University of California, Davis - MGT 11A

MGT Midterm 2

1) An analysis that explains any differences between the checking account balance according to the depositor’s record and the balance reported on the bank statement is a(n):

1. 1. Internal audit
   2. Bank reconciliation
   3. Bank audit
   4. Trial reconciliation
   5. Analysis of debits and credits

2. A company used straight-line depreciation for an item of equipment that cost

$12,000. Had a salvage value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to

$1,200 and its total useful life was increased from five years to six years. Determine the amount of depreciation to be charges against the machine during each of the remaining years of its useful life:

A. $1,000

B. $1,800

C. $1,467

D. $1,600

E. $2,160

3. The employer should record payroll deductions as:

1. 1. Employee receivables
   2. Payroll taxes
   3. Current liabilities
   4. Wages payable
   5. Employee payables

4. Plant assets are:

1. 1. Tangible assets used in the operation of a business that have a useful life of more than one accounting period.
   2. Current assets
   3. Held for sale.
   4. Intangible assets use in the operations of a business that have a useful life of more than one accounting period
   5. Tangible assets used in the operation of business that have a useful life of less than one accounting period.

5. At the end of the day, the cash register’s record shows $1,250, but the count of cash in the cash register is $1,245. The correct entry to record the cash sales for the day is:

1. 1. D Cash 1,245 / Cr Sales 1,245
   2. D Cash 1,245 Cash Over and Short 5 / Cr Sales 1,250
   3. D Cash 1,250 / Cr Sales 1,250
   4. D Cash 1,250 / Cr Sales 1,245 Cash Over and Short 5
   5. Cash Over and Short 5 / Cr Sales 5

6. A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should:

1. 1. Consider the warranty expense remote liability since the rate is only 2%
   2. Recognize warranty expense at the time the warranty work is performed
   3. Recognize warranty expense and liability in the year of the sale
   4. Consider the warranty expense a contingent liability.
   5. Recognize warranty liability when the company purchases the trampolines

7. The maturity date of a note receivable:

1. 1. Is the day of the credit sale
   2. Is the day the note was signed
   3. Is the day the note is due to be paid
   4. Is the date of the first payment
   5. Is the last day of the month

8. On October 29 of the current year, a company concluded that a customer’s $4,400 account receivable was uncollectible 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. 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

9. A promissory note received from a customer in exchange for an account receivable:

1. 1. Is a cash equivalent for the recipient
   2. Is an account receivable for the recipient
   3. Is a note receivable for the recipient
   4. Is a short-term investment for the recipient
   5. Is a note payable for the recipient

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

1. 1. 2 years
   2. 5 years
   3. 7 years
   4. 8 years
   5. 10 years

11. A deposit in transit on last period’s bank reconciliation is shown as a deposit on the bank statement this period. As a period, in preparing this period’s reconciliation, the amount of this deposit should be:

1. 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. Not included as a reconciling item

12. Obligations due to be paid within one year or within the compnay’s operating cycle, whichever is longer, are:

1. 1. Current assets
   2. Current liabilities
   3. Earned revenues
   4. Operating cycle liabilities
   5. Bills

13. Once the estimated depreciation expense for an asset is calculated:

1. 1. It cannot be changed due to the historical cost principle
   2. It may be revised based on new information
   3. Any changes are accumulatd and recognized when the asset is sold
   4. The estimate itself cannot be changed; however, new information should be disclosed in financial statement footnotes
   5. It cannot be change due to the consistency principle.

14. Both the straight-line depreciation method and the double-declining-balance depreciation method:

1. 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. Are acceptable for tax purposes only
   5. Are the only acceptable methods of depreciation for financial reporting

15. FICA taxes include:

1. 1. Social Security taxes
   2. Charitable giving
   3. Employee income taxes
   4. Unemployment taxes
   5. Federal taxes

16. The buyer who pays cash for an account receivable is referred to as a:

1. 1. Payor
   2. Pledgor
   3. Factor
   4. Payee
   5. Pledgee

17. The amount due on the date of maturity for a $6,000, 60-day 8% note receivable is:

A. $6,000

B. $6,480

C. $5,520

D. $6,080

E. $5,920

18. Uncertainties such as natural disasters could happen in the future:

1. 1. Are not contingent liabilities because they are future events not arising out of past transactions or events
   2. Are contingent liabilities because they are future events arising from past transactions or events
   3. Should be disclosed because of their usefulness to financial statements
   4. Are estimated liabilities because the amounts are uncertain
   5. Arise out of transactions such as debt guarantees

19. Given the following information:

What is the amount of cash over and short?

1. 1. Debit $84.73
   2. Credit $84.73
   3. Debit $160.94
   4. Credit $160.94
   5. No cash over or short would be recorded

20. Triple Company’s accountant made an entry that included the following items: debit postage expense $12.42, debit office supplies expense $27.33, credit 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

21. A company receives a 7.5%, six-month note for $8,900. The total interest due on the maturity date is:

A. $66,750.00

B. $4,005.00

C. $2,002.50

D. $667.50

E. $333.75

22. A set of procedures and approvals that is deigned to control cash disbursements and the acceptance of obligations is referred to as a(n):

1. 1. Internal cash system
   2. Petty cash system
   3. Cash disbursement system
   4. Voucher system
   5. Cash control system

23. The difference between the amount received from issuing anote payable and the amount repaid is referred to as:

1. 1. Interest
   2. Principle.
   3. Face value.
   4. Cash
   5. Accounts payable

24. The document that is an itemized statement of goods prepared by a vendor listing the customer’s name, items sold, sales prices, and terms of the sale is the:

1. 1. Purchase requisition
   2. Purchase order
   3. Invoice
   4. Receiving report
   5. Invoice approval

25. 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 units of climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year, production increased to 109,000 units. 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

26. A company paid $150,000, plus a 6% commission, and a $4,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the llocation of this property’s costs in the company’s accounting records?

1. 1. Land $75,000; Land Improvements, $30,000; Building, $45,000
   2. Land $75,000; Land Improvements, $30,800; Building, $46,200
   3. Land $81,500; Land Improvements, $32,600; Building, $48,900
   4. Land $79,500; Land Improvements, $32,600; Building, $47,700
   5. Land $87,500; Land Improvements, $35,000; Building, $52,500

27. Gross pay is:

1. 1. Take-home pay
   2. Total compensation earned by an employee before any deductions
   3. Salaries after taxes are deducted
   4. Deductions withheld by an employer
   5. The amount of the paycheck

28. A contingent liability:

1. 1. Is always of a specific amount
   2. Is a potential obligation that depends on a future event arising out of a past transaction or event
   3. Is an obligation not requiring future payment
   4. Is an obligation arising from the purchase of goods or services on credit
   5. Is an obligation arising from a future event

29. Amounts received in advance from customers for future products or services:

1. 1. Are revenues
   2. Increase income
   3. Are liabilities
   4. Are not allowed under GAAP
   5. Require an outlay of cash in the future

30. In comparing the canceled checks on the bank satatement with the entries in the accounting records, it is found that check number 4239 for November’s rent was correctly written and drawn for $7,390 but was erroneously entered in the accounting records as $3,790. When reconciling the November bank statement, the company should:

1. 1. Deduct $3,600 from the book balance of cash
   2. Add $3,600 to the bank statement balance
   3. Add $7,390 to the book balance of cash
   4. Deduct $3,600 from the bank statement balance
   5. Add $3,600 to the book balance of cash

31. Cardo Inc. has an annual accounting period that ends on December 31. During the current year a depreciable asset that cost $42,000 was purchased on September 2. The asset has a $4,000 estimated salvage value. The company uses straight-line depreciation and expects the asset to have a five-year life. What is the total depreciation expense for the current year?

A. $1,900.00

B. $7,600.00

C. $2,533.33

D. $2,800.00

E. $3,166.67

32. Sales taxes payable:

1. 1. Is an estimated liability.
   2. Is a contingent liability
   3. Is a current liability for retailers
   4. Is a business expense
   5. Is a long-term liability

33. Temper Company has credit sales of $3.10 million for year 2013. Temper estimates that .9% of the credit sales will not be collected. On December 31, 2013, the compnay’s Allowance for Doubtful Accounts has an unadjusted credit balance of $2,222. Assuming the company uses the percent of sales method, what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

A. $24,246.40

B. $27,468.40

C. $23,024.40

D. $27,900.00

E. $24,420.40

34. In the accounting records of a defendant, lawsuits:

1. 1. Are estimate liabilities
   2. Should always be recorded
   3. Should always be disclosed
   4. Should be recorded if payment for damages is probable and the amount can be reasonably estimated
   5. Should never be recorded

35. For which item does a bank NOT issue a debit memorandum?

1. 1. To notify a depositor of all withdrawals through an ATM.
   2. To notify a depositor of a deduction to a depositor’s account
   3. To notify a depositor of a bounced check
   4. To notify a depositor of periodic payments arranged in advance, by a depositor
   5. To notify a depositor of a deposit to their account

36. Conner Company borrows $185,600 on November 1, 2013, by signing a 120-day, 8% note. What is the total amount of interest that Conner will recognize for this note?

A. $4,949

B. $14,848

C. $2,467

D. $0, no interest expense is recognized

E. $1485

37. A depreciation method in which a plant asset’s depreciation expense for a period is determined by applying a constant depreciation rate each period to the asset’s beginning book value is called:

1. 1. Book value depreciation.
   2. Declining-balance depreciation
   3. Straight-line depreciation
   4. Units-of-production depreciation
   5. Modifies accelerated cost recovery system (MACRS) depreciation

38. The internal document prepared by a department manager that informs the purchasing department of its needs is the:

1. 1. Purchase requisition
   2. Purchase order
   3. Invoice
   4. Receiving report
   5. Invoice approval

39. A company purchased a POS cash register on January 1 for $5,400. This register has a useful life of 10 years and salvage value of $400. What would be the depreciation expense for the second-year of its useful life using the double- declining-balance method?

A. $500

B. $800

C. $864

D. $1,000

E. $1,080

40. On December 31 of the current year, a company’s unadjusted trial balance included the following: Accounts Receivable, debit balance of $88,790; Allowance for Doubtful Accounts, credit balance of $1,245. What amout should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are considered uncollectible?

A. $1,245.00

B. $3,551.60

C. $4,796.60

D. $2,306.60

E. $87,545.00

41. A company receives a 6.2%, 60-day note for $9,650. The total amount of cash due on the maturity date is:

A. $598.30

B. $99.72

C. $9,650.00

D. $10,248.30

E. $9,749.72

42. The matching princinple requires:

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

43. Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include a:

1. 1. Debit to Cash for $377.50
   2. Credit to Cash Over and Short for $5.00
   3. Debit to Petty Cash for $382.50
   4. Credit to Cash for $387.50
   5. Debit to Cash for $387.50

44. Advance ticket sales totaling $6,000,000 cash would be recognized as follows:

1. 1. Debit Sales, credit Unearned Revenue
   2. Debit Unearned Revenue, credit Sales
   3. Debit Cash, credit Unearned Revenue
   4. Debit Unearned Revenue, credit Cash
   5. Debit Cash, credit Revenue Payable

45. Vine Company began operations on January 1, 2013. During its first year, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows:

1. Sold $1,348,300 of merchandise (that had cost $983,600) on credit, terms n/30
2. Wrote off $19,400 of uncollectible accounts receivable
3. Received $666,100 cash in payment of accounts receivable
4. In adjusting the accounts on December 31, the company estimated that 2.90% of accounts receivable will be uncollectible

What is the amount required for the adjusting journal entry to record bad debt expense?

A. $18.644.90

B. $38,621.20

C. $19,783.80

D. $19,221.20

E. $19,400.20