Multiple Choice Identify the choice that best completes the statement or answers the question. Walker Corp. Walker Corp. is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales Purchases Inventory (beginning) Inventory (ending) Operating Expenses Income Tax Expense Retained Earnings (beginning) Dividends Refer to the information for Walker Corp. Calculate net income. a. $289,000 b. $141,000 $500,000 225,000 16,000 30,000 148,000 10,000 53,000 15,000 ____ 1. c. $131,000 d. $116,000 ____ 2. The following is from Silver Inc.s 2012 income statement. Purchases Transportation-In Inventory, January 1, 2012 Inventory, December 31, 2012 Purchase Returns and Allowances How much will Silver report as cost of goods purchased in its a. $184,600 c. $201,400 b. $193,000 d. $211,100 $182,000 11,000 26,500 28,800 8,400 2012 income statement? 1 Name: ________________________ ID: A ____ 3. ____ 4. ____ 5. ____ 6. ____ 7. ____ 8. Which one of the following is correct? a. Inventory losses can be identified and controlled better under the perpetual system. b. Inventory can only be sold at the end of an accounting period under the periodic system. c. There is no difference in cost to implement a perpetual as compared to a periodic system. d. The perpetual system eliminates the need for an annual inventory count Transportation-in is a. an operating expense b. part of purchases c. added to transportation-out as part of the calculation of cost of goods sold d. part of cost of goods purchased Which method of inventory costing is not acceptable for financial accounting purposes? a. Specific Identification c. LIFO b. FIFO d. Replacement Cost Which inventory costing method results in the lowest income tax expense during a period of decreasing prices? a. FIFO c. Specific Identification b. LIFO d. Weighted Average Cost County Corp. started business at the beginning of 2011. County selected the FIFO method for its inventory. In order to m aximize its profits for 2011 under this method, prices must be a. Increasing b. Decreasing c. Stable d. Fluctuating up and down at the same amount consistently over the year If the amount assigned to ending inventory is incorrect, a. The balance sheet is affected, but the income statement is not b. The income statement is affected, but the balance sheet is not c. The balance sheet is affected, but cost of goods sold is not d. Both the balance sheet and the income statement are affected 2 Name: ________________________ ID: A ____ 9. ____ 10. ____ 11. ____ 12. ____ 13. ____ 14. Lettermen Inc. uses a perpetual inventory system. Jan. 1 4 22 26 On hand, 10 units at $2 each Sold 8 units for $10 each Purchased 50 units at $4 each Sold 48 units for $10 each $ 20 80 200 480 If Lettermen uses the FIFO method, how much is cost of goods sold for the month of January? a. $204 c. $212 b. $208 d. $560 Which of these is not an acceptable inventory costing method under IFRS? a. FIFO b. LIFO c. Specific Identification d. Average cost Effective cash management and control includes all of the following except a. The use of a petty cash fund c. Short-term investments of excess cash b. Bank reconciliations d. Purchase of stocks and bonds Which one of the following procedures is not part of preparing a bank reconciliation of a checking account a. Tracing deposits listed on the bank statement to the books to identify deposits in transit b. Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks c. Identifying items added on the bank statement which have not been recorded as cash receipts by the company d. Preparing adjustments to reverse the transactions recorded for checks that are still outstanding Which one of the following items would be subtracted from the balance per bank statement in a bank reconciliation? a. Outstanding checks c. Service charges b. Deposit in transit d. Interest on customer note Hardin Company accepted a check from Reyes Company as payment for services rendered by Hardin Company. Later Hardins bank statement revealed that Reyes check was an NSF check. Recognizing the NSF check on Hardins books would act to: a. Decrease total assets c. Both a. and b. b. Decrease total owners equity d. Have no effect on Total Assets 3 Name: ________________________ ID: A ____ 15. ____ 16. ____ 17. ____ 18. ____ 19. ____ 20. ____ 21. Which of the following represents the board of directors subset that acts as a direct contact between stockholders and the independent accounting firm? a. Audit committee c. External auditors b. Internal audit staff d. Stockholders representative Having only one person authorized to both prepare and sign checks is a violation of what internal control procedure? a. Segregation of duties c. Independent verifications b. Independent review and appraisal d. Proper authorizations Which one of the following documents is used in the control of cash disbursements? a. Income Statement c. Receiving reports b. Bank deposit slips d. Cash register tapes Which one of the following is a sound internal control procedure for cash disbursements? a. Making copies of purchase orders for the receiving department so they know how many items to be expected upon delivery b. Using presigned checks to facilitate payment within the cash discount period c. Comparing purchase requisitions, purchase orders, receiving reports, and invoices d. Requiring the signature of the purchasing department supervisor on checks Which one of the following situations reflects a weak internal control system? a. all employees are well supervised b. a single employee is responsible for comparing a receiving report to an invoice c. all employees must take their vacations d. a single employee is responsible for collecting and recording of cash If receipts from cash sales of $7,500 were recorded incorrectly as $5,700 in the companys books, then this item would be included on the bank reconciliation as a(n) a. deduction from the balance per company's records b. addition to the balance per bank statement c. deduction from the balance per bank statement d. addition to the balance per company's records For what reason would a company buy 10% of the common stock of a second company? a. The company has idle cash and wishes to have a higher return than that available from temporary money market investments. b. The company wishes to insure a steady source of goods from the second company. c. The company wishes to prepare consolidated financial statements. d. More than one of the above is correct. 4 Name: ________________________ ID: A ____ 22. If a company uses the direct write-off method of accounting for bad debts, a. It is applying the matching principle b. It will record bad debt expense only when an account is determined to be uncollectible c. It will reduce the accounts receivable account at the end of the accounting period for estimated uncollectible accounts d. It will report accounts receivable in the balance sheet at their net realizable value See the data for Credit Corp. ____ ____ ____ 23. 24. 25. If Credit Corp.uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense? a. $140,000 c. $167,000 b. $156,000 d. $184,000 The data below is for Star Corporation for 2012. Accounts receivable - January 1, 2012 Credit sales during 2012 Collections from credit customers during 2012 Customer accounts written off as uncollectible during 2012 Allowance for doubtful accounts - January 1, 2012 Estimated uncollectible accounts based on an aging analysis Refer to the data for Star Corporation. $236,000 820,000 590,000 8,000 8,700 9,600 If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2012? a. $8,000 c. $8,700 b. $8,100 d. $8,900 The entry to recognize the write-off of the specific uncollectible accounts will act to: a. Increase total assets and total equity b. Increase total assets and decrease total equity c. Decrease total assets and total equity d. Not affect total assets or total equity 5 Name: ________________________ ID: A ____ 26. ____ 27. ____ 28. ____ 29. Friese Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Friese will receive at maturity is a. $6,300 b. $2,100 c. $525 d. $1,890 Angel, Inc. Angel, Inc. purchased a crane at a cost of $80,000. The crane has an estimated residual value of $5,000 and an estimated life of 8 years, or 12,500 hours of operation. The crane was purchased on January 1, 2011 and was used 2,700 hours in 2011 and 2,600 hours in 2012. Refer to the information for Angel, Inc, Based on this information, what method of depreciation will produce the maximum depreciation expense in 2012? a. Straight-line b. Double-declining-balance c. Units-of-production d. All methods produce the same expense in 2012. At the end of 2011, Global Productions determined that one of its copyrights was worthless. The copyright had a cost of $320,000. The copyright had been amortized for 8 years of its estimated 25-year legal life. Which of the following statements is the justification for removing the remaining cost of the copyright from the accounting records? a. The copyright no longer represents a future benefit to the company. b. The federal government does not allow copyrights to be recorded as assets once they are deemed worthless. c. The cost of the copyright represents an obligation to return capital contributions to the stockholders. d. The cost of the copyright has usefulness that will impact the net income of future accounting periods. Interest is capitalized when incurred in connection with the construction of plant assets because a. interest is considered a part of the acquisition cost of the related plant asset. b. the decision to purchase a plant asset is a business decision separate from the financing decision. c. many plant assets last longer than 20 years. d. interest is considered an expense of the period. 6 Name: ________________________ ID: A ____ 30. ____ 31. ____ 32. ____ 33. ____ 34. ____ 35. Land is not depreciated because it a. appreciates in value. b. does not have an established depreciable life. c. has a useful life that is limited to the period of time a company is in business d. will provide future benefits for a company for an unlimited period of time. Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for a. financial reporting purposes and a different method for tax purposes. b. financial reporting purposes because depreciation is not allowed for tax purposes. c. tax purposes because it results in a larger net income in the early years of a plant asset's life d. tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes. On January 1, 2011, Donovans Transport Company purchased a ship for $2,000,000. It has a ten-year useful life and a res idual value of $50,000. The company uses the double-declining-balance method. What was the depreciation expense for Donovans Transport for the year ended December 31, 2011? a. $ -0- c. $390,000 b. $195,000 d. $400,000 What was the depreciation expense for Donovans Transport for the year ended December 31, 2012? a. $ -0- c. $320,000 b. $160,000 d. $400,000 All of the following are included in the acquisition cost of property, plant, and equipment except: a. transportation costs b. taxes on the purchase c. installation costs d. maintenance costs Which of the following below is an example of a capital expenditure? a. cleaning the carpet in the front room b. tune-up for a company truck c. replacing an engine in a company car d. replacing all burned-out light bulbs in the factory 7 ID: A ____ 36. ____ 37. ____ 38. ____ 39. ____ 40. The payment of accounts payable results in a(n) a. b. c. d. If a. b. decrease in liabilities and a decrease in assets. decrease in liabilities and an increase in assets. increase in liabilities and a decrease in owners equity. decrease in liabilities and an increase in owners equity. a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays April 2, then the amount p aid to the seller would be $3,136 c. $3,168 $3,150 d. $3,200 Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is a. accounts payable. c. notes payable. b. interest payable. d. taxes payable. A company's balance sheet shows the account, Notes Payable. This resulted from a loan made by the company's bank. If the end-of-year balance in the notes payable account exceeds the beginning-of-year balance by $5,000, this is shown on the cash flow statement as an a. inflow of cash of $5,000 in the operating activities category. b. outflow of cash of $5,000 in the operating activities category. c. inflow of cash of $5,000 in the financing activities category. d. outflow of cash of $5,000 in the financing activities category. In 2012, Salem, Inc. sold 1,000 carpets for $50 each. The carpets carry a 2-year warranty for repairs. Salem estimates that repair costs will average 2% of the total selling price. What is the amount that would be recorded in the warranty liability account as a result of sell ing the carpets during 2012? a. $1,000 b. $500 c. $ 20 d. No liability should be recorded until the carpets are returned for repairs.