ORANGE COAST COLLEGE FINANCIAL ACCOUNTING 101 PRACTICE EXAM #4 - CHAPTERS 8, 9

1. A) B) C) D) 2. A) B) C) D) 3. A) B) C) D) 4. A) B) C) D) 5. A) B) C) D) 6. A) B) C) D) 7. A) B) C) D) 8.

Using the percentage 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 balance after adjustment? $25,000 $8,000 $33,000 $17,000 Accounts receivable are valued and reported on the balance sheet in the investment section. at gross amounts less sales returns and allowances. at cash realizable value. only if they are not past due. An aging of a company's accounts receivable indicates that $59,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $23,600 debit balance, the adjustment to record bad debts for the period will require a debit to Bad Debts Expense for $59,000. debit to Allowance for Doubtful Accounts for $82,600. debit to Bad Debts Expense for $82,600. credit to Allowance for Doubtful Accounts for $59,000. When calculating interest on a promissory note with the maturity date stated in terms of days, the maker pays more interest if 365 days are used instead of 360. maker pays the same interest regardless if 365 or 360 days are used. payee receives more interest if 360 days are used instead of 365. payee receives less interest if 360 days are used instead of 365. Arnold Company purchases a new delivery truck for $35,000. The sales taxes are $2,000. The logo of the company is painted on the side of the truck for $1,200. The truck's annual license is $120. The truck undergoes safety testing for $220. What does Arnold record as the cost of the new truck? $38,540. $38,420. $37,000. $36,420. A write off of a specific accounts receivable under the allowance method Increases bad debt expense for the accounting period. Should occur on the last day of the accounting period. Decreases the cash realizable value of accounts receivable. Should be formally approved by an authorized employee. All the following are needed for the computation of depreciation except training costs of manufacturing personnel. cost. salvage value. estimated useful life. Runge Company purchased machinery on January 1 at a list price of $200,000, with credit terms 2/10, n/30. Payment was made within the discount period. Runge paid $10,000 sales tax on the machinery, and paid installation charges of $3,520. Prior to installation, Runge paid $8,000 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery? $209,520. $217,520. $221,520. $202,000. Equipment was purchased for $65,000. Freight charges amounted to $4,000 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $8,000

A) B) C) D) 9.

A) B) C) D) 10. A) B) C) D) 11. A) B) C) D) 12. A) B) C) D) 13. A) B) C) D) 14. A) B) C) D) 15. A) B) C)

salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be $15,400. $13,800. $13,000. $11,400. The term "receivables" refers to amounts due from individuals or companies. merchandise to be collected from individuals or companies. cash to be paid to creditors. cash to be paid to debtors. Which of the following assets does not decline in service potential over the course of its useful life? Equipment. Furnishings. Land. Fixtures. The financial statements of the Phelps Manufacturing Company reports net sales of $400,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. What is the receivables turnover ratio for Phelps? 6.7 times 10 times 5 times 8 times The financial statements of the Belfry Manufacturing Company reports net sales of $400,000 and accounts receivable of $80,000 and $40,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? 40 times 80 times 54.7 times 50 times On January 1, a machine with a useful life of four years and a residual value of $3,000 was purchased for $19,000. What is the depreciation expense for year 2 under straight-line depreciation? $2,000. $4,000. $8,000. $4,750. Young Company lends Dobson industries $30,000 on August 1, 2010, accepting a 9-month, 12% interest note. If Young accrued interest at its December 31, 2010 year-end, what entry must it make to record the collection of the note and interest at its maturity date? Cash 32,700 Notes Receivable 30,000 Interest Revenue 2,700 Cash 32,700 Notes Receivable 32,700 Notes Receivable 30,000 Interest Receivable 1,500 Interest Revenue 1,200 Cash 32,700 Cash 32,700 Notes Receivable 30,000 Interest Receivable 1,500 Interest Revenue 1,200 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? $30,000 should be debited to the Land account. $12,000 should be debited to Land Improvements.

D)

16. A) B)

C) D) 17. A) B) C) D) 18. A) B) C) D) 19. A) B) C) D) 20. A) B) C) D) 21.

$42,000 should be debited to the Land account. $42,000 should be debited to Land Improvements. The matching rule relates to credit losses by stating that bad debt expense should be recorded in the same period as allowed for tax purposes. in the period of the sale. for an exact amount. in the period of the loss. Interest is usually associated with accounts receivable. notes receivable. doubtful accounts. bad debts. The balance in the Accumulated Depreciation account represents the cash fund to be used to replace plant assets. amount to be deducted from the cost of the plant asset to arrive at its fair market value. amount charged to expense in the current period. amount charged to expense since the acquisition of the plant asset. Which of the following would not be included in the Equipment account? Installation costs. Freight costs. Cost of trial runs. Electricity used by the machine. In 2010 Wilkinson Company had net credit sales of $1,125,000. On January 1, 2010, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2010, $45,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $300,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2010? $ 30,000 $112,500 $ 48,000 $ 45,000 Burke Company purchases land for $85,000 cash. Burke assumes $2,500 in property taxes due on the land. The title and attorney fees totaled $1,000. Burke has the land graded for $2,200. They paid $10,000 for paving of a parking lot. What amount does Burke record as the cost for the land? $88,200. $100,700. $90,700. $85,000. 23. Shaffer Company acquires land for $56,000 cash. Additional costs are as follows. Removal of shed $ 300 Filling and grading 1,500 Salvage value of lumber of shed 120 Broker commission 1,130 Paving of parking lot 10,000 Closing costs 560 Shaffer will record the acquisition cost of the land as

A) B) C) D) 22. A) B) C) D)

A) B) C) D) 24. A)

$56,000. $57,690. $59,610. $59,370. On January 15, Nifty Company sells merchandise on account to Martinez Associates for $2,000 with terms 3/10, n/05. On January 20, Martinez returns merchandise worth $400 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received? $1,600

B) C) D) 25. A) B) C) D) 26. A) B) C) D) 27. A) B) C) D) 28. A) B) C) D)

$1,552 $1,540 $1,120 In computing depreciation, salvage value is the fair market value of a plant asset on the date of acquisition. subtracted from accumulated depreciation to determine the plant asset's depreciable cost. an estimate of a plant asset's value at the end of its useful life. ignored in all the depreciation methods. Bad Debts Expense is reported on the income statement as part of cost of goods sold. an expense subtracted from net sales to determine gross profit. an operating expense. a contra revenue account. A truck was purchased for $90,000 and it was estimated to have an $18,000 salvage value at the end of its useful life. Monthly depreciation expense of $1,500 was recorded using the straight-line method. The annual depreciation rate is 20%. 2%. 8%. 25%. All of the following statements regarding the financial statement presentation of receivables are true except: Short-term receivables are reported in the current assets section of the balance sheet. The gross amount of receivables less the allowance for doubtful accounts is equal to the net receivables. Short-term receivables are reported above the short-term investments in the balance sheet. Companies report bad debts expense under "Selling Expenses" in the operating expenses section of the income statement. 29.

Dorman Company had the following items to report on its balance sheet: Employee advances Amounts owed by customers for the sale of services (due in 30 days Refundable income taxes Interest receivable Accepted a formal instrument of credit for services (due in 18 month A loan to company president Dishonored a note for principal and interest which will eventually be Based on this information, what amount should appear in the "Other Receivables" category?

A) B) C) D) 30. A) B) C) D) 31. A) B) C) D) 32.

$12,550 $ 5,900 $ 7,280 $ 9,500 Under the allowance method, Bad Debt Expense is recorded when an individual account is written off. when the loss amount is known. for an amount that the company estimates it will not collect. several times during the accounting period. Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n) equal and equitable manner. accelerated and accurate manner. systematic and rational manner. conservative market-based manner. In reviewing the accounts receivable, the net cash receivable value is $16,000 before the write-off of a $1,500 account. What is the net cash receivable value after the write-off?

A) B) C) D) 33. A) B) C) D) 34. A) B) C) D) 35. A) B) C) D) 36. A) B) C) D) 37. A) B) C) D) 38. A) B) C) D) 39. A) B) C) D) 40. A) B) C) D)

$16,000 $1,500 $17,500 $14,500 You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to debit Allowance for Doubtful Accounts and credit Bad Debt Expense. debit Allowance for Doubtful Accounts and credit Accounts Receivable. debit Bad Debt Expense and credit Allowance for Doubtful Accounts. debit Bad Debt Expense and credit Accounts Receivable. A characteristic of a plant asset is that it is intangible. used in the operations of a business. held for sale in the ordinary course of the business. not currently used in the business but held for future use. The Land account would include all of the following costs except drainage costs. the cost of building a fence. commissions paid to real estate agents. the cost of tearing down a building. Which of the following methods of computing depreciation is production based? Straight-line. Declining-balance. Units-of-activity. None of these. The direct write-off method of accounting for uncollectible accounts 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. The interest on a $2,000, 6%, 90-day note receivable is $120. $60 $30. $90. Mitchell Corporation bought equipment on January 1, 2010 .The equipment cost $84,000 and had an expected salvage value of $14,000. The life of the equipment was estimated to be 6 years. The depreciable cost of the equipment is $84,000. $70,000. $14,000. $11,667. The book value of an asset is equal to the asset's market value less its historical cost. blue book value relied on by secondary markets. replacement cost of the asset. asset's cost less accumulated depreciation.

Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. A C C C B D A B B A C A C B D D B B D D C C D B C C D C B C C A B B B C D C B D