ACC 291 Final Exam Guide

ACC 291 Final Exam Guide

1. The method of accounting for uncollectible accounts that results in a better matching of expenses with revenues is the

a. aging accounts receivable method

b. direct write-off method

c. percentage of receivables method

d. percentage of sales method

 

2. Using the percentages of receivables method for recording bad debts expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment, what is the amount of bad debts expense for that period?

a. $25,000

b. $8,000

c. $33,000

d. $17,000

 

3. Copyrights are granted by the federal government

a. for the life of the creator or 70 years, whichever is greater

b. for the life of the creator plus 70 years

c. for the life of the creator or 70 years, whichever is shorter

d. and therefore cannot be amortized

 

4. The cost of a patent should be amortized over

a. 20 years

b. the shorter of its legal life or its useful life

c. the longer of its legal life or its useful life

d. its useful life

 

5. Mattox Company is building a new plant that will take 3 years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

 

a. Excavation fees are capitalized but building permit fees are not.

b. Architect fees are capitalized but building permit fees are not.

c. Interest is capitalized during the construction as part of the cost of the building.

d. The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

 

6. Orr Corporation sold equipment for $12,000. The equipment had an original cost of $36,000 and accumulated depreciation of $18,000. As a result of the sale,

a. net income will increase $12,000

b. net income will increase $6,000

c. net income will decrease $6,000

d. net income will decrease $12,000

 

7. The paneling of the body part of an open pickup truck would be classified as

a. a revenue expenditure

b. an addition

c. an improvement

d. an ordinary repair

 

8. Additions and improvements

a. occur frequently during the ownership of a plant asset

b. normally involve immaterial expenditures

c. increase the book value of plant assets when incurred

d. typically only benefit the current accounting period

 

9. Interest expense on an interest bearing note is

a. always equal to zero

b. accrued over the life of the note

c. only recorded at the time the note is issued

d. only recorded at maturity when the note is paid

 

10. The interest charged on a $100,000 note payable, at the rate of 6%, on a 60-day note would be

a. $6,000

b. $3,333

c. $1,500

d. $1,000

 

 

11. On January 1, 2011, Grant Corporation issued $4,000,000, 10-year, 8% bonds at $102. Interest is payable semiannually on January 1 and July 1. The journal entry to record this transaction on January 1, 2011 is

a. Cash………………………………………….4,000,000

Bonds Payable…………………………………….4,000,000

b. Cash………………………………………….4,080,000

Bonds Payable………………………………….…4,080,000

c. Premium on Bonds Payable……………..……80,000

Cash…………………………………………4,000,000

Bonds Payable……………………………………4,080,000

d. Cash…………………………………………4,080,000

Bonds Payable……………………………………4,000,000

Premium on Bonds Payable………………………..80,000

 

 

12. Either the straight-line method or the effective-interest method of amortization will always result in

a. the same amount of interest expense being recognized over the term of the bonds

b. the same amount of interest expense being recognized each year

c. more interest expense being recognized than if premium or discounts were not amortized

d. the same carrying value each year during the term of the bonds

 

13. On January 1, Martinez Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond discount. At the end of the first year, Martinez should report unamortized bond discount of:

 

a. $164,700

b. $171,300

c. $154,830

d. $153,000

 

14. Treasury stock is

a. a contra asset account

b. a retained earnings account

c. an asset account

d. a contra stockholders’ equity account

 

15. Accounting for treasury stock is done by the

a. LIFO method

b. FIFO method

c. cost method

d. lower of cost or market method

 

16. Outstanding stock of the Colt Corporation included 20,000 shares of $5 par common stock and 5,000 shares of 5%, $10 par noncumulative preferred stock. In 2010, Colt declared and paid dividends of $2,000. In 2011, Colt declared and paid dividends of $6,000. How much of the 2011 dividend was distributed to preferred shareholders?

 

a. $3,000

b. $3,500

c. $2,500

d. $2,000

 

17. Luther Inc. has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2011 and December 31, 2010. The board of directors declared and paid a $5,000 dividend in 2010. In 2011, $24,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2011?

 

a. $7,000

b. $12,000

c. $17,000

d. $6,000

 

18. Restricting retained earnings for the cost of treasury stock purchased is a

a. contractual restriction

b. stock restriction

c. voluntary restriction

d. legal restriction

 

19. Kendrick Corporation was organized on January 2, 2011. During 2011, Kendrick issued 20,000 shares at $24 per share, purchased 3,000 shares of treasury stock at $26 per share, and had net income of $300,000. What is the total amount of stockholders’ equity at December 31, 2011?

 

a. $640,000

b. $702,000

c. $708,000

d. $720,000

 

20. Where would the event paid income appear on a statement of cash flows, if it appears at all?

a. operating activities section

b. investing activities section

c. financing activities section

d. does not represent a cash flow

 

21. Harbor Company reported net income of $90,000 for the year ended December 31, 2011. During the year, inventories decreased by $12,000, accounts payable decreased by $18,000, depreciation expense was $20,000, and a gain on disposal of equipment of $9,000 was recorded. Net cash provided by operating activities in 2011 using the indirect method was

 

a. $149,000

b. $95,000

c. $107,000

d. $85,000

 

22. Horizontal analysis evaluates a series of financial statement data over a period of time

a. that has been arranged from the highest number to the lowest number

b. that has been arranged from the lowest number to the highest number

c. to determine which items are in error

d. to determine the amount and/or percentage increase or decrease that has taken place

 

23. In performing a vertical analysis, the base for prepaid expenses is

a. total current assets

b. total assets

c. total liabilities and stockholders’ equity

d. prepaid expenses

 

24. Kim, Inc. issued 8,000 shares of stock at a stated value of $10 per share. The total issue of stock sold for $15 per share. The journal entry to record this transaction would include a

a. debit to cash for $80,000

b. credit to common stock for $80,000

c. credit to paid-in capital in excess of par value for $40,000

d. credit to common stock for $120,000

 

25. Kerwin Packaging Corporation began business in 2010 by issuing 30,000 shares of $5 par common stock for $8 per share and 10,000 shares of 6%, $10 par preferred stock for par. At year end, the common stock had a market value of $10. On its December 31, 2011 balance sheet, Kerwin Packaging would report

 

a. common stock of $300,000

b. paid-in capital of $150,000

c. common stock of $240,000

d. common stock of $150,000

 

26. An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of

a. establishment of responsibility is violated

b. independent internal verification is violated

c. documentation procedures is violated

d. segregation of duties is violated

 

27. Joe is a warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

a. documentation procedures are violated

b. independent internal verification is violated

c. segregation of duties is violated

d. establishment of responsibility is violated

 

28. Internal auditors

a. are hired by CPA firms to audit business firms

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

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

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

 

29. Controls that enhance the accuracy and reliability of the accounting records are

a. automated controls

b. external controls

c. mechanical and electronic controls

d. physical controls

 

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ACC 291 Final Exam Guide

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