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Homework answers / question archive / University of California, Davis - MGT 11A Financial Accounting: Midterm 2 (Fall 2014)   1)Many companies use accelerated depreciation in computing taxable income because: It is required by the tax rules It is required by financial reporting rules It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due Using it causes a company to use higher income in the early year of the asset’s useful life The results are identical to straight-line depreciation   According to GAAP, the amount of bad debt expense by estimate by: Only the percent of sales method Only the percent of accounts receivable method Only by the aging of accounts receivable method Only by the percent of sales method or the percent of accounts receivable method Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method   A set of procedures and approvals that is designed to control cash disbursements and the acceptance of obligations is referred to as a(n): Internal cash system Petty cash system Cash disbursement system Voucher system Cash control system   On October 29 of the current year, a company concluded that a customer’s $4,400 account receivable was uncollectable and that the account should be written off

University of California, Davis - MGT 11A Financial Accounting: Midterm 2 (Fall 2014)   1)Many companies use accelerated depreciation in computing taxable income because: It is required by the tax rules It is required by financial reporting rules It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due Using it causes a company to use higher income in the early year of the asset’s useful life The results are identical to straight-line depreciation   According to GAAP, the amount of bad debt expense by estimate by: Only the percent of sales method Only the percent of accounts receivable method Only by the aging of accounts receivable method Only by the percent of sales method or the percent of accounts receivable method Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method   A set of procedures and approvals that is designed to control cash disbursements and the acceptance of obligations is referred to as a(n): Internal cash system Petty cash system Cash disbursement system Voucher system Cash control system   On October 29 of the current year, a company concluded that a customer’s $4,400 account receivable was uncollectable and that the account should be written off

Management

University of California, Davis - MGT 11A

Financial Accounting: Midterm 2 (Fall 2014)

 

1)Many companies use accelerated depreciation in computing taxable income because:

    1. It is required by the tax rules
    2. It is required by financial reporting rules
    3. It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due
    4. Using it causes a company to use higher income in the early year of the asset’s useful life
    5. The results are identical to straight-line depreciation

 

  1. According to GAAP, the amount of bad debt expense by estimate by:
    1. Only the percent of sales method
    2. Only the percent of accounts receivable method
    3. Only by the aging of accounts receivable method
    4. Only by the percent of sales method or the percent of accounts receivable method
    5. Bad debt expense can be estimated by the percent of sales method, the percent of accounts receivable method, or by the aging of accounts receivable method

 

  1. A set of procedures and approvals that is designed to control cash disbursements and the acceptance of obligations is referred to as a(n):
    1. Internal cash system
    2. Petty cash system
    3. Cash disbursement system
    4. Voucher system
    5. Cash control system

 

  1. On October 29 of the current year, a company concluded that a customer’s $4,400 account receivable was uncollectable and that the account should be written off. What effect will this write-off have on this company’s net income and total assets assuming the allowance method is used to account for bad debts?
    1. Decrease in net income; no effect on total assets
    2. No effect on net income; no effect on total assets
    3. Decrease in net income; decrease in total assets
    4. Increase in net income; no effect on total assets
    5. No effect on net income; decrease in total assets

 

  1. When originally purchased, a vehicle had an estimated useful life of eight years. The vehicle cost $23,000 and its estimated salvage value is $1,500. After four years of

 

straight-line depreciation, the asset’s total estimated useful life was revised from eight years to six years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

                          a.   $5,375.00

b.   $2,687.50

c.    $5,543.75

d. $10,750.00

e. $2,856.25

 

  1. In applying the lower of cost or market method to inventory valuation, market is defined as:
    1. Historical cost
    2. Current replacement cost
    3. Current sales price
    4. FIFO
    5. LIFO

 

  1. A company receives a 10%, 90-day note for $1,500. The total interest due upon the maturity date is:

                           a. $37.50

b. $150.00

c.    $75.00

d.   $50.00

e.   $87.50

 

  1. Triple Company’s accountant made an entry that included the following items: debit postage expense $12.42, debit office supplies $27.33, debit cash over/short $2.19. If the original amount in petty cash is $320, how much was the credit to cash for the reimbursement?

a.   $320.00

b.   $202.44

c.    $37.56

d.   $39.75

                         e.   $41.94

 

  1. Acme Company has an agreement with a major credit card company that calls for cash to be received immediately upon deposit for Acme customers’ credit card sales receipts. The credit card company receives 3.5% of card sales as its fee. If Acme has

$2,000 in credit card sales, which of the following statements are true?

    1. Acme debits Cash $2,000
    2. Acme debits Cash $1,930
    3. Acme debits Accounts Receivable – Credit Card Co $2,000
    4. Acme debits Accounts Receivable – Credit Card Co $1,930
    5. Acme credits Sales $1,930

 

  1. A company made a bank deposit on September 30 that did not appear on the bank statement dated September 30. In preparing the September 30 bank reconciliation, the company should:

 

    1. Deduct the deposit form the bank statement balance
    2. Send the bank a debit memorandum
    3. Deduct the deposit from the September 30 book balance and add it to the October 1 book balance
    4. Add the deposit to the book balance of cash
    5. Add the deposit to the bank statement balance

 

  1. A company purchased a rope-braiding machine for $190,000. The machine has a useful life of eight years and a residual value of $10,000. It is estimated that the machine could produce 750,000 unites of climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year, the production increased to 109,000 unites. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year?

a.   $25,200

                           b.   $26,160

c.    $26,660

d.   $27,613

e.   $53,160

 

  1. A depreciation method that produces larger depreciation expense during the early years of an asset’s life and smaller expense in the later years is a(n):
    1. Accelerated depreciation method
    2. Book value depreciation method
    3. Straight-line depreciation method
    4. Units-of-production depreciation method
    5. Unrealized depreciation method

 

  1. Merchandise inventory includes:
    1. All goods owned by a company and held for sale
    2. All goods in transit
    3. All goods on consignment
    4. Only damaged goods
    5. Only items that are on the shelf

 

  1. Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom’s entry to record the transaction should include a:
    1. Debit to Notes Receivable for $75,000
    2. Debit to Accounts Receivable for $75,000
    3. Credit to Notes Receivable for $75,000
    4. Debit Notes Payable for $75,000
    5. Credit to Sales for $75,000

 

 

  1. During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:
    1. Specific identification method

 

    1. Average cost method
    2. Weight average method
    3. FIFO method
    4. LIFO method

 

  1. Generally accepted accounting principles require that the inventory of a company be reported at:
    1. Market value
    2. Historical cost
    3. Lower of cost or market
    4. Replacement cost
    5. Retail value

 

  1. A company plans to decrease a $200 petty cash fund to $75. The current balance in the account includes $45 in receipts and $165 in currency the entry to reduce the fund will include a:
    1. Debit to Cash Short and Over for $10
    2. Debit to Cash for $90
    3. Debit to Miscellaneous Expense for $35
    4. Credit to Petty Cash for $165
    5. Credit to Cash for $90

 

  1. A machine originally had an estimated useful life of 5 years, but after 3 years it was decided that the original estimate of useful life should have been 10 years. At the point the remaining cost to be depreciated should be allocated over the remaining:
    1. 2 years
    2. 5 years
    3. 7 years
    4. 8 years
    5. 10 years

 

  1. Cash, not including cash equivalents, includes:
    1. Postage stamps
    2. Coins, currency, and checking accounts
    3. IOU’s
    4. Two year certificate of deposit
    5. Money market funds
  2. Acme-Jones Corporation uses a weighted average perpetual inventory system.

 

August 2, 10 units were purchased at $12 per unit

 

August 18, 15 unites were purchased at $14 per unit August 29, 12 units were sold

 

What was the amount of the cost of goods sold for this sale?

a. $148.00

b.   $150.50

c.    $158.40

d.   $210.00

e.   $330.00

 

  1. Both the straight-line depreciation method and the double-declining-balance depreciation method:
    1. Produce the same total depreciation over an asset’s useful life
    2. Produce the same depreciation expense each year
    3. Produce the same book value each year
    4. Area acceptable for tax purposes only
    5. Are the only acceptable methods of depreciation for financial reporting

 

  1. An error in the period-end inventory cause and offsetting error in the next period and therefore:
    1. Managers can ignore the error
    2. It is sometimes said to be self-correcting
    3. It affects only income statement accounts
    4. It affects only balance sheet accounts
    5. Is immaterial for managerial decision making

 

  1. Given the following events, what is the per-unit value of ending inventory on November 30 if this company uses a weighted average perpetual inventory system?

 

November 1, 5 units were purchased at $6 per unit November 12, 10 units were purchased at $7.50 per unit November 14, 7 units were purchased at per $14 unit November 24, 12 units were purchased at per $10 unit

 

a.   $6.00

b.   $7.00

c.    $8.80

d.   $13.00

e.   $21.80

 

 

24.  A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using FIFO periodic inventory method, what is the cost of the 12 units that were sold?

a. $120

 

b.   $124

c.    $128

d.   $130

e.   $140

 

  1. On December 31 of the current year, a company’s unadjusted trial balance included the following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?

a. $951

b.   $3,992

                           c.  $4,884

d.   $5,835

e.   $6,786

 

  1. A company purchased a machine for $970,000. The machine has a useful life of 12 years and a residual value of $4,500. It is estimated that the machine could produce 1,000,000 units over its useful life. In the first year, 200,000 units were produced. In the second year, production increased to 300,000 units. Using the units-of- production method, what is the book value of this asset at the end of the second year of operations?

a.   $482,750

b.   $487,250

c.    $485,000

d.   $291,000

e.   $289,650

 

  1. The understatement of the ending inventory balance causes:
    1. Cost of goods sold to be overstated and net income to be understated
    2. Cost of goods sold to be overstated an income to be overstated
    3. Cost of goods sold to be understated and net income to be understated
    4. Cost of goods sold to be understated and net income to be overstated
    5. Cost of goods sold to be overstated and net income to be correct

 

  1. The entry necessary to establish a petty cash fund should include:
    1. A debit to Cash and a credit to Petty Cash
    2. A debit to Cash and a credit to Petty Cash Over and Short
    3. A debit to Petty Cash and a credit to Cash
    4. A debit to Petty Cash and a credit to Accounts Receivable
    5. A debit to Cash and a credit to Petty Cash Over and Short

 

 

  1. Depreciation:
    1. Measures the decline in market value of an asset
    2. Measures the physical deterioration of an asset
    3. Is the process of allocating to expense the cost of a plant asset

 

    1. Is an outflow of cash from the use of a plant asset
    2. Is applied to land
  1. When a petty cash fund is in use:
    1. Expense paid with petty cash are recorded when the fund is replenished
    2. Petty cash is debited when funds are replenished
    3. Petty cash is credited when funds are replenished
    4. Expenses are not recorded
    5. Cash is debited when funds are replenished
  2. A company had the following purchases during the current year: January: 10 units at $120

February: 20 units at $130 May: 15 units at $140 September: 12 units at $150 November: 10 units at $160

 

On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2 from January 4 from February 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?

 

a.   $3,500

b.   $3,800

c.    $3,960

d.   $3,280

e.   $3,640

 

  1. A promissory note received from a customer in exchange for an account receivable:
    1. Is a cash equivalent for the receipt
    2. Is an account receivable for the receipt
    3. Is a note receivable for the receipt
    4. Is a short term investment for the recipient
    5. Is a note payable for the recipient

 

  1. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:
    1. An increase in the expense of the current period
    2. A reduction in current assets
    3. A reduction in equity
    4. No effect on the expense of the current period
    5. A reduction in current liabilities

 

  1. Extraordinary repairs:
    1. Are revenue expenditures
    2. Extend an asset’s useful life beyond its original estimate
    3. Are credited to accumulated depreciation

 

    1. Are addition costs of plant assets that do not materially increase the asset’s life
    2. Are expensed as incurred

 

  1. The matching principle requires:
    1. That expense be ignored in their effect on the financial statements are less important that revenues to the financial statement user
    2. The use of the direct write-off method for bad debts
    3. The use of allowance method of accounting for bad debts
    4. The bad debts be disclosed in the financial statements
    5. That bad debts not be written off

 

  1. The person who signs a note receivable and promises to pay the principle and interest is the:
    1. Maker
    2. Payee
    3. Holder
    4. Receiver
    5. Owner

 

  1. Revenue expenditures:
    1. Are additional costs of plant assets that do not materially increase the asset’s life or its productive capabilities
    2. Are known as balance sheet expenditures
    3. Extend the asset’s useful life
    4. Substantially benefit future periods
    5. Are debited to asset accounts

 

  1. Given the following items and costs as of the balance sheet date, determine the value of Light Company’s merchandise inventory

 

-$2,000 goods sold by Light to another company. The goods are in transit and shipping terms are FOB shipping point.

-$3,000 goods sold by another company to Light. The goods are in transit and shipping terms are FOB shipping point.

-$4,000 owned by Light but in the possession of another company, the consignee.

-Damaged goods owned by Light that originally cost $5,000 but now have an $800 net realizable value.

 

a.   $7,000

                          b.   $7,800

c.    $9,800

d.   $9.000

e.   $6.800

 

  1. A check was outstanding on last period’s bank reconciliation was not included with the canceled checks returned by the bank this period. As a result, in preparing this periods’ reconciliation, the amount of this check should be:

 

    1. Added to the book balance of cash
    2. Deducted from the book balance of cash
    3. Added to the bank balance of cash
    4. Deducted from the bank balance of cash
    5. Ignored in preparing the period’s bank reconciliation

 

  1. On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
    1. Noted as a memorandum only
    2. Added to the book balance of cash
    3. Deducted from the book balance of cash
    4. Added to the bank balance of cash
    5. Deducted from the bank balance of cash

 

  1. A company used the percent of sales method to determine its bad debts expense. At the end of the current year, the company’s unadjusted trial balance reported the following selected amounts:

a. $925

b.   $1,225

c.    $4,200

d.   $4,500

e. $45,000

 

  1. Land improvements are:
    1. Assets that increase the usefulness of land, and like land, are not depreciated
    2. Assets that increase the usefulness of land but that have a limited useful life are subject to depreciation
    3. Included in the cost of the land account
    4. Expensed in the period incurred
    5. Also called basket purchases

 

  1. The interests accrued on $3,600 at 7% for 60 days is:

a.   $36

                          b.   $42

c.    $252

d.   $180

e.   $420

 

  1. Physical inventory counts:
    1. Are not necessary under the perpetual system
    2. Are necessary to measure and adjust for inventory shrinkage
    3. Must be taken at least once a month
    4. Require the use of hand-held portable computers
    5. Are not necessary under the cost-to benefit constraint

 

  1. An income statement account that is used to record cash overages and cash shortages arising from omitted petty cash receipts and from errors in making change is called the:

 

    1. Cash Lost account
    2. Bank Reconciliation account
    3. Petty Cash account
    4. Cash Over and Short account
    5. Cash Receivable account

 

  1. The total cost of an asset less its accumulated depreciation is called:
    1. Historical cost
    2. Book value
    3. Present value
    4. Current (market) value
    5. Replacement cost

 

  1. A company sold $10,000 of its accounts receivable and was charged a 2% factoring fee. How should the company record this transaction in the journal?
    1. Cash                                                                              $9,800

Factoring Fee Expense                                             $200

Accounts Receivable                                                 $10,000

b.   Cash                                                                            $10,000

Accounts Receivable                                                 $10,000

c.    Cash                                                                            $10,000

Factoring Fees Expense                                           $200

Accounts Receivable                                                 $9,800

  1. Accounts Receivable                                                 $10,000 Factoring Fee Expense                                                              $200

Cash                                                                            $9,800

  1. Accounts Receivable                                                 $9,800 Factoring Fee Expense                                                              $200

Cash                                                                            $10,000

 

  1. A company’s internal control system:
    1. Eliminates the risk of loss
    2. Monitors and controls business activities
    3. Eliminates human error
    4. Eliminates the need for audits
    5. Is not necessary in large companies

 

  1. Which of the following is the most serious limitation of internal controls?
    1. Computer error
    2. Human fraud or human error
    3. Cost-benefit principle
    4. Cybercrime
    5. Management fraud

 

  1. A company’s annual accounting period ends on December 31. During the current year, a depreciable asset that cost $24,000 was purchased on October 1. The asset has a $1,000 estimated salvage-value. The company uses straight-line depreciation

 

and expects the asset to have a six-year life. What is the total depreciation expense for the current year?

a. $3,833.33

b. $958.33

c.    $4,000.00

d.   $1,000.00

e.   $1,041.67

 

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