10/5/2023
Exam-Like Questions
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Exam-Like Question #1
Suppose a customer bought a pair of Lululemon joggers and paid in cash on February
17th. The customer subsequently returned the joggers, and Lululemon issued store
credit on February 22nd. Which of the following correctly describes (at least in part) the
effect of the return on the financial statements on February 22nd? (Ignore any effects on
cost of goods sold and inventory.)
A.
B.
C.
D.
E.
Current assets decrease.
Gross profit remains the same.
Liabilities increase.
Expenses increase.
None of the above.
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Exam-Like Question #2
Seattle Pops estimated that its net accounts receivable balance at December 31, 2022
was $165,000. Seattle Pops also provided the following information:
•
•
•
The gross accounts receivable balance on December 31, 2022 was $175,000.
Uncollectible accounts receivable written off during 2022 totaled $12,000.
The allowance for doubtful accounts balance on January 1, 2022 was $15,000.
How much is Seattle Pops’ 2022 bad debt expense?
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Exam-Like Question #3
Columbia Sportswear determines that some of its
inventory that cost $260,000 has a net realizable value
(market price) of $238,000 at December 31, 2022. This
inventory was all sold in the year 2023 for $275,000.
Which of the following correctly describes the effect of
this on the financial statements?
A. Ending inventory for 2022 increases by $22,000.
B. Gross profit for 2022 is not affected if the inventory is
sold during 2023.
C. Inventory is reduced by $260,000 during 2022.
D. Shareholders’ equity for 2023 increases by $37,000.
E. None of the above.
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Exam-Like Question #4
Tempur-Pedic purchased a computer system on
January 1, 2022, at a cash cost of $25,000. The
estimated useful life is 5 years, and the estimated
residual value is $3,000. The company will use the
double declining-balance depreciation method.
What is the net book value of the computer as of
December 31, 2023?
A.
B.
C.
D.
E.
$9,000.
$7,920.
$6,000.
$7,200.
None of the above.
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Exam-Like Question #5
General Motors spent $4.5 million during the year on research
& development for components of its latest SUV, which it
expects to benefit the company over the next 3 years. Which of
the following best describes how this item is reported for
financial accounting purposes?
A. This amount is capitalized on the balance sheet as a
definite life intangible asset subject to amortization.
B. This amount is capitalized on the balance sheet as an
indefinite life intangible asset subject to annual impairment
testing.
C. This amount is capitalized on the balance sheet as
inventory.
D. This amount is expensed on the income statement as
incurred.
E. None of the above.
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Exam-Like Question #6
Best Buy sells computers and provides hardware maintenance services. On July 1st, Best
Buy sold a package deal containing a computer and a one-year unlimited
maintenance/repair service for the computer at a bundle price of $1,000. If sold
separately, the computer costs $840 and the one-year unlimited maintenance/repair
service costs $360. How much revenue does Best Buy recognize for the month
ended July 31st, assuming that revenue is accrued monthly?
A.
B.
C.
D.
E.
$1,000.
$700.
$30.
$870.
None of the above.
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Exam-Like Question #7
Ramsay Signs accounts for bad debts using the allowance method. On June 1st, Ramsay
wrote off Tommy Green’s $2,500 account. Based on Ramsay’s estimation, Tommy will
never pay any portion of the balance in his account. What effect will this write-off have
on the financial statements at the time of the write-off?
A.
B.
C.
D.
E.
Total assets and shareholders’ equity both decrease.
Total current assets remain unchanged.
Total liabilities decrease and total assets increase.
Net income decreases and total liabilities increase.
None of the above.
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Exam-Like Question #8
The accountant for Lula Salads has provided the following information: beginning
inventory, $110,000; inventory sold, $450,000; $20,000 of inventory was written down
due to obsolescence; and ending inventory, $70,000.
How much were Lula's inventory purchases?
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Exam-Like Question #9
On December 31, 2022, Caterpillar, Inc. sold a used industrial crane for $800,000 cash.
The original cost of the crane was $5.5 million and it had an estimated useful life of 10
years with $500,000 residual value. Accumulated depreciation using the straight-line
method equaled $4.0 million on January 1, 2022.
What is the gain or loss from the equipment sale?
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Exam-Like Question #10
A company expects to report a net loss for the quarter and
has determined that the fair values for many of its long-lived
assets have declined due deteriorating macroeconomic
conditions. An executive at the company thinks it would be
wise to take a “big bath” by significantly increasing the
amount of the net loss on the income statement for the
quarter. Which of the following would most likely help
them achieve this objective?
A. Use extra cash to acquire another company.
B. Generate an internal estimate of future cash flows for its
property, plant, & equipment that is less than the net
book value of those assets.
C. Increase the estimated useful life of property, plant, &
equipment by two years.
D. Decrease the estimate of its ending uncollectible
accounts using the accounts receivable aging method.
E. None of the above.
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Exam-Like Question #11
Two Tales Bookstore sold books costing $600 to a
customer on account for $800 with terms of 2/15, n/45.
Which of the following is not correct?
A. Total current assets decrease $12 on the date of
cash collection if the customer pays within 15 days
of the date of sale.
B. Gross profit and net sales both decrease $16 on the
date of cash collection if the customer pays within 15
days of the date of sale.
C. Gross profit increases $200 on the date of sale.
D. Total current assets are not affected on the date of
cash collection if the customer pays 45 days after
the date of sale.
E. None of the above.
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Exam-Like Question #12
Which of the following statements is correct when
inventory costs are increasing? Assume the inventory
methods in question are LIFO and FIFO and that sales
equal purchases for the period.
A. Use of the LIFO method will result in higher income
taxes.
B. LIFO's ending inventory will be the largest among the
inventory costing methods.
C. FIFO's gross profit will be the lowest among the
inventory costing methods.
D. The dollar value of inventory purchases during the
quarter will be highest for FIFO.
E. None of the above.
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Exam-Like Question #13
What is the effect on the financial statements when a capital
expenditure (acquisition of PP&E) during the year was
incorrectly recorded as a repairs and maintenance expense?
A.
B.
C.
D.
E.
The financial statements are not affected.
Assets are overstated and expenses are understated.
Assets and shareholders’ equity are both understated.
Assets are understated and net income is overstated.
None of the above.
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Exam-Like Question #14
A company has the following expenditures during the year related to building relations
with its customers and employees:
•
•
•
Advertising, $100,000.
Employee training, $80,000.
Customer outreach and consultation, $50,000.
The company believes that these efforts have increased the fair value of the entire
company by $325,000. How much goodwill can the company recognize as an asset
on the balance sheet at the end of the year associated with these expenditures?
A.
B.
C.
D.
E.
$325,000.
$230,000.
$130,000.
$0.
None of the above.
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Additional Review Exercises
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Review Exercise #1
Date
Activity
March 1
Beginning inventory of 25 units @ $10/unit
March 5
Purchased 10 units @ $10.50/unit
March 20
Purchased 40 units @ $11.00/unit
March 22
Sold 10 units
March 25
Sold 20 units
Gross profit (sales less cost of goods sold) under LIFO for March is $270.
What is gross profit under FIFO?
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Review Exercise #2a
A company had $200,000 of credit sales this quarter and $50,000 of cash
sales. The company estimates bad debt of 2% of credit sales. The
beginning balances for accounts receivable and the allowance for doubtful
accounts are $30,000 and $400, respectively. The company didn’t collect
any cash related to accounts receivable during the month. What is the net
value of accounts receivable?
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Review Exercise #2b
A company had $200,000 of credit sales this quarter and $50,000 of cash
sales. The beginning balances for accounts receivable and the allowance
for doubtful accounts are $30,000 and $400, respectively. The company
didn’t collect any cash related to accounts receivable during the month. The
company’s ending accounts receivable estimated uncollectible rates are
$220,000 (not yet due) at 2% and $10,000 (past due) at 25%. What is bad
debt expense and what is the net value of accounts receivable?
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Review Exercise #3
The Highspot Company recorded credit sales for April of $100,000. It uses
the percent of credit sales approach to estimate bad debt, and estimates that
3% of credit sales are uncollectible. In April it determined $1,000 of prior
credit sales were ultimately uncollectible. What are the net effects on
Highspot’s balance sheet for the following?
• Recording bad debt:
Assets?
Liabilities?
Shareholders’ Equity?
• Recording the uncollectability of prior credit sales:
Assets?
Liabilities?
Shareholders’ Equity?
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Review Exercise #4
On March 29, a company evaluated its equipment and determined that the
equipment’s net book value was greater than its estimated future cash flows.
The net book value of equipment is $325,000, future cash flows are
$280,000, and the fair value is $250,000.
What impact does this have on the financial statements?
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Review Exercise #5
Alaska Air purchased Virgin America for $2.6 billion. Identifiable fair value of
assets is $1.5 billion and identifiable fair value of liabilities is $0.8 million.
How much goodwill should Alaska Air record? Is there an impact to the
income statement from the goodwill at acquisition?
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Review Exercise #6
After the transactions below, what is the total net income for January?
1. Bought equipment for $100,000 on January 1st. The residual value is $10,000 and
the company uses the straight-lined method. Useful life is 8 years.
2. The company has $4,000 of accrued wages that they will pay in February.
3. The company has $30,000 of service revenue in January. Of those sales, $10,000
are credit card sales (fee is 2%), $9,000 are on account, and the rest are cash
sales. The company also determines that 10% of cash sales were returned during
the month.
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GOOD LUCK!!!!
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