MULTIPLE CHOICE QUESTIONS;Please indicate your answer to the following questions by highlighting;the correct answer. Each correct answer is worth 2 points (70 total;points);1. The basis of estimating expected uncollectible accounts that;emphasizes the matching of expenses with revenues is the;a. percentage of receivables basis.;b. percentage of sales basis.;c. lower of cost or market basis.;d. direct write-off method.;2. A corporation issued $600,000 of 6%, 5-year bonds on January 1;at 102. Interest is paid semiannually on January 1 and July 1. If the;corporation uses the straight-line method of amortization, the amount of;bond interest expense to be recognized on July 1 is;a. $36,000.;b. $18,000.;c. $19,200.;d. $16,800.;3. A $200,000, 5%, 20-year bond was issued at 99. The proceeds;received from the bond issuance are;a. $200,000.;b. $198,000.;c. $204,000.;d. $196,000.;4. The Ewing Company purchases 1,000 shares of its common stock for;$20,000. The $20,000 amount should be debited to;a. an asset account.;b. Treasury Stock.;c. Common Stock.;d. Retained Earnings.;5. Equipment was purchased for $36,000 and has a book value of $12,000;and a depreciable cost of $30,000. The estimated salvage value is;a. $12,000.;b. $24,000.;c. $5,000.;d. $6,000.;6. Anne Company has total cash register receipts of $6,825. This total;includes a 5% sales tax. The entry to record the receipts will include;a;a. debit to Sales Tax Expense for $325.;b. credit to Sales for $6,000.;c. credit to Sales Taxes Payable for $825.;d. credit to Sales Taxes Payable for $325.;7. Depletion expense is computed using the;a. double-declining-balance method.;b. effective interest method.;c. straight-line method.;d. units-of-activity method.;8. A company purchased a delivery truck on January 1, 2005, for;$18,000. It is estimated that the delivery truck will have a $4,000;salvage value at the end of its 5-year useful life. If the company;recorded depreciation expense of $2,800 for the year 2006 on the;delivery truck, the depreciation method used by the company is;a. not determinable.;b. the straight-line method.;c. the units-of-activity method.;d. the double-declining-balance method.;9. Which one of the following payroll taxes does not result in a;payroll tax expense for the employer?;a. FICA tax;b. Federal income tax;c. Federal unemployment tax;d. State unemployment tax;10. If a bond has a stated rate of interest of 6%, but the market rate;of interest is 8%, the bond;a. will sell at a discount.;b. will sell at a premium.;c. may sell at either a premium or a discount.;d. will sell at its face value.;11. If a bond has a stated rate of 10% and is discounted at 10%, then;the proceeds received at issuance will be;a. equal to the face value of the bonds.;b. greater than the face value of the bonds.;c. less than the face value of the bonds.;d. zero.;12. A subsidiary ledger is;a. used in place of the general ledger if the general ledger is;destroyed or stolen.;b. a group of accounts used by branches and subsidiaries of a;corporate business.;c. a group of accounts with a common characteristic that provides;detailed information about a control account in the general ledger.;d. used to post excess transactions if a general ledger account becomes;full during an accounting period.;13. If a liability is dependent on a future event, it is called a;a. potential liability.;b. hypothetical liability.;c. probabilistic liability.;d. contingent liability.;14. A contingency that is remote;a. should be disclosed in the financial statements.;b. must be accrued as a loss.;c. does not need to be disclosed.;d. is recorded as a contingent liability.;15. The cost of a purchased building includes all of the following;except;a. closing costs.;b. real estate broker's commission.;c. remodeling costs.;d. All of these are included.;16 A company purchased land for $70,000 cash. Real estate brokers;commission was $5,000 and $7,000 was spent for demolishing an old;building on the land before construction of a new building could start.;Under the cost principle, the cost of land would be recorded at;a. $77,000.;b. $70,000.;c. $75,000.;d. $82,000.;17. A gain or loss on disposal of a plant asset is determined by;comparing the;a. replacement cost of the asset with the asset's original cost.;b. book value of the asset with the asset's original cost.;c. original cost of the asset with the proceeds received from its;sale.;d. book value of the asset with the proceeds received from its sale.;18. If a plant asset is retired before it is fully depreciated, and the;salvage value received is less than the asset's book value;a. a gain on disposal occurs.;b. a loss on disposal occurs.;c. there is no gain or loss on disposal.;d. additional depreciation expense must be recorded.;19. The best way to study the relationship of the components of;financial statements is to prepare;common size statements.;a trend analysis.;profitabiltiy analysis.;ratio analysis.;20. In performing a vertical analysis, the base for prepaid expenses;is;a. total current assets.;b. total assets.;c. total liabilities.;d. prepaid expenses in a previous year.;21. Quine Company had credit sales of $600,000. The beginning accounts;receivable balance was $80,000 and the ending accounts receivable;balance was $60,000. Cash collections from customers were;a. $680,000.;b. $620,000.;c. $600,000.;d. $580,000.;22. Harbor Company reported net income of $30,000 for the year ended;December 31, 2006. During the year, inventories decreased by $7,000;accounts payable decreased by $8,000, depreciation expense was $10,000;and a gain on disposal of equipment of $4,500 was recorded. Net cash;provided by operations in 2006 using the indirect method was;a. $59,500.;b. $20,500.;c. $48,500.;d. $34,500.;23. Sawyer Company reported cost of goods sold of $350,000 for the year;ended December 31, 2006. During the year, inventories decreased $7,000;and accounts payable decreased $6,000. The cash payments to suppliers;in 2006, using the direct method was;a. $351,000.;b. $365,000.;c. $339,000.;d. $349,000.;24. On January 1, 2006, Franklinton Company sold bonds with a cost of;$55,000 for $60,000. The annual interest payment on the bond had been;received on December 31, 2005. The entry to record the sale of the;bonds will include;a. a credit to Cash.;b. a credit to Interest Receivable.;c. a credit to Debt Investments.;d. a debit to Loss on the Sale of Debt Investments.;25. Keifert Company had a balance in the Merchandise Inventory account;of $260,000 at the beginning of the year and a balance of $340,000 at;the end of the year. The inventory turnover ratio for 2006 was 4 times.;If gross profit as a percentage of sales was 40%, the amount of sales;for 2006 was;a. $2,000,000.;b. $1,200,000.;c. $3,000,000.;d. $750,000.;26. Simms Company has a 70% interest in the stock of Werton Company.;What level of investment does Simms hold?;a. Controlling;b. Significant;c. Insignificant;d. Passive;27. A current liability is a debt that can reasonably expected to be;paid;a. within one year.;b. between 6 months and 18 months.;c. out of currently recognized revenues.;d. out of cash currently on hand.;28. The interest expense on a $1,000, 4%, 3-month note is;a. $10;b. $40;c. $100;d. $120;29. The amount of sales tax collected by a retail store when making;sales is;a. a miscellaneous revenue for the store.;b. a current liability.;c. not recorded because it is a tax paid by the customer.;d. recorded as an operating expense.;30. The market rate of interest is often called the;a. stated rate.;b. effective rate.;c. coupon rate.;d. contractual rate.;31. Which one of the following would not be considered an advantage of;the corporate form of organization?;a. Limited liability of owners;b. Separate legal existence;c. Continuous life;d. Government regulation;32. Which of the following factors does not affect the initial market;price of a stock?;a. The company's anticipated future earnings;b. The par value of the stock;c. The current state of the economy;d. The expected dividend rate per share;33. If Vickers Company issues 1,000 shares of $5 par value common stock;for $70,000;a. Common Stock will be credited for $70,000.;b. Paid-In Capital in Excess of Par Value will be credited for $5,000.;c. Paid-In Capital in Excess of Par Value will be credited for;$65,000.;d. Cash will be debited for $65,000.;34. Reeves Company originally issued 1,000 shares of $10 par value;common stock for $30,000 ($30 per share). Reeves subsequently purchases;100 shares of treasury stock for $27 per share and resells the 100;shares of treasury stock for $29 per share. In the entry to record the;sale of the treasury stock, there will be a;a. credit to Common Stock for $2,700.;b. credit to Treasury Stock for $1,000.;c. debit to Paid-In Capital in Excess of Par Value of $3,000.;d. credit to Paid-In Capital from Treasury Stock for $200.;35. Dividends are declared out of;a. Capital Stock.;b. Paid-in Capital in Excess of Par Value.;c. Retained Earnings.;d. Treasury Stock.;PROBLEMS;Problem 1 - Accounts Receivable (10 points);Dolan Company uses the allowance method to account for uncollectible;accounts. Prepare the appropriate journal entries to record the;following transactions during 2006. You may omit journal entry;explanations.;June 20 The account of Ken Unruh for $1,000 was deemed to be;uncollectible and is written off as a bad debt.;Oct. 14 Received a check for $1,000 from Ken Unruh, whose account had;previously been written off as uncollectible.;Dec. 31 Use the following information for the year-end adjusting entry;The balance of Accounts Receivable and Allowance for Doubtful Accounts;at year end are $131,000 and $2,900, respectively. It is estimated that;bad debts will be 3% of accounts receivable.;Problem 2 - Bonds Payable (20 points);Tipten Company issues $200,000 of 8%, 10-year bonds on January 1, 2006;at 103. Interest is payable semiannually on July 1 and January 1. The;company uses the straight-line method of amortization.;Instructions;(a) Journalize the entries for the bonds on (1) January 1, 2006, (2);July 1, 2006, and (3) December 31, 2006.;(b) Show the balance sheet presentation of the bonds at December 31;2006.;(c) Assume on July 1 2006, after paying interest, Tipten calls bonds;having a face value of $100,000. The call price is 101. Record the;redemption of the bonds.;Problem 3 - Plant Asset Depreciation and Disposal Entries (16 points);Prepare the necessary journal entries to record the following;transactions in 2006 for Jano Company.;March 1 Discarded old store equipment that originally cost $24,000 and;had a book value of $6,000 on the date of disposal. Assume depreciation;on the equipment has already been recorded for the current year.;July 31 Sold a delivery truck for $5,000. The delivery truck originally;cost $28,000 and had accumulated depreciation of $20,000 on the date of;sale. Assume the depreciation on the truck has already been recorded for;the current year.;Dec 31 Recorded straight-line depreciation on asset with cost of;$34,000, salvage value of $2,000 and useful life of 4 years.;Problem 4 - Calculation of Ratios (24 points);The financial information below was taken from the annual financial;statements of Harris Company.;2006 2005;Current assets $240,000 $212,000;Current liabilities 80,000 90,000;Total liabilities 182,000 160,000;Total assets 520,000 480,000;Sales 400,000 370,000;Cost of goods sold 240,000 220,000;Inventory 100,000 125,000;Receivables 100,000 60,000;Net income 50,000 48,000;Net cash provided by operating activities 30,000 25,000;Instructions;Calculate the following ratios for Harris Company for 2006.;1. Current ratio.;2. Average collection period.;3. Current cash debt coverage ratio.;4. Debt to total assets ratio.;5. Cash debt coverage ratio.;6. Return on assets.;7. Profit margin ratio.;8. Asset turnover ratio.;Problem 5 - Payroll (10 points);Ann Welch's regular hourly wage is $18 an hour. She receives overtime;pay at the rate of time and a half. The FICA tax rate is 8%. Ann is paid;every two weeks. For the first pay period in January, Ann worked 86;hours of which 6 were overtime hours. Ann's federal income tax;withholding is $400 and her state income tax withholding is $170. Ann;has authorized that $50 be withheld from her check each pay period for;savings bonds.;Instructions;Compute Barb Welch's gross earnings and net pay for the pay period;showing each payroll deduction in arriving at net pay.
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