Name:____________________________________ Section Letter:_____
Row #:______ ID: A
Financial Accounting Exam 2
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. Tina creates the following accounts receivable aging report at the end of the year.
Age
Amount
Estimated uncollectible
Less than 30 days
$18,000
5%
31-60 days
$12,000
10%
61+ days
$3,000
30%
Prior to adjusting entries, the Allowance for Uncollectible Accounts has a balance of $800 (credit).
Following the year-end adjustment, what will be the account balance of the Allowance for
Uncollectible Accounts?
A) $2,200 debit balance
B) $3,000 debit balance
C) $2,200 credit balance
D) $3,000 credit balance
E) $3,800 credit balance
2. Lower-of-cost-or-market inventory accounting is an example of:
A) Historical cost principle
B) Conservatism
C) Revenue recognition principle
D) Cost accounting
E) Fair value accounting
3. Boomer Co. is being sued by Sooner Co. for $1,000,000. Boomer feels it is reasonably likely that it
will lose the lawsuit. What should Boomer Co. and Sooner Co. record concerning the lawsuit?
A) Boomer Co. records $1,000,000 contingent loss; Sooner Co. records $1,000,000
contingent gain.
B) Boomer Co. records $1,000,000 contingent loss; Sooner Co. records $500,000
contingent gain.
C) Boomer Co. records $1,000,000 contingent loss; Sooner Co. does not record any
contingent gain
D) Boomer Co. does not record any contingent loss; Sooner Co. records $1,000,000
contingent gain.
E) Neither company records a contingent loss or gain.
4. From the list below, calculate accrual-basis revenues.
(1) Receive cash in advance from customers for services to be provided in the future, $100.
(2) Receive cash from loan obtained at the bank, $100.
(3) Receive cash from customers for services previously performed, $100.
(4) Provide services to customers on account, $100.
A) $100
B) $200
C) $300
D) $400
E) $0
5. Adventures, Inc. reports the following amounts:
Book
Fair
Value
Value
Assets
$350,000
$470,000
Liabilities
$85,000
$85,000
Net income
$20,000
How much goodwill would be recorded if Crown Holdings purchases Adventures, Inc. for $575,000?
A) $310,000
B) $190,000
C) $225,000
D) $170,000
E) $105,000
6. The balance of the Cost of Goods Sold account at the end of the year represents:
A) Total purchases of inventory for the year
B) The total sales revenue to customers
C) The cost of inventory not sold in the current year
D) The amount of cash received from customers
E) The cost of inventory sold in the current year
7. On January 1, 2014, Grizzly Inc. purchased a truck for $65,000 and uses straight-line depreciation.
The estimated useful life of the truck is eight years with a residual value of $9,000. What is the book
value of the truck at the end of 2017?
A) $65,000
B) $21,000
C) $37,000
D) $28,000
E) $44,000
8. The purpose(s) of closing entries is (are):
A) Two of the other answers are correct
B) To close the balance of Common Stock
C) To update asset and liability accounts for transactions during the year
D) To reduce the balance of revenues and expenses to zero
E) To transfer permanent account balances to the balance of Retained Earnings
9. From the list below, calculate accrual-basis expenses.
(1) Pay cash for insurance for the next year, $100.
(2) Pay cash for utilities in the current period, $100.
(3) Purchase supplies on account, $100.
(4) Pay cash dividends to stockholders, $100.
A) $100
B)
C)
D)
E)
$200
$300
$400
$0
10. On May 17, a company provided services to a customer on account. On May 26, the company received
cash from the customer. What entry would be recorded on May 17?
A)
B)
C)
D)
E)
Debit Cash; Credit Accounts Receivable
Debit Accounts Receivable; Credit Cash
Debit Cash; Credit Service Revenue
Debit Accounts Receivable; Credit Service Revenue
No entry
11. Based on the information below, what amount of impairment loss would be reported?
Asset
Building
Equipment
Machine
A)
B)
C)
D)
E)
Fair value
$165,000
$38,000
$28,000
Estimated cash flows
$172,000
$46,000
$30,000
Book value
$170,000
$35,000
$36,000
$6,000
$10,000
$11,000
$19,000
$8,000
12. Which of the following accounts has a temporary balance?
A) Retained Earnings
B) Income Tax Payable
C) Accounts Receivable
D) Service Revenue
E) All of the other answers are correct
13. Sooner, Inc. had the following inventory transactions for the period.
Purchase
Cost
$2
Selling
Price
Date
Quantity
June 1
Beginning Inventory
350
June 3
Sale
150
$6
June 8
Purchase
400
4
June 12
Sale
300
7
June 16
Purchase
200
3
Calculate the balance of ending inventory using the FIFO cost flow assumptions.
A) $1,800
B) $1,500
C) $1,300
D) $1,600
E) $1,100
14. Net sales revenue equals:
A) Total sales revenue less bad debt expense
B) Total sales revenue less cost of goods sold
C) Total sales revenue less allowance for uncollectible accounts
D) Total sales revenue less sales discounts
E) Total sales revenue less total expenses
15. If inventory costs are rising, which inventory method generally results in the lowest amount of
reported net income?
A) FIFO
B) LIFO
C) Double-Declining-Balance
D) Average Cost
E) Straight-Line
16. How many of the following transactions decrease a company’s liquidity?
a.
b.
c.
d.
A)
B)
C)
D)
E)
Pay workers’ salaries in the current period
Provide services on account
Purchase equipment with cash
Pay dividends to stockholders
1
2
3
4
0
17. From the list below, calculate cash-basis revenues.
A)
B)
C)
D)
E)
(1) Receive cash in advance from customers for services to be provided in the future, $100.
(2) Receive cash from loan obtained at the bank, $100.
(3) Receive cash from customers for services previously performed, $100.
(4) Provide services to customers on account, $100.
$100
$200
$300
$400
$0
18. Providing goods and services to customers is classified as:
A) Revenue
B)
C)
D)
E)
Dividend
Liability
Expense
Asset
19. How many of the following accounts would typically be reported as a current asset:
Office Supplies
Inventory
Equipment
Accounts Payable
Salaries Expense
Cash
A)
B)
C)
D)
E)
1
2
3
4
5
20. Debt due within one year is best described as:
A) Current Liability
B) Current Asset
C) Stockholders’ Equity
D) Long-term Liability
E) Long-term Asset
21. Tina creates the following accounts receivable aging report at the end of the year.
Age
Amount
Estimated uncollectible
Less than 30 days
$18,000
5%
31-60 days
$12,000
10%
61+ days
$3,000
30%
Prior to adjusting entries, the Allowance for Uncollectible Accounts has a balance of $800 (debit). The
year-end adjustment would include a:
A) Credit to Accounts Receivable for $800
B) Debit to Bad Debt Expense for $3,000
C) Debit to Bad Debt Expense for $2,100
D) Debit to Bad Debt Expense for $2,200
E) Credit to Allowance for Uncollectible Accounts for $3,800
22. Suppose a company spends $100,000 in the current year to research and develop a safety device for
motorcycles. By the end of the year, the company estimates that the new safety device has an 80%
chance of generating $300,000 in revenues from sales to customers over the next five years. For what
amount would Research and Development Expense be reported in the current year?
A) $100,000
B) $80,000
C) $20,000
D) $33,333
E) $0
23. The account Allowance for Uncollectible Accounts is:
A) Used to calculate the net realizable value of accounts receivable
B) An estimate of future bad debts
C) All of the other answers are correct
D) Reported in the balance sheet
E) A contra asset
24. On January 1, 2014, Grizzly, Inc. purchased a truck for $65,000 and uses straight-line depreciation.
The estimated useful life of the truck is eight years with a residual value of $9,000. Grizzly, Inc. sold
the truck on December 31, 2017 for $40,000. Which of the following is included in the journal entry
to record the sale of the truck?
A) Two of the other answers are correct
B) A debit to Accumulated Depreciation for $28,000
C) A debit to Loss for $4,000
D) A credit to Gain for $12,000
E) A credit to Commercial Truck for $56,000
25. When a company pays cash for advertising for the current period, how will the basic accounting
equation be affected?
A) Two of the other answers are correct
B) Liabilities decrease
C) Expenses decrease
D) Stockholders’ equity decreases
E) Assets decrease
26. Using the allowance method, the journal entry to write off an actual bad debt results in:
A) A decrease to stockholders’ equity
B) A decrease to assets
C) An increase to stockholders’ equity
D) Two of the other answers are correct
E) No effect to the accounting equation
27. Which one of the following statements regarding financial statements is correct?
A) The statement of stockholders’ equity reports assets, expenses and dividends.
B) The income statement reports revenues and expenses.
C) The statement of cash flows classifies cash flows as current and long term activities.
D) The balance sheet reports assets, liabilities, and revenues.
E) Two of the other answers are correct.
28. Which of the following is a contra revenue account:
A) Trade Discounts
B) Sales Returns and Allowances
C) Prepaid Insurance
D) Unearned Revenue
E) Two of the other answers are correct
29. At the end of the year, a company’s general ledger balance for cash equals $5,000. The following
information is available from the bank statement:
Service charge = $200
Checks Outstanding = $2,500
Note collected by the bank = $800
Deposits Outstanding = $2,200
NSF check = $400
What is the company’s adjusted balance of cash?
A) $4,800
B) $5,300
C) $5,200
D) $4,700
E) $4,400
30. Sooner, Inc. had the following inventory transactions for the period.
Purchase
Cost
$2
Selling
Price
Date
Quantity
June 1
Beginning Inventory
350
June 3
Sale
150
$6
June 8
Purchase
400
4
June 12
Sale
300
7
June 16
Purchase
200
3
Calculate gross profit using the average costs method. (Do not round until final answer.)
A) $1,425.00
B) $1,626.32
C) $3,000.00
D) $1,526.32
E) $1,650.00
31. From the list below, calculate cash-basis expenses.
A)
B)
C)
D)
E)
(1) Pay cash for insurance for the next year, $100.
(2) Pay cash for utilities in the current period, $100.
(3) Purchase supplies on account, $100.
(4) Pay cash dividends to stockholders, $100.
$100
$200
$300
$400
$0
32. How many of the following transactions would be capitalized?
a. Purchase building by signing a long-term note
b. Purchase three-year insurance policy in advance
c. Pay routine maintenance for equipment
d. Pay installation costs for a new machine
A)
B)
C)
D)
E)
1
2
3
4
0
33. Jacob Inc. borrows $10,000 on April 1, 2014, with 8% interest due in two years. What amount would
Jacob report for interest expense in 2015?
A) $1,600
B) $200
C) $800
D) $600
E) $0
34. Suppose a company purchases equipment for $10,000 that has a 10-year useful life and $2,000
residual value. If the company decides to sell the equipment after only two years, which depreciation
method would most likely result in the highest gain (or lowest loss) being reported on the sale?
A) Double-Declining-Balance
B) Straight-Line
C) Activity Based
D) FIFO
E) LIFO
35. When cash is received from a customer for services previously provided to that customer, how is the
accounting equation affected the day the cash is received?
A) Assets increase
B) Stockholders’ equity increases
C) Two of the other answers are correct
D) No effect
E) Liabilities increase
36. On August 18, Electronics, Inc. sold 20 televisions costing $4,000 ($200/television) to a customer on
account for $8,000 ($400/television). On August 20, the customer returned two of the televisions.
Which of the following would be included in recording the return of the televisions on August 20?
A) A debit to Inventory for $800
B) A credit to Accounts Receivable for $800
C) A debit to Sales Revenue for $800
D) A credit to Cost of Goods Sold for $800
E) All of the other answers are correct.
37. Crimson Corp. purchased a new machine to help increase production. The following costs were
incurred in relation to the purchase of the machine:
Cost of the machine
Cost of installing machine
$80,000
$12,000
Cost of transporting machine
Cost of minor repair after two months of use
Cost of first month’s maintenance
For what amount should the machine be recorded?
A) $97,500
B) $97,000
C) $92,000
D) $96,000
E) $80,000
$4,000
$500
$1,000
38. Given the following information, calculate the company’s gross profit:
Sales Revenue
Rent Expenses
Cost of Goods Sold
Income Tax Expense
Interest Revenue
Interest Expense
A)
B)
C)
D)
E)
$480,000
$120,000
$260,000
$60,000
$30,000
$40,000
$110,000
$220,000
$80,000
$100,000
$140,000
39. On January 1, 2014, Peterson Inc. purchased a machine that cost $540,000 and had a residual value of
$60,000. The machine is expected to produce 640,000 units and is estimated to last 10 years. If
55,000 units were produced in 2014 and 60,000 were produced in 2015, what amount of Accumulated
Depreciation is reported at the end of 2015 using the activity-based method (rounded to the nearest
whole dollar if necessary)?
A) $97,031
B) $48,000
C) $86,250
D) $96,000
E) $45,000
40. Which of the following is always true if an asset is sold for a loss?
A) The company sold the asset for less than accumulated depreciation.
B) The company sold the asset for less than book value.
C) The company sold the asset for less than fair value.
D) The company sold the asset before the useful life was over.
E) None of the other answers are true.
41. Depreciation is:
A) The process of recording sales discounts offered to customers for quick payment.
B) The process of recording intangible assets for the amount equal to the purchase cost.
C) The process of recording the cost of inventory sold based on an assumption as to
which units were sold first.
D) The process of recording changes in the market value of a productive asset.
E) The process of allocating the cost of an asset to expenses over an asset’s useful life.
42. Sooner, Inc. had the following inventory transactions for the period.
Purchase
Cost
$2
Date
Quantity
June 1
Beginning Inventory
350
June 3
Sale
150
June 8
Purchase
400
4
June 12
Sale
300
June 16
Purchase
200
3
Calculate the cost of goods sold using the LIFO cost flow assumptions.
A) $1,300
B) $1,600
C) $1,500
D) $2,900
E) $1,100
Selling
Price
$6
7
43. Which of the following accounts is reported in the balance sheet?
A) Cost of Goods Sold
B) Sales Revenue
C) Prepaid Insurance
D) Income Tax Expense
E) All of the other answers are balance sheet accounts
44. Young & Co. has the following inventory remaining at the end of the year:
Quantity
Cost
Market
Item A
300
$7
$10
Item B
250
7
3
The journal entry for the year-end adjustment would include:
A) A debit to inventory for $900
B) A credit to Cost of Goods Sold for $250
C) A debit to Cost of Goods Sold for $1,000
D) A credit to inventory for $100
E) No journal entry necessary.
45. On May 8, Bicycles Corp. sold 50 bikes to a customer on account for $20,000 ($400/bike) with terms
of 3/15. On May 10, the customer returned 5 bikes, and then paid the remaining balance on May 20.
How would Bicycles Corp. record the payment on May 20?
A) Debit Cash $17,460; Debit Sales Discount $540; Credit Accounts Receivable
$18,000
B) Debit Cash $17,460; Debit Inventory $540; Credit Accounts Receivable $18,000
C) Debit Inventory $2,000; Credit Accounts Receivable $2,000
D) Debit Cash $19,400; Debit Sales Discount $600; Credit Accounts Receivable
$20,000
E) Debit Cash $18,000; Credit Accounts Receivable $18,000
46. Which of the following transactions would generally result in a financing cash outflow?
A) Pay cash for advertising.
B) Pay cash to purchase a building.
C) Pay cash to repay borrowing at the bank.
D) Pay cash for employee salaries.
E) Two of the other answers are correct.
47. Which of the following transactions would generally result in an investing cash inflow?
A) Two of the other answers are correct.
B) Receive cash from borrowing at the bank.
C) Receive cash from the sale of a building.
D) Receive cash from stockholders for the issuance of common stock.
E) Receive cash from customers.
48. A trade discount results in:
A) Revenue being recorded for the discounted price
B) A contra revenue account being debited
C) A contra revenue account being credited
D) Additional bad debt expense
E) Customers delaying cash payment
49. On July 1, 2014, Longhorn Corp. loaned $10,000 to an employee with 8% annual interest. The loan
and all interest will be repaid in two years. Which of the following is NOT included in the journal
entry to record the repayment of the loan on July 1, 2016?
A) Credit to Note Receivable for $10,000
B) Credit to Interest Receivable for $1,200
C) Debit to Cash for $11,600
D) Credit to Interest Revenue for $1,600
E) All of the other answers are included
50. A company estimates that 3% of all inventory units sold will result in warranty work. If the company
sells 800 units for the current year and estimates the average future warranty repair to cost $50 per
unit, what amount of Warranty Expense is recorded for the current year?
A) $4,000
B) $1,200
C) $800
D) $0
E) $2,400
Financial Accounting Exam 2
Answer Section
MULTIPLE CHOICE
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