GRADED EXAM 31. Extraordinary repairs are expenditures extending the asset’s useful life beyond its original estimate, and are capital expenditures because they benefit future periods. (True/false)2.TechCom’s customer, RDA, paid off an $8,300 balance on its account receivable. TechCom should record the transaction as a debit to Accounts Receivable-RDA and a credit to Cash. (True/false)3.A company received a $1,000, 90-day, 10% note receivable. The journal entry to record receipt of the note includes a debit to Notes Receivable. (True/false)4.Credit card expense may be classified as:
a. A “discount” deducted from sales to get net sales.
b. A selling expense.
c. An administrative expense.
d. All of these.
e. Only A and B.
5.The inventory turnover ratio is computed by dividing average merchandise inventory by cost of goods sold. (True/false)
6.A company can change its inventory costing method without mentioning this change in its financial statements because it is an internal management decision. (True/false)
7. The matching principle requires:
Select one:
a. That expenses be ignored if their effect on the financial statements is unimportant to users’ business decisions.
b. The use of the direct write-off method for bad debts.
c. The use of the allowance method of accounting for bad debts.
d. That bad debts be disclosed in the financial statements.
e. That bad debts not be written off
8.Total asset turnover is used to evaluate:
Select one:
a. The efficiency of management’s use of assets to generate sales.
b. The necessity for asset replacement.
c. The number of times operating assets were sold during the year.
d. The cash flows used to acquire assets.
e. The relation between asset cost and book value
10.The advantage of the allowance method of accounting for bad debts is that it identifies the specific customers who will not pay their bills. (True/false)
11.A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?
Select one:
a. $304
b. $296
c. $288
d. $280
e. $276
11.Betterments:
Select one:
a. Are expenditures making a plant asset more efficient or productive.
b. Are also called improvements.
c. Do not always increase an asset’s life.
d. Are capital expenditures.
e. All of these.
12.If an asset is sold above its book value, the selling company records a loss. (True/false)
13.Revenue expenditures are additional costs of plant assets that materially increase the assets’ life or productive capabilities. (True/false)
14.A company purchased property for a building site. The costs associated with the property were: What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?
Select one:
a. $175,800 to Land; $18,800 to Building.
b. $190,000 to Land; $3,800 to Building.
c. $190,800 to Land; $1,000 to Building.
d. $192,800 to Land; $0 to Building.
e. $193,800 to Land; $0 to Building.
15.The accounts receivable method to estimate bad debts obtains the estimated balance in the Allowance for Doubtful Accounts in one of two ways: (1) computing the percent uncollectible from the total accounts receivable or (2) aging accounts receivable. (True/false)
16.Merchandise inventory includes:
Select one:
a. All goods owned by a company and held for sale.
b. All goods in transit.
c. All goods on consignment.
d. Only damaged goods.
e. All of these.
17.A company used the percent of sales method to determine its bad debts expense. At the end of the current year, the company’s unadjusted trial balance reported the following selected amounts:
All sales are made on credit. Based on past experience, the company estimates 0.6% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
Select one:
a. Bad Debt Expense….1,275
Allowance for Doubtful Accounts…1,275
b. Bad Debt Expense…1,775
Allowance for Doubtful Accounts…1,775
c. Bad Debt Expense…4,500
Allowance for Doubtful Accounts…4,500
d. Bad Debt Expense…4,800
Allowance for Doubtful Accounts…4,800
e. Bad Debt Expense…5,500
Allowance for Doubtful Accounts…5,500
18.A company paid $150,000, plus a 6% commission and $4,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property’s costs in the company’s accounting records?
Select one:
a. Land $75,000; Land Improvements, $30,000; Building, $45,000.
b. Land $75,000; Land Improvements, $30,800; Building, $46,200.
c. Land $81,500; Land Improvements, $32,600; Building, $48,900.
d. Land $79,500; Land Improvements, $32,600; Building, $47,700.
e. Land $87,500; Land Improvements; $35,000; Building; $52,500.
19.The interest accrued on $6,500 at 6% for 60 days is:
Select one:
a. $ 36.
b. $ 42.
c. $ 65.
d. $180.
e. $420.
20.The formula for computing annual straight-line depreciation is:
Select one:
a. Depreciable cost divided by useful life in units.
b. Cost plus salvage value divided by the useful life in years.
c. Cost less salvage value divided by the useful life in years.
d. Cost multiplied by useful life in years.
e. Cost divided by useful life in units.
21.The consistency concept:
Select one:
a. Requires a company to consistently apply the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting.
b. Requires a company to use one method of inventory valuation exclusively.
c. Requires that all companies in the same industry use the same accounting methods of inventory valuation.
d. Is also called the full disclosure principle.
e. Is also called the matching principle.
22.The matching principle requires that the inventory valuation method follow the physical flow of inventory. (True/false)
23.Most companies use accelerated depreciation for tax purposes because it reduces taxable income due to higher depreciation expense in the early years of an asset’s life. (True/false)
24.When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple. (True/false)
25.On December 31 of the current year, Hewett Company reported an ending inventory balance of $215,000. The following additional information is also available:
· Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped the goods on that date with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000 because they were not in Hewett’s warehouse.
· Hewett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Hewett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000.
· Hewett’s ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Rumsfeld Company. (Hewett Company is the consignee.)
· Hewett’s ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Hewett on December 27 with shipping terms of FOB destination and were still in transit at year-end.
Based on the above information, the correct balance for ending inventory on December 31 is:
Select one:
a. $194,000
b. $209,000
c. $200,000
d. $171,000
e. $156,000