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The accountant at Landry Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $8,740. The LIFO method will result in income before taxes of $7,900. What is the difference in tax that would be paid between the two methods? Answer

$840

$588

$252

Cannot be determined from the information provided.

2 points Question 2

At May 1, 2012, Heineken Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows: 200 units at $7 300 units at $8 The company sold 500 units during the month for $12 per unit. Heineken uses the average cost method. The value of Heineken's inventory at May 31, 2012 is Answer

$700

$750

$800

$4,500

2 points

Question 3

At May 1, 2012, Heineken Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows: 200 units at $7 300 units at $8 The company sold 500 units during the month for $12 per unit. Heineken uses the average cost method. The average cost per unit for May is Answer

$7.00.

$7.50.

$7.60.

$8.00.

2 points Question 4

Which of the following terms best describes the assumption made in applying the four inventory methods? Answer

Goods flow

Cost flow

Asset flow

Physical flow

2 points Question 5

Classic Floors has the following inventory data:

July 1 Beginning Inventory 15 units at $8.00 July 5 Purchases 60 units at $8.80 July 14 Sale 40 units July 21 Purchases 30 units $9.60 July 30 Sale 28 units

Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for July? Answer

$620.80

$315.20

$936.00

$464.00

2 points Question 6

The specific identification method of inventory costing Answer

always maximizes a company's net income.

always minimizes a company's net income.

has no effect on a company's net income.

may enable management to manipulate net income.

2 points Question 7

Piper Pipes has the following inventory data:

July 1 Beginning inventory 20 units at $120 July 5 Purchases 120 units at $112 July 14 Sale 80 units July 21 Purchases 60 units at $115 July 30 Sale 56 units

Assuming that a periodic inventory system is used, what is the cost of goods sold on a LIFO basis. Answer

$7,328

$7,348

$15,392.

$15,412

2 points Question 8

Selection of an inventory costing method by management does not usually depend on

Answer

the fiscal year end.

income statement effects.

balance sheet effects.

tax effects.

2 points Question 9

Goods held on consignment are Answer

never owned by the consignee.

included in the consignee's ending inventory.

kept for sale on the premises of the consignor.

included as part of no one's ending inventory.

2 points Question 10

Which inventory costing method should a gasoline retailer use? Answer

Average cost

LIFO

FIFO

Either LIFO or FIFO.

2 points Question 11

Which of the following companies would most likely have the highest inventory turnover? Answer

An art gallery.

An automobile manufacturer.

A piano manufacturer.

A bakery.

2 points Question 12

Butler Company reported ending inventory at December 31, 2012 of $1,200,000 under LIFO. It also reported a LIFO reserve of $210,000 at January 1, 2012, and $300,000 at December 31, 2012. Cost of goods sold for 2012 was $4,100,000. If Butler Company had used FIFO during 2012, its cost of goods sold for 2012 would have been Answer

$4,400,000.

$4,190,000.

$4,010,000.

$3,800,000.

2 points Question 13

A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be Answer

$65.

$75.

$60.

$50.

2 points Question 14

Dobler Company uses a periodic inventory system.

Units

Per Unit Price Total 200 100 $5.00 $1,000 $5.30 $530

Balance, 1/1/2012 Purchase, 1/15/2012

Purchase, 1/28/2012

100

$5.50 $550

Details for the inventory account for the month of January 2012 are as follows: An end of the month (1/31/2012) inventory showed that 140 units were on hand. If the company uses LIFO, what is the value of the ending inventory?

Answer

$737

$700

$762

$1,380

2 points

Question 15

Dole Industries had the following inventory transactions occur during 2012:

Units

Cost/Unit Purchase 54 93 66 $90 $94 $98

Feb.1, 2012

Mar. 14, 2012 Purchase May 1, 2012 Purchase

The company sold 153 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $2,000, what is the company's after-tax income using LIFO? (rounded to whole dollars)

Answer

$2,632

$3,242

$2,162

$1,842

2 points

Question 16

Which statement regarding negative cash balances is true?

Answer

The amount is offset against other current assets because users need to know net current assets.

The amount is shown as a current liability because a company cannot have a cash balance below zero.

The company must obtain a loan to bring the cash balance to zero before financial statements are prepared.

The negative cash balance is included as a current asset and discussed in a footnote to the financial statements.

2 points

Question 17

Internal auditors

Answer

are hired by CPA firms to audit business firms.

are employees of the IRS who evaluate the internal controls of companies filing tax returns.

evaluate the system of internal controls for the companies that employ them.

cannot evaluate the system of internal controls of the company that employs them because they are not independent.

2 points

Question 18

Collier Company has implemented a just-in-time system, which relies on suppliers to deliver goods for resale as needed. This implementation is most consistent with which of the following basic principles of cash management?

Answer

Increasing the speed of receivables collection.

Planning the timing of major expenditures.

Keeping inventory levels low.

Delaying the payment of liabilities.

2 points

Question 19

Entries are made to the Petty Cash account when

Answer

establishing the fund.

making payments out of the fund.

recording shortages in the fund.

replenishing the fund.

2 points

Question 20

Internal control is defined, in part, as a plan that safeguards

Answer

all balance sheet accounts.

assets.

liabilities.

capital stock.

2 points

Question 21

If a check correctly written and paid by the bank for $471 is incorrectly recorded on the company's books for $417, the appropriate treatment on the bank reconciliation would be to

Answer

add $54 to the book's balance.

subtract $54 from the book's balance.

deduct $54 from the bank's balance.

deduct $471 from the book's balance.

2 points

Question 22

A credit balance in Cash Over and Short account is shown as

Answer

an asset.

a liability.

a revenue.

an expense.

2 points

Question 23

Under the allowance method of accounting for bad debts, why must uncollectible accounts receivable be estimated at the end of the accounting period?

Answer

To allow the collection department to schedule work for the next accounting period.

To determine the gross realizable value of accounts receivable.

The IRS rules require the company to make the estimate.

To match bad debt expense to the period in which the revenues were earned.

2 points

Question 24

In 2012 the Golic Co. had net credit sales of $900,000. On January 1, 2012, the Allowance for Doubtful Accounts had a credit balance of $19,000. During 2012, $36,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was

$240,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2012?

Answer

$24,000.

$41,000.

$43,000.

$36,000.

2 points

Question 25

An analysis and aging of the accounts receivable of Watts Company at December 31 reveal these data: What is the cash realizable value of the accounts receivable at December 31 after adjustment?

Accounts receivable $ 3,200,000

Allowance for doubtful accounts per books before adjustment (credit) 200,000

Amounts expected to become uncollectible 260,000

Answer

$2,740,000

$3,000,000

$3,200,000

$2,940,000

2 points

Question 26

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when

Answer

a sale is made.

an account becomes bad and is written off.

management estimates the amount of uncollectibles.

a customer's account becomes past due.

2 points

Question 27

Using the allowance method, the uncollectible accounts for the year are estimated to be $35,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?

Answer

$9,000

$26,000

$35,000

$44,000

2 points

Question 28

The following information is related to December 31, 2011 balances.

Accounts receivable $525,000

Allowance for doubtful accounts (credit) (45,000)

Cash realizable value 480,000

During 2012 sales on account were $145,000 and collections on account were $86,000. Also, during 2012 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $54,000. Bad debt expense for 2012 is:

Answer

$17,000.

$9,000.

$54,000.

$1,000.

2 points

Question 29

Two methods of accounting for uncollectible accounts are the

Answer

allowance method and the accrual method.

allowance method and the net realizable method.

direct write-off method and the accrual method.

direct write-off method and the allowance method.

2 points

Question 30

The retailer considers Visa and MasterCard sales as

Answer

cash sales.

promissory sales.

credit sales.

contingent sales.

2 points

Question 31

An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a

Answer

debit to Bad Debts Expense for $4,000.

debit to Bad Debt Expense for $5,600.

debit to Bad Debts Expense for $2,400.

credit to Allowance for Doubtful Accounts for $5,000.

2 points

Question 32

When an account is written off using the allowance method, accounts receivable

Answer

is unchanged and the allowance account increases.

increases and the allowance account increases.

decreases and the allowance account decreases.

decreases and the allowance account increases.

2 points

Question 33

The direct write-off method of accounting for uncollectible accounts

Answer

emphasizes the matching of expenses with revenues.

emphasizes balance sheet relationships.

emphasizes cash realizable value.

is not generally accepted as a basis for estimating bad debts.

2 points

Question 34

Simonic Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales of $75,000 and a debit(s) to:

Answer

Cash $72,000 and Service Charge Expense $3,000.

Accounts Receivable $72,000 and Service Charge Expense $3,000.

Cash $72,000 and Interest Expense $3,000.

Accounts Receivable $75,000.

2 points

Question 35

Research and development costs

Answer

are classified as intangible assets.

must be expensed when incurred under generally accepted accounting principles.

should be included in the cost of the patent they relate to.

are capitalized and then amortized over a period not to exceed 20 years.

2 points

Question 36

A company has the following assets:

Buildings and Equipment, less accumulated depreciation of $5,000,000 Copyrights $2,400,000 $30,000,000

Patents $10,000,000

Land

$12,000,000

The total amount reported under Property, Plant, and Equipment would be

Answer

$54,400,000.

$42,000,000.

$52,000,000.

$44,400,000.

2 points

Question 37

A machine with a cost of $240,000 has an estimated salvage value of $15,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?

Answer

$75,000.

$45,000.

$65,000.

$80,000.

2 points

Question 38

Hopson Company incurred $450,000 of research and development costs in its laboratory to develop a new product. It spent $60,000 in legal fees for a patent granted on January 2, 2012. On July 31, 2012, Hopson paid $45,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2012?

Answer

$450,000.

$105,000.

$555,000.

Some other amount.

2 points

Question 39

The following information is provided for Nguyen Company and Northwest Corporation.

Nguyen Company (in $ millions) (in $ millions) Net income 2012 $275 $390 Northwest Corporation

Net sales 2012 $1,500 $4,100

Total assets 12/31/10 $1,000 $2,400 Total assets 12/31/11 $1,050 $3,000 Total assets 12/31/12 $1,150 $4,000

If Nguyen and Northwest are in the same industry and the industry average for the asset turnover ratio is equal to 1.20 times, which of the following statements is true?

Answer

Nguyen is operating more efficiently than the industry.

Northwest is operating more efficiently than Nguyen.

Both Nguyen and Northwest are operating more efficiently than the average company in their industry.

The asset turnover ratio does not address the question of efficient operations.

2 points

Question 40

Recording depreciation each period is necessary in accordance with the

Answer

going concern principle.

cost principle.

expense recognition principle.

asset valuation principle.

2 points

Question 41

The cost of successfully defending a patent in an infringement suit should be

Answer

charged to Legal Expenses.

deducted from the book value of the patent.

added to the value of the patent.

recognized as a loss in the current period.

2 points

Question 42

Management should select the depreciation method that

Answer

is easiest to apply.

best measures the plant asset's market value over its useful life.

best measures the plant asset's contribution to revenue over its useful life.

has been used most often in the past by the company.

2 points

Question 43

A truck costing $30,000 and on which $26,000 of accumulated depreciation has been re-corded was discarded as having no value. The entry to record this event would include a

Answer

gain of $4,000.

loss of $4,000.

credit to Accumulated Depreciation for $26,000.

credit to Accumulated Depreciation for $30,000.

2 points

Question 44

Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?

Answer

Revisions in useful life are permitted if approved by the IRS.

Retroactive changes must be made to correct previously recorded depreciation.

Only future years will be affected by the revision.

Both current and future years will be affected by the revision.

2 points

Question 45

Wesley Hospital installs a new parking lot. The paving cost $30,000 and the lights to illuminate the new parking area cost $12,000. Which of the following statements is true with respect to these additions?

Answer

$30,000 should be debited to the Land account.

$12,000 should be debited to Land Improvements.

$42,000 should be debited to the Land account.

$42,000 should be debited to Land Improvements.

2 points

Question 46

A loss on disposal of a plant asset is reported in the financial statements

Answer

in the Other Revenues and Gains section of the income statement.

in the Other Expenses and Losses section of the income statement.

as a direct increase to the capital account on the balance sheet.

as a direct decrease to the capital account on the balance sheet.

2 points

Question 47

Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally

Answer

expensed when incurred.

capitalized as a part of the cost of the asset.

debited to the Accumulated Depreciation account.

not recorded until they become material in amount.

2 points

Question 48

Kathy's Blooms purchased a delivery van for $40,000. The company was given a $4,000 cash discount by the dealer, and paid $2,000 sales tax. Annual insurance on the van is $1,000. As a result of the purchase, by how much will Kathy's Blooms increase its van account?

Answer

$40,000.

$36,000.

$39,000.

$38,000.

2 points

Question 49

A truck costing $42,000 and on which $35,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a

Answer

gain of $7,000.

loss of $7,000.

credit to Accumulated Depreciation for $35,000.

credit to Accumulated Depreciation for $42,000.

2 points

Question 50

At the time of acquisition of a debt investment

Answer

no journal entry is required.

the cost principle applies.

the Stock Investments account is debited when bonds are purchased.

the investment account is credited for its cost plus brokerage fees.

2 points

Question 51

Which of the following is not a method of accounting for stock investments?

Answer

Cost method.

Stock method.

Consolidated financial statements.

Equity method.

2 points

Question 52

Hagen Company had these transactions pertaining to stock investments: Feb. 1 Purchased 2,500 shares of Farley Company (10%) for $41,500 cash plus brokerage fees of $1,000. June 1 Received cash dividends of $2 per share on Farley stock. Oct. 1 Sold 1,000 shares of Farley stock for $20,000 less brokerage fees of $500. Dec. 1 Received cash dividends of $2 per share on Farley stock.

The entry to record the receipt of the dividends June 1 would include a

Answer

debit to Stock Investments of $5,000.

credit to Dividend Revenue of $5,000.

debit to Dividend Revenue of $5,000.

credit to the Stock Investments of $5,000.

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