchase Returns and Allowances 5,000Purchases 90,000 Beginning Merchandise Inventory 15,000Lighten’s cost of goods sold is
a $115,000
b $110,000
c $98,000
d $95,000
11 If ending inventory is understated, net income and assets will be
Net Income Assets
a Understated Understated
b Overstated Overstated
c Understated Unaffected
d None of the above
12 One of the two constraints in accounting is
a comparability
b materiality
c reliability
d relevance
13 The assumption that assumes a company will continue in operation long enough to
carry out its existing objectives is the
a economic entity assumption
b going concern assumption
c monetary unit assumption
d time period assumption
14 All of the following are intangible assets except
a patents
b land improvements
c goodwill
d franchises
15 A daily cash count of register receipts made by a cashier department supervisor
demonstrates an application of which of the following internal control principles?
a Documentation procedures
b Segregation of duties
c Establishment of responsibility
d Independent internal verification
16 When the allowance method is used for bad debts, the entry to write off an individual
account known to be uncollectible involves a
a debit to an expense account
b credit to an expense account
c credit to the Allowance account
d debit to the Allowance account
Trang 4Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition
17 Shipping terms of FOB destination mean that the
a purchaser is responsible for the shipping charges
b shipping charges are debited to Freight-Out
c items should be in the purchaser's inventory account at year-end if the items are intransit
d both (a) and (c) above
18 Helig Company has a $150,000 balance in Accounts Receivable and a $1,000 debit
balance in Allowance for Doubtful Accounts Credit sales for the period totaled
$900,000 What is the amount of the bad debt adjusting entry if Helig uses apercentage of receivables basis (at 10%)?
a $15,000
b $14,000
c $16,000
d $15,200
19 The constraint of conservatism is best expressed as
a the cost of applying an accounting principle should not exceed its benefit
b only material items should be recorded and reported
c when in doubt, choose the method that will least likely overstate assets and netincome
d the lower of cost or market method should be used for inventories
20 If merchandise is sold for $1,000 subject to credit terms of 2/10, n/30, the entry to
record collection in full within the discount period would include a
a credit to Sales Discounts for $20
b credit to Cash for $980
c credit to Accounts Receivable for $20
d none of the above
21 Barker Company's records show the following for the month of January:
Total Retained Earnings at January 1 $400,000
Total Retained Earnings at January 31 500,000
Total Revenues 670,000
Total Dividends Declared 30,000
Total expenses for January were
Trang 522 Jetson Company's financial information is presented below.
Sales $ ???? Purchase Returns and Allowances $ 15,000Sales Returns and Allowances 30,000 Ending Merchandise Inventory 35,000
Beginning Merchandise Inventory ???? Gross Profit ????
The missing amounts above are:
Sales Beginning Inventory Gross Profit
23 The necessity of making adjusting entries relates mostly to the
a economic entity assumption
b time period assumption
c going concern assumption
d monetary unit assumption
24 The preparation of closing entries
a is an optional step in the accounting cycle
b results in zero balances in all accounts at the end of the period so that they areready for the following period's transactions
c is necessary before financial statements can be prepared
d results in transferring the balances in all temporary accounts to Retained Earnings. 25 Allowance for Doubtful Accounts is reported in the
a balance sheet as a contra asset
b balance sheet as a contra liability account
c income statement under other expenses and losses
d income statement under other revenues and gains
26 Current liabilities are obligations that are reasonably expected to be paid from
Existing Creation of OtherCurrent Assets Current Liabilities
27 Which of the following errors will cause a trial balance to be out of balance? The entry
to record a payment on account was
a not posted at all
b posted as a debit to Cash and a credit to Accounts Payable
c posted as a debit to Cash and a debit to Accounts Payable
d posted as a debit to Accounts Receivable and a credit to Cash
Trang 6Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition
28 The primary accounting standard-setting body in the United States is the
a Securities and Exchange Commission
b Accounting Principles Board
c Financial Accounting Standards Board
d Internal Revenue Service
29 Lawford Company's equipment account increased $400,000 during the period; the
related accumulated depreciation increased $30,000 New equipment was purchased
at a cost of $700,000 and used equipment was sold at a loss of $20,000 Depreciationexpense was $100,000 Proceeds from the sale of the used equipment were
a $210,000
b $250,000
c $280,000
d $320,000
30 Which of the following would not be included in the operating activities section of a
statement of cash flows?
a Cash inflows from returns on loans (i.e., interest)
b Cash inflows from returns on equity securities (i.e., dividends)
c Cash outflows to governments for taxes
d Cash outflows to reacquire treasury stock
31 Which of the following combinations presents correct examples of liquidity, profitability,
and solvency ratios, respectively?
a Inventory turnover Inventory turnover Times interest earned
b Current ratio Inventory turnover Debt to total assets
c Receivable turnover Return on assets Times interest earned
d Average days collection Payout ratio Return on assets 32 Nadine Manufacturing declared a 10% stock dividend when it had 150,000 shares of
$5 par value common stock outstanding The market price per common share was
$12 per share when the dividend was declared The entry to record this dividenddeclaration includes a credit to
a Retained Earnings of $75,000
b Paid-in Capital in Excess of Par for $105,000
c Common Stock for $75,000
d Retained Earnings for $180,000
33 Which of the following pairs of terms in the area of financial statement analysis are
Trang 734 Which of the following statements is true?
a Trading securities are debt securities that the investor has the intent to hold tomaturity
b Trading securities are securities bought and held primarily for sale in the nearterm
c Trading securities are securities that may be sold in the future
d Trading securities are reported at cost in the balance sheet
35 Dividends received are credited to what account under the equity method and cost
method, respectively?
Equity Method Cost Method
a Stock Investments Dividend Revenue
b Dividend Revenue Dividend Revenue
c Stock Investments Stock Investments
d Dividend Revenue Stock Investments
36 In accounting for available-for-sale securities, the Unrealized Loss—Equity account
should be classified as a
a liability on the balance sheet
b loss on the income statement
c deduction in the stockholders' equity section of the balance sheet
d contra asset on the balance sheet
37 Boon Corporation has the following stock outstanding:
6% Preferred, $100 Par $1,000,000Common Stock, $50 Par 2,000,000
No dividends were paid the previous 2 years If Boon declares $400,000 of dividends
in the current year, how much will preferred stockholders receive if the preferred stock
38 The statement of cash flows is a(n)
a required supplemental financial statement
b required basic financial statement
c optional basic financial statement
d optional supplementary statement
39 The directors of Chandler Corp are trying to decide whether they should issue par or
no par stock They are considering two alternatives for their new stock, which they areassuming will be issued at $8 per share The alternatives are: (A) $5 par value and (B)
no par, no stated value If 120,000 shares are issued, what amount will be credited tothe common stock account in each of these cases?
Trang 8Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition
40 Fison Corp purchased 15,000 shares of its $2 par common stock at a cost of $13 per
share on April 30, 2003 The stock was originally issued at $11 per share The entry torecord the purchase of the stock should include a debit to
a Common Stock for $30,000
b Treasury Stock for $30,000
c Common Stock for $195,000
d Treasury Stock for $195,000
41 What is the effect on total paid-in capital of a stock dividend and a stock split,
42 Which of the following should be classified as an extraordinary item?
a Effects of major casualties not infrequent in the area
b Write-off of a significant amount of receivables
c Loss from the expropriation of facilities by a foreign government
d Losses due to a bitter, lengthy labor strike
43 A Discount on Bonds Payable account
a is a contra account to Bonds Payable
b will cause interest expense to be less than cash interest payable
c is increased over the life of the bond until it equals the bond's face value
d is an adjunct account to Bonds Payable
44 In order to be considered extraordinary, an item must be
a frequent and uninsured
b unusual and uninsured
c uninsured and infrequent
d infrequent and unusual
45 If the market rate of interest is lower than the stated rate, bonds will sell at an amount
a equal to face value
b not determinable from the given information
c lower than face value
d higher than face value
FE-8
Trang 9PART II — MATCHING (25 points)
Instructions
Designate the terminology that best represents the definition or statement given below by placingthe identifying letter(s) in the space provided No letter should be used more than once
A Additions and improvements X Full disclosure principle
B Allowance method Y Going-concern assumption
C Amortization Z Held-to-maturity securities
D Available-for-sale securities AA Internal control
E Average cost method AB Last-in, first-out method
G Capital expenditure AD Matching principle
H Cash debt coverage ratio AE Materiality
I Consistency AF Monetary unit assumption
J Contra asset account AG Net purchases
K Cost method AH Periodic inventory system
L Credit memorandum AI Permanent accounts
M Debit memorandum AJ Perpetual inventory system
N Declining-balance method AK Ratio analysis
O Depreciable Cost AL Relevance
Q Direct write-off method AN Revenue expenditure
R Discontinued operations AO Revenue recognition principle
S Earnings per share AP Stock dividend
T Economic entity assumption AQ Stock split
U Equity method AR Temporary accounts
V Extraordinary items AS Time period assumption
W First-in, first-out method AT Units-of-activity method
_ 1 The periodic write-off of an intangible asset
_ 2 The total amount subject to depreciation
_ 3 The principle that efforts be matched with accomplishments
_ 4 An expenditure charged against revenues as an expense when incurred
_ 5 The inventory costing method that assumes that the costs of the earliest goods
purchased are the first to be recognized as cost of goods sold
_ 6 Use of the same accounting principles and methods from period to period by the same
business enterprise
_ 7 A measure of solvency calculated as cash provided by operating activities divided by
average total liabilities
_ 8 An inventory costing method that assumes that the latest units purchased are the first to
be allocated to cost of goods sold
_ 9 An assumption that economic events can be identified with a particular unit of
accountability
Trang 10Test Bank for Financial Accounting: Tools for Business Decision Making, Fifth Edition
PART II — MATCHING (cont.)
_ 10 A characteristic of information that means it is capable of making a difference in a
_ 15 The assumption that the enterprise will continue in operation long enough to carry out its
existing objectives and commitments
_ 16 A system in which detailed records are not maintained and cost of goods sold is
determined only at the end of an accounting period
_ 17 The difference between inventory reported using LIFO and inventory reported using
FIFO
_ 18 The methods and measures adopted within a business to safeguard its assets and
enhance the accuracy and reliability of its accounting records
_ 19 Revenue, expense, and dividends accounts whose balances are transferred to retained
earnings at the end of an accounting period
_ 20 A technique for evaluating financial statements that expresses the relationship among
selected financial statement data
_ 21 A depreciation method that applies a constant rate to the declining balance book value
of the asset and produces a decreasing annual depreciation expense over the useful life
of the asset
_ 22 A pro rata distribution of a corporation’s own stock to its stockholders
_ 23 Events and transactions that are unusual in nature and infrequent in occurrence
_ 24 The disposal of a significant segment of a business
_ 25 The net income earned by each share of outstanding common stock
FE-10
Trang 11PART III — ADJUSTING ENTRIES (14 points)
The trial balance of Diamond Company shows the following balances for selected accounts onNovember 30, 2005:
Prepaid Insurance $ 5,000 Unearned Revenue $ 1,800
Accumulated Depreciation 8,800 Interest Payable 400
B The note payable is a 6%, 1-year note issued October 1, 2005
C The equipment was purchased on January 2, 2004, for $40,000 It has an estimated life of 6years and an estimated salvage value of $4,000 Stone uses the straight-line depreciationmethod
D An insurance policy was acquired on June 30, 2005; the premium paid for 2 years was